PRESS RELEASE. 31 July CAPITAL & COUNTIES PROPERTIES PLC ( Capco ) INTERIM REPORT FOR THE HALF YEAR ENDED 30 JUNE 2012

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1 PRESS RELEASE 31 July 2012 CAPITAL & COUNTIES PROPERTIES PLC ( Capco ) INTERIM REPORT FOR THE HALF YEAR ENDED 30 JUNE 2012 Ian Hawksworth, Chief Executive of Capco, commented: This is another strong set of results from Capco as we work to unlock value from our prime central London assets. The creative regeneration of Covent Garden is driving growth, there is positive momentum at Earls Court and Seagrave Road, and our successful recycling of capital gives us a strong balance sheet and the ability to capitalise on future opportunities across our estates. Performance highlights - Good valuation performance across all three estates - 6.8% increase in EPRA adjusted, diluted NAV to 177 pence per share (Dec pence) - 4.8% increase in total property value (on a like-for-like basis) to 1.6 billion (Dec billion) - Proposed 2012 interim dividend of 0.5 pence per share (2011 interim pence) - 7.4% total return in the period Strong performance at Covent Garden as transformation continues - 4.5% increase in valuation (on a like-for-like basis) to 856 million (Dec million) driven by retail, F&B and residential repositioning - New lettings at 9.4% above December ERV - 34 leasing transactions year to date with net rental income of 4.7 million - 9 new retailers and restaurant have taken space in the first 6 months of the year, including Jo Malone, Melissa Shoes, Jamie s Union Jacks and Brasserie Blanc - ERV currently 47.1 million (Dec million); on track to deliver 50 million target in 2013 Further progress at Earls Court and Olympia - 4.6% increase in valuation (on a like-for-like basis) to 620 million (Dec million) driven by Earls Court and Seagrave Road land valuations and Empress State - Earls Court land now valued at 9.5 million per acre (Dec million per acre) - Seagrave Road granted formal planning consent. JV with Kwok family to complete in coming months - Draft terms of Conditional Land Sale Agreement published and to go to future LBHF Cabinet for decision Momentum in capital recycling million of disposals in the first half of 2012, principally from investments in The Great Capital Partnership and China, to reinvest in core estates - 60 million further disposal from GCP in July Financial - 70 million revolving credit facility arranged giving increased financial flexibility - Net debt reduced by 67 million to 397 million. Cash and undrawn committed facilities increased to 248 million (Dec million) - Loan-to-value ratio of 24% (Dec %) - Weighted average cost of debt 4.5% on a pro forma basis (Dec %) 1

2 Outlook Capco has continued to drive performance across its estates during 2012, and this has been reflected in the financial results. The balance sheet remains strong and liquid through continued recycling of capital and further debt refinancing. The Covent Garden estate offers the potential for continued growth through the further evolution of the retail and F&B tenant mix, together with the residential opportunity on the upper floors. Given the performance over the past two years, long-term plans for more significant intervention in certain parts of the estate are being evaluated and planning applications may be submitted in due course. The first formal planning consent in the Earls Court area at Seagrave Road was an important milestone for the Group. We remain hopeful that further positive decisions will be made by the local authorities over the remainder of Whilst mindful of the continued uncertain macroeconomic environment, Capco s estates are strongly positioned within central London which is firmly established as an important global city. We continue to make good progress towards realising our longer term goals. Enquiries Capital & Counties Properties PLC: Ian Hawksworth Chief Executive +44 (0) Soumen Das Finance Director +44 (0) Public relations: UK: Michael Sandler/Wendy Baker, Hudson Sandler +44 (0) SA: Nicholas Williams/Morne Reinders, College Hill +27 (0) A presentation to analysts and investors will take place today at 9:00am BST at UBS, 100 Liverpool Street, London, EC2M 2RH. 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 A copy of this press release is available for download from our website at and hard copies can be requested via the website or by contacting the company ( feedback@capitalandcounties.com or telephone +44 (0) ). 2

3 COMPANY OVERVIEW Capco is one of the largest listed investment and development companies in central London. Our landmark estates, held directly or through joint ventures, are valued at 1.6 billion. We aim to unlock the potential for significant value creation through entrepreneurial asset management and to deliver superior, long-term returns to our shareholders. Our assets are concentrated around three main estates in central London: Covent Garden London This vibrant and historic location is globally recognised as a shopping, dining and leisure destination. It is valued at 856 million. Earls Court and Olympia Including one of London s most important opportunity areas and a leading exhibition business, the EC&O estate has property assets totalling 620 million, including Capco s share of the Empress State Building. The Great Capital Partnership A 50/50 joint venture with Great Portland Estates plc (GPE) which includes properties in prime locations around London s West End worth 159 million (Capco share). FINANCIAL SUMMARY 30 June 30 June 31 December m m m Net rental income Underlying earnings after tax* Gain on revaluation of investment property Profit after tax Total investment and trading properties 1,621 1,502 1,617 Net debt Net assets (EPRA adjusted) 1,232 1,064 1,145 Underlying earnings per share 0.9p 1.0p 1.4p Net assets per share (EPRA adjusted, diluted) 177p 154p 166p Loan-to-value ratio 24% 30% 29% * Appendix 2 provides an analysis of underlying earnings This press release includes statements that are forward-looking in nature. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Capital & Counties Properties PLC to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any information contained in this press release on the price at which shares or other securities in Capital & Counties Properties PLC have been bought or sold in the past, or on the yield on such shares or other securities, should not be relied upon as a guide to future performance. 3

