Preliminary Results

8th Mar 2007 07:03

Mapeley Limited08 March 2007 PRESS RELEASE: Not for release before 0700 08 March 2007 Mapeley Limited Preliminary results for the year ended 31 December 2006 Mapeley Limited (Mapeley, the Company or the Group), the Guernsey based marketleading property company today announces its preliminary results for the yearended 31 December 2006. Highlights Dividends up 29.2% to 168 pence per share (2005: 130 pence per share)FFO (see note 17) up 79.2% to £ 45.7 million (2005: £25.5 million)EBITDA (see note 16) up 44.4% to £93.6 million (2005: £64.8 million)Acquisitions of £366.4 million (2005: £507.2 million) Revenue up 14.0% to £387.0 million (2005: £339.4 million)Profit Before Tax of £42.9 million (2005: loss of £56.5 million)Total Asset Value up 24.0% to £2,232.2 million (2005: £1,800.1 million) Identity and Passport Service contract wonTwo equity issues completed, raising total net proceeds of £196.8 million Commenting on the results, Jamie Hopkins, Chief Executive of Mapeley said: "Mapeley has had an extremely successful 2006 and has delivered strong resultsin its first full year as a public company. I am delighted to be able toannounce another quarterly dividend increase which culminates in a total 2006dividend increase of 29%. By focussing on the fundamentals of our business, wehave delivered good organic growth from our existing portfolio and continued tomake new property acquisitions on attractive terms - both through newoutsourcing contracts and single asset acquisitions. Whilst the commercial property market remains competitive, we continue to findgood opportunities to invest. We have a healthy pipeline of both real estateoutsourcing deals and single asset acquisitions currently under evaluation. Asour operational platform and asset base grows, so too does our knowledge of themarkets we operate in and intend to target. Both of these factors continue todrive our competitive advantage in acquiring attractive regional property. I look forward to the year ahead and believe we are well placed to furthercapitalise on our in-depth local market knowledge, strong relationships withtenants and diverse regional operating platform to drive further shareholdervalue in 2007." Conference Call Mapeley management will host a results conference call at 02:00 P.M. London time(09.00 A.M. New York time) on Thursday, 8 March 2007. All interested parties arewelcome to participate on the live call. You can access the conference call bydialling 0800 6942 586 (from within the UK), 1866 966 9446 (from within the US)or +44 (0) 1452 567 098 (from outside the UK) ten minutes prior to the scheduledstart of the call: please reference "Mapeley 2006 Preliminary Results". 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 monthsfollowing the call. A replay of the conference call will be available until 02.00 P.M. London timeon Thursday, 15 March 2007 by dialling 0800 953 1533 (from within the UK), 1866247 4222 (from within the US), or +44 (0) 1452 550 000 (from outside the UK);please reference access number "9413284#". For further information, please contact: Emma Parr, Investor Relations, Mapeley Ltd Tel: +44 (0) 20 7788 1742 E-mail: [email protected] McCall, MJ2 Business Communications Tel: +44 (0) 20 7491 7794 Chairman's statement 2006 was a strong year for Mapeley, our first full year as a public company.Mapeley has made great strides over the past year and today the Company isstronger in virtually every respect. Our goal is to set the standard in terms ofearnings and dividend growth, and transparency as the leading owner and operatorof UK real estate. In the year and a half since we became a public company, theliquidity of our stock has increased measurably as our equity marketcapitalisation has grown to approximately £1.1 billion. Mapeley's portfolio includes 1,683 properties spread throughout the UnitedKingdom, covering over 2.3 million square metres and valued at more than £2billion. Highlights of this year include: • strong financial performance enabling dividend growth • the award of a new government outsourcing contract with the Identity and Passport Service; and • the acquisition of an additional £366 million of investment property assets Mapeley's presence in every major town and city in the UK, combined with ourposition of acting as both landlord and tenant across a geographically diverseportfolio, provides an excellent insight into the markets we operate in. Thisinsight drives returns across the business and unlocks future acquisitionopportunities. We measure Mapeley's performance by focusing on funds from operations ("FFO"), ametric commonly used by REITs to isolate cash flow from real estate. Althoughwe are not a REIT, we are focused on providing our investors with transparencyinto our operational performance, and ensure this by paying out substantiallyall our FFO as dividends. As a result, we will return regularly to the equitymarkets to fund growth opportunities such as the single asset acquisitions weare committed to adding to our portfolio. In addition to paying out dividends, it is our aim to increase them - during2006 we increased our dividend in every quarter. In 2006 we paid a totaldividend of 168 pence per share, and our 2006 fourth quarter annualised dividendof 180 pence per share represents a 22% increase over the same period in 2005. Although we do not have control of the movement of our stock price, we believethe markets have recognised our performance in 2006. Mapeley's total return toshareholders in 2006 was 55.6% as compared to the FTSE 250 Index, the FTSE 350Real Estate Index and the FTSE EPRA Index TSR of 30.2%, 49.2% and 48.4%respectively. We at Mapeley are very proud that we have been able to providesuperior returns to our shareholders and it is our goal to create long-termshareholder value. In 2007 we are well placed to continue to drive shareholder returns throughexecuting our strategy of growing both the real estate outsourcing business andDPI Portfolio and increasing returns from our existing portfolio. Our strengthsof in-depth local market knowledge, our strong relationships with tenants,operational capability and capacity, and our access to capital resources will bekey to our performance in 2007. We want to thank you for your continued support and confidence in our Company.Through our dividends, we will continue to provide our shareholders with a clearwindow into our financial performance. We at Mapeley value hard work,commitment and excellence, and I believe these values are found throughout ourorganisation. We believe strongly in our employees, our assets and ourstrategy. We look forward to a great 2007. Wesley Edens Chairman Chief Executive's statement Overview Mapeley has had an extremely successful 2006 and has delivered strong results inits first full year as a public company. In short, we have increased our FundsFrom Operations (FFO) to £45.7 million, an increase of 79.2% from last year, andthis has enabled us to achieve good dividend growth of 29.2% over 2006. In theyear we paid dividends equating to 168 pence per share, amounting to a fourthquarter annualised dividend yield of 4.5%.(1) We have achieved this strong performance by fully deploying our nationwideoperating platform and focussing on the straight-forward fundamentals of ourbusiness strategy; rigorous property and asset management of our existingportfolio and a continued focus on acquiring good quality assets at yieldshigher than our cost of capital. Whilst the UK real estate sector continued its strong rally throughout 2006,evidenced by a 49.2% total shareholder return (TSR) from the FTSE 350 RealEstate Index, I am pleased to announce that Mapeley has out-performed not onlythis index but also the FTSE 250 Index (30.2%) and FTSE EPRA Index (48.4%) byproducing TSR of 55.6% for the year. (1) based on a closing share price of £39.70 on 29 December 2006 Strategy Our aim at Mapeley is to become the leading owner and operator of UK regionalcommercial real estate let to Government or investment grade tenants. Thesetenants tend to have predictable, long term property requirements, a dynamicwell-suited to Mapeley's business. Our business is diverse, we own freeholdassets, manage leasehold assets, provide facilities management services andcarry out projects and refurbishment work for our clients. Our property portfolio is valued at over £2 billion. We manage the payment ofover £170 million in rental payments each year to third party landlords throughthe management of the leasehold assets we have contracted to control under ouroutsourcing contracts. In total we own or manage over 2.3 million square metresof real estate and our portfolio is spread throughout the entire UK, in mosttowns and cities. The advantage Mapeley has is simple - more effective management of propertyrisk. Our scale and our in-depth local market knowledge gained through acting asboth landlord and tenant, along with our operational expertise, providesmultiple opportunities for the Group to drive returns for its shareholders. We are committed to further growing our portfolio by acquiring good quality realestate through both outsourcing contracts and one by one acquisitions. On thesingle asset acquisitions our criteria from the outset is to maintain a spreadbetween the net initial yield on the property and our costs of financing thatacquisition. We do not base our investment assessments on strong rental growthassumptions, rather we prioritise our ability to retain tenants in the buildingswe acquire. We ensure this through focussed stock selection, good propertymanagement and through building and maintaining trusting relationships withtenants throughout the term of their occupation. During 2006 we have maintained our low vacancy rate of 3%. This, combined withthe fact that 93% of our revenues are derived from Government and investmentgrade clients endorses our secure and stable investment proposition. Organic growth In 2006, organic growth outperformed our expectations. We generated organic FFOof £32.2 million (2005: £21.4 million) representing 70.5% of total FFO, anincrease of 50.5% over 2005. The £10.8 million increase in organic growthrepresented more than half of the increase in total FFO. The key driver in thisarea has been the strong performance of our existing outsourcing contracts. Ourexpert property team and asset managers continue to leverage their significantknowledge and experience to outmanoeuvre the market and to exploit anyoptionality across the estate for the benefit of Mapeley and its tenants. In addition, cost savings generated from both our newly signed facilitiesmanagement services contract and the refinancing of our HMRC portfolio loanfacility have also contributed to our strong FFO result. Acquisitions - Outsourcing Throughout 2006 we continued to broaden our regional presence and furtherstrengthened our extensive operating