Capital & Regional Regulatory News (CAL)

4 March 2016

Capital & Regional plc

("Capital & Regional", the "Group" or the "Company")

Full Year Results to 30 December 2015

 CAPITAL & REGIONAL DELIVERS YEAR OF STRONG PROFIT AND DIVIDEND GROWTH

Capital & Regional plc, the UK shopping centre focused REIT, today announces its full year results to 30 December 2015 together with the £10.5 million acquisition of a further property in Hemel Hempstead and the selection of Barratt London as the preferred development partner for the proposed extension of The Mall, Walthamstow.

Financial 

· Operating Profit increased 24% to £24.0 million (December 2014: £19.3 million) benefiting from our ongoing asset management initiatives and the impact of cost synergies from integrating the Mall portfolio.

· Total profit of £100 million (December 2014: £75.2 million) including unrealised valuation gains.

· 228% increase in total dividend for 2015 of 3.12p per share compared to 2014 (0.95p per share) and ahead of previous guidance.

· NAV per share increased by 20% to 72p (December 2014: 60p), reflecting strengthening investment markets but also growth in income and repositioning of our shopping centres.

· See-through net debt to property of 41% (December 2014: 45%).

· Total shareholder return of 29.8% (December 2014: 24.7%).

Operational 

· Net rental income on our wholly owned Mall portfolio of £47.1 million, reflecting an increase of 7.3% on a like-for-like basis.

· 72 new lettings with rent of £5.4 million at significant premium to ERV.

· Strong occupancy, further improved to 97.1% (December 2014: 96.1%).

· Continued progress on £65 million Mall Capex plan during 2015, including the:

o £3.2 million redevelopment of Ainsworth Mall in Blackburn, with a new gym handed over in Q1 2016.

o Refurbishment of Walthamstow completed (£3 million) and Maidstone (£4 million) due to complete in June 2016.

o New Sports Direct and TK Maxx units open and trading in Walthamstow.

Strong momentum continues into 2016

· Selection of Barratt London as preferred development partner for extension of The Mall Walthamstow to provide 92,000 sq ft of new retail space and over 400 residential units.

· £10.5 million purchase of Edmonds Parade property announced today, which is adjacent to the Marlowes shopping centre that was acquired in February 2016 for £35.5 million and further consolidates dominance of the town centre retail offer.

· Unsolicited offers received for Buttermarket Centre, Ipswich provide potential for realising significant returns on completion of leisure redevelopment work in summer 2016.

1 Change in share price plus dividends paid. 2014 based on weighted average to reflect 351.1 million new shares issued on 14 July 2014.

2 As defined in Note 1 to the financial statements.

3 2014 is proforma adjusted for £42.1 million of German joint venture net proceeds received in February 2015 and £8.9 million of payments due in respect of Mall performance fee and income due to former unit holders.

4 See-through net debt divided by property valuation.

Commenting on the results, John Clare, Chairman said:

"Following the transformational corporate activity undertaken by management in 2014, we are pleased to report today that Capital & Regional has delivered meaningful increases in both operating profits and NAV during its first year as a REIT. We now have a solid platform for growth from which to drive further income from the Company's portfolio, as the £65 million multi-year Mall asset management programme begins to bear fruit, alongside the exciting opportunities presented at Hemel Hempstead.

"Reflecting our confidence in these growth prospects, the Board is targeting future dividend growth in the range of 5% to 8% per annum in the medium term."

Hugh Scott-Barrett, CEO added:

"Operationally, this has been an important year for Capital & Regional. We have consolidated and grown our portfolio through progress on the delivery of the Capex programme, and our entrepreneurial approach to acquisitions has enabled us to further showcase the depth of our asset management capabilities. Our centres are trading profitably, benefitting from a range of high profile tenants and an increasing leisure offer, which accounted for 40% of new lettings in 2015.

"The progress on the extension and the selection of Barratt London as preferred development partner is an endorsement of the potential of Walthamstow. While we have a significant project ahead of us, it is one that will transform the scheme and is expected to deliver attractive returns. This allied with the potential of our investments in Hemel Hempstead and identification of additional opportunities within the rest of our portfolio, over and above our existing £65 million plan, provides us with a strong platform for growth to drive further shareholder value."

For further information:

Notes to editors:

About Capital & Regional plc

Capital & Regional is a UK focused specialist property REIT with a strong track record of delivering value enhancing retail and leisure asset management opportunities across a c. £1 billion portfolio of in-town dominant community shopping centres. Capital & Regional is listed on the main market of the London Stock Exchange and has a secondary listing on the Johannesburg Stock Exchange.

Capital & Regional owns seven shopping centres in Blackburn, Camberley, Hemel Hempstead, Luton, Maidstone, Walthamstow and Wood Green. It also has a 20% joint venture interest in the Kingfisher Centre in Redditch and a 50% joint venture in the Buttermarket Centre, Ipswich. Capital & Regional manages these assets, which comprise over 950 retail units and attract over 1.7 million shopping visits each week, through its in-house expert property and asset management platform.

