27 July 2021  

CAPITAL & COUNTIES PROPERTIES PLC ("CAPCO" OR "THE COMPANY")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2021

Confident in the long-term prospects for prime central London, in particular the West End

Ian Hawksworth, Chief Executive of Capco, commented:

"Capco's actions, commitment and creativity over the last 18 months have ensured that Covent Garden is the most vibrant district in the West End. We are confident that our approach and the quality of our estate, underpinned by our strong balance sheet, position Capco for recovery.

The elevated level of enquiries, strong transactional activity and improving sentiment indicate that the worst of the pandemic may be behind us.

Looking ahead, there are challenges in the near term, as the economy moves towards more normal levels of activity, however we remain confident in the resilience of London's West End and the enduring appeal of Covent Garden."  

Key financials

-       Total equity of £1.7 billion (Dec 2020: £1.8 billion)

-       EPRA NTA declined by 6 per cent to 199 pence per share (Dec 2020: 212 pence per share)

-       Total property value of £1.8 billion, a decrease of 5.1 per cent (like-for-like) (Dec 2020: £1.9 billion)

-       Group net debt to gross assets ratio of 28 per cent (Dec 2020: 28 per cent)

-       Covent Garden loan to value ratio of 18 per cent (Dec 2020: 19 per cent)

-       Underlying earnings of nil pence per share (Jun 2020: 0.3 pence per share)

-       Reported net rental income £21.0 million (Jun 2020: £18.2 million)

-       Recommencement of dividend distribution with proposed interim dividend of 0.5 pence per share (Jun 2020: nil)

Covent Garden portfolio

-       Covent Garden total property value of £1.7 billion, a decrease of £85 million, 4.9 per cent (like-for-like) since 31 Dec 2020

-       ERV decreased by 4.3 per cent (like-for-like) to £76 million (Dec 2020: £81 million) while the equivalent yield was stable at 3.94 per cent

Proactive asset management and strong leasing momentum

-       29 new leases and renewals were agreed during the period representing £6.0 million contracted income (6 per cent below Dec 2020 ERV) with a further £3.1 million under offer

-       Government restrictions have been lifted with retail and hospitality customers fully re-open

-       Growing customer sales recorded through the period with certain premium and luxury categories amongst the highest performing

-       High occupancy with EPRA vacancy at 3.4 per cent (Dec 2020: 3.5 per cent) performing strongly versus central London

-       12 new openings scheduled over the course of 2021 including Peloton, Glossier and Ave Mario

-       Improved rent collection; 65 per cent of June quarter collected (adjusted for payment plans)

-       Customer support provided in H1 2021 on a case by case basis, but expected to reduce with easing of restrictions

-       Pedestrianisation of key streets extended; additional al fresco dining providing over 800 covers

-       Six month cultural programme launched; digital engagement, public art installations, pop-up bars and terraces across the estate

-       Realised value from the sale of two residential-led blocks on Southampton Street for £50 million (before costs)

Net Zero Carbon by 2030 underlining commitment to sustainability

-       Environment, Sustainability and Community ("ESC") Board Committee setting clear actions

-       Detailed pathway to Net Zero Carbon by 2030 to be published later this year

-       Commitment to enhancing air quality with continued pedestrianisation of streets around Piazza

-       Customer engagement programme commenced on carbon, water and waste, intending to reduce environmental impact

-       Partnership with the Wild West End, a charitable partnership which aims to enhance the quality of green space and the local environment

-       Support provided in respect of homelessness charities, local food banks and the elderly as well as hospitality, retail and cultural foundations

Strong balance sheet position with significant financial flexibility

-       Covent Garden net debt of £304 million (Dec 2020: £352 million) and loan to value ratio of 18 per cent (Dec 2020: 19 per cent)

-       Group net debt of £668 million (Dec 2020: £710 million) and net debt to gross assets of 28 per cent (Dec 2020: 28 per cent)

-       Access to Group liquidity comprising undrawn facilities and cash of £989 million (Dec 2020: £1 billion)

-       Capital commitments of £5 million (Dec 2020: £2 million)

-       Weighted average maturity on drawn debt of 5.4 years (Dec 2020: 5.4 years) and average cost of debt of 2.8 per cent (Dec 2020: 2.6 per cent)

Other investments

-       Investment in Shaftesbury PLC valued at £552 million (Dec 2020: £552 million), compared with a £501 million cost; dividend income from Shaftesbury PLC shares of £2.3 million received in July 2021

-       Lillie Square property value of £108 million, a decrease of 7.9 per cent (like-for-like) since 31 Dec 2020. JV loan facility repaid in full during the period

-       Final £15 million of deferred consideration from the Earls Court sale due in November 2021

FINANCIAL HIGHLIGHTS

1. From continuing and discontinued operations. Refer to note 11 "Earnings per share and Net Assets Per Share" on page 42.

2. On a Group share basis. Refer to Property Portfolio on page 59 for the Group's percentage ownership of property.

3. On a Group share basis. Refer to note 2 "Segmental Reporting" on page 35.

4. From continuing and discontinued operations. Refer to Underlying Earnings on page 38.

ENQUIRIES

Capital & Counties Properties PLC:

Media enquiries:

A presentation to analysts and investors will take place today at 9.45am through a webcast on the Group's website www.capitalandcounties.com followed by analyst Q&A.

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 9170).
 

OPERATING REVIEW

Valuations

The total property value of the Group decreased by 5.1 per cent (like-for-like) in the period to £1.8 billion.