platform through the addition of a furtheroutsourcing contract with the Identity and Passport Service (an Executive Agencyof the Home Office). Volumes of outsourcing deals are difficult to predict,given the extent and degree of cultural change that these deals often involve,however, we were delighted to add another Government client to our portfolio. Ibelieve this deal further highlights our position as a leading provider of realestate outsourcing services in the UK. We remain focussed on winning new business in this area when such opportunitiesarise as we see these contracts as an excellent source of growth. Our keycompetitive advantages of active property management and our regionally spreadoperating platform are vital tools for us to deploy when assessing and managingsuch opportunities. Acquisitions - Direct Property Investments The operating platform also enabled us to add a further 31 single assets worth£366.4 million, spread throughout the UK regions from Newcastle to Southampton.Individual assets ranging from £1.8 million to £68.8 million in price wereacquired at an average yield of 6.6%. Approximately half of these acquisitionswere made "off-market" both through Mapeley's proprietary acquisition databaseand by direct approaches to landlords, highlighting the strength of our team andoperating platform. As predicted, weight of money continued to push prices up throughout 2006,albeit with most of the focus of this demand being on London. Our ability tocontinue to source such a high quantity of deals in the UK regions off-marketwill be key in securing attractive opportunities going forward. We are confidentthat our operating platform will continue to provide us with a real competitiveadvantage in this area. Results and Dividend At Mapeley our main focus is growing our FFO in order to pay a stable andgrowing dividend to shareholders. During 2006 we grew our FFO by 79.2% to £45.7million (2005: £25.5 million). The strong operational and financial performance of the business has enabled usto make four successive increases in our quarterly dividend during 2006 and intotal we have raised the dividend in every quarter since we floated the businessback in June 2005. Over the 12 months of 2006 we have grown our dividend by29.2% and produced a total shareholder return of 55.6%. EBITDA increased by 44.4% to £93.6 million (2005: £64.8 million) and as at 31December our total property portfolio was valued at £2,046.2 million (2005:£1,645.8 million). We completed two equity issues during 2006 in January and again in October,raising a total of £196.8 million. Both issues were for the purpose ofre-financing single asset acquisitions we had already made. We are grateful forthe support of both new and existing shareholders in these share issues. People None of Mapeley's success would have been possible without the full effort,creativity and enthusiasm of its staff. Our staff are shareholders in thebusiness and are motivated to make a full contribution to the Group'sperformance. I would like to thank every member of staff for their hard work anddedication in 2006. Outlook I believe Mapeley is extremely well placed to continue its strategy and we arecommitted to maintaining a strong performance through both organic growth andfurther acquisitions. Whilst the commercial property market remains competitive and the pressure onfinancing costs increases, we continue to find good opportunities to invest. Sofar in 2007 we have acquired £95.1 million of assets and have a healthy pipelinecurrently under evaluation. Our acquisitions database continues to grow as doesour knowledge of the markets we operate in and intend to target. Both of thesefactors continue to drive our competitive advantage in acquiring attractiveregional assets. 2007 promises to be another exciting year for the UK real estate sector,particularly following the arrival of REITs. At Mapeley, we do not currentlyintend to convert to REIT status as we already benefit from similar taxadvantages to that which the REIT regime conveys. Mapeley offers an attractive yield and a real growth opportunity to investindirectly in the UK regional property market in a tax efficient manner. Mapeleyis well-placed to further flex its strengths of in-depth local market knowledge,strong relationships with tenants and its diverse regional operating platform todrive further shareholder value in 2007. I look forward to the year ahead. Jamie Hopkins Chief Executive Officer Business Review Portfolio Review Portfolio Overview Mapeley is a Guernsey based company which owns, manages and operates a diverseportfolio of properties located throughout the whole UK covering some 2.3million sq m. Mapeley's portfolio covers every major town and city in the UK.862 of the 1,683 properties Mapeley owns are primarily office or othercommercial use and 821 are primarily retail. Mapeley Estates Limited, a whollyowned subsidiary of Mapeley provides a complete range of management services toMapeley's portfolio and its asset owning subsidiaries. The Group's real estate portfolio is split into two distinct segments, namelyOutsourcing Contracts and Direct Property Investments however thecharacteristics of the assets in both portfolios are very similar. They are allgood quality regional assets, let to the same types of high credit qualitytenants. As at 31 December 2006, Mapeley owned and managed 1,683 properties with aProperty Portfolio value(2) of £2,046.2 million. This valuation covers only the574 freehold and long leasehold properties which Mapeley owns with at least 20years unexpired at the time of acquisition and with negligible or peppercornrents payable. The balance are rack-rented leasehold interests where Mapeleyacts as tenant on behalf of its clients through its outsourcing contracts (see "Outsourcing Contracts" below for further detail on these portfolios). Theserack-rented leaseholds do not carry any value in Mapeley's accounts, they areshort leases where the rent reserved under the lease is close to the market rentfor the property and is subject to regular, usually five yearly, upward-onlyrent reviews. Mapeley benefits from any difference between income it receives from itsoutsourcing clients as the unitary charge and its outgoing rental paymentobligations, which reflect the open market rent it pays to its landlords.Mapeley's income rebases each year whereas the outgoing rents which Mapeley paysout to third party landlords are reviewed typically on a five yearly basis.Mapeley generates returns to the extent the Group achieves rental uplifts (ornil rental increases) on rent reviews of Mapeley's leasehold interests lowerthan contracted rental income growth of either 3% or RPI (in the case of Abbeyand HMRC respectively). In 2006, the annual growth in outgoing rentalliabilities paid by Mapeley since acquiring these leases was 1.6% compared withincome increases of 3.3% per annum on average. The unique insight which Mapeley gains from acting as both landlord and tenantacross its diverse regional portfolio provides excellent in-depth marketknowledge. This enables the Group to perform well at rent reviews and leaserenewals and other asset management events to drive organic growth. Mapeley alsoleverages this insight by using this information to enhance its ability to makedirect approaches to third party owners of property assets which it may wish toacquire. 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 FM services costs (in the case of HMRC only)are key drivers of FFO growth for the outsourcing portfolio. 2 Property Portfolio value is defined as the Group's property assets as valuedby one of the Group's valuers, CBRE and Savills, or the Directors Outsourcing Contracts Real estate outsourcing involves the transfer of an organisation's property andthe risks associated with occupying, managing and servicing that property, inreturn for occupational flexibility and the payment of a single unitary charge. 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 5. Improved customer service Real estate outsourcing deals are difficult to predict and as such the Groupdoes not have an annual target for new outsourcing transactions. However, due tothe scale, specialist knowledge and complex nature of outsourcing transactions,Mapeley is now one of very few operators currently in the UK with the capacityand ability to undertake such large deals. So far in the UK the majority ofoutsourcing deals have been transacted with either public sector or majorcorporates which is well suited to Mapeley's capabilities, experience andplatform. Within the outsourcing contracts segment, the Group holds three portfolios, asdescribed below: i. Her Majesty's Revenue & Customs (HMRC) Portfolio The HMRC portfolio was acquired in 2001. The transaction involved theacquisition of freehold and long leasehold properties and rack-rented leaseholdproperties under a purchase and leaseback agreement for a 20 year duration. Thisportfolio totalled 1.5 million square metres, representing the majority ofHMRC's UK property, including offices, customer contact centres and otherfacilities located in 279 towns and cities across the UK. In addition, the Groupprovides comprehensive property and facilities management services to HMRC.These services include maintenance, life cycle replacement, cleaning, help desk,security, catering, childcare, health and safety, utilities, equipmentmanagement, management of removals (churn), vending and landscaping. HMRC pays the Group a monthly facilities payment which covers not only thecharge for the accommodation, but also all services that are provided. The Grouphas retained responsibility for, but sub-contracted, the performance of all ofits obligations to provide services (other than property management services) onterms that reflect and are consistent with the Group's underlying obligations toHMRC. To this extent Mapeley has maintained the property risk in the outsourcingcontracts but passed on risks relating to the provision of facilities managementservices, 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. iii The Identity and Passport Service (IPS) Portfolio In March 2006, Mapeley announced that it had won the Identity and PassportService Authentication by Interview outsourcing contract. The Identity andPassport Service is an Executive Agency of the UK Government's Home Office. Thiscontract includes the acquisition, fit-out and delivery of serviced officeaccommodation for 69 interview offices throughout the UK. The contract is for upto five years. Work commenced on this contract in early 2006. The Group expects to satisfy approximately 15% of the property requirementsunder this contract by utilising vacant space in its existing portfolio, whichprovides excellent synergies across Mapeley's business. The nationwide spread ofthe portfolio and Mapeley's in-house operational expertise and experience ofoperating similar contracts were key in both winning and mobilising thiscontract. Direct Property Investments Portfolio Mapeley also acquires single property assets and small portfolios into itsdirect property investments portfolio (DPI Portfolio). These assets are similarto the individual assets Mapeley has acquired under its outsourcing contracts;they are good quality, regional office buildings located throughout the UK.Acquisitions during 2006 ranged in cost from £1.8 million to £68.8 million. 