capital shopping centres plc...capital shopping centres plc directors' report for the year...

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CAPITAL SHOPPING CENTRES PLC

ANNUAL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2011

Company number 2893329


DIRECTORS' REPORTFOR THE YEAR ENDED 31 DECEMBER 2011

The directors present their annual report and the audited consolidated financial statements forthe year ended 31 December 2011.

Capital Shopping Centres PLC is incorporated and registered in England and Wales. TheCompany's registered office is 40 Broadway, London, SW1 H OBU.

PRINCIPAL ACTIVITIESThe Capital Shopping Centres PLC group (lithe Group") specialises in the ownership,management and development of prime UK regional shopping centres.

The Group's assets comprise four major out-of-town centres being - Lakeside, Thurrock;Metrocentre, Gateshead; Braehead, Glasgow and The Mall at Cribbs Causeway, Bristol- andseven in-town centres including centres in prime destinations such as Cardiff, Manchester,

Norwich and Nottingham. During the year the Potteries shopping centre was sold to anotherCapital Shopping Centres Group PLC company and in November 2011, Broadmarsh shoppingcentre in Nottingham was acquired bringing the portfolio to 12 shopping centres.

With a dedicated and skilled management team, the Group aims to be the landlord of choicefor retailers and to provide compelling destinations for shoppers. The Group is a responsibleand environmentally conscious participant in the communities where it invests. The Groupfocuses on the creation of long term and sustainable growth in net rental income with a view togenerating superior returns for its parent company.

REVIEW OF BUSINESS AND FUTURE DEVELOPMENTSThe Group's results and financial position for the year ended 31 December 2011 are set out infull in the consolidated income statement, the consolidated statement of comprehensiveincome, the Group and Company balance sheets, the Group and Company statements ofchanges in equity, the Group and Company statements of cash flows and the related notes.The Group's profit before taxation was £52.3 million (2010 £474.0 million) with the reductionfrom 2010 being due to a lower property revaluation gain in 2011. The Group's net assetsattributable to equity shareholders increased from £1,028.1 million to £1,080.4 million. Netexternal debt increased by £66.8 milion to £2,514.0 million at 31 December 2011.

PROSPECTS AND PRIORITIESThe Group's base case assumption is that the UK economy will continue to experience lowgrowth for some time, with continuing risk of tenant failures and closures on expiry of leases.

The Group's specialist skills and relationships enable it to mange those risks while identifyingand developing those shopping centres which have the most potential to produce attractivereturns over the medium to long term.

The Group considers that it is well positioned to create value as the market recovers.

The Group's strategic priorities for 2012 are:

. to optimise the performance of its existing assets, prioritising medium-term valuecreation

. to identify further initiatives and create the financing flexibility to advance its business

and deliver incremental returns

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MARKET REVIEWThe Group's focus is the top 50 million sq. ft. of UK shopping centre locations, less than 5 percent of the UK's 1.4 billion sq. ft. of retail space of which it owns 26 per cent by area. Suchcentres are and will remain rare and change hands infrequently. Shopping centres in totalrepresent only around 14 per cent of the UK's 1.4 billion sq. ft. of retail space, the top 50centres representing less than 5 per cent. The highly regulated planning environment

combined with the recent challenging economic environment for financing of new centres hascontributed to a limited development pipeline.

The Group's centres can offer retailers flagship stores in top locations. Such stores areincreasingly becoming a crucial marketing tool for the retailer's brand. The development ofother retail channels such asonline shopping reinforce the concentration of physicalcomparison retailing into the destinations, such as the Group's, most attractive to the shopperfor retail and broader entertainment. Online sales comprise only a small but growingproportion of total retail spend. The most successful retailers now have an integratedapproach to online and in-store sales, with strong evidence of high levels of interactionbetween the two. This is highlighted by the popularity of "click and collect" and "return tostore" facilities, both of which reinforce the need for a physical store and produce incrementalsales.

Successful retailers are seeking out the most cost effective access to their customers, be thatthrough online or physical footfall, with the best located stores and integration of online andphysical space.

INVESTMENT PROPERTY VALUATIONSAs income yields appeared attractive relative to risk free investment returns, the UK propertymarket has in 2011 seen good demand for prime assets and vendors reluctant to sell otherthan at robust levels. As a result, yields for prime assets such as CSC's have remained stableto slightly tightening.

By comparison secondary retail property, a category in which none of CSC's regionalshopping centres would be classified, has had more variable pricing. Yields have increasedduring 2011 as purchasers allowed for their expectation of falling rents (see Market review), asthe pool of potential lenders reduced by well publicised withdrawals from UK real estate

lending and with the unresolved overhang of defaulted property in the hands of lenders.

The valuation outcome for the Group's assets for the year was positive, rising by 0.7 per centfor the full year. This is marginally ahead of the IPD UK monthly retail capital growth indexwhich produced an increase of 0.6 per cent for the year.

NET RENTAL INCOMEThe Group's net rental income which increased by 1.9 per cent to £268.4 million in the yearLike-for-Iike net rental income for 2011 is 3.7 per cent above that of 2010.

OCCUPANCYOccupancy remains high at 97.0 per cent (31 December 201097.4 per cent).

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CAPITAL SHOPPING CENTRES PLC(,


FOOTFALLEstimated footfall across the Group's 11 centres was over 244 million in the year, up 2 percent in the year.

MAJOR CENTRESLakeside, Thurrock, (market value £1,081 million) Successful new openings in the autumninclude the 25,000 sq. ft. new concept TopshoplTopman flagship store to be followed in late2012 by Forever 21 's fourth UK store. A planning application was submitted in December fora 325,000 sq. ft. extension including a new department store, 30 to 40 new shops andrestaurants and a new transport hub. Discussions are progressing with major retailers.

Metrocentre, Gateshead, (market value £864 million). A 15,000 sq. ft. terrace of restaurants,"MetrOasis", is now pre-Iet to 3 catering operators with the final unit in solicitors hands.Construction started last month and the development is expected to open in the autumn. Thiswill further strengthen the ambience of the retail park and improve the connections betweenthe main centre and the retail park.

Braehead, Glasgow, (market value £583 million) With Apple and Hollister plus a newrestaurant cluster open and trading well, plans have been drawn up to improve impact andsight lines on the upper mall by increasing the height of shop fronts and moving escalators.We continue to work with the local authority on a master plan for the mix of uses in thebroader Braehead area and, as part of these plans, have acquired an adjacent 31 acre site,currently a working dock, with future development potentiaL.

Nottingham (Victoria Centre market value £333 million, Broadmarsh market value £65 million):Nottingham ranks sixth in the UK in terms of available comparison shopping expenditure buthas suffered relative to other cities from a lack of modernisation of its shopping centreprovision. Following the acquisition of Broadmarsh in the last quarter of 2011, we areoptimistic about the city's potential assuming a pragmatic approach by the local authority. Weaim to bring forward proposals for complementary development to upgrade both centres andthe city centre overalL.

Bromley (The Glades market value £174 million): we are in the process of obtaining planningconsent for a terrace of five restaurants overlooking the adjacent gardens. We received 10offers from catering operators for the five units and have comfortably exceeded the target rentfor the project.

CASH FLOWThe Group cash flow shows a total outflow of £53.0 million in 2011, reflecting the acquisition ofThe Broadmarsh Shopping Centre, Nottingham for £72.8m

FINANCIAL POSITIONThe Group's debt is largely arranged on an asset-specific basis, with limited or non-recoursefrom the borrowing entities to other Group companies. This structure permits the Group a highdegree of financial flexibility in dealing with debt issues and importantly avoids theconcentration of covenant and refinancing risk associated with a single group-wide borrowing.

Net external debt, which excludes the Metrocentre compound financial instrument of £146.6million, increased from £2,447.2 million at 31 December 2010 to £2,514.0 million at 31December 2011. The Group had cash of £34.4 million at 31 December 2011 (2010 £87.4million).

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FINANCIAL COVENANTSFinancial covenants apply to £2.5 billion of secured asset-specific debt. The two maincovenants are Loan to Value (L TV) and Interest Cover (IC). The actual requirements vary andare specific to each loan. The Group is in compliance with all of its corporate and asset-specific loan covenants.

KEY PERFORMANCE INDICATORSThe performance of the business is monitored through a number of Key PerformanceIndicators (KPI's) including both financial and non-financial measures. The main KPI's used bythe Board to monitor the business are like-for-Iike net rental income, occupancy and primeproperty asset performance. These KPl's can be found in this Directors' Report containingdetails of our portfolio and operational performance and additionally in the notes to thesefinancial statements, in particular, note 22.

