CAPITAL & COUNTIES PROPERTIES PLC ("CAPCO")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2017

Ian Hawksworth, Chief Executive of Capco, commented:

"Our two central London estates have had an active start to the year. Covent Garden which now represents two thirds of our business is established as a world class retail and dining destination and continues to deliver positive rental and value growth. There has been strong operational progress across the estate with 43 new leasing transactions signed during the period, including brands such as Kent & Curwen, and a number of new openings including The Henrietta Hotel. Our ERV target of £125 million by December 2020 remains in place, reflecting the positive growth prospects of the estate.  

At Earls Court land enablement works are on track and we continue to progress plans for the enhanced Masterplan to maximise the potential of this strategic land holding. At Lillie Square, we have now pre-sold over half of the entire development and handover of Phase 1 is expected to complete by the end of the year. 

Following the sale of Venues and the financing activities undertaken during the period, Capco enters the second half of the year with a strong balance sheet, low leverage and high liquidity. Whilst the broader macroeconomic and political outlook remains uncertain, Capco is very well positioned to drive long-term value creation from its two unique estates and take advantage of opportunities to create further value as they arise."

 Key financials

-       Equity attributable to owners of the Parent £2.8 billion (Dec 2016: £2.8 billion)

-       EPRA NAV adjusted marginally by 0.1 per cent to 339.1 pence per share (Dec 2016: 339.6 pence)

-       Total property value £3.5 billion, up 0.2 per cent (like-for-like) (Dec 2016: £3.7 billion)

-       Proposed interim 2017 dividend of 0.5 pence per share (Jun 2016: 0.5 pence per share)

Continued rental growth at Covent Garden

-       Covent Garden total property value of £2.4 billion, up 1.5 per cent (like-for-like) (Dec 2016: £2.3 billion)

-       Positive operational momentum; 43 new leases and renewals 4 per cent above December 2016 ERV

-       ERV up 2.8 per cent (like-for-like) at £99 million

-       Capturing income growth; NRI up 7.4 per cent (like-for-like) since June 2016

-       Development of Floral Court on track for completion by the end of 2017

-       Positive progress towards ERV target of £125 million by December 2020

Positive progress at Earls Court

-       Earls Court interests valued at £1.1 billion, a decrease of 2.4 per cent (like-for-like) (Dec 2016: £1.1 billion)

-       Positive engagement with stakeholders on enhancing the Earls Court Masterplan

-       Land enablement works on track for completion by the end of 2017

-       Lillie Square

§ Successful completion of 78 units to date, Phase 1 handovers on track to substantially complete by the end of the year 

§ At Phase 2, 86 units reserved or exchanged, pricing continues at a modest premium to comparable units in Phase 1

Sale of Venues

-       Sale of Venues for £296 million, a slight premium to asset value

-       £230 million net proceeds for deployment in core central London estates

Strong financial position with significant financial flexibility

-       Group loan-to-value ratio 18 per cent (Dec 2016: 23 per cent)

-       New £225 million US Private Placement signed

-       Cash and available facilities of £577 million (Dec 2016: £556 million)

-       Capital commitments of £107 million (Dec 2016: £157 million)

FINANCIAL HIGHLIGHTS

1. On a Group share basis. Refer to Property Data on page 50 for the Group's percentage ownership of property.

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

3. From continuing and discontinued operations. Refer to Consolidated Underlying Profit Statement on page 52.

Outlook

Capco has had a positive start to the year. Covent Garden, which represents 68 per cent of Capco's portfolio, is now at the forefront of global destinations for brands and visitors. Our careful curation of the estate with emphasis on strengthening our core categories and customer experience continues to create value for our retailers through attracting high quality footfall and positive sales growth. We are delighted with the positive demand for all uses across the estate and signing new brands such as Kent & Curwen and Oystermen during the period.

