CAPC.L Regulatory News (CAPC)

25 JULY 2019

LEI: 549300TTXXZ1SHUI0D54

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION

FOR IMMEDIATE RELEASE

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

CAPITAL & COUNTIES PROPERTIES PLC ("CAPCO")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2019 

Continuing rental income growth and intention to demerge Covent Garden as a central London focused REIT

Henry Staunton, Chairman of Capco, commented:

"Capco has achieved significant growth since listing in 2010. Covent Garden in the heart of London's West End is now of considerable scale, valued at over £2.6 billion with an attractive long-term income profile. At Earls Court we have created one of London's most important development opportunities. Against this successful execution of strategy for both assets, the Board has considered the structure of the Group and believes that a separation of Covent Garden and Earls Court is in shareholders' interests and offers significant benefits. As two distinct and focused businesses, with experienced management and growth prospects, Covent Garden and Earls Court can pursue independent strategies to deliver long-term shareholder value."

Ian Hawksworth, Chief Executive of Capco, commented:

"Through the successful execution of our strategy, we have created two fantastic estates that could now stand alone as strongly positioned independent businesses. I am delighted that the Board's long-term ambition of seeing Covent Garden become a focused REIT is reaching fruition. Having assembled a remarkable portfolio, the business is now of a scale and quality to perform and grow in one of the world's most exciting real estate markets, the West End in Central London and is well-positioned for continued long-term success.

At Earls Court, we have created one of London's most important mixed-use development opportunities, which has the ability to evolve with market dynamics and bring forward much needed homes for London. Separation of the two estates would enhance strategic flexibility, and allow each business to pursue independent strategies and deliver long-term value for our shareholders."

Key financials

- Equity attributable to owners of the Parent £2.6 billion (Dec 2018: £2.7 billion)

- EPRA NAV declined by 3.3 per cent to 315 pence per share (Dec 2018: 326 pence per share)

- Total property value of £3.2 billion, a decrease of 2.0 per cent (like-for-like) (Dec 2018: £3.3 billion)

- Proposed interim dividend of 0.5 pence per share (Jun 2018: 0.5 pence per share)

Covent Garden continued income growth and reversion capture

- Covent Garden total property value of £2.6 billion, 0.5 per cent increase (like-for-like) (Dec 2018: £2.6 billion)

- Net rental income up 7.0 per cent (like-for-like) or 9.8 per cent in absolute terms against June 2018

- Positive operational momentum; 40 new leases and renewals 2 per cent above December 2018 ERV

- ERV increased by 1.0 per cent (like-for-like) to £108 million (Dec 2018: £108 million)

- Positive trading environment, increase in footfall and tenant sales

- Continuing to attract high quality brands

- High occupancy, renewal rates and strong demand for office and residential portfolio

Earls Court investments

- Earls Court interests valued at £599 million, a decrease of 11.5 per cent (like-for-like) (Dec 2018: £658 million)

- Ongoing operational progress on ECPL land with railway track suppression works progressing on schedule

- ECPL land available for development; ongoing interest from potential investors and occupiers

- Lillie Square Phase 2 construction continues on schedule with first handovers expected in H1 2020

Strong financial position with significant financial flexibility

- Group loan to value ratio of 19 per cent (Dec 2018: 18 per cent)

- Group undrawn facilities and cash of £845 million (Dec 2018: £854 million)

- Capital commitments of £49 million (Dec 2018: £53 million)

- Weighted average debt maturity of 5.5 years (Dec 2018: 6.0 years)

- Weighted average cost of debt of 3.0 per cent (Dec 2018: 2.9 per cent)

Intention to proceed with the demerger

- Intention to launch Covent Garden as a central London focused REIT through demerger from Capco

- Through successful execution of strategy, Capco has created two central London estates that could now stand alone as independent businesses, Covent Garden London and EC Properties

- Covent Garden is now of a scale and income profile to be strongly positioned as a central London focused REIT

- EC Properties aims to optimise and realise the value of its Earls Court land interests over time

- There has been a broad range of interest in Earls Court and in assessing proposals from interested parties, the Board focuses on value and deliverability

- Indicative pricing received is at a range of discounts to the balance sheet value and the proposals are subject to differing levels of further due diligence and a number of conditions, including third-party rights

- No certainty that this will result in a sale transaction

- The Board believes that separation of the two businesses is in shareholders' interests and therefore intends to proceed with the demerger

- Capco expects to publish shareholder documentation in September 2019

- Completion of demerger, subject to shareholder approval, anticipated before the end of 2019

ENQUIRIES

Capital & Counties Properties PLC:

Media enquiries:

A presentation to analysts and investors will take place today at 09:00am at UBS, 5 Broadgate, London, EC2M 2QS. The presentation will also be available to international analysts and investors through a live audio call and webcast and after the event on the Group's website www.capitalandcounties.com.

A copy of this announcement is available for download from our website at www.capitalandcounties.com and hard copies can be requested via the website or by contacting the Company (feedback@capitalandcounties.com or telephone +44 (0)20 3214 9814).

Person responsible:

The person responsible for arranging the release of this announcement is Ruth Pavey, Company Secretary.

https://senspdf.jse.co.za/documents/2019/jse/isse/CCO/25July2019.pdf

FINANCIAL HIGHLIGHTS

1. On a Group share basis. Refer to Property Data on page 48 for the Group's percentage ownership of property.

2. On a Group share basis. Refer to note 2 "Segmental Reporting" on page 29.

3. Refer to Consolidated Underlying Profit Statement on page 50.

Intention to proceed with the demerger

Capco today announces as detailed in a separate statement, its intention to launch Covent Garden as an independent central London focused REIT through its demerger from Capco.

Capco's strategy is focused on driving long-term value creation. Since listing in 2010, the Company has realised significant value from various investments and allocated capital to the growth of Covent Garden. Both businesses now have different risk and reward profiles. The scale and changing income profile of Covent Garden as well as the ECPL land being available for development have been taken into account by the Board in determining to proceed with a demerger of Covent Garden. 