KEY RISKS AND UNCERTAINTIESThe key risks and uncertainties facing the Group are set out in the table below:

Risk and Mitigation Change 2011 CommentaryImpactProperty MarketMacro . Focus on prime . Despite macro concerns and

environment assets 1" reducing consumer confidence fromweakness could . Covenant early summer 2011, positiveundermine headroom valuation movement of 1 per cent forrental income monitored and the year reflecting prime nature oflevels and stress tested assetsproperty values, . Regular . Covenant headroom on individualreducing return monitoring of properties increased during 2011

on investment tenant strength

and covenant and diversityheadroomFinancingReducing . Regular internal . Renewed uncertainty in banking andavailability of reporting to Board - debt markets, although the Groupfunds could limit of current and has no major loan maturities untilliquidity leading projected funding 2015.to restriction of positioninvesting and . Effective treasury

operating managementactivities and/or aimed atincrease in balancing long

funding cost debt maturityprofile anddiversification of

sources offinance

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KEY RISKS AND UNCERTAINTIES (continued)

OperationsAccident, . Strong business . Seamless transition to "Facilitiessystem failure process and ~ Alliance", CSC innovative propertyor external procedures management partnership, withfactors could supported by efficiency savings reinvested inthreaten the regular training fabric improvementssafe and secure and exercises . Mid year riots provided test of

environment . Annual audits of existing procedures: generally wellprovided for operational managed, learning pointsshoppers and standards carried implemented including new policiesretailers, out by internal on monitoring and use of socialleading to and external mediafinancial and/or consultants . Regulatory change: good ranking in

reputational . Culture of visitor Carbon Reduction Commitmentloss safety "early action metrics"

. Retailer liaisonand briefings

. Appropriate levelsof insurance

Strategy and executionMisjudged or . Annual strategic . Focus on optimising performance of

poorly executed review informed - pre-eminent centres to benefit fromproject results by external ongoing structural shift in UK retail,in increased research and including broader offer of leisure andcost or income advice catering and inclusion of "theatre"foregone, hence . Management . Fresh perspective from new

fails to create team experienced management has enhanced debateshareholder in shopping while maintaining our long termvalue centre and sustainable growth objective

broader retailindustry

. Engagement withnational andinternationalretailers

. Key staffsuccessionplanning,performance-based incentives

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CAPITAL SHOPPING CENTRES PLC/'


KEY RISKS AND UNCERTAINTIES (continued)

Development and acquisitionsMisjudged or . Access to the - . Increased focus on pre-Iet space

poorly executed expertise and before committng capital projectsproject results knowledge in the . Unprecedented number of planningin increased CSC Group's applications including localcost or income Capital Projects consultations, positioning the Groupforegone, hence Committee, which for next phase of growthfails to create reviews detailedshareholder appraisals before

value and monitorsprogress during

significantprojects

. Research and

third party duediligenceundertaken fortransactions

SHARE CAPITALDetails of share capital are set out in note 23.

GOING CONCERNThe directors have reasonable expectation that the Company and the Group have adequateresources to continue in operational existence for the foreseeable future. For this reason theycontinue to adopt the going concern basis in preparing the financial statements.

Attention is drawn to the Going Concern disclosure included in Note 1 to the consolidatedfinancial statements.

DIVIDENDSThe directors do not recommend a final dividend for the year (2010 nil).

CREDITOR PAYMENT POLICYThe Group's policy and practice is to pay creditors in accordance with agreed terms ofbusiness. The company does not ordinarily pay its creditors directly as this is carried out byother companies in Capital Shopping Centres Group PLC. As a result, the company has a niltrade payable balance and it is not practical to calculate creditor days for the company as at31 December 2011 (2010 nil trade payable balance).

DIRECTORS' INDEMNITY PROVISIONA qualifying indemnity provision (as defined in 8234 of the Companies Act 2006) is in force forthe benefit of the Directors of the Company and its associated companies. The company'sparent, Capital Shopping Centres Group PLC, maintains Directors' and Officers' insurancewhich is reviewed annually.

CHARITABLE DONATIONSDuring the year the Group made charitable donations of £68,508 (2010 £79,810) and nopolitical donations (2010 £nil).

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DIRECTORSThe directors who held office during the year and until the date of this report are given below:

Mike ButterworthMartin EllisDavid FischelHugh FordTrevor PereiraMatthew RobertsPeter WeirKay ChaldecottCaroline Kirby

appointed 11 March 2011

appointed 3 November 2011

appointed 3 November 2011resigned 30 September 2011resigned 17 October 2011

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STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements inaccordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year.Under that law the Directors have elected to prepare the Group and parent Company financialstatements in accordance with International Financial Reporting Standards (IFRSs) as adoptedby the European Union. Under company law the Directors must not approve the financialstatements unless they are satisfied that they give a true and fair view of the state of affairs ofthe Group and the Company and of the profit or loss of the Group and Company for thatperiod. In preparing these financial statements, the Directors are required to:

. select suitable accounting policies and then apply them consistently;

. make judgements and estimates that are reasonable and prudent;

. state whether applicable IFRSs as adopted by the European Union have beenfollowed, subject to any material departures disclosed and explained in the financialstatements;

. prepare the financial statements on the going concern basis, unless it is inappropriate

to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient toshow and explain the Company's transactions and disclose with reasonable accuracy at anytime the financial position of the Company and the Group and enable them to ensure that thefinancial statements comply with the Companies Act 2006 and, as regards the Group financialstatements, Article 4 of the IAS Regulation. They are also responsible for safeguarding theassets of the Company and the Group and hence for taking reasonable steps for theprevention and detection of fraud and other irregularities.

Each of the Directors, whose names and functions are listed in the Directors' Report confirmthat, to the best of each their knowledge:

(a) the Group financial statements, which have been prepared in accordance with IFRSsas adopted by the EU, give a true and fair view of the assets, liabilities, financialposition and profit of the Group and Company; and

(b) the Directors' report contained in the annual report includes a fair review of thedevelopment and performance of the business and the position of the Group andCompany, together with a description of the principal risks and uncertainties that theyface.

DISCLOSURE OF INFORMATION TO AUDITORSSo far as the Directors are aware, there is no relevant audit information of which the auditorsare unaware and each Director has taken all reasonable steps to make himself or herselfaware of any relevant audit information and to establish that the auditors are aware of thatinformation.

INDEPENDENT AUDITORSThe auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue inoffce and a resolution seeking to reappoint them will be proposed at the forthcoming AnnualGeneral Meeting.

On behalf of the Board on

Î~~T~~ Pe6~ \¡,e ".....

Matthew RobertsDirector26 April 2012

Peter WeirDirector26 April 2012

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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OFCAPITAL SHOPPING CENTRES PLC

We have audited the financial statements of Capital Shopping Centres PLC (company number2893329) for the year ended 31 December 2011 which comprise the Consolidated IncomeStatement, the Consolidated Statement of Comprehensive Income, the Group and CompanyBalance Sheets, the Group and Company Statements of Changes in Equity, the Group andCompany Statements of Cash Flows and the related notes. The financial reporting frameworkthat has been applied in their preparation is applicable law and International FinancialReporting Standards (IFRSs) as adopted by the European Union and, as regards theCompany financial statements, as applied in accordance with the provisions of the CompaniesAct 2006.

Respective responsibilities of Directors and auditorsAs explained more fully in the Statement of Directors' Responsibilities set out on page 8, theDirectors are responsible for the preparation of the financial statements and for being satisfiedthat they give a true and fair view. Our responsibility is to audit and express an opinion on thefinancial statements in accordance with applicable law and International Standards onAuditing (UK and Ireland). Those standards require us to comply with the Auditing PracticesBoard's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company's

members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 andfor no other purpose. We do not, in giving these opinions, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or into whose hands itmay come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financialstatements sufficient to give reasonable assurance that the financial statements are free frommaterial misstatement, whether caused by fraud or error. This includes an assessment of:whether the accounting policies are appropriate to the Group's and Parent company'scircumstances and have been consistently applied and adequately disclosed; thereasonableness of significant accounting estimates made by the Directors; and the overallpresentation of the financial statements.

Opinion on financial statements

In our opinion:

. the financial statements give a true and fair view of the state of the Group's and of the

Company's affairs as at 31 December 2011 and of the Group's profit and Group's andCompany's cash flows for the year then ended;

. the Group financial statements have been properly prepared in accordance with IFRSs

as adopted by the European Union;

. the Company financial statements have been properly prepared in accordance withIFRSs as adopted by the European Union and as applied in accordance with theprovisions of the Companies Act 2006; and

. the financial statements have been prepared in accordance with the requirements ofthe Companies Act 2006 and, as regards the group financial statements, Article 4 ofthe IAS Regulation.

