Chief Executive's Statement

Income Growth Drives Operational Performance

Net Rental Income (NRI) within the wholly-owned portfolio grew by 6.6%, from £47.3 million to £50.4 million.  Stripping out the impact of the Hemel acquisitions, and the disposal of Camberley, underlying growth in wholly-owned NRI was 1.2%.  Adjusted for the impact of the BHS administration, NRI grew by approximately 2.4%.  This, combined with tight control over administrative expenses, underpins the strong improvement in Adjusted Profit of 11.7%.  While this partially reflects the return from the capital expenditure spend to date the full benefit of the investment to date will only be realised in 2017 and 2018.

Leasing activity has been robust during the course of the year.  New lettings and lease renewals within the wholly-owned portfolio excluding Camberley aggregated £5.6 million and were agreed at rents 2.1% ahead of ERV.  Critically, they were also ahead of previous passing rent by approximately 18%.

The letting of BHS space at Walthamstow highlights the potential for income growth from within the existing portfolio.  Lettings to Lidl (18,000 sq ft) and The Gym (15,000 sq ft) will generate a 40% uplift in headline rent on the relevant Walthamstow unit even before the letting of the remaining space, where there is strong demand, is taken into account.

This reinforces our belief that our centres offer attractive and affordable space to retailers and leisure operators alike.


Delivery of Asset Management Initiatives

The Group has spent £21.2 million of capital expenditure on wholly-owned assets during the year, including:

  • £6.2 million at Maidstone - scheme refurbishment and TJ Hughes reconfiguration
  • £4.2 million at Wood Green - new Travelodge and extended easyGym
  • £2.9 million at Blackburn -  the opening of the new Ainsworth Mall entrance and enhanced units

The redevelopment of the Buttermarket Centre, Ipswich, was completed on time and on budget facilitating the sale post year end.  This was a complex construction project involving the creation of an Empire Cinema on the two upper levels surrounded by a suite of nine new restaurants including Coast to Coast, Prezzo, Wagamama and Cosy Club.  The joint venture invested capital expenditure of £25.1 million to transform the scheme from a substantially empty shopping centre to a thriving leisure-led destination.



Looking forward, there is no shortage of accretive opportunities both within our existing portfolio and beyond. This underpins our confidence in the growth prospects of the business by enabling us to focus on those initiatives which generate the best returns.


Hugh Scott-Barrett

Recycling for Growth

The sale of The Mall, Camberley, for £86 million, representing a Net Initial Yield of 5.9%, was completed in November 2016.  The transaction crystallised an IRR of 10% based on the acquisition price at the time of Capital & Regional’s buy-out of The Mall Fund in 2014.  It has also raised funds to invest in more accretive investments both in our existing portfolio and by way of acquisition.  The Camberley sale followed the earlier acquisitions of the Marlowes Shopping Centre in Hemel Hempstead and the adjacent Edmonds Parade and Fareham House properties for combined consideration of £53.8 million.  The consolidated scheme presents the Group with the opportunity to reposition the Hemel Hempstead town centre. 

Similarly, the sale shortly after year-end of our joint venture interest in The Buttermarket Centre, Ipswich at a net equivalent yield of 5.9%, realising an expected £13.5 million to the Group, gave us additional firepower for investment.  We quickly put this to use with the acquisition of The Exchange Centre, Ilford, for £78 million, representing a net initial yield of 6.7%, which completed on 8 March 2017.  The centre dominates retail in the town and offers great potential for leisure and residential development given its Crossrail link which is expected to open in 2019.  It also further strengthens the London and South East bias of our portfolio. 

The Group has a track record of acquiring assets at attractive prices and of recycling capital once innovative and entrepreneurial asset management initiatives have been completed.  This is not just about capital discipline but about creating fuel for growth by achieving very attractive returns.


Enhanced Balance Sheet Strength and Flexibility

On 4 January 2017 the Group completed the refinancing of its five wholly-owned Mall properties by entering into three new debt facilities totalling £372.5 million with a weighted average maturity of 7.8 years, rising to 8.8 years if the extension options are exercised.

Interest has been fixed enabling us to lock into the historically low interest rates, resulting in an all-in cost on these new facilities of 3.27%.   In addition, the refinancing has also enabled the Group to diversify its sources of funding and increase the quantum of capital expenditure funding.   Critically, the facilities also provide flexibility for asset recycling.  We believe that these significant benefits offset the one-off charge of £11.0 million associated with the early redemption of the existing facilities that was recognised in the year.



Whilst the business environment may be challenging, the prospects for Capital & Regional are exciting. Our assets have proven to be very resilient and capital expenditure investment over the last two years has provided a strong platform for future income and dividend growth.  Our portfolio of asset management initiatives continues to grow, with leisure reconfigurations providing an opportunity to reposition both the Hemel and Ilford schemes.  We are looking for planning consent for the extension and residential development to be granted at Walthamstow during the year whilst the development of master plans in Luton and Wood Green are likely to be transformational for both the towns and our shopping centres, which sit at the heart of each community.


Hugh Scott-Barrett
Chief Executive

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