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. Mapeley targets £400 million of single asset acquisitions for its DPI Portfolioeach year. During 2006, the Group acquired 31 freehold or long leaseholdproperties at a cost of £366.4 million, and at an average net initial yield of6.6% (6.8% excluding the Pearl Centre, Peterborough). As at 31 December 2006 thetotal DPI Portfolio was valued at £903.7 million and the net initial yield onthe portfolio was 7.0%. Approximately half of the acquisitions made in 2006 were sourced from eitherMapeley's proprietary acquisition database or by direct approaches to existingowners. At the year end, properties in the DPI Portfolio were 97.9% 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 7.8 years. Portfolio Performance As at 31 December 2006, the Group's total Property Portfolio had a value of£2,046.2 million (2005: £1,645.8 million) generating total revenue of £387.0million during the year (2005: £339.4 million). Of this, £296.4 million ofrental income was generated from the Group's portfolio of 1683 properties (2005:£255.3 million from 1,685 properties). Over 93% of income was generated fromGovernment and investment grade tenants. The property portfolio, as valued by Savills Commercial Limited, CB RichardEllis Limited and the Company's Directors (see notes 7 and 8), increased to£2,046.2 million at 31 December 2006 from £1,645.8 million at 31 December 2005. Abbey portfolio: The value increased by 5% to £575.7 million (2005: £546.5million) HMRC portfolio: The value decreased by 1% to £560.1 million (2005: £566.6million). The increase in value in the Abbey portfolio was principally attributable tofavourable market conditions and the appetite in the market for high-qualityinvestment grade assets. The fall in value in the HMRC portfolio results from the sale of six propertiesand a valuation deficit for the year of £2.8 million in Savills' valuation ofthe portfolio (31 December 2005: surplus £19.4 million). The valuation deficitarose as a consequence of the Group's re-assessment during the year of the costof providing facilities management services to certain properties as part of theHMRC contract following the signing of a new facilities management contract. Direct Property Investments Portfolio: The value increased by 70.8% to £903.7million (2005: £529.2 million) The increase of £374.5 million arose largely from the acquisition of propertiesinto the DPI Portfolio during the year in line with the Group's investmentstrategy. On a like-for-like portfolio basis, the 38 properties which Mapeley owned at 31December 2005 and 31 December 2006, increased in value by £21.4 million, anincrease of 4%, reflecting favourable market conditions. Property Management National and regional estate strategies are regularly reviewed in order to takeadvantage of opportunities to match Mapeley's property interests to theaccommodation requirements of its tenants. • During 2006, Mapeley settled 187 rent reviews on rack-rentedproperties as tenant in the portfolio (2005: 230) with an annual rent roll of£30.4 million (2005: £35.0 million). The average increase was 1.4% per annum. • During the year Mapeley also completed lease renewals for 39properties (2005: 53) with an annual rent roll of £3.5 million (2005: £3.6million) as tenant. The average annual increase in rent payable in 2006 was 1%. • During 2006 Mapeley settled 82 rent reviews as tenant with nil increases. • Mapeley let 44 (2005: 29) vacant properties during the year,generating £1.6 million (2005: £0.9 million) of additional income and maintaineda low vacancy rate of 3% across the whole portfolio. 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, 76% (2005: 87%) of the income Mapeley receivesis subject to annual uplifts, with virtually all of the balance of the incomebeing subject to 5 yearly upward only rent reviews. To December 2006, the annual growth in rental liabilities paid by Mapeley sinceacquiring these leases has been 1.6% per annum. Over the same period, theamounts paid by Abbey have increased at 3% per annum (the fixed rate) and RPI,the basis for indexation in the HMRC portfolio has increased by 3.3% per annumon average. By actively managing its lease obligations and matching the lease terms to itstenants' occupational requirements, Mapeley has been able to generate assetmanagement receipts to date of £100.3 million which partly offset operatingcosts. There are some, albeit more limited, further opportunities to generatesuch asset management receipts within the existing portfolio. Mapeley expectsthat future real estate outsourcing contracts it enters into will bringadditional opportunities of this nature. 2007 Portfolio Events During 2007, Mapeley anticipates the following portfolio events: • 5 lease breaks exercisable on the DPI Portfolio on a rent roll of £0.5 million • 7 lease renewals exercisable on the DPI Portfolio on a rent roll of £0.7 million • 105 rent reviews as tenant in properties in the Group's outsourcing portfolio on a rent roll of £26.7 million • 32 rent reviews as landlord in properties in the Group's total property portfolio on a rent roll of £1.4 million • 35 lease renewals as tenant in properties in the Group's outsourcing portfolio on a rent roll of £2.6 million • 41 lease renewals as landlord in properties in the Group's total property portfolio on a rent roll of £0.9 million • £400 million of individual asset acquisitions • Acquisition of final 28 IPS properties Services Property services Mapeley provides a wide range of facilities management services through itswholly-owned subsidiary Mapeley Estates Limited, to approximately 100,000 of itstenants' employees in 636 buildings. Examples of these services includemaintenance and life cycle replacement, security and cleaning, catering andchildcare. The service provision is coordinated through Mapeley's 24-hour help desk. In2006, the help desk received 107,609 calls (2005: 128,037). 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 so that the Group is well positioned to provide them with an appropriatesolution and to manage the estate better through being able to anticipate andpredict their occupational requirements. Facilities management services contract In February 2006, Mapeley signed a facilities management (FM) services contractwith an FM provider in respect of the provision of services on behalf of Mapeleyto the HMRC portfolio and other properties in Mapeley's portfolio. This contractwill run until Spring 2021. In the year ended 31 December 2006, Mapeley provided services with a value of£45.2 million (2005: £51.0 million). This decrease was due primarily to areduction in the price paid for facilities management services by Mapeley. Projects Projects and life cycle 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. When providingthese services Mapeley earns a margin in addition to the unitary chargereceivable 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. Our proven project managementcapabilities enable Mapeley to influence and add value to the way its clientsutilise and refurbish their space. Mapeley also has an in-house team dedicated to ensuring that its life cycleprogramme is executed in a timely and cost effective manner. In the year ended 31 December 2006, Mapeley carried out repair, refurbishmentand construction projects with a value of approximately £36.8 million (2005:£34.2 million). Our People Mapeley employs a wide range of multi-skilled and specialist employees as wellas property professionals to operate its diverse estate. As at 31 December 2006Mapeley had 131 employees (2005: 170). This reduction arose primarily as aresult of 49 employees being transferred to Mapeley's new facilities managementcontractor in May 2006. Mapeley staff are characterised by an entrepreneurial and hard-working style andare encouraged to accept high levels of personal responsibility in order todeliver exceptional results. Employee share ownership is actively encouraged andpractically all Mapeley staff are shareholders in Mapeley Limited. Mapeley recognises that its success depends, in part, on the calibre and themotivation of the individuals it employs. Mapeley aims to attract and retain thebest people for the job through competitive remuneration packages which includea component of performance related pay. All remuneration packages are externallybenchmarked against other property companies and other similar sized companies. Mapeley's employment selection criteria focus solely on experience and ability.Mapeley ensures equality of opportunity for all job applicants and employees,irrespective of race, religion, political belief, sex, sexual orientation,marital status, age or physical disability. Mapeley announced the appointment of Steve Cooke to the newly created role ofChief Financial Officer in January 2006. Steve joined Mapeley from Energis wherehe was chief financial officer. Financial Highlights Year ended 31 December Year ended 31 December 2006 2005 £m £m Funds from operations (FFO) (refer to note 17) 45.7 25.5Dividends declared during the year 45.8 25.3Dividend per share (pence / share) * 168p 130pFFO per share (pence / share) ** (refer to note 17) 170p 130p Income Statement Revenue 387.0 339.4Property operating expenses (285.4) (268.3)Net valuation surplus on investment property 40.8 18.0Gain on disposal of non-investment property 3.2 -Administrative and other expenses (20.7) (19.7)EBITDA (refer to 16) 93.6 64.8Finance costs (89.6) (129.7)Finance income 6.8 3.8Gain/(loss) on interest rate swap included in 2.8 (1.4)finance income/(costs) (refer to note 3)Exceptional finance charge included in finance (19.8) (72.7)costs (refer to note 3)Profit/(loss) before tax 42.9 (56.5)Tax credit (refer to note 4) 10.9 -Profit/(loss) for the year 53.8 (56.5) Balance Sheet As at As at 31 December 2006 31 December 2005 £m £m Property assets *** 2,044.4 1,644.5Total non-current assets 2,078.6 1,650.1Financial instruments assets (included in total 20.2 -non-current assets)Bank loans excluding loan finance costs and 1,278.3 1,086.6accrued interest (refer to note 13)Financial instrument liabilities - 28.0Net assets 712.2 456.9Gearing (refer to note 18) 169% 220% * Dividend per share calculations aggregate the coupon rates ofdividends declared for each year as disclosed in note 5 to the financial statements. ** FFO per share calculations for the year ended 31 December 2006 arebased on the weighted average number