Annual Report and Accounts for the year ended 30 December 2016 Stock Code: CAL Welcome to the Capital & Regional Annual Report 2016 Capital & Regional is a UK focused specialist retail property REIT. We actively manage a portfolio of attractively positioned assets to create sustainable income and capital growth through innovative and accretive asset management initiatives, recycling capital from these assets once repositioned. Our portfolio currently consists of seven shopping centres in Blackburn, Hemel Hempstead, Ilford, Luton, Maidstone, Walthamstow and Wood Green and a 20% joint venture interest in the Kingfisher Centre, Redditch. We manage these assets, which comprise over 900 lettable units and attract c.1.7 million shopping visits each week, through our scalable specialist in-house property and asset management platform. A business model which offers A secure and sustainable dividend which is targeted to grow at 5% to 8% per annum together with the opportunity to generate capital value growth underpinned by: A uniquely positioned portfolio Efficient recycling of capital of shopping centres with robust enabling gains to be crystallised cash generating characteristics and funds reallocated to more and significant growth potential accretive investments, be they capital expenditure on existing assets or new acquisitions A dynamically managed £80+ million capital expenditure An entrepreneurial approach programme maintaining the to acquisitions which coupled relevance of our centres and with our asset management generating highly attractive capabilities has potential to returns further boost returns capreg.com Keep up to date with the latest information about Capital & Regional online, including share price data, press releases and results Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2016 capreg.com 01 Highlights Contents £52.6m £26.8m Overview 1 See-through Net Rental Income Adjusted Profit Highlights 01 Our Portfolio 02 2016 £52.6m 2016 £26.8m Strategic Report 2015 £49.3m 2015 £24.0m Chairman’s Statement 04 The Marketplace 06 Our Business Model 08 3.8p £(4.4)m Our Strategy Overview Adjusted EPS IFRS (Loss)/Profit for the Period 10 Our Strategy in Action 12 2016 3.8p 2016 £(4.4)m Our KPIs 16 Chief Executive’s Statement 18 2015 3.4p 2015 £100.0m Operating Review 20 Financial Review 24 Managing Risk 28 3.39p 68.0p Responsible Business Total Dividend per Share Net Asset Value (NAV) per Share 33 Governance 2016 3.39p 2016 68p Board of Directors 38 2015 3.12p 2015 72p Corporate Governance Report 40 Audit Committee Report 45 Directors’ Remuneration Report 48 68.0p £328.6m Directors’ Report 64 EPRA NAV per Share Proforma Group Net Debt2 Directors’ Responsibilities Statement 68 Financial Statements 2016 68p 2016 £328.6m Independent Auditor’s Statement 69 Consolidated Income Statement 2015 71p 2015 £338.1m 77 Consolidated Statement of Comprehensive Income 78 Consolidated Balance Sheet 79 42% 46% Consolidated Statement of Proforma see-through net debt See-through net debt to Changes in Equity 80 Consolidated Cash Flow Statement to property value2,3 property value at date of results2,3,4 81 Notes to the Financial Statements 82 Company Balance Sheet 119 2016 42% 2016 46% Company Statement of 2015 41% 2015 45% Changes in Equity 120 Notes to the Company Financial Statements 121 1 Adjusted Profit is as defined in the Glossary and Note 1 to the Financial Statements. It incorporates profits from operating activities and excludes revaluation of properties and financial instruments, gains or losses on disposal, exceptional items Other Information and other defined terms. We previously used ‘Operating Profit’ but have amended the term to clarify that it is an adjusted measure. The only change to the definition is to incorporate tax charges or credits relating to operating activities. Five Year Review 124 A reconciliation to the statutory result is provided in the Financial Review. EPRA figures and a reconciliation to EPRA EPS EPRA Performance Measures 125 are shown in Note 9 to the Financial Statements. Covenant Information 126 2 Reflecting refinancing of Mall assets completed on 4 January 2017. Property Information 127 3 See-through net debt divided by property valuation. Advisors and Corporate Information 128 4 Further adjusted for the Ipswich disposal completed on 17 February 2017 and Ilford acquisition completed on 8 March 2017. 2015 reflects the Hemel Hempstead acquisitions completed in February/March 2016. Shareholder Information 128 Glossary of Terms 129 Within this Report Read more content in the Report Read more at capreg.com Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2016 capreg.com 02 Our Portfolio Key Characteristics High footfall Scale and Demographics c.1.7m shopper visits Strong and Improving per week dominance of retail offering Locations Convenience Affordable rents London/South-East Bias town centre locations — Average rent c.