Capital & Regional Regulatory News (CAL)

13 November 2014

Capital & Regional plc

(the "Company" or the "Group")

Interim Management Statement

For the period from 1 July 2014 to 12 November 2014

SIGNIFICANT PROGRESS IN DELIVERY OF STRATEGIC OBJECTIVES CONTINUES WITH SUCCESSFUL DISPOSAL OF WATERSIDE LINCOLN

Capital & Regional plc, the specialist community shopping centre owner, today announces its interim management statement for the period from 1 July 2014 to 12 November2014 and the sale of the Waterside Shopping Centre Lincoln, in which the Group has a 50% interest, for £46.0 million.

During the period, the Company has seen significant progress in meeting its stated aim of becoming the UK's leading Community Shopping Centre REIT, actioned through the disposal of non-core assets and the restructuring of the ownership of the Mall Fund (the "Mall"). There has also been strong operational progress, with a number of new lettings secured and footfall across the UK shopping centre portfolio outperforming the national index.

Highlights

· Sale of the Waterside Shopping Centre Lincoln to Tesco Pension Fund for consideration of £46.0 million at net initial yield of 5.88% realising cash proceeds to C&R of £15.7 million including performance fees

· 2.5% increase in Mall shopping centre valuations, as at 30 September, supported by 0.5% rise in valued income during Q3

· Q3 year-on-year occupancy up 1.3% to 94.7% with footfall up 1.8%

· Ownership of the Mall increased to 99.5%, and agreement in principle to acquire the remaining minority interest, paving the way for the restructuring of the Fund

· Amendment of the Mall debt facility to £380 million completed on 3 November

· Transformational £60 million capex plan underway across UK portfolio

· On track for REIT conversion in December 2014 with shareholder circular to be published shortly

Hugh Scott-Barrett, Chief Executive, commented:

"This quarter has been one of significant progress as we work steadily towards building Capital & Regional into the leading UK Community Shopping Centre REIT. The amendment of The Mall debt facility and the acquisition of all of the remaining minorities will provide us with the operational flexibility to leverage our recognised asset management capabilities to generate strong returns and NAV growth. We expect leasing activity to support growth in net rental income in 2015. The success we have achieved with Lincoln since its acquisition in 2011 not only demonstrates our ability to add value to our assets, but also our ability to crystallise that value through a timely and profitable sale. The sales price achieved in Lincoln confirms our positive outlook for further increases in property values during Q4. The disposal of this non-core asset is also in line with our strategy and objective to meet our medium term LTV target of 40-50%.

"This is a truly transformational time for Capital & Regional and our immediate focus now is on completing the restructure of The Mall and achieving conversion to REIT status next month, while continuing to enhance our portfolio by progressing the asset management initiatives that we have identified."

Strategic objectives

Restructure and take ownership of the Mall Fund

Following our acquisition of the Aviva and Karoo stakes in the Mall in July 2014, seven of the eight minority investors have now agreed to redeem their units and the remaining unitholder has agreed terms to be bought out. As a result, the Group will own 100% of the Mall. The acquisition of these units was primarily funded via a restructuring of the Mall's debt facility through the conversion of a £350 million term loan with a £25 million capex facility into a £380 million term loan on 3 November 2014.

We are now able to push ahead with our plans to restructure the Fund and progress the asset management initiatives we have identified and started to roll out across our portfolio.

Progress in sale of non-core assets

The Group remains focused on recycling capital from its non-core assets to reinvest into its core UK shopping centre business and to reduce leverage from the H1 see-through LTV of 55% to a medium term target range of 40-50%.

This is demonstrated by the successful sale of the Waterside Shopping Centre, Lincoln which realised cash of £15.7 million for the Group. This sale follows the disposal of Lübeck Retail Park, Germany in May of this year.

In Germany, negotiations and due diligence on the sale of assets are well advanced with the Group continuing to pursue opportunities to accelerate the disposal of the whole portfolio.

Delivery of development and asset management initiatives

As outlined in our half year results and covered in detail at our recent capital markets day, the Group has £60 million of capex planned for investment in The Mall portfolio over the next five years. Key value enhancing initiatives include:

· the refurbishment and extension of The Mall, Walthamstow including the addition of residential accommodation;

· the refurbishment of The Mall, Maidstone;

· the introduction of a supermarket and residential accommodation, the relocation of the market hall and unit reconfiguration at The Mall, Wood Green; and

· the creation of a supermarket and office refurbishment at The Mall, Luton.

REIT conversion in December 2014

As previously announced, the Group intends to convert to a REIT on 31 December 2014. Obtaining REIT status will further enhance both the Group's ability to generate an attractive dividend yield and its appeal to a wider, more international shareholder base.

A Shareholder Circular will be sent out shortly seeking shareholder consent to convert to a REIT on 31 December 2014.

Operating performance

The Group's portfolio has shown strong operational performance with year-on-year increases in occupancy and footfall. The metrics in this section exclude Lincoln, following its disposal on 12 November 2014.

Disposal of Waterside Centre Lincoln

On 12November 2014, the Group and its JV Partner, Karoo, sold the Waterside Shopping Centre Lincoln to Tesco Pension Fund Trustees for a net consideration of £46.0million representing a net initial yield of 5.88%. The centre was acquired in February 2011 for £24.8 million and was remodelled to increase the lettable area. The disposal price represents a return to the Group of 20% IRR. The Group will use most of the £15.7 million proceeds used to repay central borrowings.

