Final Results

17th Mar 2008 07:02

Mapeley Limited17 March 2008 PRESS RELEASE: Not for release before 07:00 17 March 2007 Mapeley Limited Preliminary results for the year ended 31 December 2007 Mapeley Limited (LSE: MAY), the Guernsey based market leader in propertyinvestments and outsourcing, announces today its audited preliminary results forthe year ended 31 December 2007. Highlights • Dividends up 11.9% to 188 pence per share (2006: 168 pence per share) • FFO up 23.4% to £56.4 million (2006: £45.7 million) • £223.3 million of acquisitions • EBITDA up 23.4% to £115.4 million (2006: £93.5 million) • Revenue up 8.4% to £417.4 million (2006: £385.0 million) • Loss before tax of £129.0 million (2006: profit £42.8 million) • Total asset value up 3.8% to £2,317.6 million (2006: £2,232.7 million) • Basic NAV per share decreased to £18.62 per share (2006: £24.23) Commenting on the results, Jamie Hopkins, Chief Executive of Mapeley said: "I am very pleased to report another solid financial performance with dividendsup 12%. Our flexible and robust business model and the resilience of our incomestream position us well to continue to deliver consistent returns and we lookforward to 2008." Conference call Mapeley management will hold a results conference call on Monday 17 March 2008at 2 pm London time (10 am New York time). Analysts and investors are welcome toparticipate on the live call. You can access the conference call by dialling0845 245 5000 (from within the UK) or +44 (0) 1452 562 716 (from outside the UK)ten minutes prior to the scheduled start of the call; please reference "Mapeley2007 Preliminary Results Call". A webcast of the conference call will be available to the public on alisten-only basis at www.mapeley.com. Please allow extra time prior to the callto visit the site and download the necessary software required to listen to theinternet broadcast. A replay of the webcast will be available for three months following the call. Areplay of the conference call will be available until 10 am London time onMonday 24 March 2008 by dialling 0845 245 5205 (from within the UK) or +44 (0)1452 550 000 (from outside the UK); please reference access number "34032594#". For further information, please contact: Fiona Laffan/Pavla ShawBrunswickTel: +44(0) 20 7404 5959Email: [email protected] Financial Highlights Year ended 31 December Year ended 31 December 2007 2006 £m £m Funds from operations (FFO) (refer to note 18) 56.4 45.7Dividends declared during the year 55.2 45.8Dividend per share (pence/ share) * 188p 168pFFO per share (pence/ share) ** (refer to note 18) 192p 170p Income Statement Revenue 417.4 385.0Property operating expenses (288.4) (283.5)EBITDA (refer to note 17) 115.4 93.5(Loss)/profit before tax (129.0) 42.8 Balance Sheet As at As at 31 December 2007 31 December 2006 £m £m Property assets *** 2,116.8 2,044.4Total non-current assets 2,146.5 2,078.6Net assets 547.8 712.7Gearing (refer to note 19) 257% 169% * Dividend per share calculations aggregate the coupon rates of dividendsdeclared for each year as disclosed in note 5 to the preliminary announcement. ** FFO per share calculations for the year ended 31 December 2007 are basedon the weighted average number of ordinary shares in issue during the period of29,417,876 shares. FFO per share calculations for the year ended 31 December2006 are based upon the weighted average number of ordinary shares in issueduring the period of 26,887,700. *** Property assets are defined as total non-current assets plus non-currentassets held for sale, less non-current trade and other receivables, financialinstruments, deferred tax assets and plant and equipment held within property,plant and equipment. Chairman's and Chief Executive's Statement Overview Mapeley had solid 2007 operating results. Our underlying business performedwell. Funds from operations (FFO), our key measure of underlying performancegrew by 23%. Milestones • FFO growth of 23% from £45.7 million to £56.4 million • Dividend growth of 12% from 168 pence per share to 188 pence per share • Investment property acquisitions of £223.3 million • Occupier inertia strategy proving successful with lease extensions and roll-overs • Refinancing of our £257 million revolving credit facility due April 2008 During the first half of the year we acquired £180 million of high qualityassets let to strong credit tenants all located throughout the UK. The secondhalf of the year saw us take a more cautious approach to acquisitions, given thechanges in the capital markets and the knock-on effects to UK real estate. We benefited from asset management opportunities arising from the scale anddiversity of our estate of some 1,689 assets covering 2.4 million square metres.We were able to enhance returns through rigorous management of our leaseholdportfolio and through our asset management strategies by either disposing ofvacant assets or securing new third party income. Our financial performance was reinforced by the resilience of our income streamwhich was maintained throughout 2007. 93% of our income continued to be derivedfrom government and investment grade corporates such as Microsoft and BritishTelecom with 70% of our income being subject to fixed contractual uplifts. Wealso have a 10 year average lease length across the portfolio and our vacancyrate, one of the lowest in the sector, continues to remain stable at just 3.5%. Our strategy Our aim is to be the leading owner and operator of regional UK real estate letto strong credit quality tenants such as the UK Government. We enter intoproperty outsourcing contracts with high quality counterparties, which usuallyinvolve the acquisition of freehold assets, the management of their leaseholdinterests and often the provision of property-related services, such asfacilities management (cleaning, security, maintenance). We also acquireproperty on a direct basis from the investment market. Our investment strategy is not predicated on strong rental growth but on owningassets let to tenants who we believe will remain in our buildings, which werefer to as "occupier inertia". This applies to both our outsourcing contractsas well as our direct property acquisitions. Our objective is to secure highquality income and maintain it. Our occupier inertia strategy was further proven during 2007. By fullyunderstanding our tenants' occupational strategy and delivering focussed andpro-active asset management we are able to keep tenants in our buildings. Forexample, over the year, 32 leases in our DPI portfolio were subject to a breakclause or a lease expiry. 25 of the 32 leases, representing 95% of rent rollwere extended by tenants. We continue to exploit the competitive advantage we have built by acting as bothlandlord and tenant in every major town and city in the UK. We manage theleasehold assets, occupied by our clients, on a principal basis with the aim ofensuring the rents we are responsible to pay to third party landlords do notgrow faster than the indexed contractual income our clients pay us. In additionthis insight provides us with real data points to best position our propertyinterests in each of these towns whether as landlord or tenant and also providesus with further acquisition opportunities. Chairman's and Chief Executive's Statement (continued) Performance review We have a presence in every major town and city in the UK and, for the mostpart, operate outside London. We have a profitable operating business which runsin tandem with an integrated real estate investment business. Given our geographic diversification, we are less impacted by the changes inoccupier property demand seen in Central London. Rents in the UK regions tend to be more stable with only modest rental growth.The stable nature of these markets works to our advantage in operating ourleaseholds as where we are negotiating with third party landlords our goal is tohold rents down in order to minimise our costs. Our aim is to produce aprofitable income over cost spread between the amounts our clients pay us foroccupation of a property, versus what we pay out to the landlords. For theperiod since we started operating the HMRC and Abbey contracts to 31 December2007 on a like for like, mark to market portfolio basis, we have managed tomaintain an average increase in rental costs of only 2.0% while receiving acorresponding increase in income of 3.2% per annum. IPD's analysis of our performance in respect of 2006 rent reviews on ourleasehold estate once again demonstrates that we have beaten the market byexperiencing only 1.4% rental growth on our leasehold portfolio versus the IPDbenchmark of 2.1%. This continued out-performance creates organic growth forMapeley and is generated by our specialist and dedicated in-house property team.Our tenacity and focus on chasing down and minimising every penny of costcontinues to drive returns across our business. During 2007 we generated capital receipts of £20.6 million which comprised £9.1million of asset management receipts and £11.5 million of disposal proceeds, inline with our budgeted expectations. Asset management receipts are generatedfrom our leasehold portfolio where we typically receive upfront cash premia fromthird party landlords in exchange for extending leases. Disposals are made whenfreehold properties become vacant, either due to our clients' occupationalstrategies or through an asset management initiative by Mapeley. Typically,under the contractual arrangements of the outsourcing transaction, when a noticeto vacate an asset is served we receive 12 months notice. This allows sufficienttime to implement our strategy. We have a large degree of visibility into our clients' occupational requirementsgiven our day to day relationships and the assistance and advice we contributeto their estate management strategies. To this extent we have a two to threeyear pipeline of potential opportunities for capital receipt generation. Thesecapital receipts are visible and predictable and provide a solid and recurringsource of organic growth. From the commencement of our outsourcing contracts in2001 to 31 December 2007, we have generated £190.2 million (2006: £164.1million) from capital receipts. The benefit of the inherent flexibility in ouroutsourcing contracts enables us to create and manage flows of returns in thisway. Since our last valuation at 30 September 2007 we have experienced a decline invalues of 4.3% across our portfolio with the largest fall coming from the DPIPortfolio which fell by 7.7% and experienced an adverse yield shift of 56 basispoints in line with IPD's price index. In 2007 we acquired 23 assets totalling£223.3 million at an average net initial yield of 6.4%. This brings the totalDirect Property Investments Portfolio to £996.5 million with an average netinitial yield of 6.9 %. A significant purchase during the year was the £62.0million acquisition of Elinia House in Cardiff, one of three key data centresoccupied by BT. This lease contains fixed annual uplifts in rent and runs until2020. Results and dividend During 2007 we achieved growth in funds from operations of 23.4% enabling anincrease in our dividend of 11.9%. For the fourth quarter we announce a dividendof 47 pence per share. Our loss before tax of £129.0 million was directly affected by non-cashrevaluation losses of £148.6 million. However revaluation losses taken to theincome statement do not impact our cashflows. People We would like to thank all the staff at Mapeley for their continued hard workand focus during 2007. It is a tremendous achievement that we were able toproduce these results given the challenging macro environment. We put this downto the combined efforts and creativity of our people. Chairman's and Chief Executive's Statement (continued) Current trading and Outlook In March 2008 we completed the refinancing of our £257 million Revolving Deltaacquisition facility. This has been replaced with a new £152 million seven yearterm facility and a separate £60 million facility maturing in April 2009. Thebalance of the repayment was made with cash from within the business. Followingthis refinancing the average total cost of borrowing across the Group is 5.7%. We expect the strong credit worthiness of our tenants to support our cashflowsand expect our vacancy rate to remain stable. We also expect to continue toenhance the performance of our portfolio by asset management initiatives andthrough a continuation of high success rates for achieving lease roll-overs andre-gears. With regard to new acquisitions we are continually reappraising newopportunities and sources of capital to drive growth. We will also continue tobuild our database of assets and have a strong pipeline of acquisitionopportunities to exploit, when we feel the opportunity is right. We look forward to 2008. Jamie Hopkins Wes EdensChief Executive Officer Chairman Business Review Milestones 2007 • Continued to outperform IPD on the leasehold estate, driving organic growth • £8.6 million of disposal profits generated from the sale of vacant assets • 266 rent reviews carried out on estate • £41.9 million spent on estate enhancement Overview Mapeley Limited (Mapeley, the Company or the Group) is a Guernsey-based propertyinvestment and outsourcing company which owns, manages and operates a portfolioof properties located throughout the entire UK, covering some 2.4 million squaremetres and with a presence in every major town and city. Mapeley EstatesLimited, a wholly owned subsidiary of Mapeley, provides a complete range ofmanagement services to Mapeley's portfolio and its asset owning subsidiaries. Mapeley drives returns through managing property risk and owns £2.1 billion ofreal estate. In addition to owning real estate Mapeley also has an operatingbusiness. As part of its outsourcing contracts it manages leasehold assetsoccupied by its clients, provides facilities management services and projectconstruction services. Mapeley's portfolio is split between its Outsourcing and Direct PropertyInvestment Portfolios ("DPI"). Mapeley acquires freehold assets either as partof bundled outsourcing contracts or directly in the investment market, and isfocussed on acquiring good quality assets let to strong credit tenants. With leasehold assets, Mapeley's clients commit to and pay for the benefit ofoccupation of these buildings and Mapeley has the corresponding financialexposure to the underlying landlord through the lease. Mapeley negotiates rentreviews and lease renewals as principal with third party landlords in order tomanage costs. Mapeley has created a spread of income received from clients overcosts paid to landlords through the management of these leasehold assets. Theunique insight into the markets the business operates in is gained by acting asboth landlord and tenant, enables the