CAPC.L Regulatory News (CAPC)

25 JULY 2018

CAPITAL & COUNTIES PROPERTIES PLC ("CAPCO")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018 

Ian Hawksworth, Chief Executive of Capco, commented:

"Capco has had an active start to the year across its two prime central London estates. At Covent Garden we delivered another period of strong performance and an increase in value, with excellent demand across all uses driving 21 per cent overall growth in net rental income. At Earls Court, the consented land is now ready for development and we have realised significant proceeds over the last twelve months from the sale of the Empress State Building and continued sales at Lillie Square.

Capco has achieved significant growth since listing, with long-term value creation across the business. Covent Garden has been transformed into a leading global retail and dining destination, attracting a vibrant mix of British, independent and international brands, while at Earls Court, we have created one of central London's most important mixed-use development opportunities. Against this backdrop, the Board is considering the structure of the Group and constructive early steps have been taken in preparing for a possible demerger.

Whilst the broader macroeconomic outlook remains uncertain, Capco is backed by a strong balance sheet and remains focused on creating long-term value for shareholders. Our two prime central London estates are well-placed for long-term success."

Key financials

- Equity attributable to owners of the Parent £2.8 billion (Dec 2017: £2.8 billion)

- EPRA NAV maintained at 334 pence per share (Dec 2017: 334 pence per share)

- Total property value of £3.3 billion, a decrease of 0.4 per cent (like-for-like) (Dec 2017: £3.3 billion adjusted for the sale of the Empress State Building)

- Proposed interim dividend of 0.5 pence per share (Jun 2017: 0.5 pence per share)

Continued income growth at Covent Garden

- Covent Garden total property value of £2.6 billion, a 1.6 per cent increase (like-for-like) (Dec 2017: £2.5 billion)

- Net rental income up 11.6 per cent (like-for-like) or 21.2 per cent in absolute terms against June 2017

- Positive operational momentum; 26 new leases and renewals 8.9 per cent above December 2017 ERV

- ERV increased by 1.9 per cent (like-for-like) to £107 million (Dec 2017: £105 million)

- Development of Floral Court complete; 75 per cent of lettable space contracted

- Tiffany recently launched new concept store on James Street

Realising value at Earls Court

- Earls Court interests valued at £707 million, a decrease of 7.0 per cent (like-for-like) (Dec 2017: £759 million adjusted for the sale of the Empress State Building)

- ECPL land available for development; ongoing interest from potential partners and end users

- Sale of the Empress State Building for £250 million, a £30 million premium to the Dec 2017 valuation

- Lillie Square:

· Delivery of Phase 1 substantially complete, £123 million cash proceeds received (Capco share)

· Over 80 per cent of Phase 2 now reserved or exchanged and main construction has commenced

Strong financial position with significant financial flexibility

- Group loan to value ratio of 17 per cent (Dec 2017: 21 per cent)

- Group undrawn facilities and cash of £886 million (Dec 2017: £691 million)

- Capital commitments of £82 million (Dec 2017: £61 million)

- Weighted average maturity of 6.5 years (Dec 2017: 6.9 years)

- Weighted average cost of debt of 2.9 per cent (Dec 2017: 2.8 per cent)

Preparation for possible demerger

- Constructive early steps taken in preparing for a possible demerger and further announcements will be made in due course

FINANCIAL HIGHLIGHTS

1. On a Group share basis. Refer to Property Data on page 52 for the Group's percentage ownership of property.

2. On a Group share basis. Refer to note 2 "Segmental Reporting" on page 28.

3. From continuing and discontinued operations. Refer to Consolidated Underlying Profit Statement on page 54.

Outlook

Our two prime central London estates have had an active first half, making good operational progress. Capco's strategy remains focused on driving long-term value creation from both estates. Capco has achieved significant growth since listing, driving value creation from Covent Garden and Earls Court. Backed by a strong balance sheet, with an experienced and professional management team, Capco is well-positioned to support the current capital requirements of its two prime estates, both of which have positive long-term growth prospects and distinct investment characteristics.

Against this backdrop, the Board is considering the structure of the Group in order to realise the potential of these two prime central London estates and enhance shareholder value. Constructive early steps have been taken in preparing for a possible demerger.

Under Capco's stewardship, Covent Garden has been transformed into a world-class retail and dining destination, with a vibrant mix of global, independent and British brands. Covent Garden is well-positioned to continue to drive income growth and total returns from the estate. Capco is focused on enhancing the customer environment through creative asset management and making strategic investments to expand its ownership of the estate.

