Capital & Regional Regulatory News (CAL)

 14 August 2013

Capital & Regional plc

Half Year Results to 30 June 2013

CAPITAL & REGIONAL RETURNS TO PROFIT AND ANNOUNCES

SIGNIFICANT STRATEGIC AND OPERATIONAL PROGRESS

Capital & Regional plc ("Capital & Regional", the "Group" or the "Company") today announces its half year results to 30 June 2013.

John Clare, the Chairman, said - "We have made significant progress against our strategic objectives in the year to date, most notably the reduction in The Mall's debt which provides greater options for its refinancing. We enter the second half of 2013 with renewed confidence in our future performance and our ability to drive shareholder value as reflected in the resumption of dividend payments."

Hugh Scott-Barrett, Chief Executive commented - "In the first half of the year we have delivered improved performance, with growth in NAV, and a return to profitability. Following these achievements, and against a backdrop of improving market sentiment, we have a number of exciting and value enhancing asset management opportunities across the business. With the Company now focussed on executing its strategy for growth we are confident that the affordability and quality of the space at our assets will continue to attract tenants to our centres, and that we will leverage the ability of our skilled asset management teams to continue to perform strongly."

HIGHLIGHTS

Progress in execution of strategy

· Sale by The Mall of shopping centres at Sutton Coldfield and Uxbridge in July for a total of £152.5 million focusses The Mall around a £676 million core portfolio of dominant community centres with a strong south east bias

· Reduction of The Mall debt to £379.5 million (LTV: 56%) in July enables distributions by The Mall to recommence and increases its refinancing options

· Sale of Hemel Hempstead leisure scheme expected to conditionally exchange imminently with proceeds anticipated to exceed £8.5 million, ahead of year end valuation

Financial

· Return to profitability with a pre-tax profit of £3.7 million (June 2012: loss of £9.2 million)

· Increase in net assets per share to 52p (2012 year end: 51p); EPRA net assets remain at 55p

· Proforma see-through net debt2 to property value fell to 53% compared to 55% at 2012 year end

· €141 million multi portfolio refinancing of German debt for three years agreed

· Resumption of dividend payments with a 0.25p interim dividend

Operational 

· UK Shopping Centres contracted rent at June 2013 up £0.9 million year on year to £71.5 million

· Attractive and affordable space in UK Shopping Centres driving 27 new lettings and 12 renewals totalling £2.6 million at rents above ERV

· Significant milestones achieved with the start of the £9 million transformational refurbishment at Lincoln and pre-lets signed with Nando's and Pure Gym in the new leisure hub at Redditch

· Robust German operational performance driving recurring profit of £3.5 million in H1 with asset management initiatives delivering additional income security

Future priorities

· Recycle cash from further disposals of non-core assets into the UK Shopping Centre business

· Drive occupancy, income and capital growth through the execution of asset management opportunities which are in progress

· Implementation of refinancing strategy for The Mall

1 As defined in Note 1 to the financial statements.

2 Figures are proforma, June 2013 adjusted for £168 million repayment by The Mall in July 2013 and December 2012 adjusted for £30.6 million X-Leisure proceeds received in January 2013.

For further information:

Notes to editors:

About Capital & Regional plc

Capital & Regional is a specialist property company with a strong track record of delivering value enhancing retail and leisure asset management opportunities across a £1.3 billion portfolio, primarily in town centre shopping centres.

Capital & Regional founded The Mall in conjunction with Aviva Investors. Capital & Regional acts as Property and Asset Manager for the Mall and holds 20.3% of this fund.

Capital & Regional & Ares Management (formerly known as AREA Property Partners) each hold a 50% interest in a German retail property portfolio which is managed by Garigal Asset Management GmbH, in which Capital & Regional holds a 30% interest. 

Capital & Regional has a number of other joint ventures and wholly-owned properties.

For further information, please see www.capreg.com. 

Chief Executive's statement

Operating review

The core strength and expertise of Capital & Regional lies in its ability to deliver asset management improvements across its £1.3 billion retail and leisure portfolio. The Group's principal focus is in managing UK shopping centres which have a dominant market share in the communities they serve and which provide attractive and affordable space for retailers.

