2011 Audited Results

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:

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.

NOTES TO EDITORS

2011 HIGHLIGHTS

Operational highlights

Transformational acquisition of The Trafford Centre

·; High quality income stream

·; Valuation increased by £50 million to £1,700 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 £9 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 £120 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 £375 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)

(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 £3.5 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 £375 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 £77 million is committed or accrued and there are a variety of active management projects totalling around £120 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 £73 million

·; In two transactions since the year end which arose from our closer relationship with the Peel Group, we purchased for £4.7 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 £364 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.

Chart 1 illustrates growth in like-for-like net rental income. To view Chart 1, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

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 £4 million. Conversely, flexible deals in preparation for the planned extension at Victoria Centre, Nottingham, brought its NRI down by 9 per cent.

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 £10 million of direct costs in respect of the Group's car park operations and a £7 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 rent for those units by £11 million to £35 million in aggregate. Excluding partners' interests, CSC's share increased by £9 million to £29 million.

Lettings and ERV

The new rent on long-term lettings made during the year represented on average 96 per cent of ERV for those units, with upside potential beyond the base rent from turnover leases in the majority of CSC's lettings.

New rent on leases signed in the fourth quarter represented 98 per cent of ERV.

Leases may be agreed below ERV for tenant mix enhancement, to retain flexibility for a planned asset management initiative or for stabilisation of a particular area of a centre. For example the fourth quarter included three lettings at Victoria Centre, Nottingham, designed to build flexibility in the run up to the proposed extension.

In all cases, the overall objective is long-term sustainable growth in net rental income.

This has been demonstrated by the asset management approach at Chapelfield, Norwich. Having been open for just three years before the downturn, the centre had 18 tenant failures out of 94 units during 2008 and 2009 including CSC's only large format Borders store. A number of short-term leases were entered into for immediate stabilisation, particularly of areas which had yet to establish themselves within the new centre. With the objective of establishing Chapelfield as the new prime pitch of Norwich, in 2010 and 2011 a number of major brands were attracted to the centre at rental levels below ERV to establish the best retail and catering mix. This created the ideal environment to attract shoppers and other retailers, such that 2011 net rental income is up 10 per cent, passing rent up 5 per cent, footfall up 13 per cent, retailer sales up 9 per cent and the centre is 99 per cent let.

ERVs are adjusted at each valuation date to take account of market conditions; see Investment property valuations.

At 31 December 2011 CSC had 132 short-term leases in place which represented 1 per cent of passing rent, 2 per cent of space and 4 per cent of ERV (2010 - 2 per cent, 4 per cent and 7 per cent respectively, excluding the Trafford Centre).

Footfall

The number of customer visits to CSC centres increased by 2 per cent in 2011. The second quarter of the year showed the highest increase relative to the same period of 2010, followed by a flat autumn but a good run in to Christmas.

Chapelfield, Norwich, up 13 per cent, and Manchester Arndale, up 7 per cent, have been consistently strong all year, as have Eldon Square, Newcastle, and St David's, Cardiff, up 6 and 5 per cent respectively in their second years after significant extensions. Lakeside finished the year up 3 per cent, with a 2 per cent increase recorded in the fourth quarter. Some of the smaller centres recorded small negative figures in the difficult environment including The Potteries, Stoke-on-Trent, situated in a region whose economy has suffered more than most.

Retailer sales 

Retailer sales in CSC centres increased by an estimated 2 per cent in total, out-performing the national trend. The benchmark BRC non-food like-for-like index has indicated declines for the last five quarters.

The estimated occupancy cost ratio (rent to retailer turnover) for the group including The Trafford Centre and St David's, Cardiff, is 13.2 per cent excluding anchor stores, compared to 13.7 per cent at 30 June 2011, continuing the recent slight downward trend as sales continue to progress ahead of rental increases.