There has been a broad range of interest in Earls Court expressed to the Company and its financial advisers. In assessing proposals from interested parties, the Board focuses on value and deliverability. The indicative pricing received is at a range of discounts to the balance sheet value and the proposals are subject to differing levels of further due diligence and a number of conditions, including third-party rights.

There is no certainty of a sale transaction. The Board believes that separation of the two businesses is in shareholders' interests and is therefore announcing today its intention to proceed with the demerger.

Separately a number of expressions of interest have been received, including from institutional capital, to participate in development of the Earls Court Partnership Limited ("ECPL") land.

Covent Garden and Earls Court are two central London estates with positive long-term growth prospects. 

Covent Garden is a highly attractive and globally recognised destination for occupiers and consumers. This world-class estate has a rich heritage, situated around the historic Covent Garden Market Building and Piazza, adjacent to the iconic Royal Opera House. The carefully accumulated group of assets provides a source of long-term growth in income and capital value. Capco's distinct approach to rigorous asset management and strategic investment continues to attract target brands and experiences to meet evolving consumer demand. Covent Garden aims to deliver long-term sustainable returns underpinned by driving rental growth and securing income from its mixed-use estate in London's West End.

Earls Court represents one of the most important opportunities to deliver a large-scale, mixed-use development to meet London's evolving needs. Earls Court has a highly attractive location in an established and desirable part of central London with excellent connectivity and limited competing supply. The majority of the site already benefits from a detailed planning consent. Earls Court is a key strategic scheme for the capital, providing the opportunity to create much needed new homes, jobs and additional benefits for London. EC Properties aims to optimise and realise the value of its Earls Court land interests over time, by facilitating delivery of the Masterplan through the introduction of third-party capital.

Capco intends to publish shareholder documentation, and hold management presentations, in September 2019, with completion, subject to shareholder approval, anticipated before the end of 2019.

Outlook

London continues to demonstrate its status as a truly global city with high levels of visitor numbers and strong consumer spending relative to the rest of the UK; the macroeconomic and political environment remains uncertain and could further impact the property market.

Through the successful execution of our strategy over the past nine years, at Covent Garden and Earls Court we have created two central London estates that could each now stand alone as strongly positioned independent businesses, with positive long-term growth prospects.

Covent Garden is a world-class mixed-use estate. Its scale and attractive income profile now position the business for continued long-term success and growth as an independent REIT based in the heart of London's West End. Capco's creative approach and emphasis on the consumer ensures the estate continues to thrive and is well-positioned to deliver further rental growth and capture its reversionary income. Capco will continue to invest strategically in assets which offer value creation opportunities, with the southern part of the estate in particular offering a number of significant growth prospects.

Earls Court is one of the most important mixed-use development opportunities in London. The ECPL land, which represents Capco's principal investment in Earls Court, is available for development. Whilst the environment for large-scale residential development remains challenging, the level of interest being shown in the land suggests that capital is available to support activity on site. Earls Court has the ability to adapt to the dynamics of the market and to bring forward much needed new homes for London.

Covent Garden and Earls Court are two strongly positioned estates, both of which have positive long-term growth prospects.

Backed by a strong balance sheet, with low leverage and significant levels of liquidity, Capco is well-positioned to create two independent businesses with appropriate capital structures. Separation of the two assets would enhance strategic flexibility, allowing each business to pursue independent strategies to deliver long-term value for shareholders.

OPERATING REVIEW

Valuations

The total property value of the Group decreased by 2.0 per cent (like-for-like) in the period to 30 June 2019 to £3.2 billion.

The valuation of Covent Garden has risen by 0.5 per cent (like-for-like) to £2.6 billion, driven by ERV growth of 1.0 per cent achieved over the period. The equivalent yield remains unchanged at 3.6 per cent, reflecting the independent valuer's view of the strength of demand for central London retail investments. The performance of retail and dining operators in the West End of London has proved to be more resilient in general than the wider UK market, although this does vary by area with signs of weaker rents and values in certain sub-markets.

The valuation of Earls Court Properties was £599 million, representing a decrease of 11.5 per cent (like-for-like). The independent valuer made adjustments to the gross development value, the cost of delivery and the developer's margin, resulting in a net decline of 15.9 per cent for ECPL.

1. Valuation change takes account of amortisation of tenant lease incentives, capital expenditure, fixed head leases and unrecognised trading surplus.

2. Represents the Group's 63 per cent interest in ECPL.

3. Represents the Group's 50 per cent share of the Lillie Square joint venture.

4. A reconciliation of the carrying value of investment, development and trading property to the market value is shown in note 11 'Property Portfolio' within the condensed consolidated financial statements.

COVENT GARDEN

A world-class retail and dining led destination

Covent Garden is a carefully assembled portfolio in the heart of London's West End, comprising retail, dining, leisure and cultural space complemented by high quality offices and residential apartments. Covent Garden is established as an exceptional mixed-use portfolio of approximately 1.2 million square feet of lettable space, across 79 buildings and 526 units. The assembly of such an estate in central London has been delivered through disciplined investment over time. Ownership of these assets has enabled Capco to build significant scale and embed its strategy for the estate.

The emphasis on the customer ensures that the estate thrives as a leading destination for Londoners, domestic and international visitors as well as office workers and residents, attracting over 40 million visitors a year. The area is now home to a vibrant mix of luxury and contemporary, global and British brands including Apple, Balthazar, Bucherer, RedFarm, Peloton and Tiffany & Co.

Despite the challenging national economic and retail backdrop, Covent Garden continues to deliver rental growth and capture income. The increasing significance of online purchases by consumers and the evolving omni-channel sales strategies pursued by retailers underpins the importance for brands in choosing leading global destinations. Covent Garden offers retailers and visitors a differentiated experience in a managed estate environment. 

During the period to 30 June 2019, 40 leasing transactions including new leases and renewals representing £13.0 million of annualised rental income were transacted at 2.0 per cent above 31 December 2018 ERV. Net rental income was £31.1 million for the first half of the year, up 7.0 per cent (like-for-like) or 9.8 per in absolute terms compared to June 2018.

