Capital & Regional Regulatory News (CAL)

14 August 2018

Capital & Regional plc

("Capital & Regional" or C&R" or "the Company" or "the Group")

Half Year Results to 30 June 2018

Capital & Regional plc (LSE: CAL), the UK focused REIT with a portfolio of dominant in-town community shopping centres, today announces its half year results to 30 June 2018.

Lawrence Hutchings, Chief Executive, comments: "This is a robust set of results which demonstrate that our strategy is delivering for our communities, our retailer customers and our shareholders. Furthermore the combination of strong lettings progress which has driven increased like-for-like rental income, as well as growth in footfall, where we once again comfortably outperformed the national average, and an increase in adjusted profit, all illustrate the resilience of the high quality convenient "needs" focussed community shopping centres that characterise our portfolio. This asset class continues to prove its importance in a polarising retail landscape.

"We have made progress across all areas of the business including delivery of strategy, centre repositioning, master planning and capex deployment, strengthening the team, retailer relationships, community engagement and cost savings.

"The Board has announced a 5.2% increase in the interim dividend compared to 2017. The Board continues to maintain its medium term objective of dividend growth in a range of 5% and 8% per annum. Given the short term impact of CVAs or administrations the Board expects full year dividend growth in 2018 to be at the low end of this range. We remain confident that the combination of our in-house expertise and the strength and affordability of our underlying assets will enable us to successfully remerchandise and evolve our centres to maintain positive momentum."

Adjusted Profit growth in face of challenging market conditions supports increased dividend

· Adjusted Profit1 up 6.9% to £15.5 million (June 2017: £14.5 million) setting the business on track for its fifth consecutive year of Adjusted Profit growth

· Adjusted Earnings per Share1 up 4.4% to 2.15p (June 2017: 2.06p)

· Interim dividend increased by 5.2% to 1.82p per share (June 2017: 1.73p)

· Net Rental Income on wholly-owned assets up £1 million to £26.0 million (June 2017: £25.0 million) reflecting like for like2 growth of 1.3%

· Contracted rent of £62.3 million in line with June 2017

· Cost efficiency programme on track to meet the 2016 target of at least £1.8 million of annualised savings by the end of 2018

Community shopping centre strategy well advanced and delivering growth through remerchandising and deployment of accretive capex plan

· 37.9 million shopper visits in the period, representing like-for-like growth of 1.7% and another period of considerable outperformance of the national footfall index which was down 3.4%

· Continuing occupier demand reflected in high occupancy at 96.9% (30 June 2017: 95.5%)

· 44 new lettings and renewals in the period at a combined average premium of 3.4%3 to previous passing rent and a 3.3%3 premium to ERV

· Capex investment of £6.8 million in period with key projects including Luton office refurbishment, further development of Ilford family area and Hemel guest services and increased pipeline for H2 2018 with average target returns of 9%+

· Conditional planning consent for the extension and residential development at Walthamstow granted in July 2018

Robust balance sheet with long term debt security

· Basic and EPRA NAV per share resilient, at 66p and 65p respectively (December 2017: both 67p).

· Valuation of the wholly-owned portfolio was £883.4 million at 30 June 2018, down 0.4% from December 2017. Total revaluation loss, net of capex and joint ventures, was £12.4 million resulting in a reduction in IFRS Profit for the period to £6.7 million (30 June 2017: £12.1 million)

· Net LTV unchanged at 46% (December 2017: 46%)

· Competitive cost of debt of 3.27% with weighted average debt maturity of 6.8 years4

Use of Alternative Performance Measures (APMs)

Throughout the results statement we use a range of financial and non-financial measures to assess our performance. A number of the financial measures, including Adjusted Profit, Adjusted Earnings per share and the industry best practice EPRA (European Public Real Estate Association) performance measures are not defined under IFRS, so they are termed 'Alternative Performance Measures' (APMs). Management use these measures to monitor the Group's financial performance alongside IFRS measures because they help illustrate the underlying performance and position of the Group. All APMs are defined in the Glossary and further detail on their use is provided within the Financial Review.

Notes

All metrics are for wholly-owned portfolio unless otherwise stated.