of ordinary shares in issue during the period of 26,887,700 shares. FFO per share calculations for the year ended 31 December 2005 are based upon the weighted average number of ordinary shares in issue during the period of 19,510,770. *** Property assets are defined as total non-current assets plusnon-current assets held for sale, less non-current trade and other receivables, financial instruments, deferred tax assets and plant and equipmentheld within property, plant and equipment. Financial Review Funds from operations ("FFO") FFO is a non-GAAP financial management measure used to demonstrate theunderlying operating performance of real estate businesses. It providesinvestors with information regarding the Group's ability to service debt andmake capital expenditure. Further information on FFO is set out in note 17. FFO was £45.7 million for the year ended 31 December 2006, compared with £25.5million for the year ended 31 December 2005. The increase in FFO of £20.2million was primarily driven by income generated by investment propertiesacquired during the year and stronger performance from the Group's existingoutsourcing contracts driven by lower operating costs. During the year the Group started to separately disclose organic FFO which isdefined as the FFO generated following the first anniversary of the acquisitionof a property asset or commencement of an outsourcing contract. In 2006, organicgrowth outperformed our expectations. We generated organic FFO of £32.2 million(2005: £21.4 million), an increase of 50.5%. The £10.8 million increase inorganic growth represented more than half of the increase in total FFO. The keydriver in this area has been the strong performance of our existing outsourcingcontracts. Dividends For the 12 months ended 31 December 2006, Mapeley declared dividends aggregatingto £1.68 per share (31 December 2005: £1.30 per share) representing a fourthquarter annualised dividend yield of 4.5%. At a Board meeting held on 7 March 2007, the Board of the Company declared adividend for the quarter of £13.2 million, equating to £0.45 per share (yearended 31 December 2005: £8.3 million, equating to £0.37 per share), (quartersended 30 September 2006: £11.4 million, equating to £0.43 per share, 30 June2006: £10.9 million, equating to £0.41 per share and 31 March 2006: £10.3million, equating to £0.39 per share), an increase of 4.7% per share on theprior quarter, reflecting the Company's policy of paying stable and growingdividends. The record date for the dividend declared on 7 March 2007 is 16 March 2007 andthe payment date is 30 March 2007. For the year ended 31 December 2006, the dividends paid and declared amounted to£45.8 million (31 December 2005: £25.3 million). Profit for the year The profit for the year ended 31 December 2006 was £53.8 million (2005: loss£56.5 million). These results include the following key points: • A £19.8 million (2005: £72.7 million) exceptional charge arising on the refinancing of the original STEPS loan facility and the revolving acquisition facilities, refinanced during the year. • Net valuation surplus on investment property was £40.8 million (2005: £18.0 million). • Reversal of impairment of non-investment property was £0.8 million (2005: impairment of £0.6 million). • Tax credit of £10.9 million (2005: £nil) relating to the recognition of deferred tax assets in respect of prior year losses and capital allowances. Excluding the above mentioned effects, the Group's result increased from a lossof £1.2 million in 2005 to a profit of £21.1 million for the year ended 31December 2006. The main reason for this increase was the strong and growingcontributions from the Direct Property Investments Portfolio and profits fromdisposals of non-investment property. Revenue Group revenue for the year ended 31 December 2006 was £387.0 million, anincrease of £47.6 million (14.0%) over the same period last year. The increasewas driven by additional rental income of £34.4 million from the Direct PropertyInvestments Portfolio from current year acquisitions and the full year revenueeffect of acquisitions in 2005. There was an increase, net of vacations, of£14.9 million in contractual income from outsourcing contracts principallyarising from the impact of revenues from the Identity and Passport Service .However, revenue from any remaining property held for trading fell by £1.7million. The key drivers of revenue growth are described below: Direct Property Investment ("DPI") In the year to 31 December 2006, the Group purchased investment property at anaggregate cost of £366.4 million with an average net initial yield of 6.6% (6.9%excluding the Pearl Centre, Peterborough) and continued to identify asignificant target pool of properties it may consider acquiring in the future. Included in this total was the acquisition of the Pearl Centre, Peterborough for£65.0 million at a net initial yield of 6.1%. The Pearl Centre is let toDiligenta Limited, a UK-based subsidiary of TATA Consulting Services Limited,for 12 years with annual RPI rental uplifts such that the running yield in year12 will be a minimum of 7.6%. Mapeley took out an interest rate swap thatmatched the cost of debt to the income profile, which was subsequentlyincorporated into the Gamma Acquisition facility term loan, part of whichfinances this property. Identity and Passport Service ("IPS") interview centre outsourcing contract During the year Mapeley signed a contract with IPS for a term of 3 years, withan option to extend for a further 2 years. This contract provides for theacquisition, fit-out and servicing of 69 offices throughout the UK. The contractcontributed £12.4 million of revenue during the year. Property operating expenses The property operating expenses of the Group in the year to 31 December 2006were £285.4 million (of which £173.9 million was rentals payable) compared to£268.3 million (£167.7 million rentals payable) for the same period in theprevious year, an increase of 6.4%. The increase was primarily driven by anincrease in rental payments of £6.2 million and costs associated with the IPScontract. Mapeley awarded a contract to a new facilities management provider to manage anddeliver facilities management services to the HMRC portfolio and otherproperties on 3 February 2006. This contract will run until Spring 2021 matchingMapeley's contractual obligations with HMRC and will reduce overall operatingcosts going forward. Net valuation surplus on investment property The Group recognised a surplus of £40.8 million (2005: £18.0 million) onrevaluation of investment property reflecting favourable market conditions andthe appetite for high-quality real estate investment assets. Gain on disposal of non-investment property The Group disposed of six non-investment properties in 2006 realising proceedsof £6.6 million and net gains of £3.2 million (2005: £nil). Administrative and other expenses Administrative and other expenses were £20.7 million for the year ended 31December 2006 compared to £19.7 million for the year ended 31 December 2005, anincrease of 5.1%. The increase was driven largely by bid costs on a potentialoutsourcing contract. EBITDA EBITDA (see note 16) was £93.6 million for the year ended 31 December 2006,compared to £64.8 million for the year ended 31 December 2005, an increase of44.4%. This was a direct result of revenue growth of 14.0% outstripping growthin property operating expense of 6.4%. Finance costs and finance income Finance costs in the year ended 31 December 2006 were £89.6 million (31 December2005: £129.7 million). The finance costs for the year ended 31 December 2006included exceptional break costs of £19.8 million (31 December 2005: £72.7million) relating to the refinancing of the STEPS loan facility, and therevolving acquisition facilities in 2006 and the Abbey portfolio and revolvingacquisition facilities in 2005. Exceptional break costs comprise a financecharge of £6.4 million resulting from the change in the estimate of the timingof the repayment of the original loan and £13.4 million relating to swaptermination fees as a consequence of the refinancing. Excluding exceptionalbreak costs, finance costs have increased by £10.4 million during the period dueto higher interest costs arising as a result of the increased borrowingsrequired for new investments. Finance income has benefited from unrealised gains on interest rate swaps in2006 of £2.8 million (2005: unrealised losses of £1.4 million). The gain on theinterest rate swap of £2.8 million has arisen as a result of a favourablemovement in long term interest rates applicable to the portion of the swap thatwas not terminated on the refinancing of the Gamma acquisition facility termloan in 2006. The swap fixed the Group's anticipated long term exposure tointerest rate risk on certain property acquisitions. 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. The Group and its subsidiaries have not paid income or corporation tax in either2006 or 2005 in any of the jurisdictions in which they operate due to their taxresidence and the availability of current and prior year tax losses and othertax deductible allowances. The Group has also re-evaluated its forecasts offuture profits of Group companies. For the first time, the Group has concludedthat it is sufficiently certain of its future profitability to recognise adeferred tax asset. As a consequence, the Group recognised a deferred tax creditof £10.9 million (2005: £nil) in the income statement (see note 4). 