£15 psf — Occupancy Cost Ratio c.12.6%1 Extensive accretive asset management opportunities including: leisure,residential and office 1 Estimate based on Blackburn, Luton, Maidstone, Walthamstow and Wood Green. Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2016 capreg.com 03 Wholly-owned assets The Mall, Wood Green The Mall, Blackburn The Mall, Luton Freehold, partially open shopping Leasehold covered shopping centre Leasehold covered shopping centre centre on two floors on three floors on two floors, offices extending to over 65,000 sq ft 540,000 sq ft Overview 600,000 sq ft 111 lettable units 127 lettable units 900,000 sq ft 166 lettable units Principal occupiers Principal occupiers Cineworld, Boots, H&M, New Look, Primark, Debenhams, H&M, Next, Principal occupiers Primark, TK Maxx Wilko Primark, Debenhams, H&M, M&S, TK Maxx Joint Venture asset Kingfisher Shopping Centre, Redditch The Marlowes, Hemel The Mall, Maidstone C&R owns 20% in JV with Oaktree Hempstead Freehold covered shopping centre Capital Management Freehold covered shopping centre on three floors with offices extending and high street parades Freehold covered shopping centre to 40,000 sq ft on two principal trading levels 350,000 sq ft 500,000 sq ft 900,000 sq ft 110 lettable units 104 lettable units 174 lettable units Principal occupiers Principal occupiers Principal occupiers M&S, New Look, River Island, Boots, New Look, Next, TJ Hughes, Sports Direct, Wilko Vue Cinema, H&M, M&S, Primark, Wilko Next, Debenhams, The Range, TK Maxx Snozone Leisure business The Exchange, Ilford The Mall, Walthamstow 100% subsidiary Predominantly freehold covered Leasehold covered shopping centre Largest indoor ski slope shopping centre on three floors on two floors operator in the UK 300,000 sq ft 260,000 sq ft Operating at Milton Keynes 77 lettable units 68 lettable units and Castleford Principal occupiers Principal occupiers In existence since 2000 and Debenhams, H&M, M&S, Asda, Boots, Lidl, The Gym, New Look, has taught over 1.5 million people New Look, Next, TK Maxx River Island, Sports Direct, TK Maxx to ski or snowboard Capital & Regional plc Annual Report and Accounts for the year ended 30 December 2016 capreg.com 04 Chairman’s Statement John Clare CBE, Chairman Capital & Regional’s strong performance in 2016, against a background of increased economic uncertainty, has demonstrated the resilience of the business model. This has led to an 8.7% increase in the dividend to 3.39p for the full year, delivering an attractive dividend yield to shareholders.” John Clare CBE Chairman Performance Overview IFRS profit for the period fell from £100 million Capital & Regional’s strong performance in 2016, to a loss of £4.4 million. This reflected a non-cash against a background of increased economic revaluation loss, for the reasons noted above, uncertainty, has demonstrated the resilience of the partially reversing the strong unrealised valuation business model. This has led to an 8.7% increase in gain recognised in 2015, together with the the dividend to 3.39p for the full year, delivering an £11 million charge in relation to implementing attractive dividend yield to shareholders. the new long-term debt structure. I am pleased to report that Adjusted Profit increased Strategy by 11.7% to £26.8 million. This is an excellent result Capital & Regional creates value for shareholders in a year where, building on the solid foundations through a focus on increasing income and we have successfully created over the last few capital value growth from entrepreneurial asset years, our focus shifted decisively towards boosting management initiatives on its portfolio of shopping income from delivery of the asset management and centres. As we have successfully demonstrated, development initiatives across the portfolio. The once assets have been repositioned we seek performance is all the more creditable as, during the opportunities to recycle them if we believe course of the year, the BHS administration, while capital can be more effectively employed on new providing a medium-term opportunity to create value investments or other asset management initiatives. and improve the tenant mix, did inevitably result in Our portfolio offers both resilience and significant a short-term loss of income. opportunities for growth. Our centres combine the scale and dominance of prime shopping NAV per share as at 30 December 2016 was 68p centres with the convenience and affordability compared to 72p at the beginning of the year. This of town centres. The portfolio is increasingly reflects the impact of one-off costs associated with weighted to London and the South East where the successful long-term refinancing of the Group’s the demographics are strong and we see healthy core banking arrangements, the impact of stamp demand from both retailers and leisure operators for duty increases as well as the modest fall in valuations affordable space and opportunities for alternative since the EU referendum in June 2016. Whilst the use remain attractive.