1 Adjusted Profit and Adjusted Earnings per share are as defined in the Glossary. Adjusted Profit incorporates profits from operating activities and excludes revaluation of properties and financial instruments, gains or losses on disposal, exceptional items and other defined terms. A reconciliation to the equivalent EPRA and statutory measures is provided in Note 6 to the condensed financial statements.

2 Like-for-like excludes the impact of property purchases and sales on year to year comparatives.

3 For lettings and renewals (excluding development deals) with a term of five years or longer and which did not include a turnover element.

4 As at 30 June 2018, assuming exercise of all extension options.

For further information:

Notes to editors:

About Capital & Regional

Capital & Regional is a UK focused retail property REIT specialising in shopping centres that dominate their catchment, serving the non-discretionary and value orientated needs of the local communities. It has a strong track record of delivering value enhancing retail and leisure asset management opportunities across a c. £1 billion portfolio of in-town shopping centres. Capital & Regional is listed on the main market of the London Stock Exchange (LSE) and has a secondary listing on the Johannesburg Stock Exchange (JSE).

Capital & Regional owns seven shopping centres in Blackburn, Hemel Hempstead, Ilford, Luton, Maidstone, Walthamstow and Wood Green. It also has a 20% joint venture interest in the Kingfisher Centre in Redditch. Capital & Regional manages these assets 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.

Operating review

A key strength of our portfolio is the characteristic dominance of our assets within their locality, coupled with their ability to offer occupiers attractive, affordable and high footfall space which caters for the non-discretionary and value-orientated needs of the local community. This coupled with our team's expertise and ability to create and deliver specialist asset management improvements across a £1.0 billion portfolio of UK shopping centres are the key drivers of Capital & Regional's success.

New lettings, renewals and rent reviews

There were 44 new lettings and renewals during the period at a combined average premium of 3.4%1 to previous passing rent and a 3.3%1 premium to ERV.

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

Leasing activity in the period reflected our strategy of remerchandising to diversify uses and tenant mix. New lettings included Bodycare and Smiggle in Blackburn, Chopstix restaurant in Luton and KFC, Muffin Break in Maidstone and Pret at Walthamstow. Renewals were agreed with Boots at Luton, Maidstone and Walthamstow, The Perfume Shop at Ilford, Body Shop at Ilford and Walthamstow and Burger King at Walthamstow. Since the period end we have also agreed a new letting to Superdry demonstrating the continuing appeal of our retail offer in Luton town centre.

£1.2 million of rent reviews were settled in the period across 10 leases with nine of these being agreed at an average increase of 2.2%. However, one inherited lease at Hemel Hempstead with a reversionary clause led to a total fall of 1.7% compared to previous rent.

Operating review 

Operational performance

There were 37.9 million shopper visits across our wholly-owned portfolio in the first half of 2018, representing like-for-like growth of 1.7% and another period of considerable outperformance of the national index which was down 3.4%, further evidencing the resilience of our assets and the important role they play in fulfilling the needs of their local community, as well as the impact of our strategy.

A similar trend has continued since 30 June 2018 with footfall up 1.1% for the month of July compared to the national index which was -4.0%.

The relevance of our centres in the omnichannel trading environment was further demonstrated by growth in Click & Collect transactions in the first half of the year, up 35% year on year.

Car park usage was marginally down but car park income was £5.1 million, an increase of 3.3% on a like-for-like basis.

Impact of CVA's/Administrations

As at the time of writing there have been 12 Company Voluntary Arrangements (CVAs) involving national retailers or leisure operators across the UK this year affecting 2,154 stores of which 480 (22%) have been closed or marked for closure. Three of the CVA's involved tenants in 12 units across our wholly-owned portfolio, with just one (8%) unit closure.

In total CVA's and insolvencies in the year to date impacted NRI in the first half of the year by £0.4 million. Based on information available to date the full year impact of CVA's and insolvencies on 2018 NRI is expected to be approximately £1.2 million of which £0.4 million relates to CVA's and £0.8 million to insolvencies.