4 OPERATING REVIEW Overview Capco is a central London property company with a focus on delivering market-leading total returns. Capco unlocks the potential of its assets through an entrepreneurial and active asset management strategy creating sustainable long-term value for shareholders. Capco is well positioned in the central London property market particularly across the retail and residential sectors, both of which continue to perform strongly. The strategy of creative regeneration in its Covent Garden estate has seen a transformation of the retail and restaurant offering in the area, whilst also enhancing and improving the public realm and the fabric of the historic district, retaining its character and attracting a new customer demographic into the area. The Earls Court Masterplan for the Earls Court & West Kensington Opportunity Area (ECOA) is centred around Sir Terry Farrell s concept of Four Villages and a 21st Century High Street, and will create 7,500 new homes and 12,000 new jobs in the area. In March, Seagrave Road received planning consent and work is likely to begin on site in 2013 creating 808 new homes and a new garden square for London. Market overview London continues to outperform the UK and further cement its reputation as a global city and a destination for international investment. Whilst the macroeconomic climate continues to be uncertain, the London property market remains robust in both the retail and residential sectors. The Olympic Games place a spotlight on London this summer, showcasing the city to an international audience and increasing exposure and awareness that is likely to have a long lasting positive effect on the capital. The central London retail market remains strong, continuing the differentiation from the rest of the UK, and new international retailers continue to be attracted to the capital. London as a world city remains a flagship destination, where retailers are prepared to pay substantial premiums and rents for stores on the best prime streets. In continuation of the trend established in late 2011, demand continues to outweigh supply in all of the major West End shopping streets. In terms of the residential market, London continues to outperform the rest of the UK and is an attractive and stable option for international investment. On average residential prices currently exceed the September 2007 peak in all prime central London markets and international purchasers still make up a large portion of buyers in prime locations in London. Valuations A revaluation surplus of 75.9 million was achieved on the Group s property portfolio in the first half of 2012, spread across all three estates. Market Market value value Value ERV Initial Equivalent Jun 12 (1) Dec 11 m m % (1) change Change yield yield (2), (3) % (3) % % Covent Garden GCP EC&O Other Total properties 1, , (1) Represents Capco's 50% share where applicable. (2) Valuation change takes account of amortisation of lease incentives, capital expenditure and fixed head leases (3) Like-for-like including both investment and trading properties. Covent Garden s revaluation was driven by the higher rental levels for the retail and food & beverage (F&B) mix together with the residential conversion potential on certain buildings. At Earls Court the valuer has increased the land valuation to 9.5 million per acre from 8.6 million per acre, due to the continued positive progress in the planning process. Seagrave Road has been revalued to the contracted price for the joint venture following receipt of formal planning consent. In addition to the revaluation surplus, profits of 10.8 million on the sale of investment and trading properties in the period contributed to a total property return of 8.0 per cent. 4