maximisation of returns. Mapeley provides a full range of facilities management services, ranging fromcatering and cleaning to childcare and security services, to the HMRC and IPSestates as part of the bundled outsourcing contracts. One facilities managementprovider delivers these services on behalf of Mapeley. By consolidating theprovision of the services to one partner Mapeley benefits from pricing benefitsthrough scale. Servicing the outsourcing clients' estates gives valuable insightinto their occupational strategies and enables the mitigation of vacancy risk. The Group's aim is to become the leading owner and operator of UK regionalcommercial real estate let to Government and investment grade tenants. Thecredit quality of tenants is of fundamental importance. A list of top 10 tenantsand their contribution to total revenue is set out below. Save for the UKGovernment and Abbey, Mapeley does not have any significant exposure to any oneclient or sector. These clients are targeted as their occupational requirementsare often complex and Mapeley estimates that they will remain in occupation oftheir assets for the long-term. 93% of the portfolio income is from governmentor investment grade tenants and the portfolio vacancy rate of only 3.5% is lowand stable. Tenant Percentage of total group revenueHMRC 50.1%Abbey 20.8%Other government and local authorities 5.9%Identity & Passport service (government) 5.6%British Telecommunications plc 2.0%Microsoft Ltd 1.7%Diligenta Ltd * 1.0%Zurich Assurance Ltd 1.0%WS Atkins 0.9%KPMG LLP 0.6% *a subsidiary of Tata Consulting In total, the estate covers 2.4 million square metres and 1,689 assets. Throughthe flexibility inherent in the outsourcing contracts, a portfolio of this sizecreates many opportunities for creating value through asset management,disposals, re-lettings and contract and lease extensions. Business Review (continued) Portfolio Review The Group's real estate portfolio is split into two distinct segments, namelyOutsourcing Contracts and Direct Property Investments ("DPI") however thecharacteristics of the assets in both portfolios are very similar. As at 31 December 2007, Mapeley owned and managed 1,689 properties with aproperty portfolio value* of £2.1 billion. This valuation covers only the 595freehold and valuable long leasehold properties which Mapeley owns. Of these£1.8 billion, by value, and 237, by number, are office assets and £0.3 billion(358) are retail and other. The remaining 1,094 are rack-rented, occupationalleasehold interests where Mapeley acts as tenant on behalf of its clientsthrough its outsourcing contracts (see 'Outsourcing Contracts' below for furtherdetail on these portfolios). These rack-rented leaseholds do not carry any valuein Mapeley's financial statements, they are short leases where the rent reservedunder the lease is close to the market rent for the property and are typicallysubject to regular, five-yearly, upward-only rent reviews. The geographic spread of the portfolio by value and by area as at 31 December2007, as per IPD regions, was as follows: Number of By area By value of By value of By value of Total properties office assets retail assets other assets sqm £m £m £m £mCity of London 12 25,493 41,354,545 - - 41,354,545East Midlands 68 132,507 113,717,273 13,429,200 - 127,146,473Eastern 165 191,829 105,151,727 19,676,300 736,364 125,564,391Inner London 112 182,158 30,475,000 38,552,700 999,091 70,026,791London-Mid Town 6 28,182 - - - -London West-End 14 27,364 26,000,000 6,241,000 - 32,241,000North East 86 130,553 102,762,364 5,844,100 - 108,606,464North West and Merseyside 169 235,401 143,488,182 28,863,600 - 172,351,782Northern Ireland 53 42,359 16,956,364 3,634,700 - 20,591,064Outer London 151 137,913 99,099,091 37,714,400 - 136,813,491Scotland 149 227,801 242,195,000 22,482,400 109,091 264,786,491South East 255 379,770 434,813,182 41,265,000 - 476,078,182South West 132 165,248 134,472,091 21,354,000 100,000 155,926,091Wales 88 117,133 108,778,818 13,058,200 781,818 122,618,836West Midlands 110 185,212 129,795,273 21,957,100 - 151,752,373Yorkshire and Humberside 119 170,340 96,224,818 13,999,400 - 110,224,218Total 1,689 2,379,263 1,825,283,728 288,072,100 2,726,364 2,116,082,192 *property portfolio value is defined as the Group's property assets as valued byone of the Group's valuers, CBRE or Knight Frank, or the Directors. Business Review (continued) a. Outsourcing Contracts Real estate outsourcing involves the transfer of an organisation's property andthe risks associated with occupying, managing and servicing that property. Entering into a real estate outsourcing contract with Mapeley provides occupierswith real estate platform solutions which enable: 1. Transfer of all risks relating to real estate, leaving the occupier better placed to focus on its core business 2. Price certainty at pre-agreed costs 3. Release of capital where asset transfer occurs 4. Occupational flexibility through pre-paid vacation rights 5. Improved customer service There is a degree of additional activity in the Outsourcing Contracts versus theDPI Portfolio, given the existence of leasehold assets, facilities managementand project construction services. In the case of HMRC and Abbey, these are 20year agreements with cost certainty and limited pre-paid rights to vacate,allowing the clients flexibility in their occupational requirements over theterm of the contracts. Mapeley benefits from any difference between the income it receives fromits outsourcing clients and its outgoing costs to third parties, such as rentand payment for facilities management and project construction services. Rentalpayment obligations, which reflect the open market rent it pays to itslandlords, are by far the most significant of these costs. Mapeley's incomerebases upwards each year whereas the outgoing rental costs which Mapeley paysout to third party landlords are reviewed typically on a five-yearlybasis. Mapeley generates returns to the extent it minimises rental uplifts onrents payable to a lower level than contracted rental income growth of either 3%or RPI (in the case of Abbey and HMRC respectively). In 2007, on a like for likeand mark to market basis, the annual growth in outgoing rental liabilities paidby Mapeley since acquiring these leases was 2.0% compared with average incomeincreases of 3.2% per annum. IPD has analysed the Group's performance on the leasehold portfolio for 2005 and2006 rent reviews relative to its benchmark of performance. For 2005 and 2006rent reviews Mapeley continued to outperform the IPD benchmarks of 2.9% and 2.1%respectively by incurring only 0.9% and 1.4% annual rental growth on theleasehold portfolio. As 2008 progresses the performance of further 2006 rentreviews will be reported whilst a meaningful number of 2007 rent reviews settle. The effective management of the leasehold portfolio and a consistent focus onlimiting, and where possible, reducing costs such as rent, service charge, otherproperty related expenditure and facilities management services costs (in thecase of HMRC only) are key drivers of FFO growth for the Outsourcing Contracts. Real estate outsourcing deals are difficult to predict due to the scale andcomplex nature of outsourcing transactions, Mapeley is one of very few operatorscurrently in the UK with the capacity, specialist knowledge and ability toundertake such large deals. So far in the UK the majority of outsourcing dealshave been transacted with either public sector or major corporates, Thelikelihood of corporate outsourcing transactions could potentially increase intimes of economic difficulty when corporates seek to become more efficient andshed non-core risk, such as property. Within the Outsourcing Contracts segment, the Group holds three portfolios, asdescribed below: i. Her Majesty's Revenue & Customs (HMRC) Portfolio Assets in the HMRC Portfolio are held in the financial statements as Property,Plant and Equipment given the existence of the outsourcing contract whichcomprises these assets. The HMRC Portfolio was acquired in 2001. The transactioninvolved the acquisition of freehold and long leasehold properties andrack-rented leasehold properties under a purchase and leaseback agreement for a20-year duration. This portfolio totalled 1.5 million square metres,representing the majority of HMRC's UK property, including offices, customercontact centres and other facilities located in 279 towns and cities across theUK. In addition, the Group provides comprehensive property and facilitiesmanagement services to HMRC. These services include maintenance, life cyclereplacement, cleaning, help desk, security, catering, childcare, health andsafety, utilities, equipment management, management of removals (churn), vendingand landscaping. HMRC pays the Group a unitary service charge on a quarterly basis which coversnot only the charge for the accommodation, but also all services that areprovided. The Group has retained responsibility for, but sub-contracted, theperformance of the majority of its obligations to provide services (other thanproperty management services) on terms that reflect and are consistentwith the Group's underlying obligations to HMRC. Mapeley has maintained theproperty risk in the outsourcing contracts but passed on risks relating to theprovision of facilities management services, such as wage inflation. ii. The Abbey Portfolio The Abbey Portfolio was acquired in 2000. The transaction involved theacquisition of freehold, long leasehold and rack-rented leasehold propertiesunder a purchase and leaseback arrangement for a 20-year duration. At the timeof acquisition, the portfolio totalled 595,000 square metres of accommodation,representing substantially all of Abbey's UK occupational portfolio. Theproperties included bank branches, offices (including Abbey's headquarters) andcall centres located in 520 towns and cities across the UK. Business Review (continued) iii. The Identity and Passport Service (IPS) Portfolio In March 2006, Mapeley won the Identity and Passport Service Authentication byInterview outsourcing contract. The Identity and Passport Service is anExecutive Agency of the UK Government's Home Office. This contract included theacquisition, fit-out and delivery of serviced office accommodation for68 interview offices throughout the UK. The contract is for an initial term ofup to five years. Work commenced on this contract in early 2006. As at31 December 2007 67 of the 68 assets were operational with the remaining officemobilised during 2008. b. Direct Property Investments Portfolio (DPI Portfolio) Mapeley also acquires single property assets and portfolios into its DirectProperty Investments Portfolio (DPI Portfolio). These assets are similar to theindividual freehold assets Mapeley has acquired under its outsourcing contracts;they are good quality, regional office buildings located throughout the UK. Thekey acquisition criteria for these assets is the quality of the building, thetype of tenant, the strength of the tenant's covenant, the acquisition yield andMapeley's assessment of whether the tenant is likely to remain in occupation ofthe building. Acquisitions during 2007 ranged in cost from £1.0 million to £62.0 million.During 2007, the Group acquired 23 freehold or long leasehold properties at acost of £223.3 million, and at an average net initial yield of 6.4% . As at 31 December 2007 the total DPI Portfolio was valued at £996.5 million andthe current yield on the portfolio is 7.7%. Approximately 40% of the acquisitions made in 2007 were sourced from eitherMapeley's proprietary acquisition database or by direct approaches to existingowners. At the year end, properties in the DPI Portfolio were 98.5% let and incomeproducing on fully repairing and insuring leases to central and local Governmentand major corporate tenants. The average unexpired lease length across the DPIPortfolio was 8.2 years. c. Portfolio valuations Mapeley's portfolio is valued on a quarterly basis by independent valuers and100% of each portfolio is valued at each valuation by either CB Richard EllisLimited ("CBRE"), Knight Frank LLP ("Knight Frank") or the Company's Directors(see notes 7 and 8 to the financial statements for classification of these assets). As at 31 December 2007, the Group's total Property Portfolio had avalue of £2,123.5 million (2006: £2,046.2 million) generating total revenue of£417.4 million during the year (2006: £385.0 million). Of this, £324.6 millionof rental income was generated from the Group's portfolio of 1,689 properties(2006: £296.4 million from 1,683 properties). Over 93% of the Group's income wasgenerated from Government and investment grade tenants. On a like for like basis the value of the total portfolio fell from £2,031.3million to £1,920.6 million between 31 December 2006 and 31 December 2007. Asbetween 30 September 2007 and 31 December 2007, on a like for like basis thevalue of the total portfolio fell by £94.7 million from £2,210.8 million to£2,116.1 million representing an adverse yield shift of 42 basis points appliedto the portfolio by the Group's valuers. i. HMRC Portfolio: The value increased by 0.6% to £563.4 million (2006:£560.1 million). During 2007 Mapeley retendered for valuers for this portfolio. As a resultSavills, who had historically valued the portfolio, were replaced by CBRE. As at31 December 2007, the HMRC Portfolio had a value of £563.4 million (31 December2006: £560.1 million). The current yield on this portfolio at 31 December 2007was 8.2 % (2006: 8.4%). As at 31 December 2007 the HMRC Portfolio comprised 136 freehold or longleasehold properties, (31 December 2006: 138) and 371 rack rented leaseholdproperties (31 December 2006: 380). Portfolio occupancy (based on area) was98.1% at 31 December 2007 (31 December 2006: 98.9%). Business Review (continued) ii. Abbey Portfolio: The value fell by 3.4% to £556.2 million (2006:£575.7 million) As at 31 December 2007, the Abbey Portfolio (see note 8) had a value of £556.2million (31 December 2006: £575.7 million). The Abbey Portfolio fell in value by£20.1 million, 3.5% compared to 30 September 2007. The reason for the fall invalue was an adverse yield shift of 21 basis points applied to the portfolio bythe Group's valuers, in line with market expectations. The current yield on thisportfolio at 31 December 2007 was 6.6% (2006: 6.3%). As at 31 December 2007 the Abbey Portfolio comprised 367 freehold or longleasehold properties (31 December 2006: 367) and 656 rack rented leaseholdproperties (31 December 2006: 698). Portfolio occupancy (based on area) was89.7% at 31 December 2007 (31 December 2006: 90.3%). iii. Direct Property Investments Portfolio: The value increased by 10.3% to£996.5 million (2006: 903.7 million). The increase of £92.8 million arose largely from the