The Group also has a 50% joint venture interest in a £350 million German retail and leisure property portfolio and, in the leisure sector, it owns the Great Northern Warehouse, a prominent entertainment destination in Manchester city centre, and Snozone, the largest indoor ski slope operator in the UK.

UK Shopping Centres

The Group's £835 million UK Shopping Centres business comprises its investment in The Mall, a specialist dominant UK community shopping centre fund and interests in The Waterside Centre, Lincoln and The Kingfisher Centre, Redditch.

The Mall has a portfolio of six properties with a strong south east bias. The schemes are characterised by being dominant within the community they serve, having strong footfall and robust income, whilst offering our occupiers affordable and attractive space. It has a total lettable space of over 3.2 million sq ft within 728 retail units.

The elements which help to differentiate our approach to shopping centre asset management include:

· A unique in-house platform, combining property and asset management, driving market-leading operating standards

· A strong track record of successfully delivering profitable complex asset management initiatives

· Excellent relationships with our retailers. We think like retailers, creating environments appealing to occupiers and their evolving requirements, assisting them in delivering sustained profits and an outstanding shopping experience for the communities which we serve

· We have been at the forefront in capitalising on the opportunities arising from technological change. The Mall was the first branded website in the UK to cover a portfolio of shopping centres. All malls have free Wi-Fi, a click & collect service and smartphone apps

· We drive income from many sources, including advertising, promotional space, retail merchandising units, digital commerce, gifts cards and telecoms

· Through targeted marketing we engage with our shoppers, encouraging repeat visits and higher spend

· A track record of leveraging portfolio scale to improve operational efficiencies and drive down the cost of occupation whilst delivering high quality facilities

Significant highlights at our shopping centres include:

The Mall, Blackburn (600,000 sq ft)

· Debenhams took possession of its extension in January 2013 and now has a 95,000 sq ft store on a lease to 2080. New lettings for a total of 9,500 sq ft have been made to Card Factory, Schuh and Perfect Home on 10 year leases. Shoe Zone has also signed a six year lease

The Mall, Camberley (390,000 sq ft)

· New 3,500 sq ft letting to Treds for a five year term

· The new 20,000 sq ft unit created from the merging of three smaller units has been handed over to TK Maxx with its store opening scheduled for September 2013

· Significant opportunity for a 290,000 sq ft extension to the centre including the creation of a 135,000 sq ft department store. Discussions progressing with the local authority and an anchor tenant to secure the necessary agreements

Waterside, Lincoln (120,000 sq ft)

· Work has started on the £9 million reconfiguration with commencement of construction of the extension to the New Look store to create a 14,000 sq ft store

· Next and H&M have signed leases to take a total of 52,000 sq ft following completion of the reconfiguration of the scheme due in July 2014

The Mall, Luton (906,000 sq ft)

· Game and Wear & Walk have each taken five year leases

· Capitalising on the introduction of the 20,000 sq ft H&M unit last year, agreements have been exchanged with River Island for an upsize to a 10,000 sq ft unit in a reconfiguration which will also involves Deichmann opening a new 5,000 sq ft store and the relocation of Clinton Cards

· Longer term development opportunities exist in three key locations adjacent to the centre

The Mall, Maidstone (500,000 sq ft)

· We are in discussions with a number of major occupiers with a view to securing a new anchor for the scheme in the department store unit. In conjunction with this initiative we are appraising a wider refurbishment and re-positioning of the centre

· New letting to Grape Tree for a five year lease has been completed

Kingfisher, Redditch (920,000 sq ft)

· Agreement for lease to Pure Gym for a 15,000 sq ft gym

· Since 30 June 2013 we have exchanged an agreement for lease with Nando's to anchor the new 20,000 sq ft restaurant hub; a further dining unit is in solicitors' hands and another is under offer