As at 30 June 2021, Covent Garden total property value was £1,688 million, representing a 4.9 per cent like-for-like decrease (31 December 2020: £1,825 million). The main contributor was a 4.3 per cent (like-for-like) decline in ERV, primarily in the retail and office portfolios, to £75.8 million. The valuers have taken account of recent market transactions and the positive leasing momentum across the estate reflecting improving sentiment. The valuers' assumption on loss of income has reduced from £27 million to £11 million, resulting in a positive adjustment of £16 million in the period. The equivalent yield was stable at 3.94 per cent (31 December 2020: 3.95 per cent adjusted for the sale of the Southampton Street properties), reflecting the valuers' view of the strength of demand for this prime central London estate. The total valuation decline since 31 December 2019 is 31 per cent (like-for-like), comprising a 26 per cent ERV decline and 28 basis point outward yield movement. 

CBRE's independent valuation of the Covent Garden estate represents the aggregated value of the individual properties with no reflection of any additional estate premium which potential investors may ascribe to the concentrated and comprehensive nature of ownership within the estate. The predominantly freehold nature, concentrated ownership, scale of the estate as well as the portfolio mix may lead prospective purchasers to regard certain parts of the portfolio, for example by street, to have a greater value than the aggregate of the individual property values.

The property valuation of the Lillie Square joint venture as at 30 June 2021 was £108 million (Capco share), an 7.9 per cent decline (like-for-like) against the 31 December 2020 valuation of £117 million.

1.             Valuation change takes account of amortisation of tenant lease incentives, capital expenditure, disposals, fixed head leases and unrecognised trading surplus.

2.             Includes Capco's interest in the Lillie Square joint venture and Lillie Square Holdings Group.

3.             A reconciliation of carrying value of investment, development and trading property to the market value is shown in note 12 'Property Portfolio'.

COVENT GARDEN  

A world-class destination  

The Covent Garden estate represents a carefully assembled portfolio in the heart of London's West End, comprising retail, dining, leisure and cultural space complemented by high quality offices and residential apartments. Through creative asset management and disciplined investment, Covent Garden has been established as an exceptional mixed-use portfolio with a world-class customer line up. The estate represents approximately 1.1 million square feet of lettable space, across 73 buildings and 507 units.

Positive reopening with footfall and sales growing

Following a year characterised by government restrictions and stop-start trading conditions for retail and hospitality customers, the roll out of the vaccination programme is now enabling the gradual return of footfall, resulting in a return of consumer and business confidence as well as more normal patterns of activity.       

The enduring appeal of Covent Garden continues to be seen by recovery in footfall and trade following the easing of measures. There has been a gradual return of office workers which is anticipated to continue gathering pace following the final stage of lifting of restrictions around working from home and physical distancing. The recent re-opening of nightlife and theatres returning to full capacity will further stimulate the West End's economy. There remain limitations on international leisure and business travel, however there has been a significant rise in the number of domestic tourists and Londoners coming to Covent Garden for both day visits and longer stays.

Footfall and sales are gradually improving since the reopening of non-essential shops. Footfall trends are broadly in line with West End reported benchmarks and while customer sales data relate to a relatively short period, the trajectory has been very encouraging with certain categories performing strongly. Covent Garden's restaurants are recovering more quickly as the consumer has sought high quality experiences within a strong overall setting. In partnership with Westminster, a number of additional streets in Covent Garden continue to be pedestrianised allowing Capco to provide 800 al fresco seats across 35 restaurants enhancing hospitality customers' trading prospects. In general, trading activity remains below pre-pandemic levels, however certain customers are trading in line with or in excess of 2019 levels. Capco has been encouraged by the level of activity with a significant number of customers noting greater conversion rates and larger basket sizes. Capco's targeted categories and concepts with strong productivity and margins including premium and luxury operators are amongst the highest performing since reopening.

Creative asset management and positive leasing momentum

Actions taken over the past 18 months have positioned this part of London strongly and competitively to benefit from a recovery. Occupancy across the estate remains high with a vibrant customer line up and new sought-after concepts continue to be signed to the estate. 

Capco's proactive approach to asset management has ensured that EPRA vacancy remains low at 3.4 per cent (31 December 2020: 3.5 per cent), positioning it strongly against central London. 6.2 per cent of ERV is in or is held for development or refurbishment (31 December 2020: 6.4 per cent).   

The valuation of the estate decreased by 4.9 per cent like-for-like over the first half of the year to £1.7 billion. The valuers have taken account of recent market transactions and the significant demand across the estate reflecting improving sentiment. The valuers' assumption on loss of income has reduced from £27 million to £11 million, resulting in a positive adjustment of £16 million. The equivalent yield was stable at 3.94 per cent, (31 December 2020: 3.95 per cent adjusted for the sale of the Southampton Street properties) reflecting the valuer's view of the strength of demand for this prime central London estate.

Customers continue to invest in the estate with a number of new openings including Vashi's flagship jewellery store, the upsizing of Bucherer and two new restaurants on Henrietta Street, Ave Mario and Mrs Riot. Digitally native brands Glossier and Reformation have agreed terms to open new flagship stores on King Street. As well as such new signings, there are a number of brands including Peloton and Strathberry which are completing their fit out and will open in the coming months. There is a strong leasing pipeline, from high-quality brands consistent with Capco's creative vision for the estate. The pipeline of customers will augment and support the fantastic line up, which has been carefully curated over many years.  

Capco has over many years adopted a flexible approach to commercial arrangements with customers including features such as turnover related and shorter leases, which have enabled the business to drive change and continue to reposition the estate. Many of these concepts have transitioned into longer term occupation. The new concepts introduced continue to include both long and shorter-term arrangements, providing the opportunity for both Capco and the customer to benefit from increased sales over time. 29 leasing transactions (-6 per cent against 31 December 2020 ERV) completed in the first half of the year representing £6.0 million of contracted income (H1 2020: £2.7 million).

On an underlying basis, net rental income reduced by £0.1 million to £25.2 million compared with 30 June 2020. Income collection continues to be impacted by the limited ability for the majority of our customers to trade for much of the first half of the year. Overall 61 per cent of rent has been collected in the first six months of the year. 65 per cent of June 2021 quarterly rents have been collected after adjusting for monthly payment plans.  