9


INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OFCAPITAL SHOPPING CENTRES PLC

Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Directors' Report for the financial year for which thefinancial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006requires us to report to you if, in our opinion:

. adequate accounting records have not been kept by the company, or returns adequate

for our audit have not been received from branches not visited by us; or

. the Company financial statements are not in agreement with the accounting recordsand returns; or

. certain disclosures of Directors' remuneration specified by law are not made; or

. we have not received all the information and explanations we require for our audit.

Alison Morris (Senior Statutory Auditor)

for and on behalf ofPricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsLondon26 April 2012

10


CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2011

2011 2010Notes £m £m

Revenue 3 381.7 389.9

Net rental income 4 268.4 263.3

Net other income (0.5) 0.7Revaluation and sale of investment and developmentproperty 6 30.0 479.0Administration expenses - ongoing (9.2) (11.1)Administration expenses - exceptional (3.3)Impairment of goodwill (3.1)

Operating profit 285.4 728.8

Finance costs 7 (164.7) (173.1)Finance income 8 2.8 2.3Other finance costs 9 (42.3) (50.6)Change in fair value of derivative financial instruments (28.9) (33.4)

Net finance costs (233.1) (254.8)

Profit before tax 10 52.3 474.0

Current tax 11 1.2

Deferred tax 11 (0.1)REIT entry charge 11 (3.0)

Taxation (1.9)

Profit for the year 52.3 472.1

Attributable to:Equity shareholders of Capital Shopping Centres PLC 48.7 455.3Non-controlling interest 3.6 16.8

52.3 472.1

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2011

2011 2010£m £m

Profit for the year 52.3 472.1

Total comprehensive income for the year 52.3 472.1

Attributable to:Equity shareholders of Capital Shopping Centres PLC 48.7 455.3Non-controlling interest 3.6 16.8

Total comprehensive income for the year 52.3 472.1

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STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2011

GroupShare Non-

Share premium Other Retained controllng Totalcapital account reserves earnings Total interest equity

£m £m £m £m £m £m £m

At 1 January 2010 197.3 646.9 8.3 (799.6) 52.9 52.9

Profit for the year 455.3 455.3 16.8 472.1

Total comprehensiveincome for the year 455.3 455.3 16.8 472.1

Ordinary shares issued 500.0 500.0 500.0Non-controlling interestadditions 3.1 3.1

At 31 December 2010 197.3 1,146.9 8.3 (344.3) 1,008.2 19.9 1,028.1

At 1 January 2011 197.3 1,146.9 8.3 (344.3) 1,008.2 19.9 1,028.1


Total comprehensiveincome for the year 48.7 48.7 3.6 52.3

At 31 December 2011 197.3 1,146.9 8.3 (295.6) 1,056.9 23.5 1,080.4

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STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2011

Group Group Company Company2011 2010 2011 2010

Notes £m £m £m £m

Cash generated from operations 24 242.1 388.4 (52.8) 58.2I nterest paid (200.5) (210.2) (63.7) (63.8)I nterest received 2.8 2.3 64.4 56.0Tax received 1.4REIT entry charge paid (18.9) (36.6)

Cash flows from operating activities 25.5 145.3 (52.1) 50.4

Purchase and development of property (20.0) (27.4)Sale of property 1.7 64.4Acquisition of businesses (72.8)Other derivative instruments (7.3)

Cash flows from investing activities (91.1 ) 29.7

Borrowings repaid (43.8) (663.2)Borrowings drawn 56.4 518.7Cash transferred to restrictedaccounts 19.8Partnership equity introduced 3.1

Cash flows from financing activities 12.6 (121.6)

Net (decrease)/increase in cash andcash equivalents (53.0) 53.4 (52.1) 50.4

Cash and cash equivalents at1 January 87.4 34.0 52.3 1.9

Cash and cash equivalents at31 December 34.4 87.4 0.2 52.3

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\i: CAPITAL SHOPPING CENTRES PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011

1. Principal accounting policies

Accounting convention and basis of preparationThese financial statements have been prepared in accordance with InternationalFinancial Reporting Standards, as adopted by the European Union (IFRS), IFRICinterpretations and with those parts of the Companies Act 2006 applicable tocompanies reporting under IFRS. The directors have taken advantage of theexemption offered by Section 408 of the Companies Act not to present a separateincome statement for the company.

The financial statements have been prepared under the historical cost convention asmodified by the revaluation of properties, available-for-sale investments, financialassets and liabilities held for trading. A summary of the more important groupaccounting policies is set out below.

The accounting policies used are consistent with those applied in the last annualfinancial statements, as amended to reflect the adoption of new standards,amendments, and interpretations which became effective in the year. During 2011, thefollowing standards, amendments and interpretations endorsed by the EU becameeffective for the first time for the Group's 31 December 2011 year end:

. IFRS 24 Related Party Disclosures;

. IFRS 32 Financial Instruments: Presentation (amendment);

. IFRIC 14 IAS 19 - The limit on a Defined Benefit Asset, Minimum Funding

Requirements and their Interaction;· IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments; and

Amendments arising from 2010 annual improvements project.

These either had no material impact on the financial statements or resulted in changesto presentation and disclosure only.

The following standard has been issued and adopted by the EU but is not effective forthe year ended 31 December 2011 and has not been adopted early:

. IFRS 7 Financial Instruments: Disclosures (amendment)

This pronouncement is not expected to have a material impact on the financialstatements, but may result in changes to presentation or disclosure.

The preparation of financial statements in conformity with generally accepted

accounting principles requires the use of estimates and assumptions that affect thereported amounts of assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period. Althoughthese estimates are based on management's best knowledge of the amount, event oractions, actual results ultimately may differ from those estimates. Where suchjudgements are made they are included within the accounting policies given in note 1.

The group's business activities, together with the factors likely to affect its futuredevelopment, performance and position are set out in the Directors' Report on pages 1to 8 The financial position of the group, its cash flows, liquidity position and borrowingfacilities are described in the Directors' Report on pages 1 to 8. In addition note 22includes the group's risk management objectives, details of its financial instrumentsand hedging activities, its exposures to liquidity risk and details of its capital structure.

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1. Principal accounting policies (continued)

Accounting convention and basis of preparationThe Directors have undertaken a review of the projected financial position of theCompany and the Group, which includes reasonable assumptions about future tradingand cash flows. This review included an assessment of cash balances, the debtmaturity profile, the economic conditions faced by tenants and the financial position ofthe Group's parent company, Capital Shopping Centres Group PLC.

Based on the Group's forecasts and projections and taking into account reasonablypossible changes in trading performance along with the factors listed above, theDirectors have concluded that there is a reasonable expectation that the Group hasadequate resources to continue in operational existence for the foreseeable future.Thus they continue to adopt the going concern basis of accounting in preparing theannual financial statements.

Accounting policies - group and companyBasis of consolidationThe consolidated financial information includes the company and its subsidiaries andtheir interests in joint ventures and associates.

All intra-group transactions, balances and unrealised gains on transactions betweengroup companies are eliminated on consolidation.

- subsidiaries

A subsidiary is an entity for which the company has the ability, either directly orindirectly, to govern the financial and operating policies, whether through a majority ofthe voting rights or otherwise. Subsidiaries are fully consolidated from the date onwhich control is transferred to the group and are de-consolidated from the date thatcontrol ceases.

The company's investment in group companies is carried at cost less accumulatedimpairment losses.

- joint venturesA joint venture is an entity or operation for which the company, either directly orindirectly, is in a position to jointly control the financial and operating policies of theentity or operation.

The group's interest in a joint venture is accounted for using proportional consolidation.The group's share of the assets, liabilities, income and expenses are combined withthe equivalent items in the consolidated financial statements on a line-by-line basis.

- associates

An associate is an entity over which the company, either directly or indirectly, is in aposition to exercise significant influence by participating in, but without control or jointcontrol of the financial and operating policies of the entity.

The Group's interest in an associate is accounted for using the equity method.

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CAPITAL SHOPPING CENTRES PLCI,



- non-controllng interestA non-controlling interest is the equity in a subsidiary not attributable, directly orindirectly, to the company. Non-controlling interests are presented within equity,separately from the amounts attributable to equity shareholders of the company. Profitor loss and each component of other comprehensive income is attributed to equityshareholders of the company and to non-controlling interests in the appropriateproportions.

Revenue recognitionThe group recognises revenue when the amount of revenue can be reliably measuredand it is probable that future economic benefits will flow to the group.

- property revenueRental income receivable is recognised on a straight line basis over the term of thelease. Directly attributable lease incentives are recognised within rental income on thesame basis.