For further information see www.capreg.com.

Forward looking statements

This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or implied by these statements. Many of these risks and uncertainties relate to factors that are beyond the Group's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of government regulators and other risk factors such as the Group's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Group operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this document. The Group does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. Information contained in this document relating to the Group should not be relied upon as a guide to future performance.

Chairman's Statement

Strategy

The prospects for growth in income and dividend, together with capital appreciation, underpin Capital & Regional's strategy of focussing on a core portfolio of dominant community shopping centres. High footfall and attractively priced space not only ensure that the current tenant base trades profitably, but also attracts an increasing range of fashion retailers and leisure operators to our centres.

Execution of the highly accretive £65 million capital programme in The Mall is gathering momentum. Additional investment opportunities within the portfolio have been identified which will support further growth in the medium term, whilst Capital & Regional's presence in town centres also gives it a position of influence as councils look to regenerate the town centres. This repositioning is already leading to attractive opportunities to further consolidate our market leading position in the towns in which we are located.

Whilst organic growth is driving much of the expected increase in income, selective acquisitions provide opportunities to accelerate growth. This is well evidenced by the acquisition of Buttermarket, Ipswich in March 2015 as well as, shortly after the year-end, The Marlowes, Hemel Hempstead. Not only do these acquisitions leverage our management platform and provide a showcase for the Group's asset management skills, they also contribute to income and dividend growth.

Performance Overview

I am pleased to report that Operating Profit for 2015 has increased by 24% to £24.0 million. This outcome reflects the benefit of the cost synergies achieved following the integration of the Mall Fund, as well as the initial income uplift derived from the Company's existing asset management programme. Profit for the period has increased from £75.2 million to £100.0 million, primarily reflecting unrealised valuation gains during the year.

NAV per share has increased by 20% to 72p, reflecting an increase in property valuations of 8% after adjusting for capital expenditure. The strengthening investment market was the principal driver of valuation gains in the first half of the year. However, as the year has progressed, the impact of growth in income and the resultant repositioning of the schemes have been the more important drivers of the rise in valuations.

This overall level of performance reinforces the Board's confidence that retailers and leisure operators are responding very positively to the investment being made in our shopping centres, and that this growing programme provides a sound base from which to further grow income and dividend.

Secondary Listing

In October 2015 we commenced a secondary listing on the Main Board of the Johannesburg Stock Exchange (JSE) in South Africa, following strong interest we had received from South African institutional and private investors. The JSE listing has helped in starting to broaden the depth and spread of our shareholder base and provides good scope for further improving the liquidity of our shares as well as enhancing potential funding options for pursuing future growth and investment opportunities.

Dividend

For 2015, the Board is proposing a final dividend of 1.62p per share, taking the full year dividend to 3.12p representing an increase of 228% compared to last year. This is ahead of the guidance of 2.9p per share provided with last year's full year results and that of at least 3.0p per share given with the interim results in August 2015 and the trading update issued on 13 January 2016.

Reflecting the growth prospects for the business, the Group is targeting growth in dividend in the range of between 5% and 8% per annum in the medium-term.

Chairman's Statement

Responsible Business

A ninth consecutive ROSPA Gold Award highlights the importance we attach to continually advancing health and occupational safety standards across our shopping centres.

Given the current security environment, there has been a significant increase in the training of our operational teams to ensure that they, as well as our retailers and shoppers, are as well prepared as possible to respond to any potential threat. Expert advice is sought from the police locally, as well as our security advisers to ensure we are in a position to be able to respond quickly and appropriately to potential security incidents.

The Group actively seeks to take steps to reduce its environmental impact. Once again, we have received recognition for our achievements which include:

· Green Star status in the Global Real Estate Benchmark Retention of the Carbon Trust standard for a seventh year; and

· No. 2 position in the Real Estate Environmental Benchmark on a survey across 100 shopping centres in the UK.

The Group takes pride in its role at the heart of the communities in which we are present. Each shopping centre team is encouraged to raise money on behalf of local charities and across the portfolio, we raised over £270,000 on behalf of local charities, an increase of 8% on last year.

The Board

In anticipation of Philip Newton stepping down as a Non-Executive Director at the annual general meeting in 2016, we welcome Laura Whyte as a Non-Executive Director, having joined the Board on 1 December 2015. Laura brings a wealth of experience from a successful career with the John Lewis Partnership, where she served in two separate roles on the Managing Board for over 10 years, firstly as Registrar and latterly as HR Director.

Wessel Hamman joined the Board in June 2015, replacing Neno Haasbroek as Parkdev's second Board representative. Wessel brings extensive experience and knowledge of the real estate market and of property finance. I would like to thank Neno for his substantial contribution over the last six years, particularly to the shaping of strategy and the repositioning of the business for growth.

I would also like to take this opportunity to thank Philip Newton for his invaluable contribution over nine years, during which time Capital & Regional's fortunes have been transformed.