The value of the estate increased by 0.5 per cent like-for-like to £2.6 billion. The ERV of the estate has increased by 1.0 per cent like-for-like to £108 million. Occupancy on the estate remains high at 97 per cent and NRI growth continues to outperform ERV growth as the reversionary income potential of the portfolio is captured. Both tenant sales and footfall have recorded positive growth during the period.

Retail

The West End offers greater insulation from the well-documented wider retail challenges and whilst not immune, Capco's thoughtful approach to brand selection which contributes to driving rental tones and income growth, is central to management of the estate. High quality footfall locations are key to retailers when choosing locations around the world. The success of Capco's approach to date is demonstrated through many brands choosing Covent Garden to be their flagship, first or only London presence. 

Apple recently confirmed Covent Garden as one of its top global locations, by carrying out an extensive refurbishment on this flagship store, and during the period Apple has agreed to extend its lease, resulting in its occupation for a further 15 years. This underlines the importance of the Covent Garden location for global brands and the positive trading prospects of the estate. 

Polo by Ralph Lauren is the latest brand to agree terms to open on King Street and French luxury sportswear brand Lacoste opened a new store on James Street. These additions continue to position Covent Garden as one of London's best retail destinations offering a wide range of high quality brands.

The luxury retail operator Bucherer has agreed terms to upsize its offering to a more prominent flagship store within the Royal Opera House Arcade with an increased floor plate. Bucherer's re-location builds on the ongoing strategic positioning of the arcade as a premium shopping location.

Strong demand for the Market Building continues; new leasing deals were agreed with premium retailer Happy Socks, an international brand with stores in LA and Tokyo among other major cities. In addition eyewear brand For Art's Sake opened its first standalone retail store in the Market Building.

Parisian womenswear brand ba&sh will open a flagship store on King Street in the coming months. American casual men's apparel brand, Untuckit, has agreed terms to open on Long Acre. This retailer originated online and this will be its first physical store in the UK.

Repositioning of Floral Street continues with US ethical fashion brand Free People opening its first permanent store outside of the US at 28 Floral Street. Fitness technology company Peloton continues its fit out of its European flagship training studio over four floors, and will live-stream classes to members worldwide.

Dining

Capco has turned Covent Garden into one of the best dining destinations in London. The estate now offers differentiated dining experiences, from casual to premium. The estate's transformation has been very well received and recognised by consumers, with the restaurants generally reporting growth in turnover in contrast to well documented issues experienced in the broader UK market. 

Adding to the depth and quality is the latest signing on Floral Street, Dominique Ansel Bakery, the café responsible for inventing the Cronut and bringing it to London. The new bakery will anchor the western end of Floral Street, which continues its ongoing repositioning.

Emirati café concept, Mlkcake by Gossip has agreed terms to open its first permanent UK site within the Market Building. The letting follows its successful pop-up in the summer of 2018. Santa Nata, which specialises in authentic Portuguese custard tarts opened on Russell Street and Italian-style boulangerie VyTA Santa Margherita opened in the Market Building offering all-day dining on the Piazza.

Wahlburgers, the casual dining burger restaurant and bar, has opened its first restaurant outside the US on James Street, offering a menu of quality American food.

Capco continues to work closely with retail and dining brands as well as cultural partners to introduce engaging consumer events and provide ancillary revenue opportunities. This year this has included the PIMM's Bar and popular Wimbledon Screening Experience on the East Piazza, which featured a large astroturf screen complete with deck chairs and PIMM's stand.

Acquisitions and developments

Capco's ownership of the estate continues to expand, and 39-40 Bedford Street was acquired for £13.2 million. This presents a repositioning opportunity on an important entrance to the estate. There are a number of further properties on or around the estate being tracked for acquisition and repositioning opportunities.

Capco continues to review proposals for the Wellington block, a scarce island site in central London with various planning consents in place across multiple uses including office on the upper floors with retail and restaurants on ground floor as well as consent for a 83-room hotel. Capco has submitted a planning application to increase the number of rooms to 146 and to introduce a rooftop bar with determination expected over the coming months.

Offices

Covent Garden has become a prime office location underpinned by the appeal of the overall place and its excellent connectivity. Covent Garden has a contemporary office portfolio offering both multi-tenanted and single occupancy workspace. The portfolio continues to attract professional services, creative industries and SMEs with high occupancy rates. Office space represents 14 per cent of the portfolio by value. 

A number of office lettings have been achieved during the period most notably the letting of 22 Long Acre to global co-working space provider WeWork. The opening of WeWork on Long Acre is an important addition to the already thriving office community in the area.

In addition, Peloton has chosen Floral Street for its London offices, extending its lease to cover approximately 4,000 square foot of office space taking its total floorplate to 23,000 square foot in total including the retail component.

Residential

The residential for lease portfolio is performing very well. There is positive demand across the estate, with a high rate of renewals recorded above previous passing rent.

Demand for the new build residential collection at Floral Court has been very positive. Residents are attracted to the distinctive product, iconic location and personalised services available. The product has recently been named 'Best London Home - Under 100 units' at the Evening Standard Awards 2019. A successful sales programme has resulted in 24 of the 29 apartments being sold to date, generating £69 million of gross sales proceeds. 

EARLS COURT PROPERTIES

One of London's most important development opportunities

At Earls Court Capco has created one of the most important opportunities to deliver a large-scale, housing led, mixed-use development to meet London's evolving needs. Earls Court has a highly attractive location in an established and desirable part of central London with excellent connectivity and limited competing supply. Located within two London Boroughs, the Royal Borough of Kensington and Chelsea ("RBKC") and the London Borough of Hammersmith & Fulham ("LBHF"), the majority of the site benefits from a detailed planning consent.

The strategic approach to date has been to carry out land assembly, establish and manage partnerships, achieve and implement a planning consent and undertake complex enabling works. The ECPL land, Capco's principal investment at Earls Court is now available for development. The strategy is to optimise and realise value from the ECPL land and bring forward development of the Masterplan through the introduction of third-party capital to deliver this important opportunity for London. The Masterplan has the ability to adapt to market dynamics and the needs of London.