Contingent rents, being those lease payments that are not fixed at the inception of alease, for example increases arising on rent reviews or rents linked to tenant revenues,are recorded as income in the periods in which they are earned. Rent reviews arerecognised as income from the date of the rent review, based on management'sestimates. Estimates are derived from knowledge of market rents for comparable

properties determined on an individual property basis and updated for progress ofnegotiations.

Service charge income is recognised on an accruals basis in line with the servicebeing provided.

- trading property incomeRevenue on the sale of trading property is recognised when the significant risks andrewards of ownership have been transferred to the buyer. This will normally take placeon exchange of contracts.

Interest incomeInterest income is accrued on a time basis, by reference to the principal outstandingand the effective interest rate.

Dividend incomeDividend income is recognised when the right to receive payment has beenestablished.

19

CAPITAL SHOPPING CENTRES PLCL,



Exceptional itemsExceptional items are those items that in the directors' view are required to beseparately disclosed by virtue of their size or incidence to enable a full understandingof the Group's financial performance.

TaxationCurrent tax is the amount payable on the taxable income for the year and anyadjustment in respect of prior years. It is calculated using rates that have been enactedor substantively enacted by the balance sheet date.

Deferred tax is provided using the balance sheet liability method in respect oftemporary differences between the carrying amounts of assets and liabilities in thebalance sheet and their tax bases.

Temporary differences are not provided on the initial recognition of assets or liabilitiesthat affect neither accounting nor taxable profit, and differences relating to investmentsin subsidiaries to the extent that they will not reverse in the foreseeable future.

Deferred tax is determined using tax rates that have been enacted or substantivelyenacted by the balance sheet date and are expected to apply when the relateddeferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised only to the extent that management believe it isprobable that future taxable profit will be available against which the temporarydifferences can be utilised. Deferred tax assets and liabilities are offset only when theyrelate to taxes levied by the same authority and the group intends to sette them on anet basis.

Tax is included in the income statement except when it relates to items recogniseddirectly in other comprehensive income or equity, in which case the related tax is alsorecognised directly in other comprehensive income or equity.

Investment and development propertyInvestment and development property is owned or leased by the Group and held forlong-term rental income and capital appreciation.

20




The group has elected to use the fair value modeL. Properties are initially recognised atcost and subsequently revalued at the balance sheet date to fair value as determinedby professionally qualified external valuers on the basis of market value. Valuationsconform with the Royal Institution of Chartered Surveyors (URICS"), Valuation

Standards 7th Edition and IVS1 of International Valuation Standards.

The main estimates and judgements underlying the valuations are in relation to marketrent, taking into account forecast growth rates and yields based on known transactionsfor similar properties and likely incentives offered to tenants.

Properties held under leases are stated gross of the recognised finance lease liability.

The cost of investment and development property includes capitalised interest andother directly attributable outgoings incurred during development. Interest is capitalisedon the basis of the average rate of interest paid on the relevant debt outstanding.Interest ceases to be capitalised on the date of practical completion.

Gains or losses arising from changes in the fair value of investment and developmentproperty are recognised in the income statement. Depreciation is not provided inrespect of investment and development property.

When the use of a property changes from that of investment to trading, the property'sdeemed cost for subsequent accounting in accordance with IAS 2 Inventories is its fairvalue at the date of change in use.

Gains or losses arising on the sale of investment and development property are

recognised when the significant risks and rewards of ownership have been transferredto the buyer. This will normally take place on exchange of contracts. The gain or lossrecognised is the proceeds received less the carrying value of the property and costsdirectly associated with the sale.

LeasesLeases are classified according to the substance of the transaction. A lease thattransfers substantially all the risks and rewards of ownership to the lessee is classifiedas a finance lease. All other leases are normally classified as operating leases.

- Group as lesseeFinance leases of investment property are accounted for as finance leases and

recognised as an asset and an obligation to pay future minimum lease payments. Theinvestment property asset is included in the balance sheet at fair value, gross of therecognised finance lease liability. Contingent rents are recognised as they accrue.

Other finance lease assets are capitalised at the lower of the fair value of the leasedasset or the present value of the minimum lease payments and depreciated over theshorter of the lease term and the useful life of the asset.

Lease payments are allocated between the liability and finance charges so as toachieve a constant financing rate.

Rentals payable under operating leases are charged to the income statement on astraight-line basis over the lease term.

21




- Group as lessorInvestment properties are leased to tenants under operating leases, with rental incomebeing recognised on a straight-line basis over the lease term. For more detail see therevenue recognition accounting policy.

Plant and equipmentPlant and equipment consists of vehicles, fixtures, fittings and other equipment. Plantand equipment is stated at cost less accumulated depreciation and any accumulatedimpairment losses.

Depreciation is charged to the income statement on a straight-line basis over anasset's estimated useful life up to a maximum of five years.

Other investmentsAvailable-for-sale investments, being investments intended to be held for an indefiniteperiod, are initially and subsequently measured at fair value. For listed investments,fair value is the current bid market value at the reporting date. For unlisted

investments where there is no active market, fair value is assessed using an

appropriate methodology.

Gains or losses arising from changes in fair value are included in other comprehensiveincome, except to the extent that losses are considered to represent a permanentimpairment, in which case they are recognised in the income statement.

Upon disposal, accumulated fair value adjustments are recycled from reserves to theincome statement.

GoodwilGoodwill arising on business contributions is carried at cost less accumulated

impairment losses. Goodwill is assessed for impairment on an annual basis.

Impairment of assetsThe group's assets are reviewed at each balance sheet date to determine whether

events or changes in circumstances exist that indicate that their carrying amount maynot be recoverable. If such an indication exists, the asset's recoverable amount isestimated. The recoverable amount is the higher of an asset's fair value less costs tosell and its value in use. An impairment loss is recognised in the income statement forthe amount by which the asset's carrying amount exceeds its recoverable amount. Forthe purposes of assessing impairment, assets are grouped at the lowest levels forwhich there are separately identifiable cash flows.

Trading propertyTrading property comprises those properties either intended for sale or in the processof construction for sale. Where such properties were previously categorised as

investment and development property they are transferred at their fair value whichforms their deemed cost. Trading property is carried at the lower of cost and netrealisable value.

22

'.




Trade receivablesTrade receivables are recognised initially at fair value and subsequently measured atamortised cost.

The directors' exercise judgement as to the collectability of trade receivables anddetermine if it is appropriate to impair these assets. Factors such as days past due,credit status of the counterparty and historical evidence of collection are considered.

Cash and cash equivalentsCash and cash equivalents comprise cash in hand, deposits with banks, whetherrestricted or unrestricted and other short-term liquid investments with originalmaturities of three months or less.

TradepayablesTrade payables are recognised initially at fair value and subsequently measured atamortised cost.

ProvisionsProvisions are recognised when the group has a current obligation arising from a pastevent and it is probable that the group will be required to settle that obligation.Provisions are measured at the directors' best estimate of the expenditure required tosettle that obligation at the balance sheet date.

PensionsThe costs of defined contribution schemes and contributions to personal plans arecharged to the income statement in the year in which they are incurred.

BorrowingsBorrowings are recognised initially at their net proceeds on issue and subsequentlycarried at amortised cost. Any transaction costs and premiums or discounts are

recognised over the contractual life using the effective interest method.

In the event of early repayment, all unamortised transaction costs are recognised

immediately in the income statement.

Derivative financial instrumentsThe group uses derivative financial instruments to manage exposure to interest rateand foreign exchange risk. They are initially recognised on the trade date at fair valueand subsequently re-measured at fair value based on market price.

Changes in fair value are recognised directly in the income statement, except for theeffective portion of gains or losses on derivative financial instruments designated as ahedge of net investment in foreign operations, in which case they are recognised inother comprehensive income. Where derivative financial instruments are designatedas a fair value hedge, the relevant fair value movements on the hedged item are alsotaken to the income statement.

Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to theissue of new ordinary shares are shown in equity as a deduction, net of tax, from theproceeds.

23



2. Segmental reporting

The Group operates a single business activity in a single economic environment,namely the development and management of regional shopping centres within theUnited Kingdom.

The principal profit indicator used to measure performance is net rental income. Ananalysis of net rental income is given in note 4.

3. Revenue

2011 2010£m £m

Rent receivable and service charge income 374.2 379.6Sale of trading property 7.5 10.3

381.7 389.9

4. Net rental income

2011 2010£m £m

Revenue 381.7 389.9

Rent receivable 321.3 326.0Service charge income 52.9 53.6

374.2 379.6Rent payable (17.3) (15.1 )Service charge costs (56.6) (60.5)Other non-recoverable costs (31.9) (40.7)

Net rental income 268.4 263.3

24

'::



5. Operating leases

The Group earns rental income by leasing its investment properties to tenants underoperating leases.