Lease expiry profile

CSC's average lease maturity has increased slightly to 7.5 years (31 December 2010 pro forma - 7.3 years), largely due to the progress made on the significant level of expiries due in 2011 and 2012 at Metrocentre. Around two thirds of these have now been settled or are in solicitors' hands.

Chart 2 sets out the forthcoming expiry profile. There is a concentration of expiries in 2013 at The Trafford Centre, Cribbs Causeway and The Potteries, Stoke-on-Trent. Our teams are pro-actively working with existing and new retailers to create a tenant mix which generates higher turnover for them and the rent levels that we want to achieve. To view Chart 2, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

Plans for major centres

Trafford Centre (market value £1,700 million, planned expenditure £32 million): With significant enhancements to tenant mix in 2011 including the first Banana Republic store in the north of England and extended anchor stores for M&S and Debenhams, future development is focused on Barton Square. A planning application to enclose the courtyard has been approved and other tenant mix improvements are expected to follow.

Lakeside (market value £1,081 million, planned expenditure £17 million, plus potential extension £180 million): Successful new openings in the autumn include the 25,000 sq. ft. new concept Topshop/Topman flagship store to be followed in late 2012 by Forever 21's fourth UK store. A planning application was submitted in December for a 325,000 sq. ft. extension including a new department store, 30 to 40 new shops and restaurants and a new transport hub. Discussions are progressing with major retailers.

Metrocentre (market value £864 million, planned expenditure £12 million): A 15,000 sq. ft. terrace of restaurants, "MetrOasis", is now pre-let 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. This will further strengthen the ambience of the retail park and improve the connections between the main centre and the retail park.

Braehead (market value £583 million, planned expenditure £12 million): With Apple and Hollister plus a new restaurant cluster open and trading well, plans have been drawn up to improve impact and sight 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 the broader 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 but has suffered relative to other cities from a lack of modernisation of its shopping centre provision. Following the acquisition of Broadmarsh in the last quarter of 2011, we are optimistic about the city's potential assuming a pragmatic approach by the local authority. We aim to bring forward proposals for complementary development to upgrade both centres and the city centre overall.

Newcastle (Eldon Square market value £256 million, planned expenditure £16 million): Following the three stage redevelopment from 2005 to 2010 culminating in the highly successful St Andrew's Way Mall extension, we intend along with our local authority partner to reconfigure some of the less modern areas with potential for rent enhancement.

Stoke-on-Trent (The Potteries market value £184 million, planned expenditure £14 million): A planning application for a 58,000 sq. ft. leisure and catering development has been approved. The leisure space is under offer to a cinema operator, with good indications of demand for the 6 restaurants. Construction is expected to start within the next 12 months for an opening in 2014.

Bromley (The Glades market value £174 million, planned expenditure £6 million): We are in the process of obtaining planning consent for a terrace of 5 restaurants overlooking the adjacent gardens. We received 10 offers from catering operators for the 5 units and have comfortably exceeded the target rent for the project.

International 

CSC holds 4.1 million shares directly in Equity One, a US retail REIT, and 11.4 million redeemable joint venture units convertible on a one-for-one basis into shares, as a result of the restructuring of our previous investment in Californian property which was completed in January 2011. This provides an effective 12 per cent interest in Equity One valued at £168 million based on the 31 December share price of $16.98. Its annualised dividend is $0.88 per share.

Equity One owns, develops and manages US neighbourhood shopping centres anchored by supermarket chains. It has had an active and constructive year with sales of non-core assets exceeding $700 million, including a $473 million portfolio of 36 centres sold in a single transaction, and has been recycling capital into high quality urban retail assets mainly in New York state and California. 

CSC's interests in India comprise a 25 per cent interest in the shopping centre developer, Prozone, and 11.4 million shares (9.9 per cent) in the listed Indian retailer, Provogue, our joint venture partner in Prozone. Provogue has announced terms for the demerger of Prozone as a separately listed real estate company in 2012 which will result in approximately a 32 per cent interest for CSC.