· We have made progress with the fashion zone on Evesham Walk and have completed the relocation of Poundland from this part of the scheme. This has unlocked the space to facilitate the introduction of leading fashion offers thereby repositioning the scheme and improving the retail mix

· We are exploring opportunities to create a food store offer in the centre and architects have developed plans that are under discussion with a national supermarket operator

The Mall, Walthamstow (260,500 sq ft)

· Letting of 7,500 sq ft unit to Peacocks for 10 years has been signed

· We are in continuing discussions with the local authority from both a planning and head lease perspective for a 60,000 sq ft extension. Our aim is to submit a planning application early in 2014

· Terms have been agreed to let a new 26,000 sq ft unit to a new anchor tenant within the existing centre, which would be created in parallel with a refurbishment of the scheme

The Mall, Wood Green (500,000 sq ft)

· TK Maxx completed its new lease agreement and took occupation of its extended 34,000 sq ft store on a 15 year term

· Morrisons took over the former HMV lease and a 10 year extension of the term is now has been agreed and is in solicitors' hands

In the following sections all metrics are on a like for like basis adjusted for the sale of Sutton Coldfield and Uxbridge in July 2013

New lettings, renewals and rent reviews

There has been good letting activity across the Group's UK shopping centre portfolio, with tenants looking to take space or upsize where they can find well configured space in thriving well managed schemes. This is demonstrated by the new 20,000 sq ft letting to TK Maxx in Camberley, River Island's upsize in Luton and both the Next and H&M lettings in Lincoln.

1 For lettings which did not include a turnover rent

We have a strong pipeline of lettings within our UK Shopping Centres which, in conjunction with an improving macroeconomic environment and better sentiment are expected to drive enhanced performance in the near future.

Rental income

Like for like contracted rent, which includes rent from tenants in a rent free period, was up £0.9 million year on year at £71.5 million at 30 June 2013. There was a like for like reduction in passing rent of £0.5 million year on year owing to the insolvencies that occurred in the year ended 30 June 2013.

As at 30 June 2013 there was £3.6 million of contracted rent in rent free, £1.6 million of which will translate into passing rent by the year end as tenants' rent free periods expire.

We expect contracted and net valued rent to grow further during the remainder of the year as deals currently under negotiation are completed.

Administrations

The level of administrations has decreased from previous years, despite the administrations involving HMV, Jessops and Republic.

There was a year on year decline in administrations with 20 units impacted by insolvencies arising in the six months to 30 June 2013. Seven of these have already been re-let at a new rent of £0.6 million, three continue to trade and 10 have closed. Of the closed units, one is to revert to a previous assignor with no loss of income, three form part of active asset management initiatives, two further units are currently under negotiation and the remaining four, with pre-administration rent of less than £0.2 million, are being marketed.

At 30 June 2013 there were four units, including the three referred to above, with a passing rent of £0.1 million which were in administration and still trading.

Since 30 June 2013 there have been four administrations with a passing rent of £0.3 million that have affected UK Shopping Centres. Two of these units, representing 52% of the £0.3 million rent, are still open and trading.

Occupancy levels

Occupancy within the UK shopping centres has decreased by 2.2% compared to 30 December 2012, of which 1.7% is attributable to the seasonal reduction in temporary lettings. We expect occupancy to improve by the end of this year as seasonal lettings are completed and we continue to deliver on the letting opportunities currently in negotiation.

Footfall

In UK Shopping Centres footfall has outperformed the national index, by 0.6% over the first six months of the year.

Investment portfolio performance

1 Weighted average by period end property valuation and includes Sutton Coldfield and Uxbridge.

Across the Group's UK shopping centres, yields have remained broadly constant over the first half of 2013. The 30 June 2013 valuations reflect the prices achieved for the Malls at Sutton Coldfield and Uxbridge which were sold in July 2013.

There has been increased level of interest and transactions in the shopping centre investment market during the first half with double the value of investment transactions completing compared to the same period in 2012 which is expected to support valuations in the second half.

Leisure

Hemel Hempstead

We expect to exchange contracts imminently for the conditional sale of our Hemel Hempstead scheme for consideration that is anticipated to exceed £8.5 million, ahead of year end valuation. This transaction reflects the success of our asset management work to develop an attractive leisure asset.