5 Covent Garden - Capital value of 856 million as at 30 June 2012, up 4.5 per cent on a like-for-like basis - Net rental income of 15.7 million - ERV of 47.1 million The Covent Garden estate has continued to perform well with a capital value of 856 million, up 4.5 per cent on a like-for-like basis. Occupancy remains high at 99.3 per cent. Year to date, 34 leasing transactions have taken place on the estate securing rental income of 4.7 million, with new lettings at 9.4 per cent over the December 2011 ERV. Nine new retailers and restaurants have taken space in Covent Garden in the first half of the year. ERV is currently 47.1 million and Capco remains on track to achieve the target of 50 million in Footfall remains consistently strong at 44 million with 89 per cent of UK visitors classified ABC1 and we expect the Olympic Games to bring even more visitors into Covent Garden s historic, traffic-free Piazza. Following the purchase of Kings Court in 2011, three new properties were acquired on Bedford Street and Henrietta Street in March and contracts have been exchanged on 14 Garrick Street for 7.7 million in July Long and mid-term development opportunities are being considered to unlock further significant value in the Covent Garden estate. Retail activity Demand remains strong and the estate is now attracting a series of new premium retailers to the area. In July Chanel opened its only fragrance and beauty pop-up store in the UK in the Market Building and the American fashion multi-brand concept, Opening Ceremony, opened its first European store on King Street. This continues the significant changes to the street, with Jo Malone, 7 for All Mankind and Melissa Shoes pop-up boutique opening in the past three months. Hackett has agreed terms to move to 37 King Street setting a new Zone A of 600 per sq ft on King Street. Since 2009, 47 per cent of the brands on King Street have changed. Public realm improvements on King Street were completed in May further enhancing its appearance in line with its emergence as the destination for contemporary luxury in the West End. Food & beverage The strategy to enhance and improve the quality of Covent Garden has resulted in it becoming a destination for new restaurants in London, and demand for space remains high across the estate. Jamie Oliver s new concept, Jamie s Union Jacks, opened in the Market Building in July and is a popular option for both locals and visitors. Tuttons reopened its doors in June following a renovation and MEATmarket, the take-away burger bar from the team behind MEATliquor, opened in Jubilee Hall in May. Raymond Blanc opened Brasserie Blanc on the east terrace of the Market Building in the spring and Keith McNally s Balthazar and Balthazar Bakery are fitting out premises in the former Flower Cellars building next to the recently opened London Film Museum. Residential Earlier this year Capco launched the first of its residential projects at Covent Garden, The Henrietta, bringing the area back to its residential roots. Positioned on the historic Piazza, The Henrietta offers three lateral luxury apartments and a duplex penthouse which was sold in February, setting a record price in excess of 2,500 per sq ft for the area. As part of the ongoing strategy to create value through office to residential conversions, work began on The Russell in January to create a further five luxury apartments and work will begin on The Beecham later this year. Planning consent was also achieved on Southampton Street earlier this year to deliver a further seven apartments. Earls Court & Olympia - Capital value of 620 million as at 30 June 2012, up 4.6 per cent on a like-for-like basis; comprising: o Earls Court 213 million, an increase of 4.8 per cent on 31 December 2011 o Olympia 121 million, value unchanged since 31 December 2011 o Seagrave Road 135 million, an increase of 11.1 per cent on 31 December 2011 o Empress State 110 million, an increase of 7.3 per cent on 31 December 2011 o Other peripheral assets 41 million, an increase of 4.7 per cent on 31 December Net rental income of 14.4 million - EC&O Venues EBITDA 8.0 million down 26 per cent on a like-for-like basis 5

6 EC&O Venues EC&O Venues has contracted 95.4 per cent of its budgeted business for 2012, however due to ongoing uncertainty surrounding Earls Court, EBITDA of the business was 8 million, 26 per cent behind the first half of 2011 on a like-for-like basis, a performance which is in line with expectations. Olympia continues to perform well and ahead of expectations, up 3.8 per cent on a like-for-like basis. Properties representing 1 million of net rental income in the first half of 2012 were moved out of the Venues business in 2011 and are no longer reported within the Venues EBITDA. The Brewery, which was operated by EC&O Venues, was sold in February To date the venues have hosted a number of new events including Toy Fair and Marketing Week Live. Olympia also hosted the 40 th International Fine Art & Antiques Fair in June, attracting over 32,000 visitors to the event. Following the completion of the West Hall the next phase of improvement works to Olympia Two and the conference centre continues on schedule and on budget. In June EC&O Venues became the first exhibition venues to be certified to ISO 20121, the new international standard for event sustainability. Earls Court is an official Olympics venue and is currently hosting the volleyball tournament. Earls Court Masterplan The Earls Court Masterplan is the vision of Sir Terry Farrell to create Four New Villages and a 21 st Century High Street in the Earls Court & West Kensington Opportunity Area (ECOA), as identified in the Mayor s London Plan, covering 77 acres of land (including Seagrave Road) in west London. The development will deliver 7,500 new homes as well as 12,000 new jobs to the area. The planning applications in respect of the Earls Court Masterplan were submitted in June The Royal Borough of Kensington & Chelsea (RBKC) recently made observations on the London Borough of Hammersmith & Fulham (LBHF) outline planning application and made no objections to the scheme. LBHF has indicated that it will hold a planning committee meeting in September and it is anticipated that RBKC will follow during the second half of the year. Negotiations on the Section 106 agreement have been progressing well, and Heads of Terms should be agreed in the coming weeks, but the detailed agreement will take time to finalise and therefore is unlikely to be completed until early Draft terms of the Conditional Land Sale Agreement (CLSA) were published by LBHF in April with the agreement to make a decision to include LBHF s land in the development at a future full Cabinet meeting. Under the draft terms, Capco would be entitled to acquire the Council s 22 acres of land in the Opportunity Area on a phased basis for a total cash consideration of 105 million, plus reprovision (as part of the future development) of the 760 homes currently on the estates, which reflects the prevailing property prices in this part of the Opportunity Area. The Supplementary Planning Document (SPD) was adopted by both LBHF and RBKC in March. Capco has been informed as an interested party that an application for judicial review has been received by LBHF and RBKC in regards to the SPD. The Earls Court Masterplan planning applications are in line with the Core Strategies of both RBKC and LBHF. The previous judicial review application, in respect of the exclusivity agreement, has been withdrawn. In March, Capco agreed with LBHF to acquire any private residential units on the West Kensington and Gibbs Green Estates in the unlikely event that LBHF is required to purchase these properties if an owner brings forward a valid claim under certain provisions of the Town and Country Planning Act These provisions relate to statutory blight suffered as a result of the adoption of the SPD, up to a maximum of 50 million, including certain other related costs. It is intended that costs incurred would be offset against the consideration relating to any future land purchase agreement in respect of the LBHF land. The exclusivity agreement with LBHF has been extended to 29 January Discussions continue with Transport for London (TfL) on the lease regear and its land within the Earls Court Masterplan. Seagrave Road The Seagrave Road development to create 808 high-quality new homes and a new garden square for London received formal planning consent in March, following the signing of the Section 106 agreement. The joint venture agreement with the Kwok Family Interests is expected to complete in the coming months as the conditions precedent have been substantially satisfied and Capco will receive 67 million in cash on closing. Acquisitions of small adjacent sites have been completed to enhance connectivity between the Seagrave Road site and Lillie Road. Following ongoing detailed design work on the scheme, work is expected to commence on site in Empress State Capco s 50 per cent stake in this landmark 31 storey office tower adjacent to the ECOA was valued at 110 million, up 7.3 per cent on a like-for-like basis. The entire building is let to the Metropolitan Police Authority on a long lease which expires in June The lease is subject to annual RPI increases subject to a collar. Capco s share of net rental income was 3.6 million. 6