At Earls Court, land enablement work continues and is on track for completion by the end of the year, in preparation for future development. We continue to progress planning activities through positive engagement with the relevant stakeholders on an enhanced Masterplan. At Lillie Square, handover of Phase 1 units is progressing well and sales of Phase 2 continue at a modest premium to comparable units in Phase 1. 

Whilst the broader macroeconomic and political outlook remains uncertain, Capco is very well positioned to create long-term value for shareholders from its two unique central London estates. Covent Garden, located in the heart of London's West End, is a global retail and dining destination well positioned to continue to outperform. Earls Court is a unique investment opportunity in central London, and progress on land enablement and planning activities will continue to drive long-term value creation.

Capco maintains a strong balance sheet, with low leverage, high liquidity and modest capital commitments. Following the sale of Venues and the financing activities undertaken over the period, Capco has strengthened its liquidity position ensuring it is well placed to drive long-term value creation from its two unique estates and take advantage of opportunities to create further value as they arise.

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

Overview

Capco's strategy is focused on driving value creation at its two major central London estates. Covent Garden, which represents 68 per cent of Capco's portfolio, is a world class retail and dining destination with a growing number of global retailers and restaurateurs choosing Covent Garden as their first or only London presence. Capco's distinct approach to place making, together with creative asset management and strategic investment, continues to attract target brands, visitors and residents and drive rental growth across the estate.

The consented Masterplan at Earls Court provides a unique long-term opportunity to create the next great estate of London. Over 70 acres of strategic land in Chelsea and Fulham, the Earls Court Masterplan is the only consented scheme capable of scale within central London due to the strong existing transport infrastructure and consolidated land ownerships. It is a key strategic scheme for the capital and discussions are ongoing to maximise the potential of this unique opportunity. 

Whilst the broader macroeconomic and political outlook remains uncertain, London is a global city with a dynamic economy and growing population and has consistently demonstrated its ability to reinvent itself. Against a backdrop of London's continued prosperity, Capco's two unique central London estates are well placed to create long-term value for shareholders.

Furthermore, Capco regularly considers opportunities where its core skills of place making and master planning can be utilised, in particular, through its 50 per cent interest in the Innova Investment joint venture (formerly named the Solum Regeneration joint venture) with Network Rail, which explores potential opportunities for future redevelopments at significant railway station sites across London.

Valuations

The total property value of the Group increased 0.2 per cent (like-for-like) in the period to 30 June 2017 to £3.5 billion.

The valuation of Covent Garden has risen by 1.5 per cent (like-for-like) to £2.4 billion, driven by rental growth of 2.8 per cent achieved over the period. The equivalent yield remains broadly unchanged at 3.58 per cent, reflecting the valuer's current view of the strength of demand for central London retail investments.

The valuation of Earls Court Properties is £1.1 billion, a decrease of 2.4 per cent (like-for-like). A number of adjustments have been made to the component parts of the valuation including amendments to the development programme and cost inflation as well as moderation of sales value progression on future phases at Lillie Square.

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 Earls Court Partnership Limited ("ECPL"), the investment vehicle with Transport for London ("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 of the Financial Review for further information.

COVENT GARDEN

A leading global retail and dining destination

Covent Garden has established itself as a leading global retail and dining destination in the heart of London's West End. Capco's creative approach to asset management with emphasis on core categories and customer experience continues to drive leasing momentum, sales growth and quality footfall on the estate.

In the six months to 30 June 2017, Covent Garden performed positively with the value of the estate up 1.5 per cent like-for-like to £2.4 billion. The ERV for the estate has increased 2.8 per cent like-for-like to £98.8 million. The ERV target of £125 million by December 2020 remains in place. Covent Garden's rental growth prospects remain strong and the estate is well placed to outperform the wider central London market due to its innovative repositioning strategy, its experiential approach to placemaking and its global reputation.

During the period to 30 June 2017, 43 leasing transactions including new leases and renewals representing £6.6 million of rental income per annum were transacted at 3.9 per cent above 31 December 2016 ERV. A new Zone A rent of over £700 per square foot for The Market Building was achieved this period. Net rental income is £23.4 million for the first half of the year, up 7.4 per cent (like-for-like) compared to the first half of 2016. Occupancy on the estate remains high at 97 per cent.