As a long-term investor in the estate, Capco has provided support on a case-by-case basis to customers experiencing cash flow challenges as a result of COVID-19. Capco's direct relationships with customers have enabled the business to take a proactive approach and maintain the strong customer line up, ensuring that tenant failures have been minimal over the period. Customer support was provided in H1 2021 on a case by case basis and is expected to extend into H2 2021 for a selection of customers where appropriate, but on a reduced basis. Growing footfall, sales and customer demand should result in improved cash income over time.

Consumer engagement with the launch of an extensive cultural programme

Capco continues to implement its consumer focused marketing strategy and is collaborating closely with occupiers and stakeholders to promote Covent Garden and the West End. Capco's reopening strategy had a clear objective to provide its customers with the confidence to reopen and encourage visitors to return, whilst protecting the estate and ensuring its prosperity over time.

In order to sustain and enhance demand from customers and visitors during the lockdown period earlier this year, Capco continued to engage directly with the consumer with a curated schedule of digital first experiences to bring Covent Garden to everyone at home through a new digital activity hub. This is consistent with Capco's investment in digital marketing over recent years which has resulted in strong digital engagement across its channels.

To support the reopening of the estate a 'Hello London' sign was installed at the front of the Market Building. An art installation by London-born artist Lakwena was launched with a series of flags made with recycled yarn from ocean waste emblazoned with the message "Nothing Can Separate Us" installed across King Street.

A cultural programme was launched which includes public art installations, over 800 al-fresco dining seats and a new botanical garden outdoor picnic area. Indoor dining reopened from 17 May 2021, providing Covent Garden with over 2,500 additional dining seats. To coincide with the reopening of indoor hospitality, Capco launched a Rosé Festival with a selection of pop up bars and terraces across the Piazza. Covent Garden hosted a six-week-long street food festival in partnership with Feast It with a weekly changing roster of dining experiences.

From 10 July 2021, Capco is partnering with The Royal Opera House ('ROH') for a month long festival of creativity 'ROH Unlocked' with a schedule of open-air performances showcasing ballet and opera on the Piazza. This coincides with the Covent Garden Summer Festival which includes a Fever Tree Spritz Bar, Wimbledon screenings and a revolving selection of street food brands.  

Sustainability, environmental stewardship and stakeholder engagement

Our purpose is to invest in and create world-class places, focusing on central London. Using our vision, long-term approach and responsible stewardship, we deliver economic and social value and generate benefits for our stakeholders.

As a long-term steward of the Covent Garden estate, Capco aims to make Covent Garden a UK leader in sustainability by delivering positive environmental and social outcomes that enhance value for stakeholders while protecting the unique character and heritage of the estate. In February 2021, Capco renewed its commitment to environment, sustainability and community initiatives by launching a new ESC strategy, supported by a Board Committee.

Sustainability is embedded across the business but continues to grow in importance as tackling the challenges of climate change requires immediate action. Capco has committed to achieve Net Zero Carbon by 2030 with a detailed pathway to be published over the coming months. During the period, Capco commenced a customer engagement programme to inform and identify opportunities to lower carbon impacts across the estate and collaborate to minimise water consumption and waste generation. Capco aims to minimise its own impact on the environment by employing an active approach to reduce traffic and congestion therefore enhancing air quality. One of Covent Garden's key differentiators is its largely pedestrianised nature. In partnership with Westminster City Council, Capco continues to make enhancements to the public realm across the additional pedestrianised streets in the Covent Garden area allowing over 800 outdoor seats enhancing the customer experience for visitors.

Capco works with neighbouring property owners, businesses, local authorities and residents to ensure that the area is desirable for now and the future. Capco has become a partner of Wild West End, a not-for-profit partnership which aims to enhance the quality of green space and the local environment for people and wildlife across Westminster. As a result, the first ecological survey of the Covent Garden estate is being undertaken in partnership with the London Wildlife Trust.

Capco continues to encourage Covent Garden visitors to make better environmental choices and supports its restaurants and retailers in their efforts to become more sustainable. Throughout 'Plastic Free' July various programmes were implemented across the estate including reusable cup initiatives, water refill stations, product recycling and sustainable takeaway packaging alternatives to tackle plastic waste. Covent Garden's sustainability efforts have also been extended to its greening programme which has introduced thousands of new plants across the estate, alongside reducing plastic wastage by over 60 per cent.

Capco has continued to provide assistance to local charity partners. Financial aid is provided in support of homelessness, food banks, and the elderly as well as hospitality and retail foundations.

Throughout COVID Capco did not furlough any of its employees nor has it taken up any other government support measures. Capco conducted an employee survey in April 2021, which received both very high engagement scores and a very high response rate of over 90 per cent, as well as high scores in most areas. The survey covered the following topics: working at Capco, corporate strategy (including sustainability) and support, dealing with the pandemic, new ways of working and a feedback section. The employee survey results demonstrated Capco's entrepreneurial and dynamic culture with strong and positive performance. Capco's people continue to be highly engaged which is a key strength and differentiator.

Retail

Retail space represents 50 per cent of the portfolio by value. Capco's retail strategy is to focus on concepts relevant to the consumer in targeted categories with a strong omni-channel presence. These targeted categories include digitally native, sustainable, jewellery, contemporary fashion, beauty, lifestyle and sports.

Retailers continue to adapt to changes in consumer shopping behaviour. COVID-19 has demonstrated that successful retailers will continue to need physical stores to build brand awareness, customer capture and retention. Retailers will not need as many stores as before but will be focused on leading global destinations placing more emphasis on customer experience, service and flagship retailing with better digital engagement. Capco offers a unique customer experience, utilising the historic Piazza through events and cultural installations to drive estate recognition and brand engagement.