7 The Great Capital Partnership million raised from disposals in the first half of 2012, further 60 million in July Net rental income of 4.0 million - ERV of 9.3 million Following the sale of five properties in April together with Old Court Place and Park Crescent East earlier in the year, the Group has sold the Jermyn Street Estate to GPE for 120 million (Capco share 60 million), a 3 per cent premium to the June valuation. Proceeds net of debt paydown were 38 million. So far in per cent of the December book value of properties have been sold out of GCP, including the Jermyn Street estate sold in July. These asset sales have generated 162 million (Capco share). China The Group continues to receive capital from its remaining investments in China to recycle into the core business. 16 million has been received during 2012 to date, and the value of the remaining investments is 5.6 million as at 30 June Corporate Governance The Board is pleased to welcome Demetra Pinsent who joined as a Non-Executive Director in May. Demetra is a former partner of McKinsey & Co and was leader of McKinsey's European Apparel, Fashion and Luxury Goods Practice for five years, advising leading high street, aspirational and luxury retailers and brands. Demetra has also acted as an adviser to emerging British luxury businesses. Dividends The Board has proposed an interim dividend of 0.5 pence per share to be paid on 18 September 2012 to shareholders on the register at 24 August Subject to SARB approval, a scrip dividend alternative will be offered. Outlook Capco has continued to drive performance across its estates during 2012, and this has been reflected in the financial results. The balance sheet remains strong and liquid through continued recycling of capital and further debt refinancing. The Covent Garden estate offers the potential for continued growth through the further evolution of the retail and F&B tenant mix, together with the residential opportunity on the upper floors. Given the performance over the past two years, long-term plans for more significant intervention in certain parts of the estate are being evaluated and planning applications may be submitted in due course. The first formal planning consent in the Earls Court area at Seagrave Road was an important milestone for the Group. We remain hopeful that further positive decisions will be made by the local authorities over the remainder of Whilst mindful of the continued uncertain economic environment, Capco s estates are strongly positioned within central London which is firmly established as an important global city. We continue to make good progress towards realising our longer-term goals. 7