Retail

Building on the success of the gifting and luxury accessories strategy introduced last year, Capco has further strengthened its offering at the Royal Opera House Arcade through the signing of luxury sunglasses brand Linda Farrow which will offer a range of timeless frames, including a pair exclusive to Covent Garden. This exciting addition joins the curated line-up of premium retailers already in the Arcade, including Mulberry, The Watch Gallery as well as N.PEAL and Tom Davies which are due to open shortly. In addition, Bose have taken space on King Street offering innovative sound systems.

Continuing the positive leasing progress across the estate, new Zone A levels have been achieved reflecting the strong demand for space in this iconic setting. The latest signing to the Market Building is premium watch brand Daniel Wellington, who have chosen Covent Garden as the location for their first UK store. Their timeless collection of watches will complement the luxury gifting and accessories offering already in The Market Building.

British heritage sportswear brand, Kent & Curwen, will open the brand's first store under the partnership of Creative Director, Daniel Kearns and Business Partner, David Beckham later this year at 12 Floral Street. This signing reflects the retail heritage of Floral Street and marks its ongoing repositioning as a fashion and lifestyle destination, anchored by both Paul Smith and British lifestyle concept Petersham Nurseries who will open within the Floral Court development.

The transformation of Henrietta Street continues with a strategy to create a new menswear and dining destination in London. Luxury men's shoe brand, Cheaney and Parisian outerwear clothing concept K-Way opened stores at the beginning of the year. In addition, the latest signing to the street is another UK first, eyewear brand Bailey Nelson.

Dining

The quality and variety of the dining offer at Covent Garden continues to strengthen, further enhancing the estate's reputation for destination dining.

The Experimental Group have partnered with Michelin-starred chef Ollie Dabbous to open their latest concept in London on Henrietta Street at The Henrietta Hotel. The concept includes a bar and restaurant offering a French seasonal menu as well as an 18 bedroom boutique hotel.

The latest opening on Henrietta Street is a new signing, The Oystermen providing a relaxed, affordable and fun dining experience offering the finest and freshest oysters and seafood from the British Isles enhanced by a carefully-curated wine list and bespoke oyster stout. Since 30 June, British artisanal coffee shop Host has agreed to take space alongside The Oystermen. Both signings will further enhance Covent Garden's restaurant scene.

In May, Covent Garden sponsored a garden at the Chelsea Flower Show celebrating  '500 Years of Covent Garden'. The Garden has been successfully transplanted to the Piazza transforming into The Terrace at Covent Garden and will be in place throughout the summer.

Developments   

The Floral Court development continues to make positive progress and is on track for completion by the end of 2017. Floral Court will provide over 85,000 square feet (NIA) of space with eight retail and two restaurant units as well as 45 premium apartments above the development. A new connecting passage between Floral Street and King Street through the development will transform the pedestrian flow on the estate. The world renowned lifestyle brand Petersham Nurseries will open bespoke retail and dining concepts across four units later this year.

The redevelopment of 11-12 Floral Street, the building formerly occupied by The Sanctuary, is on track for completion by the end of 2017 providing 27,000 square feet (NIA) and will include the creation of two new retail units with flagship potential, one of which has been pre-let to Kent & Curwen which represents an encouraging start to the repositioning of Floral Street.

Development of Opera Terrace completed during the period. SushiSamba are currently fitting out the space and will open later this year.

Residential

Capco continues to restore the estate's residential heritage. The latest conversion at 26-27 Southampton Street completed earlier this year and good progress has been made in letting these units in line with expectations.

In addition, the final two units at The Beecham have been sold. The average sales price achieved across the scheme was £2,800 per square foot.

Acquisitions

We have continued to expand our presence on the estate through a small acquisition on Floral Street for £5.9 million and will continue to seek opportunities to further enhance our footprint in the area.