Great Northern

The boutique ten pin bowling operator, All Star Lanes, opened its first venue outside London at Great Northern in March 2013. This was another important step towards increasing the attraction of this destination and has helped secure lettings to the highly rated Almost Famous Burgers and Lucha Libre, a Mexican bar-restaurant, on 20 and 15 year terms respectively. A further letting to Tokyo Industries, a premier bar-nightclub operator, has also been signed.

We are capitalising on the insolvency of Dwell to seek a change of use on its former unit to meet the demand from bar and restaurant operators that are interested in this locality.

During the summer we introduced a number of pop ups in the square at Great Northern, including a cider garden, which has generated extra vibrancy and footfall.

We are assessing the potential from the introduction of big screen digital advertising at this property which could generate significant additional income as well as increasing its prominence as a premium entertainment destination.

The very visible progress we are making in our asset management programme is attracting increasing investor interest. We have received several approaches. It is still too early to say whether this will lead to a transaction. We therefore remain focussed on the completion of asset management initiatives as this will maximise value for the Company's shareholders.

German portfolio

The Group's £350 million (€406 million) retail property portfolio in Germany is held through a 50% joint venture with Ares Management (formerly known as AREA Property Partners). The portfolio consists of 25 properties held in five separate portfolios comprising 193 units. The properties are largely anchored by national food retailers with strong covenants which account for around 70% of the rental income. The total portfolio consists of good quality properties which are geographically focussed on western Germany where 93% of the rent arises. It has an average unexpired lease term of nearly eight years, high rates of occupancy with minimal historic impact from insolvencies and is supported by contractual rent indexation.

The German portfolio is managed by Garigal Asset Management, a market leading asset management company based in Frankfurt in which the Group has a 30% stake. Garigal manages around 100 properties in Germany with a value of c. €800 million. It has a specific asset management plan for each property focusing on key lease events such as expiries and tenants' options to extend, along with on-going development opportunities. This ensures all opportunities to refurbish or extend properties or to regear leases are properly considered. The plans focus on protecting income, maintaining occupancy and extending lease lengths thus maximising both the values and the marketability of the assets.

The key portfolio property data at 30 June 2013 is as follows:

1 Weighted average by period end property valuation.

The German portfolio's contracted rent has reduced by €0.6 million since the year end to €31.3 million. This principally reflects the downsizing by the anchor tenant at Oschersleben, where through creative asset management the remaining space has been let to DIY operator Toom and planning consent is being sought to extend their space to include a garden centre. On receipt of the consent Toom will complete a 12 year lease at a higher rent.

Other activities within the German portfolio include:

· At Bruhl, a five year extension with increased rent has been competed with a major food retailer, Real.

· At Heide, which has current occupancy of 61%, lettings are being negotiated with three tenants which would result in the scheme being substantially let generating a further €0.2 million in contracted rent.

· At Herne, following refurbishment works at the hypermarket, Toom has taken a new 15 year lease. A further four new units comprising 3,000 sq ft have also been created, three of these are subject to agreed lettings, scheduled for handover in early September

· Further to a recent lease extension at Balingen negotiations are taking place for an expansion to the DIY store to include a garden centre, which will be funded in conjunction with the tenant.

· At Hameln where a €1.8 million scheme upgrade and creation of a new electronics store are being appraised in detail

· There are active discussions regarding early lease extensions with anchors in three other locations.

Occupancy across the portfolio remains strong at 98.2% having increased 0.2% from 98.0% at December 2012 due to additional lettings in the first half. The weighted average unexpired lease length remains unchanged from December 2012 at 7.8 years.

There have been four lettings during the first half with a combined contracted rent of €0.1 million and nine lease extensions with a total rent of €0.5 million. Administrations during the period to 30 June 2013 were minimal with only one unit being affected by insolvency. There was one unit affected by the administration of Praktiker which expired last month and this had already been re-let to Hammer in advance of the lease expiry.