Recent introductions including The Shop at Bluebird, Alkemistry and Petersham Nurseries represent a positive start to the repositioning of Floral Street as a fashion and lifestyle destination. As capital initiatives come to completion, the pedestrian flow of the estate continues to change allowing for further repositioning opportunities. The estate remains well-placed for continued success and ERV progression towards the target of £125 million by December 2020.

At Earls Court, Capco has created one of the most important mixed-use development opportunities in central London through our strategy of planning, land assembly, land enablement works and selective development. The focus remains on creating and realising the value of the investment as recently demonstrated through the sale of the Empress State Building for £250 million, at a £30 million premium to the December valuation and continued sales at Lillie Square.

With the Earls Court Partnership Limited ("ECPL") land now available for development, there is ongoing interest from potential partners and end users. Capco together with its partner Transport for London ("TfL") will seek to optimise the value of the land which has the flexibility to be brought forward on a phased basis through the introduction of third-party capital and selective development across various uses.

Whilst the broader macroeconomic outlook remains uncertain, Capco remains focused on creating long-term value for shareholders from its two prime central London estates which are well-placed for long-term success.

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).

OPERATING REVIEW

Preparation for a possible demerger

Following the announcement on 24 May 2018, constructive early steps have been taken in preparing for a possible demerger which would result in two separately-listed businesses based around Covent Garden and Earls Court, both of which have positive long-term growth prospects and distinct investment cases.

The Board of Capco recognises the need for both businesses to have appropriate capital structures to pursue their respective strategies and would therefore expect the Earls Court business, if separately listed, to retain a significant portion of the £250 million proceeds received from the sale of the Empress State Building.

Capco will provide a further update to the market in due course. A demerger, if pursued is expected to be formalised by the end of this year.

Board changes

On 24 May 2018, Ian Durant announced his intention to step down as Chairman of the Board and on 5 June 2018 Henry Staunton took over as Chairman. 

Overview

Capco's strategy is focused on driving long-term value creation from its two central London estates. Since listing Capco has achieved significant growth. The progression of its two estates, each with its own distinct investment prospects has been taken into account by the Board as it considers the structure of the Group and prepares for a possible demerger.

Covent Garden is a world-class retail and dining destination with a vibrant mix of global, independent and British retailers and restaurateurs delivering strong income and rental value growth. Capco's distinct approach to creative asset management and strategic investment continues to attract target brands and experiences to meet evolving consumer demand.

Capco has created one of the most important mixed-use development opportunities in central London at Earls Court, located within two London Boroughs, the Royal Borough of Kensington and Chelsea ("RBKC") and the London Borough of Hammersmith & Fulham ("LBHF"). Land with detailed planning consent and the ability to grow as a consequence of unrivalled existing transport links in central London is a scarce commodity. Earls Court is a key strategic scheme for the Capital, providing the opportunity to create much needed new homes, jobs and places for London.

London is an outstanding global city with a diverse economy and remains a very attractive investment destination. The Greater London Authority ("GLA") estimates that the Capital's population will continue to grow, attracting people who wish to live, work, invest in and enjoy the city. Against this backdrop of London's continued prosperity, Capco's two prime central London estates are well-placed for long-term success.

Valuations

The total property value of the Group decreased marginally by 0.4 per cent (like-for-like) in the period to 30 June 2018 to £3.3 billion.

The valuation of Covent Garden has risen by 1.6 per cent (like-for-like) to £2.6 billion, driven by ERV growth of 1.9 per cent achieved over the period. The equivalent yield remains broadly unchanged at 3.6 per cent, reflecting the valuer's view of the strength of demand for central London retail investments.

The valuation of Earls Court Properties was £707 million, representing a decrease of 7.0 per cent (like-for-like). The independent valuer has taken a more conservative view on gross development value and the cost of delivery together with a higher developer's margin, resulting in a net decline of 9.0 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 on a Group share basis. 

4. A reconciliation of the carrying value of investment, development and trading property to the market value is shown in note 13 'Property Portfolio' within the condensed consolidated financial statements.

The Group has a 63 per cent controlling interest in ECPL, the investment vehicle with TfL which owns the land formerly occupied by the Earls Court Exhibition Centres ("EC1 & EC2"). As a result, it is fully consolidated in the financial statements and TfL's interest is represented as a non-controlling interest. See page 7 for further information.