EARLS COURT PROPERTIES

Strategic consented land in Chelsea and Fulham

Underpinned by Capco's distinct approach to place making, the Earls Court Masterplan represents an opportunity to create the next great estate of London. Covering over 70 acres of prime, strategic land in Chelsea and Fulham, the mixed-use scheme is a GLA "Opportunity Area", making it a key strategic scheme for the capital and is currently consented to provide 7,500 new homes, creating 10,000 jobs and will deliver over £450 million in community benefits.

The Masterplan is located in an established London neighbourhood, supported by excellent transport infrastructure and is the only central London Opportunity Area of scale with the potential to deliver substantially more housing. Accordingly, representations have been made by Capco to the GLA's London Plan to deliver 10,000 new homes, an additional 2,500 homes above the current consented scheme.

The current GLA London Plan estimates that London's population will grow by two million by 2036 and the provision of housing is a key priority with the capital requiring over 40,000 new homes per annum. Against the backdrop of London's growing housing needs, maximising Opportunity Areas is seen as vital in order to meet London's demands. Capco remains focused on maximising the potential of the strategic land holding. Over the period Capco has had positive engagement with a number of relevant stakeholders on opportunities to evolve and enhance the Masterplan.

Earls Court Properties represents Capco's interests in Earls Court, which principally comprise:

-      63 per cent interest in ECPL: the investment vehicle with TfL in respect of EC1 & EC2, and including certain assets on and around Lillie Road

-      100 per cent of the Empress State Building

-      50 per cent interest in the Lillie Square joint venture

In 2013, Capco exercised its option under the CLSA, a binding agreement in relation to the West Kensington and Gibbs Green Estates. To date, Capco has paid £60 million of the £105 million cash consideration payable to LBHF including two of the five annual instalments of £15 million. Enabling works on Block D of Lillie Square foundations have completed and basement works are underway to facilitate the first phase of replacement housing for the West Kensington and Gibbs Green estates residents.

The valuation of Earls Court Properties is £1.1 billion, a decrease of 2.4 per cent (like-for-like). A number of adjustments have been made to the component parts of the valuation including amendments to the development programme and cost inflation as well as moderation of sales value progression on future phases at Lillie Square.

Land enablement

ECPL, the venture with TfL in respect of EC1 & EC2, owns 999 year leases over the EC1 & EC2 land together with certain adjacent properties primarily located on or around Lillie Road. Capco owns a 63 per cent share and is leading the venture in its role as business and development manager.

ECPL has made significant progress in de-risking its land interests at Earls Court through enablement works. The final phase of site preparation is on track for completion by the end of 2017 at an expected total cost of £40 million.

The heavy lifting crane is the most visible part of the important site preparation, and will complete the lift of 61 concrete portal beams out from over the London Underground lines by the end of the year. Removal of the large portal beams, which supported the weight of the former Earls Court Exhibition Centres, significantly de-risks the land to enable future development.

Planning

As a designated GLA Opportunity Area, the Earls Court Masterplan is a strategic scheme for the capital with outline planning consent for 10.7 million square feet (GEA) (including The Empress State Building). In preparation for the next revision of the London Plan, representations have been submitted by Capco to the GLA outlining the Earls Court Masterplan's ability to deliver a minimum of 10,000 new homes, well in excess of the 7,500 currently consented, demonstrating the site's potential to deliver more housing and maximise this important London scheme. The additional density will deliver much needed homes for all Londoners including additional affordable housing and a diversity of residential tenures.

ECPL has consolidated its ownership in the Masterplan area in recent years, acquiring a number of smaller assets on and around Empress Place. A planning application will be submitted shortly in conjunction with TfL for the Empress Place scheme for 400 new homes and retail space, covering circa 500,000 square feet (GEA), creating one of the key access points to the Earls Court Masterplan and Lillie Square. This application could add an additional circa 200,000 square feet (GEA) of space to the Masterplan area, aligning with Earls Court's ability to deliver greater density.