8 FINANCIAL REVIEW During the first half of 2012 the retail and residential sectors of the London property market continued to perform well with strong tenant and investor demand for well managed properties in prime central London locations. The Group s investment property portfolio recognised a like-for-like valuation increase of 70.1 million, a 4.6 per cent increase (4.8 per cent when adjusted for unrecognised valuation gains on the Group s trading property portfolio). This valuation increase helped deliver a pre-tax profit of 99.0 million compared to 70.2 million for the first half of Capital recycling has continued apace with 125 million released, principally from investments in The Great Capital Partnership and China, for use in the Group s core estates. EPRA adjusted, diluted net assets per share rose 6.8 per cent during the period increasing from 166 pence at 31 December 2011 to 177 pence. The 11 pence increase together with the 1.0 pence dividend paid during the period represents a 7.4 per cent total return for the period. Underlying earnings of 6.1 million remain consistent with that achieved in the first half of The anticipated reduction in net rental income has been offset by a reduction in underlying finance costs. An increase in the weighted average shares on issue, the result of the capital raising in May 2011, accounts for the slightly lower per share earnings for the first half of 2012 of 0.9 pence. In May 2012 the Group secured its first revolving credit facility, providing increased financial flexibility and allowing its cash reserves to be utilised more efficiently. Weighted average debt maturity has been extended to 4.5 years from 3.6 years at 31 December Financial Position At 30 June 2012 the Group s EPRA adjusted net assets stand at 1.2 billion representing 177 pence per share adjusted and diluted, an increase of 11 pence during the first half of This increase has been driven by the revaluation of the Group s property portfolio which lifted net asset value per share by 10.9 pence. The valuation surplus on a like-for-like basis of 4.6 per cent (4.9 per cent overall) was the result of a solid valuation performance across all three estates. At Covent Garden higher rental levels were achieved on retail and F&B assets together with the residential conversion potential on certain buildings.this was a good performance against the backdrop of macroeconomic uncertainty, illustrated by the IPD Capital Growth index for the corresponding six month period which fell 2 per cent. The Group s valuer at Earls Court & Olympia, Jones Lang LaSalle, continues to recognise the redevelopment potential of the Group s land interests at Earls Court to exceed that of its existing use as an exhibition centre. This step change in valuation basis, first achieved in the second half of 2011, reflects the progress made towards achieving planning consents on the ECOA. The valuation at 30 June 2012 attributed a land value of 9.5 million per acre to the site which compared to 8.6 million at 31 December June 31 December m m Investment and trading property 1, ,617.0 Investments Net debt (397.1) (463.7) Other assets and liabilities (43.1) (69.7) IFRS net assets 1, ,103.1 Fair value of derivative financial instruments Deferred tax liabilities on exceptional items Unrecognised surplus on trading properties EPRA adjusted net assets 1, ,145.4 EPRA adjusted, diluted net assets per share (pence)

9 Capital recycling The first half of 2012 saw continued momentum towards unlocking liquidity from non-core assets in support of the Group s core strategy. 30 June 31 December m m Acquisitions Redevelopment expenditure Less: Divestment (124.9) (103.2) Net liquidity (generated) / invested (92.2) 57.9 In December 2011 the Group entered into a conditional agreement with the Kwok Family Interests to acquire a 50 per cent stake in the Group s interests at Seagrave Road for 67 million. The agreement was subject to certain conditions, including obtaining planning consent free from challenge. The conditions were substantially fulfilled in July 2012, and the joint venture is now scheduled to complete as planned during the second half of the year. During the period 102 million of assets were sold from The Great Capital Partnership at an 8.5 per cent premium to the December 2011 valuation. As outlined in note 20, a further sale from The Great Capital Partnership has been completed in July Neither transaction is yet reflected in the table above. Future capital commitments at 30 June 2012 amount to 17.7 million (31 December million). Debt & Gearing The first half of 2012 saw net debt reduce by 67 million to 397 million, gross debt by 103 million to 450 million and cash and undrawn committed facilities increase to 248 million. In May 2012 the Group signed a 70 million revolving credit facility secured over certain assets within the Covent Garden estate, therefore retaining the Group s non-recourse debt structure. This facility provided sufficient financial flexibility and liquidity to allow the Group to repay in full the remaining debt of 93 million secured over Earls Court & Olympia, reducing the cash drag created by unrestricted cash reserves. At 30 June 2012 the revolving credit facility was drawn to 30 million. Further debt prepayments totalling 37 million reduced the Group s joint venture debt, primarily following the sale of non-core properties from within The Great Capital Partnership. The gearing measure most widely used in the industry is loan-to-value ( LTV ). As a result of the debt repayments described above together with the increase in value of the Group s property assets, LTV has continued to improve. Given the current economic climate, the modest level of LTV at 24 per cent is considered prudent. 30 June 31 December Loan-to-value 24% 29% Interest cover 158% 134% Weighted average debt maturity 4.5 years 3.6 years Weighted average cost of debt 5.0% 5.8% Proportion of gross debt with interest rate protection 100% 95% Debt prepayment and repayment have been targeted at shorter dated maturities, helping to extend the weighted average debt maturity to 4.5 years and reduce refinancing risk. Following the latest GCP prepayment of 21 million in July 2012, the Group now has 128 million of debt maturing in 2013 relating to its two joint ventures, and refinancing discussions are underway. A detailed breakdown of debt by maturity together with the latest covenant test results is shown in appendix 3. The cost of debt at 30 June 2012 has fallen significantly since December 2011 to 5.0 per cent. Re-profiling of the interest rate swaps in The Great Capital Partnership in July has lowered this further to 4.5 per cent on a pro forma basis. 9