COVENT GARDEN

A leading global retail and dining destination

Covent Garden is firmly established as a leading global retail and dining destination in the heart of London's West End. Capco is responsible for the management of 1.2 million square feet of lettable space. Visitors to Covent Garden are seeking differentiated shopping experiences, which is core to Capco's vision for the district, offering a vibrant mix of luxury and contemporary, global and British brands across the estate. The area is now home to a wide variety of brands including Apple, Balthazar, Bucherer, Frenchie, Petersham Nurseries and Tiffany.

The Covent Garden estate continues to deliver positive performance and value growth. During the period to 30 June 2018, 26 leasing transactions including new leases and renewals representing £4.2 million of annualised rental income were transacted at 8.9 per cent above 31 December 2017 ERV. Since 30 June 2018, a further £2.8 million of annualised income has been contracted from 7 leasing transactions. Net rental income was £28.3 million for the first half of the year, up 11.6 per cent (like-for-like) or 21.2 per in absolute terms compared to June 2017.

The value of the estate increased 1.6 per cent like-for-like to £2.6 billion. The ERV for the estate has increased 1.9 per cent like-for-like to £107 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. 

Retail

Luxury jewellery brand Tiffany & Co. has opened a store on James Street, showcasing a new concept for Tiffany & Co., offering not only its iconic designs, but also an innovative and distinctive retail experience encouraging consumer interaction. The new Tiffany & Co. store will complement Covent Garden's impressive growing luxury retail offer, joining the strong line-up which includes Chanel, Tom Ford, Mulberry and Bucherer.

The ongoing repositioning of Floral Street as a fashion and lifestyle destination continues to progress. The Shop at Bluebird opened in Carriage Hall, housing two dedicated retail floors. The multi brand concept store stocks more than 100 brands such as Victoria Beckham, Marni, Acne Studios and Alexander McQueen. In addition, ladies footwear brand French Sole has opened at 19 Floral Street offering luxurious, fashionable footwear. Luxury jewellery brand Alkemistry is the latest signing to Floral Court and will open in the second half of the year.

Over the period strong demand for the Market Building was recorded; new leasing deals were agreed with Whittards and Atelier Cologne, along with the introduction of new British watch brand Olivia Burton which will open later this year. South Africa's leading spa brand Africology is the latest concept to agree terms, taking space in the Market Building, providing a globally-recognised product range that features in some of the best hotels and spas in the world.

The gifting and luxury accessories category continues to strengthen with the opening of leading travel brand Tumi at the Royal Opera House Arcade.

Dining

Covent Garden continues to attract innovative food and beverage concepts and is now one of London's best dining destinations, offering something for everyone, from casual to premium, focusing on high quality differentiated concepts for customers.

In May 2018, Petersham Nurseries opened two restaurants in Floral Court, La Goccia, a vibrant all-day restaurant, offering an extensive menu of small sharing plates and The Petersham, a sophisticated, a la carte restaurant. During spring and summer months, tables flow out onto Floral Court, where al fresco dining is offered.

Existing tenant, The Oystermen which opened on Henrietta Street last summer, has agreed terms to upsize, extending into the adjacent unit, reflecting the strong trading prospects on the estate. Adding to the variety on Henrietta Street is latest opening Cora Pearl, a new restaurant from the team behind Kitty Fisher's in Mayfair. The 60-cover restaurant is set over two floors, with an open kitchen and a cocktail bar downstairs.

Abuelo, an Australian-meets-South-American coffee house and kitchen opened on Southampton Street earlier this year. In addition, there are a number of openings scheduled for the second half of the year; both SushiSamba and Vyta Santa Margherita are fitting out space in the Market Building and are expected to open in the autumn. Z Hotels is set to open on Bedford Street in the coming months, providing compact yet luxurious accommodation for visitors with a new 111 room hotel.

New York's iconic restaurant RedFarm is scheduled to open alongside Balthazar on Russell Street at the end of July, bringing modern Chinese cuisine and dim-sum to Covent Garden. The 96-seat restaurant features modern rustic decor across three floors offering a casual dining experience.

Avobar, London's first permanent avocado bar will open later this year on Henrietta Street while on King Street, Mariage Frères, the iconic French tea house, will open its first stand-alone store outside of Paris comprising over 8,000 square feet. Wahlburgers, the casual dining burger restaurant and bar, will open its first restaurant outside the United States on James Street offering a menu of high-quality homemade burgers and sandwiches, fresh salads and shakes.