acquisition of 23properties into the DPI Portfolio during the year in line with the Group'sinvestment strategy. On a like-for-like portfolio basis, the 69 properties which Mapeley owned at 31December 2006 and 31 December 2007, fell in value by £102 million, a fall of11.4%, reflecting an adverse yield shift of 82 basis points applied tothe portfolio by CBRE, the Group's valuers. As between 30 September 2007 and 31December 2007 on a like for like portfolio basis the value of this portfoliofell by £82.6 million, from £1,079.1 million to £996.5 or 7.7% reflecting anadverse yield shift of 56 basis points. The current yield on this portfolio as at 31 December 2007 was 7.7% (2006:6.9%). d. 2008 portfolio events During 2008, Mapeley anticipates the following portfolio events: 6 lease breaks exercisable on the DPI Portfolio on a rent roll of £0.8 million 11 lease renewals on the DPI Portfolio on a rent roll of £1.8 million 118 rent reviews as tenant in properties in the Group's Outsourcing Portfolio ona rent roll of £22.6 million 21 rent reviews as landlord in properties in the Group's total PropertyPortfolio on a rent roll of £0.5 million 68 lease renewals as tenant in properties in the Group's Outsourcing Portfolioon a rent roll of £4.0 million 35 lease renewals as landlord in properties in the Group's total PropertyPortfolio on a rent roll of £1.2 million Property management The Group regularly reviews national and regional estate strategies in order totake advantage of opportunities to match its property interests to theaccommodation requirements of its tenants. During 2007: • Mapeley settled 207 rent reviews on rack-rented properties in the portfolio as tenant (2006: 187) with an annual rent roll of £54.5 million (2006: £30.4 million). The average increase was 1.6% per annum • Mapeley completed lease renewals for 51 properties as tenant (2006: 39) with an annual rent roll of £3.2 million (2006: £3.5 million). The average annual increase in rent payable in 2007 was 1% • Mapeley settled 82 rent reviews as tenant with nil increases (2006: 82) • Mapeley settled 59 rent reviews as landlord (2006: 45) with an annual rent roll of £20.5 million (2006: £1.6 million). The average increase was 0.9% per annum • Mapeley completed lease renewals for 22 properties as landlord (2006: 10) with an annual rent roll of £2.6 million (2006: £0.2 million). The average annual increase in rent payable in 2007 was 1.7% • Mapeley let 41 vacant properties during the year (2006: 44), generating £4.3 million (2006: £1.6 million) of additional income and maintained a low vacancy rate of 3.5% across the whole portfolio • Mapeley spent £41.9 million on repair, refurbishment and construction projects (2006: £36.8 million) to enhance the quality of its estate in an efficient and cost effective manner. The agreements with Abbey and HMRC both provide for annual indexation, with a 3%per annum increase in amounts payable by Abbey and an RPI-linked increase onpayments by HMRC. As a result, 70% (2006: 76%) of the income Mapeley receives issubject to annual uplifts, with virtually all of the balance of the income beingsubject to five-yearly upward-only rent reviews. To 31 December 2007, ona like for like and mark to market basis, the annual growth in rentalliabilities paid by Mapeley since acquiring these leases has been 2.0% per annumas compared with an increase in income of 3.2%. Business Review (continued) Services a. Property services Mapeley provides a wide range of facilities management ("FM") services throughits wholly-owned subsidiary Mapeley Estates Limited, to approximately 100,000 ofits tenants' employees in 759 buildings. Examples of these services includemaintenance and life cycle replacement, security and cleaning, catering andchildcare. Mapeley provides FM services to HMRC and IPS under its outsourcingcontracts. During 2007 Mapeley's procurement team won two awards in respect of servicesprocured in respect of the procurement of water point of use and childcareservices on behalf of HMRC for its estate. The service provision is coordinated through Mapeley's 24-hour help desk. In2007, the help desk received 108,093 calls (2006: 107,609). Mapeley's ability tooffer such services provides it with two important advantages: the ability topursue other similar transactions where such a service requirement might existand real time access to and insight into its tenants' changing occupationalneeds. This means that the Group is well positioned to provide its tenants withappropriate solutions and to manage the estate better through being able toanticipate and predict their occupational requirements. In the year ended 31 December 2007, Mapeley provided services with a value of£47.6 million (2006: £ 45.2 million). b. Construction and fit-out projects services Mapeley has an extensive in-house projects team who are responsible for carryingout requested capital works projects to the HMRC and IPS estates such asrefurbishments, fit-out, space planning and life cycle works. Whenproviding these services Mapeley earns a margin in addition to the unitarycharge receivable from HMRC and IPS for its professional services. In addition, Mapeley manages the delivery of refurbishment projects for Mapeleyfunded projects and for third party clients. Its proven project managementcapabilities enables Mapeley to influence and add value to the way itsclients use and refurbish their space. In the year ended 31 December 2007, Mapeley carried out repair, refurbishmentand construction projects with a value of approximately £41.9 million (2006:£36.8 million). Our people Mapeley continues to recruit and retain the highest calibre of employees.Mapeley is dedicated to building, rewarding and retaining a diverse, highlyskilled and motivated workforce. As at 31 December 2007, Mapeley had 132employees (2006: 131). Mapeley is committed to providing effective and appropriate learning anddevelopment opportunities for all employees. This year, Mapeley successfullyrolled out a management development programme, which is predominantly aimed atsenior managers in the organisation. This is a bespoke programme which focuseson developing leadership and management skills such as coaching, managingperformance and personal effectiveness. In recognising that a good induction for new staff is of fundamental importanceto the success of the organisation, Mapeley has developed a new inductionprogramme which provides employees with role specific training at an early stagein their career at Mapeley. In addition, the company supports a number of staffto gain professional qualifications through further education. Mapeley continues to review and develop a reward and recognition managementstrategy. Remuneration and reward packages are externally benchmarked againstcompanies of a similar size and industry. Financial Review Funds from operations ("FFO") FFO is a non-GAAP financial management measure used to demonstrate theunderlying operating performance of real estate businesses, its definition isset out in note 18 to the preliminary announcement. It provides investors withinformation regarding the Group's ability to service debt and make capitalexpenditure. The measure eliminates from EBITDA items that are non-cash innature such as the movement in the onerous lease provision and includes cashitems such as asset management receipts and net finance costs and income leavinga measure that is more representative of the operating performance of theunderlying business. FFO was £56.4 million for the year ended 31 December 2007, compared with £45.7million for the year ended 31 December 2006. The increase in FFO of £10.7million was primarily driven by increases in net operating income as a result ofproperty purchases in the period, disposal proceeds and asset managementreceipts. These increases were offset by an increase in finance costs due to thefinancing of new asset purchases. The Group separately discloses organic FFO, being the FFO generated after thefirst twelve months after an asset has been purchased or an outsourcing contracthas commenced. Organic FFO in the year ended 31 December 2007 was £50.2 millioncompared to £32.2 million in 2006. Dividends At a meeting held on 14 March 2008, the Board of the Company declared a dividendfor the quarter of £13.8 million, equating to £0.47 per share (quarter ending 31December 2006, £13.2 million, equating to £0.45 per share) based on the numberof shares in issue on an undiluted basis during the period. This brings thetotal cumulative dividends declared for the year ending 31 December 2007 to£1.88 per share (2006: £1.68), representing an increase of 11.9%. The record date for the dividend declared on 14 March 2008 is 28 March 2008 andthe payment date is 11 April 2008. Result for the year The Group recognised a loss for the year ended 31 December 2007 of £124.9million compared to a profit of £53.7 million for the year ended 31 December2006. This was due mainly to the impact of the revaluation movements arisingfrom the investment property portfolios. In the year ended 31 December 2007 theGroup recorded a revaluation deficit of £148.6 million compared to a revaluationsurplus of £40.8 million in the year ended 31 December 2006. Excluding the effects of the revaluation movements, the Group's profit after taxincreased from £12.9 million in 2006 to £23.7 million in 2007. The main reasonfor this is an increase in net contract, rental and related income of £27.5million offset by an increase in net finance costs of £6.3 million. This isfurther offset by a decrease in gains on disposal of £3.2 million in the yearended 31 December 2006 compared to gains of £0.3 million in the year ended 31December 2007. In addition the Group recognised a deferred income tax credit of£4.1 million in 2007 compared to £10.9 million in 2006. Revenue Group revenue for the year ended 31 December 2007 was £417.4 million, anincrease of £32.4 million (8.4%) over the same period last year. Revenueconsists of the following items: • Rental revenue - rental revenue is derived from tenants in the Direct Property Investments ("DPI") Portfolio, as well as any third party tenants occupying space in the HMRC and Abbey Portfolios. There has been an increase of £19.6 million in rental revenue due to purchases of investment property in the DPI Portfolio and the full year effect of 2006 property acquisitions. • Contractual revenue - Contractual revenue has increased by £12.1 million. This is due to: o An increase in the contractual revenue from the HMRC contract due to the indexation uplift in the facility unitary charge, which incorporates all elements of the HMRC contract such as the contractual rents, the facilities management income and the lifecycle income. o An increase in contractual revenue from the IPS contract as a result of increases in both the capital works income from the ongoing refurbishment of properties, and from the facility unitary charge. The facility unitary charge covers the rental and facilities management income which commences as properties are completed. The increase in capital works income is offset by a corresponding increase in capital works costs as included within other direct property and contract expenditure. o These are offset by decreases in contractual rents under the Abbey contract due to vacations. Financial Review (continued) Property operating expenses The property operating expenses of the Group for the year ended 31 December 2007were £288.4 million (of which £171.3 million was rents payable) compared to£283.5 million (of which £173.9 million was rents payable) during the sameperiod in the previous year, an increase of 1.7%. The increase was primarilydriven by £5.3 million of costs associated with the IPS contract, increases infacilities management and life cycle expenditure of £4.3 million and £0.9million of refurbishment expenditure. This was offset by decreases in rentalspayable of £2.6 million due to vacations, and decreases in dilapidations costsof £3.0 million. Net valuation deficit on investment property The Group recognised a deficit of £148.6 million (2006: surplus of £40.8million) on revaluation of investment property. See the Business Review andbelow for further details. Gain on disposal of non-investment property During the year ended 31 December 2007 the Group disposed of two properties fromproperty, plant and equipment. The Group recorded a loss on disposal of £0.7million as the proceeds received of £7.5 million (net of disposal costs of £0.4million) were lower than the carrying value in the balance sheet of £8.2million. However this had a positive impact on FFO of £4.9 million since theproperties were originally purchased for £2.6 million. In addition the Group disposed of two properties from non-current assets heldfor sale. Proceeds were received of £4.0 million and the properties were carriedat £3.0 million and therefore the Group realised a gain of £1.0 million. Theimpact on FFO of these disposals was a positive impact of £3.7 million since theproperties had been purchased for £0.3 million. Administrative and other expenses Administrative and other expenses were £20.2 million for the year ended 31December 2007 compared to £20.7 million for the year ended 31 December 2006, adecrease of 2.5%. In the prior year the Group incurred significant costs inrespect of a bid for a potential outsourcing contract. This was non-recurring in2007 however this reduction has been partially offset by increases in staff andaccommodation costs. EBITDA EBITDA (see note 17) was £115.4 million for the year ended 31 December 2007,compared to £93.5 million for the year ended 31 December 2006, an increase of23.4%. As described above this was primarily a result of total revenue growth of8.4% outstripping property operating expenditure growth of 1.7%. Finance costs and finance income Finance costs in the year ended 31 December 2007 were £98.4 million (31 December2006 £89.6 million). The prior year finance costs included exceptional breakcosts of £19.8 million relating to the refinancing of the HMRC portfolio.Excluding exceptional break costs finance costs have increased from £69.8million to £98.4 million, an increase of £28.6 million. The following items havecontributed to the underlying movement: • Additional finance costs in the DPI portfolio of £13.8 million due to the financing of asset purchases in 2007 and the full year effect of the financing of 2006 asset purchases. • An increase of £3.0 million in the amortisation of loan finance fees. This increase has been primarily driven by the amortisation of the costs of raising finance on the Delta revolving facility. • These increases are partially offset by a decrease of interest costs of £1.6 million on the HMRC portfolio, which benefited from better terms as a result of the refinancing