A number of global brands have agreed terms to take space in Covent Garden. Sustainable fashion brand Reformation has agreed terms to open a new London flagship store on King Street. Reformation is a lifestyle brand which combines stylish, vintage-inspired designs with sustainable practices. Its designs are 100 per cent water, waste and carbon neutral, with a commitment to being climate positive by 2025. As a sustainable, digitally native fashion brand, Reformation will add to the existing unique shopping experience that the estate offers for consumers.

Following the success of Glossier's Floral Street pop-up store in 2019, the digital-first beauty company has agreed terms for a long-term lease on King Street. Glossier is a millennial favourite with a cult online following and is expected to open in the coming months.

Bespoke jewellery brand Vashi opened its new London flagship store on James Street in June 2021. The state-of-the-art workshop allows customers to be at the heart of the design process to co-create their own bespoke piece. This new opening joins established luxury brands Tiffany & Co. and Bucherer, which opened in a new prominent location in the Royal Opera House Arcade having doubled the size of its store.

Designer accessories brand Strathberry and gold jewellery boutique Sacred Gold will open in the Market Building in the second half of the year. Outdoor apparel brand Arc'teryx agreed terms earlier this year for a store on Long Acre.

During the period, Spokesafe opened on Long Acre. Alongside secure cycle storage, E-bike chargers, lockers, a repair station and multiple air pumps are available for visitors to use on a daily, weekly or monthly basis.

Dining

Covent Garden continues to introduce high quality innovative food concepts which have been central to the dining strategy. Dining space represents 22 per cent of the portfolio by value.

A number of new dining concepts have been introduced further enhancing Covent Garden's attractiveness as a dining destination. Ave Mario by Big Mamma restaurant group, which is behind successful London venues Gloria and Circolo Popolare, has opened a vibrant restaurant offering a traditional Italian trattoria experience. The 227 cover restaurant with dual frontage on Henrietta Street and Maiden Lane is split over two floors and includes two terraces and an inner courtyard.

Mrs Riot opened on Henrietta Street and is an experience led bistro and cocktail bar offering live entertainment every day of the week with interiors designed by Hollywood film designer Sonja Klaus. Following a pop-up on James Street, The Gentlemen Baristas has signed a longer term lease to open a new flagship bar, restaurant and café on Henrietta Street. Greggs have taken space on the Strand and are expected to open later this year.

Hospitality and leisure

Covent Garden is benefiting from the increased level of city staycations, with the area home to a number of new hotels from independent and boutique operators including The Henrietta Hotel and budget friendly Z hotel. Covent Garden has hotels for every price range for visitors to explore London. 

Capco has recently partnered with a number of hotels in the area to reward guests with a Covent Garden Black Card which unlocks discounts and special offers across restaurants, shops and experiences in and around the Covent Garden estate.

Following the acquisition of the London Film Museum by Warner Bros, a new Harry Potter exhibition has been launched of behind-the-scenes images from the Harry Potter film series in the London Film Museum located on Wellington Street. In addition, Disney have launched a 'Disney on Stage' family friendly exhibition in Covent Garden showcasing a number of Disney productions.  

Office

Covent Garden has a contemporary office portfolio ranging from warehouses to newly refurbished space, offering both multi-tenanted and single occupancy workspace. The portfolio tends to attract financial services, technology, creative industries and SMEs.

Office space represents 15 per cent of the portfolio by value. The valuation of the office portfolio decreased by 9 per cent like-for-like to £257 million, primarily driven by more prudent letting and capital expenditure assumptions for future developments and refurbishments. 

As a result of the pandemic, physical occupation of office space in central London is currently low however is anticipated to increase following the easing of restrictions. A theme that has also been amplified by COVID-19 is increased demand for 'plug and play' space on flexible lease terms in the London office market. A number of flexible spaces have been introduced across the estate in recent years including the opening of WeWork on Long Acre in 2020.

Businesses will continue to require high-quality space in desirable mixed-use destinations to attract staff to the office. This is one of the strengths of the estate which is surrounded by high quality retail and F&B options as well as offering a secure environment. 

Residential

Covent Garden is established as a premium residential address. Residential space represents 8 per cent of the portfolio by value. During the pandemic there has been an increased level of vacancy across the portfolio with many overseas residents in particular not renewing tenancies. However following the easing of restrictions, there has been a significant increase in enquiries with strong leasing demand for residential accommodation across the estate. Vacancy across this portfolio has reduced significantly since 31 December 2020 with seven units available to let.

Investment activity

Capco continues its disciplined approach to capital allocation. In June 2021, Capco completed the sale of two freehold properties 26-27 Southampton Street and 30-32 Southampton Street to a private investor for £50.2 million (before costs) realising a loss of £7.7 million against the 31 December 2020 valuation. The properties comprise a greater proportion of larger residential units and have been sold at a price representing a capital value of £1,775 per square feet. The buildings comprise 17 residential apartments and two retail units across 28,000 square feet located on Southampton Street with a total ERV of £1.6 million and £1.4 million passing rent at 31 December 2020.

Assets in the area remain tightly held. Capco has a strong balance sheet and access to significant liquidity to take advantage of market opportunities. There are a number of properties on or around the estate being actively tracked for repositioning opportunities. Capco's extensive knowledge of the district, close network of contacts and proven track record mean Capco is often the best positioned to acquire properties, frequently off-market.

Active asset management and refurbishment initiatives continue across the estate including office refurbishments at 35 King Street and 5-6 Henrietta Street which are expected to come to market next year. Total current capital commitments across the Covent Garden estate are modest at £3.9 million.

OTHER INVESTMENTS

Shaftesbury PLC shareholding

Capco has a 25.2 per cent shareholding in Shaftesbury PLC, comprising 96.97 million shares. Capco's blended entry price (before associated costs) for its investment in Shaftesbury is 517 pence per share at a cost of £501 million.  