As part of our strategy to recycle capital over time into our UK Shopping Centre business, the property at Taufkirchen was sold in May 2013 for €6.1 million. We are now seeking to dispose of a much larger asset which will provide a benchmark to help determine our approach to future disposals.

FINANCIAL REVIEW

Key performance indicators

The key performance indicators we use to measure our performance against our strategy and objectives are:

1 See-through net debt divided by IFRS property value

2 June 2013 figures are proforma adjusted for debt repayment in July 2013 following the sale of Sutton Coldfield and Uxbridge. December 2012 figures are proforma, adjusted for £30.6 million X-Leisure proceeds received in January 2013.

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.

These were:

1 The Group increased the holding in The Mall from 20.15% to 20.33% during the six months to 30 June 2013

2 At 30 June 2013 this included £29.5 million of cash. At 30 December 2012 X-Leisure was shown at net realisable value of £32.2 million less related costs of £1.6 million.

Financing

The Group net debt to equity ratio increased marginally from 13% to 14%. A summary of the movements in Group and off balance sheet debt during the period is set out below:

Group debt

The breakdown of Group debt and net debt at 30 June 2013 was as follows:

1 Excluding unamortised issue costs

2 Debt and net debt divided by investment property at fair value and trading property at the lower of cost and net realisable value

3 In the case of variable rate loans, based on LIBOR at 30 June 2013 plus the appropriate margin

Group debt decreased by £1.1 million to £57.5 million at 30 June 2013 (30 December 2012: £58.6 million). The decrease was due to the receipt of £30.6 million proceeds from the sale of X-Leisure part of which was used to pay down the outstanding balance of £1.0 million drawn against the Group's revolving credit facility as at 31 December 2012. No further drawings have been made against that facility.

Off balance sheet debt

Off balance sheet debt, which is non-recourse to the Group, fell by £2.4 million to £260.9 million at 30 June 2013 (30 December 2012: £263.3 million) primarily as a consequence of debt repayments by The Mall from surplus operating cash balances. The breakdown of the Group's share of off balance sheet debt and net debt at 30 June 2013 was as follows:

1 Excluding unamortised issue costs

2 Excluding cash beneficially owned by tenants

3 Debt and net debt divided by investment property at fair value

Since 30 June 2013 The Mall has completed the sale of the shopping centres at Sutton Coldfield and Uxbridge. Following these sales The Mall has made a further debt repayment of £168 million (Group share £34.2 million) further reducing the total of the Group's see through debt to £226.7 million. The Mall's debt repayment reduces its debt to £379.5 million which increases the refinancing options and removes the restriction on distributions. 

Maturity analysis

The table below shows the maturity profile of the see-through debt and undrawn core credit facility at 30 June 2013:

In Germany, debt of €141.0 million matures around the end of 2013. We have agreed terms to refinance the properties funded by this debt for three years. We are currently working to finalise the legal documentation which we expect to complete shortly.

At Lincoln a six month loan extension has been agreed extending maturity to August 2015 along with a relaxation of covenants during the refurbishment of the scheme. This provides flexibility during the building works and facilitates time to assess our strategic options for this property once they have been completed.

Covenants

The Group and its associates and joint ventures were compliant with their banking and debt covenants at 30 June 2013. The forecast covenant tests for the Group's revolving credit facility indicate that there was sufficient headroom for the full £25.0 million facility to be drawn down at 30 June 2013.

Interest rate hedging

The majority of current borrowing, both at Group level and in The Mall and joint ventures, continues to be covered by interest rate swaps or caps. At 30 June 2013, the see-through valuation of the Group's swaps and caps was a liability of £8.6 million (30 December 2012: £14.4 million) which will not be crystallised unless the underlying contracts are closed out before their expiry date. During the period The Mall terminated swaps at cost of £1.4 million and a further £8.3 million cost was incurred by The Mall as a consequence of the debt repayment of £168.0 million in July 2013.

Cash distributions

The Group received total cash distributions of £0.5 million during the period from Garigal Asset Management.