The economic and political uncertainties in India in 2011 led to both its currency and stock market producing some of the worst falls in global markets and the share price of Provogue, in common with many small market-capitalisation stocks, showed a material decline in the year. Improved sentiment as the rising interest rate cycle is considered to have peaked, helped by the relaxation of rules relating to foreign investment in Indian retailers and listed shares, has led to a significant rise in the stock market and Provogue's share price since the year end.

Prozone's first shopping centre, Aurangabad, has recorded its first full year of operations since opening in October 2010 with encouraging levels of trade at the hypermarket, other anchor stores and catering outlets.

In 2012, work is expected to commence on three mixed-use projects in Indore, Coimbatore and Nagpur, to be funded locally.

Prospects and priorities

Our base case assumption is that the UK economy will continue to experience low growth for some time, with continuing risk of tenant failures and closures on expiry of leases.

Our specialist skills and relationships enable us to manage those risks while identifying and developing those shopping centres which have the most potential to produce attractive returns over the medium to long term.

We consider that CSC is well positioned to create value as the market recovers.

Our strategic priorities for 2012 are:

·; to optimise the performance of our existing assets, prioritising medium-term value creation

·; to identify further initiatives and create the financing flexibility to advance CSC's business and deliver incremental returns

INVESTMENT PROPERTY VALUATIONS

Retail property investment market overview

As income yields appeared attractive relative to risk free investment returns, the UK property market has in 2011 seen good demand for prime assets and vendors reluctant to sell other than at robust levels. As a result, yields for prime assets such as CSC's have remained stable to slightly tightening.

By comparison secondary retail property, a category in which none of CSC's regional shopping centres would be classified, has had more variable pricing. Yields have increased during 2011 as purchasers allowed for their expectation of falling rents (see Market review), as the 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.

Chart 3 illustrates yield by retail asset class (source: DTZ). To view Chart 3, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

CSC's property valuation performance

 * The Trafford Centre is treated as like-for-like for the second half and for the full year (compares to 31 December 2010 pro forma data)

** IPD monthly index, retail

Market values of CSC's investment properties rose by an average of 1.2 per cent in the first half of 2011 and were steady in the second half, compared to IPD increasing 1.1 per cent and then falling 0.5 per cent.

Yields

CSC's performance results from a slight tightening of equivalent yields, 11 basis points in the first half and 8 basis points in the second half, and increases in passing rent partly offset by net reductions in ERV.

Chart 4 illustrates the comparison of CSC yield and 10 year gilt yield. To view Chart 4, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

At 5.98 per cent, CSC's weighted average nominal equivalent yield has recovered 139 basis points from 7.37 per cent at the point where the market troughed in June 2009 and remains 121 basis points above its level of 4.77 per cent at the peak of the market in June 2007.

Further, with continuing reductions in the yields available from investment grade bonds, the spread of CSC's nominal equivalent yield over the medium-term gilt yield represents a historic high of 400 basis points as illustrated by the graph above, demonstrating the attractiveness of the income proposition.

ERV

ERVs are regularly adjusted to reflect the impact of transactions and changing circumstances. The largest component of the ERV in the valuation calculation is the passing rent, with any step up to estimated market rent being discounted to match the timing of the relevant lease event.

CSC's like-for-like ERV fell 2 per cent in the year, largely in the second half, bringing the total reduction from its peak to 8 per cent. The aggregated change in 2011 reflects the impact of variable performance between centres and between areas within individual centres as commented on below.

Prime pitches tend to hold their own on the downside and lead the way in demonstrating growth in the recovery. Weaker areas of centres are inevitably more susceptible to tenant failures and are more difficult to relet. There is greater churn, more availability and therefore more downward pressure on the rents achievable, the risk of which tends to be reflected in a higher yield until leasing evidence supports a new ERV level.