In January 2017, detailed planning consent was granted by the Royal Borough of Kensington and Chelsea for Exhibition Square which is located at the entrance of the Earls Court estate adjacent to Earls Court Underground station. The consent which covers 1.8 acres will create an important gateway to the Earls Court scheme and its new high street, including a public square and gardens, a signature hotel, offices and an entrance to Earls Court Underground station.

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 608 private and 200 affordable homes across three phases. Construction costs in relation to the private element of the Lillie Square scheme are currently expected to be in the order of £420 million.

Delivery of Phase 1 is progressing well, and by 30 June 78 homes in total had been completed and handed over to residents representing £37 million (Capco's share) of sales proceeds. Over £125 million of sales proceeds in total (Capco's share) are expected by the end of this year on completion of Phase 1 handovers. No significant issues have been noted around completions to date. 

The 18,000 square foot (NIA) Residents Clubhouse will launch later this summer offering 24 hour concierge service, heated indoor swimming pool, health spa, fitness gym and a private dining room to residents.

Sales of Phase 2 continue to progress, 137 units have been released for sale and 86 have been reserved or exchanged. Sales prices achieved in Phase 2 continue to be at a modest premium to comparable units in Phase 1.

Phase 2 basement works are underway, and a decision on the main construction contract will be made in the second half of the year. 

VENUES

Sale of Venues

Following Capco's strategic investment in recent years, Olympia London is established as the preferred central London venue for premium shows. Having extracted significant value from the venue since acquisition, Capco took the decision to exit this non-core asset.

On 7 April, Capco completed the sale of Venues to a consortium of German institutional investors for £296 million. Profit on disposal of Venues was £3 million. After repayment of debt, working capital adjustments and transaction-related costs, net proceeds were approximately £230 million. Cash proceeds were used initially to repay bank debt and subsequent to this, will be deployed in Capco's core central London estates, as well as to take advantage of opportunities as they arise.

FINANCIAL REVIEW

During the period Capco has further strengthened its financial position reducing loan to value to 18 per cent and increasing available liquidity to £577 million. This increases to £801 million on a pro forma basis including the Covent Garden private placement which is expected to close in August. This position has been enhanced by the realisation of value from the disposal of the Venues business. Our capital structure positions the Group to withstand prevailing market conditions and deliver long-term returns to shareholders by driving value across our assets. Uncertainties in the broader political and economic environment continue to impact the property sector, in particular London residential property. Despite this Capco's assets have broadly maintained their overall value.

EPRA net asset value per share decreased by 0.1 per cent during the period, from 339.6 pence at 31 December 2016 to 339.1 pence. This 0.5 pence decline together with the 1.0 pence dividend paid during the period resulted in a total return of 0.1 per cent.

At Covent Garden the value of the estate increased by 1.5 per cent (like-for-like) due to strong rental growth achieved during the period, with ERV up by 2.8 per cent on a like-for-like basis.

The market value of Earls Court Properties, which comprises the Group's interests at Earls Court, has decreased by 2.4 per cent like-for-like.

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 condensed 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. Many of the APMs included are based on the EPRA Best Practice Recommendations reporting framework which aims to improve the transparency, comparability and relevance of published results of public real estate companies in Europe. A reconciliation between IFRS and the Key EPRA metrics can be found in note 12 'Earnings per share and net assets per share'. Definitions for APMs are also included in the Glossary.

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

Discontinued operation

On 7 April 2017 the Venues business was sold. As Venues has previously represented a separate major line of business, its results and cash flows have been reported for the period 1 January 2017 to 7 April 2017 as having arisen from a discontinued operation. The requirement extends to the prior period comparative which has been re-presented in line with reporting requirements. Further information on the disposal of the Venues business can be found in note 10 'Discontinued Operation'.
 

FINANCIAL POSITION

At 30 June 2017 the Group's EPRA net asset value was £2.9 billion (31 December 2016: £2.9 billion) representing 339.1 pence per share (31 December 2016: 339.6 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 2017 was 850.2 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 2016 was 847.6 million.