Rental income and occupancy

Contracted rent at £62.3 million is in line with June 2017 but down £1.8 million from December 2017 reflecting seasonality, the impact of CVAs and retailer restructurings and £0.4 million of strategic terminations to facilitate development improvements. Passing rent has been impacted by the same factors and £0.9 million of income relating to two large renewals currently in rent free. There is currently £1.8 million of rental income within Contracted rent that is expected to move to Passing rent in the second half of 2018.

Occupancy remained high at 96.9% at 30 June 2018 which was ahead of the 95.5% level at June 2017, marginally below the traditionally higher December equivalent, which was 97.3% in 2017 and benefits from the peak Christmas trading period.

Operating review

Capital expenditure investment

In the first six months of the year we invested £6.8 million of capital expenditure (including tenant incentives) into our assets. We expect the pace of investment to increase in the second half of the year and bring total spend for 2018 in line with our typical expected rate of approximately £15-25 million per annum with average target returns of 9%+. The depth of opportunities across the portfolio enables us to focus investment on those with the most significant impact and thereby provides flexibility, allowing us to respond dynamically to any changes in occupier demand or further evolution of shopper dynamics.

At Luton we will shortly be handing over four floors of newly renovated and previously vacant office space to the local council following a £5.2 million refurbishment project in a letting that both diversifies use and helps footfall by bringing a working population adjacent to the scheme.

We are currently on site to further improve the guest services and introduce exciting new family areas at both Ilford and at Hemel. At Hemel the atrium roof replacement is now substantially complete and work is commencing on improving the appearance of the external units, all as part of the transformation of the scheme and complementing the planned cinema and leisure development. In total there are currently over 20 different projects live across the portfolio driving improvements in our centre facilities and fuelling future rental income.

In July 2018 we passed a significant milestone at Walthamstow when we received conditional planning consent for our exciting extension and redevelopment scheme. Our plans include the addition of 80,000 sq ft of new retail and leisure space and approximately 500 new homes, as well as improved public spaces and community facilities. The scheme and proposal also stand to benefit from Transport for London's new transformational plans for the adjacent underground station.

Other assets and operations

The Kingfisher Centre, Redditch (C&R ownership 20%)

The property was valued at £132.5 million, reflecting a net initial yield of 6.99%. Capital expenditure in the period was £0.1 million. The carrying value of the Group's net investment in The Kingfisher Limited Partnership was £5.4 million at 30 June 2018.

Snozone

Snozone's half year performance again saw growth with revenues increasing 2% to £5.5 million and profits increasing 4% to £1.04 million.

FINANCIAL REVIEW

1 Wholly-owned assets.

2 Adjusted Profit is as defined in the Glossary and Note 1 to the Financial Statements. A reconciliation to the statutory result is provided further below. EPRA figures and a reconciliation to EPRA EPS are shown in Note 6 to the Financial Statements.

3 Assuming exercise of all extension options.

4 Assuming all loans fully drawn.

The above results are discussed more fully in the following pages.

Use of Alternative Performance Measures (APMs)

Throughout the results statement we use a range of financial and non-financial measures to assess our performance. The significant measures are as follows:

FINANCIAL REVIEW

Profitability

Components of Adjusted Profit and reconciliation to IFRS Profit

1 See note 8c to the Financial Statements.

2 EPRA figures and a reconciliation to EPRA EPS are shown in Note 6 to the condensed Financial Statements.

3 Includes £0.5 million for the non-cash accounting charge in respect of share-based payments (Year to December 2017: £0.9 million, Six months to June 2017: £0.4 million)

Adjusted Profit increased by 6.9% on the prior year driven by a £1.0 million increase in NRI and a £0.5 million reduction in net central operating costs.

NRI from wholly-owned assets increased by £1.0 million or 4.0%. This included the full period benefit of £2.4 million of NRI from The Exchange Ilford, which was acquired on 8 March 2017 and contributed £1.8 million in the six months to 30 June 2017, without which the increase would have been 1.3%.

Net interest increased by £0.6 million compared to the prior year period due to the timing of the Ilford acquisition and a higher interest cost arising from the August 2017 refinancing of Kingfisher Redditch.