Acquisitions and developments

Development of Floral Court completed in July. Floral Court, which is Capco's largest development to date at Covent Garden, provides over 85,000 square feet (NIA) of space with eight retail and two restaurant units as well as 45 apartments. The new connecting courtyard between Floral Street and King Street is now open, improving the pedestrian flow on the northern side of the estate. Over 75 per cent of the lettable space has now been contracted securing £3.8 million of ERV.

Capco continues to make strategic investments expanding its ownership of the estate, acquiring three properties for £19 million consideration including purchasers' costs. Most notably, Capco completed assembly of the Wellington block, which is a scarce island site in central London, through the acquisition of the last remaining unit, 23 Wellington Street for £10 million. Repositioning of the Wellington block presents a unique investment opportunity; Capco is reviewing plans, which include proposals for office and retail space to continue Covent Garden's transformation on the southern side of the estate.

Residential

Leasing demand for residential accommodation across the estate remains positive with a high rate of renewals recorded above previous passing rent.

The residential component of Floral Court comprises 16 heritage apartments on King Street and Rose Street and 29 new apartments on Floral Street. The entire heritage component has been leased and the new build residential units are being prepared for sale.

Offices

Demand for office space continues to be strong, attracting professional services, creative industries and SMEs. A number of office lettings including floors at Regal House and Tower House have been achieved during the period. We continue to see strong interest from occupiers.

EARLS COURT PROPERTIES

One of the most important mixed-use development opportunities in central London

Capco has created one of the most important mixed-use development opportunities in central London at Earls Court through implementation of its strategy. Capco has deployed its expertise to successfully carry out complicated and strategic land assembly, promote the planning framework, achieve a planning consent and undertake highly complex enabling works, including demolition of the former Earls Court Exhibition Centres.

Located within two London Boroughs, the Royal Borough of Kensington and Chelsea ("RBKC") and the London Borough of Hammersmith & Fulham ("LBHF"), with planning consent in place and supported by excellent transport infrastructure, Earls Court has the potential to create a new district. Capco will continue to engage with all stakeholders to evolve and bring forward the masterplan.

Earls Court is a GLA Opportunity Area making it a strategic scheme for the Capital. The GLA's draft London Plan issued in December 2017 ("The Plan"), references the Earls Court Masterplan as 'ready to grow' demonstrating the site's potential. In addition, The Plan estimates that the population of London will increase by 70,000 per annum, reaching 10.5 million in 2041. Against the backdrop of London's growing housing needs, Opportunity Areas such as Earls Court are seen as vital in order to meet London's demands. Capco remains focused on optimising the potential of this strategic opportunity and continues to drive and realise long-term value on its investments at Earls Court.

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 TfL which owns 999 year leases over the EC1 & EC2 land together with certain adjacent properties primarily located on or around Lillie Road. Capco is leading the venture in its role as business and development manager. Capco's interests in ECPL were valued at £519 million at 30 June 2018. ECPL land has detailed planning consent for 3.4 million square feet (GEA).

- 50 per cent interest in the Lillie Square joint venture, with "KFI". Capco's 50 per cent interest was valued at £148 million at 30 June 2018.

- 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"). To date, Capco has paid £75 million of the £105 million cash consideration payable to LBHF including three of the five annual instalments of £15 million.

ECPL

Following the successful completion of the final phase of the demolition of the former Earls Court Exhibition Centres in January 2018, the ECPL land is now available for development. Capco, together with its partner TfL, will seek to optimise the value of the ECPL land which has the flexibility to be brought forward through the introduction of third-party capital and selective development across various uses. With the land now available for development, there is ongoing interest from potential partners and end-users for various parts of the site.

Earls Court has the ability to evolve with the needs of London and benefits from excellent existing transport links, making it attractive for multiple and mixed-uses, including residential of different forms and tenures, offices, leisure and retail, as well as potentially education, cultural and other uses.

Lillie Square

The Lillie Square development is a one million square foot (GEA) residential scheme located adjacent to the Earls Court Masterplan. The development will deliver more than 600 private and 200 affordable homes across three phases. Delivery of Phase 1 is substantially complete, and 217 units have been handed over to residents representing £123 million (Capco share) of sales proceeds. Sales of the nine remaining units of Phase 1 continue to progress, the most recent of which, a premium unit, transacted in July at £2,300 per square foot.