The current political and economic environment presents challenges for large-scale residential development activity. Capco notes comments from LBHF suggesting that it is considering the use of Compulsory Purchase Orders ("CPO") on various parts of the Earls Court masterplan. There is a clear and detailed legal framework in place which must be followed and the bar is set high for the compulsory acquisition of land. No formal decision has been made by LBHF to commence the CPO process. The Company will continue to take a constructive approach to all stakeholders to advance this important scheme for London, whilst protecting its commercial interests.

A number of expressions of interest have been received, including from institutional capital, to participate in development of the ECPL land.

Investments at Earls Court

Earls Court Properties represents Capco's investments within the Earls Court and West Kensington Opportunity Area and principally comprises:

- 63 per cent interest in ECPL: the investment vehicle with Transport for London ("TfL") in respect of EC1 & EC2, and including certain assets on and around Lillie Road.

- 50 per cent interest in the Lillie Square joint venture, with KFI.

- In addition, in 2013, Capco exercised its option under the Conditional Land Sale Agreement ("CLSA"), a binding agreement in relation to the West Kensington and Gibbs Green Estates ("The Estates").

ECPL

ECPL owns 999 year leases (granted in April 2015) over the EC1 & EC2 land together with certain adjacent properties primarily located on or around Lillie Road. Capco continues to lead the venture in its role as business manager, with TfL a 37 per cent shareholder.

The agreed objective of ECPL is to maximise economic value by enabling development of the consented Masterplan, development of which is expected to be brought forward through the introduction of third-party capital. There are opportunities to evolve the development and product mix to deliver additional density which could include increased levels of housing across all tenures.

The level of interest being shown in the land suggests that capital is available to support activity on site. This could include forward sales to end-users such as senior living and private for rent or land sales or the formation of joint ventures. A number of approaches have been received from potential investors and occupiers in respect of certain individual parts of ECPL land, a selection of which are being explored. 

On site operational progress continues. Various planning initiatives have been undertaken during the period, in respect of the consented Masterplan including Reserved Matters Applications which were approved by RBKC. Railway track suppression works undertaken by London Underground are progressing on schedule and are expected to complete by autumn 2019.

Lillie Square

Lillie Square is a one million square foot (GEA) residential development located adjacent to the Earls Court Masterplan. The development has the ability to deliver over 600 private and 200 affordable homes across three phases. Development of Lillie Square is very well-progressed with over £450 million of cumulative sales contracted across Phase 1 and 2.

Construction of Phase 2 continues to progress, with first completions and hand over of sold units expected in H1 2020. Over 80 per cent of the units (155 of the 186), have now been reserved or exchanged with sales of the remaining units expected when the completed product is available for viewings. Pricing of Phase 2 sales to date remains at a modest premium to comparable units in Phase 1.

West Brompton Crossing

West Brompton Crossing is a successful pop-up high street that attracts consumers from the local area and from across London. The pop-up high street is anchored by The Prince which converted four buildings and a pub into an innovative food and beverage offering which continues to report significant levels of bookings. Elsewhere on the street, The Crossing retail space continues to provide a pop-up area for local artists and businesses and is booked until the end of 2019.

CLSA

In November 2013 Capco exercised its option under the CLSA, which it entered into with LBHF, for the purchase of the West Kensington and Gibbs Green housing estates ("The Estates"). Under its terms, residents of The Estates would have the opportunity to be rehoused by the Council within the Earls Court Opportunity Area. To date, Capco has paid £90 million of the £105 million cash consideration payable to LBHF including four of the five annual instalments of £15 million. The final instalment is due to be paid in December 2019. 

In November 2018, Capco submitted a Reserved Matters Application for part of the land that is subject to the CLSA. The detailed proposals cover 1.3 million square feet of the Earls Court Masterplan and include residential, office and retail space. The application is due to be determined later this year.

Capco notes the recent decision by the Ministry of Housing, Communities and Local Government ("MHCLG") to halt an application put forward by the West Ken Gibbs Green Community Homes Limited ("WKGGCH") for the transfer of the property and land of The Estates. The decision is in line with legislation which states that applications should be halted if they have a significant detrimental effect on housing services or regeneration of an area.

LBHF has expressed interest in terminating the CLSA, which is a legally binding agreement. Capco will continue to engage with LBHF and other relevant stakeholders in order to seek a positive outcome in relation to future plans for The Estates in the context of the wider Masterplan.

Innova

Capco has a 50 per cent interest in the Innova Investment joint venture ("Innova") with Network Rail, which explores potential opportunities for future redevelopments at significant railway station sites across London.

Capco and Network Rail have funded works which has enabled significant progress in developing a technical solution to allow re-development of Clapham Junction station. With such a large, complex project the business funding model is yet to be determined and a detailed review by Network Rail regarding next steps is underway. There still exists an opportunity for Capco through the Innova investment to participate over the long-term, however at this stage there is no certainty and therefore Capco has taken the prudent approach to impair its investment in Innova in full.

BOARD CHANGES

On 1 March 2019, Jonathan Lane OBE was appointed as an independent Non-executive Director of the Company.

Graeme Gordon did not seek re-election at the Company's AGM on 3 May 2019 and retired from the Board on that date.

On 30 June 2019, Gary Yardley, Managing Director & Chief Investment Officer, stepped down from the Board and left the Company.

FINANCIAL REVIEW

The Group's prime central London focus and strong capital structure provides financial resilience, enabling the Group to withstand prevailing market conditions, take advantage of opportunities as they arise, and position itself to deliver long-term value to shareholders. At 30 June 2019 the Group loan to value ratio was 19 per cent and the level of cash and undrawn facilities was £845 million.

The Group continued to invest in Covent Garden during the first half of the year through £13 million of acquisitions and £9 million of capital expenditure. As at 30 June 2019 Covent Garden accounted for 81 per cent of the Group's property portfolio by value. The value of the Covent Garden estate increased by 0.5 per cent (like-for-like) as a result of rental growth achieved during the period and stable yields, with ERV up by 1.0 per cent on a like-for-like basis.