Net central operating costs improved by £0.5 million compared to H1 2017 as the benefits of the Group's cost improvement plan continue to be delivered putting the Company firmly on track to meet the target of reducing annual central operating costs by at least £1.8 million, equivalent to c. 20%, since 2016.

Profit for the period of £6.7 million (30 June 2017: £12.1 million) was impacted by the total revaluation loss, net of capex and joint ventures, of £12.4 million.

Financial review 

Net Asset Value (NAV)

NAV at £476.9 million and EPRA NAV at £475.0 million decreased marginally (December 2017: £481.4 million and £482.6 million respectively) with dividends paid for the period only partially offset by the profit for the period. On a per share basis Basic NAV and EPRA NAV fell by 1.1p and 1.2p respectively reflecting the lower NAV and a slightly higher number of shares in issue as a result of the Scrip dividend.

Property portfolio valuation

The valuation of the wholly-owned portfolio at 30 June 2018 was £883.4 million, reflecting a net initial yield of 6.04%. Net of Capex spent in the period of £6.8 million (including tenant incentives) this resulted in a revaluation loss on wholly-owned assets of £10.3 million or £12.4 million on a see-through basis. Yields on the Group's London assets saw some inward shift reflecting strong transactional activity of comparable assets in Central London and progress on residential options and other alternative uses. Valuations on the Group's regional assets saw some declines largely reflecting outward market yield shift and in cases the loss of income through CVA's or retailer restructurings.

Financing

Net interest

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

The increase in interest reflects timing of the Ilford acquisition, completed on 8 March 2017, and refinancing of Kingfisher Redditch that completed in August 2017.

Financial review 

Group debt

1 Excluding unamortised issue costs.

2 Excluding cash beneficially owned by tenants.

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

The refinancing activity completed in the early part of 2017 has delivered an attractive funding cost of 3.27% that is substantially fixed and secured over the medium term with a weighted average 6.2 year maturity at 30 June 2018, extending to 6.8 years if all extensions are exercised. Net debt to value remained flat from 30 December 2017 at 46%. Our target range for net debt to property value remains 40%-50% with an intention to reduce it to the lower end of that range in the medium-term.

In light of the planned leisure development on the Marlowes, Hemel Hempstead an amendment to the existing loan agreement on the property was signed in August 2018 providing flexibility within the facility and a temporary relaxation of certain covenants while the preparatory and development work is undertaken.

Covenants

The Group was compliant with its banking and debt covenants at 30 June 2018 and throughout the period. Further details are disclosed in the 'covenant information' section at the end of this report.

Going concern

As stated in note 2 to the condensed financial statements, the directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

South African secondary listing

The Company maintains a primary listing on the London Stock Exchange (LSE) and a secondary listing on the Johannesburg Stock Exchange (JSE) in South Africa. At 30 June 2018, 64,115,560 of the Company's shares were held on the South African register representing 8.9% of the total shares in issue.

Financial review

Dividend

The Board is proposing an interim dividend of 1.82 pence per share, all of which will be paid as a Property Income Distribution (PID). This represents an increase of 5.2% from the 2017 Interim dividend.

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

· Confirmation of ZAR equivalent dividend and PID percentage Tuesday, 25 September 2018

· Last day to trade on JSE Tuesday, 2 October 2018

· Shares trade ex-dividend on the JSE Wednesday, 3 October 2018

· Shares trade ex-dividend on the LSE Thursday, 4 October 2018

· Record date for LSE and JSE Friday, 5 October 2018

· Dividend payment date Thursday, 25 October 2018

The amount to be paid as a PID will be confirmed in the announcement to be published on 25 September 2018. If a Scrip dividend alternative is offered, subject to the requisite regulatory approvals, the deadline for submission of valid election forms will be 5 October 2018. South African shareholders are advised that the dividend will be regarded as a foreign dividend. Further details relating to Withholding Tax for shareholders on the South African register will be provided within the announcement detailing the currency conversion rate on 25 September 2018. Share certificates on the South African register may not be dematerialised or rematerialised between 3 October 2018 and 5 October 2018, both dates inclusive. Transfers between the UK and South African registers may not take place between 25 September 2018 and 5 October 2018, both dates inclusive.