In Phase 2, over 80 per cent of the units (153 of the 186), have now been reserved or exchanged, 60 of these transacted in 2018, including the exchange of contracts with an international investor for all 49 apartments and 31 parking spaces at '9 Lillie Square', one of the four blocks within Phase 2. Total consideration for this transaction was approximately £66 million (£33 million Capco share). Pricing was in line with Phase 2 sales to date at a modest premium to comparable units in Phase 1.

Sales proceeds from Phase 1 have been used to pay down the Lillie Square bank facility. With over 80 per cent of Phase 2 reserved or exchanged, the main construction contract was awarded in June 2018. The bank facility will be redrawn to fund construction of Phase 2 with delivery expected from the end of 2019.

CLSA

Under the CLSA, the residents of The Estates would have the opportunity to be rehoused by the council within the Earls Court Opportunity Area, some potentially within Block D of the Lillie Square development. Basement works on Block D foundations have completed to facilitate the first phase of replacement housing for The Estates residents.

The Estates are located within LBHF, with the council having expressed interest in pursuing alternative options for The Estates. The CLSA represents a legally binding agreement and Capco will continue to engage with all stakeholders in relation to future plans for the Estates, as part of the wider masterplan.

Sale of the Empress State Building

In March 2018, Capco completed the sale of the Empress State Building ("ESB") for total cash consideration of £250 million, compared to a year end valuation of £220 million. ESB has been sold to The Mayor's Office for Policing and Crime ("MOPAC"), the long-term occupier of the building under a lease due to expire in June 2019. ESB is a 451,000 square foot (NIA), 31 storey, office building located in Earls Court. The consented Earls Court Masterplan is a mixed-use development and is based on retention of ESB's current structure. The disposal reflects Capco's disciplined approach to capital management, enabling Capco to realise significant cash proceeds.

FINANCIAL REVIEW

The Group has strengthened its financial position over the first half of the year, reducing loan to value to 17 per cent and increasing the level of undrawn facilities and cash to £886 million. This has been driven primarily by the sale of the Empress State Building at a premium to valuation. Our capital structure positions the Group to withstand prevailing market conditions, take advantage of opportunities as they arise, and deliver long-term returns to shareholders by driving value creation across our assets.

During the period, the Group has continued to invest into Covent Garden through £19 million of acquisitions and £14 million of development spend, predominantly in relation to Floral Court, which have served to increase the Group's weighting in Covent Garden to 79 per cent. The value of the Covent Garden estate increased by 1.6 per cent (like-for-like) due to the rental growth achieved during the year, with ERV up by 1.9 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 7.0 per cent (like-for-like).

Overall, the Group share of total property value has decreased by 0.4 per cent (like-for-like). EPRA net asset value per share increased by 0.2 per cent during the period, from 333.8 pence at 31 December 2017 to 334.4 pence. This increase together with the 1.0 pence dividend paid to shareholders during the period resulted in a total return of 0.5 per cent.

Underlying earnings from continuing activities increased to £4.3 million due to higher net rental income and reduced administration expenses.

Basis of preparation

In line with the requirements of IFRS 11 'Joint Arrangements', the Group is required to present its joint ventures under the equity method in the consolidated financial statements. Under the equity method, 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.

Alternative Performance Measures ("APMs"), being financial measures which are not specified under IFRS, are used by the Group to monitor the performance of the business. These include a number of the Financial Highlights shown on page 2. A summary of EPRA performance measures and key Group measures included within these interim results are shown on pages 55 and 56. 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.

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. In order to align with the way the Group is managed, therefore, this financial review presents the financial position, performance and cash flow analysis on a Group share basis.

FINANCIAL POSITION

At 30 June 2018 the Group's EPRA net asset value was £2.8 billion (31 December 2017: £2.8 billion) representing 334 pence per share (31 December 2017: 334 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 2018 was 852.3 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 2017 was 850.6 million.

Investment, development and trading property

The revaluation loss on the Group's property portfolio was £17.1 million for the period, representing a 0.4 per cent decrease in value on a like-for-like basis compared with the IPD Capital Return for the equivalent period of 1.9 per cent. The Group revaluation loss consists of a £36.1 million gain at Covent Garden and a £53.2 million loss at Earls Court.

Total property return for the period was 0.6 per cent. The IPD Total Return index recorded a 4.5 per cent return for the corresponding period.

The revaluation loss of £17.1 million occurred on investment 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 £47.3 million.