of this facility in 2006. • Swap valuation losses of £12.9 million were incurred on swaps held under the Delta revolving facility. Finance income has increased in the period from £6.8 million in 2006 to £9.3million in the year ended 31 December 2007. This is primarily due to a £2.1million increase in swap valuation gains. Swap gains and losses are recorded on the cash flow hedges entered into to fixinterest rates on the property acquisitions in the Delta portfolio. As at 31December 2007 the Group had swaps with a total notional value of £257.6 million(2006: £20.7 million) outstanding on the Delta revolving facility. Since theseswaps do not qualify for hedge accounting all gains and losses from revaluationto fair value are recorded in the income statement. The Group also has a long term interest swap on the Abbey term loan to fix theinterest rate. This swap qualifies for hedge accounting and therefore allmovements in the fair value of the swap are recorded through equity and do notimpact the loss for the year. Financial Review (continued) Taxation Certain Group companies are resident in Bermuda and are classified as UKNon-resident Landlords for tax purposes. Taxable profits in these companies aresubject to UK income tax and are exempt from local Bermuda taxes. In the year ended 31 December 2007 the Group and its subsidiaries recorded acurrent tax charge of £0.1 million in 2007 (2006: £nil) relating to UK incometax and withholding tax. The Group has not paid any other income or corporationtax in either 2007 or 2006 in any of the jurisdictions in which it operates dueto its tax residence and the availability of current and prior year tax lossesand other tax deductible allowances. As at 31 December 2007 the Group hasrecorded a deferred tax asset of £15.1 million (2006: £10.9 million) in respectof losses not utilised, decelerated capital allowances and asset managementreceipts. This resulted in a deferred tax credit in the year ended 31 December2007 of £4.2 million (2006: £10.9 million). The recognition of this asset hasbeen based upon an assessment of the probability of the future profits of Groupcompanies. The Group has additional tax losses and deductions that would be availableindefinitely for offset against future taxable profits of the companies in whichthe losses and deductions arose. The Group has not recognised a deferred incometax asset in respect of these losses and deductions due to the degree ofuncertainty over both the amount and timing of utilisation. In the year ended 31 December 2007 the Group recognised a deferred tax credit of£0.8 million (2006: expense £4.6 million) directly in equity on unrealisedvaluation surpluses in respect of derivative financial instruments and certainproperty assets domiciled in the United Kingdom. These deferred tax liabilitiesare unlikely to be realised due to the availability of prior year tax losses. Non-current assets Non - current assets comprise property, plant and equipment, investmentproperty, premiums on operating leases, long term trade receivables, financialinstruments and deferred tax assets. Total non-current assets at 31 December2007 have increased by £67.9 million from £2,078.6 million at 31 December 2006to £2,146.5 million, an increase of 3.3%. Property, plant and equipment Property, plant and equipment comprise assets held under the HMRC Portfolio. HMRC Portfolio The HMRC Portfolio comprises 136 freehold or long leasehold properties (31December 2006: 138) and 371 rack rented leasehold properties (31 December 2006:380). Portfolio occupancy (based upon area) was 98.1% (31 December 2006: 98.9%). As at 31 December 2007, the HMRC Portfolio (see note 7) was valued by externalvaluers at £563.4 million (31 December 2006: £560.1 million). £33.6 million(2006: £39.2 million) of assets included in this valuation are held as premiumsunder operating leases. In addition properties valued by the external valuers at£14.4 million are held within non-current assets held for sale at book value of£9.1 million. During the period the Group disposed of two vacant properties fromthe portfolio and transferred four properties to non-current assets held forsale, these properties are being actively marketed and will be disposed of earlyin 2008. Valuation assumptions are set out in note 7 to the preliminary announcement. Theproperties are valued by capitalising income at an appropriate property yield.The valuations also take into account the risk of the tenants exercising breakoptions in addition to an allowance applied to the capital value to account forthe obligation to provide services under the terms of the contract of HMRC. Financial Review (continued) Investment property Investment property increased from £1,483.1 million as at 31 December 2006 to£1,558.0 million as at 31 December 2007. Investment property includes assetsheld under the Abbey Portfolio and under the Direct Property InvestmentsPortfolio. The split of the movements in the two portfolios is as follows: Abbey DPI Investment Portfolio Portfolio Property £m £m £mValuation at 31 December 2006 by external valuers 575.7 903.7 1,479.4Valuation at 31 December 2006 of finance leases - 4.2 4.2Assets held as non-current asset for sale (0.5) - (0.5) ------ ------ -------Total investment property at 31 December 2006 575.2 907.9 1,483.1Additions - 223.5 223.5Revaluations (19.0) (129.6) (148.6) ------ ------ -------Valuation at 31 December 2007 by external valuers 556.2 996.5 1,552.7Valuation at 31 December 2007 of finance leases - 5.3 5.3 ------ ------ -------Total investment property at 31 December 2007 556.2 1,001.8 1,558.0 ====== ====== ======= External valuations are based upon income streams capitalised at an appropriateyield; further assumptions are set out in note 8 to the preliminaryannouncement. The decrease in the valuation during the year is consistent withthe shift in yields across the property sector. The Abbey Portfolio As at 31 December 2007, the Abbey Portfolio (see note 8) had a value of £556.2million (31 December 2006: £575.2 million). It comprised 367 freehold or longleasehold properties (31 December 2006: 367) and 656 rack rented leaseholdproperties with nil capital value (31 December 2006: 698 properties). Portfoliooccupancy (based on area) was 89.7% at 31 December 2006 (31 December 2006:90.3%). Direct Property Investments ("DPI") Portfolio As at 31 December 2007, the DPI Portfolio (see note 8) comprised 92 properties(31 December 2006: 69) with a value of £996.5 million (31 December 2006: £903.7million). The current yield on this portfolio as at 31 December 2007 was 7.7%(31 December 2006: 6.9%). The properties were 98.5% let on fully repairing andinsuring leases to central and local Government and investment grade tenants (31December 2006: 97.9%) with an average unexpired lease length of 8.2 years (31December 2006: 7.8 years). Non-current assets held for sale Non-current assets held for sale increased to £9.1 million (2006: £3.0 million)as a result of the transfer of four assets from property, plant and equipment.These properties have become or will become vacant and are being activelymarketed and it is anticipated that they will disposed of early in 2008. Prioryear non-current assets held for sale of £3.0 million were disposed of in early2007, yielding proceeds of £4.0 million. Financing The Group's financial strategy is to maintain an optimal gearing ratio to ensurethat shareholders benefit from maximum leveraged returns. The Group seeks tofinance its property investments with long-term debt facilities that reflect thelong-term nature of its property investments and on which the interest rateshave been fixed by utilising a mixture of fixed rate debt and floating rate debtwith matching interest rate swap agreements. Mapeley seeks to finance new outsourcing contracts in line with this strategy atup to 80% Loan to Value ("LTV"). Purchases of direct investment properties arefinanced on a similar basis but initially using a short term revolving facilityfor 100% of purchase costs. This is subsequently refinanced at up to 80% LTV. The Group strives to eliminate the effect of interest rate fluctuations on itsearnings and in order to achieve this, hedges its anticipated long termfinancial liabilities using interest rate swaps or fixed rate debt at theearliest opportunity, normally on the purchase of a property. Although the Grouphas arrangements in place that hedge its interest rate exposure on substantiallyall of its borrowings, not all of these arrangements are eligible for hedgeaccounting. Financial Review (continued) Financing (continued) Bank loans At 31 December 2007, £1,496.0 million had been drawn under the Group's loanfacilities (31 December 2006: £1,278.3 million).The Group drew down funds of£221.0 million in the period and repaid loans of £3.3 million following thedisposal of properties. Amounts drawn down are as follows: Facility Interest terms 31 December 31 December 2007 2006 £ million £ millionTerm loan under HMRC Portfolio facility Fixed rate loan 173.0 176.0 Term loan under Abbey Portfolio Variable rate loan with 100% facility matching interest rate swap 454.6 455.0Acquisition term loan Fixed rate loan 170.9 170.9Term loan under Beta Portfolio facility Fixed rate loan 208.6 208.6Term loan under Gamma Portfolio facility Fixed rate loan 231.3 231.3 Revolving Delta Acquisition facility Variable rate loan with associated interest rate swaps 257.6 36.5 ------- ------- 1,496.0 1,278.3 ======= ======= At 31 December 2007 swaps with a notional value of £257.6 were in place againstthe Delta revolving facility (31 December 2006: £20.7 million). Refinancing The Group has continued to finance the acquisition of direct propertyinvestments using its three year £400.0 million revolving facility (the DeltaAcquisition facility). At 31 December 2007 £257.6 million was drawn down underthis facility. The facility expires in April 2008 and is therefore held withincurrent liabilities. This facility has since been refinanced with a £152 millionseven year term loan, a £60 million loan repayable in April 2009 and cash fromwithin the business. Further detail on this is given in note 12 to thepreliminary announcement. Cash flow 2007 2006 £ million £ millionNet cash flows from operating activities 65.4 35.7Net cash flows used in investing activities (211.8) (359.9)Net cash flows from financing activities 160.8 319.4Net increase/(decrease) in cash and short term deposits 14.4 (4.8) The following table summarises the Group's cash flows for the years ended 31December 2007 and 2006: In the year ended 31 December 2007, the Group generated strong operating cashflows driven by operating profits. The largest non-operating cash outflow hasbeen the acquisition of property of £222.3 million financed by the drawdown ofdebt. Consolidated income statement - for the year ended 31 December 2007 Note 2007 2006 £m £m Revenue 2 417.4 385.0Property operating expenses 2 (288.4) (283.5) ---------- ---------- Net contract, rental & related income 129.0 101.5 Net valuation (deficit)/surplus oninvestment 2 (148.6) 40.8property(Impairment)/reversal of impairment ofnon-investment property 2 (0.4) 0.8Gain on disposal of non-investment property 2 0.3 3.2Administrative and other expenses 2 (20.2) (20.7) ---------- ---------- Operating (loss)/profit (39.9) 125.6 Finance costs 3 (98.4) (89.6)Finance income 3 9.3 6.8 ---------- ---------- (Loss)/profit before tax (129.0) 42.8 Income tax credit 4 4.1 10.9 ---------- ----------(Loss)/profit for the year (124.9) 53.7 ========== ==========attributable to equity holders of theparent company Dividends £m £m- paid 5 54.6 40.9- proposed and declared 5 55.2 45.8 ========== ========== Dividends per share Pence/share Pence/share- paid 5 186 160- proposed and declared 5 188 168 ========== ========== (Loss)/earnings per share Pence/share Pence/share- basic 6 (424) 200- diluted 6 (424) 200 ========== ========== Consolidated statement of changes in equity - for the year ended 31 December 2007 Issued Share Net Retained Asset Other Total capital premium unrealised losses revaluation reserves equity gains/ reserve (losses) £m £m £m £m £m £m £mAt 1 January2007 - 329.2 14.7 (49.9) 315.2 103.5 712.7 Revaluationsurplus - - - - 12.2 - 12.2Depreciationwritten backon revaluation ofnon-investmentproperty - - - - 3.0 - 3.0Transfer ofexcessrevaluationdepreciation - - - 2.9 (2.9) - -Transfer ofrevaluationsurplus onassetdisposals - - - 5.8 (5.8) - -Loss on cashflow hedges - - (2.9) - - - (2.9)Tax on itemstaken directlyto equity - - 0.6 - 0.2 - 0.8 ------ ------- --------- ------- -------- ------ -------Totalprofit/(loss)for the yearrecogniseddirectly inequity - - (2.3) 8.7 6.7 - 13.1Loss for theyear - - - (124.9) - - (124.9) ------ ------- --------- ------- -------- ------ ------- Total income /(expense) forthe year - - (2.3) (116.2) 6.7 - (111.8) Cost relatedto issue ofnew ordinaryshares - (0.3) - - - - (0.3)Issue ofshares toNon-executiveDirectors - - - - - 0.1 0.1Issue ofshares toemployeesunder theEmployeeShare Plan - - - - - 1.7 1.7Equitydividends - - - (54.6) - - (54.6) ------ ------- --------- ------- -------- ------ -------At 31 December2007 - 328.9 12.4 (220.7) 321.9 105.3 547.8 ====== ======= ========= ======= ======== ====== ======= At 1 January2006 - 132.4 (26.6) (68.5) 318.6 101.6 457.5 Revaluationdeficit - - - - (2.8) - (2.8)Depreciationwritten backon revaluation ofnon-investmentproperty - - - - 5.6 - 5.6Transfer ofexcessrevaluationdepreciation - - - 5.2 (5.2) - -Transfer ofrevaluationsurplus onassetdisposals - - - 0.6 (0.6) - -Gains on cashflow hedges - - 34.6 - - - 34.6Realised gainon cash flowhedgerecognised inincomestatement - - 10.9 - - - 10.9Tax on itemstaken directlyto equity - - (4.2) - (0.4) - (4.6) ------ ------- --------- ------- -------- ------ -------Totalprofit/(loss)for the yearrecogniseddirectly inequity - - 41.3 5.8 (3.4) - 43.7Profit for theyear - - - 53.7 - - 53.7 ------ ------- --------- ------- -------- ------ -------Total income /(expense) forthe year - - 41.3 59.5 (3.4) - 97.4Issue of newordinaryshares - 203.5 - - - - 203.5Cost relatedto issue ofnew ordinaryshares - (6.7) - - - - (6.7)Issue ofshares toNon-executiveDirectors - - - - - 0.5 0.5Issue ofshares toemployeesunder theEmployeeShare Plan - - - - - 1.4 1.4Equitydividends - - - (40.9) - - (40.9) ------ ------- --------- ------- -------- ------ -------At 31 December2006 - 329.2 14.7 (49.9) 315.2 103.5 712.7 ====== ======= ========= ======= ======== ====== ======= Consolidated balance sheet - at 31 December 2007 Note 2007 2006ASSETS £m £mNon-current assetsProperty, plant and equipment 7 518.6 523.3Investment property 8 1,558.0 1,483.1Premiums on operating leases 32.2 35.2Trade and other receivables 5.6 5.9Derivative financial instruments 17.0 20.2Deferred tax asset 4 15.1 10.9 ------------- -------------Total non-current assets 2,146.5 2,078. 