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 addition the Group recognised a deferred tax expense of £4.6 million (2005:£nil) directly in equity on unrealised valuation surpluses in respect ofderivative financial instruments and certain property assets domiciled in theUnited Kingdom. These deferred tax liabilities are unlikely to be realised dueto the availability of prior year tax losses. Non-current assets Non-current assets, comprising investment property, property plant andequipment, premiums paid for operating leases, non-current trade and otherreceivables, financial instruments and deferred tax assets, increased by £428.5million between 31 December 2005 and 31 December 2006. Investment Property onthe Balance Sheet comprises the Abbey portfolio and the Direct PropertyInvestments Portfolio. Investment property (see note 8) increased to £1,483.1 million from £1,077.4million at 31 December 2005. This reflects the purchase consideration andrelated costs of acquisition of new investment property in the year to 31December 2006 of £366.4 million plus a valuation surplus recognised in the yearof £40.8 million and transfers from inventories of £0.8 million less transfersto non-current assets held for sale of £3.0 million. Investment propertyconsists of the following two portfolios: The Abbey portfolio As at 31 December 2006, the Abbey portfolio (see note 8) had a value of £575.7million (31 December 2005: £546.5 million). It comprised 367 freehold or longleasehold properties (31 December 2005: 367) and 698 rack rented leaseholdproperties with nil capital value (31 December 2005: 732 properties). Portfoliooccupancy (based on area) was 90.3% at 31 December 2006 (31 December 2005:91.6%). Direct Property Investments ("DPI") Portfolio As at 31 December 2006, the DPI Portfolio (see note 8) comprised 69 properties(31 December 2005: 38) with a value of £903.7 million (31 December 2005: £529.2million). The net initial yield on this portfolio as at 31 December 2006 was7.0% (31 December 2005: 7.2%). The properties were 97.9% let on fully repairingand insuring leases to central and local Government and major corporate tenants(31 December 2005: 98.0%) with an average unexpired lease length of 7.8 years(31 December 2005: 9 years). Over the same period, Property, Plant and Equipment (see note 7) decreased to£523.3 million from £527.9 million at 31 December 2005, principally due to therevaluation of certain of the Group's freehold and long leasehold properties.Property, plant and equipment consists of the following portfolio: The HMRC portfolio The HMRC portfolio comprised 138 freehold or long leasehold properties (31December 2005: 144) and 380 rack rented leasehold properties (31 December 2005:401). Portfolio occupancy (based on area) was 98.9% at 31 December 2006 (31December 2005: 98.5%). As at 31 December 2006, the HMRC portfolio (see note 7) had a value of £560.1million (31 December 2005: £566.6 million). The fall in value results from thesale of six properties during the year and from a valuation deficit for the yearof £2.8 million. The valuation deficit arose as a consequence of the Group'sre-assessment of the cost of providing facilities management services to certainproperties as part of the HMRC contract following the signing of a newfacilities management contract. Non-current assets held for sale Non-current assets held for sale increased to £3.0 million (2005: £1.4 million)as a result of the transfer of two assets from investments properties offset bythe sale of prior year assets. The majority of the £3.0 million increaserepresents the transfer of one property held at a value of £2.5 million at 31December 2006 based upon the Directors' valuation, established by reference tothe net disposal proceeds on completion of sale shortly after the balance sheetdate. Finance and Capital structure 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% LTVusing long-term debt with a lower interest rate, with the balance of the cost ofacquisition funded by new equity raised. The Directors intend to fund futureacquisitions in the same manner. The Group therefore expects continuing growthin the level of debt over the coming years as it pursues its strategy ofinvesting in direct investment property. The Group strives to eliminate the effect of interest rate fluctuations on itsearnings and in order to achieve this, hedges its anticipated long termliabilities using interest rate swaps or fixed rate debt at the earliestopportunity, normally on the purchase of a property. Although the Group hasarrangements in place that hedge its interest rate exposure on substantially allof its borrowings not all these arrangements are eligible for hedge accounting. i) Equity fund raising On 27 January 2006, Mapeley Limited (the "Company") issued 4,036,697 ordinaryshares at a price of £27.25 per share and raised proceeds of £106.4 million, netof issue costs. On 11 October 2006 the Company issued a further 2,876,923 ordinary shares at aprice of £32.50 per share and raised proceeds of £90.4 million, net of issuecosts. In each case the proceeds were used to repay a portion of the revolvingacquisition facility in place at each time, resulting in a reduction in interestcosts and enabling the Group to draw new funds under its revolving acquisitionfacility to finance future acquisitions. Share performance data Closing share price on 29 December 2006 £ 39.70 per shareDividends for the quarter ended 31 December 2006 declared on 7 March 2007 £ 0.45 per share ii) Bank loans At 31 December 2006, £1,278.3 million had been drawn under the Group's loanfacilities (31 December 2005: £1,086.6 million). The Group drew down funds of£956.3 million in the period and repaid loans of £764.6 million. Conversion of Beta revolving acquisition facility to Beta Acquisition term loan In January 2006, at the time of the first 2006 equity fund raising, the Groupconverted the £300.0 million Beta revolving acquisition facility into a 10 year,£208.6 million term facility with a fixed interest rate of 4.53% plus a marginof 0.85%. The rate of interest payable was determined by the weighted averagerate payable under the Group's matching swap contracts which were terminated onthe same date. Conversion of Gamma revolving acquisition facility to Gamma Acquisition termloan Following the successful issue of a further 2,876,923 ordinary shares in October2006, the Group converted the 2 year, £300.0 million revolving Gamma Acquisitionfacility into a 10 year, £179.3 million term facility with a fixed interest rateof 4.28% plus a margin of 0.67% and a 10 year, £52.0 million stepped fixedinterest rate facility. The initial rate on this facility is 4.0% with steppedincrements of 0.20% per annum plus a margin of 0.67%. The rate of interestpayable on both facilities was determined by the weighted average rate payableunder the Group's matching swap contracts which were terminated on the samedate. New Delta revolving acquisition facility Having paid down the Gamma revolving acquisition facility (with the new termfacility and equity, as described above), the Group also arranged a new 10 year,£300.0 million revolving facility (the "Delta acquisition facility") to financethe future acquisition of investment property. The interest rate payable on thefacility is LIBOR plus a margin of between 1.0% and 1.5%, plus mandatory costs(if any). The Group has also put in place a 10 year, £20.0 million swap with aninterest rate of 4.37% to fix its anticipated long term exposure to interestrate risk on these property acquisitions. As at 31 December 2006 the balance drawn down on this facility was £36.4million. On the 20 January 2007 the Group entered into a 10 year, £9.3 million interestrate swap fixing the interest rate at 5.2% and on the 30 January 2007 it alsoentered into a further 10 year, £75.0 million interest rate swap fixing theinterest rate at 5.34% in order to secure the borrowing cost of plannedacquisitions expected to be completed in the first quarter of 2007. The cost to the Group of refinancing its acquisition facilities during the yearwas £2.0 million which is included as part of the exceptional finance charge(see note 3). STEPS refinancing During the year the Group successfully completed the refinancing of the loanfacility entered into by Mapeley STEPS Limited and Mapeley STEPS ContractorLimited in 2001. This involved the repayment of the 20 year, £174.9 million loanand replacing it with a new 15 year, £178.0 million term facility, of which£176.0 million has been utilised. As a result, the Group has incurred anexceptional charge of £17.8 million comprising of £4.4 million resulting from achange in the timing of repayment of the original loan and £13.4 millionrelating to swap termination costs. The benefit of the refinancing is areduction in the rate of interest payable, which fell from an average of 6.65%per annum to 5.25% per annum (realising an annual cost saving of approximately£2.4 million per annum). Gearing At 31 December 2006, the Group had a gearing ratio (see note 18) of 169% (31December 2005: 220%). The decrease in gearing was primarily driven by anincrease in equity following the Group's issue of shares in January and October2006 and the use of the proceeds raised to partially repay amounts drawn undertwo £300.0 million revolving acquisition facilities. Cash flow The following table summarises the Group's cash flows for the years ended 31December 2006 and 2005: 2006 2005 £ million £ millionNet cash flows from operating activities 35.7 55.9Net cash flows used in investing activities (359.9) (507.5)Net cash flows from financing activities 319.4 458.0Net (decrease)/ increase in cash and short term deposits (4.8) 6.4 In the year ended 31 December 2006, the Group generated strong operating cashflows driven by operating profits. The decrease in the net cash flows fromoperating activities, in 2006 compared to 2005, relates to the receipt of thefacilities management income of £19.3 million in January 2005 relating toDecember 2004. The largest non-operating cash outflows have been the acquisitionof property at £366.4 million (2005: £507.2 million), costs paid of £13.4million (2005: £65.9 million) on breaking interest rate swaps and related loantermination charges and interest paid of £65.4 million (2005: £48.8 million).The acquisition of property has been funded by equity and debt, and interestpaid has been funded from operating cash flows. Consolidated income statementfor the year ended 31 December 2006 Note 2006 2005 £m £m Revenue 2 387.0 339.4Property operating expenses (285.4) (268.3) Net contract, rental & related income 101.6 71.1 Net valuation surplus on investment property 8 40.8 18.0Reversal of impairment of non-investment property 7 0.8 -Gain on disposal of non-investment property 3.2 -Impairment of non-investment property - (0.6)Gain on disposal of subsidiaries - 0.6Administrative and other expenses (20.7) (19.7) Operating profit 125.7 69.4 Finance costs 3 (89.6) (129.7)Finance income 3 6.8 3.8 Profit/ (loss) before tax 42.9 (56.5) Income tax credit - Guernsey 4 - - - UK 4 10.9 - - Overseas 4 - - Profit/(loss) for the year 53.8 (56.5)attributable to equity holders of the parent company Dividends- paid 5 40.9 17.0- declared 5 13.2 8.3 Earnings/(loss) per share £/share £/share- basic 6 2.0 (2.9)- diluted 6 2.0 (2.9) Consolidated statement of changes in equityfor the year ended 31 December 2006 Issued Share Net Retained Asset Other Total capital premium unrealised losses revaluation reserves equity (net of gains/ reserve treasury (losses) shares) £m £m £m £m £m £m £mAt 1 January 2006 - 132.4 (26.6) (69.1) 318.6 101.6 456.9 Revaluation deficit - - - - (2.8) - (2.8)Depreciation written back on revaluation of - - - - 5.6 - 5.6non-investment propertyTransfer of excess revaluation depreciation - - - 5.2 (5.2) - -Transfer of revaluation surplus on asset - - - 0.6 (0.6) - -disposalsGains on cash flow hedges - - 34.6 - - - 34.6Realised gain on cash flow hedge - - 10.9 - - - 10.9Tax on items taken directly to equity - - (4.2) - (0.4) - (4.6)Total profit/(loss) for the year recognised - - 41.3 5.8 (3.4) - 43.7directly in equityProfit for the year - - - 53.8 - - 53.8Total income / (expense) for the year - - 41.3 59.6 (3.4) - 97.5Issue of new ordinary shares - 203.5 - - - - 203.5Cost related to issue of