Trading property is carried on the consolidated balance sheet at the lower of cost and market value, therefore valuation surpluses on trading property are not recorded. Any unrecognised surplus is however reflected within the EPRA net asset value measure. During the period £2.5 million of the unrealised trading property surplus has been realised. At 30 June 2018, the unrecognised surplus on trading property was £29.3 million (31 December 2017: £31.8 million) which arises solely on the Group's share of trading property at Lillie Square.

Debt and gearing

During the first half of the year the Group agreed terms for two 12 month extensions to the Lillie Square LP facility at the borrower's option. As a result, assuming that both extensions are exercised, the Group's earliest repayment date on its facilities is now May 2021.

The Group's cash and undrawn committed facilities at 30 June 2018 were £886.1 million (31 December 2017: £690.8 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 decreased by £195 million to £539 million, principally as a result of the disposal of the Empress State Building, partly offset by further investment into our assets and the acquisitions at Covent Garden. As set out in the summary adjusted balance sheet, net debt on an IFRS basis was £567 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 16.6 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 2018 the proportion of gross debt with interest rate protection was 90 per cent (31 December 2017: 91 per cent).

The Group remains compliant with all of its debt covenants, details of which are set out on page 55, and has substantial levels of headroom against its covenants across all of its debt facilities. 

At 30 June 2018 the Group had capital commitments of £82.3 million (£61.3 million at 31 December 2017). The increase mainly relates to the signing of the construction contract for Phase 2 of Lillie Square. Capital commitments consist of £6.7 million for Covent Garden and £75.6 million for Earls Court Properties (including the £30.0 million of CLSA instalments and £43.6 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 will run through to 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 £75 million paid to date, £15 million relates to the acquisition of two properties, held as investment and development property, and £60 million relates to options over The Estates which is held as a prepayment within other receivables. The remaining future payments totalling £30 million are disclosed as a capital commitment as referred to above.

The prepayment balance will be transferred to investment and development property once the recognition criteria of 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 year ended 30 June 2018 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 £1.1 million.

5.

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 £4.2 million.

Operating cash outflows of £5.9 million are as a result of changes in net working capital requirements.

During the period, £37.6 million was invested at Covent Garden for the purchase of three properties and subsequent expenditure for the development of property predominantly at Floral Court. At Earls Court, total expenditure of £26.1 million primarily relates to enablement works on ECPL land including the acquisition of the final residential unit at Empress Place and the construction of Lillie Square Phase 2.

The disposal of the Empress State Building through the disposal of subsidiaries resulted in a net inflow of £249.1 million after transaction-related costs. The proceeds were used to reduce the Group's net debt position and will be deployed in Capco's core central London estates.

Net sales proceeds from trading property of £24.4 million (Group share) relates to the disposal of 35 units at Lillie Square.

Net borrowings repaid during the period were £177.5 million.

Dividends paid of £5.0 million reflect the final dividend payment made in respect of the 2017 financial year. This was higher than the previous year due to a lower take up of the scrip dividend alternative, 40 per cent versus 56 per cent for the final dividend in 2016.

Cash and cash equivalents has increased by £18.7 million to £71.0 million, which includes £32.7 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.

1. Lillie Square and Innova Investment.

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

Income

Net rental income has increased by £1.3 million compared to the first half of 2017 as a result of the positive performance of Covent Garden (up 11.6 per cent like-for-like). The net increase of £1.3 million was driven by £2.6 million of additional income on the like-for-like Covent Garden portfolio as the Group continues to convert reversionary potential into contracted rents. Other movements consist of £2.3 million from acquisitions and properties currently held in development, £0.4 million like-for-like increase at Earls Court Properties, and the effect of disposals.

At Covent Garden gross income has increased by 5.8 per cent from £60.1 million at 31 December 2017 to £63.6 million whilst ERV has increased by 2.4 per cent from £104.8 million to £107.3 million over the period.

Loss on revaluation of investment and development property

The loss on revaluation of the Group's investment and development property was £17.1 million. Covent Garden recorded a gain on revaluation of £36.1 million as a result of rental growth. The loss on revaluation at Earls Court of £53.2 million was driven by changes in valuers' assumptions.

Administration expenses

Administration expenses have decreased by £2.2 million in comparison with the first half of 2017 due to efficiency initiatives.

Net finance costs

Net finance costs have decreased to £9.4 million due to the lower level of average borrowings during the period.

