Annual Report and Accounts for the year ended 30 December 2012 Stock Code: CAL 22158.04 18 April 2013 1:04 PM Proof 7 Progress in execution of strategy ■■ Sale of Group’s stakes in The Junction Fund and Xscape Braehead and, in early 2013, its interest in the X-Leisure Fund and FIX ■■ Purchase of Mall Fund units increased Group share from 18.16% to 20.33% ■■ Acquisition of 20% interest in Kingfisher Centre, Redditch, in joint venture with Oaktree Capital Partners Financial ■■ Robust recurring pre-tax profit up 3.7% to £17.0 million (2011 – £16.4 million) ■■ Proforma see-through net debt1 to property value fell to 55% compared to 65% at 2011 year end ■■ Fall in net assets and EPRA net assets per share to 51p and 55p, respectively (2011 – 56p and 63p) primarily as a result of value adjustments and impairment of the German portfolio 4 joint venture Operational ■■ Occupancy on a like for like basis in our UK Shopping Centres up to 96.7% from 96.1% notwithstanding significant administrations during the first half of the year ■■ Attractive and affordable space supported by 88 new lettings for £5.1 million, 25 renewals for £1.7 million, both at above ERV ■■ Significant step forward for asset management and development with key terms agreed to enable the reconfiguration of Waterside Lincoln; Hemel Hempstead redevelopment gaining planning permission and a number of pre-lets finalised; The Hub leisure concept at Redditch gaining momentum Future priorities ■■ Recycle cash from disposals of non-core assets to create shareholder value by strengthening our core UK Shopping Centre business as well as the buyback of shares ■■ Resume dividend payments to shareholders to be covered by cash earnings once Mall is in a position to recommence distributions to unit holders 2012 2011 Recurring pre-tax profit2 £17.0m £16.4m (Loss)/profit for year £(16.0)m £21.1m NAV per share 51p 56p EPRA NAV per share 55p 63p Proforma Group net debt1 13% 30% Proforma see through net debt1 55% 65% 1 Adjusted for £30.6 million X-Leisure proceeds received in January 2013. 2 As defined in Note 1 to the financial statements. See further information on our performance on page 17 See futher information online: www.capreg.com Capital & Regional Annual Report and Accounts for the year ended 30 December 2012 22158.04 18 April 2013 1:04 PM Proof 7 Contents Overview Overview 02 Chairman’s statement 03 Chief executive’s etatement 05 Our business Business Review 10 Operating review 17 Financial review 24 Principal risks and uncertainties 27 Significant contracts or arrangements Corporate Governance 28 Board of directors 30 Directors’ report Our Business 33 Statement of directors’ responsibilities 05 34 Directors’ remuneration report The core strength of Capital & Regional 40 Corporate governance report is managing dominant UK Community 44 Responsible business Shopping Centres. Embedded in our culture is a passion to deliver Financial Statements outstanding operational performance. 51 Consolidated income statement 51 Consolidated statement of comprehensive income 52 Consolidated balance sheet 53 Consolidated statement of changes in equity 54 Consolidated cash flow statement 55 Notes to the financial statements 104 Independent auditor’s report 106 Company balance sheet 107 Notes to the Company financial statements Other Information Chairman’s Statement 110 Glossary of terms 02 111 Five year review I am pleased to report that 112 Property under management information the Group has this year both 112 EPRA performance measures successfully responded to the 113 Covenant information challenges created by a tough 114 Fund portfolio information (100% figures) operating environment and made 115 Property information significant progress in the execution 117 Advisers and corporate information of its strategy. 117 Shareholder information 10 Operating Review The principal focus of management during 2012 has been to implement its strategy of disposing of non-core assets in order to concentrate resources on its core UK Shopping Centre business. www.capreg.com 01 Stock Code: CAL 22158.04 18 April 2013 1:04 PM Proof 7 Chairman’s statement We continually adapt to meet changing retailer and consumer needs. Free Cloud Wi-Fi has been rolled out across the shopping centres; the Mall smart phone app has been launched and we are reconfiguring space to support the multi-channel strategies of our retailers. Dividend The dividend policy continues to link future payments to the Group’s cash generating ability. Following the renegotiation of the Group’s banking arrangements, the restrictions limiting the payments to 50% of operating cash flow less interest and tax have been removed. Following further de-gearing, the Mall is likely to be in a position to recommence distributions in the second half of the year. Distributions from The Mall should enable the Group to resume the payment of a dividend, to be covered by cash earnings, at the end of 2013. Until this happens the John Clare Chairman Board is not recommending the payment of a dividend meaning that no dividend will be payable for the full year 2012. Responsible business “I am pleased to report that the Group has The Group attaches great importance to maintaining its this year both successfully responded to commitment to responsible business in the still challenging the challenges created by a tough operating operating environment. environment and made signficiant progress in At the beginning of the year a number of key objectives across The Market Place, The Environment and The Workplace were the execution of its strategy.” identified, each with target key performance indicators. Good Strategy progress has been made in each of these areas. The Group was awarded ROSPA Gold Award status for a sixth consecutive year The Group’s strategy is to focus its financial resources and and has exceeded stretching targets for reduction in energy, management skills on dominant community shopping centres water use and water recycling. in the UK. The Group intends to recycle capital from non-core assets to strengthen its position as a leading retail property Further details are set out in the Responsible Business review in investment company. the financial statements. Performance Overview Our people I am pleased to report that the Group has this year not only The management platform is key to the future and the creation successfully responded to the challenges created by a tough of value for our shareholders. I would like to thank all staff who operating environment but has also made significant progress in have once again delivered a robust set of operating results in the execution of its strategy. the face of challenging market conditions. The prompt re-letting of space vacated by retailers in administration earlier in the year The UK shopping centres have performed well during a difficult reflects the unique asset management skills of our teams. time for UK retailing. The Mall Fund, at the property level, continues to outperform its IPD benchmark and occupancy levels at the With the sale of The Junction and X-Leisure we have also said year-end are higher than 12 months ago, as the very high levels goodbye to a number of colleagues who have been, directly and of retail failures in recent months have provided opportunities to indirectly, part of the C&R family for some years. We wish them reconfigure space. Success in re-letting this space reinforces every success in their future careers. earlier decisions to retain and acquire those assets, such as The success of the restructuring programme in recent years Redditch, with dominant market shares in the communities in gives me confidence the management team can execute the which they operate, and to dispose of those which do not. next phase of the Group’s strategy. During the course of this year, the Group has either disposed of or taken significant steps to dispose of non-core assets. The The Board Group has sold its interest in The Junction Fund, the X-Leisure I would like to thank Manjit Wolstenholme for her contribution Fund and X-Leisure Limited, our 50% interest in Xscape to the Board’s deliberations over the last six years. Tony Hales Braehead as well as the sale of our interest in FIX, completed has succeeded Manjit as Chairman of the Audit Committee shortly after the end of the year. and Philip Newton will take on the role of Chairman of the Remuneration Committee. I believe the current non-executive Relevance of our property assets directors bring a depth of experience of internet retailing and Our shopping centres demonstrate the key characteristics to consumer markets to the Board in addition to their significant remain relevant in the current environment. They are specifically contribution to property, financial and strategic matters. founded on a strong community involvement, affordable rents and continued investment to enhance the shopping experience. John Clare Chairman Capital & Regional 02 Annual Report and Accounts for the year ended 30 December 2012 22158.04 18 April 2013 1:04 PM Proof 7 Chief Executive’s statement Asset Management In spite of the challenging environment for our retailers, we have continued to see demand for good quality affordable space across our shopping centres and other assets. Overview Key themes include:- • Increasing demand from leisure operators (in particular value restaurants) within our shopping centres. The progress we are making in establishing The Hub leisure concept at Redditch highlights the increased importance of such operators to increased dwell time by the