new ordinary - (6.7) - - - - (6.7)sharesIssue of shares to Non-executive Directors - - - - - 0.5 0.5Issue of shares to employees under the - - - - - 1.4 1.4Employee Share PlanEquity dividends - - - (40.9) - - (40.9)At 31 December 2006 - 329.2 14.7 (50.4) 315.2 103.5 712.2 At 1 January 2005 - - (63.6) (1.9) 298.9 120.8 354.2 Impairment of non-investment property - - - - (0.3) - (0.3)reclassified tonon-current assets held for saleRevaluation surplus - - - - 19.4 - 19.4Depreciation written back on revaluation of - - - - 6.9 - 6.9 non-investment property Transfer of excess revaluation - - - 6.3 (6.3) - -depreciationLoss on cash flow hedges - - (26.9) - - - (26.9)Realised gain on cash flow hedge - - 63.9 - - - 63.9Total profit for the year recognised - - 37.0 6.3 19.7 - 63.0directly in equityLoss for the year - - - (56.5) - - (56.5)Total income / (expense) for the year - - 37.0 (50.2) 19.7 - 6.5Capitalised shareholder loans - - - - - 8.1 8.1Repaid other reserves - - - - - (29.0) (29.0)Issue of ordinary shares on listing of - 140.8 - - - - 140.8CompanyCost related to issue of ordinary shares - (8.4) - - - - (8.4)Issue of shares to Non-executive Directors - - - - - 0.8 0.8Issue of shares to employees under the - - - - - 0.9 0.9Employee Share PlanEquity dividends - - - (17.0) - - (17.0)At 31 December 2005 - 132.4 (26.6) (69.1) 318.6 101.6 456.9 Consolidated balance sheet - at 31 December 2006 Note 2006 2005ASSETS £m £mNon-current assetsProperty, plant and equipment 7 523.3 527.9Investment property 8 1,483.1 1,077.4Premiums on operating leases 35.2 38.4Trade and other receivables 5.9 6.4Financial Instruments 20.2 -Deferred tax asset 4 10.9 -Total non-current assets 2,078. 6 1,650.1Current assetsInventories 10 15.7 18.5Trade and other receivables 57.6 48.9Cash and short-term deposits - in controlled accounts 11 22.7 25.7 - for operational purposes 11 54.6 55.5Total current assets 150.6 148.6Non-current assets held for sale 9 3.0 1.4TOTAL ASSETS 2,232.2 1,800.1EQUITY AND LIABILITIESEquity attributable to equity holders of MapeleyLimitedIssued capital (net of treasury shares) 12 - -Share premium 329.2 132.4Net unrealised gains/ (losses) 14.7 (26.6)Retained losses (50.4) (69.1)Asset revaluation reserve 315.2 318.6Other reserves 103.5 101.6TOTAL EQUITY 712.2 456.9Non-current liabilitiesTrade and other payables 5.2 5.4Interest and non-interest bearing loans and borrowings 13 1,268.7 797.8Provisions 31.5 28.2Financial instruments - 26.6Deferred asset management receipts 78.9 74.0Deferred tax liability 4.6 -Total non-current liabilities 1,388.9 932.0Current liabilitiesTrade and other payables 110.5 108.8Interest and non-interest bearing loans and borrowings 13 1.2 285.4Provisions 13.5 10.4Financial instruments - 1.4Deferred asset management receipts 5.9 5.2Total current liabilities 131.1 411.2 TOTAL LIABILITIES 1,520.0 1,343.2TOTAL EQUITY AND LIABILITIES 2,232.2 1,800.1 Consolidated cash flow statementfor the year ended 31 December 2006 2006 2005 Note £m £m Cash flows from operating activitiesOperating profit 125.7 69.4Adjustment for:Reversal of impairment on non-investment property 7 (0.8) -Impairment of non-investment property - 0.6Net valuation surplus on investment property 8 (40.8) (18.0)Depreciation and amortisation 9.5 13.4Gain on disposal of non-investment property (3.2) -Gain on disposal of subsidiaries - (0.6)Share benefit expense 1.9 1.7Operating profit before changes in working capital 92.3 66.5Decrease / (increase) in inventories 2.0 (1.2)(Increase)/ decrease in trade and other receivables (8.2) 21.1Increase in trade and other payables 0.9 5.6Increase / (decrease) in provisions 4.5 (2.2)Increase in deferred asset management receipts 5.6 11.1Cash generated from operations 97.1 100.9Interest paid (65.4) (48.8)Interest received 3 4.0 3.8Net cash flows from operating activities 35.7 55.9 Cash flows from investing activitiesProceeds from disposal of non-investment property 6.6 -Purchase of property, plant and equipment 7 (0.1) (0.3)Purchase of investment property 8 (366.4) (507.2)Net cash flows used in investing activities (359.9) (507.5) Cash flows from financing activitiesCosts of raising finance (14.2) (8.2)Payment of finance lease liabilities (0.6) (0.6)Receipt of shareholder loans - 0.7Swap and loan termination fees 3 (13.4) (65.9)Receipt of new bank loans 956.3 1,059.6Repayment of bank loans (764.6) (643.0)Receipt of other reserves - 29.0Repaid other reserves - (29.0)Proceeds from issue of ordinary shares 203.5 140.8Costs related to issue of ordinary shares (6.7) (8.4)Dividend paid to equity holders 5 (40.9) (17.0)Net cash flows from financing activities 319.4 458.0 Net (decrease) / increase in cash and short-term deposits (4.8) 6.4Cash and short-term deposits at 1 January 11 81.2 74.8Cash and short-term deposits at 31 December 11 76.4 81.2 Notes to the preliminary announcementfor the year ended 31 December 2006 1. Basis of preparation This financial information is abridged and does not constitute the Group'sstatutory financial statements for the years ended 31 December 2006 and 31December 2005. Financial statements for the year ended 31 December 2006 havebeen prepared in accordance with International Financial Reporting Standards(IFRS) as adopted by the European Union. Full financial statements will bepresented to the Members at the forthcoming Annual General Meeting. The auditorshave reported on those accounts and their report is unqualified. 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. Direct Property Investments The segment previously known as "Investment property" has been renamed "DirectProperty Investments". The Group has embarked on a separate strategy of acquiring individual andportfolios of office property. The Group's activities within this segment willfocus on purchasing property primarily let to strong credit quality tenants, whoare 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 2006 31 December 2005Business segments Direct Outsourcing Total Direct Outsourcing Total Property contracts operations Property contracts operations Investments Investments £m £m £m £m £m £mRental revenue 50.3 - 50.3 15.9 - 15.9Property trading - 0.8 0.8 0.3 2.2 2.5 Facility unitary - 219.7 219.7 - 213.8 213.8 charge Contractual rents - 88.3 88.3 - 81.1 81.1 Third party rents - 27.9 27.9 - 26.1 26.1Contractual revenue - 335.9 335.9 - 321.0 321.0Segment revenue 50.3 336.7 387.0 16.2 323.2 339.4Rentals payable (0.3) (173.6) (173.9) - (167.7) (167.7)Other direct property and contract (1.2) (110.3) (111.5) (0.4) (100.2) (100.6)expenditure *Net contract, rental & related income 48.8 52.8 101.6 15.8 55.3 71.1Reversal/(Impairment) of - 0.8 0.8 - (0.6) (0.6)non-investment propertyNet valuation surplus / (deficit) of 8.1 32.7 40.8 (2.3) 20.3 18.0investment propertyGain on disposal of non-investment - 3.2 3.2 - - -propertySegment result 56.9 89.5 146.4 13.5 75.0 88.5Gain on disposal of subsidiaries - 0.6Unallocated expenses (20.7) (19.7)Operating profit 125.7 69.4Net finance costs (82.8) (125.9)Income tax credit 10.9 -Profit/(loss) for the year 53.8 (56.5) Assets and liabilitiesSegment assets 911.7 1,244.1 2,155.8 534.1 1,184.1 1,718.2Unallocated assets 76.4 81.9Total assets 2,232.2 1,800.1 Segment liabilities 2.1 189.0 191.1 12.7 184.1 196.8Unallocated liabilities 1,328.9 1,146.4Total liabilities 1,520.0 1,343.2 Other segment informationDepreciation and amortisation charged - (9.0) (9.0) - (12.6) (12.6)to segmentsAcquisition of investment property 366.4 - 366.4 507.2 - 507.2 * Other direct property and contract expenditure includes depreciation. 3. Finance costs and finance income 2006 2005 £m £mFinance costsBank loans and overdrafts 73.7 60.0Finance charges payable 0.6 0.4 under finance leasesLoss on interest swap - 1.4Loss on breaking interest rate swap 13.4 63.9Loan termination costs - 2.0Unwinding of discount 1.9 2.0 on provisions 89.6 129.7 Finance incomeBank interest receivable 4.0 3.8Gain on interest rate swap 2.8 - 6.8 3.8 Bank loans and overdraft charges include a charge of £7.7 million (2005: £8.8million) relating to loan financing fees recognised under the effective interestrate method. Of this amount £6.4 million (2005 £6.8 million) relates toexceptional charges as outlined below. In total the Group incurred the following exceptional charge relating to therefinancing of certain Group borrowings: 2006 2005 £m £mLoss on breaking interest rate swap 13.4 63.9Loan termination costs - 2.0Finance charge resulting from a change in the 6.4 6.8timing of the repayment of the original loan 19.8 72.7 4. Income tax expense No income tax is chargeable to the income statement or the statement of changesin equity in the current year in respect of Guernsey, UK or other overseastaxation, other than the tax credit recognised in the current year as a resultof the recognition of deferred tax assets amounting to £10.9 million. The major components of income tax for the years ended 31 December 2006 and 2005are: a) Tax on profit on ordinary activities 2006 2005Tax charged in the income statement £m £mCurrent income taxGuernsey income tax - -UK income tax - -Other overseas tax - -Current income tax charge - -Amounts overprovided in previous years - -Total current income tax - - Deferred taxOrigination and reversal of temporary (10.9) - differencesTotal deferred tax (10.9) -Tax credit in the income statement (10.9) - b) Reconciliation of income 2006 2006 2005 2005tax charge % £m % £mProfit/ (loss) before income tax 100.0 42.9 100.0 (56.5) At the weighted average income tax rate 10.8 4.6 24.5 (13.8) for the GroupRevaluation gains on investment (21.8) (9.4) (0.6) 0.3properties not taxableExpenses not deductible for tax purposes 5.8 2.5 (4.9) 2.7and excluded incomeUnutilised current year tax losses (0.7) (0.3) (23.4) 13.2Utilisation of previously unrecognised (14.2) (6.0) 3.2 (1.8) lossesCapital allowances in excess of (4.2) (1.8) 1.5 (0.8)depreciationOther (1.1) (0.5) (0.3) 0.2At effective income tax rate of 25.4% (25.4) (10.9) - -(2005:0%) The weighted average income tax rate for the year of 10.8% (2005: 24.5%) 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. During the year the Group recognised the following deferred tax assets andliabilities: Deferred tax assets 1 January 2006 Recognised in 31 December 2006 income £m £m £m Losses not utilised - 6.5 6.5Decelerated capital allowances - 3.5 3.5Asset management receipts - 0.9 0.9 - 10.9 10.9 Deferred tax liabilities 1 January 2006 Recognised in 31 December 2006 equity £m £m £m Revaluation of interest rate swaps to fair - 4.2 4.2value Deferred tax asset recoverable in the event - 0.4 0.4of sale of revalued properties at marketvalue - 4.6 4.6 There were no recognised deferred tax assets or liabilities in the previousfinancial period. 