Taxation

The total tax charge for the first half of the year, of £1.8 million, is made up of both underlying tax and non-underlying tax.

Tax on underlying profits of the Group was £1.1 million which reflects a rate in line with the current rate of UK corporation tax. The main rate of corporation tax reduced from 20 per cent to 19 per cent from 1 April 2017. The corporation tax rate will further reduce to 17 per cent from 1 April 2020.

Contingent tax, being the amount of tax that would become payable on a theoretical disposal of all investment property held by the Group, as at 30 June 2018 is nil (31 December 2017: nil). A disposal of the Group's trading properties at their market value, net of available losses, would result in a corporation tax charge to the Group of £1.7 million (19 per cent of £9.0 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 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. The Group seeks to protect shareholder value by structuring operations in a tax efficient manner, with external advice as appropriate, which complies with all relevant tax law and regulations and does not adversely impact our reputation as a responsible taxpayer. As a Group, we are committed to acting in an open and transparent manner.

Consistent with the Group's policy of complying with relevant tax legislation and its goal in respect of its stakeholders, the Group maintains a constructive and open working relationship with HM Revenue & Customs which regularly includes obtaining advance clearance on key transactions where the tax treatment may be uncertain.

Dividends

The Board has proposed an interim dividend of 0.5 pence per share to be paid on 21 September 2018 to shareholders on the register at 31 August 2018. 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 all 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 of the Executive Directors, the General Counsel & Director of Corporate Services 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 every 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 note 1 'Principal Accounting Policies' to the consolidated financial statements for the year ended 31 December 2017, 'Critical accounting judgements and key sources of estimation and uncertainty'.

Since the EU Referendum, there has been economic and political uncertainty and this is expected to continue into the foreseeable future. As the 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 decision-making. To date, there has been no 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.

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

London, as a highly desirable global city, continues to attract 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.

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 2017. 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

24 July 2018

Situl Jobanputra

Chief Financial Officer

24 July 2018

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 2018. 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 2018;

· 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.

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

24 July 2018

CONSOLIDATED INCOME STATEMENT (unaudited)

For the six months ended 30 June 2018

1. Earnings per share from discontinued operation are shown in note 12 'Earnings Per Share and Net Assets Per Share'.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

For the six months ended 30 June 2018

CONSOLIDATED Balance sheet (unaudited)

As at 30 June 2018

CONSOLIDATED STATEMENT OF changes in equity (unaudited)

For the six months ended 30 June 2018

CONSOLIDATED STATEMENT OF changes in equity (unaudited)

For the year ended 31 December 2017

CONSOLIDATED STATEMENT OF cash flowS (unaudited)

For the six months ended 30 June 2018

1. Sale of subsidiaries includes £249.1 million relating to the sale of the Empress State Building and £1.3 million (December 2017: £0.5 million) related to deferred consideration on the disposal of The Brewery by EC&O Limited on 9 February 2012. Further information on the sale of the Empress State Building can be found in note 6 'Profit on Sale of Subsidiaries'.

2. Relates to transactions between the Group's treasury function and discontinued operations. The Group operates a central treasury function which manages and monitors the Group's cash balances.

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 and Transparency Rules of the 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 2017, 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 2018 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 2017 were approved by the Board of Directors on 20 February 2018 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, available-for-sale investments 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 24 July 2018.

The condensed consolidated financial statements have been prepared using the accounting policies, significant judgements, key assumptions and estimates set out on pages 102 to 106 of the Group's Annual Report & Accounts for 2017.

Re-presentation of prior year comparatives

Profit on sale of discontinued operation of £2.9 million was disclosed on a separate line item within the Interim Results for the six months ended 30 June 2017. This has been re-presented to be included within profit for the period from discontinued operations which is in line with the 2017 Group's Annual Report & Accounts.

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 2017.

During 2018, the following accounting standards and interpretations have been adopted by the Group:

IFRS 2 'Share-based Payment' (amendment)

IFRS 9 'Financial instruments'

IFRS 15 'Revenue from contracts with customers'

IAS 28 'Investments in Associates' (amendment)

IAS 40 'Investment Property' (amendment)

Amendments to IFRS (Annual improvements cycle 2014-2016)

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 16 'Leases'

Amendments to IFRS (Annual improvements cycle 2015-2017)

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

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

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, the discontinued activity of Venues 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:

1. Venues was 100 per cent owned until 7 April 2017. Subsequent to this the Group share ownership is nil.

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