At 30 June 2021, the share price of Shaftesbury PLC shares was 569.5 pence, resulting in Capco's investment being valued at £552 million (31 December 2020: £552 million). On 2 July 2021, Shaftesbury PLC paid an interim dividend of 2.4 pence per share, generating £2.3 million of dividend income.

The Shaftesbury investment represents a significant stake in an exceptional mixed-use real estate portfolio of approximately 600 buildings, adjacent to Capco's world-class Covent Garden estate. The investment provides the opportunity to benefit from the recovery of the broader West End.    

Lillie Square 

Capco owns 50 per cent of the Lillie Square joint venture, a one million square foot (GEA) residential development located in West London.

The property valuation as at 30 June 2021 was £106 million (Capco share), a 7.9 per cent decline (like-for-like) against the 31 December 2020 valuation of £115 million. In addition, Capco owns £2 million of other related assets adjacent to the Lillie Square estate.

Development of Lillie Square is well-progressed. Handover of 227 Phase 1 units is complete, with a small number of units available. The handover of Phase 2 continues with 97 units handed over, representing £118 million of net cash proceeds (£59 million Capco share). Ten contracts, representing approximately £13 million in value, have been rescinded resulting in non-completion of pre-sold units.

During the period, the joint venture restructured the previously announced bulk sale of 49 units and 31 car parking spaces representing £66 million (£33 million Capco share). Contracts have been exchanged on a revised deal with a consortium of investors for the sale of 19 units and 20 car parking spaces for £38 million. £18.6 million of cash proceeds has been paid to date with the remaining proceeds due on completion which is expected in the autumn.         

Proceeds from the sale have been used to repay the loan facility in full. The joint venture is in a cash position of £21.1 million. 70 units remain available in Phase 2 representing £104 million (£52 million Capco share).

Earls Court deferred proceeds

The final instalment of the deferred consideration from the Earls Court sale totalling £15 million is due in November 2021.

OUTLOOK

Capco's actions, commitment and creativity over the last eighteen months have ensured that Covent Garden is the most vibrant district in the West End. We are confident that our approach and the quality of our estate, underpinned by our strong balance sheet, position Capco for recovery.

The elevated level of enquiries, strong transactional activity and improving sentiment indicate that the worst of the pandemic may be behind us. There remain challenges in the near term however the return of office workers and opening of nightlife and theatres will help the economy move towards more normal levels of activity. Covent Garden vacancy remains low, although wider vacancy issues across the West End may take some time to be absorbed by the market.

We are particularly pleased by the resilience of our high quality customer line up, the level of investment of new customers fitting out space and our strong leasing pipeline. Customer sales data is moving in the right direction with positive trajectory to date and it will be important this continues for the rest of the year to build towards the important Christmas trading period. The pace of rental decline has slowed and yields are stable reflecting the valuers' view on improving sentiment and the strength of demand for this prime central London estate. 

Capco will remain disciplined in the allocation of its capital and is well-positioned to take advantage of market opportunities. We will continue to focus on responsible stewardship, implementing our ESC strategy and working to achieve our Net Zero Carbon target by 2030.

Through our long-term vision and entrepreneurial culture, we have positioned the business competitively. Capco is in a strong financial position with significant financial flexibility. Looking ahead we remain confident in the resilience of London's West End and the enduring appeal of Covent Garden.

FINANCIAL REVIEW

The COVID-19 pandemic has continued to have a material impact on the financial results of the Group, reflecting the further period of significant disruption to our customers' businesses during much of the first half of the year, as demonstrated by the 4.9 per cent like-for-like decline in the independent property valuation of the Covent Garden portfolio. Income collection continues to be impacted by the limited ability for the majority of our customers to trade for much of the first half of the year. Overall 61 per cent of rent has been collected in the first six months of the year. Adjusting for monthly payment plans, 65 per cent of June 2021 quarterly rents have been collected. Rent collection as measured 21 days after the due date was 47 per cent, for June 2021 billing which represents a significant improvement when compared with the average over the previous five quarters during the pandemic of 34 per cent.

Overall EPRA NTA (net tangible assets) per share decreased by 6.1 per cent during the period, from 212.1 pence to 199.2 pence. The total return for the period was -6.1 per cent. Total shareholder return for the period, reflecting the movement in the share price from 145 pence to 161 pence, was 11.0 per cent.

Underlying earnings from continuing activities was £nil compared with £2.5 million for the six months ended 30 June 2020, driven primarily by increased interest costs (being the result of a higher level of average net debt year on year following the Shaftesbury investment) offset by a reduction in underlying administrative expenses.

Rental income

In view of the continued disruption to business and consumer activity, bespoke support has been provided to customers in respect of the period, including rent deferrals, rent-free periods and other arrangements reflecting the position of each customer. As was the case in the second half of 2020, for many retail and food & beverage customers rental agreements have been linked to turnover in exchange for other provisions such as removal of breaks, lease extensions and enhanced sharing of data.

On a group share basis gross rental income decreased by £2.7 million to £35.6 million, a 7 per cent reduction compared with the same period of 2020. Net rental income has however increased by £2.8 million compared with June 2020, driven largely by a £4.8 million reduction in bad debt expense (£1.0 million in 2021 versus £5.8 million for 30 June 2020), offset in part by a £2.2 million increase in property costs primarily due to increased void and COVID-19 related costs.

Lease modification costs and impairment of tenant lease incentives of £4.2 million are excluded from underlying net rental income as they are at levels not experienced prior to the COVID-19 pandemic nor expected to be incurred once tenant support measures required as a result of COVID-19 and related restrictions conclude. On an underlying basis, net rental income has reduced by £0.1 million to £25.2 million.

Balance sheet

The property valuation of the Covent Garden estate has decreased by 4.9 per cent (like-for-like) to £1,688 million primarily as a result of a 4.3 per cent decline in ERV to £75.8 million. The Group completed the sale of two assets on Southampton Street in June 2021 for total proceeds of £50.2 million, recording a loss in the income statement against the 31 December 2020 valuation of £7.7 million. The proceeds from the sale were used in part to repay the revolving credit facility which is now fully undrawn with the balance held as cash deposits.