6 ------------- -------------Current assetsTrade and other receivables 71.2 73.8Cash and short-term deposits- in controlled accounts 10 29.1 22.7- for operational purposes 10 61.7 54.6 ------------- -------------Total current assets 162.0 151.1 ------------- -------------Non-current assets held for sale 9 9.1 3.0TOTAL ASSETS 2,317.6 2,232.7 ============= =============EQUITY AND LIABILITIESEquity attributable to equity holders ofMapeley LimitedIssued capital (net of treasury shares) 11 - -Share premium 328.9 329.2Net unrealised gains 12.4 14.7Retained losses (220.7) (49.9)Asset revaluation reserve 321.9 315.2Other reserves 105.3 103.5 ------------- -------------TOTAL EQUITY 547.8 712.7 ------------- -------------Non-current liabilitiesTrade and other payables 6.0 5.2Interest and non-interest bearing loans and borrowings 12 1,233.0 1,268.7Provisions 13 34.3 31.5Deferred asset management receipts 14 81.1 78.9Deferred tax liability 4 3.8 4.6 ------------- -------------Total non-current liabilities 1,358.2 1,388.9 ------------- -------------Current liabilitiesTrade and other payables 124.4 110.5Interest and non-interest bearing loans and borrowings 12 257.7 1.2Provisions 13 15.2 13.5Derivative financial instruments 7.8 -Deferred asset management receipts 14 6.5 5.9 ------------- -------------Total current liabilities 411.6 131.1 ------------- ------------- TOTAL LIABILITIES 1,769.8 1,520.0 ------------- -------------TOTAL EQUITY AND LIABILITIES 2,317.6 2,232.7 ============= ============= Consolidated cash flow statementfor the year ended 31 December 2007 2007 2006 Note £m £m Cash flows from operating activities(Loss)/profit before tax (129.0) 42.8Adjustment for:Net finance costs 89.1 82.8Impairment/(reversal) of impairment onnon-investment property 2,7 0.4 (0.8)Net valuation deficit/(surplus) on investment property 2,8 148.6 (40.8)Depreciation and amortisation 6.3 9.5Gain on disposal of non-investment property (0.3) (3.2)Share benefit expense 1.8 1.9 ------------- -------------Operating profit before changes in working capital 116.9 92.2Decrease/(increase) in trade and other receivables 2.9 (6.1)Increase in trade and other payables 10.2 0.9Increase in provisions 2.1 4.5Increase in deferred asset management receipts 2.9 5.6 ------------- -------------Cash generated from operations 135.0 97.1Interest paid (74.0) (65.4)Interest received 3 4.4 4.0 ------------- -------------Net cash flows from operating activities 65.4 35.7 ------------- ------------- Cash flows from investing activitiesProceeds from disposal of investment property 4.1 -Proceeds from disposal of non-investment property 7.5 6.6Purchase of property, plant and equipment 7 (1.1) (0.1)Purchase of investment property 8 (222.3) (366.4) ------------- -------------Net cash flows used in investing activities (211.8) (359.9) ------------- ------------- Cash flows from financing activitiesCosts of raising finance (1.3) (14.2)Payment of finance lease liabilities (0.7) (0.6)Swap and loan termination fees 3 - (13.4)Receipt of new bank loans 221.0 956.3Repayment of bank loans (3.3) (764.6)Proceeds from issue of ordinary shares - 203.5Costs related to issue of ordinary shares (0.3) (6.7)Dividend paid to equity holders 5 (54.6) (40.9) ------------- -------------Net cash flows from financing activities 160.8 319.4 ------------- ------------- Net increase/ (decrease) in cash and short-term deposits 14.4 (4.8)Cash and short-term deposits at 1 January 10 76.4 81.2 ------------- -------------Cash and short-term deposits at 31 December 10 90.8 76.4 ============= ============= Notes to the preliminary announcementfor the year ended December 2007 1. Basis of preparation and accounting policies The financial information comprises the consolidated balance sheets, theconsolidated statements of income, cash flow and changes in equity and therelated notes for the periods then ended. This financial information is abridgedand does not constitute the Group's statutory financial statements for the yearsended 31 December 2007 and 31 December 2006. Financial statements for the yearended 31 December 2007 have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union and wereapproved by the board of Directors on 14 March 2008. Full financial statementswill be presented to the Members at the forthcoming Annual General Meeting. Theauditors have reported on those financial statements and their report isunqualified. The accounting policies adopted in the financial information are consistent withthose as reported in the Group's annual report for the year ended 31 December2006 except where such policies have been revised to reflect amendments toInternational Accounting Standards ("IAS") and the adoption of new InternationalFinancial Reporting Standards ("IFRS") which became effective from 1 January2007 and as set out below with respect to the treatment of work in progress.Accordingly IAS 1 (para 124A - 124C) "Presentation of Financial Statements",IFRS 7 "Financial Instruments: Disclosures", IFRIC 8 "Scope of IFRS 2", IFRIC 9"Reassessment of embedded derivatives" and IFRIC 10 "Interim Financial Reportingand Impairment" have been adopted by the Group in preparing this financialinformation. The adoption of these standards has had no material impact on theGroup's financial statements. In addition the Group has adopted IFRIC 11 "IFRS 2- Group and Treasury Shares" which is applicable for periods commencing on orafter 1 March 2007. The Group has adopted this standard early but this has noimpact on reported result s at a consolidated level. The following new standards and interpretations have been issued but are noteffective for the financial year ending 31 December 2007, and have not beenadopted early: IFRS 8 "Operating segments", IFRIC 12 "Service concessionarrangements", IAS 23 "Borrowing costs", IFRC 13 "Customer Loyalty Programmes",IAS 1 "Presentation of Financial Statements" and IFRIC 14 "IAS 19 - The limit ona defined benefit asset, minimum funding requirements and their interaction". Reclassification of Work in Progress The Directors have reconsidered the treatment for work in progress since theannual report for the year ended 31 December 2006 and have concluded that it ismore appropriate to treat this item as accrued income under the terms of IAS 18 - Revenue. The effect of this change is as follows: - Work in progress of £15.7 million as at 31 December 2006 has been reclassified in the balance sheet as "unbilled revenue" which is included in trade and other receivables and the amount recorded increased by £0.5 million. - In the period to 31 December 2006 revenue has decreased by £2.0 million and property operating expenditure has decreased by £1.9 million. Retained losses brought forward at 31 December 2006 have been adjusted by £0.5 million. - References to work in progress in "Funds from Operations" in note 18 have been changed to "unbilled revenue". 2. Revenue and segmental information For management purposes, the Group is currently organised into two segments inline with the Group's business model - Outsourcing contracts and Direct PropertyInvestments. These divisions are the basis on which the Group reports itsprimary segment information. The segments are described below: Outsourcing contracts This segment consists of activities arising from the purchase and subsequentleaseback of the HMRC and Abbey property portfolios and the fit-out and deliveryof serviced accommodation under the IPS contract. The main characteristics ofthese arrangements are listed below: • long term contracts (the contracts run over periods from 3 to 20 years); • agreements are tailored in accordance with the client's accommodation requirements (from simple purchase and lease back to fully serviced accommodation); • the HMRC and Abbey agreements allow them to exercise flexibility to vacate properties within defined parameters; and • under the HMRC and Abbey agreements the revenue earned is subject to annual increases. Notes to the preliminary announcementfor the year ended December 2007 2. Revenue and segmental information (continued) Direct Property Investments The Group has embarked on a separate strategy of acquiring individual andportfolios of office property. The Group's activities within this segmentfocuses on purchasing property primarily let to strong credit quality tenants,who are likely to stay in the properties for a minimum term of 5 years. The Group has a single geographical segment, being the UK commercial propertymarket. Year ended 31 December 2007 31 December 2006Business segments Direct Outsourcing Total Direct Outsourcing Total Property Contracts operations Property Contracts operations Investments Investments £m £m £m £m £m £mRental revenue 69.5 28.3 97.8 50.3 27.9 78.2Other income 0.1 1.4 1.5 - 0.8 0.8 ______________________________ ______________________________Facilityunitary charge - 232.6 232.6 - 217.7 217.7Contractualrents - 85.5 85.5 - 88.3 88.3 ______________________________ ______________________________Contractualrevenue - 318.1 318.1 - 306.0 306.0Segment revenue 69.6 347.8 417.4 50.3 334.7 385.0Rentals payable (0.7) (170.6) (171.3) (0.3) (173.6) (173.9)Other directproperty andcontractexpenditure * (3.7) (113.4) (117.1) (1.2) (108.4) (109.6) -------- ------- ------ ------- ------- ------Net contract,rental &related income 65.2 63.8 129.0 48.8 52.7 101.5(Impairment)/reversal ofimpairment ofnon-investmentproperty - (0.4) (0.4) - 0.8 0.8Net valuation(deficit)/surplus ofinvestmentproperty (129.6) (19.0) (148.6) 8.1 32.7 40.8Gain ondisposal ofnon-investmentproperty - 0.3 0.3 - 3.2 3.2 -------- ------- ------ ------- ------- ------Segment result (64.4) 44.7 (19.7) 56.9 89.4 146.3 ======== ======= ======= =======Gain on disposal of subsidiaries - -Unallocatedexpenses (20.2) (20.7) ------ ------Operating(loss)/profit (39.9) 125.6Net financecosts (89.1) (82.8)Income taxcredit 4.1 10.9 ------ ------Profit/(loss)for the year (124.9) 53.7 ====== ====== Assets andliabilitiesSegment assets 1,016.3 1,221.4 2,237.7 911.7 1,244.6 2,156.3 -------- ------- ------- -------Unallocatedassets 79.9 76.4 ------- -------Total assets 2,317.6 2,232.7 ------- ------- Segmentliabilities 11.2 208.8 220.0 2.1 189.0 191.1 -------- ------- ------- -------Unallocatedliabilities 1,549.8 1,328.9 ------- -------Totalliabilities 1,769.8 1,520.0 ------- ------- Other segmentinformationDepreciationandamortisationcharged tosegments - (6.1) (6.1) - (9.0) (9.0)Acquisition ofinvestmentproperty 222.3 - 222.3 366.4 366.4 * Other direct property and contract expenditure includes depreciation. Notes to the preliminary announcementfor the year ended December 2007 3. Finance costs and finance income 2007 2006 £m £mFinance costsBank loans and overdrafts 82.5 73.7Finance charges payable under finance leases 0.6 0.6Loss on interest swap 12.9 -Loss on breaking interest rate swap - 13.4Loan termination costs - -Unwinding of discount on provisions (see note 13) 2.4 1.9 ----------- ----------- 98.4 89.6 =========== =========== Finance incomeBank interest receivable 4.4 4.0Gain on interest rate swap 4.9 2.8 ----------- ----------- 9.3 6.8 =========== =========== Bank loans and overdraft charges include a charge of £4.1 million (2006: £7.7million) relating to loan financing fees recognised under the effective interestrate method. Of this amount £nil million (2006 £6.4 million) relates toexceptional charges as outlined below. In 2006 the Group incurred the following exceptional charge relating to therefinancing of certain Group borrowings: 2006 £mLoss on breaking interest rate swap 13.4Loan termination costs -Finance charge resulting from a change in thetiming of the repayment of the original loan 6.4 ----------- 19.8 =========== Notes to the preliminary announcementfor the year ended December 2007 4. Income tax expense The major components of income tax for the years ended 31 December 2007 and 2006are: a) Tax on profit on ordinary activities 2007 2006Tax charged in the income £m £mstatementCurrent income taxGuernsey income tax - -UK income tax 0.1 - ------- -------Current income tax charge 0.1 -Amounts overprovided in previous years - - ------- -------Total current income tax 0.1 - ------- ------- Deferred taxChange in tax rateOrigination and reversal of temporary differences (5.0) (10.9)Effect of change in tax rate 0.8 - ------- -------Total deferred tax (4.2) (10.9) ------- ------- Tax credit in the income statement (4.1) (10.9) ======= ======= b) Reconciliation of income 2007 2007 2006 2006tax charge % £m % £m (Loss)/profit before income tax 100.0 (129.0) 100.0 42.8 ======= ======= ======= ======= At the weighted average incometax rate for the Group 28.1 (36.2) 10.8 4.6Revaluation gains oninvestment properties not taxable (25.3) 32.6 (21.8) (9.4)Expenses not deductible fortax purposes and excluded income (0.2) 0.3 5.8 2.5Unutilised current year tax losses (0.9) 1.1 (0.7) (0.3)Utilisation of previouslyunrecognised losses 1.2 (1.5) (14.2) (6.0)Capital allowances in excess of depreciation 2.6 1,12 1.9 (2.5) (4.2) (1.8)Other (1.6) 2.1 (1.1) (0.5) ------- ------- ------- -------At effective income tax rateof 3.2% (2006: 25.4%) 3.2 (4.1) (25.4) (10.9) ======= ======= ======= ======= The weighted average income tax rate for the year of 28.1% (2006: 10.8%) isbased on the weighted average tax rate applicable across the Group's operations.This has been calculated by dividing (1) Group companies' profits before taxmultiplied by the tax rate applicable for each Group company by (2) the Group'sprofit before tax, given that the Group operates in various different taxjurisdictions. During the year the enacted UK income tax and corporation rates applicable from1 April 2008 were reduced to 20% and 28% respectively. Notes to the preliminary announcementfor the year ended December 2007 4. Income tax expense (continued) c) Deferred income tax The movement in deferred tax was as follows: Deferred tax assets 1 January Impact of Recognised 31 December 2007 change in tax in income 2007 rate £m £m £m £m Losses notutilised 6.5 (0.5) 7.7 13.7Deceleratedcapitalallowances 3.5 (0.2) (2.7) 0.6Assetmanagementreceipts 0.9 (0.1) - 0.8 ---------- ---------- --------- ----------- 10.9 (0.8) 5.0 15.1 ========== ========== ========= =========== 1 January Impact of Recognised 31 December 2006 change in tax in income 2006 rate £m £m £m £m Losses notutilised - - 6.5 6.5Deceleratedcapitalallowances - - 3.5 3.5Assetmanagementreceipts - - 0.9 0.9 ---------- ---------- --------- ----------- - - 10.9 10.9 ========== ========== ========= =========== Deferred tax liabilities 1 January Impact of Recognised 31 December 2007 change in tax in equity 2007 rate £m £m £m £m Revaluation ofinterest rateswaps to fairvalue 4.2 - (0.6) 3.6Deferred taxassetrecoverable inthe event ofsale