John Clare CBE

Chairman

Chief Executive's Statement

Strong Operational Performance

The Group is reporting a further improvement in its key operational metrics for 2015. This is another strong endorsement of the successful repositioning of the Company over the past few years as well as the expertise and ability of our property and asset management team to create value.

Occupancy was very strong at 97.1%, an uplift of 1.0% compared to 96.1% at 30 December 2014.

Retailer sales, as measured by our in-house "C&R Trade Index", were up 1.7% year-on-year compared to the average 2015 figure for the British Retail Consortium index (which includes on-line sales) of 0.8%.

New lettings and lease renewals increased from £5.3 million in 2014 to £7.8 million in 2015, an increase of almost 50%. Lettings and renewals (for leases with a term of five years or more and no turnover element) were agreed at an average increase of 18.5% above ERV.

Like-for-like rental income within our wholly owned portfolio increased by 7.3%, reflecting cost savings and an increase in gross income in H2.

This strong performance reflects both the strength of the underlying assets and the very positive impact of the asset management programme.

Accelerating Momentum in Asset Management

Lettings to leisure operators were a dominant theme in 2015, as we sought to address the fact that our portfolio has been traditionally underweight to this increasingly important element of the tenant mix, which is seen as a key driver of footfall and dwell time, as well as an anchor for other tenants. In line with this, lettings to leisure operators (including gyms, restaurants, cinemas and hotels) accounted for £2.2 million or 40% of new lettings in 2015, and 8.3% of the ERV of our Mall and Redditch schemes as at 30 December 2015, as operators responded positively to the investment we are making to create attractive space.

The Travelodge at Wood Green is a case in point. Originally planned as a 35 room hotel for which planning consent was achieved in October 2015, we have now agreed a lease and obtained planning for an increase in the size of the hotel to 78 rooms. This gives economies of scale to Travelodge, but is more attractive for Capital & Regional given higher per room rents for a larger hotel. This letting also highlights the dynamic approach to the management of initiatives within the Capex programme. Capex has been prioritised to support the increase in size of the hotel given the very attractive returns, helping to ensure that we outperform our 10% income return target for the programme as a whole.

Entrepreneurial Approach to Acquisitions

One of the most significant and successful asset management initiatives falls outside of the £65 million Capex programme. The Buttermarket Centre, Ipswich was acquired for £9.25 million in a joint venture with Drum Property in March 2015 and since then rapid progress has been made.

The introduction of a 12-screen Empire cinema has been a catalyst for the transformation of a tired shopping centre to a vibrant leisure and retail destination. We expect the scheme to be fully let by Practical Completion later this year, with an attractive mix of restaurant offers alongside the cinema, a gym and a reconfigured TK Maxx and New Look.

At year-end, the Buttermarket Centre was valued at £27.9 million reflecting a gain of £10.8 million since acquisition over and above the £7.9 million of capex spent and illustrating the true impact of the repositioning of the scheme. On completion, while this asset would make a welcome addition to our portfolio, we believe that this is an asset which will also have appeal to UK institutional buyers. This is reflected in the unsolicited offers we have received for the asset to date, which gives us the potential to realise, should we so choose, the significant returns in the short term.

The acquisition of Marlowes, Hemel Hempstead, announced on 13 January 2016, offers a different type of opportunity. Acquired for £35.5 million, Marlowes is the principal retail offer in an attractive south east catchment and, given the fragmented ownership structure across the town centre, it provides the opportunity not only to execute an attractive asset management plan, but also, in the future, to consolidate the retail offer in the town centre. This is highlighted by the acquisition that we have announced today of the adjacent Edmonds Parade property for £10.5 million, which will be integrated into the main scheme. We are also actively pursuing further similar opportunities in the surrounding area.

Chief Executive's Statement

Optimisation of Balance Sheet

The restructuring of the Group's Revolving Credit Facility has been an important step in ensuring that Capital & Regional has flexibility in the execution of tactical acquisitions as well as in the management of the capex programme. This new £30 million facility matures in May 2019.

The Group has taken advantage of very attractive long-term rates to lock in a seven year fixed rate cost of funds to finance the acquisition of the Marlowes, Hemel Hempstead. The underlying five year facility has options to extend it to a total of seven years and was structured to fund the additional Edmonds Parade property as well as the Marlowes. Total cost of funds is around 3.3%.

The Group has begun to review options for the refinancing of the core £380 million debt facility, which comprises six wholly owned assets and matures in May 2019. It is likely that this facility will be either restructured or refinanced during the course of 2016.

Outlook

There are good reasons to be optimistic about the prospects for Capital & Regional. Retailers trade profitably in our shopping centres and the investments we are making are leading to strong interest from leisure operators and retailers wanting to come into our schemes, whilst incumbents are also upsizing. Indeed, the momentum in letting activity has picked up since the beginning of 2016 despite some continuing challenges in the operating environment. Altogether, this serves to reinforce our belief that we can deliver the promised returns in terms of both income and capital uplift from our Capex programme.