The interaction of yield and other valuation factors can be seen in second half valuation changes at some of the centres:

·; Lakeside's value increased by £10 million. The improved equivalent yield, down 6 basis points to 5.63 per cent, has more than offset a marginal reduction in ERV in secondary malls. Lettings in prime areas above the tone of £339 ITZA has not yet been reflected in adjacent unit ERV.

·; Metrocentre's value reduced by £10 million. Total ERV has reduced by 5 per cent. However, expectation of some disruption from the expiry profile had been factored into the previous yield. Thus the ERV reduction is largely offset in the valuation by a 12 basis points improvement in the equivalent yield reflecting the reduced uncertainty following the progress made on lease expiries.

·; The value of The Harlequin, Watford, reduced by £26 million, largely due to a 12 per cent reduction in prime headline Zone A rent to £250 ITZA reflecting recent lettings.

·; The value of Manchester Arndale increased by £22 million. Following consistent lettings well above previous tone and a strengthening tenant mix, aggregate ERV has increased 1 per cent. Further, the equivalent yield improved by 23 basis points to 5.74 per cent.

·; The value of The Potteries, Stoke-on-Trent reduced by £14 million. Its equivalent yield has increased 25 basis points to 7.50 per cent to reflect the risks associated with a third of the rent roll due to expire in 2013. Also aggregate ERV has reduced by 3 per cent reflecting recent lettings.

·; The Trafford Centre's value increased by £50 million, as improved tenant mix, including new flagship store openings, has reinforced its position as a top prime centre. As such, the equivalent yield has contracted 10 basis points to 5.52 per cent.

As illustrated by Chart 5, there is significant increment between the "topped up" net rent and the valuers' assessment of the ERV. The impact on the valuation of the uplift is discounted for the time to the reversionary lease event and is subject to assumptions regarding the level of running voids, any re-letting period and the valuer's expectation of incentives. To view Chart 5, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

MARKET REVIEW

UK macro and consumer backdrop

In June 2009 the UK economy started to recover from the "credit crunch" recessionary period but GDP dipped again in the last quarter of 2010. 2011 proved more difficult than generally anticipated with only 0.8 per cent GDP growth overall. For CSC, this is most noticeable in the level of tenant failures, at a very low level in 2010 but increased to 3 per cent of passing rent in 2011. We expect UK economic output to grow only slowly for some time.

The appetite of both businesses and households to make investment and borrowing decisions is being affected by the current constrained lending markets and uncertainty relating to the euro-zone. Focus is firmly on downside risks.

Consumer confidence remains at an extremely low level, below the previous trough in winter 2008/9 according to the Nationwide benchmark metric. Inflationary pressure on household costs, particularly from the fuel price increases in 2011, whilst apparently starting to ease, is still well in excess of wage increases. Combined with higher unemployment, this has brought the UK average household disposable income down 7 per cent in the year to December 2011 according to the Asda benchmark index.

The UK retail environment

Faced with this spending squeeze, consumer habits have been changing. CSC's consumer feedback including from focus groups is stressing value for money and convenience, including access to all their favourite brands.

National spending patterns have been shifting, notably with a higher proportion of sales conducted online (from 8.6 per cent of all retail trade in 2008 to 12 per cent in 2011) and in the larger destinations both in cities and out of town. With shoppers becoming more demanding in looking for their preferred combination of product, experience and service, top shopping centres such as CSC's with a compelling mix of retail brands, catering and leisure have shown increasing footfall and retailer sales in contrast to the UK overall data which shows reductions.

The challenge to retailers has been to keep their business moving forward while facing reduced disposable income and changing consumer patterns in the face of supply chain inflation and, in some cases, limited access to capital.

Not all retailers have succeeded. Failures include business models challenged by structural shift or prolonged sub-sector cyclical downturn, financing structures unable to withstand the tighter financing market, businesses focused on "big ticket" products and those simply losing their share to competitors.