10 Derivatives The Group s policy is to substantially eliminate the short and medium-term risk arising from interest rate volatility. The Group s banking facilities are arranged on a floating-rate basis, but swapped to fixed-rate or capped using derivative contracts coterminous with the relevant debt facility. At 30 June 2012 the proportion of gross debt with interest rate protection was 100 per cent. During the period, to take advantage of the low interest rate environment, the Group re-profiled certain derivative contracts lowering the overall fixed rate coupon paid on certain interest rate swaps. Investments in China Divestment has continued as planned with 16 million returned during the first half of The final asset, a retail development in Beijing, is expected to go under contract during the second half of the year. Cash flow A summary of the Group s cash flow for the half year ended 30 June 2012 is set out below. 30 June 30 June m m Recurring cash flows after interest and tax Property investment and developments (32.7) (109.0) Sale proceeds of property and investments Demerger costs (0.7) Pension funding (3.6) VAT paid on internal restructure (22.2) Cash flow before financing 76.3 (63.5) Financing Dividends paid (106.9) 72.4 (5.7) (6.2) Net cash flow (36.3) 2.7 Typically the main cash flow items are operating cash flows, dividends paid and capital transactions undertaken. Recurring cash inflows were 6.1 million compared to 2.7 million for the first half of 2011, due mainly to the lower interest costs. Capital transactions comprise property acquisitions and disposals, together with investment and divestment in other long-term assets. During the first half of 2012, sale proceeds of property and investments comprised 102 million received from the sale of assets within The Great Capital Partnership, 16 million returned from investments in China and 7 million from smaller disposals from both the Covent Garden and Earls Court estates. Property investments and development comprise acquisitions of 12 million, 8 million of which was invested in strategic acquisitions within the Covent Garden estate. Development expenditure totalled 21 million in the first half of 2012, 16 million of which was towards the redevelopment of Earls Court and Seagrave Road and improving the Olympia exhibition halls. With disposal proceeds exceeding acquisition costs and development expenditure in the first half of 2012, the flexibility provided to the Group from the recently agreed revolving credit facility has allowed this cash to be used for repayment of shorter-term debt, reducing cash drag and refinancing risk. To align the corporate structure to long-term strategy an internal reorganisation was undertaken in November 2011 to segregate the operating business at Earls Court and Olympia from the development opportunity. As a result an internal sale and purchase was determined to constitute a VAT supply between two internal VAT groups. During the six months to December 2011 input VAT of 22 million had been received from HMRC but, due to the timing of returns, the equal and offsetting output VAT was not settled until January Dividends paid of 5.7 million reflect the final dividend payment made in respect of the 2011 financial year. This is slightly lower than the previous corresponding period due to the scrip dividend alternative offered to shareholders. 10

11 Financial Performance The Group has presented an underlying calculation of profit after tax and adjusted earnings per share figures in addition to the amounts reported under IFRS. The Directors consider this presentation to provide useful information on the underlying performance of the business as it removes exceptional and other one-off items. 30 June 30 June m m Net rental income Other income Gain on revaluation and sale of investment property Administration expenses (12.4) (11.0) Net finance costs (14.3) (12.8) Profit on sale of investments Remeasurement of deferred consideration (4.2) Taxation (3.8) (1.7) IFRS profit for the period attributable to owners of the Parent Adjustments: Gain on revaluation and sale of property (81.2) (42.4) Change in fair value of derivative financial instruments (1.2) (5.7) Exceptional finance costs Profit on sale of investments (10.4) (18.8) Remeasurement of deferred consideration 4.2 Other adjustments 1.9 (0.4) Underlying profit after tax ` Underlying earnings per share (pence) Exceptional items In addition to revaluation surpluses on investment and development property and fair value movements on derivative financial instruments, exceptional items which have been removed from the calculation of underlying profit include: - Profit on sale of trading property of 2.1 million; - Finance charges of 1.8 million relating to the termination of interest rate swaps following debt prepayments and arrangement fees for the Group s revolving credit facility; - Profit on sale of investments of 10.4 million: 8.7 million following further divestment of China investments and 1.7 million relating to profits on disposal of two operating businesses completed in February Income Like-for-like net rental income fell 4.9 per cent to 34.1 million, a reduction of 2.6 million on the first half of The Great Capital Partnership fell 0.5 million on a like-for-like basis. Asset sales completed to date in 2012 contributed 2.3 million to net rental income during the six months to 30 June The continued uncertainty surrounding the venues business at Earls Court resulted in lost shows and a reduction in the size of certain exhibitions retained. This was offset in part by a good performance at Olympia and the RPI-linked rental uplift at Empress State, resulting in a 15 per cent fall in like-for-like net income for the EC&O segment. Net rental income at Covent Garden has increased 12.1 per cent on a like-for-like basis on the previous corresponding six month period, most notably from new letting activity and acquisitions completed during the first half of Other income of 2.1 million comprises trading property profits achieved on the sale of residential developments at Covent Garden. 11