In the UK, the standard shopping centre lease is for a term of 10 to 15 years. Standardlease provisions include service charge payments, recovery of other direct costs andreview every five years to market rent. Standard revenue based leases have a revenuepercentage agreed with each lessee which is applied to a retail unit's annual sales andany excess between the resulting revenue rent and the minimum rent is receivable bythe Group.

The future minimum lease amounts receivable under non-cancellable operating leasesare as follows:

2011 2010£m £mNot later than one yearLater than one year and not later than five yearsLater than five years

301.6960.4892.4

325.71,062.21,359.7

2,154.4 2,747.6

6. Revaluation and sale of investment and development property

Revaluation of investment and development propertySale of investment property

2011 2010£m £m

30.0 482.4(3.4)

30.0 479.0

7. Finance costs

2011 2010£m £m

On bank loans and overdrafts 130.0 134.2On amounts due to related companies 31.1 36.2On obligations under finance leases 3.6 3.7

Gross finance costs 164.7 174.1

Interest capitalised on development (1.0)

164.7 173.1

25



8. Finance income

2011 2010£m £mOn amounts due from related companiesOther

2.30.5

2.20.1

2.8 2.3

9. Other finance costs

Amortisation of Metrocentre compound financial instrumentCosts of termination of derivative financial instruments

2011 2010£m £m

7.9 8.834.4 41.8

42.3 50.6

10. Profit/(Ioss) before tax

Group:The profit before tax of £52.3 million (2010 £474.0 million) is arrived at after charging:

Auditors' remuneration is in respect of the statutory audit of the company andconsolidated accounts. Auditors' remuneration of £77,000 (2010 £70,000) was settledon behalf of the company by its ultimate parent Capital Shopping Centres Group PLCand has not been recharged.

26

r; . CAPITAL SHOPPING CENTRES PLC


11. Taxation

Tax expense for the year

2011 2010£m £mCurrent UK corporation tax at 26.5% (201028%)Prior year items (1.2)Current tax (1.2)Deferred tax 0.1RE IT entry charge 3.0Total tax expense 1.9The tax expense for the year is lower (2010 lower) than the standard rate of corporationtax in the UK. The differences are explained below:

2011 2010£m £m

Profit before tax 52.3 474.0Profit before tax multiplied by the standardrate in the UK of 26.5% (201028%) 13.9 132.7Capital allowances not reversing on sale (3.7)Disposal of properties and investments 0.1 (18.3)Prior year corporation tax items (1.2)Prior year deferred tax items (2.0)Expenses disallowed, net of capitalised interest 1.5 3.1UK transfer pricing adjustment 3.4 3.3Group relief (without payment) 0.9 1.3REIT exemption - corporation tax (16.7) 7.3REIT exemption - deferred tax (3.1) (125.7)REIT exemption - entry charge 3.0Losses utilised in the period 0.1Unprovided deferred tax 1.9Reduction in tax rate 0.1

Total tax expense 1.9

Tax items that are taken directly to equity are shown in the consolidated statement ofcomprehensive income.

12. Dividends

The Board has not proposed a final dividend in respect of 2011 (2010 nil).

27

"/' CAPITAL SHOPPING CENTRES PLC


13. Profit for the financial year attributable to shareholders of Capital Shopping

Centres PLC

A profit of £18.5 million is dealt with in the accounts of the holding company in respectof the year (2010 £124.5 million). No income statement is presented for the companyas permitted by Section 408 of the Companies Act 2006.

14. Investment and development property

Group Freehold Leasehold Total£m £m £m

At 1 January 2010 2,374.8 1,986.4 4,361.2Addition from acquisition of subsidiarycompanies 27.0 27.0Additions from subsequent expenditure 12.1 8.1 20.2Transferred to trading property (16.1 ) (16.1)Disposals (36.1) (31.1 ) (67.2)Surplus on revaluation 302.1 180.3 482.4

At 31 December 2010 2,679.9 2,127.6 4,807.5

, Addition from acquisition of subsidiarycompanies 65.0 65.0Additions from subsequent expenditure 12.1 42.2 54.3Transferred from trading property 11.5 11.5Disposal of subsidiary company (196.2) (196.2)Disposals (1.6) (1.6)Surplus on revaluation 9.4 20.6 30.0

At 31 December 2011 2,516.7 2,253.8 4,770.5

Included within additions is £nil million (2010 £1.0 million) of interest capitalised ondevelopments in progress.

Group 2011 2010£m £m

4,770.5 4,807.586.2 79.0

(36.0) (36.7)

4,820.7 4,849.8

Balance sheet carrying value of investmentand development propertyAdjustment in respect of tenant incentivesAdjustment in respect of head leases

Market value of investment and development property

The fair value of the Group's investment and development properties as at 31

December 2011 was determined by independent external valuers at that date. Thevaluations conform with the Royal Institution of Chartered Surveyors ("RI CS")Valuation Standards 7th Edition and with IVS 1 of International Valuation Standards,and were arrived at by reference to market transactions for similar properties.

The main assumptions underlying the valuations are in relation to market rent, takinginto account forecast growth rates and yields based on known transactions for similarproperties and likely incentives offered to tenants.

28

CAPITAL SHOPPING CENTRES PLC(-


14. Investment and development property (continued)

There are certain restrictions on the realisability of investment property when a creditfacility is in place. In most circumstances the Group can realise up to 50 per centwithout restriction providing the Group continues to manage the asset. Realising anamount in excess of this would trigger a change of control and mandatory repaymentof the facility.

15. Investments in group companies

AccumulatedCost impairment Net

£m £m £m

At 1 January 2010 1,280.8 (362.2) 918.6Acquisitions 9.9 9.9Impairment reversal for the year 95.9 95.9

At 31 December 2010 1,290.7 (266.3) 1,024.4

Additions 1.0 1.0Disposal (25.1) 25.1Impairment charge for the year (10.9) (10.9)

At 31 December 2011 1,266.6 (252.1) 1,014.5

IAS 36 Impairment of Assets allows for reversal of impairment charges providing thereversal is calculated on a consistent basis to the original impairment. At 31 December2010, this resulted in a reversal of £95.9 million.

29



15. Investments in group companies (continued)

The principal subsidiary undertakings are listed below. All subsidiaries are whollyowned by the company and are registered in England and Wales unless otherwisestated. All subsidiary undertakings have been included in the consolidated results.

Company and principal activity

Belside Limited (property) (Jersey)Braehead Glasgow Limited (property)

Braehead Park Investments Limited (property)Braehead Park Estates Limited (property)Broadmarsh Retail General Partner Limitedacting as General Partner of The BroadmarshRetail Limited Partnership

Chapelfield GP Limited acting as GeneralPartner of The Chapelfield Partnership(property)CSC Harlequin Limited (property)CSC Lakeside Limited (property)CSC Enterprises (commercial promotion)CSC Properties Investments Limited (property)CSC Bromley Limited (property)CSC Uxbridge (Jersey) Limited (property)(Jersey)Curley Limited (property) (Jersey)Metrocentre (GP) Limited acting as GeneralPartner of The Metrocentre Partnership(property)VCP (GP) Limited acting as General Partner ofThe Victoria Centre PartnershipWRP Management Limited (property)

Class of share capital %held

Ordinary shares of £1 each 100"A" ordinary shares of £1

each 100"B" ordinary shares of 1.3

Euros each 100Ordinary shares of £1 each 100Ordinary shares of £1 each 100

"A" Ordinary shares of £1 100each

"B" Ordinary shares of £1 100each

Ordinary shares of £1 each 100Ordinary shares of £1 each 100Ordinary shares of £1 each 100Ordinary shares of £1 each 100Ordinary shares of £ 1 each 100Ordinary shares of £1 each 100

Ordinary shares of £1 each 100Ordinary shares of £1 each 100

Ordinary shares of £1 each 100 1

Ordinary shares of £1 each 100Ordinary shares of £1 each 100

By virtue of their 40% interest in The Metrocentre Partnership, GIC Real Estate isentitled to appoint 40 per cent of the Directors of Metrocentre (GP) Limited. Thenon-controlling interest balance of £23.5 million balance shown in the Groupbalance sheet as at 31 December 2011 relates to GIC Real Estate's interest and iscalculated in accordance with IAS 27 Consolidated and Separate FinancialStatements.