Uncertainties in the broader political and economic environment continue to impact sentiment around London residential property. As a result the market value of Earls Court Properties, which represents the Group's interests at Earls Court, has decreased by 11.5 per cent (like-for-like).

Overall, the Group share of the total property value has decreased by 2.0 per cent (like-for-like). EPRA net asset value per share decreased by 3.3 per cent during the period, from 325.7 pence at 31 December 2018 to 315.0 pence. This decrease together with the 1.0 pence dividend paid to shareholders during the period resulted in a total return of -3.0 per cent.

Underlying earnings were £4.5 million, resulting in an underlying earnings per share of 0.5 pence.

The Group has today announced its intention to proceed with a demerger. Following the demerger, Covent Garden London and EC Properties would each retain their existing debt facilities. In addition, it is proposed that EC Properties would retain cash of approximately £145 million (after the settlement of demerger costs). On an illustrative basis, this would result in a pro forma LTV for Covent Garden London of approximately 27 per cent and a net cash position for EC Properties of £100 million.

The administrative costs of Covent Garden London and EC Properties are targeted to be approximately £20 million and approximately £10 million per annum respectively on a run rate basis with effect from the end of 2020.

Basis of preparation

As required by IFRS 11 'Joint Arrangements' the Group presents its joint ventures under the equity method in the condensed consolidated financial statements. The Group's interest in joint ventures is disclosed as a single line item in both the consolidated balance sheet and consolidated income statement rather than proportionally consolidating the Group's share of assets, liabilities, income and expenses on a line by line basis.

The Group uses Alternative Performance Measures ("APMs"), financial measures which are not specified under IFRS, to monitor the performance of the business. These include a number of the Financial Highlights shown on page 2. Many of the APMs included are based on the EPRA Best Practice Recommendations reporting framework which aims to improve the transparency, comparability and relevance of published results of public real estate companies in Europe. A summary of EPRA performance measures and key Group measures included within these financial statements is shown on pages 51 and 52.

Internally the Board focuses on and reviews information and reports prepared on a Group share basis, which includes the Group's share of joint ventures but excludes the non-controlling interest share of our subsidiaries, as this represents the economic value attributable to the Company's shareholders. In order to align with the way the Group is managed this financial review presents the financial position, performance and cash flow analysis on a Group share basis.

FINANCIAL POSITION

At 30 June 2019 the Group's EPRA net asset value was £2.7 billion (31 December 2018: £2.8 billion) representing 315 pence per share (31 December 2018: 326 pence).

SUMMARY ADJUSTED BALANCE SHEET

1. Primarily Lillie Square.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

3. IFRS includes amounts receivable from joint ventures which eliminate on a Group share basis.

4. Adjusted, diluted number of shares in issue at 30 June 2019 was 854.0 million.

1. Primarily Lillie Square.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

3. IFRS includes amounts receivable from joint ventures which eliminate on a Group share basis.

4. Adjusted, diluted number of shares in issue at 31 December 2018 was 852.6 million.

Investment, development and trading property

The revaluation loss on the Group's property portfolio was £65.3 million for the period, representing a 2.0 per cent decrease in value on a like-for-like basis compared with the MSCI Capital Return for the equivalent period of a 1.4 per cent loss. The Group revaluation loss consists of a £12.6 million gain at Covent Garden and a £77.9 million loss at Earls Court.

Total property return for the period was -1.1 per cent. The MSCI Total Return Index recorded a 1.1 per cent gain for the corresponding period.

The revaluation loss of £65.3 million occurred on investment, development and trading property. On an IFRS basis, which includes ECPL at 100 per cent and does not include Lillie Square on a line by line basis, loss on revaluation and sale of investment and development property was £107.5 million.

Trading property is carried on the consolidated balance sheet at the lower of cost and net realisable value, therefore valuation surpluses on trading property are not recorded. Any unrecognised surplus is however reflected within the EPRA net asset value measure. At 30 June 2019, the unrecognised surplus on trading property was £23.3 million (31 December 2018: £25.7 million) which arises solely on the Group's share of trading property at Lillie Square.

Debt and gearing

The Group's cash and undrawn committed facilities at 30 June 2019 were £844.9 million (31 December 2018: £854.4 million). A reconciliation between IFRS and Group share is shown below:

1. Primarily Lillie Square.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

Net debt increased by £16 million to £588 million, principally as a result of capital expenditure at Lillie Square for the construction of phase 2. As set out in the summary adjusted balance sheet, net debt on an IFRS basis was £586 million.

The gearing measure most widely used in the industry is loan to value ("LTV"). LTV is calculated on the basis of net debt divided by the carrying value of the Group's property portfolio. The Group focuses most on an LTV measure that includes the notional share of joint venture interests but excludes the share of the non-controlling interest. The LTV of 18.8 per cent remains comfortably within the Group's limit of no more than 40 per cent.

The Group's policy is to eliminate substantially the medium and long-term risk arising from interest rate volatility. The Group's banking facilities are arranged on a floating rate basis but are generally swapped to fixed rate or capped using derivative contracts. At 30 June 2019 the proportion of gross debt with interest rate protection was 86 per cent (31 December 2018: 88 per cent).

The Group remains compliant with all of its debt covenants, details of which are set out on page 51, and has substantial levels of headroom against its covenants across all of its debt facilities. 

At 30 June 2019 the Group had capital commitments of £48.9 million (£53.4 million at 31 December 2018). Capital commitments consist of £11.4 million for Covent Garden and £37.5 million for Earls Court Properties (including the £15.0 million of CLSA instalments and £20.0 million in relation to Lillie Square).

1. Primarily Lillie Square.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

Conditional Land Sale Agreement ("CLSA")

In November 2013 the Group exercised its option under the CLSA, which it entered into with LBHF, for the purchase of the West Kensington and Gibbs Green housing estates ("The Estates"). The overall consideration payable is expected to be £105 million cash plus the planning requirement to provide up to 760 replacement homes.