ofrevaluedproperties atmarket value 0.4 - (0.2) 0.2 ---------- ---------- --------- ----------- 4.6 - (0.8) 3.8 ========== ========== ========= =========== 1 January Impact of Recognised 31 December 2006 change in tax in equity 2006 rate £m £m £m £mRevaluation ofinterest rateswaps to fairvalue - - 4.2 4.2Deferred taxassetrecoverable inthe event ofsale ofrevaluedproperties atmarket value - - 0.4 0.4 ---------- ---------- --------- ----------- - - 4.6 4.6 ========== ========== ========= =========== The Group has additional tax losses and deductions that will be availableindefinitely for offset against future taxable profits of the companies in whichthe losses and deductions arose. The Group has not recognised deferred incometax assets in respect of some of these losses (as stated above). In addition,the Group has the following unrecognised deferred tax assets. The assets havenot been recognised due to the degree of uncertainty over both the amount andthe timing of utilisation. Notes to the preliminary announcementfor the year ended December 2007 4. Income tax expense (continued) c) Deferred income tax (continued) Deductible temporary differences, unutilised losses and other timing differencesfor which no deferred tax asset is recognised and the tax effect of such itemsis shown below Timing Unrecognised Timing Unrecognised difference deferred tax difference deferred tax asset asset 2007 2007 2006 2006 £m £m £m £m Losses notutilised 62.7 16.0 111.6 27.3Deceleratedcapitalallowances 19.0 4.9 11.9 3.6Movement inthe provisionfor onerousleases 26.4 5.3 24.6 5.4Movement inthe deferralof assetmanagementreceipts 54.4 11.3 55.4 12.6Othertemporarydifferences 11.0 3.1 8.2 2.5 -------- -------- -------- --------Totalunrecogniseddeferred taxasset balance 173.5 40.6 211.7 51.4 ======== ======== ======== ======== On 21 March 2007, the Chancellor announced that with effect from 1 April 2007,the standard rate of UK Corporation Tax and Income Tax will reduce from 30% to28% and 22% to 20% respectively. The reduced tax rate was included in theFinance Bill 2007. The Finance Bill passed through the House of Commons on 27June 2007 and is therefore considered substantively enacted by the Balance Sheetdate. As a result, where applicable, deferred tax balances have been calculatedat 28% or 20% in respect of UK incorporated companies or other Group companieswith UK businesses. 5. Dividends paid and proposed 2007 2006 £m £mDeclared and paid during the period:Equity dividends on ordinary shares:Fifth interim dividend for 2005: £0.37 per share - 8.3First interim dividend for 2006: £0.39 per share - 10.3Second interim dividend for 2006: £0.41 per share - 10.9Third interim dividend for 2006: £0.43 per share - 11.4Fourth interim dividend for 2006: £0.45 13.2 -First interim dividend for 2007: £0.47 per share 13.8 -Second interim dividend for 2007: £0.47 per share 13.8 -Third interim dividend for 2007 £0.47per share 13.8 - -------- -------- 54.6 40.9 ======== ========Declared and approved at the Board meetingon 14 March 2008(to be deducted from retained earnings in theyear ending 31 December 2008)Equity dividends on ordinary shares:Fourth interim dividend for 2007: £0.47 pershare (2006: Fourth interim dividend for 2006: £0.45 per share) 13.8 13.2 ======== ========Notes to the preliminary announcementfor the year ended December 2007 6. Earnings per share The calculation of basic and diluted earnings per share figures is based on thefollowing: - Net loss attributable to equity holders of the Company for the year of £124.9million (year ended 31 December 2006: profit of £53.7 million). - Weighted average number of ordinary shares (after deducting 19,686 treasuryshares relinquished by members of the employee share plan during the year) forbasic earnings per share: 29,417,876 (year ended 31 December 2006: 26,887,700after deducting 698 treasury shares relinquished by members of the employeeshare plan). - Weighted average number of ordinary shares (after deducting 19,686 treasuryshares relinquished by members of the employee share plan during the year) fordiluted earnings per share: 29,417,876 (year ended 31 December 2006: 26,903,833after deducting 698 treasury shares relinquished by members of the employeeshare plan). The difference between the number of shares used for the basic and dilutedearnings per share calculation in 2006 of 16,133 represented the weightedaverage number of shares awarded but not yet issued to Non-executive Directors.All shares awarded under this scheme have now been issued. There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thefinancial statements. Notes to the preliminary announcementfor the year ended December 2007 7. Property, plant and equipment Freehold Property Plant and Total property acquired equipment under finance leases £m £m £m £m Cost or valuation:At 1 January2007 479.2 46.3 16.4 541.9Additions - - 1.1 1.1Disposals (8.2) - (0.2) (8.4)Impairment (0.4) - - (0.4)Revaluations 12.4 (0.2) - 12.2Transfers tonon-currentassets heldfor sale (9.1) - - (9.1) -------- -------- --------- --------At 31 December2007 473.9 46.1 17.3 537.3 ======== ======== ========= ======== Accumulateddepreciation:At 1 January2007 - (2.4) (16.2) (18.6)Providedduring theyear (2.8) (0.3) (0.2) (3.3)Written backon Revaluation 2.8 0.2 0.2 3.2 -------- -------- --------- -------- At 31 December2007 - (2.5) (16.2) (18.7) ======== ======== ========= ======== Net book value:At 31 December2007 473.9 43.6 1.1 518.6 ======== ======== ========= ======== At 31 December2006 479.2 43.9 0.2 523.3 ======== ======== ========= ======== Notes to the preliminary announcementfor the year ended December 2007 7. Property, plant and equipment (continued) Freehold property and property acquired under finance leases are included inproperty, plant and equipment where the Group provides significant ancillaryservices to tenants, and are carried at fair value. During the year, certain of the Group's non-investment properties have beenwritten down by an amount of £0.4 million (2006 £nil). The impairment adjustmenthas been charged to the current year's income statement reflecting the amount ofthe impairment below their historical cost values. Freehold property held at 31 December 2007 of £473.9 million (2006: £479.2million) and the majority of the property acquired under finance leases at 31December 2007 of £41.5 million (2006: £41.7 million) were valued at 31 December2007 by CB Richard Ellis Limited ("CBRE"), a valuer external to the Group, aspart of the valuation of all the valuable properties held by the Group under theHMRC contract. At 31 December 2006 the valuation was performed by SavillsCommercial Limited ("Savills"). During the period the contract for the valuationof the HMRC Estate was re-tendered through a competitive process. The preferredbidder was selected to ensure best value and a consistent scope of methodologyacross the portfolios. These valuations have been incorporated into the annual financial statements.CBRE have consented to the use of their name in the financial statements. Thetotal of this valuation at 31 December 2007 was £563.4 million (2006: £560.1million) and an analysis of where the assets valued are recorded in thefinancial statements is shown in the table below: 31 December 31 December 2007 2006 £m £mFreehold property 473.9 479.2Property acquired under financeleases 41.5 41.7Minimum payments under head leases 2.1 2.2 ---------- ----------Recorded in property, plant andequipment 517.5 523.1Properties held within premiums onoperating leases at amortised costof £32.2 m (2006: £35.2 m) 33.6 39.2Properties held as non-currentassets held for sale at net bookvalue on transfer of £9.1 million. 14.4 - ---------- ----------Total valuation of property, plantand equipment 565.5 562.3 ========== ==========Represented by:Total valuation of Group's assets by CBRE/Savills 563.4 560.1Minimum payments under head leases 2.1 2.2 ---------- ---------- 565.5 562.3 ========== ========== Four properties with a valuation of £14.4 million (2006: £nil million) and acarrying value of £9.1 million included within this valuation are being marketedfor sale and as such are classified as non-current assets held for sale. Theyare carried at the lower of carrying value and fair value of £9.1 million (2006:£nil) (see note 9). Long leasehold properties with a valuation of £33.6 million (2006: £39.2million) are classified as premiums on operating leases and are recorded athistorical cost less amortisation of £32.2 million (2006: £35.2 million). The valuation at 31 December 2007 has been carried out in accordance with TheRoyal Institution of Chartered Surveyors' ("RICS") Valuation Standards, SixthEdition (the "Red Book"). At 31 December 2006 the valuation was carried out inaccordance with the Fifth Edition of the Red Book. The valuations have been prepared in accordance with the Red Book on the basisof Market Value, which is defined as follows: "The estimated amount for which a property should exchange on the date ofvaluation between a willing buyer and a willing seller in an arm's-lengthtransaction after proper marketing wherein the parties had each actedknowledgeably, prudently and without compulsion." Notes to the preliminary announcementfor the year ended December 2007 7. Property, plant and equipment (continued) The following assumptions were used in determining the valuations which werespecific to the Group: • For the purpose of the valuations, the properties have been valued as part of a portfolio. The valuations assume that the contract is freely assignable in the open market. • No allowances have been made for any expenses of realisation nor for taxation which might arise in the event of a disposal of a property. The valuations are, however, net of purchase costs (if any). • Purchasers' costs have been deducted in arriving at the valuations. These are based on 1% agents fees, 0.5% legal fees (fees include VAT at 17.5%) and stamp duty land tax at the relevant rate, dependent upon the value of each property. • Under the terms of the contract with HMRC, it is entitled to bring a proportion of its leases to an end earlier than the 20 year term and vacate the premises subject to (i) 12 months' notice; and (ii) agreed limits on the amount and type of space that can be vacated each year. The possibility of HMRC exercising these break provisions has been accounted for in each respective part of the portfolio (i.e. core, flexible and intermediate property). The risk of the tenant's ability to break any leases is then factored on each individual component part by assessing the average income at risk in the event of the tenant breaking such lease. • The annual "at risk" income is then capitalised at an appropriate rate over a term of 3 years (to include marketing and incentive void, an amount for letting fees, minor refurbishment costs and void rates) and amortised for a number of years until either the space in that component part has been exhumed or until 2019 (i.e. 2 years from expiry when the tenant no longer has an ability to break). • HMRC pays the Group amounts under the contract which cover the charge both for the accommodation provided and the related services. The payment is subject to deductions for failures to meet specified performance standards and unavailability for use. Services provided to HMRC include maintenance, life cycle replacement, cleaning, help desk, security, catering, childcare, health and safety, utilities, equipment management, churn, vending and landscaping. The valuations rely upon the Group for its assessment of the cost of providing these services, the level of deductions and how they will vary over time. An allowance has been applied to the portfolio capital value to account for this obligation to provide services and the nature of the contract. • The valuations have been carried out by taking account of the benefit of the contract with HMRC and the various occupational leases and the subsequent sale of the property at expiry of these arrangements. In assessing the future sales proceeds, CBRE have estimated the vacant possession yields and have taken into account void periods for marketing and incentives. Certain other properties held under finance leases and included within property,plant and equipment were valued in accordance with the Red Book by the Directorsat a Market Value of £2.1 million (2006: £2.2 million) having taken advice froma suitably-qualified employee (a member of The Royal Institution of CharteredSurveyors). Notes to the preliminary announcementfor the year ended December 2007 8. Investment property Freehold Property Total property acquired under finance leases £m £m £mAt valuation:At 1 January2006 1,054.3 23.1 1,077.4Additions 366.8 1.1 367.9Revaluations 38.9 1.9 40.8Transfer tonon-currentassets heldfor sale (3.0) - (3.0) ---------- ---------- ----------At 31 December2006 1,457.0 26.1 1,483.1 Additions 222.3 1.2 223.5Revaluations (149.2) 0.6 (148.6) ---------- ---------- ---------At 31 December 2007 1,530.1 27.9 1,558.0 ========== ========== ========= It is the Group's policy to carry investment property at fair value inaccordance with IAS 40 "Investment Property". Investment property was valued at31 December 2007 by CB Richard Ellis Limited ("CBRE") and Knight Frank LLP("Knight Frank"), valuers external to the Group. These valuations have beenincorporated into the annual financial statements. Both Knight Frank and CBREhave consented to the use of their names in the financial statements. Investment property comprises the Group's Abbey portfolio and its directproperty investments. CBRE's valuation of the Abbey portfolio of properties was£556.2 million (2006: £575.7 million). Knight Frank and CBRE both carried out valuations of the Group's otherproperties held within investment property, which were valued at £77.9 million(2006: £53.1 million), and £918.6 million (2006: £850.6 million) respectively asat 31 December 2007. At 31 December 2006 the properties valued by Knight Frankwere valued by Savills Commercial Limited. During the period the contract forthe valuation of these properties was re-tendered through a competitive process. The remaining properties held under Property acquired under finance leases werevalued by the Directors at a Market Value of £5.3 million (2006: £4.2 million),having taken advice from a suitably-qualified employee (a member of The RoyalInstitution of Chartered Surveyors). These valuations are summarised below: 31 December 31 December 2007 2006 £m £mValuation of Abbey portfolio by CBRE 556.2 575.7Valuation of asset held for sale bythe Directors - 2.5Transfer to non-current assets heldfor sale - (3.0) ----------- ---------- 556.2 575.2 Valuation of direct propertyinvestments by Knight Frank 77.9 53.1Valuation of direct propertyinvestments by CBRE 