The slowdown in transactional activity in the early part of this year means that there is currently limited guidance for the future direction of property valuations. Having said that, our plans will create value irrespective of market conditions.

Management's focus is not only to deliver the previously announced asset management programme, but also to look to take advantage of opportunities adjacent to our existing schemes, which will enable us to consolidate our market position in the towns we have a presence in. We will also maintain our entrepreneurial approach to acquisitions and actively seek opportunity to recycle capital where this will crystallise attractive returns and allow a reallocation to more accretive investments. This gives us confidence that the growth prospects for the business go well beyond delivery of the £65 million Capex programme.

Hugh Scott-Barrett

Chief Executive

Operating review

The Group is now fully focused on executing its £65 million asset management plan for its wholly owned portfolio, as well as its plans for its joint ventures in Redditch and Ipswich. The Group's key operating metrics are set out below:

UK Shopping Centres

Rental income

Passing rent increased by 2.9% on a like-for-like basis during the year, driven by a strong letting performance and increased occupancy across the portfolio. The increase in contracted rent also reflects agreements for leases, such as those with Travelodge, Aldi and easyGym at Wood Green, totalling £1.6 million, where works need to be undertaken to create the units for these tenants before the income will commence.

New lettings, renewals and rent reviews

1 For lettings and renewals with a term of five years or longer which did not include a turnover rent element (excluding Ipswich).

There has been encouraging leasing activity across the UK Shopping Centre business, with £5.4 million of annualised rental income achieved through new lettings and a further £2.4 million of income secured through lease renewals during the year.

On a weighted average basis the ERV determined by the valuers for leases over five years or longer without any turnover element assumed that a rent free period of 11.5 months was granted on renewal. This implies the valuers are assuming a net effective rent on a new five year lease of 80.8% of ERV. The net effective rent achieved, assuming that all renewals in 2015 were for a five year term, would be 11.5% higher at 92.3% of ERV, indicating that renewals are effectively being achieved above the valuers' assumptions.

A major driver of new lettings has been our ability to convert non-core space into leisure uses as demonstrated by the new Travelodge at Wood Green which, following the planning consent received since the year end, will now comprise 78 rooms rather than the original 35. Other examples include the extension to the gym at Wood Green, a new basement gym in Maidstone and another in the former social club in Luton, which had been vacant for a number of years. These types of lettings have the added advantage of lease terms significantly longer than can be achieved from retail uses and consequently increase income security and investment value.

Leisure accounted for £2.2 million of the £5.4 million of new lettings across the business and efforts were led primarily by the deals at Wood Green and Ipswich. The total leisure offering across the UK Shopping Centre portfolio, on a like for like basis excluding Ipswich, now stands at 8.3% (2014: 6.5%) of total space based on ERV. The increasing leisure occupation contributes strongly to the ability of a scheme to attract customers and increase their dwell time.

Operating review

In addition to the progress made in developing the leisure offer in our schemes, momentum in concluding retail lettings has continued.

Following the completion of the refurbishment of our shopping centre in Walthamstow, it now has added vibrancy which has contributed to The Fragrance Shop, Game and Costa all opening new stores.

The refurbishment in Maidstone is currently underway and will provide impetus to lettings when it is completed in the second quarter of 2016. In 2015 lettings were completed with Pep & Co for a 7,500 sq ft unit and WH Smith which took a 1,900 sq ft unit. Two lettings for 16,000 sq ft of offices were also completed during the year, and a further 8,000 sq ft of office space is under offer. Post year end we have exchanged with TJ Hughes on a new 33,000 sq ft department store which we expect to deliver an income return of over 10% on the planned Capex spend of £2.9 million.

In Luton, notable lettings to Ed's Diner and Trespass were completed on units of 5,600 sq ft and 2,800 sq ft respectively whilst, in Camberley, Smiggle has opened its first store in our portfolio taking a 1,000 sq ft unit. Also in Camberley at the end of 2015 we acquired, for £3.3 million, 6-10 Princess Way, one of the adjoining properties to our existing scheme. The property is occupied by Wilko and Pampurred Pets and the price represented an initial yield of 7.15%. The transaction delivered immediate marriage value but more importantly provides us with greater flexibility for our redevelopment plans for that area of the scheme. In Blackburn building work has continued on the redevelopment of Ainsworth Mall, where Pure Gym will open a 15,000 sq ft unit while on the retail side Cardzone and the Entertainer have signed leases for 700 sq ft and 4,300 sq ft respectively.

At Wood Green, in addition to the leisure lettings referred to earlier, Deichmann completed a 10 year lease on a 6,500 sq ft unit.

In Redditch, H&M's upsized 23,500 sq ft store launched in November 2015, providing additional anchoring to the centre and generating greater activity in Walford Walk. On the leisure side, Prezzo signed a 25 year lease for the remaining 3,500 sq ft restaurant unit in Kingfisher Square, while Burger King and Ed's Diner opened new units on 15 year terms.

