Capital & Regional Regulatory News (CAL)

8 November 2013

Capital & Regional plc

Interim Management Statement

For the period from 1 July 2013 to 7 November 2013

OPERATIONAL PROGRESS AND ASSET MANAGEMENT INITIATIVES POSITION PORTFOLIO FOR GROWTH

Capital & Regional plc, the specialist retail property company today announces its interim management statement for the period from 1 July 2013 to 7 November 2013.

Highlights

The key events during the period were:

· Completion of the sale of Great Northern Warehouse for £71.1 million realising net cash of £11.9 million and removing all remaining debt from the Group balance sheet

· Debt repayment of £168.0 million by The Mall from sale of Sutton Coldfield and Uxbridge reducing its gross LTV to 56%, enabling the recommencement of distributions and increasing the options for refinancing

· UK Shopping Centre portfolio valuations remain stable, but improved market sentiment and asset management initiatives expected to deliver positive momentum in Q4 and 2014:

− On track to deliver the £9.0 million reconfiguration at Lincoln and the creation of the new leisure hub at Redditch. Construction has commenced at both centres while other key development projects within the UK Shopping Centres portfolio are progressing well

− New lettings momentum continued, with 19 completed during Q3 within UK Shopping Centres, adding £1.3 million of rental income per annum in aggregate and driving year-on-year contracted rent up by £0.3 million. This brings the total for the nine month period to 46 with a total headline rent of £3.4 million per annum, 2.8% ahead of ERV.

Hugh Scott-Barrett, Chief Executive, commented: "The sale of the Great Northern Warehouse leisure scheme was an important step forward in Capital & Regional's strategy of concentrating on our core UK shopping centre business.

"Our portfolio of dominant community shopping centres has continued to perform well and we expect income to grow as we deliver asset management initiatives, such as those at Lincoln and Redditch, across our properties. It is particularly encouraging to see further evidence of upsizing by retailers in our schemes. We believe that the hard work undertaken by our specialist asset management teams and the more favourable market conditions we are experiencing will lead to enhanced performance and valuations across the portfolio."

Operating performance

UK Shopping Centres

New lettings, renewals and rent reviews

During the third quarter there has been a good flow of new lettings:

At Redditch, good progress has been made following the 15,000 sq ft letting to Pure Gym, with agreements for lease completed with Nandos and Real China in the new leisure hub. Construction works to create these units have commenced, with handover expected in early 2014. Strong offers have been received from other leisure operators, which we expect to convert into lettings in due course.

In Camberley, TK Maxx has now opened its new 20,000 sq ft store on a 15 year term. Two new 10 year lettings have been completed at Blackburn with Schuh and Toymaster for a total of 7,000 sq ft.

At Walthamstow, Clinton Cards has signed a 10 year lease on a 1,100 sq ft unit and, since the end of the period under review, a 10 year lease has been signed with Sportsdirect for a new upsized unit of 11,500 sq ft.

During the quarter we also completed two lease renewals and four rent reviews, which were not material.

Occupancy levels

Occupancy has been stable during Q3, and is expected to increase by the end of the year as a result of the pipeline of deals currently in solicitors' hands.

Rental income

Contracted rent has risen £0.3 million year on year despite the impact of administrations during the first half of the year.

During the quarter, passing rent would have increased by £0.1 million and contracted rent would have increased by £0.3 million, but for two asset management initiatives targeting longer term income growth. These were in Lincoln, where we took a surrender of two leases for a net premium, and in Redditch, where Poundland was relocated as part of our strategic plan.

Asset management and development

Progress continues to be made in advancing asset management initiatives across the portfolio.

The £9 million reconfiguration of the Lincoln scheme is progressing well. The extended New Look unit has been handed over and construction work on the H&M and Next units totalling 52,000 sq ft is on schedule. The handover of these units is expected in the first half of 2014. In addition, strong interest is being shown in the remaining units under development.

At Camberley, we have submitted a "key vision" document to the local authority and the intended anchor tenant, giving further clarity to the design and impact of our proposed extension and refurbishment of the scheme. We have also held public consultation meetings which have been positively received.