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. The unrecognised deferred tax asset balances are as follows: 2006 2005 £m £mRevaluation of interest rate swaps to fair value - 6.7Losses not utilised 27.3 34.5Decelerated capital allowances 3.6 3.2Movement in the provision for onerous leases 5.4 3.5Movement in the deferral of asset management receipts 12.6 17.7 Other temporary differences 2.5 1.7Total unrecognised deferred tax asset balance 51.4 67.3 5. Dividends paid and proposed 2006 2005 £m £mDeclared and paid during the period:Equity dividends on ordinary shares:First interim dividend for 2005: £0.30 per share * - 4.6Second interim dividend for 2005: £0.27 per share - 4.3Third interim dividend for 2005: £0.03 per share - 0.7Fourth interim dividend for 2005: £0.33 per share - 7.4Fifth interim dividend for 2005: £0.37 per share 8.3 -First interim dividend for 2006: £0.39 per share 10.3 -Second interim dividend for 2006: £0.41 per share 10.9 -Third interim dividend for 2006: £0.43 per share 11.4 - 40.9 17.0 Declared and approved at the Board meeting on 7 March 2007(to be deducted from retained earnings in the year ending 31December 2007) Equity dividends on ordinary shares:Fourth interim dividend for 2006: £0.45 per share (2005: Fifth 13.2 8.3interim dividend for 2005: £0.37 per share) * The first interim dividend was paid by MUKCO prior to the Group reorganisationon 2 June 2005 following which Mapeley Limited became the parent company of theGroup. 6. Earnings per share The calculation of basic and diluted earnings per share figures is based on thefollowing: - Net profit attributable to equity holders of the Company for the yearof £53.8 million (year ended 31 December 2005: loss of £56.5 million). - Weighted average number of ordinary shares (after deducting 698treasury shares relinquished by members of the employee share plan during theyear) for basic earnings per share: 26,887,700 (year ended 31 December 2005:19,510,770 after deducting 1,460 treasury shares relinquished by members of theemployee share plan). - Weighted average number of ordinary shares (after deducting 698treasury shares relinquished by members of the employee share plan during theyear) for diluted earnings per share: 26,903,833 (year ended 31 December 2005:19,527,249 after deducting 1,460 treasury shares relinquished by members of theemployee share plan). The difference between the number of shares used for the basic and dilutedearnings per share calculation represents the weighted average number of sharesawarded but not yet issued to Non-executive Directors of 16,133 (2005: 16,479). There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thefinancial statements. 7. Property, plant and equipment Property Freehold acquired under Plant and property finance leases equipment Total £m £m £m £m Cost or valuation:At 1 January 2006 487.3 42.2 16.3 545.8Additions - - 0.1 0.1Disposals (2.0) - - (2.0)Reversal of impairment 0.8 - - 0.8Revaluations (6.9) 4.1 - (2.8)At 31 December 2006 479.2 46.3 16.4 541.9 Accumulated depreciation:At 1 January 2006 - (2.2) (15.7) (17.9)Provided during the year (5.3) (0.5) (0.5) (6.3)Written back on 5.3 0.3 - 5.6 revaluationAt 31 December 2006 - (2.4) (16.2) (18.6) Net book value:At 31 December 2006 479.2 43.9 0.2 523.3 At 31 December 2005 487.3 40.0 0.6 527.9 Freehold property and property acquired under finance leases are included inproperty, plant and equipment where the Group provides significant ancillaryservices to tenants, and is carried at fair value. During the year, certain of the Group's non-investment properties have beenwritten down by an amount of £nil (2005: £0.6 million). The impairmentadjustment has been charged to the current year's income statement reflectingthe amount of the impairment below their historical cost values. Freehold property held at 31 December 2006 of £479.2 million (2005: £487.3million) and the majority of the property acquired under finance leases at 31December 2006 of £41.7 million (2005: £37.6 million) were valued at 31 December2006 by Savills Commercial Limited ("Savills"), a valuer external to the Groupas part of the valuation of all the valuable properties held by the Group underthe HMRC contract. The valuations at 31 December 2006 and 31 December 2005 havebeen carried out in accordance with The Royal Institution of CharteredSurveyors' ("RICS") Appraisal and Valuation Standards published in February 2003(the "Red Book") and the CESR Guidance on property valuations. 8. Investment property Property acquired Freehold under finance property leases Total £m £m £m At valuation:At 1 January 2005 529.7 19.6 549.3Additions 507.2 2.9 510.1Revaluations 17.4 0.6 18.0At 31 December 2005 1,054.3 23.1 1,077.4 Additions 366.4 0.7 367.1Revaluations 38.9 1.9 40.8Transfer from inventories 0.4 0.4 0.8Transfer to non-current assets held for (3.0) - (3.0)saleAt 31 December 2006 1,457.0 26.1 1,483.1 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 2006 by CB Richard Ellis Limited ("CBRE") and Savills, valuersexternal to the Group. Both Savills and CBRE have consented to the use of theirnames 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£575.7 million (2005: £546.5 million). Certain properties with a valuation of£nil (2005: £1.8 million) included within this valuation are being marketed forsale and as such are classified as trading properties within inventories. Theyare carried at the lower of cost and fair value less costs of realisation. In addition certain properties with a valuation of £3.0 million have beenidentified for sale within the next 12 months and have therefore beentransferred to non-current assets held for sale. Of this amount £2.5 million hasbeen valued by the Directors and the remaining £0.5 million is included withinthe assets valued by CBRE. These are carried at fair value less costs ofrealisation in the financial statements. Savills and CBRE both carried out valuations of the Group's other propertiesheld within investment property, which were valued at £53.1 million (2005: £24.8million), and £850.6 million (2005: £504.4 million) respectively as at 31December 2006. The remaining properties held under Property acquired under finance leases werevalued by the Directors at a Market Value of £4.2 million (2005: £3.5 million),having taken advice from a suitably-qualified employee (a member of The RoyalInstitution of Chartered Surveyors). These valuations are summarised below: 31 December 2006 31 December 2005 £m £mValuation of Abbey portfolio by CBRE 575.7 546.5Valuation of asset held for sale by the Directors 2.5 -Transfer to non-current assets held for sale (3.0) -Less properties valued by CBRE held in inventories - (1.8) at lower of cost or net realisable value 575.2 544.7 Valuation of direct property investments by Savills 53.1 24.8Valuation of direct property investments by CBRE 850.6 504.4Valuation of certain finance leases by the Directors 4.2 3.5 1,483.1 1,077.4 9. Non-current assets held for sale 2006 2005At valuation £m £mAt 1 January 2006 1.4 -Reclassifications from Property, Plant and - 1.7 EquipmentReclassifications from Investment Property 3.0 -Disposals (1.4) -Write down to lower of carrying and fair value - (0.3)At 31 December 2006 3.0 1.4 As at 31 December 2006 the Group had decided to dispose of two investmentproperties. These properties have been actively marketed and it is anticipatedthat these disposals will take place early in 2007. In accordance with theprovisions of IFRS 5, these properties have been transferred from investmentproperties and are held at the lower of carrying value and fair value lessestimated costs of realisation. Properties transferred in 2005 from Property,plant and equipment have been sold during 2006. All non-current assets held forsale relate to the Group's "outsourcing contracts" segment. 10. Inventories 2006 2005 £m £mTrading properties - 0.8Work in progress (at cost) 15.7 17.7 15.7 18.5 Work in progress represents costs on long term contracts not yet taken to theincome statement less any foreseeable losses and payments on account. 11. 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 2006 was £77.3 million (2005: £81.2million). For the purposes of the consolidated cash flow statement, cash and short-termdeposits comprise the following at 31 December: 2006 2005 £m £mCash at bank- in controlled accounts 22.7 25.7- for operational purposes 54.6 55.5Cash and short-term deposits 77.3 81.2 Bank overdrafts (note 13) (0.9) - Total cash and short-term deposits net of 76.4 81.2bank overdrafts The amounts held in controlled accounts comprise property sale proceeds andother capital receipts which will be held in controlled accounts until the nextinterest payment date in accordance with the terms of the relevant loan facilityagreements. This cash can be accessed within 24 hours of any request by theGroup. 12. Issued capital and reservesAuthorised No. of £m ordinary sharesOrdinary shares at par value of £nil Unlimited - Issued and fully paidAt 1 January 2005 15,382,100 -Issued on 1 June 2005 to settle shareholder loans 654,998 - 16,037,098 -Issued on 26 April 2005 2 -Issued on 21 June 2005 6,121,739 -Issued on 21 June 2005 under the Employee Share Plan 291,308 -Issued on 21 June 2005 to Non-executive Directors 15,000 -Shares held by Employee Share Trust (1,460) -At 31 December 2005 22,463,687 - Issued on 27 January 2006 4,036,697 -Issued on 17 March 2006 under the Employee Share Plan 13,059 -Issued on 17 March 2006 to Non-executive Directors 5,000 -Issued on 26 September 2006 to Non-executive Directors 20,000 -Issued on 11 October 2006 2,876,923 -Movement in shares held by the Employee Share Trust 762 -At 31 December 2006 29,416,128 - 13. 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 2006 and 2005: Effective 2006 2005 interest rate % Maturity £m £m Non-currentObligations under finance leases 8.2% 2007-2021 7.0 6.2Bank loans: Term loan under the HMRC portfolio 5.8% Mar 2021 166.5 170.8facility Term loan under the Abbey portfolio 5.6% Jul 2012 451.7 451.0facility Acquisition term loan 5.8% Jul 2015 170.0 169.8 Term loan under the Beta portfolio 5.4% Apr 2016 207.5 -facility Term loan under the Gamma portfolio 5.0% Jan 2017 229.6 - facility Revolving Delta acquisition facility 6.4% Apr 2008 36.4 - 1,268.7 797.8CurrentObligations under finance leases 8.2% 2007 0.1 0.1Bank loans: Overdraft 2007 0.9 - Term loan under the HMRC portfolio 5.8% 2007 0.2 2.1facility Revolving acquisition facility 6.0% 2007 - 283.2 1.2 285.4 All of the Group's properties, as valued by Savills and CBRE have been securedagainst the Group's loan facilities The loan balances above represent theamounts outstanding at 31 December 2006 on the following facilities: Term loan under the HMRC portfolio facility During the period the Group entered into a new 15 year, £176.0 million fixedrate loan secured on properties held under the HMRC portfolio. The interest ratepayable on this facility is a fixed rate of 4.5% plus a margin of 0.65% for thefirst 7 years of the loan increasing to 2.25% for the remainder of the loan,plus mandatory 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 the interest payable increases by 0.20% each year untilthe end of the loan. Revolving Delta acquisition facility The Group has a 3 year, £300.0 million Revolving acquisition facility to financefurther property investments. Acquisitions under this facility are initiallyfully debt financed and will be refinanced using a mix of long term debt andequity at a later date. The facility is repayable in April 2008. The interestrate payable on the facility is LIBOR plus a margin of between 1.0% and 1.15 %plus mandatory costs (if any). The Group has also put in place a 10 year, 4.37%£20.7 million swap to fix part of its anticipated long term exposure to interestrate risk on these property acquisitions. Working capital facility The Group has a £25.0 million working capital facility which ends in June 2007with an option to extend the term for one year until June 2008. At 31 December2006, £nil was drawn down. The interest rate payable on the facility is LIBORplus 2.0% plus mandatory costs (if any). The loan is guaranteed by MapeleyLimited. 