Capital expenditure and developments

Our £65 million Capex plan for the wholly owned portfolio is now well underway with £14.9 million spent to date. In 2015 this was primarily focussed on:

· The £3.2 million Ainsworth Mall redevelopment in Blackburn with the new gym to be handed over in the second quarter of 2016;

· The £4.0 million refurbishment of the mall at Maidstone which is scheduled to complete in June 2016 and which will transform the scheme by adding vibrancy and making it more attractive to both retailers and customers; and

· Completion of the £3.0 million Walthamstow refurbishment and £4.5 million delivery of new units to Sports Direct and TK Maxx.

Since the year end, Barratt London has been selected as preferred development partner for the extension of the Walthamstow scheme to deliver 92,000 sq ft of new retail space and over 400 residential units. An agreement has also been reached with the London Borough of Waltham Forest within which the headlease will be extended from 71 years to 250 years. Public consultation is set to take place in early April 2016 and a detailed planning application is being compiled for submission later this year. In the proposal, the developer will acquire the residential space leaving Capital & Regional with the retail extension for which the net capital expenditure is expected to be around £20 million.

Operating review

Occupancy levels

P1 Occupancy at December 2015 and December 2014 includes a seasonal increase in temporary lettings.

Like-for-like occupancy at 30 December 2015 was up 1.0% at 97.1% (December 2014: 96.1%), reflecting the level of letting and renewal activity achieved in 2015.

Administrations and Insolvency

There were 12 units affected by administration during the year (2014: 20) with passing rent of £0.8 million (2014: £1.2 million).

At 30 December 2015, none of the 12 units affected by tenants in administration continued to trade.

In the first two months of 2016 there have been 10 units affected by administration, of which seven continue to trade. Nine of the insolvent units related to A J Levy Group, which operates as Blue Inc and Officers Club, and the impacted units had a passing rent of £0.5 million. Two of these units have closed but are expected to be re-let quickly so that the overall impact is not expected to be material.

Temporary lettings

The Group uses temporary lettings to maximise the vibrancy of its schemes and to minimise the costs of holding vacant units. At 30 December 2015, on a like-for-like basis, there were 137 temporary lettings (2014: 116) for a net rent of £0.8 million (2014: £0.4 million) as compared to an ERV of £5.7 million (2014: £5.3 million). With increased levels of occupancy, the Group will look to convert these lettings to permanent terms with market rents.

Income security

Credit risk is managed through the assessment of the covenant strength of all incoming tenants and by monitoring credit ratings of key existing tenants. Where possible, we look to pre-empt the consequences of potential retailer restructurings through contingency planning and by actively seeking to reduce exposure to known risks. In the case of BHS we have been working on alternative asset management plans for their units in our schemes since the change of ownership in early 2015. In total there are three BHS stores in our wholly owned portfolio with rent of £1.3 million and a further unit in Redditch.

The 10 largest retail occupiers by rental income at 30 December 2015 were:

Rent collection rates in the UK Shopping Centres (adjusted for tenants in administration) have continued to be strong throughout the year, with 98.7% of rent being paid within 14 days of the due date for December 2015.

Operating review

Footfall

Footfall at the Group's UK shopping centres declined by a marginal 0.4%, but outperformed the national footfall index by 1.3% during 2015.

Investment portfolio performance

The property level total returns for centres owned throughout 2015, which excludes Ipswich, are set out below:

1 Property at valuation, excludes Ipswich

2 Weighted average by year end property valuation

Acquisitions

Buttermarket Centre, Ipswich

The Buttermarket Centre in Ipswich was acquired in March 2015 in a 50:50 joint venture with Drum Property Group for £9.2 million, equivalent to a Net Initial Yield of 8.5%, and follows on from our successful investment in Lincoln. In the case of Ipswich, we are reconfiguring and modernising the centre to create a new retail and leisure complex in this regional centre, for which we believe there is significant demand. The retail space has been consolidated onto the ground floor of the scheme and is anchored by TK Maxx and New Look, while Empire Cinemas has taken a pre-let of a 12 screen cinema on the upper floors, as part of a mixed leisure element incorporating nine restaurant units and a gym which has been pre-let to Pure Gym. Prezzo signed a lease on one of the restaurant units prior to the year end and, since the start of 2016, deals have been agreed with Wagamama, Byron Burgers and Coast to Coast bringing the level of pre-letting to 84%. Completion of the building works is expected early in the third quarter of 2016.

The Marlowes Hemel Hempstead

On 5 February 2016 the Group completed the 100% acquisition of The Marlowes Shopping Centre for £35.5 million with the vendor of this property agreeing to fund the replacement of the whole of the glazed atrium roof as part of the transaction. The price represents an initial yield of 7.0%. The Group has subsequently further increased its interest in the town centre with the £10.5 million acquisition of the adjacent Edmonds Parade property representing an initial yield of 7.8%. We are also actively pursuing similar opportunities in the surrounding area. Together this provides the Group with significant control of the retail heart of a strong south east town which affords the opportunity to be fundamentally repositioned as a shopping destination, following on from a recent significant investment from the local authority which has already benefitted the town.