In Walthamstow, we are in detailed negotiations with a national fashion retailer to create a 26,000 sq ft anchor store through the amalgamation of a number of units with part of the car park. We are also developing broader plans to refurbish and update the existing scheme. Design concepts have been evolved during the year and we are now proceeding with detailed design with a view to implementing the refurbishment in 2014. The council has agreed to fund its share of the refurbishment works and is supporting our plans for an extension of the scheme in the longer term.

Administrations

The level of administrations has dramatically declined as the year has progressed and the impact as measured by the affected passing rent is less than half of that experienced at the same point in 2012, on a like for like basis. At the end of Q3 there were four insolvent units still open and trading with passing rent of £0.2 million.

There were no further retailer insolvencies in the UK Shopping Centre Business during October 2013.

Footfall

Footfall across the portfolio (excluding Lincoln, due to redevelopment) is 0.5% ahead of its benchmark index for the 10 months to the end of October 2013, with a 3.0% reduction in shopper numbers compared to a 3.5% decline in the index.

Cash collection

Rent collection rates in our UK Shopping Centres (adjusted for tenants in administration) continue to be strong, with 96.8% of rent and service charge being paid within 14 days of the due date.

Germany

Our strategy in Germany is to re-gear tenants' leases to maintain the length of unexpired lease terms which, in conjunction with our on-going asset management initiatives, will improve the marketability of the assets. During the quarter we have made three new lettings at Herne. We have also achieved lease extensions in six units which have maintained our weighted average lease length over the quarter.

There were two administrations in the German portfolio during the third quarter. As reported in our interim results, one unit was affected by the Praktiker administration, but the lease was expiring and the unit had been re-let to Hammer in advance of expiry as result of active management of the Praktiker credit risk. The rent of the other unit in administration is not material and we are seeking possession of it.

Since the end of the quarter, Woolworths has taken a five year lease at Heide.

In our interim results we announced that a large German asset was being marketed for sale. Since then, we have received strong interest from a number of domestic and international parties. This confirms that there is a good appetite for this type of food-anchored retail asset. A further announcement will be made, as appropriate, in due course.

Finance

Fund and property valuations

On 15 October 2013, the Group announced the third quarter valuations for The Mall which showed valuations remaining stable at £676.0 million. We expect future valuations to benefit both from additional rental income deriving from our own asset management initiatives as well as an improvement in market sentiment for the strong secondary assets that we own.

Further details are contained in the fund valuation announcement made on 15 October 2013.

Disposals

On 31 October 2013, the Group completed the sale of Great Northern Warehouse for initial cash consideration of £71.1 million. The Group is entitled to further deferred consideration resulting from the installation and letting of a digital media screen at the property.

Taking into account the deferred consideration and the deduction of rent free top ups, the Group expects the total consideration receivable to be close to the £72.5 million valuation of the property as at 30 June 2013. Debt totalling £57.4 million with an LTV of 79% has been removed from the Group's balance sheet as a consequence of the sale.

The Mall sold The Gracechurch Centre, Sutton Coldfield and The Pavillions, Uxbridge in July 2013 for combined consideration of £152.5 million at a net initial yield of 7.73%. The Mall used the net proceeds and other cash resources to repay debt of £168.0 million, leaving outstanding debt of £379.5 million at 30 September 2013. The gross LTV of The Mall has been reduced following these disposals from 66% to 56%.

In our interim results we announced the conditional sale of Jarman Fields, Hemel Hempstead. The long stop date for meeting all of the conditions is 31 January 2014. We have been able to secure vacant possession of the property and have completed the documentation of eight lease for agreements with tenants. Discussions are continuing on a further three agreements which we expect to be agreed by the end of November. In addition, there is an outstanding consent to be obtained from the council, which is also expected this month.

Financing

Following the sale of Great Northern Warehouse, the Group has no outstanding debt on its balance sheet. The Group had £39.3 million in cash at 31 October 2013 and its £25 million revolving credit facility remains undrawn and fully available.

In Germany, the refinancing of €141.0 million of debt which matures around the year end has been agreed with a single funder for a three year term. Finalisation of the legal documentation is expected by the end of November.

- 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 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.

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 Company's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Company 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 Company should not be relied upon as a guide to future performance.