Investment, development and trading property                                       

The revaluation gain on the Group's property portfolio was £7.3 million for the period, representing a 0.2 per cent increase in value on a like-for-like basis compared with the IPD Capital Return for the equivalent period of 2.0 per cent. Revaluation gains at Covent Garden of £34.7 million were offset by a revaluation loss at Earls Court of £27.4 million.

Total property return for the period was a gain of 1.2 per cent. The IPD Total Return index recorded a 4.8 per cent gain for the corresponding period.

The total revaluation gain of £7.3 million consists of a £18.6 million gain on investment property and a £11.3 million loss on trading property. On an IFRS basis, which includes ECPL at 100 per cent and does not include Lillie Square on a line by line basis, gain on revaluation and sale of investment and development property was £12.2 million.

Trading property is carried on the consolidated balance sheet at the lower of cost and market value, therefore valuation surpluses on trading property is not recorded. Any unrecognised surplus is however reflected within the EPRA net asset value measure. During the period £2.1 million of the unrealised trading property surplus has been realised. At 30 June 2017, the unrecognised surplus on trading property was £35.2 million (31 December 2016: £48.1 million) which now arises solely on the Group's share of trading property at Lillie Square.

Debt and gearing

During the period the Group's share of total facilities decreased by £200.5 million following the termination of the £100 million (£50 million drawn prior to termination) Olympia Exhibitions Holdings Limited  facility, the £85.5 million loan on the Empress State building and £30 million (£15 million Group share) of the Lillie Square LP facility. The Group also signed an agreement with eight institutional investors for a private placement of £225 million with a range of maturities from seven to 20 year senior unsecured notes, further enhancing the unsecured debt platform at Covent Garden. Closing is expected to occur in August 2017. On a pro forma basis this would have resulted in an increase in the Group's share of total facilities by £24.5 million net of termination of the facilities referred to above.

The Group's cash and undrawn committed facilities at 30 June 2017 were £577.1 million (31 December 2016: £556.3 million). On a pro forma basis including the £225 million private placement (which was signed in June and is expected to close in August) net of costs, the Group's cash and undrawn committed facilities would have been £800.8 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 £226 million to £622 million, principally as a result of the disposal of the Venues business. As set out in the summary adjusted balance sheet, net debt on an IFRS basis was £613 million.

The gearing measure most widely used in the industry is loan to value ("LTV"). LTV is calculated on the basis of net debt divided by the carrying value of the Group's property portfolio. The Group focuses most on an LTV measure that includes the notional share of joint venture interests but excludes the share of the non-controlling interest. The LTV of 18.3 per cent remains comfortably within the Group's limit of no more than 40 per cent.

On a pro forma basis including the £225 million private placement the weighted average debt maturity increases to 6.9 years.

The Group's policy is to substantially eliminate 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 2017 the proportion of gross debt with interest rate protection was 87 per cent (31 December 2016: 86 per cent).

The Group remains compliant with all of its debt covenants and has substantial levels of headroom against its covenants across all its debt facilities. Details of the covenants are included on page 53. 

At 30 June 2017 the Group had capital commitments of £106.5 million compared to £156.6 million at 31 December 2016, of which Covent Garden represents £44.5 million, Earls Court Properties £55.7 million (including the £45.0 million of CLSA instalments) and Lillie Square £6.3 million.

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 the London Borough of Hammersmith & Fulham ("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 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 £60 million paid to date, £15 million relates to the acquisition of two properties, held as investment and development property, and £45 million relates to options over the Estates which is held as a prepayment. The remaining future payments totalling £45 million are disclosed as a capital commitment.

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 period ended 30 June 2017 is presented below:

SUMMARY CASH FLOW

1. Primarily Lillie Square.

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

3. Net cash flow is based on unrestricted cash and cash equivalents and therefore does not include the movement in Lillie Square deposits on a Group share basis of £4.2 million.