Outlook

Whilst only a reasonably small proportion of the occupier restructurings or failures announced in the year to date directly impact our portfolio they do present a challenge to short term results with a greater impact in the second half of the year. However, we remain confident that the combination of our in-house expertise and the strength and affordability of our underlying assets will enable us to successfully remerchandise and evolve our centres to maintain positive momentum.

The Board has announced a 5.2% increase in the interim dividend compared to 2017. The Board continues to maintain its medium term objective of dividend growth in a range of 5% and 8% per annum. Given the short term impact of CVAs or administrations the Board expects full year dividend growth in 2018 to be at the low end of this range.

Principal risks and uncertainties

There are a number of risks and uncertainties which could have a significant impact on future performance and could cause actual results to differ materially from expected or historical results. The Group carries out a regular review of the major risks it faces and monitors the controls that have been put in place to mitigate them.

A detailed explanation of the principal risks and uncertainties was included on pages 26 to 30 of the Group's 2017 Annual Report. A further review was carried out for the 30 June 2018 half year. Amongst other factors considered were the continuing uncertainty in the UK concerning the planned exit from the European Union in 2019 and the challenging retail backdrop. The review concluded that while the profile of certain risks had changed the ultimate nature of the Group's risks had not and therefore the principal risks to the Group remain those disclosed in the 2017 Annual Report with the exception that the risk of threat from the internet has been broadened to incorporate wider structural changes to the UK retail market the impact of which have been seen in the number of Company Voluntary Arrangements (CVA's) and other retailer restructurings in the period. This change and the other risks as disclosed in the 2017 Annual Report have been summarised below.

Property risks:

· Property investment market risks - Weak economic conditions and poor sentiment in commercial real estate markets may lead to low investor demand and a market pricing correction. Small changes in property market yields can have a significant effect on property valuation and the impact of leverage could magnify the effect on the Group's net assets.

· Impact of the economic environment (tenant risks) - Tenant insolvency or distress and a prolonged downturn in tenant demand could put pressure on rent levels. Tenant failures and reduced tenant demand could adversely affect rental income revenues, lease incentive costs, void costs, available cash and the value of properties owned by the Group.

· Valuation risk - The risk that a lack of relevant transactional evidence makes property valuations increasingly subjective and open to a wider range of possible outcomes.

· Structural changes to retail - Structural changes in retailing including the trend towards online shopping may adversely impact footfall in shopping centres and potentially reduce tenant demand for space and the levels of rents which can be achieved.

· Concentration and scale risks - By having a less diversified portfolio the business is more exposed to specific tenants or types of tenant. Failures of such tenants could therefore have a significant impact on rental income revenues impacting Adjusted Profit and property valuations.

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

· Business disruption from a major incident - The threat of a major incident, such as a terrorist attack, impacting one of the Group's assets.

· Development risk - There is a risk that where capital expenditure and development projects are undertaken, that delays and other issues may lead to increased cost and reputational damage. There is also the risk that planned realisation of value is not achieved, for example if the property cannot subsequently be sold for the anticipated amount or if tenants are not contracted on sufficiently attractive terms.

Funding and treasury risks:

· Liquidity and funding - Inability to fund the business or to refinance existing debt on economic terms may result in the inability to meet financial obligations when due and put a limitation on financial and operational flexibility. Cost of financing could be prohibitive in the future.

· Covenant compliance risks - Breach of any loan covenants could cause default on debt and possible accelerated maturity. Unremedied breaches can trigger demand for immediate repayment of loans.

· Interest rate exposure risks - Exposure to rising or falling interest rates. If interest rates rise and are unhedged, the cost of debt facilities can rise and ICR covenants could be broken. Hedging transactions used by the Group to minimise interest rate risk may limit gains, result in losses or have other adverse consequences.

Other risks:

· Execution of business plan - the failure to execute the Group's business plan in line with internal and external expectations could lead to potential loss of income or value and reputational damage, negatively impacting investor market perception.

· Property acquisition/disposal strategy - The Group is exposed to risks around overpayment for acquisitions and that acquisitions do not deliver the returns forecast. In addition, if the portfolio is not effectively managed through the property cycle, with sales and deleveraging at the appropriate time, the Group is exposed to risks in not being able to take advantage of other investment opportunities as they arise and the potential for LTVs to move adversely, with adverse consequences for covenants and shareholder value.