Profitability

Recurring pre-tax profit

The increase in recurring pre-tax profit to £3.1 million from UK Shopping Centres compared to H1 2012 primarily reflects the acquisition of The Kingfisher Centre, Redditch in May 2012. The fall in recurring profit in Germany principally reflects the loss of income from portfolio 4 which was written off during 2012.

Profits from Property Management have decreased due to the reduction of fee income following the disposal in 2012 of The Junction and Braehead by the Group and the shopping centre in Norwich by The Mall.

The 29% improvement in Snozone recurring profit compared to H1 2012 reflects the continuing positive impact of the new management team since the beginning of 2012. Profits within Leisure have reduced due to the impact of higher interest charges following the refinancing of the debt on Great Northern in September 2012.

Profit before tax

As well as the recurring pre-tax profit discussed above, the other main factors behind the profit in the period were:

· A fall in property valuation of £5.4 million, mainly due to a fall in the value of The Mall of £4.9 million attributable to the loss of income due to the level of administrations in the first half and the sale of Sutton Coldfield and Uxbridge.

· The impairment of the Euro-B-note, reflecting a prudent assessment of the likely realisation from this investment which has deteriorated with the administration of one of the major occupiers of the underlying German property portfolio. As our core German portfolios were not exposed to this tenant, there has been no impact.

· The financial instruments revaluation reflects the movement in the valuation of the Group's share of see through interest rate hedging contracts owing to changes in future interest rate expectations and the reduction in duration as contracts get closer to maturity.

Tax

The tax charge was £0.4 million for the six months ended 30 June 2013 (30 June 2012: credit of £0.7 million). The tax credit in 2012 was primarily due to the successful conclusion of several UK historic tax matters which resulted in an overall prior year credit.

Property under management

Property under management fell due to a small decline in property valuations and the disposal of Sutton Coldfield and Uxbridge by The Mall.

1 Valuation excludes adjustments to property valuations for tenant incentives and head leases treated as finance leases and trading properties are included at the lower of cost and net realisable value. 30 June 2013 is proforma, adjusted for the disposal of Sutton Coldfield and Uxbridge in July 2013.

Property disposals

During May 2013, the German joint venture sold properties at Taufkirchen for €6.1 million.

On 15 July 2013, The Mall completed the sale of The Gracechurch Centre, Sutton Coldfield and The Pavilions, Uxbridge for a combined consideration of £152.5 million at net initial yields of 7.75% and 7.70% respectively.

Foreign currency exposure management

The Group uses a forward foreign exchange contract as a hedge of its net investment in the German joint venture. This is achieved through a contract for €37.6 million at a fixed exchange rate of 1.1617 which hedges 72% of the Group's German investment at 30 June 2013 and matures on 31 December 2013. At 30 June 2013 the carrying value of the contract was an asset of £0.1 million.

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, 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.

Dividend

The Board has reviewed the positive progress that the Group has made during the first half and, anticipating the resumption of distributions by The Mall, is announcing an interim dividend of 0.25p per share. The Group will operate a progressive dividend policy with dividends normally being covered by operational cashflow.

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

Outlook

We have a number of exciting and value enhancing asset management opportunities across the business. We are confident that the affordability and quality of the space at our assets will continue to attract tenants to our centres, and that we will leverage the ability of our skilled asset management teams to continue to perform strongly with the Company now focussed on executing its strategy for growth.

Improving investor sentiment for dominant community shopping centres and a receptive banking market provide a support background to the refinancing of The Mall's CMBS. Following the successful degearing of The Mall, it is expected to make further progress to put in place the appropriate longer term funding structure in the next six to nine months.

Hugh Scott-Barrett

Chief Executive

13 August 2013

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.

Principal risks and uncertainties

There are a number of risks and uncertainties which could have a material impact on the Group's future performance and could cause actual results to differ materially from expected and historical results. References to "the Group" include the funds and joint ventures in which Capital & Regional has an interest. 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. Property risks are also monitored at various levels within divisional management.