Asset management and development

At Walthamstow, the £3 million refurbishment is progressing well, with minimal disruption to retailers or customers and footfall has remained strong. In anticipation of the improved environment, Arcadia has completed a 5,000 sq ft letting, incorporating an attractive double height glazed shop front onto its new Dorothy Perkins/ Burton store. The 26,500 sq ft TK Maxx and 11,500 sq ft Sports Direct lettings have also become unconditional and delivery of those units is expected in November and March 2015 respectively. Progress continues with the proposed extension, with a revised design in response to the increased demand for residential property in the locality. We are now working in partnership with the London Borough of Waltham Forest to deliver a planning application in 2015.

Our plans for the refurbishment of The Mall Maidstone are progressing with design finalised and tenders to be issued shortly. We have submitted a planning application for entrance works associated with the refurbishment and expect to start on site in Q1 2015. Alongside this, we have refined plans for a combined leisure and retail extension to the scheme and are working with the local authority with the intention of submitting a planning application in 2015.

In Camberley, steady progress is being made with our development plans. The site remains at the heart of a wealthy catchment with excellent accessibility from the M3 and, in partnership with Surrey Heath Borough Council, we are working with our preferred anchor to reach agreement on this highly deliverable development.

At Wood Green, we have agreed commercial terms with a national supermarket operator and are moving towards an agreement for lease, while also working to leverage the strong residential opportunity this site affords.

In Redditch, our strategy which aims to improve the retailing and customer environment is progressing well. The refresh of the central square will be completed by the year end and the second phase of sight line and elevation enhancements to the prime fashion mall will be completed by Easter 2015. This investment is resulting in increased retailer interest with new leases signed with Costa Coffee and Swarovski and ongoing discussions with a number of fashion and catering retailers across the scheme.

Mall property valuations

A valuation of The Mall portfolio, as at 30 September 2014, resulted in a 2.5% or £17.8 million increase to £723 million over the third quarter. This reflects a 0.5% increase in valued income during quarter and net initial yield compression of 12 basis points to 6.36%.

New lettings, renewals and rent reviews

1 For lettings which did not include an element of turnover rent

Leasing progress has continued strongly in the third quarter and, adjusted for one tactical letting, was achieved at rents in advance of ERV. There were a number of significant lettings across the UK retail portfolio including:

· Poundland signed a new 10 year lease at The Mall Luton for a 10,500 sq ft unit;

· Vodafone signed two new leases for units of around 2,000 sq ft each at The Mall Wood Green and The Mall Blackburn for 10 and five year terms respectively;

· At The Mall Blackburn, Warren James and Equivalenza also took units totalling 2,500 sq ft, formed from the split of a poorly configured unit, and tReds took a 10 year lease of a 2,700 sq ft unit;

· As reported earlier the 11,500 sq ft Sports Direct and 26,500 sq ft TK Maxx lettings at Walthamstow have become unconditional and this space will be handed over to these tenants in 2015.

· Costa Coffee took a 10 year lease as part of a relocation to a new, larger store within The Mall Camberley, where Jones the Bootmaker also signed up for a 10 year term on a 1,500 sq ft unit;

· Providing further improvement to the fashion offer at Redditch, since 1 October 2014 a Swarovski franchisee has signed a 10 year lease of a 600 sq ft unit and West Coast has taken a five year lease of a 1,200 sq ft unit.

Footfall

Across our UK Shopping Centres, with Blackburn rebased to reflect the relocation of the bus station, footfall has outperformed the national index by 2.0% for the nine months to 30 September 2014 on a like-for-like basis relative to the same period in 2013. Footfall has increased across the whole portfolio by 1.8% compared to a 0.2% fall in the benchmark, reflecting the sustainable and strong attraction of our community shopping centres to consumers.

Occupancy levels

The year on year increase in occupancy of 1.3% reflects the strong level of letting activity and a robust ability to retain tenants at lease renewal.

Administrations

The level of tenant failures has been low across the UK retail portfolio and has generally affected smaller tenants who typically trade out of one or two units. The exception to this trend was the widely reported Phones 4U insolvency in the third quarter, which involved six units with a passing rent of £0.5 million. Three of the Phones 4U units are covered by a guarantee which is being pursued and a further unit is expected to be assigned to a new occupier shortly. The two remaining units are currently being marketed.

In addition, one of the units which entered administration in Q3, with passing rent of £0.2 million, remains open and trading. There are no other units in insolvency still trading.

There were no tenant administrations in the German portfolio during the quarter.

Rental income

In the UK Shopping Centre portfolio, contracted rent has decreased marginally during the year primarily as a result of the Phones 4U insolvency.

The German portfolio continues to perform consistently well with occupancy of 98.2%.

Financing

The re-financing of the Mall's £379 million CMBS was completed in May 2014 and £350 million was drawn down. The facility was amended on 3 November 2014 to increase the facility by £5 million and to convert the undrawn £25 million capex facility to a term loan. The amendment will increase the interest rate margin by 20 bps across the £380 million facility, meaning that on draw down the cost of debt would be 3.45% based on current three month LIBOR. The £30 million additional debt has been hedged by way of an interest rate cap with a strike rate of 2.25%.

The additional £30 million has been drawn down and will be used to fund the redemption of the minority unitholders in The Mall. Following this drawdown, the LTV of The Mall will be 52.6% based on the 30 September 2014 valuation.

At 30 September 2014 the Group had drawn down £36.7 million under its revolving credit facility.

- ENDS -

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 £1.2 billion portfolio, primarily in town centre shopping centres.

Capital & Regional is the principal investor and Property and Asset Manager for the Mall Fund.

Capital & Regional & Ares Management (formerly known as AREA Property Partners) each hold a 50% interest in a German retail property portfolio.

Capital & Regional has a 20% joint venture interest in the Kingfisher Centre in Redditch. 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 Capital & Regional's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental 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. Capital & Regional 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.