The CLSA investment property remains unrecognised in the condensed consolidated financial statements of the Group as its main underlying asset (the land relating to The Estates) does not currently meet the recognition criteria under IFRS required for investment and development property. Annual payments of £15 million commenced in December 2015 and the final payment is due to be paid in December 2019. Where amounts are paid prior to the transfer of property, they will be carried on the Group's balance sheet as prepayments against future land draw down. Of the £90 million paid to date, £15 million relates to the acquisition of two properties, held as investment and development property, and £75 million relates to options over The Estates which is held as a prepayment within other receivables. The remaining future payment totalling £15 million is disclosed as a capital commitment as referred to above.

The prepayment balance will be transferred to investment and development property once the recognition criteria for investment and development property have been met. Once this occurs, in line with the Group's accounting policy, the land will become subject to bi-annual valuation with any changes reflected in the Group's reported net asset measure.

CASH FLOW

A summary of the Group's cash flow for the period ended 30 June 2019 is presented below:

SUMMARY CASH FLOW

1. Primarily Lillie Square.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

3. Net cash flow is based on unrestricted cash and cash equivalents and therefore does not include the movement in Lillie Square deposits on a Group share basis of £4.7 million.

1. Primarily Lillie Square.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

3. Net cash flow is based on unrestricted cash and cash equivalents and therefore does not include the movement in Lillie Square deposits on a Group share basis of £1.1 million.

Operating cash outflows of £3.0 million are as a result of changes in net working capital requirements.

During the period, £20.7 million was invested at Covent Garden for the purchase of 39-40 Bedford Street and subsequent expenditure. At Earls Court, total expenditure of £22.1 million primarily relates the construction of Lillie Square Phase 2.

The disposal of 17 apartments at Floral Court resulted in a net cash inflow of £48.6 million. There were further disposals at Earls Court resulting in cash inflow of £2.5 million.

Net borrowings drawn during the period were £41.9 million.

Dividends paid of £7.5 million reflect the final dividend payment made in respect of the 2018 financial year. This was higher than the previous year due to a lower take up of the scrip dividend alternative, 12 per cent versus 40 per cent in 2018.

Cash and cash equivalents increased by £33.1 million to £83.0 million, which includes £12.4 million of Lillie Square deposits.

FINANCIAL PERFORMANCE

The Group presents underlying earnings and underlying earnings per share in addition to the amounts reported on a Group share basis. The Group considers this presentation to provide useful information as it removes unrealised and certain other items and therefore represents the recurring, underlying performance of the business.

SUMMARY INCOME STATEMENT

1. Lillie Square and Innova Investment.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

3. Further details regarding the EPRA and Company specific adjustments are disclosed within note 10 'Earnings Per Share and Net Assets Per Share'.

1. Lillie Square and Innova Investment.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

3. Further details regarding the EPRA and Company specific adjustments are disclosed within note 10 'Earnings Per Share and Net Assets Per Share'.

Income

Covent Garden net rental income has increased by £2.8 million compared to the first half of 2018 due to £1.9 million of like-for-like growth and £0.9 million through current and prior year acquisitions and developments. The like-for-like net rental income growth at Covent Garden was 7.0 per cent as the Group continues to convert reversionary potential into contracted rents. ERV growth at Covent Garden was 1.0 per cent like-for-like.

Earls Court net rental income has decreased by £3.8 million to £1.1 million, primarily as a result of the Empress State Building disposal.

Overall, the increased net rental income at Covent Garden has been offset by the loss of income from the Empress State Building resulting in a decrease in the Group net rental income of £1.0 million (IFRS: £1.0 million).

Loss on revaluation of investment and development property

The loss on revaluation of the Group's investment and development property was £62.7 million. Covent Garden recorded a gain on revaluation of £12.6 million, driven by rental growth. The loss on revaluation at Earls Court of £75.3 million was driven by changes in valuers' assumptions. The IFRS loss on revaluation, which includes the non-controlling interest share of ECPL losses, was £106.0 million.

The sale of 17 apartments at Floral Court and five properties in Earls Court resulted in a £1.5 million loss compared to the 31 December 2018 recorded value.

Administration expenses

Underlying administration expenses have decreased by £2.0 million in comparison with the first half of 2018 due to efficiency initiatives. £3.9 million of costs were incurred during the period in relation to the possible separation of Covent Garden and Earls Court. Including these costs, the overall administration costs were £21.1 million (IFRS: £21.7 million).

Net finance costs

Net finance costs have increased by £1.0 million to £10.4 million due to the higher average debt drawn during the period, as a result of the decision to hold greater levels of cash during periods of heightened market volatility.

Taxation

The total tax charge for the first half of the year, made up of both underlying tax and non-underlying tax, is £1.3 million (IFRS: £1.4 million). Further detail is set out in note 8 'Taxation'.

Contingent tax, being the amount of tax that would become payable on a theoretical disposal of all investment property held by the Group, was nil (31 December 2018: nil). A disposal of the Group's trading properties at their market value, before utilisation of carried forward losses, would result in a corporation tax charge to the Group of £4.4 million (19 per cent of £23.3 million).

The provisions of IAS 12 provide for the recognition of a deferred tax asset where it is probable there will be future taxable profit against which a deductible temporary difference can be utilised. As a result of the application of this provision, the Group has not recognised the deferred tax asset on decreases to the carrying value of investment property at Earls Court and certain losses carried forward.

The Group's tax policy, which has been approved by the Board and is available on the Group website, is aligned with the business strategy. As a Group, we are committed to acting in an open and transparent manner with all stakeholders.

Dividends

The Board has proposed an interim dividend of 0.5 pence per share to be paid on 20 September 2019 to shareholders on the register at 30 August 2019. Subject to SARB approval, the Board intends to offer a scrip dividend alternative.

PRINCIPAL RISKS AND UNCERTAINTIES

Risk Management

The Board has overall responsibility for Group risk management. It determines its risk appetite and reviews principal risks and uncertainties regularly, together with the actions taken to mitigate them. The Board has delegated responsibility for the review of the adequacy and effectiveness of the Group's internal control framework to the Audit Committee.