The acquisitions have been funded using existing cash and a non-recourse loan facility of £23.1 million. The loan facility runs for five years with two one year extensions available at the end of each of the first two years. The rate of interest payable on the loan facility following hedging is expected to be around 3.3%.

Other Operations

Snozone

Snozone enjoyed another good year of growth with revenues up 4% to £10.3 million (2014: £9.9 million) and profit growing by 17% to £1.4 million (2014: £1.2 million), despite cost pressure. Snozone's commitment to delivering an excellent customer experience and extending the product offer has been core to increasing Snozone's market share and to developing the business.

Financial review

Key performance indicators

P1 Operating Profit used throughout this Financial Review is as defined in the Glossary and Note 1 to the Financial Statements.

2 30 December 2014 is proforma adjusted for £42.1 million of German joint venture net proceeds received in February 2015 and £8.9 million of payments due in respect of Mall performance fees and Mall income due to former unit holders.

3 See-through net debt divided by property valuation.

To provide a greater understanding of the composition of the business, the Group presents its balance sheet in two separate ways, with the "statutory" balance sheet following the accounting and statutory rules and the "see-through" balance sheet showing the Group's proportionate economic exposure to the different property portfolios as set out below. Following completion of the sale of Germany in February 2015, the Group's business is now almost entirely based on UK shopping centres.

1 IFRS Property value

2 Held for sale at 30 December 2014

Financial review

Profitability

Group Operating Profit

1 Mall Operating Profit for 2014 represents C&R share based on the different actual ownership levels throughout the year.

2 Mall fee income for 2014 shown as internal to reflect ownership on the same basis as 2015.

The increase in Group Operating Profit reflects the 100% ownership of The Mall during 2015 and the improvement in underlying Mall profitability, as illustrated in the table below showing the 2014 comparative on a like-for-like basis. This highlights the benefit of the costs savings achieved from restructuring the fund, which continue to run ahead of the minimum of £1.5 million per annum originally anticipated. As the split of the first and second half of 2015 shows, there has been positive momentum in both income growth and cost reduction in the second half of 2015. Group Operating Profit has also benefited from a reduction in central administration expenses of £0.3 million.

The Mall Operating Profit (Like for like - 100% for both years)

1 2014 adjusted to remove one-off impact of £0.3 million credit in respect of Luton.

2 2014 Interest adjusted to reflect a full year charge on the basis of the year end debt and interest position.

3 Notional interest charge with offsetting opposite and materially equal credit within other property operating expenses above.

Financial review

Profitability (continued)

Profit for the period

As well as the Operating Profit discussed above, the other key driver of profit for the period was £74.8 million of property valuation gains, primarily within The Mall.

Financing

See-through debt

1 Excluding unamortised issue costs.

2 Excluding cash beneficially owned by tenants.

3P Debt and net debt divided by investment property at valuation.

4 The Ipswich development facility expires 6 months after practical completion of the development. The Joint Venture has an option to convert to an investment facility with maturity on 11 December 2020.

The Mall

The Mall debt facility comprises a fixed rate tranche of £233.3 million with interest fixed at 1.86% plus applicable margin and a floating rate tranche based on three month LIBOR of £146.7 million. The floating rate tranche has been hedged using interest rate caps with a strike rate no higher than 2.75%. Based on the prevailing market rate at the end of 30 December 2015, the overall cost of this facility was 3.47% at that date. The debt matures in May 2019.

Group Revolving Credit Facility (RCF)

In November 2015 the Group completed a new core RCF of £30 million to 30 May 2019. Interest on the facility is charged at a margin of 3.0% per annum above LIBOR. A non-utilisation fee of 1.5% is payable.

Covenants

The Group and its associates and joint ventures were compliant with their banking and debt covenants at 30 December 2015. Further details are disclosed in the 'covenant information' section at the end of this report.

Financial review

South African secondary listing

On 7 October 2015 the Group commenced a secondary listing on the Main Board of the Johannesburg Stock Exchange (JSE) in South Africa. This listing provides domestic South African institutional and private investors with an opportunity to invest in the Company, which should help in improving the depth and spread of the Company's shareholder base and which in turn should increase liquidity and enhance potential funding options to pursue future growth and investment opportunities.

At 30 December 2015, 74,329,337 of the Company's shares were held on the JSE register representing just over 10% of the total shares in issue.

German joint venture disposal

On 10 February 2015, the Group completed the sale of its 50:50 German joint venture to clients and funds under the management of Rockspring Property Investment Managers. Under the terms of the transaction the Group will retain for approximately five years a 5.1% minority stake in each of the five German portfolios sold.

The total net proceeds received were €54.8 million. This equated to £42.3 million (after all costs and including the benefit of the Group's Forward Contract which hedged €50 million at €1.2721/£) and resulted in an uplift to the 2014 year-end NAV of £0.8 million. The total profit on disposal was £2.4 million, reflecting this £0.8 million and £1.6 million of realised foreign currency gain reclassified from reserves.