918.6 850.6Minimum payments under head leases 5.3 4.2 ----------- ---------- 1,558.0 1,483.1 =========== ========== The valuations at 31 December 2007 have been carried out in accordance with TheRoyal Institution of Chartered Surveyors' Valuation Standards, Sixth Edition(the "Red Book"). The valuation as at 31 December 2006 was carried out inaccordance with the Fifth Edition. The valuations have been prepared in accordance with the Red Book on the basisof Market Value, which is set out in note 7. Notes to the preliminary announcementfor the year ended December 2007 8. Investment property (continued) The following assumptions were used in determining the valuations which werespecific to the Group: • The Abbey properties have been valued as part of a portfolio, the Direct Property Investments properties have been valued on an individual basis. • No allowances have been made for any expenses of realisation or for taxation which might arise in the event of a disposal of a property. The valuations are, however, net of acquisition costs (if any). • Purchasers' costs have been deducted in arriving at the valuations. These are based on 1% agent's fees, 0.5% legal fees (fees include VAT at 17.5%) and stamp duty land tax at the relevant rate, dependent upon the value of each property. • The valuations have been undertaken assuming that in the case of the Abbey properties, each property is subject to a standard-form lease agreed between the Group and Abbey and that these leases commenced on 1 January 2001 without options to break on the part of either the tenant or the landlord. There are overriding provisions for Abbey to terminate occupational leases earlier than the original lease end date. These are set out within a master agreement entered into with Abbey. In the case of the DPI properties, the valuation for each of the properties has been undertaken determined by the specific terms of the individual leases. • Abbey's ability to exercise its right to end leases and vacate property early is constrained by the fact that the aggregate rent payable by Abbey in the following years of the master agreement's 20 year term cannot fall below the following percentages of the projected aggregate rents for those years: Years 5 to 6 95%Years 7 to 11 85%Years 12 to 15 80%Years 16 to 20 90% Constraints over the remaining investment properties are determined by thespecific term of the individual leases. • In return for the flexibility in the Abbey portfolio, there are compensation mechanisms provided within the master agreement which are intended broadly to leave the Group in a neutral position. Whilst invariably the computation on a property by property basis may result in some properties being under compensated or vice versa, the valuations consider that overall the position is indeed likely to remain neutral. • It should also be noted that the rental increments broadly hold the rental flow at a similar level even on the presupposition that Abbey exercises maximum flexibility. Income and expenditure derived from investment properties relates to the DirectProperty Investments Portfolio and also those long leaseholds and freeholds heldunder the Abbey portfolio as investment property as follows: 31 December 31 December 2007 2006 £m £mRevenueRevenue from Direct PropertyInvestments Portfolio 69.5 50.3Revenue from Abbey investmentproperty 43.4 43.0 ---------- ----------Total revenues from investmentproperty 112.9 93.3 Property operating expenditureExpenditure from Direct PropertyInvestments Portfolio 4.3 1.5Expenditure from Abbey investmentproperty 0.2 - ---------- ----------Total property operatingexpenditure 4.5 1.5from investment property Property operating expenditure from investment property that has not generatedrevenue in the period is £2.2m (2006: £2.1 million). Notes to the preliminary announcementfor the year ended December 2007 9. Non-current assets held for sale 2007 2006 £m £mAt 1 January 3.0 1.4Transfers 9.1 3.0Disposals (3.0) (1.4) ----------- -----------At 31 December 9.1 3.0 =========== =========== As at 31 December 2007 the Group had decided to dispose of four properties. Allsuch properties are being actively marketed and it is anticipated that thesedisposals will take place in early 2008. All non-current assets held for sale at31 December 2007 had previously been recorded within property, plant andequipment and carried at fair value. At 31 December 2006 non-current assets held for sale comprised two propertiesthat had previously been recorded within investment property. All assets weredisposed of in 2007 and gains of £1.0 million were recorded in the incomestatement. 10. Cash and short-term deposits Cash and short-term deposits earn interest at floating rates based on daily bankdeposit rates. Short-term deposits are made for varying periods of between oneday and one month depending on the immediate cash requirements of the Group, andearn interest at the respective short-term deposit rates. The fair value of cashand short term deposits at 31 December 2007 was £90.8 million (2006: £77.3million). For the purposes of the consolidated cash flow statement, cash and short-termdeposits comprise the following at 31 December: 2007 2006 £m £mCash at bank- in controlled accounts 29.1 22.7- for operational purposes 61.7 54.6 ------------ -----------Cash and short-term deposits 90.8 77.3Bank overdrafts (note 12) - (0.9) ------------ -----------Total cash and short-term 90.8 76.4deposits net of bank overdrafts ============ =========== The amounts held in controlled accounts comprise tenant deposits, property saleproceeds and other capital receipts which will be held in controlled accountsuntil the next interest payment date in accordance with the terms of therelevant loan facility agreements. Notes to the preliminary announcementfor the year ended December 2007 11. Issued capital and reservesAuthorised No. of £m ordinary sharesOrdinary shares at par value of £nil Unlimited - ======== ======Issued and fully paidAs at 1 January 2006 (net of 1,460 sharesheld by the employee share trust) 22,463,687 -Issued on 27 January 2006 4,036,697 -Issued on 17 March 2006 under the EmployeeShare Plan 13,059 -Issued on 17 March 2006 to Non-executiveDirectors 5,000 -Issued on 26 September 2006 toNon-executive 20,000 -DirectorsIssued on 11 October 2006 2,876,923 -Movement in shares held by the EmployeeShare Trust 762 - -------- ------At 31 December 2006 29,416,128 - ======== ====== Issued on 2 May 2007 20,000 -Movement in shares held by the Employee Share Trust (18,988) - -------- ------At 31 December 2007 29,417,140 - ======== ====== 12. Interest and non-interest bearing loans and borrowings The table below sets out the Group's interest and non-interest bearing loans andborrowings as at 31 December 2007 and 2006: Effective Maturity 2007 2006 interest rate £m £mNon-currentObligations under financeleases 8.1% 2012-2977 8.1 7.0Bank loans:Term loan under the HMRCportfolio facility 6.4% Apr 2021 165.8 166.5Term loan under the Abbeyportfolio facility 5.6% Jun 2012 451.8 451.7Acquisition term loan 5.8% Jul 2015 170.0 170.0Term loan under the Betaportfolio facility 5.4% Apr 2016 207.6 207.5Term loan under the Gammaportfolio facility 5.0% Jan 2017 229.7 229.6 Revolving Deltaacquisition facility 6.4% Apr 2008 - 36.4 ------ ------- 1,233.0 1,268.7 ====== ======= Effective Maturity 2007 2006 interest rate £m £mCurrentObligations under financeleases 8.1% 2008 0.1 0.1Bank loans:Overdraft 2007 - 0.9Term loan under the HMRCportfolio facility 6.4% 2007 - 0.2Revolving acquisitionfacility 5.9% Apr 2008 257.6 - ------ ------- 257.7 1.2 ====== ======= Notes to the preliminary announcementfor the year ended December 2007 12. Interest and non-interest bearing loans and borrowings (continued) All of the Group's properties, as valued by Knight Frank LLP and CBRE (see note7, 8, and 9), have been secured against the Group's loan facilities. The loanbalances above represent the amounts outstanding at 31 December 2007 on thefollowing facilities: Term loan under the HMRC portfolio facility The HMRC portfolio is financed by a 15 year, £176.0 million fixed rate loansecured on properties held under the HMRC portfolio. The interest rate payableon this facility is a fixed rate of 4.5% plus a margin of 0.65% for the first 7years of the loan increasing to 2.25% for the remainder of the loan, plusmandatory costs (if any). Term loan under the Abbey portfolio facility The Abbey portfolio is financed by a £455.0 million, 7 year loan which issecured against all investment property held in the Abbey portfolio and by acharge over the investments of Mapeley Columbus Holdings Limited. The loan isrepayable in 2012. Interest on the loan is paid quarterly at a rate of LIBORplus 0.95% plus mandatory costs (if any). The borrowers have entered intoseparate interest rate agreements to fix the interest payable. Acquisition term loan Mapeley's direct investment portfolio is partly financed with a 10 year, £170.9million term loan. At inception the loan had a loan to value ratio of 70%. Thereis no amortisation during its term and the loan is repayable in July 2015. Theinterest payable on this loan is fixed at 4.95% plus a 0.75% margin. Beta Acquisition term loan Mapeley's direct investment portfolio is further financed with another 10 year,£208.6 million term loan. At inception the loan had a loan to value ratio of75%. There is no amortisation during its term and the loan is repayable in April2016. The interest payable on this loan is fixed at 4.53% plus a 0.85% margin. Gamma Acquisition term loan Mapeley's direct investment portfolio is further financed with another 10 year,£231.3 million term loan. At inception the loan had a loan to value ratio of75%. There is no amortisation during its term and the loan is repayable inJanuary 2017. The interest payable on this loan is currently fixed at 4.28% plusa 0.67% margin, however a £52.0 million tranche incorporates 0.2% increases inthe margin over the term. Revolving Delta acquisition facility As at 31 December 2007 the Group had a 3 year, £400.0 million Revolvingacquisition facility to finance further property investments of which £257.6million was drawn down. The facility was repayable in April 2008. The interestrate payable on the facility was LIBOR plus a margin of between 1.0% and 1.15 %plus mandatory costs (if any). The Group has also put in place ten swapagreements totalling £257.6 million to fix its anticipated long term exposure tointerest rate risk on this facility. On 13 March 2008 the Revolving Deltaacquisition facility was refinanced with a combination of cash and two new loanfacilities which incorporate a proportion of the existing swap arrangements. The Delta investment portfolio has been financed with a new seven year £152million term loan. At inception the loan had a loan to value ratio of 70%.Amortisation of £0.4 million per quarter is payable from April 2009 and the loanis repayable in March 2015. The interest payable on this loan is fixed at 5.30%plus a 1.35% margin which incorporates four existing swaps from the previousRevolving Delta acquisition facility. The remaining swaps have beenextinguished. The second new facility is a £60 million corporate loan made to Mapeley Limitedrepayable in April 2009. The interest payable on this loan is at 3 month LIBORplus a 5.0% margin. Working capital facility The Group had a £25.0 million working capital facility which was due to maturein June 2008. At 31 December 2007, £nil (2006: £nil) was drawn down. Theinterest rate payable on the facility was LIBOR plus 2.0% plus mandatory costs(if any). The loan was guaranteed by Mapeley Limited. Following the refinancingof the Delta Revolving acquisition facility the working capital facility hasbeen cancelled. Notes to the preliminary announcementfor the year ended December 2007 13. Provisions Provision for onerous leases £m At 31 December 2006- current 13.5- non-current 31.5 -----------Total provision 45.0 New provisions in the year 22.8Utilised (13.5)Released unutilised (6.6)Unwinding of discount 2.4Change in interest rate (0.6) ----------- At 31 December 2007- current 15.2- non-current 34.3 -----------Total provision 49.5 =========== The onerous lease provision is made in relation to onerous leases on propertieswhich are vacant or sublet at a level which renders the properties loss-makingover the remaining life of the lease. The provision represents the Directors'estimate of the net cash flows on the properties over the shorter of the periodover which the property is expected to remain vacant and the remaining leaseterm being periods up to and including 2021, discounted at a rate of 6.5% (2006:6.0%), being the mean yield of high quality real estate backed bonds withsimilar maturities to the Group's Abbey and HMRC portfolios. 14. Deferred asset management receiptsGroup £m At 31 December 2006- current 5.9- non-current 78.9 ----------- Total deferred asset management receipts 84.8 Movement in yearReceived in year 8.9Released to income statement in year (6.1) ----------- At 31 December 2007- current 6.5- non-current 81.1 -----------Total deferred asset management receipts 87.6 =========== Asset management receipts, which represent premiums given by lessors in returnfor the Group extending its existing lease terms or removing break clauses fromexisting leases, are deferred and released as a credit to property operatingexpenses evenly over the shorter of the lease term or the period to the firstbreak, even if the payments are not made on such a basis. Notes to the preliminary announcementfor the year ended December 2007 15. Related party disclosures Identity of related parties Transactions between the parent company and its subsidiaries are eliminated inthese consolidated financial statements. Transactions with shareholders and Directors are shown separately below. Compensation of key management personnel Emoluments for key management, who are employed by a subsidiary, Mapeley EstatesLimited, are set out below: 2007 2006 £m £mShort-term employee benefits 1.4 1.0Post-employment benefits 0.1 0.1 ----------- ----------- 1.5 1.1 =========== =========== In addition, key management have been awarded shares in the parent company,Mapeley Limited, which are contingent upon the employees remaining in employmentwith Mapeley Estates over a period of 3 to 5 years. A total of 115,707 shares(2006: 115,707) have been issued to key management under this scheme. The totalcost to the Group of the shares issued under this plan to key management of £3.0million is being spread over the relevant period over which these awards arecontingent. During 2007 a total expense of £0.8 million (2006 £0.6 million) wasrecorded in respect of this award. No shares have yet to become unconditional. Post employment benefits represent defined pension contributions into personalpension schemes. Directors Compensation Emoluments for Directors of the Group are set out below: 2007 2006 £m £mShort-term employee benefits 0.7 0.7Post-employment benefits 0.1 - ----------- ----------- 0.8 0.7 =========== =========== In addition, as set out in the remuneration report the Directors have beenawarded shares in the parent company, Mapeley Limited, under two schemes. Atotal of 100,080 shares have been awarded to the Executive Director and arecontingent upon his continuous employment with Mapeley Estates Limited over aperiod of 3 to 5 years. The total cost to the Group of these shares of £2.5million is being spread over the relevant period over which these awards arecontingent. During 2007 a total expense of £0.6 million (2006: £0.5 million) wasrecorded in respect of this award. No shares have yet to become unconditional. 