Risk is a standing agenda item at management meetings. This gives rise to a more risk aware culture and consistency in decision making across the organisation in line with the corporate strategy and risk appetite. All corporate decision making takes risk into account, in a measured way, while continuing to drive an entrepreneurial culture.

The Executive Directors are responsible for the day-to-day operational and commercial activity across the Group and are therefore responsible for the management of business risk. The Executive Risk Committee, comprising the Executive Directors, the Group Legal Director and the Group Financial Controller, is the executive level management forum for the review and discussion of risks, controls and mitigation measures. The corporate and business division risks are reviewed on a quarterly basis by the Executive Risk Committee so that trends and emerging risks can be identified and reported to the Board.

Senior management from each division and corporate function of the business identify and manage the risks for their division or function and complete and maintain a risk register. The severity of each risk is assessed through a combination of each risk's likelihood of an adverse outcome and its impact. In assessing impact, consideration is given to financial, reputational and regulatory factors, and risk mitigation plans are established. A full risk review is undertaken annually in which the risk registers are aggregated and reviewed by the Executive Risk Committee. The Directors confirm that they have completed a robust assessment of the principal risks faced by the business, assisted by the work performed by the Executive Risk Committee.

The Group's principal risks and uncertainties, which are set out on the following pages, are reflective of where the Board has invested time during the period. These principal risks are not exhaustive. The Group monitors a number of additional risks and adjusts those considered 'principal' as the risk profile of the business changes. See also the risks inherent in the compilation of financial information, as disclosed within the Annual Report & Accounts 2018, note 1 'Principal Accounting Policies' to the consolidated financial statements for the year ended 31 December 2018, within 'Critical accounting judgements and key sources of estimation and uncertainty'.

Since the EU Referendum, there has been ongoing heightened economic and political uncertainty. As the new date at which the UK is set to depart from the EU approaches, there may be an increased level of volatility in consumer, occupier and broader corporate behaviour and decision-making. This risk is heightened by the possibility of a disorderly Brexit. To date, we have not identified an adverse impact on occupier demand for the Covent Garden estate, which has seen strong rental growth.

At Earls Court, valuation of residential-led development land has been impacted by the overall economic and political backdrop. Whilst the impact on our business and the market remains uncertain, the Board continues to monitor progress in this area and wider activity and has assessed risks to the business that may result from the UK leaving the EU, including the implications of a 'no deal' scenario. The main areas that may affect the Group directly are:

- the impact on the London and UK economy, including exchange rate volatility and potential disruption in the financial markets

- the impact on current and prospective tenants, whether it be on management of their inventory, workforce labour, tariffs or other barriers, and the impact on consumer demand (for example due to travel disruption) leading to reduced rents and capital values

- the impact on the supply chain, such as delay to delivery of materials and foreign exchange exposure on development materials

- the impact on the demand from prospective purchasers as a result of market uncertainty and foreign exchange exposure leading to reduced capital values

Brexit uncertainty has continued after the period end date. Whilst it is not possible to predict the overall outcome, the Board is continuing to monitor external events and appropriate action is being undertaken to prepare for short-term risk during and after a political decision is reached to ensure that the business remains resilient and well-positioned for the long-term.

London, as a highly desirable global city, continues to attract both domestic and international businesses and people and we would expect this leading position to be maintained over time. Uncertainty remains, however, around the exit mechanism and longer-term implications of Brexit, and this will continue to have a direct or indirect impact on a number of the principal risks set out on the following pages.

The political framework for large scale residential development has become more difficult and there is an increased risk of political intervention. The Government continues to review housing and planning policy which may result in beneficial or adverse change for landowners.

In May 2018 the Group announced that it was considering a demerger, which would result in two separately-listed businesses based around its prime central London estates. In November 2018 the Group noted press speculation and confirmed that it continued to advance preparations for a possible demerger, however that it had received a number of proposals in relation to the Group's interests in Earls Court which it was considering. If a demerger or a sale of a significant proportion of the Group's interests in Earls Court Properties interests were to occur this would have an impact on the Group's principal risks. Furthermore corporate transactions themselves carry their own risks such as failure to complete, inability to realise the anticipated benefits and risks associated with the resultant Group or Groups.

CORPORATE

PROPERTY

DIRECTORS' RESPONSIBILITIES

Statement of Directors' responsibilities

The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules (DTR) 4.2.7 and 4.2.8, namely:

·; an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·; material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The Directors of Capital & Counties Properties PLC are listed in the Capital & Counties Properties PLC Annual Report for 31 December 2018. A list of current Directors is maintained on the Capital & Counties Properties PLC website: www.capitalandcounties.com.

By order of the Board

Ian Hawksworth

Chief Executive

25 July 2019

Situl Jobanputra

Chief Financial Officer

25 July 2019

Independent review report to Capital & Counties Properties PLC

Report on the condensed consolidated financial statements

Our conclusion

We have reviewed Capital & Counties Properties PLC's condensed consolidated financial statements (the "interim financial statements") in the interim results of Capital & Counties Properties PLC for the six month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·; the Consolidated Balance Sheet as at 30 June 2019;

·; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;

·; the Consolidated Statement of Cash Flows for the period then ended;

·; the Consolidated Statement of Changes in Equity for the period then ended; and

·; the explanatory notes to the interim financial statements.

The interim financial statements included in the interim results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The interim results, including the interim financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim results based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Report on the condensed consolidated financial statements continued

What a review of interim financial statements involves

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 enquiries, 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, 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.

We have read the other information contained in the interim results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

25 July 2019

CONSOLIDATED INCOME STATEMENT (unaudited)

For the six months ended 30 June 2019

All results derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

For the six months ended 30 June 2019

All results derive from continuing operations.