Despite the impact of COVID-19, the Group is well-positioned with a clear focus to grow its property investment business centred around the West End, supported by a strong financial position. With net debt to gross assets of 28 per cent and access to substantial cash and undrawn facilities, currently £989 million, the Group has the ability to withstand market volatility, capitalise on investment opportunities and deliver long-term value creation.  

The Group has a shareholding of 25.2 per cent in Shaftesbury represented by 96,971,003 shares, acquired at a blended price (before costs) of 517 pence per share or £501 million in total. As at 30 June 2021 the investment was valued at £552 million based on the closing price of 569.5 pence per share on 30 June 2021. After the period end, on 2 July 2021, the group received dividend income from Shaftesbury of £2.3 million.

Development of Lillie Square, in which Capco has a 50 per cent interest, is well-progressed. Handover of 227 Phase 1 units is complete, with a small number of units remaining available. The completion of Phase 2 continues with 97 units handed over, representing £118 million of net cash proceeds. Ten contracts, representing approximately £13 million in value, have been rescinded resulting in non-completion of pre-sold units for which deposits of £2.4 million were retained.

The property valuation as at 30 June 2021 was £106 million (Capco share), a 7.9 per cent decline (like-for-like) against the 31 December 2020 valuation of £117 million. In addition, Capco owns £2 million of other related assets adjacent to the Lillie Square estate.

During the period, the joint venture restructured the previously announced bulk sale of 49 units and 31 car parking spaces representing £66 million. Contracts have been exchanged on a revised deal with a consortium of investors for the sale of 19 units and 20 car parking spaces for £38 million. £18.6 million of cash proceeds have been paid with the remaining proceeds due on completion which is expected in the autumn.        

Proceeds from the sale have been used to repay the loan facility in full. The joint venture is in a cash position of £21.1 million.

Basis of preparation

As required by IFRS 11 'Joint Arrangements', the Group presents its joint ventures under the equity method in the condensed consolidated interim financial statements. 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.

The Group uses Alternative Performance Measures ("APMs"), financial measures which are not specified under IFRS, 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.

One of the key performance measures the Group uses is underlying earnings. The Group considers the presentation of underlying earnings to be useful supplementary information as it removes unrealised and certain other items and therefore better represents the recurring, underlying performance of the business. Items that are excluded are net valuation gains or losses (including profits or losses on disposals), fair value changes, impairment charges, net refinancing charges, costs of termination of derivative financial instruments and other non-recurring costs and income. Given the scale of the rental support provided to tenants during the current period and during 2020, the non-cash lease modification expenses and impairment of incentives totalling £4.2 million remain material and at levels not experienced prior to the pandemic nor expected to be incurred once tenant support measures required as a result of COVID-19 conclude. Accordingly, they have been excluded from underlying earnings on a basis consistent with the presentation in the Group's 2020 Annual Report and Accounts. Underlying earnings is reported on a Group share basis.

A summary of EPRA performance measures and key Group measures included within these condensed consolidated interim financial statements is shown in EPRA measures on pages 56 to 58.

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, as this represents the economic value attributable to the Company's shareholders. In order 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.

FINANCIAL PERFORMANCE

The Group presents underlying earnings and underlying earnings per share on a Group share basis. The Group considers this presentation to provide useful information as it removes unrealised and certain other items and therefore better represents the recurring, underlying performance of the business.

SUMMARY INCOME STATEMENT

1. Lillie Square and Innova Investments.

2. Net rental income includes £4.2 million of non-underlying costs in relation to lease modification costs and impairment of tenant incentives. Underlying net rental income, excluding these items, is £25.2 million.

3. Administration expenses includes £3.0 million of non-underlying costs primarily related to the assignment of the Group's previous head office lease totalling £1.8 million and other transaction related costs which are all considered non-recurring in nature.

4. Includes other costs, impairment of other receivables and other finance income including change in fair value of derivatives.

5. Further details regarding the EPRA and Company specific adjustments are disclosed within EPRA measures on page 56.

1.       Lillie Square and Innova Investments.

2. Net rental income includes £7.1 million of non-underlying costs in relation to lease modification costs and impairment of tenant incentives. Underlying net rental income, excluding these items, is £25.3 million.

3.       Includes write-back of other receivables, profit on sale of trading property and other finance income.

4.       Further details regarding the EPRA and Company specific adjustments are disclosed within EPRA measures on page 56.

Net rental income

1.             Lillie Square.

Overall rental income has reduced by 7 per cent to £35.6 million from £38.3 million due primarily to tenant movements in 2020.

Property expenses have increased by £2.2 million reflecting increased void and COVID-19 costs across Covent Garden and Lillie Square. The 2020 cost was offset in part by a rates rebate of £0.2 million.

Net rental income has continued to be impacted due to the disruption caused by COVID-19. Overall IFRS reported net rental income was £21.2 million, an increase of £3.1 million from £18.1 million in the first half of 2020 driven by a lower overall bad debt charge in the period.

Included in the net rental income for the first half of 2021 is £2.6 million of lease modification expense reflecting the derecognition of initial direct costs associated with entering into lease concessions with tenants. In view of challenging market conditions, an assessment of the tenant lease incentives held on balance sheet has resulted in a further £1.6 million impairment being recorded in the first half of 2021. Both of these items represent non-cash items for the period.

Taking into account other factors, including the government announcement of the extension of the rent moratorium, a further detailed impairment analysis has been undertaken on the recoverability of rent receivable representing outstanding rent, service charge, deferrals and other lease charges. As at 30 June 2021 the rent receivable balance was £34.2 million. Based on this assessment, the balance sheet position has been impaired by £12.7 million reflecting 37 per cent of the gross balance (43 per cent net) being provided against with the majority of this relating to the retail and F&B sectors. Additional cash collateral and guarantees are held and if included in the assessment, 66 per cent of the net balance has been provided against. Including bad debt write-offs in the period the total charge to net rental income is £1.0 million.