However the level of failures this winter has been well below that of winter 2008/9 when, in the immediate aftermath of the credit crunch, CSC lost 9 per cent of the rent roll in two quarters by way of failures. The adept retailers have been successfully focusing on cost control to improve margins and returns.

As well as work on supply chains, several retailers have publicly initiated programmes to exit their "tail" of underperforming stores. This will challenge less successful locations, with potential for downward spiral, but is unlikely to harm the best cities and centres where other expanding retailers including international brands are competing for well-configured space in prime pitches.

Successful retailers are seeking out the most cost effective access to their customers, be that through online or physical footfall, with the best located stores and integration of online and physical brands. Various techniques are being applied to drive traffic between the channels such as click and collect options and access to pods for in-store access to online ranges. Four of CSC's centres have now launched mobile apps which provide shoppers with convenient access to centre and retailer information and special offers. Several brands which started without stores have now added a physical presence to extend their reach - including, now in our centres, Simply Be and Amazon.

CSC's position

The effect of this polarisation can be seen in the vacancy rates of different retail property, with secondary shopping centres averaging over 15 per cent, town centre properties over 10 per cent, the larger prime centres 8 per cent and CSC's centres 3 per cent.

Chart 6 illustrates vacancy rates for UK retail property by class (source: PMA). To view Chart 6, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

To put this into context, of the UK's total 1.4 billion sq. ft. of retail floor space, only 14 per cent is within shopping centres and less than 5 per cent is in the segments in which CSC specialises, the top 50 retail locations or in major out-of-town regional centres.

David Fischel

Chief Executive

23 February 2012

FINANCIAL REVIEW

FINANCING STRATEGY AND FINANCIAL MANAGEMENT

In 2011 the Group's financial management has focused on achieving the successful integration of The Trafford Centre and continuing to address the appropriate financial management and medium-term funding structure for the Group.

Key points of note in the year 

·; Underlying earnings per share up by 7 per cent

·; NAV per share at 391 pence; total return for the year 4 per cent

·; New £375 million 5 year Revolving Credit Facility completed in November 2011

·; Debt to assets ratio remains in targeted range at 48 per cent

·; Interest cover ratio increased to 1.71x above the target level of 1.6x

As previously indicated, the debt to assets ratio reduced to 48 per cent at the end of 2010 and remains at this level at 31 December 2011. This is within the Group's preferred 40-50 per cent range. It is pleasing to note that in respect of our additional funding aim, to achieve interest cover greater than 1.6x, following an improvement in the year to 1.71x, this target has also been achieved.

Acquisition of The Trafford Centre and associated Capital Raising

The Group successfully completed the acquisition of The Trafford Centre on 28 January 2011. Details of the opening balance sheet and the contribution to the Group's results are provided in Note 25. The Income Statement includes the results of The Trafford Centre for the period from 28 January 2011 to 31 December 2011.

As part of the acquisition in January 2011, Peel subscribed £43.7 million for 12.3 million ordinary shares and £23.7 million for convertible bonds with a nominal value of £26.7 million converting into 6.7 million ordinary shares at a conversion price of 400 pence, giving a total cash inflow of £67.4 million.

Acquisition of Broadmarsh

The Group completed the acquisition of Broadmarsh, Nottingham, on 1 December 2011 for an initial cash consideration of £73 million. This initial consideration is subject to an adjustment based on the opening net assets position. It is anticipated that this adjustment will be finalised in the first half of 2012. Details of the opening balance sheet and the contribution to the Group's results for the year are provided in Note 25.

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011

As has been widely reported, the general economic environment in the UK became increasingly challenging as 2011 progressed and it is therefore encouraging that the Group achieved a further year of growth in both like-for-like net rental income and underlying earnings per share, two of the Group's key measures of performance. Property valuations have in aggregate been positive and overall there has been a small increase in adjusted net asset value per share.