· Tax risks - Changes in tax legislation or the interpretation of tax legislation or previous transactions where the tax authorities disagree with the tax treatment adopted could result in tax related liabilities and other losses arising.

· Regulation risks - Exposure to changes in existing or forthcoming property related or corporate regulation could result in financial penalties or loss of business or credibility.

· Loss of key management - The Group's business is partially dependent on the skills of a small number of key individuals. Loss of key individuals or an inability to attract new employees with the appropriate expertise could reduce the effectiveness with which the Group conducts its business.

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

The risks noted above 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.

Responsibility statement

The directors confirm that to the best of their knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting",as adopted by the European Union;

· the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

· the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Lawrence Hutchings Charles Staveley

Chief Executive Group Finance Director

13 August 2018 13 August 2018

INDEPENDENT REVIEW REPORT TO CAPITAL & REGIONAL PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London, United Kingdom

13 August 2018

Condensed consolidated income statement

For the six months to 30 June 2018

Condensed consolidated statement of comprehensive income

For the six months to 30 June 2018

The results for the current and preceding periods are fully attributable to equity shareholders.

The EPRA measures used throughout this report are industry best practice alternative performance measures established by the European Public Real Estate Association. They are defined in the Glossary. EPRA Earnings and EPRA EPS are shown in Note 6 to the Financial Statements. EPRA net assets and EPRA triple net assets are shown in Note 12 to the Financial Statements.

Condensed consolidated balance sheet

At 30 June 2018

Condensed consolidated statement of changes in equity

For the six months to 30 June 2018

Condensed consolidated cash flow statement

For the six months to 30 June 2018

Notes to the condensed financial statements

For the six months to 30 June 2018

1 General information

The comparative information included for the year ended 30 December 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has 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.

The Group's financial performance is not materially impacted by seasonal fluctuations.

2 Accounting policies

Basis of preparation

The annual financial statements of Capital & Regional plc are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union. The financial statements are prepared in GBP being the functional currency of the Group. The principal exchange rates used to translate foreign currency denominated amounts are:

Balance sheet: £1 = €1.129 (30 June 2017: £1 = €1.137; 31 December 2017: £1 = €1.127)

Income statement: £1 = €1.137 (30 June 2017: £1 = €1.162; 31 December 2017: £1 = €1.141).

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such basis, except for share-based payments that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2 inputs are inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3 inputs are unobservable inputs for the asset or liability.

The Half-Year Report was approved by the Board on 13 August 2018.

Going concern

The Group prepares cash flow and covenant compliance forecasts to demonstrate that it has adequate resources available to continue in operation for the foreseeable future, being at least 12 months from the date of this report. In these forecasts the directors specifically consider anticipated future market conditions and the Group's principal risks and uncertainties. Further information on the Group's financing position is contained within the Financial Review with additional details of the Group's cash position and borrowing facilities provided in notes 9 and 10 of the condensed financial statements.

In summary the directors believe that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future and accordingly continue to adopt the going concern basis in preparing the annual report and financial statements.

Change in accounting policies

The condensed consolidated interim financial information has been prepared on the basis of the accounting policies, significant judgements, key assumptions and estimates as set out in the notes to the Group's annual financial statements for the year ended 30 December 2017. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

A number of new standards and amendments to standards have been issued but are not yet effective for the Group. The most significant of these, and their potential impact on the Group's accounting, are set out below:

· IFRS 15 Revenue from Contracts with Customers (effective for year ending 30 December 2019) - does not apply to gross rental income, but does apply to service charge income, other fees and trading property disposals. The Group has not yet completed its evaluation of the effect of the adoption of IFRS 15 but does not expect it to have a material impact on the measurement of revenue recognition although additional disclosures will be required.

· IFRS 9 Financial Instruments (effective for year ending 30 December 2019) - will impact both the measurement and disclosures of financial instruments. The Group has not yet completed its evaluation of the effect of the adoption but it may impact the measurement and presentation of the Group's financial liabilities although it is not expected that the impact will be material.