1. The 30 June 2016 summary cash flow has been re-presented to reflect the cash flows from continuing operations and therefore exclude the discontinued operation of the Venues business. Net cash flows are presented on unrestricted cash on a Group share basis.

2. Primarily Lillie Square.

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

4. 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 £1.6 million.

Operating cash outflows were £1.1 million compared with £11.0 million for the period to 30 June 2016, as a result of changes to net working capital requirements.

During the period, £55.1 million was invested at Covent Garden for the purchase of one property and subsequent expenditure for the development of property predominantly at Floral Court. At Earls Court, total expenditure of £32.0 million comprises enablement works on ECPL land, construction of Lillie Square Phase 1, the acquisition of one property and other subsequent expenditure.

The disposal of the Venues business resulted in a net inflow of £228.6 million after repayment of the £50.0 million drawn debt on the £100 million Olympia Exhibitions Holdings Limited loan facility, working capital adjustments and transaction related costs. The proceeds were used to reduce the Group's net debt position.

Sales proceeds from trading property comprise of £33.9 million, Group share, for the disposal of 73 units at Lillie Square and £3.9 million for the sale of the final two residential units at The Beecham, Covent Garden. £8.5 million of proceeds from disposal of investment property was received during the period and net payments in relation to investments was £4.5 million.

Net borrowings repaid during the period were £184.6 million.

Dividends paid of £3.7 million reflect the final dividend payment made in respect of the 2016 financial year. This was lower than the period to June 2016 due to the increase in take up of the scrip dividend alternative, 56 per cent (30 June 2016: 51 per cent).

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 other one-off 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. The 30 June 2016 summary income statement has been re-presented to reflect the Venues business as a discontinued operation.

2. Lillie Square and Innova Investment.

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

Income

Net rental income has increased by £3.6 million (6.8 per cent like-for-like) during the period as a result of positive performance at Covent Garden (up 7.4 per cent like-for-like).

Gain/(loss) on revaluation and sale of investment and development property

The gain on revaluation and sale of the Group's investment and development property was £18.6 million. Covent Garden recorded a gain on revaluation of £34.7 million as a result of rental growth. The loss on revaluation at Earls Court of £16.1 million reflects a change in valuers' assumptions.

Administration expenses

Administration expenses have increased by £0.4 million. The comparative period included a £2.0 million credit for performance related employment costs. It is expected that there will be a reduction in underlying administration expenses from 2018 as efficiency initiatives are progressed in the second half of this year.

Net finance costs

Net finance costs have increased by 5.2 per cent year on year to £10.1 million as a result of a higher level of net debt.

Taxation

The total tax charge for the period, made up of both underlying tax and non-underlying tax, is £0.1 million.

Tax on underlying profits of the Group was £0.3 million, which reflects a rate in line with the current rate of UK corporation tax. The main rate of corporation tax fell from 20 per cent to 19 per cent from 1 April 2017. The corporation tax rate will fall again to 17 per cent from 1 April 2020.

Contingent tax, the amount of tax that would become payable on a theoretical disposal of all investment property held by the Group, was nil (31 December 2016: nil). A disposal of the Group's trading property at market value would result in a corporation tax charge to the Group of £6.7 million (19 per cent of £35.2 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 has been disclosed to HM Revenue & Customs, 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 obligations 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 29 September 2017 to shareholders on the register at 8 September 2017. Subject to SARB approval, a scrip dividend alternative will be offered.

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.

Following a comprehensive review of risk management undertaken in 2015, 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 and the 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 established. A full risk review is undertaken annually where 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 2016, '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. To date there has been no adverse impact on occupier demand, footfall or the trading results of our tenants at the Covent Garden estate, which has seen strong rental growth, although the valuation of residential-led development land has been impacted by the overall economic and political backdrop. 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 below.

CORPORATE

PROPERTY

DIRECTORS' RESPONSIBILITIES

Statement of Directors' responsibilities

The Directors confirm that these condensed 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 2016. 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

20 July 2017

Situl Jobanputra

Chief Financial Officer

20 July 2017