Income statement

The Group recorded a profit for the period of £34 million, a reduction on the profit of £529 million reported in the year ended 31 December 2010. The major factors in the fluctuation from 2010's result are valuation items. These comprised a lower level of property valuation gain and a higher non-cash charge arising from the change in fair value of the Group's derivative financial instruments. The derivatives are largely interest rate swaps used to hedge the interest rate payable on a significant proportion of the Group's floating rate borrowings.

The 2011 results include a £63 million gain on property valuations which is more than offset by a £193 million non-cash charge due to the movement in the fair value of derivative financial instruments. In contrast, the 2010 results included a £497 million gain on property sales and valuations from continuing operations and a £50 million adverse movement in the fair value of derivative financial instruments.

The 2010 results also included a £83 million profit, largely due to property valuation gains, from those businesses classified as discontinued operations, namely Capco, which was demerged in May 2010, and C&C US, which was sold for shares and instruments convertible into shares in Equity One, a US retail REIT in January 2011.

As the fair value of the Trafford Centre net assets acquired of £756 million exceeded the £703 million fair value of the consideration, based on the Group's share price on 28 January 2011 of 376 pence per share, negative goodwill of £53 million arose on the acquisition. There has been a £1 million reduction to the negative goodwill figure compared to that disclosed in the 2011 Interim results mainly due to finalisation of certain taxation provisions. This negative goodwill is recorded in the Income Statement as a gain on acquisition of subsidiaries.

The disposal of the C&C US business that was completed in January 2011 resulted in a gain of £40 million before tax. The results for the year also includes an initial deferred tax provision of £14 million in respect of the investment in Equity One shares and joint venture units received as consideration, giving a net post tax gain of £26 million on the combined impact of this transaction.

Exceptional costs in the period include finance costs of £48 million being largely interest rate swap amendment costs. Expenses relating to the two acquisitions completed in 2011, including financial advice costs in relation to the Simon Property Group's proposal, amounted to £21 million in the period. These costs are classified as exceptional administration costs.

The income statement includes two items arising from the Group's interests in India. The £9.0 million share of associate income from Prozone, the shopping centre developer, is offset by the impairment of £8.7 million in the market value of the 9.9 per cent interest in Provogue, the listed Indian retailer, as the overall Indian stock market came under pressure.

Underlying earnings which excludes valuation and exceptional items, increased by £42 million to £139 million, as shown in the chart below. Taking into account additional shares issued as part of the Trafford Centre acquisition, underlying earnings per share increased by 7 per cent to 16.5 pence.

The Group's net rental income which increased by 4 per cent on a like-for-like basis in the year benefitted from the continued growth in income at St David's, Cardiff, Lakeside and Chapelfield. More detail on the rental performance is included in the Business Review.

Underlying net finance costs, which exclude exceptional items, increased by £35 million in 2011, with the benefit of the interest rate swap amendments undertaken in January 2011 offsetting the £42 million cost of the Trafford Centre CMBS notes.

Ongoing administration expenses, increased from £23 million in 2010 to £24 million in 2011 wholly due to inclusion of the Trafford Centre, illustrating the continued focus on tight control of administration costs.

Chart 7 illustrates CSC's underlying earnings bridge. To view Chart 7, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

Further details on underlying earnings can be found in the Other information section of this report.

Balance sheet

The Group's net assets attributable to equity shareholders have increased from the £2.3 billion disclosed in the 2010 annual report to £2.9 billion, with the increase largely resulting from the acquisition of The Trafford Centre and the associated equity capital raised.

As detailed in the table below, net assets (diluted, adjusted) have increased by £816 million from 31 December 2010 with the Trafford Centre acquisition and the property valuation gain comprising the majority of the movement.

(1) Pro forma balance sheet at 31 December 2010 illustrates the impact of the C&C US disposal and the acquisition of the Trafford Centre both having completed at 31 December 2010.