On completion, and included within the proceeds, the Group entered into a long-term loan of €3.5 million repayable after five years. After completion, a distribution of €1.5 million was made in respect of the retained minority stakes and this was used to reduce the outstanding amount of the loan owing to €2.0 million. Further distributions were received in the remainder of 2015 of €0.2 million, which were not offset against the loan. The carrying value of the retained minority stake, accounted for as a fixed asset investment, was €2.2 million (£1.6 million) at 30 December 2015, the carrying value of the loan payable was a liability of €2.0 million (£1.5 million) at the same date.

REIT conversion

The Company converted to a Real Estate Investment Trust (REIT) from the start of the 2015 financial year. The REIT regime enables the Group to benefit from a zero corporation tax rate on qualifying property income and capital gains.

Non-qualifying profits and gains of the Group continue to be subject to corporation tax as normal. In order to achieve and retain group REIT status, several entrance tests had to be met and certain ongoing criteria must be maintained. The main criteria are as follows:

· at the start of each accounting period, the assets of the property rental business plus cash must be at least 75% of the total value of the Group's assets;

· at least 75% of the Group's total profits must arise from the property rental business; and

· at least 90% of the Group's UK property rental profits as calculated under tax rules must be distributed.

Financial review

Going Concern

Under the UK Corporate Governance Code, the Board needs to report whether the business is a going concern. In considering this requirement, the Directors have taken into account the following:

· The Group's latest rolling forecast in particular the cash flows, borrowings and undrawn facilities;

· The headroom under the Group's financial covenants;

· Options for recycling capital and or alternative means of additional financing for funding new investments; and

· The principal Group risks that could impact on the Group's liquidity and solvency over the next 12 months and/or threaten the Group's business model and capital adequacy.

The Group's risks and risk management processes are set out on the following pages.

Having due regard to these matters and after making appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, the Board continues to adopt the going concern basis in preparing the financial statements.

Dividend

In keeping with its policy of distributing at least 90% of Mall Operating Profit, the Board is proposing a final dividend of 1.62p per share, taking the full-year dividend to 3.12p per share.

Share certificates on the South African register may not be dematerialised or rematerialised between 1 April 2016 and 15 April 2016, both dates inclusive, nor may transfers between the UK and South African registers take place between 1 April 2016 and 15 April 2016, both dates inclusive. Information relating to the proportion of the final 2015 dividend to be paid as a PID and the dividend tax to be withheld from Capital & Regional shareholders on the South African register will be announced separately, together with the ZAR equivalent dividend announcement on 1 April 2016.

The key dates in relation to the payment of the 2015 final dividend are:

· Confirmation of ZAR equivalent dividend 1 April 2016

· Last day to trade on Johannesburg Stock Exchange (JSE) 8 April 2016

· Shares trade ex-dividend on the JSE 11 April 2016

· Shares trade ex-dividend on the London Stock Exchange (LSE) 14 April 2016

· Record date for LSE and JSE 15 April 2016

· AGM 10 May 2016

· Dividend payment date 13 May 2016

The Board targets delivering year on year dividend growth in the range of 5% to 8% per annum in the medium term. This would result in a dividend of at least 3.28p per share for the full year 2016.

Charles Staveley

Group Finance Director

Managing Risk

Risk Management process

There are a number of risks and uncertainties which could have a material impact on the Group's future performance and could cause results to differ materially from expectations.

Ahead of the half year and year end the Group undertakes a comprehensive risk and controls review involving interviews with relevant management teams. The output of this process is an updated risk map and internal control matrix for each component of the business which is then aggregated into a Group risk map and matrix which is reviewed by executive management, the Audit Committee and the Board and forms the basis for the disclosures made below. This process clearly outlines the principal risks, considers their potential impact on the business, the likelihood of them occurring and the actions being taken to manage, and the individual(s) responsible for managing, those risks to the desired level.

In addition during 2015, the Group, using the risk matrix agreed at the June 2015 review, performed an assessment of the material financial, operational and compliance controls that mitigate the key risks. Each control was then assessed or tested for evidence of its effectiveness. The review concluded that all such material controls were operating effectively.

Principal risks at 30 December 2015

Following the risk reviews carried out at 30 June 2015 and 30 December 2015 the following principal Group risks were added to the list disclosed in the 2014 Annual Report:

· Competition Risk - the threat to the Group's property assets of competing in town and out of town retail and leisure schemes.

· Development Risk - the risk of capital expenditure and development projects failing to deliver the expected results.

· Historic Transaction Risk - the risk of issues or liabilities emerging from historic transactions most likely through warranties or indemnities provided in asset or business disposals.

· Acquisition/Disposal Strategy Risk - the risk that acquisitions do not deliver the returns forecast and/or that the portfolio is not effectively managed throughout the property cycle.