30

''f CAPITAL SHOPPING CENTRES PLC


16. Joint ventures

2011St David's Xscape

Limited BraeheadPartnership Partnership Other Total

£m £m £m £mSummarised income statementsGross rental income 13.5 2.0 15.5

Net rental income 9.4 1.6 0.2 11.2Net other income 0.6 0.6Revaluation and sale of investment anddevelopment property 5.3 1.4 6.7Net finance costs (7.5) (1.3) (8.8)


Summarised balance sheetsInvestment and development property 272.6 24.1 296.7Other non-current assets 1.0 2.6 3.6Current assets 31.5 1.4 0.3 33.2Partners' loans (38.6) (8.4) (47.0)Current liabilities (65.1 ) (3.4) (68.5)Non-current liabilities (96.3) (22.7) (119.0)

Net assets/(liabilities) 105.1 (6.4) 0.3 99.0

2010St David's Xscape

Limited BraeheadPartnership Partnership Other Total

£m £m £m £mSummarised income statementsGross rental income 13.4 0.9 0.9 15.2

Net rental income 6.6 0.5 0.2 7.3Net other income 1.0 1.0

Revaluation and sale of investment and 39.3 0.6 39.9development property (0.1 ) (0.1 )

Net finance costs (3.1 ) (1.5) (4.6)

Profit/(Ioss) for the year 43.7 (0.4) 0.2 43.5

Summarised balance sheetsInvestment and development property 231.0 22.6 253.6Other non-current assets 0.2 2.4 2.6Current assets 35.9 1.9 0.2 38.0Partners' loans (102.3) (8.4) (110.7)Current liabilities (28.5) (2.9) (31.4)Non-current liabilities (37.8) (24.0) (61.8)

Net assets/(Iiabilities) 98.5 (8.4) 0.2 90.3

31



16. Joint ventures (continued)

Joint ventures are accounted for in the consolidated accounts using proportional

consolidation. The Group's share of the assets, liabilities, income and expenditureshown above are included in the consolidated financial statement on a line-by-Iinebasis.

The joint ventures include the St Davids Limited Partnership and the XscapeBraehead Partnership. The St Davids Limited Partnership was established in 2004for investment in the existing St Davids shopping centre, Cardiff, and development of a967,500 sq. ft. retail-led mixed-use extension. The Xscape Braehead Partnership wasestablished in 2004, for investment in the Xscape Leisure Scheme at Braehead,Renfrew, Glasgow.

All joint ventures are held with other joint venture investors on a 50:50 basis.

17. Trading property

Group 2011 2010£m £m

Undeveloped sites 11.5

Property in development 3.2 11.1

Completed properties 4.3 2.9

7.5 25.5

The estimated replacement of cost of trading properties, based on their market value at31 December 2011, is £7.5 million (2010 £27.4 miliion). £11.5 million in respect ofundeveloped sites was transferred to investment and development property during theyear.

32



18. Trade and other receivables


£m £m £m £mCurrent:Trade receivables 12.1 13.7Amounts owed by sobsidiary-

undertakings 1,904.1 1,908.9Amounts owed by related companies 2.5 5.0Other receivables 12.7 10.0 0.9 2.4Prepayments and accrued income 21.8 19.5 0.9 0.5

49.1 48.2 1,905.9 1,911.8

Non-current:Prepayments and accrued income 77.0 69.5

Amounts owed by subsidiary undertakings and related companies are unsecured,repayable on demand and for amounts falling within formalised loan agreements,interest bearing.

Included within prepayments and accrued income are tenant lease incentives of £86.2million (2010 £79.0 million).

19. Trade and other payables


£m £m £m £mCurrent:Rents received in advance 66.6 69.1Amounts owed to subsidiaryundertakings 814.3 805.7Amounts owed to related companies 718.1 926.4 834.0 926.1Accruals and deferred income 75.3 38.8 2.0 3.1Other payables 17.9 17.0 1.7 3.6Other tax and social security 15.7 33.8 1.1 1.2

893.6 1,085.1 1,653.1 1,739.7

Amounts owed to subsidiary undertakings and related companies are unsecured andpayable on demand.

33



20. Borrowings

Group

CurrentBank loans and overdraftsCommercial mortgage

backed securities("CMBS") notes

Borrowings excludingfinance leasesFinance lease obligations

Non-currentCMBS notes 2015Bank loans 2014Bank loans 2016Bank loans 2017CSC bonds 2013

Borrowings excludingfinance leases andMetrocentre compoundinstrumentMetrocentre compoundfinancial instrumentFinance lease obligations

Total borrowings

Cash and cashequivalents

Net debt

Carryingvalue

£m

18.5

26.7

45.22.9

48.1

1,083.9114.8734.9506.826.8

2,467.2

146.633.1

2,649.9

2,695.0

(34.4)

2,660.6

2011Fixed Floating Fair

Secured Unsecured rate rate value£m £m £m £m £m

18.5 18.5 18.5

26.7 26.7 20.2

45.2 45.2 38.72.9 2.9 2.9

48.1 2.9 45.2 41.6

1,083.9 1,083.9 818.3114.8 114.8 114.8734.9 734.9 734.9506.8 506.8 506.8

26.8 26.8 26.9

2,440.4 26.8 26.8 2,440.4 2,201.7

146.6 146.6 146.633.1 33.1 33.1

2,473.5 173.4 206.5 2,440.4 2,381.4

2,521.6 173.4 209.4 2,485.6 2,423.0

Net external debt (adjusted for the Metrocentre compound financial instrument) at 31December 2011 was £2,514.0 million.

The Group substantially eliminates its interest rate exposure to floating rate debt asillustrated in note 22.

34

'"



20. Borrowings (continued)

Company

Non-currentCSC bonds 2013

Total borrowings


Net cash

Group

CurrentBank loans and overdraftsCommercial mortgage

backed securities(UCMBS") notes

Borrowings excludingfinance leasesFinance lease obligations

Non-currentCMBS notes 2015Bank loans 2014Bank loans 2016Bank loans 2017CSC bonds 2013

Borrowings excludingfinance leases andMetrocentre compoundinstrumentMetrocentre compoundfinancial instrumentFinance lease obligations

Total borrowings


Net debt

Carryingvalue

£m

26.8

26.8

(0.2)

26.6

Carryingvalue

£m

16.5

25.4

41.93.6

45.5

1,110.758.4

749.1511.1

26.7

2,456.0

138.733.1

2,627.8

2,673.3

(87.4)

2,585.9

2011

Secured£m

Unsecured£m

Fixedrate£m

Floatingrate£m

Fairvalue

£m

26.8 26.8 26.9

26.8 26.8 26.9

2010Fixed Floating Fair

Secured Unsecured rate rate value£m £m £m £m £m

16.5 16.5 16.5

25.4 25.4 20.0

41.9 41.9 36.53.6 3.6 3.6

45.5 3.6 41.9 40.1

1,110.7 1,110.7 852.758.4 58.4 58.4

749.1 749.1 749.1511.1 511.1 511.1

26.7 26.7 27.3

2,429.3 26.7 26.7 2,429.3 2,198.6

138.7 138.7 138.733.1 33.1 33.1

2,462.4 165.4 198.5 2,429.3 2,370.4

2,507.9 165.4 202.1 2,471.2 2,410.5

Net external debt (adjusted for the Metrocentre compound financial instrument) at 31December 2010 was £2,447.2 million.

The Group substantially eliminates its interest rate exposure to floating rate debt asillustrated in note 22.

35



20. Borrowings (continued)

Company 2010Carrying Fixed Floating Fair

value Secured Unsecured rate rate value£m £m £m £m £m £m

Non-currentCSC bonds 2013 26.7 26.7 26.7 27.3

Total borrowings 26.7 26.7 26.7 27.3

Cash and cashequivalents (52.3)

Net cash (25.6)

21. Finance lease obligations

Group Group2011 2010

£m £mMinimum lease payments under finance leases fall due:Not later than one year 4.4 3.6Later than one year and not later than five years 16.6 17.8Later than five years 63.1 65.9

84.1 87.3Future finance charges on finance leases (48.1) (50.6)

Present value of finance lease liabilities 36.0 36.7

Present value of minimum finance lease obligationsNot later than one yearLater than one year and not later than five yearsLater than five years

2.912.021.1

3.614.019.1

36.0 36.7

Finance lease liabilities are in respect of leasehold investment property. A number ofthe Group's head leases provide for payment of contingent rent, usually a proportion ofnet rental income, in addition to the rents above.

36

c;


NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011

22. Financial risk management

The Group is exposed to a variety of risks arising from the Group's operations, theseare principally market risk (including interest rate risk and market price risk), liquidityrisk and credit risk.

The majority of the Group's financial risk management is carried out by CapitalShopping Centres Group PLC's treasury department and the policies for managingeach of these risks and the principal effects of these policies on the results for the yearare summarised below.