Loss on revaluation and sale of investment and development property

The loss on revaluation and sale of the Covent Garden investment and development property was £92.3 million. The property valuation of the Covent Garden estate has decreased by 4.9 per cent (like-for-like) to £1,688 million, primarily as a result of a 4.3 per cent decline in ERV to £75.8 million with the equivalent yield was stable at 3.94 per cent. The Group completed the sale of two assets on Southampton Street in June 2021 for total proceeds of £50.2 million, resulting in a loss on sale of £7.7 million relative to the 31 December 2020 valuation.  

Administration expenses

Administration expenses have decreased by £4.5 million from £16.6 million to £12.1 million. Underlying administration costs were £9.1 million representing a like-for-like reduction of £3.1 million (25 per cent) mainly due to savings on head office costs.  Non-underlying costs in the current period relate to the assignment of the group's previous head office lease and other transaction-related expenses not expected to recur in future periods (2020: transaction costs of £4.4 million).

The Group has announced previously that it is targeting underlying administration costs of £20 million for the 2021 financial year, and notwithstanding certain upward cost pressures and disruption to business activity caused by COVID-19, progress towards this has continued to be made during the period.

Net finance costs

Due to a higher level of net debt during the period relative to the first half of 2020 following the investment in Shaftesbury shares and related financing activity, net finance cost has increased from £10.4 million to £16.2 million. Underlying finance costs of £16.3 million represents finance costs for the period associated with the gross debt drawn of approximately £950 million. Interest earned on cash held on deposit was negligible. In addition, there is a commitment fee on the £705 million RCF which was largely undrawn over the period and £2.4 million was incurred on amortisation of debt issue costs.

Taxation

The Group's tax policy, which has been approved by the Board and has been disclosed to HM Revenue & Customs ("HMRC"), 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 HMRC which regularly includes obtaining advance clearance on key transactions where the tax treatment may be uncertain. The Group maintains a low risk rating from HMRC.

As a UK REIT, the Group is exempt from UK corporation tax on income and gains from qualifying activities. As a minimum, 90 per cent of the income arising from qualifying activities is required to be distributed as a Property Income Distribution ("PID") to the shareholders of the Group. The full amount of PIDs received from the Shaftesbury investment are also required to be distributed to shareholders. Non-REIT activities, such as disposals of trading property, are subject to UK corporation tax in the normal way. A tax charge can arise for the Group (currently at 19 per cent) if the minimum PID requirement is not met within 12 months of the end of the period.

The UK REIT provisions also require a group to satisfy certain tests to maintain its REIT status. The Group expects to satisfy all requirements needed to maintain REIT status throughout 2021. The UK REIT provisions can impose a UK tax charge on the Group if certain interest cover tests are not met. HMRC has indicated that it is not within the intention of the REIT regime to issue a tax charge in relation to these interest cover tests, where it can be established that COVID-19 is the reason for a breach. As this would be the case for the period to 31 December 2021, the Group does not anticipate a tax charge arising, or for there to be a material risk to the Group's REIT status, due to these tests not being met.

The tax credit of £1.2 million in the income statement comprises a deferred tax charge of £0.4 million in relation to derivative financial instruments and share-based payments, and a deferred tax credit of £1.7 million mainly in relation to the restatement of trading losses carried forward to reflect the increase in tax rate. The main rate of corporation tax remained unchanged at 19 per cent throughout the period. The UK Budget announced on 3 March 2021, confirmed an increase in the main corporation tax rate from 19 to 25 percent with effect from 1 April 2023. This change has been substantively enacted on 24 May 2021 and therefore has been reflected in the Group's deferred tax balances where applicable.

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 certain losses carried forward.     

Dividends

The Board has proposed an interim dividend of 0.5 pence per share to be paid on 23 September 2021 to shareholders on the register at 27 August 2021. Subject to SARB approval, the Board intends to offer a scrip alternative. The dividend will comprise 0.25 pence in the form of a PID and 0.25 pence of ordinary dividend.

FINANCIAL POSITION

At 30 June 2021 the Group's EPRA NTA was £1.7 billion (31 December 2020: £1.8 billion) representing 199.2 pence per share (31 December 2020: 212.1 pence).

SUMMARY ADJUSTED BALANCE SHEET

1. Primarily Lillie Square.

2. IFRS includes amounts receivable from joint ventures which eliminate on a Group share basis.

3. Adjusted, diluted number of shares in issue at 30 June 2021 was 851.5 million.

1. Primarily Lillie Square.

2. IFRS includes amounts receivable from joint ventures which eliminate on a Group share basis.

3. Adjusted, diluted number of shares in issue at 31 December 2020 was 851.5 million.

Investment, development and trading property        

The Group share of investment, development and trading property carrying value has decreased from £1,908.8 million at 31 December 2020 to £1,762.2 million. This movement comprises capital expenditure of £4.1 million, offset by disposals of £58.9 million and a revaluation loss of £91.7 million.  

The Covent Garden portfolio valuation reduced by 4.9 per cent like-for-like, driven primarily by a 4.3 per cent decline in ERV, to £1,687.7 million.

The unrecognised surplus on trading property declined by £2.1 million, and together with the revaluation on investment and development property the total revaluation loss was £94.5 million, representing a 5.1 per cent like-for-like decrease in value, which compares to the MSCI Capital Return for the equivalent period of a 3.5 per cent gain.

Total property return for the period was -4.1 per cent. The MSCI Total Return Index recorded a 6.2 per cent gain for the corresponding period.