12 Property valuation and sales As outlined earlier the value of the Group s property portfolio has increased the net asset value per share by 10.9 pence, a rise of 75.9 million in the first half of During the period investment properties of 19 million were transferred to trading property following commencement of development with a view to sale. The unrecognised valuation surplus during the period of 5.5 million on the Group s trading properties will not be recognised in income until disposal although this is included within adjusted net asset value per share. Profits of 8.7 million were realised on the sale of investment properties during the period, notably from The Great Capital Partnership where sales in the first half of 2012 were achieved at an average of 8.5 per cent above 31 December 2011 market values. In total since demerger the Group has realised valuation gains of 56 million from this Estate. Administration expenses Underlying administration expenses increased 13 per cent to 12.4 million. This is the result of becoming a standalone business in May 2010 and the expiration of transitional services provided by the Group s former parent in June This increase is in line with expectation and broadly indicative of normalised operating costs. Net finance costs Excluding gains and losses on the change in fair value of derivatives, one-off costs incurred on the termination of interest rate swaps and arrangement fees relating to the Group s revolving credit facility, underlying net finance costs for the period fell to 13.7 million from 17.7m for the six months ending 30 June This reduction reflects the impact of debt prepayments and repayments together with the benefit of refinancing during a period of historically low interest rates. Taxation The net tax charge for the period is 3.8 million, 1.9 million arising on underlying income. This represents an underlying tax rate of 24 per cent. Although not included in underlying tax, a charge of 0.5 million was incurred on the disposal of residential properties at Covent Garden. Contingent tax, the amount of tax that would become payable on a theoretical disposal of all investment properties held by the Group, is nil. The contingent tax position is arrived at after allowing for Group loss relief and indexation. Dividends At the Company s Annual General Meeting in April 2012, the proposed scrip dividend scheme was approved by shareholders and a scrip dividend alternative was offered to shareholders in respect of the final 2011 dividend. Take-up was relatively low (circa 16 per cent) with 541,709 new ordinary shares issued. The Board has proposed an interim dividend of 0.5 pence per share to be paid on 18 September 2012 to shareholders on the register at 24 August Subject to SARB approval, the Board again intends to offer a scrip dividend alternative. 12

13 PRINCIPAL RISKS AND UNCERTAINTIES Effective risk management is integral to delivering Capco s strategic priorities. The Board has delegated responsibility for assurance for the risk management process and the review of mitigating controls to the Audit Committee. Executive Directors together with Senior Management from every division and corporate function of the business complete a Group risk register. Risks are considered in terms of their impact and likelihood from both a financial and reputational perspective. Risks are assessed both gross and net of mitigating controls. Review meetings are held to ensure consistency of response and adequacy of grading. Detailed risk registers are reviewed twice yearly and upon any material change in the business with a full risk review undertaken annually, at which point it is also reviewed in detail by the Audit Committee with new or emerging risk considered by the Committee as appropriate. This allows the Audit Committee to monitor the most important controls and prioritise risk management and internal audit activities accordingly. The Board has reviewed the principal risks in the context of the second half of current financial year. There has been no significant changes to the principal risks and uncertainties as disclosed in the annual report and accounts for the year ended 31 December What follows are the principal risks and uncertainties from across the business. These are not exhaustive, the Group monitors a number of additional risks and adjusts those considered principal as the risk profile across the business changes. 1. Corporate Risks Impact: The Group s ability to maintain its reputation, revenue and value could be damaged by corporate risks Risk Impact potential Mitigation factors Responding to regulatory and legislative challenges. Responding to reputational, communication and governance challenges. Inability to implement strategy or correctly allocate capital. Reduced flexibility and increased cost base. Reputational damage and increased costs. Constraints on growth and reduced profitability. Sound governance and internal policies with appropriately skilled resource and support from external advisers as appropriate. Appointment of experienced individuals with clear responsibility and accountability. Clear statements of corporate and social responsibility, skilled Executive and Non-executive Directors, with support from external advisors as appropriate. Regular strategic reviews and monitoring of performance indicators. Adequacy of partner evaluation and management of key suppliers. Non-REIT status brings heightened tax exposure and a potential competitive disadvantage when bidding for new assets. Risk associated with attracting and retaining staff. Failure to comply with health and safety or other statutory regulations or notices. Reduced profitability and reputational damage. Competitive disadvantage. Inability to execute business plan. Loss or injury to employees, tenants or contractors and resultant reputational damage. Corporate level oversight of capital allocation. Detailed capital planning and financial modelling. Maintain adequate cash and available facilities together with conservative leverage. Appropriate due diligence and consultation. Focus on assets and estates where skills can be applied to create enhanced value. Succession planning, performance evaluations, training & development, long-term incentive rewards. Sound systems and processes to effectively capture and manage information. Comprehensive health and safety procedures in place across the Group and monitored regularly. External consultants undertake annual audits in all locations. Safe working practices well established, including staff communication and training. 13