One risk was removed being that of Valuation risk, defined as the risk of an absence of relevant transactional evidence creating uncertainty. This was no longer considered a principal Group risk following the completion of the sale of the Group's German investment and the exclusive property focus on UK Shopping Centres.

The two principal categories of risks remain Property Risks and Funding and Treasury Risks. In addition to the specific mitigating actions listed below we look to reduce Property Risks by the nature of the assets we invest in being those that are typically dominant in their local catchment, with strong footfall and attractive value added opportunities.

The Group's key focus in managing Funding and Treasury risks is to seek to ensure that there is appropriate headroom on credit facilities and that they are renewed well in advance of expiry. The key actions undertaken in this regard during the year are detailed in the 'Debt' section of the Financial Review.

The risks noted do not comprise all those potentially faced by the Group and are not intended to be presented in any order of priority. Additional risks and uncertainties currently unknown to the Group, or which the Group currently deems immaterial, may also have an adverse effect on the financial condition or business of the Group in the future. These issues are kept under constant review to allow the Group to react in an appropriate and timely manner to help mitigate the impact of such risks.

There are no items in other comprehensive income that may not be reclassified to profit or loss.

The merger reserve of £60.3 million arose on the Group's capital raising in 2009 which was structured so as to allow the Company to claim merger relief under section 612 of the Companies Act 2006 on the issue of Ordinary shares. The merger reserve is available for distribution to shareholders.

1 Significant Accounting Policies

General information

Capital & Regional plc is a company domiciled and incorporated in the United Kingdom under the Companies Act 2006. These unaudited preliminary consolidated financial statements, which were approved by the Board of directors on 1 March 2016, do not constitute the Company's statutory financial statements for the years ended 30 December 2015 or 2014.

Statutory accounts for 2014 have been delivered to the Registrar of Companies. The auditor has reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Basis of accounting

These unaudited preliminary consolidated annual financial statements of Capital & Regional plc are prepared in accordance with IFRSs as adopted by the European Union.

Accounting developments and changes

In the current financial year the Group has adopted IFRS 10 'Consolidated financial statements', IFRS 11 'Joint arrangements', IFRS 12 'Disclosures of interests in other entities' and amendments to IAS 32 'Financial Instruments: Presentation', IAS 36 'Impairment of assets' and IAS 39 'Financial Instruments: Recognition and measurement'.

The Group undertook an assessment of the treatment of its subsidiaries, joint ventures and interests in other entities prior to the adoption of IFRS 10, 11 and 12 and concluded that no changes in relation to the presentation of these interests was required.

The adoption of these standards has not had a material impact on the Group and otherwise the accounting policies used are consistent with those contained in the Group's last Annual Report and financial statements for the year ended 30 December 2014.

Going concern

The financial statements have been prepared on a going concern basis. Details on going concern are provided within the Financial Review.

Operating segments

The Group's reportable segments under IFRS 8 are The Mall, Other UK Shopping Centres, Snozone and Group/Central. Other UK Shopping Centres consists of the Group's share in The Buttermarket Centre (Ipswich), the Kingfisher Limited Partnership (Redditch) and, in the prior year until its disposal, The Waterside Lincoln Limited Partnership. Group/Central includes management fee income, Group overheads incurred by Capital & Regional Property Management, Capital & Regional plc and other subsidiaries and the interest expense on the Group's central borrowing facility. Following the acquisition of The Marlowes Centre, Hemel Hempstead that completed in February 2016 the Group will, going forward, report Wholly Owned Assets as a separate segment incorporating both The Mall and The Marlowes Centre.

The Mall and Other UK Shopping Centres derive their revenue from the rental of investment and trading properties. The Snozone and Group/Central segments derive their revenue from the operation of indoor ski slopes and the management of property respectively. The split of revenue between these classifications satisfies the requirement of IFRS 8 to report revenues from different products and services. Depreciation and charges in respect of share-based payments represent the only significant non-cash expenses.

The Group's interests in the assets, liabilities and profit or loss of its associates and joint ventures are proportionately consolidated and are also shown on a see-through basis as this is how they are reported to the Board of directors. There are no differences between the measurements of the segments' assets, liabilities and profit or loss as they are reported to the Board of directors and their presentation under the Group's accounting policies.

Inter-segment revenue and expenses represent items eliminated on consolidation and are accounted for on an arm's length basis. Management fees and other revenue items in the property management segment are earned from the asset business segments, where they are included under property and void costs. Where these relate to assets that are proportionately consolidated, the costs do not eliminate against the income and have therefore not been split out separately as inter-segment expenses.

Operating Profit

Operating Profit is the total of Contribution from The Mall and the Group's joint ventures and associates, the profit from Snozone and property management fees less central costs (including interest, excluding non-cash charges in respect of share-based payments) before tax. Operating Profit excludes revaluation of properties, profit or loss on disposal of properties or investments, gains or losses on financial instruments and exceptional one-off items. Results from Discontinued Operations are included up until the point of disposal or reclassification as held for sale.

2a Operating segments