The investments of £204 million as at 31 December 2011 comprise the Group's interests in the US and India. The investment in the US comprises 4.1 million shares in Equity One, and 11.4 million shares in a joint venture with Equity One, that the Group received in exchange for its interest in C&C US. Based on the Equity One share price of $16.98 the Group's investment has been valued at £168 million at 31 December 2011. The Equity One share price has increased to $19.81 as at 20 February 2012 increasing the value of the Group's investment to £192 million.

The fair value provision for financial derivatives, principally interest rate swaps, included in other assets and liabilities above, increased by £201 million as UK interest rates remained at exceptionally low levels.

Adjusted net assets per share

As illustrated in Chart 8, diluted adjusted net assets per share were 391 pence at 31 December 2011, an increase of 1 penny in the year. The increase is the net result of the property valuation gain and the retained profit for the year being offset by the 15 pence per share of dividends paid in the year and the exceptional finance and administration costs. To view Chart 8, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

Cash flow

The cash flow summary below shows a net utilisation of cash in the year largely to fund the acquisition of Broadmarsh, Nottingham and the exceptional finance and other costs associated with the Trafford acquisition.

Investment in property related assets was mainly limited to existing commitments in the period, with the most significant expenditure in the period being in respect of Lakeside (£5 million), St. David's, Cardiff (£4 million) and £3 million at each of Braehead, Eldon Square, Metrocentre and the Victoria Centre.

The cash acquired/sold with businesses relates to the Trafford Centre and C&C US respectively.

Net debt repayments of £37 million are discussed in the Debt structure section below.

The table below illustrates that recurring cash flow covers the 2011 Interim dividend of 5.0 pence per share that was paid in the year and the proposed final dividend of 10.0 pence per share that if approved will be paid in 2012.

Capital commitments

The Group has an aggregate cash commitment to capital projects of £77 million at 31 December 2011, including amounts accrued on the Group's balance sheet. In addition to the committed expenditure, the Group has an identified project pipeline of around £120 million over the next three years. It is anticipated that approximately £90 million relating to capital projects, both committed and currently at the planning stage, will be incurred in 2012.

FINANCIAL POSITION

At 31 December 2011, the Group had net external debt of £3,374 million, an increase of £185 million compared to the 31 December 2010 pro forma of £3,189 million. In addition to cash balances of £91 million the Group had undrawn facilities of £357 million at 31 December 2011, the £330 million undrawn element of the new revolving credit facility agreed in November 2011 and £27 million on the St David's, Cardiff, joint venture loan facility, giving total headroom of £448 million.

Debt structure

The Group's debt is largely arranged on an asset-specific basis, with limited or non-recourse from the borrowing entities to other Group companies. It is largely syndicated bank debt and CMBS structures with corporate-level debt limited to the revolving credit facility.

Chart 9 illustrates CSC's debt maturity profile. To view Chart 9, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

The revolving credit facility which was scheduled to mature in mid 2013 was refinanced in November 2011 as a first step towards a broader refinancing of the Group's asset specific debt. The revolving credit facility increased from £248 million to £375 million, whilst reducing the initial margin from 200 to 175 basis points. At the same time, a reduction in utilisation fee levels was also achieved. The refinancing was delivered in a challenging market.

Chart 9 shows that the value of maturities peaks in 2015-2017. Consideration is being given to replacing facilities early, although the associated one-off costs remain high. However, this needs to be weighed against longer term rates currently being low.

The Group intends to continue with a diversified funding structure, allowing opportunistic access to bank and bond markets, whilst minimizing its cost of funds. Despite the current uncertain economic outlook, demand for sterling bond issuance backed by quality assets has remained strong.

During the year net debt repayments of £37 million were made, the most significant item being the repayment of the £81 million loan secured on Barton Square. An additional £56 million has been drawn on the St. David's, Cardiff joint venture loan facility, with the balance of the net repayment being due to scheduled debt amortisation payments. At year end the revolving credit facility was £45 million drawn, in part to fund the acquisition of the Broadmarsh centre.