Market riskInterest rate riskInterest rate risk comprises both cash flow and fair value risks:

Cash flow interest rate risk is the risk that the future cash flows of a financialinstrument will fluctuate due to changes in market interest rates. Fair value interest raterisk is the risk that the fair value of financial instruments will fluctuate as a result ofchanges in market interest rates.

The Group's interest rate risk arises from borrowings issued at variable rates thatexpose the Group to cash flow interest rate risk, whereas borrowings issued at fixedinterest rates expose the Group to fair value interest rate risk.

Bank debt is typically issued at floating rates linked to L1BOR. Bond debt and othercapital market debt are generally issued at fixed rates.

It is Group policy, and often a requirement of the Group's lenders, to eliminate

substantially all short and medium-term exposure to interest rate fluctuations in orderto establish certainty over medium-term cash flows by using floating to fixed interestrate swaps. Such swaps have the economic effect of converting borrowings fromfloating to fixed rates. As a consequence, the Group is exposed to market price risk inrespect of the fair value of its fixed interest rate swaps.

The below table shows the effects of interest rate swaps on the Group borrowingsprofile of the Group:

Fixed Floating Fixed Floating2011 2011 2010 2010

£m £m £m £m

Borrowings 209.4 2,485.6 202.1 2,471.2Derivative impact 2,436.0 (2,436.0) 2,222.4 (2,222.4)

Net borrowings profile 2,645.4 49.6 2,424.5 248.8

I nterest rate protectionon floating debt 98.0% 89.9%

The weighted average rate of interest rates contracted through interest rates swaps is4.4 per cent (20104.9 per cent).

37



22. Financial risk management (continued)

The approximate impact of a 50 basis point shift upwards in the level of interest rateswould be a positive movement of £44.4 million (2010 £53.6 million) in the fair value ofderivatives. The approximate impact of a 50 basis point shift downwards in the level ofinterest rates would be a negative movement of £45.3 million (2010 £54.6 million) inthe fair value of derivatives. In practice, a parallel shift in the yield curve is highly

unlikely. However, the above sensitivity analysis is a reasonable illustration of thepossible effect from the changes in slope and shifts in the yield curve that may actuallyoccur. Because the fixed rate derivative financial instruments are matched by floatingrate debt, the overall effect on Group cash flow of such a movement would be verysmall.

Liquidity riskLiquidity risk is managed to ensure that the Group is able to meet future paymentobligations when financial liabilities fall due. Liquidity analysis is conducted to ensurethat sufficient headroom is available to meet the Group's operational requirements andcommitted investments. The Group treasury policy aims to meet this objective throughmaintaining adequate cash, marketable securities and committed facilities to meetthese requirements. The Group's policy is to seek to optimise its exposure to liquidityrisk by balancing its exposure to interest rate risk and to refinancing risk. In effect theGroup seeks to borrow for as long as possible at the lowest acceptable cost.

The maturity profile of Group debt showed an average maturity of 4 years (2010 - fiveyears). The Group regularly reviews the maturity profile of its financial liabilities andseeks to avoid bunching of maturities through the regular replacement of facilities andby using a selection of maturity dates. Refinancing risk may be reduced by re-borrowing prior to the contracted maturity date, effectively switching liquidity risk formarket risk.

The Group may pre-fund capital expenditure by arranging facilities or raising debt inthe capital markets and then placing surplus funds on deposit until required for theproject. Efficient treasury management and strict credit control minimise the costs andrisk associated with this policy which ensures that funds are available to meetcommitments as they fall due.

38




Company 2010Within 1 1-2 3-5 over 5

Year years years years Totals£m £m £m £m £m

Borrowings (including interest) (1.8) (1.8) (27.8) (31.4)Tax and other payables (4.8) (1.7) (2.8) (0.4) (9.7)

(6.6) (3.5) (30.6) (0.4) (41.1 )

Credit riskCredit risk is the risk of financial loss if a tenant or counterparty fails to meet anobligation under a contract. Credit risk arises primarily from trade receivables relatingto tenants but also from the Group's holdings of assets with counterparties such as

cash deposits, loans and derivative instruments.

Credit risk associated with trade receivables is actively managed; tenants aremanaged individually by asset managers, who continuously monitor and work withtenants, anticipating and, wherever possible, identifying and addressing risks prior todefault.

Prospective tenants are assessed via a review process, including obtaining creditratings and reviewing financial information which is conducted internally. As a resultdeposits or guarantors may be obtained. The amount of deposits held as collateral at31 December 2011 is £2.2 million (2010 £2.2 million).

Due to the nature of tenants being managed individually by asset managers, it isGroup policy to calculate any impairment specifically on each tenant receivablebalance.

The ageing analysis of the Group's trade receivables is as follows:

Group Group2011 2010

£m £m

Up to three months 11.2 11.0Three to six months 0.9 2.7

Trade receivables 12.1 13.7

At 31 December 2011 trade receivables are shown net of provision totalling £3.8million (2010 £2.5 million)

The credit risk relating to cash, deposits and derivative financial instruments is activelymanaged by the Group's treasury department. Relationships are maintained with anumber of tier one institutional counterparties, ensuring compliance with Group policyrelating to limits on the credit ratings of counterparties (between BBB+ and AA).

Excessive credit risk is avoiding through adhering to authorised limits for allcounterparties.

40




Classification of financial assets and liabilitiesThe table below sets out the Group's accounting classification of each class offinancial assets and liabilities, and their fair values at 31 December 2011 and 31December 2010.

The fair values of quoted borrowings are based on the ask price. The fair values ofderivative financial instruments are determined from observable market prices orestimated using appropriate yield curves at 31 December each year by discounting thefuture contractual cash flows to the net present values.

Gain/(Ioss)Carrying Fair to income

value value statement2011 £m £m £m

Derivative financialinstrument assetsTotal held for trading assets

Trade and other receivables 126.1 126.1Cash and cash equivalents 34.4 34.4Total cash and receivables 160.5 160.5

Derivative financial instrument liabilities (273.2) (273.2) (28.9)

Total held for trading liabilties (273.2) (273.2) (28.9)

Trade and other payables (898.7) (898.7)Borrowings (2,695.0) (2,423.0)

Total loans and payables (3,593.7) (3,321.7)

Gain/(Ioss)Carrying Fair to income

value value statement2010 £m £m £m

Derivative financial instrument assets 4.6 4.6Total held for trading assets 4.6 4.6

Trade and other receivables 117.7 117.7Cash and cash equivalents 87.4 87.4Total cash and receivables 205.1 205.1

Derivative financial instrument liabilities (251.0) (251.0) (33.4)

Total held for trading liabilties (251.0) (251.0) (33.4)

Trade and other payables (1,090.3) (1,090.3)Borrowings (2,673.3) (2,410.5)

Total loans and payables (3,763.6) (3,500.8)41

", CAPITAL SHOPPING CENTRES PLC



Capital structureThe company is a wholly owned subsidiary of Capital Shopping Centres Group PLCand owns the majority of Capital Shopping Centres Group PLC's property investments.

The company's capital structure has been designed to ensure an appropriate balanceis achieved between permitting all subsidiary companies to operate effectively andallowing the ultimate parent company the ability to allocate capital across the largergroup in a flexible and efficient manner. The Group uses a mix of equity, third partyand intergroup debt to achieve these aims.

The only financial assets and liabilities of the company recognised at fair value arederivative financial instruments. These are all held at fair value through profit or lossand are categorised as level 2 in the fair value hierarchy as explained below.

Fair value hierarchyLevel 1: valuation based on quoted market prices traded in active markets.Level 2: valuation techniques are used, maximising the use of observable market

data, either directly from market prices or derived from market prices.Level 3: where one or more inputs to valuation are not based on observable market

data. Valuations at this level are more subjective and therefore more closelymanaged, including sensitivity analysis of inputs to valuation models. Suchtesting has not indicated that any material difference would arise due to achange in input variables.

23. Share capital

Share capital£m

Issued and fully paidAt 31 December 2011 and 2010 - 394,651,178 ordinary shares of50p each 197.3

The concept of authorised share capital was abolished by the Companies Act 2006 witheffect from 1 October 2009.

Under saving provisions, the current maximum number of shares which may be issuedby the company is 600,000,000 ordinary shares of 50p each.