14 PRINCIPAL RISKS AND UNCERTAINTIES (continued) 2. Financing Risks Impact: Reduced or limited availability of debt or equity finance may threaten the Group s ability to meet its financial commitments or objectives and potentially to operate as a going concern Risk Impact potential Mitigation factors Decline in market conditions or a general rise in interest rates could impact the availability and cost of debt financing. Reduced financial and operational flexibility. Maintain appropriate liquidity to cover commitments. Target longer and staggered debt maturities to avoid refinancing concentration and consideration of early refinancing. Covenants breached. Reduced availability of equity capital. Cash reserves required to prepay debt facilities. Constrained growth, lost opportunities, higher finance costs. Derivative contracts to provide interest rate protection. Regular monitoring of covenants with headroom maintained. Maintain appropriate liquidity to cover commitments. Target conservative overall leverage levels. 3. Economic Risks Impact: Economic factors may threaten the Group s ability to meet its strategic objectives Risk Impact potential Mitigation factors Rents decline as a result of lower demand from occupiers due to increased competition, changes in social behaviour or deteriorating profitability and confidence during a period of economic uncertainty. Decline in UK commercial or residential real estate market. Restricted availability of credit and higher tax rates and macroeconomic factors may lead to reduced consumer spending and higher levels of business failure. Declining profitability. Declining valuations. Decline in demand for the Group s rental properties, reduced profitability. Focus on quality tenants with initial assessment of credit risk and active credit control. Diversity of occupier mix with limited exposure to any single tenant. Strategic focus on creating retail destinations and residential districts with unique attributes. Focus on prime assets. Regular assessment of investment market conditions including bi-annual external valuations. Regular monitoring of covenants with headroom maintained. 4. Concentration of Investments Impact: Heightened exposure to events that threaten or disrupt central London Risk Impact potential Mitigation factors Events which damage or diminish London s status as a global financial, business and tourist centre could affect the Group s ability to let vacant space, reduce the value of the Group s properties and potentially disrupt access or operations at the Group s head office. Changes to or failure of infrastructure. Concentration of higher profile events in central London (e.g. Olympics). Significant business disruption. Terrorist insurance in place. Security and health & safety policies and procedures in offices. Close liaison with police & National Counter Terrorism Security Office (NaCTSO). Disaster recovery and business continuity planning. Active involvement in organisations and industry bodies promoting London. 14

15 PRINCIPAL RISKS AND UNCERTAINTIES (continued) 5. Development Risks Impact: Inability to deliver against development plans, particularly regarding ECOA Risk Impact potential Mitigation factors Unable to secure planning consent due to political, legislative or other risks inherent in the planning environment. Risk of delay due to Secretary of State call-in or judicial review. Inability to gain the support of influential stakeholders. Delayed implementation. Pre-application consultation and involvement with key stakeholders and landowners. Engagement with relevant authorities at a local and national level to ensure development proposals are in accordance with current and emerging policy. Project team of internal staff and external consultants with capabilities across all relevant areas. Technical studies with regular review. Failure to demonstrate or implement viable development due to environmental, transportation and affordable housing impact or other technical factors. Punitive cost, design or other implications. Inability to reach agreement on lease extension or land deals with adjacent landowners (including risk of Section 34A of the Housing Act 1985 in relation to LBHF land in ECOA). Higher volatility in valuations and Group s returns. Responsive consultation with evidence based information and focus on agreed statements of common ground. Extensive consultation, design and technical work undertaken along with informed market valuation and open dialogue with adjacent landowners. Properly tendered processes to select contractors and manage costs. ECOA Masterplan design allows the development of each landowner s site individually. 15

16 DIRECTORS RESPONSIBILITY STATEMENT The Directors are responsible for preparing the condensed set of financial statements, in accordance with applicable law and regulations. The Directors confirm that, to the best of their knowledge: the condensed set of financial statements on pages 18 to 39 has been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union; and the condensed set of financial statements on pages 18 to 39 includes a true and fair view of the information required by Sections DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules of the United Kingdom s Financial Services Authority. The operating and financial review on pages 4 to 12 refers to important events which have taken place in the period. The principal risks and uncertainties facing the business are referred to on pages 13 to 15. Related party transactions are set out in note 19 of the condensed set of financial statements. A list of current Directors is maintained on the Capital & Counties Properties PLC website: By order of the Board I D Hawksworth Chief Executive S Das Finance Director 31 July

17 INDEPENDENT REVIEW REPORT TO CAPITAL & COUNTIES PROPERTIES PLC Introduction We have been engaged by the company to review the condensed set of consolidated financial statements in the interim report for the half year ended 30 June 2012, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and related notes. We have read the other information contained in the interim report for the half year and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. Directors responsibilities The interim report for the half year is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report for the half year in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim report for the half year has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the interim report for the half year based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, 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. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making 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 Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report for the half year ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. PricewaterhouseCoopers LLP Chartered Accountants 31 July 2012 London Notes: (a) The maintenance and integrity of the Capital & Counties Properties PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 17