(1) The pro forma figures include The Trafford Centre balances following the acquisition which was completed on 28 January 2011

Hedging 

The majority of the Group's debt is floating rate. The Group uses interest rate swaps to fix short-and medium-term interest obligations, reducing cash flow volatility caused by changes in interest rates. The Group is currently effectively fully hedged.

The table below sets out the nominal amount and average rate of hedging, excluding lenders' margins, in place under current and forward starting swap contracts.

As detailed in the 2011 Interim results, the Group has a number of forward starting interest rate swaps, which due to a change in lenders' practice can no longer be used for hedging current or future anticipated borrowing needs. Using the 31 December 2011 forward interest rate yields, these swaps have a market value liability of £189 million. Based on these rates and values, it is estimated the Group will be required to make cash payments of £15 million in 2012. These payments will be reported as an exceptional finance charge and will impact NAV (diluted, adjusted) as incurred.

Covenants

Full details of the loan financial covenants are included in the Other Information section of this report. The Group is in compliance with all of its corporate and asset-specific loan covenants. As detailed in that analysis, as a result of improved property valuations and rental income levels, the headroom over the minimum covenant levels has generally increased in the year.

Tax strategy and charge for the year

Being a Real Estate Investment Trust (REIT) significantly reduces the taxation costs of the Group, but brings with it the requirement to operate within the rules of the REIT regime. Since 2007, the Group has paid REIT entry charges of £184 million in respect of the original property portfolio and subsequent purchases with a further amount of £15 million to be paid in 2012. The Group must also meet certain REIT requirements and conditions, but doing so results in not having to pay tax on property income or gains on property sales, the financial benefits of which to date amount to £200 million.

The Group's approach to taxation is approved by the Board and is subject to regular review. The Group maintains an open, up-front and no-surprises policy in dealing with HMRC and as a result it is anticipated the Group will receive a "low risk" rating from HMRC once the recent major corporate transactions are fully absorbed into the Group. The Group seeks pre-clearance from HMRC in complex areas and actively engages in discussions on potential or proposed changes in the taxation system that might affect property tax and REIT legislation.

The Group continues to pay tax on overseas earnings, any UK non-property income under the REIT rules, business rates, and transaction taxes including the REIT entry charge and stamp duty land tax. In the year ended 31 December 2011 the total of such payments to HMRC was £54 million. In addition, the Group also collects VAT, employment taxes and withholding tax on dividends for HMRC.

The tax expense in the period of £2.6 million comprises current tax on US investments of £0.3 million and deferred tax largely on the revaluation of interest rate swaps and investments of £2.3 million.

Matthew Roberts

Finance Director

23 February 2012

To view further information on CSC's Top Properties, please paste the following URL into the address bar of your browser:

http://www.rns-pdf.londonstockexchange.com/rns/9418X_-2012-2-22.pdf

Directors' responsibilities

Statement of Directors' responsibilities

The Group's Annual Report for the year ended 31 December 2011 contains the following statement of Directors' responsibilities. Certain parts of the Annual Report are not included within this announcement.

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

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

(a) select suitable accounting policies and then apply them consistently

(b) make judgements and accounting estimates that are reasonable and prudent

(c) state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements

(d) 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 to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed in the Governance section of the Annual Report confirm that, to the best of their knowledge:

(a) the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group

(b) the Directors' report contained in the Governance section of the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces

Signed on behalf of the Board on 23 February 2012

David Fischel

Chief Executive

Matthew Roberts

Finance Director

Consolidated income statementfor the year ended 31 December 2011

Details of underlying earnings are presented in the underlying profit statement. Underlying earnings per share are shown

in note 12c.

Consolidated statement of comprehensive income

for the year ended 31 December 2011

Consolidated balance sheet

as at 31 December 2011

Consolidated statement of changes in equity

for the year ended 31 December 2011