14. Related party disclosures Amounts owed by shareholders The Group has entered into an agreement to provide property management servicesin respect of 135 property interests owned by Pinnacle Towers Limited, a companyin which Fortress Investment Group LLC held a significant interest. In returnfor the provision of these services, the Group receives £100,000 per annumevenly spread across the year and receivable one month in arrears. During 2006,£100,000 (2005: £94,000) had been received and at 31 December 2006, £nil (2005:£6,000) was outstanding. The Group previously provided property management and consultancy services inrespect of 36 property interests owned by BC Services (UK) Limited and BCAcquisition (UK) Limited, companies wholly-owned by Fortress Acquisition GroupLLC. This agreement was terminated during the year ended 31 December 2005.During 2005, £13,000 had been received with £nil outstanding at 31 December2005. Amounts were receivable one month in arrears. A balancing settlement of£40,443 was received during 2006 in respect of this agreement. During 2006 the Group provided consultancy services to Eurocastle InvestmentLimited, part of the Fortress Investment Group LLC. Total services providedamounted to £97,532 of which £68,988 is outstanding as at 31 December 2006. In addition in 2006 the Group managed a refurbishment project on behalf ofFortress Investment Group UK. The fees received in respect of this projectamounted to £140,666 of which £nil is outstanding as at 31 December 2006. Costs incurred by Fortress UK Acquisition Company in relation to the listing ofMapeley Ltd in 2005 were reimbursed by Mapeley Limited during the year; theseamounted to £5,984 (2005: £nil). Shares to Non-executive Directors 15,000 shares were awarded to each of the four Non-Executive directors in theprior year. These awards vest on the date of grant and after each of the twofirst annual general meetings following the date of appointment. The marketvalue of the shares on the date of the grant of the award was £23 per share inrespect of the shares awarded to Mr Harris, Mr Carey and Mr Parkinson who eachreceived 5,000 shares in the prior year and a further 5,000 in the current year.5,000 shares were awarded to Mr Fascitelli in the prior year when the marketvalue of the shares was £26.85 per share , these shares were issued in thecurrent year and he received a further 5,000 shares in 2006. During the year, £539,074 (2005: £805,000) has been charged to the incomestatement relating to share benefits expense for the Non-executive Directors. 15. Subsequent events Since 31 December 2006, the Group has exchanged and completed contracts toacquire 8 properties for consideration of £95.1 million. These properties are tobe funded by the Group's cash resources and the acquisition facility. Dividend declared At a board meeting held on 7 March 2007 the Board of the Company declared adividend of £13.2 million (31 December 2005: £8.3m) representing £0.45 per sharebased on the number of shares in issue on 16 March 2007. 10 year interest rate swap On 20 January 2007, the Group entered into a 10 year, £9.3 million interest rateswap fixing the interest rate at 5.2% and on 30 January 2007 it also enteredinto a further 10 year, £75.0 million interest rate swap fixing the interestrate at 5.34% in order to secure the borrowing cost of planned acquisitionsexpected to be completed in the first quarter of 2007. 16. 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: 2006 2005 £m £mProfit /(loss) before tax 42.9 (56.5)Add back: Finance cost net of finance income 82.8 125.9 Depreciation and 9.5 13.4 amortisation Net valuation surplus on (40.8) (18.0) investment properties Impairment of - 0.6 non-investment properties Reversal of impairment of (0.8) - non-investment propertiesGain on disposal of subsidiaries - (0.6)EBITDA 93.6 64.8 17. 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 work in progress"plus the movement in "net asset management receipts" plus the charge in respectof "employee shares" plus realised revaluation gains. This definition has beenrefined at 31 December 2006 but this has had no impact on reported FFO for 2005or 2006. More detailed definitions of these adjustments to EBITDA are givenbelow: "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 work in progress" or the "movement in long term accrued costs"-This is the year on year change in Group work in progress or if negative at thebalance sheet date, accrued cost. The amount represents the increase or decreasein life cycle costs deferred by the Group so as to match costs with revenue. "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. 2006 2005 Organic Acquisition Total Organic Acquisition Total £m £m £m £m £m £mEBITDA 61.7 31.9 93.6 49.8 15.0 64.8Net finance costs (43.5) (19.1) (62.6) (36.9) (10.9) (47.8)Movement in the onerous lease provision 4.5 - 4.5 (2.2) - (2.2)Movement in work in progress 2.0 - 2.0 (2.1) - (2.1)Movement in long term accrued costs - 0.7 0.7 - - -Asset management receipts 5.6 - 5.6 11.1 - 11.1Share benefit expense 1.9 - 1.9 1.7 - 1.7FFO 32.2 13.5 45.7 21.4 4.1 25.5FFO per share 170 130 pence pence The calculation of FFO per share is based on the following: - FFO for the year of £45.7 million (2005: £25.5 million): and - Weighted average number of ordinary shares of 26,887,700 (2005: 19,510,770) FFO per share calculated using a diluted weighted average number of shares of26,903,833 (2005: 19,527,249) is 170 pence per share (2005: 130 pence pershare). 18. 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: 2006 2005 £m £m"Total debt" 1,279.2 1,086.6Less: Cash and short-term deposits (77.3) (81.2)Net debt 1,201.9 1,005.4Equity 712.2 456.9 Gearing ratio 169% 220% 19. Net assets per share 2006 2005Basic net assets per share £24.21 £20.34Diluted net assets per share £24.19 £20.34 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 ofthe Company as at 31 December 2006 of £712.2 million (as at 31 December 2005:net assets of £456.9 million) - Number of ordinary shares for basic net asset value per share29,416,128 (2005: 22,463,687) - Number of ordinary shares for diluted net asset value per share29,436,128 (2005: 22,480,166) Additional information for the year ended 31 December 2006 Quarterly results Quarterly information for the consolidated income statement and consolidatedbalance sheet are set out on the following pages. Information for the quartersended 31 March 2006, 30 June 2006 and 30 September 2006 has been extracted fromthe Group's interim financial statements. Consolidated income statement Quarter Quarter Quarter Quarter ended ended ended ended 31 December 30 September 30 June 31 March 2006 2006 2006 2006 Unaudited Unaudited Unaudited Unaudited £m £m £m £mRevenue 108.3 100.0 91.6 87.1Property operating expenses (88.3) (70.1) (61.7) (65.3)Net contract, rental & 20.0 29.9 29.9 21.8 related incomeNet valuation surplus 11.4 10.7 8.1 10.6 on investment propertyReversal of 0.1 0.7 (0.1) 0.1 impairment/(impairment) of non-investment propertyProfit on disposal of assets 0.2 1.8 1.2 -held for saleAdministrative and other (5.5) (6.2) (4.4) (4.6) expensesOperating profit 26.2 36.9 34.7 27.9Finance costs (19.6) (20.5) (35.4) (14.1)Finance income* (5.7) (1.1) 12.7 0.9(Loss)/ Profit before tax 0.9 15.3 12.0 14.7Income tax credit / (charge) - Guernsey - - - - - UK 11.0 - - (0.1) - Overseas - - - -Profit for the period 11.9 15.3 12.0 14.6 attributable toshareholdersDividends- paid 11.4 10.9 10.3 8.3- proposed 13.2 11.4 10.9 10.3FFO 9.6 11.4 14.5 10.2(Loss)/Earnings per share £/share £/share £/share £/share- basic 0.40 0.59 0.47 0.57- diluted 0.40 0.59 0.47 0.57 * The debit balances in the quarters ended 30 September 2006 and 31 December2006 have arisen due to the reversal of swap gains previously recognised withinfinance income in the quarters ended 31 March 2006 and 30 June 2006. Consolidated balance 31 Dec 2006 30 Sept 2006 30 June 2006 31 March 2006sheet Unaudited Unaudited Unaudited UnauditedASSETS £m £m £m £mNon-current assetsProperty, plant and 523.3 529.6 514.8 539.4equipmentInvestment property 1,483.1 1,413.8 1,287.3 1,179.1Premiums on operating 35.2 36.1 36.7 37.5leasesTrade and other 5.9 5.9 6.0 6.0receivablesFinancial instruments 20.2 20.3 28.0 10.7Deferred tax asset 10.9 - - - Total non-current assets 2,078.6 2,005.7 1,872.8 1,772.7Current assetsInventories 15.7 18.1 18.0 17.8Trade and other 57.6 57.2 67.0 61.3receivablesCash and short-termdeposits - in controlled accounts 22.7 15.6 28.1 26.8 - for operational 54.6 67.4 58.5 63.2purposes Total current assets 150.6 158.3 171.6 169.1Non-current assets held 3.0 0.4 1.2 1.4for saleTOTAL ASSETS 2,232.2 2,164.4 2,045.6 1,943.2EQUITY AND LIABILITIESEquity attributable toequity holders ofMapeley LimitedIssued capital - - - -Share premium 329.2 238.6 238.8 238.9Net unrealised losses 14.7 12.2 17.8 (11.4)Retained earnings (50.4) (52.1) (58.2) (61.1)Asset revaluation reserve 315.2 322.0 305.9 330.1Other reserves 103.5 103.1 102.7 102.3Total equity 712.2 623.8 607.0 598.8Non-current liabilitiesTrade and other payables 5.2 5.6 5.5 5.4Interest and non-interest 1,268.7 1,299.6 1,191.3 914.6bearing loans andborrowingsProvisions 31.5 30.7 31.2 28.9Financial instruments - - 10.9 -Deferred asset management 78.9 80.4 80.3 76.5receiptsDeferred tax liability 4.6 - - -Current liabilitiesTrade and other payables 110.5 112.4 107.0 107.9Interest and non-interest 1.2 0.1 0.1 177.4bearing loans andborrowingsProvisions 13.5 5.9 6.4 11.4Financial instruments - - - 16.9Deferred asset management 5.9 5.9 5.9 5.4receiptsTotal liabilities 1,520.0 1,540.6 1,438.6 1,344.4TOTAL EQUITY AND 2,232.2 2,164.4 2,045.6 1,943.2LIABILITIES This information is provided by RNS The company news service from the London Stock Exchange

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