A detailed explanation of the principal risks and uncertainties was included on pages 24 to 26 of the Group's annual report for the year ended 30 December 2012. Those principal risks and uncertainties, which are summarised below, have not changed significantly in the period to 30 June 2013.

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 have a significant effect on the value of the properties owned by the Group 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.

· Threat from the internet - The trend towards online shopping may adversely impact consumer footfall in shopping centres. A change in consumer shopping habits towards online purchasing and delivery may reduce footfall and therefore potentially reduce tenant demand for space and the levels of rents which can be achieved.

· Valuation risks - In the absence of relevant transactional evidence, valuations can be inherently subjective leading to a degree of uncertainty. Stated property valuations may not reflect the price received on sale.

· Property management income risks - Fee income, although largely fixed, may still fall based on value of property under management and contracts allow for termination under certain circumstances which are largely outside management's control. Changes in property values, sales of properties or other events not wholly under management's control could result in a reduction in or the loss of property management income.

· Nature of investments and relationships with key business partners - The market for the Group's investments can be relatively illiquid and there are restrictions on the ability to exercise full control over underlying investments in joint ventures or fund structures. The inability to sell investments or fully control exit/asset sale strategies could result in investments in associates and joint ventures not being realisable at reported values.

Funding and treasury risks:

· Liquidity and funding - Inability to fund the business or to refinance existing debt on economic terms when needed may result in the inability to meet financial obligations (interest, loan repayments, expenses, dividends) 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.

· Foreign exchange exposure risks - Fluctuations in the exchange rate between sterling and the euro in respect of the Group's German joint venture and uncertainty over the Eurozone and the future of the Euro currency could adversely impact on sterling valuation of investments and income flows, and losses as a result of the Group having not, or not effectively, hedged its risk.

· 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:

· 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.

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

Hugh Scott-Barrett Charles Staveley

Chief Executive Group Finance Director

13 August 2013 13 August 2013

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 2013 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, 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 Services Authority.

As disclosed in note 2, 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 IAS 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 2013 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, UK

13 August 2013

Condensed consolidated income statement

For the six months to 30 June 2013

1 2012 results have been restated to separate discontinued operations.

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

Condensed consolidated statement of comprehensive income

For the six months to 30 June 2013

The total comprehensive income for the current and preceding periods is fully attributable to equity shareholders.

Condensed consolidated balance sheet

At 30 June 2013

Condensed consolidated statement of changes in equity

At 30 June 2013

Condensed consolidated cash flow statement

For the six months to 30 June 2013

Notes to the condensed financial statements

For the six months to 30 June 2013

1 General information

The information for the year ended 30 December 2012 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 does not suffer materially from seasonal fluctuations.

2 Accounting policies

Basis of preparation

The annual financial statements of Capital & Regional plc 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 IAS 34 "Interim Financial Reporting" as adopted by the European Union.

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 8 and 9 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 same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

3 Business segments

The Group's reportable segments under IFRS 8 are: The Mall, Other UK Shopping Centres (consisting of The Waterside Lincoln Limited Partnership and Kingfisher Limited Partnership (Redditch)), the German joint ventures, Leisure (consisting of Great Northern Warehouse), Property Management (consisting of CRPM and Garigal Asset Management GmbH) and Snozone. Group items include Group overheads incurred by Capital & Regional plc and other subsidiaries and the interest expense on the Group's central borrowing facility.

Following their disposal, the Group's share of results in the prior year from The Junction Fund, Xscape Braehead, X-Leisure Fund and X-Leisure Limited have been reclassified as Discontinued Operations, consistent with the presentation at the December 2012 year end. Similarly as detailed in Note 13 the results of Hemel Hempstead have been reclassified as Discontinued Operations in the current year with the prior year and interim periods restated. In the prior year the results of FIX UK, until the loss of significant influence were included within 'Other'.

The Mall, Other UK Shopping Centres, Germany and Leisure derive their revenue from the rental of investment and trading properties. The Property Management and Snozone segments derive their revenue from the management of property funds or schemes and the operation of indoor ski slopes respectively.

3 Operating segments

3 Operating segments (continued)