15,000 shares were awarded to each of the four Non-executive Directors in 2005.These awards vest on the date of grant and after each of the two first annualgeneral meetings following the date of appointment. The market value of theshares on the date of the grant of the award was £23 per share in respect of theshares awarded to Mr Harris, Mr Carey and Mr Parkinson and £26.85 in respect ofthe shares issued to M Fascitelli. During the year, £0.1 million (2006: £0.5 million) has been charged to theincome statement relating to share benefits expense for the Non-executiveDirectors. The final 5,000 shares each have been issued in 2007. Post-employment benefits represent defined pension contributions into personalpension schemes. Notes to the preliminary announcementfor the year ended December 2007 15. Related party disclosures (continued) Amounts owed by shareholders The Group had entered into an agreement to provide property management servicesin respect of 135 property interests owned by Pinnacle Towers Limited, asubsidiary of Crown Castle International Corp., in turn a company in which fundsmanaged by an affiliate of Fortress Investment Group LLC indirectly heldinterests. In return for the provision of these services, the Group received£100,000 per annum and payable in arrears in 12 monthly instalments. During2007, £100,000 (2006: £100,000) had been received and at 31 December 2007, £nil(2006: £nil) was outstanding. During 2007, funds managed by an affiliate ofFortress Investment group LLC sold their entire shareholdings in Crown CastleInternational Corp. and therefore as at 31 December 2007 this should no longerbe considered to be a related party transaction. During 2007 the Group managed a fit out project in Luxembourg on behalf ofcertain Luxembourg based companies in which affiliates of Fortress InvestmentGroup LLC hold direct or indirect voting or management rights. The total incomereceived in respect of this project amounted to £25,500 of which £nil wasoutstanding as at 31 December 2007. During 2006 the Group provided consultancy services for the benefit ofEurocastle Investment Limited, a company managed by affiliates of FortressInvestment Group LLC. Total services provided amounted to £97,532 of which£68,988 was outstanding as at 31 December 2006 (31 December 2007: £nil). In addition, in 2006, the Group managed a refurbishment project on behalf ofFortress Investment Group (UK) Ltd., an affiliate of Fortress Investment GroupLLC. The fees received in respect of this project amounted to £140,666 of which£nil was outstanding as at 31 December 2006 (31 December 2007: £nil). All related party transactions were carried out on an arms length basis basedupon normal market prices. 16. Subsequent events Dividend declared At a Board meeting held on 14 March 2008 the Board of the Company declared adividend of £13.8 million (31 December 2006: £13.2m) representing £0.47 pershare based on the number of shares in issue on 26 March 2007. Loan refinancing On 13 March 2008 the refinancing of the £257 million Revolving Delta acquisitionfacility was successfully completed. This debt was due to mature in April 2008and has been replaced with a £152 million seven year term facility and a £60million loan repayable in April 2009. The balance of the refinancing wasprovided by cash from within the business. Further details of the new loans aregiven in note 12 to the preliminary announcement. 17. Earnings before interest, tax, depreciation and amortisation Earnings before interest, tax, depreciation and amortisation or "EBITDA" isdefined by the Group as profit before tax, finance costs, depreciation andamortisation, valuation surplus / deficit on investment property, gain ondisposal of subsidiaries and impairment / impairment reversal of non-investmentproperty. EBITDA for the year is computed as follows: 2007 2006 £m £m(Loss)/ profit before tax (129.0) 42.8Add back: Finance cost net of finance income 89.1 82.8Depreciation and amortisation 6.3 9.5Net valuation deficit/(surplus) on investment properties 148.6 (40.8)Impairment of non-investment properties 0.4 -Reversal of impairment of non-investment properties - (0.8) ----------- ----------EBITDA 115.4 93.5 =========== ========== Notes to the preliminary announcementfor the year ended December 2007 18. Funds from operations Funds from operations or "FFO" is a management measure used to demonstrate theunderlying operating performance of real estate businesses such as the Company.It provides investors with information regarding the Group's ability to servicedebt and make capital expenditure. FFO does not represent cash generated fromoperating activities in accordance with IFRS, therefore it should not beconsidered an alternative to cash flow as a measure of liquidity, and is notnecessarily indicative of cash funds available. This calculation of FFO may bedifferent from the calculation used by other companies and, therefore,comparability may be limited. The Group defines "FFO" as Group "EBITDA" less "net finance costs" less the"movement in the onerous lease provision" less the "movement in unbilledrevenue" plus the movement in "net asset management receipts" plus the charge inrespect of "employee shares" plus realised revaluation gains. More detaileddefinitions of these adjustments to EBITDA are given below: "Net finance costs" comprise finance costs less finance income as set out in theGroup income statement, adjusted to exclude amortisation of loan finance fees,gains or losses on interest rate swaps, loan termination costs and the unwindingof discounts on provisions. The "Movement in the onerous lease provision" - This is the net release (orcharge) to the Group income statement as a result of the change in the Grouponerous lease provisions, excluding interest charged on the unwinding of theprovision. Although these amounts offset rental costs in the income statement,they do not represent cash movements and are therefore excluded from thecomputation of FFO. The "Movement in unbilled revenue" is the year on year change in Group accruedrevenue. The amount represents the increase or decrease in life cycle revenueaccrued by the Group so as to allocate revenue in the period in which work isperformed. This caption has been renamed from "movement in work in progress"(see note 1). "Net asset management receipts" - These are the total cash receipts in the yearless amounts amortised in the financial period. The accounting treatment ofasset management receipts is set out in the accounting policies. "Employee shares" - Under IFRS 2, costs are charged to the Group incomestatement when share based payments are made. This is a non cash expense and istherefore excluded from the measure. "Organic FFO" is defined as the FFO contribution from property assets orservices following the first anniversary of their acquisition or commencement ofthe contract, net of central overhead costs. "Acquisition FFO" is defined as the FFO contribution from property assets orservices in the first year of ownership in the case of property assets andcontract commencement in the case of new services. "Realised profit on disposal for FFO" is defined as the difference between theprofit on disposal as per the income statement and the profit in disposalcalculated upon the historical cost basis. 2007 2006 Organic Acquisition Total Organic Acquisition Total £m £m £m £m £m £mEBITDA 97.1 18.3 115.4 61.6 31.9 93.5Net financecosts (62.4) (12.1) (74.5) (43.5) (19.1) (62.6)Movement inthe onerousleaseprovision 2.1 - 2.1 4.5 - 4.5Movement inunbilledrevenue 1.5 - 1.5 2.1 - 2.1Movement inlong termaccrued costs (1.1) - (1.1) - 0.7 0.7Assetmanagementreceipts 2.9 - 2.9 5.6 - 5.6Share benefitexpense 1.8 - 1.8 1.9 - 1.9Realisedprofit ondisposal forFFO 8.3 - 8.3 - - - ------ ------- ------ ------ ------- ------FFO 50.2 6.2 56.4 32.2 13.5 45.7 ------ ------- ------ ------ ------- ------ FFO per share 192 170 pence pence ------ ------ Notes to the preliminary announcementfor the year ended December 2007 18. Funds from operations (continued) The calculation of FFO per share is based on the following: - FFO for the year of £56.4 million (2006: £45.7 million); and - Weighted average number of ordinary shares of 29,417,876 (2006: 26,887,700). FFO per share calculated using a diluted weighted average number of shares of29,417,876 (2006: 26,903,833) is 192 pence per share (2006: 170 pence pershare). 19. Gearing ratio Gearing is defined as Group net debt (total debt less cash and short-termdeposits) as a proportion of total consolidated equity attributable to theequity holders of the parent. "Total debt" is defined as actual current andnon-current loan balances together with any overdrafts owed to lenders andexcludes any finance costs or adjustments to apply the effective interest ratemethod. Equity is as set out in the consolidated balance sheet. Gearing iscomputed as follows: 2007 2006 £m £m"Total debt" 1,496.0 1,279.2Less: Cash and short-term deposits (90.8) (77.3) ----------- ----------Net debt 1,405.2 1,201.9Equity 547.8 712.7Gearing ratio 257% 169% =========== ========== 20. Net assets per share 2007 2006Basic net assets per share £18.62 £24.23 =========== ==========Diluted net assets per share £18.62 £24.21 =========== ========== The calculation of basic and diluted net asset value per share figures is basedon the following: - Consolidated net assets (equity) attributable to the equity holders of the Company as at 31 December 2007 of £547.8 million (as at 31 December 2006: net assets of £712.7 million) - Number of ordinary shares for basic net asset value per share 29,417,140 (2006: 29,416,128) - Number of ordinary shares for diluted net asset value per share 29,417,140 (2006: 29,436,128) Additional informationfor the year ended 31 December 2007 Quarterly information for the consolidated income statement and consolidatedbalance sheet are set out on the following pages. Information for the quartersended 31 March 2007, 30 June 2007 and 30 September 2007 has been extracted fromthe Group's interim financial statements. Consolidated income statement Quarter Quarter Quarter Quarter ended ended ended ended 31 30 30 31 December September June March 2007 2007 2007 2007 Unaudited Unaudited Unaudited Unaudited £m £m £m £mRevenue 107.3 104.6 101.4 104.1Propertyoperatingexpenses (79.0) (69.3) (71.2) (68.9) -------- --------- --------- --------- Net contract,rental &related income 28.3 35.3 30.2 35.2 Net valuation(deficit)/surpluson investmentproperty (102.8) (51.6) 7.8 (2.0)Reversal ofimpairment/(impairment) ofnon-investmentproperty (0.5) - - 0.1(Loss)/profiton disposal ofassets heldfor sale - (0.7) 1.0 -Administrativeand other expenses (5.6) (4.6) (5.2) (4.8) -------- --------- --------- ---------Operatingprofit (80.6) (21.6) 33.8 28.5 Finance costs (31.2) (28.2) (20.4) (18.6)Finance income 1.4 1.0 5.4 1.5 -------- --------- --------- --------- (Loss)/profitbefore tax (110.4) (48.8) 18.8 11.4 Income taxcredit /(charge) 5.8 - (1.7) - -------- --------- --------- ---------(Loss)/profitfor the periodattributable to shareholders (104.6) (48.8) 17.1 11.4 ======== ========= ========= =========Dividends- paid 13.8 13.8 13.8 13.2- proposed 13.8 13.8 13.8 13.8 ======== ========= ========= ========= FFO 14.3 14.5 13.8 13.8 ======== ========= ========= ========= (Loss)/earnings per pence/share pence/share pence/share pence/shareshare - basic (355) (166) 58 39- diluted (355) (166) 58 39 Additional informationfor the year ended 31 December 2007 Quarterly results (continued)Consolidated balance sheet 31 Dec 30 Sept 30 June 31 March-------------------------- 2007 2007 2007 2007 Unaudited Unaudited Unaudited UnauditedASSETS £m £m £m £mNon-current assetsProperty, plantand equipment 518.6 520.5 530.0 528.2Investmentproperty 1,558.0 1,660.6 1,669.0 1,585.5Premiums onoperating leases 32.2 33.0 33.7 34.4Trade and otherreceivables 5.6 5.8 5.8 5.9Financialinstruments 17.0 32.2 51.7 29.1Deferred tax asset 15.1 9.2 9.2 10.9 --------- ---------- --------- ---------Total non-currentassets 2,146.5 2,261.3 2,299.4 2,194.0 --------- ---------- --------- ---------Current assetsTrade and otherreceivables 71.2 101.0 78.5 73.5Cash and short-termdeposits- in controlled accounts 29.1 26.5 25.7 20.4 - for operational purposes 61.7 40.7 50.0 71.0 --------- ---------- --------- ---------Total currentassets 162.0 168.2 154.2 164.9 --------- ---------- --------- ---------Non-current assetsheld for sale 9.1 0.3 0.3 0.5 --------- ---------- --------- ---------TOTAL ASSETS 2,317.6 2,429.8 2,453.9 2,359.4 ========= ========== ========= =========EQUITY AND LIABILITIESEquity attributable toequity holders of MapeleyLimitedIssued capital -Share premium 328.9 328.9 328.9 329.0Net unrealisedlosses 12.4 23.3 35.4 23.2Retained earnings (220.7) (101.3) (45.8) (50.4)Asset revaluationreserve 321.9 314.6 322.3 320.1Other reserves 105.3 104.9 104.5 104.0 ---------- ----------- ---------- ----------Total equity 547.8 670.4 745.3 725.9 ---------- ----------- ---------- ----------Non-current liabilitiesTrade and otherpayables 6.0 5.5 5.5 5.2Interest andnon-interestbearing loans andborrowings 1,233.0 1,233.8 1,233.8 1,369.5Provisions 34.3 29.0 32.1 28.8Financial instruments - - - -Deferred assetmanagementreceipts 81.1 77.1 77.2 77.4Deferred taxliability 3.8 7.1 10.5 4.6Current liabilitiesTrade and otherpayables 124.4 116.4 116.4 113.5Interest andnon-interestbearing loans andborrowings 257.7 268.8 213.2 15.1Provisions 15.2 13.5 14.0 13.5Financialinstruments 7.8 2.2 - -Deferred assetmanagementreceipts 6.5 6.0 5.9 5.9 ---------- ----------- ---------- ----------Total liabilities 1,769.8 1,759.4 1,708.6 1,633.5 ---------- ----------- ---------- ----------TOTAL EQUITY ANDLIABILITIES 2,317.6 2,429.8 2,453.9 2,359.4 ========== =========== ========== ========== This information is provided by RNS The company news service from the London Stock Exchange

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