CONSOLIDATED Balance sheet (unaudited)

As at 30 June 2019

CONSOLIDATED STATEMENT OF changes in equity (unaudited)

For the six months ended 30 June 2019

1. Represents non-qualifying consideration received by the Group following the share placing in May 2014 and previous share placements. The amounts taken to the merger reserve do not currently meet the criteria for qualifying consideration and therefore will not form part of distributable reserves as they form part of linked transactions.

2. Share premium includes £1.0 million (30 June 2018: £3.5 million) of ordinary shares issued relating to the bonus issued in lieu of cash dividends. Refer to note 9 'Dividends' for further information.

CONSOLIDATED STATEMENT OF changes in equity (unaudited)

For the year ended 31 December 2018

1. Represents non-qualifying consideration received by the Group following the share placing in May 2014 and previous share placements. The amounts taken to the merger reserve do not currently meet the criteria for qualifying consideration and therefore will not form part of distributable reserves as they form part of linked transactions.

2. Share premium includes £4.5 million of ordinary shares issued relating to the bonus issued in lieu of cash dividends. Refer to note 9 'Dividends' for further information.

CONSOLIDATED STATEMENT OF cash flowS (unaudited)

For the six months ended 30 June 2019

1. Includes £9.0 million for the disposal of property designated as held for sale at 31 December 2018.

2. Sale of subsidiaries relate to cash inflows of £0.2 million relating to the sale of the Brewery (31 December 2018: £248.9 million of proceeds from the sale of Empress State Building and £1.8 million relating to deferred consideration on the disposal of The Brewery by EC&O Limited on 9 February 2012).

All cashflows derive from continuing operations.

Notes to the accounts (unaudited)

1 PRINCIPAL ACCOUNTING POLICIES

General information

Capital & Counties Properties PLC (the "Company") was incorporated and registered in England and Wales on 3 February 2010 under the Companies Act as a public company limited by shares, registration number 7145051. The registered office of the Company is 15 Grosvenor Street, London, W1K 4QZ, United Kingdom. The principal activity of the Company is to act as the ultimate parent company of Capital & Counties Properties PLC Group (the "Group"), whose principal activity is the development and management of property.

The Group's assets principally comprise investment and development property at Covent Garden and Earls Court.

Basis of preparation

The Group's condensed consolidated financial statements are prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The condensed consolidated financial statements should be read in conjunction with the Annual Report & Accounts for the year ended 31 December 2018, which have been prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated financial statements are prepared in British pounds sterling.

The condensed consolidated financial statements for the six months ended 30 June 2019 are reviewed, not audited and do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2018 were approved by the Board of Directors on 26 February 2019 and delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement made under Section 498 of the Companies Act 2006.

The condensed consolidated financial statements have been prepared under the historical cost convention as modified for the revaluation of property and derivative financial instruments.

There is no material seasonal impact on the Group's financial performance.

These condensed consolidated financial statements were approved by the Board of Directors on 25 July 2019.

The condensed consolidated financial statements have been prepared using the accounting policies, significant judgements, key assumptions and estimates set out on pages 98 to 102 of the Group's Annual Report & Accounts for 2018.

Critical accounting judgements and key sources of estimation and uncertainty

The preparation of condensed consolidated financial statements in accordance with IFRS requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, income and expenses from sources not readily apparent. Although these estimates and assumptions are based on management's best knowledge of the amount, historical experiences and other factors, actual results ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period. This is consistent with the financial statements for the previous year end. Full disclosure of the critical judgements, assumptions and estimates is included in the Group's Annual Report & Accounts for 2018.

During 2019, the following accounting standards and interpretations have been adopted by the Group:

IFRS 9 'Financial Instruments' (amendment)

IFRS 16 'Leases'

IAS 19 'Employee benefits' (amendment)

IAS 28 'Investments in associates' (amendment)

Amendments to IFRS (Annual improvements cycle 2015-2017)

As the Group is predominantly a lessor, IFRS 16 'Leases' did not have a material impact on adoption. Where the Group is currently a lessee, this relates only to immaterial contracts.

These pronouncements had no significant impact on the condensed consolidated financial statements.

The following standards and interpretations which have not been applied in these financial statements were in issue but not effective, and in some cases have not been adopted for use in the European Union:

IFRS 3 'Business combinations' (amendment)

IAS 1 'Presentation of financial statements' (amendment)

IAS 8 'Accounting policies, changes in accounting estimates and errors' (amendment)

The Group has assessed the impact of these new standards and interpretations and does not anticipate any material impact on the financial statements.

Going Concern

The Directors are satisfied that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of the financial statements and for this reason the condensed consolidated financial statements have been prepared on a going concern basis.

2 SEGMENTAL REPORTING

Management has determined the operating segments based on reports reviewed by the Executive Directors, who are deemed to be the chief operating decision makers. The principal performance measures have been identified as net rental income and net asset value.

For management and reporting purposes the Group is organised into three divisions:

- Covent Garden;

- Earls Court Properties represents the Group's interests in the Earls Court area, comprising properties held in ECPL, Lillie Square and a number of smaller properties in the Earls Court area; and

- Other comprises Innova and The Great Capital Partnership, the Group's residual China investments, other head office companies and investments, including the payment of internal rent.

Management information is reported to the chief operating decision makers on a Group share basis. Outlined below is the Group share by segment:

Segmental reporting has been presented in line with management information and therefore consolidation adjustments are presented to reconcile segmental performance and position to the IFRS total.

The Group's operating segments derive their revenue primarily from rental income from lessees.

Unallocated expenses consist primarily of costs incurred centrally which are neither directly nor meaningfully attributable to individual segments.

Reportable segments

1. Comprises service charge and other non-recoverable costs.

2. The Group operates a central treasury function which manages and monitors the Group's finance income and costs on a net basis and the majority of the Group's cash balances.

3. Total segmental assets and total segmental liabilities exclude loans between and investments in Group undertakings.

Reportable segments

1. Comprises service charge and other non-recoverable costs.

2. The Group operates a central treasury function which manages and monitors the Group's finance income and costs on a net basis and the majority of the Group's cash balances.

3. Total segmental assets and total segmental liabilities exclude loans between and investments in Group undertakings.

Reportable segments