· IFRS 16 Leases (effective for year ending 30 December 2020) - will result in the Group recognising on balance sheet assets it leases along with a corresponding liability. The primary lease contracts that this will impact are the lease on the Group's support office and the leases of the Snozone business for its Castleford and Milton Keynes operations. In addition, IFRS 16 could have an indirect impact on the Group's business if it leads to a change in occupier behaviour. Examples of this would be if its adoption results in tenants or potential tenants typically seeking shorter lease terms and/or more prevalent use of turnover-related, as opposed to fixed rents.

3 Operating segments

3a Operating segment performance

The Group's reportable segments under IFRS 8 are Wholly-owned assets, Other UK Shopping Centres, Snozone and Group/Central. Wholly-owned assets consists of the shopping centres at Blackburn, Hemel Hempstead, Ilford (from acquisition on 8 March 2017), Luton, Maidstone, Walthamstow and Wood Green. Other UK Shopping Centres consists of the Group's interest in Kingfisher Limited Partnership (Redditch). 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.

Wholly-owned assets and Other UK Shopping Centres derive their revenue from the rental of investment properties. The Snozone and Group/Central segments derive their revenue from the operation of indoor ski slopes and the management of property funds or schemes 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.

1 Asset management fees of £1.8 million charged from the Group's Capital & Regional Property Management entity to Wholly-owned assets have been excluded from the table above.

2 £0.4 million of monies were received in the period through the holding of a share in the German Euro B-Note junior loan instrument which had previously been fully impaired. The monies were distributed following the sale of properties by the liquidator of the underlying German entities.

3 Operating segments (continued)

3a Operating segment performance

1 Asset management fees of £2.0 million charged from the Group's Capital & Regional Property Management entity to Wholly-owned assets have been excluded from the table above.

2 £0.3 million of monies were received in the year through the holding of a share in the German Euro B-Note junior loan instrument which had previously been fully impaired. The monies were distributed following the sale of properties by the liquidator of the underlying German entities.

3 Operating segments (continued)

3a Operating segment performance

1 Asset management fees of £3.6 million charged from the Group's Capital & Regional Property Management entity to Wholly-owned assets have been excluded from the table above.

2 £0.3 million of monies were received in the year through the holding of a share in the German Euro B-Note junior loan instrument which had previously been fully impaired. The monies were distributed following the sale of properties by the liquidator of the underlying German entities.

3b Reconciliations of reportable revenue, assets and liabilities

Revenues during the period and in the preceding periods were solely derived from the UK.

3 Operating segments (continued)

3b Reconciliations of reportable revenue, assets and liabilities (continued)

4 Revenue

Management fees represent revenue earned by Capital & Regional Plc and the Group's wholly-owned CRPM subsidiary. Fees charged to Wholly-owned assets have been eliminated on consolidation.

5 Tax

5 Tax (continued)

The UK corporation tax main rate was reduced to 19% with effect from 1 April 2017. A further reduction in the rate of corporation tax to 17% from 1 April 2020 was substantively enacted in Finance Act 2016. Consequently the UK corporation tax rate at which deferred tax is booked in the financial statements is 17% (2017: 17%).

The Group has recognised a deferred tax asset of £0.1 million (30 December 2017: £0.1 million). No deferred tax asset has been recognised in respect of temporary differences arising from investments or investments in associates or in joint ventures in the current or prior years as it is not certain that a deduction will be available when the asset crystallises.

The Group has £16.6 million (30 December 2017: £12.3 million) of unused revenue tax losses, all of which are in the UK. No deferred tax asset has been recognised in respect of these losses due to the unpredictability of future profit streams and other reasons which may restrict the utilisation of the losses (30 December 2017: £nil). The Group has unused capital losses of £25.1 million (30 December 2017: £25.1 million) that are available for offset against future gains but similarly no deferred tax has been recognised in respect of these losses owing to the unpredictability of future capital gains and other reasons which may restrict the utilisation of the losses. The losses do not have an expiry date.

6 Earnings per share

The European Public Real Estate Association ("EPRA") has issued recommendations for the calculation of earnings per share information as shown in the following table: