Capital & Regional : Annual Results Announcement

2 March 2023

Capital & Regional plc

("Capital & Regional" or "C&R" or "the Company" or "the Group")

Full Year Results to 30 December 2022

STRONG OPERATIONAL PERFORMANCE DRIVING PROFITABILITY AND DIVIDENDS

Capital & Regional (LSE: CAL), the UK focused REIT with a portfolio of in-town community shopping centres, today announces its full year results to 30 December 2022.

Lawrence Hutchings, Chief Executive, comments:

"2022 was a good year for Capital & Regional, both operationally, as well as in terms of strengthening the Company's balance sheet following the successful capital raise and Mall debt restructuring in November 2021. Despite the broader macro-economic headwinds throughout the year, the continued retail recovery from Covid and a robust Christmas trading season has helped us drive a strong operational performance in 2022.

"We maintained leasing momentum with an average uplift on previous rents of 34%3, supported by our affordable average rents of c. £14 per sq ft, helping us to grow occupancy, net rental income and profit. Occupier profitability will be further supported by the recent rates revaluation which will take effect from April 2023 with average reductions in business rates to our occupiers of 30%-35% across most of our portfolio.

"The Group has delivered a significant improvement in Net LTV from 49% to 41%, despite the market wide fall in valuations in the second half of 2022. As a result, we are now able to focus on investing in our portfolio, allowing us to further reposition and remerchandise our centres at the heart of the local communities that we serve, driving footfall back towards pre-pandemic levels and creating vibrant trading places for our occupiers' essential goods and services whilst growing our occupancy, income and profit as part of our post covid recovery.

"We are encouraged by our operational resilience and a growing appreciation of the critical role which physical stores play in successful omnichannel retailing. We believe we are well-positioned to continue to navigate the current cyclical pressures and the Board's confidence in the Company's future prospects is reflected in a proposed final dividend of 2.75p per share, resulting in a total dividend for 2022 of 5.25p per share. Finally, I would like to thank our teams and stakeholders for all their hard work and support during 2022."

Continuing operational resilience

• 109 new lettings and renewals achieved during the year at a combined average premium of 34.0% to previous rent3 and 13.7% to ERV3 representing £5.4 million of annual rent (2021: £5.2 million). Key lettings completed include the Walthamstow food hall, extension to Wood Green diagnostics centre, and at Ilford a 25-year lease agreement with the NHS for a new community healthcare centre and the upsizing and relocation of TK Maxx.
• Occupancy has improved to 94.1% (December 2021: 92.9%).
• 53 million shopper visits in 2022 (up 27.4% on 2021) and footfall continuing recovery at c.84% of 2019 levels (88% for H2 22).
• Rent collection back in line with pre-pandemic levels, with 97.6% collected for the 2022 financial year.

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• Snozone's EBITDA1 for the year increased to £1.4 million (2021: £0.8 million, which included £2.5 million business continuity insurance receipt) with trading continuing to improve throughout the year.
• 42% fall in carbon emissions by 2022 against the 2019 baseline, driven by a 28% reduction in energy consumption.

Improved profitability supporting resumption of dividend

• 16.9% growth in Net Rental Income1, 2 (NRI) on Investment Assets to £23.5 million (December 2021: £20.1 million2) driven by improved occupancy and rent collection. Statutory revenue2 increased 10.9% to £60.6 million (December 2021: £54.6 million2).
• 58.5% increase in Adjusted Profit1 to £10.3 million (December 2021: £6.5 million1,2), reflecting the
  improvement in NRI. Adjusted EPS increased to 6.2p (December 2021: 5.4p2) reflecting the improvement in Adjusted Profit, partially offset by the higher number of shares in issue from the £30 million capital raise which completed in November 2021.
• Significant improvement in IFRS Profit for the period to £12.1 million (December 2021: Loss of £26.4 million) primarily due to the Adjusted Profit of £10.3 million, combined with gains of £12.5 million and £6.8 million respectively from the discounted purchase of the Hemel Hempstead loan facility and deconsolidation of Luton. This was partially offset by a 3.6% like-for-like fall in the value of the portfolio which led to a £19.6 million revaluation loss.
• 6.3% growth in NAV to £179.1 million (31 December 2021: £168.4 million)
• Net Asset Value per share and EPRA NTA per share increased to 106p and 103p respectively (December 2021: 102p and 102p).
• Resumption of dividends during the year, reflecting the recovery of the business post-pandemic together with the substantial progress made in reducing debt. Following an interim dividend of 2.5p per share a final dividend of 2.75p per share is being proposed resulting in total dividends for 2022 of 5.25p per share (2021: nil).

Refocus, Restructure and Recapitalise

• Transactional activity during 2022 reduced the Group's Net Loan to Value (LTV) ratio from 49% at 30 December 2021 (and 72% at 30 June 2021) to 41% at 30 December 2022.
• Debt maturity of 4.5 years5 with average cost of debt of 3.66%5, 98% fixed5.
• In August 2022, the £40 million disposal of The Mall, Blackburn completed at a c. 5% premium to the December 2021 valuation.
• In May 2022, the Group secured ownership of the Marlowes centre in Hemel Hempstead through the buyback at a 51% discount of the asset's loan facility for £11.8 million, which also increased Group Net Asset Value by approximately £12.5 million.
• Signed package of amendments to the £39 million Ilford loan in May 2022, facilitating the investment of more than £10 million for the creation of the new community healthcare centre and anchor unit for TK Maxx.
• Proposed disposal of the Group's investment in The Mall, Luton is expected to complete imminently. The Group's investment in Luton was deconsolidated during the year resulting in an increase to Net Asset Value of £6.8 million.
• In July 2022, the Group completed the sale of land for residential development at its 17&Central community shopping centre in Walthamstow to Long Harbour for c. £21.6 million. The first phase of the development is now under way which will see the creation of 495 Build to Rent apartments in two residential towers and providing a new captive audience of shoppers for the centre.

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	Year to	Year to
	Dec 2022	Dec 2021
Revenue 2	£60.6m	£54.6m
Net Rental Income 2	£23.5m	£20.1m
Adjusted Profit 1, 2	£10.3m	£6.5m
Adjusted Earnings per share 1, 2	6.2p	5.4p
IFRS Profit/(Loss) for the period	£12.1m	£(26.4)m
Basic earnings/(loss) per share	7.3p	(22.0)p
Total dividend per share 4	5.25p	-
Net Asset Value	£179.1m	£168.4m
Net Asset Value (NAV) per share	106p	102p
EPRA NTA per share	103p	102p
Group net debt	£130.9m	£185.3m
Net debt to property value	41%	49%

Notes

1 Adjusted Profit, Adjusted Earnings per share, Net Rental Income, Net Debt and the Snozone EBITDA metric are as defined in the Glossary. Adjusted Profit incorporates profits from operating activities and excludes revaluation of properties and financial instruments, gains or losses on disposal, and other non-operational items. A reconciliation to the equivalent EPRA and statutory measures is provided in Note 5 to the condensed financial statements.

2 2021 comparative figures have been restated for a prior year adjustment to the treatment of rent concessions due to an IASB IFRS interpretation issued in October 2022 as detailed in Note 1 to the condensed financial statements. The amendment stipulates that losses which were incurred on granting rent concessions, which for the Group occurred during the Covid-19 pandemic, should be charged to the income statement in the year they are granted. 2021 revenue has also been impacted by the reclassification of Luton as a Discontinued Operation. The adjustment for the treatment of rent concessions reduced revenue and Adjusted Profit in 2021 by £1.6 million, with a corresponding reduction in the loss on revaluation of investment properties. The Adjusted Profit for 2022 is £0.3 million higher than it would have been without this adjustment to rent concessions. The reclassification of Luton as a Discontinued Operation reduced revenue in 2021 by £13.8 million.

1. For lettings and renewals (excluding development deals and CVA variations) with a term of 5 years or longer which do not include turnover rent or service charge restrictions.
2. Includes dividends declared post period end but related to the period in question.
3. Weighted average, debt maturity assumes exercise of extension options.

Use of Alternative Performance Measures (APMs)

Throughout the results statement we use a range of financial and non-financial measures to assess our performance. A number of the financial measures, including Net Rental Income, Adjusted Profit, Adjusted Earnings per share, Net Debt and the industry best practice EPRA (European Public Real Estate Association) performance measures are not defined under IFRS, so they are termed APMs. APMs are not considered superior to the relevant IFRS measures, rather Management use them alongside IFRS measures to monitor the Group's financial performance because they help illustrate the trading performance and position of the Group. All APMs are defined in the Glossary and further detail on their use is provided within the Financial Review.

For further information:
Capital & Regional:	Tel: [phone]
Lawrence Hutchings, Chief Executive
Stuart Wetherly, Group Finance Director
FTI Consulting:	Tel: [phone]
Richard Sunderland, Maria Saud, Katie Hughes	Email: [e-mail]

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Notes to editors:

About Capital & Regional

Capital & Regional is a UK focused retail property REIT specialising in shopping centres that dominate their catchment, serving the non-discretionary and value orientated needs of the local communities. It has a strong track record of delivering value enhancing retail and leisure asset management opportunities across a portfolio of in-town shopping centres. Capital & Regional is listed on the main market of the London Stock Exchange (LSE) and has a secondary listing on the Johannesburg Stock Exchange (JSE).

Using its in-house expert property and asset management platform Capital & Regional owns and / or manages shopping centres in Hemel Hempstead, Ilford, Luton, Maidstone, Redditch, Walthamstow and Wood Green. For further information see capreg.com.

South African secondary listing

At 30 December 2022, 7,565,067 of the Company's total 169,191,918 shares were held on the South African register representing 4.47% of the total issued share capital. Java Capital acts as JSE Sponsor for the Group.

Forward looking statements

This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or implied by these statements. Many of these risks and uncertainties relate to factors that are beyond the Group's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of government regulators and other risk factors such as the Group's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Group operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this document. The Group does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. Information contained in this document relating to the Group should not be relied upon as a guide to future performance.

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Chairman's statement

In headline terms Capital & Regional delivered a strong performance in 2022, completing a number of initiatives to strengthen its balance sheet and reduce debt, undertaking capital expenditure in line with its community strategy, and improving occupancy. This positive momentum saw the Company increase Net Rental Income from its Investment Assets by 16.9% to £23.5m, which led to a 58.5% increase in Adjusted Profit to £10.3 million. Despite the wider economic backdrop and increases in inflation and interest rates which impacted the commercial property sector, the Company delivered 6.3% growth in NAV to £179 million (31 December 2021: £168 million) and a 1.8% increase in EPRA NTA per share to 103 pence per share, despite a valuation decline in the second half of the year.

After the very obvious challenges of 2020 and 2021, the retail environment facing the Company in 2022 was more nuanced. On the positive side, we saw an end to the pandemic restrictions with all traders open for business and footfall trending back upwards towards 2019 levels. Retail failures were significantly down and rent collection levels much improved. Counteracting the good news, the UK economy faced increasing difficulties from low growth, high inflation and a sharp end to over a decade of very low interest rates accompanying a dramatic fall in consumer confidence.

Despite fears that Christmas 2022 trading would be materially affected by these factors, seasonal retail sales were robust, albeit with volumes slightly below 2019 levels. Footfall for the year in the Company's centres was 27% ahead of 2021 and reached 84% of 2019 levels.

Another notable positive trend during the year was the slowdown in the growth of online retail reflected in challenges faced by a number of online only retailers, coupled with a widespread recognition that an omnichannel offering is an optimum model for retailers.

Based on these trends, the Company enters 2023 optimistic that our business model of Community Centres, meeting the needs of customers for non-discretionary goods and services, is well placed to benefit from a steady recovery in physical retail and weather the current economic headwinds.

Recognising the importance of income to REIT investors, we were pleased to resume the payment of dividends in 2022, supported by the improvements in NRI and Adjusted Profit.

Capital & Regional continued to demonstrate an active approach to portfolio management to ensure it delivers value for its shareholders and to be good stewards of capital, notably:

• The sale of The Mall, Blackburn for a price in excess of its December 2021 valuation.
• The purchase of the outstanding debt on Hemel Hempstead at a significant discount to face value, allowing the property to be restored to the Investment Assets portfolio.
• Signing major lease commitments at Ilford with TK Maxx and the local NHS Health Board, allowing a package of amendments to be agreed on the loan on that asset.
• Completing the sale of the Walthamstow residential development site.

Assisted by these initiatives, the Company's net debt ratio improved over the year from 49% to 41% despite a modest fall in values of 3.6%.

Whilst the market had anticipated that falls in 2020 and 2021 would mark the low point in valuations, steeply falling values in other sectors in the second half of 2022 coupled with an absence of available bank debt continued to impact retail valuations, albeit to a far lesser degree than other real estate sectors. This also reflected very limited investment comparable transactions and general continuation of negative sentiment. Our view is that following the repricing there is now a very selective buying opportunity in the sector.

The underlying resilience of the leasing market was demonstrated by the Company's success in achieving lease renewals and new leases well ahead of both previous rent and ERV, with the affordability of rents being a key consideration in this. A total of 109 new lettings and renewals were signed in 2022, with an annual rent of £5.4 million and headline occupancy reaching 94% at the year end. Consistent with this rent collection improved from approximately 93% in 2021 to 97.6% in 2022.

Snozone continued to make strong progress post the pandemic with overall revenues up 35% and with Madrid in particular growing by 66% supported by leveraging the UK management platform, improved productivity and full systems integration. The EBITDA contribution improved from £0.8 million in 2021 to £1.4 million in 2022, despite inflation in utility costs.

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