42



24. Cash generated from operations


£m £m £m £m

Profit before tax 52.3 474.0 18.5 125.5

Adjustments for:Revaluation and sale of investmentand development property (30.0) (479.0)Amortisation of lease incentivesand other direct costs (0.2) (1.2) 1.0 0.5Impairment of investments in groupcompanies 10.9 (95.9)Finance costs 164.7 173.1 63.8 63.8Finance income (2.8) (2.3) (64.4) (56.0)Other finance costs 42.3 50.6Impairment of goodwill 3.1Change in fair value of derivativefinancial instruments 28.9 33.4Changes in working capital:Change in trading property 6.5 4.5Change in trade and otherreceivables (11.0) (27.4) (0.5) (130.0)Change in trade and other payables (8.6) 159.6 (82.1 ) 150.3

Cash generated from operations 242.1 388.4 (52.8) 58.2

25. Directors' emoluments

The aggregate emoluments of the directors were £nil (2010 £1,388,694).

The highest paid director received aggregate emoluments of £nil (2010 £532,798).

As highlighted in note 26, employees, including directors, are contracted with a relatedcompany, CSC Management Services Limited, and the salary and related costs areshown in the accounts of CSC Management Services Limited.

43

CAPITAL SHOPPING CENTRES PLC("


26. Employees information

At 31 December 2011 the number of persons employed was 71 (2010 nil). Theaverage number of employees during the year was 16 (2010 1).

UK salaried employees are contracted with a related company, CSC ManagementServices Limited, and the salary and related costs are shown in the accounts of CSCManagement Services Limited. One company within the Group company employsindividuals on behalf of other companies in the wider Capital Shopping Centres GroupPLC group.

Costs of individuals employed by Group companies are.

2011 2010£m £mWages and salariesSocial security costsPension contributions

0.5

0.5

27. Pensions

The company participates in Group pension arrangements as disclosed in the notes tothe report and accounts of Capital Shopping Centres Group PLC, the ultimate parentcompany. Pension costs, representing contributions payable by the company to theGroup pension arrangements, totalled £16,000 (2010 £89).

28. Capital commitments

At 31 December 2011 the Group was contractually committed to £32.4 million (2010£86.2 million) of future expenditure for the purchase, construction, development andenhancement of investment property. The majority of this is expected to be spent in2012.

44

CAPITAL SHOPPING CENTRES PLC(.;.'


29. Business combinations

Acquisition of BroadmarshOn 1 December 2011 the Group acquired a 100% interest in The Broadmarsh RetailLimited Partnership for an initial cash consideration of £72.8 million. In March 2012 thefinal consideration was subsequently adjusted for the agreed net assets value of thebusiness at 1 December 2011 which resulted in a reduction to the purchase price of£2.6 million. The fair value of the consideration is therefore assessed as £70.2 million.Exceptional administration costs of £3.3 million associated with the acquisition have

been recognised in the income statement.

The Broadmarsh Retail Limited Partnership owns and manages the Broadmarshshopping centre, Nottingham.

The fair value of assets and liabilities acquired is set out in the table below.

Book value£m

Fair valueadjustment

£mFair value

£m

i nvestment and development propertyTrade and other receivablesTrade and other payables

63.91.6

(4.1 )

1.1

(1.1 )

65.00.5

(4.1)

Net assets 61.4 61.4

Fair value of consideration paid 70.2

Goodwill recognised on acquisition 8.8

The fair value of the consideration exceeds the fair value of the assets and liabilitiesacquired and as a result goodwill of £8.8 million is recognised in the balance sheet onacquisition. This goodwill represents future cash flows which the Group expects toreceive as a result of the acquisition.

During the year the acquired business contributed £0.3 million to the revenue of theGroup and £0.1 million to the profit for the year. Had the acquisition taken place at 1January 2011 the revenue of the Group for the year would have been £397.9 millionand the profit for the year would have been £71.6 million.

45

r;

'¡-,



30. Disposal of group company

On 30 September 2011 the Group disposed of its interest in CSC Potteries Limited toanother Capital Shopping Centres Group PLC company for consideration of £29.8mwhich was equal to the net assets sold and so resulted in a nil gain on disposaL. Thevalue of assets and liabilities disposed of is set out in the table below.

£m

I nvestment and development propertyTrade and other receivablesTrade and other payablesNet assetsConsideration received

Profit on disposal of group company

196.23.8

(170.2)29.829.8

31. Key management compensation

Salaries and short-term employee benefitsPensions and other post-employment benefitsShare based paymentLong term incentivesTermination benefits

2011 2010£m £m

1.50.10.2

0.2

2.0

As highlighted in note 26, key management are contracted with a related company,CSC Management Services Limited, and the salary and related costs are shown in theaccounts of CSC Management Services Limited.

46



32. Related party transactions

Transactions between the company and its subsidiaries, which are related parties,have been eliminated on consolidation for the Group.

Group

Transactions between the Group and related companies are shown below:

Related company

Liberty International GroupTreasury Limited

Company

Nature oftransaction

Interest receivableInterest payable

2011£m

2.331.1

2010£m

2.236.2

Transactions between the parent company and its subsidiaries and related companiesare shown below:

Subsidiary

CSC Bromley LimitedCSC Harlequin LimitedCSC Lakeside LimitedCSC Metrocentre LimitedCSC Potteries LimitedWRP Management LimitedWhitesun LimitedXscape Braehead PartnershipBraehead Glasgow LimitedBraehead Park Estates LimitedCSC Properties LimitedThe Metrocentre PartnershipCSC Uxbridge (Jersey) Limited

Braehead Glasgow LimitedBraehead Park Investments Limited

Related company

Liberty International GroupTreasury Limited


I nterest receivableI nterest receivableInterest receivableInterest receivableInterest receivableInterest receivableI nterest receivableI nterest receivableInterest payableInterest payableInterest payableInterest payableInterest payableDividend receivableDividend receivableDividend receivable


Interest receivableInterest payable

47

2011£m

2.616.321.420.1

0.50.20.60.81.1

44.93.1

2011£m

2.331.1

2010£m

2.114.920.718.02.60.30.10.52.10.9

42.13.41.0

66.010.02.8

2010£m

2.236.2

(,'f



32. Related party transactions (continued)

Group

Balances outstanding between the Group and related companies are shown below:

Related company

Capital Shopping Centres Group PLCLiberty International GroupTreasury LimitedCSC Payments LimitedCSC Potteries LimitedCSC Trafford Centre Group (UK)Limited

Amounts owedby relatedcompanies

2011£m

2010£m

5.0

2.5

48

Amounts owedto related companies

2011£m

(2.2)

(711.8)

(4.1 )

2010£m

(5.1 )

(921.3)

\ CAPITAL SHOPPING CENTRES PLC


32. Related party transactions (continued)

Company

Significant balances outstanding between the parent company and its subsidiaries andrelated companies are shown below:

Amounts owed Amounts owedby subsidiary to subsidiary2011 2010 2011 2010

Subsidiary £m £m £m £m

Belside Limited 135.7 134.8Braehead Glasgow Limited (5.4) (8.1 )

Braehead Park Estates Limited (18.6) (17.8)Broadway Retail Leisure Limited 11.1 10.9Chapelfield LP Limited (10.1) (14.0)Chelmsford Property Investments Limited 2.6Cribbs Causeway JV Limited (7.4) (5.9)CSC Braehead Leisure Limited 8.1 7.9CSC Bromley Limited 44.1 37.3CSC Chapelfield Residential Limited 7.3 7.3CSC Enterprises Limited 2.8 2.8CSC Harlequin Limited 273.0 252.2CSC Lakeside Limited 350.3 346.8CSC Metrocentre Limited 331.5 304.7CSC Nottingham Investments Limited 76.4CSC Potteries Limited 174.2CSC Properties Investment Limited (48.1)CSC Properties Limited (752.3) (702.1 )CSC The Hayes Limited 387.9 383.7CSC Uxbridge (Jersey) Limited 2.2 5.3Curley Limited 201.6 201.2Manchester JV Limited (10.5) (8.2)Westgate Oxford Investments Limited 16.9 (7.1)Whitesun Limited 2.6 2.4WRP Management Limited 8.0 8.1

Xscape Braehead Partnership 9.9 9.4

Related company

Amounts owedby related company2011 2010£m £m

Amounts owedto related company2011 2010£m £m

Capital Shopping Centres Group PLCLiberty International GroupTreasury LimitedCSC Potteries LimitedCSC Trafford Centre Group (UK) Limited

(2.2)

(824.8)(4.1)

(5.1 )

(921.0)

2.5

49

,,'\ CAPITAL SHOPPING CENTRES PLC


33. Contingent liabilties

As at 31 December 2011, the Group has no material contingent liabilities other thanthose arising in the normal course of business.

34. Ultimate parent company

The immediate and ultimate parent company is Capital Shopping Centres Group PLC,a company incorporated and registered in England and Wales, copies of whoseconsolidated financial statements may be obtained from the Company Secretary, 40Broadway, London, SW1 H OBT.

50

capital shopping centres plc...capital shopping centres plc directors' report for the year...

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