Trading property is carried on the consolidated balance sheet at the lower of cost and net realisable value, therefore valuation surpluses on trading property are not recorded. Any unrecognised surplus is however reflected within the EPRA net tangible assets measure. At 30 June 2021, the unrecognised surplus on trading property was £0.1 million (31 December 2020: £2.2 million) which arises solely on the Group's share of trading property at Lillie Square.  

Financial assets at fair value through profit or loss                              

The gain in fair value of listed equity investment of £0.5 million reflects the difference in the Shaftesbury share price between 31 December 2020 (569 pence per share) and 30 June 2021 (569.5 pence per share).

Debt and gearing

The Group maintains a strong financial position with significant resilience and flexibility, targeting diversified sources of funding, an appropriate level of leverage, access to substantial liquidity, limited capital commitments, a balanced debt maturity profile and hedging against movements in interest rates.

The Group's cash and undrawn committed facilities at 30 June 2021 were £988.8 million (31 December 2020: £1,010.2 million), the reduction being due to the cancellation of the Lillie Square facility in the current period. A reconciliation between IFRS and Group share is shown below:

1. Primarily Lillie Square.

Net debt decreased by £42 million to £667.9 million in the period, principally as a result of the repayment of the revolving credit facility with disposal proceeds on the sale of two assets on Southampton Street. £110 million of the proceeds from the secured loan was held in cash at 31 December 2020 and was used to repay part of the revolving credit facility in early 2021. In view of the amount of liquidity available to the Group, it is intended that the £705 million revolving credit facility, which is currently undrawn and has a maturity date of December 2022, will be refinanced at a reduced size during the second half of 2021.

The gearing measure most widely used in the industry is loan to value ("LTV"), however in order to address the fact that LTV does not take into account the value of the shareholding in Shaftesbury, the Group focusses on net debt to gross assets which stood at 27.5 per cent at 30 June 2021. This is comfortably within the Group's internal limit of no more than 40 per cent.

The Group's policy is to eliminate substantially 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 2021 the proportion of gross debt with interest rate protection was 100 per cent (31 December 2020: 100 per cent). The revolving credit facility was fully undrawn at period end.

The principal financial covenants within the Covent Garden debt are to maintain a loan to value ratio of not more than 60 per cent and an interest cover ratio of at least 120 per cent. Based on the current loan to value position under the Covent Garden debt, there is substantial headroom with the ability for property valuations to fall by a further 70 per cent. The interest cover covenant has been met for the six months ended 30 June 2021 and a waiver is in place with the Covent Garden lenders in relation to this period and for the year ending 31 December 2021.

At 30 June 2021 the Group had capital commitments of £5.2 million (£2.2 million at 31 December 2020), comprising £3.9 million for Covent Garden and £1.3 million for Lillie Square.

The loan facility of the Lillie Square joint venture was repaid and cancelled in May 2021.

CASH FLOW

A summary of the Group's cash flow for the period ended 30 June 2021 is presented below:

SUMMARY CASH FLOW

1. Primarily Lillie Square.

1. Primarily Lillie Square.

Operating cash outflows of £4.2 million are as a result of the reduced cash rental collections in the period leading to increased rent receivable balance, the payment of administration expenses and interest.

During the period, £3.1 million was invested at Covent Garden for capital expenditure on a number of small projects. At Lillie Square, £0.6 million was incurred in relation to ongoing development.

At Covent Garden the Southampton Street disposals generated gross proceeds of £50.2 million (before costs). Proceeds were used in part to repay the outstanding balance on the revolving credit facility after an initial repayment was made in early 2021 with proceeds from the £125 million secured loan.

IFRS cash and cash equivalents decreased by £102.4 million to £262.7 million.

Going concern

Further information on the going concern assessment is set out in note 1 to the condensed consolidated interim financial statements.

At 30 June 2021 the Group had cash and undrawn committed facilities of £989 million and capital commitments of £5.2 million. The Covent Garden loan to value ratio was 18 per cent compared with a covenant level of 60 per cent and covenant waivers are in place with the Covent Garden lenders in relation to interest cover for the period up to and including 31 December 2021. During the remainder of the going concern period (being the period to September 2022) there is projected to be headroom against the interest cover covenant, including in a severe but plausible downside scenario.

There continues to be a reasonable expectation that the Company and Group will have adequate resources to meet both ongoing and future commitments for at least 12 months from the date of signing these condensed consolidated interim financial statements. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these condensed consolidated interim financial statements.

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.

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 commercial and operational activity across the Group and are therefore responsible for the management of business risk. The Executive Risk Committee, comprising the Executive Directors, the General Counsel, the Group Financial Controller and the Director of Sustainability and Technology, 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 regular basis by the Executive Risk Committee so that trends and emerging risks can be identified and reported to the Board.

Senior management from each part of the business identify and manage the risks for their area 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 are established. A full risk review is undertaken annually in which 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 the Annual Report and Accounts 2020 and note 1 'Principal Accounting Policies' within 'Critical accounting judgements and key sources of estimation and uncertainty'.

The COVID-19 pandemic has brought about unprecedented challenges and disruption to the broader economy, our tenants and business. Understanding the effects of the pandemic and the impact on our business and the market remains critical and the Board continues to monitor this carefully.

COVID-19 has resulted in a significant reduction in levels of footfall and activity across the Covent Garden estate, significantly lower levels of local and international travel, lower level of physical office occupation and changing tenant and consumer behaviour due to government restrictions. The significant reduction in visitor numbers and store revenues for our tenants has led to a large number of them experiencing cash flow pressures and, in turn, reduced rental collection rates. Challenging occupier and investment market conditions, particularly in the retail and F&B sector, have had a negative impact on property valuations, rental values and income.

The long term impact of COVID-19 on future demand for and use of lettable space, evolution of consumer behaviour (including an acceleration of trends in online shopping) and travel patterns could have further implications for the real estate market and our portfolio. In view of the unpredictable nature of the pandemic, the evolution of policy measures such as the removal of government support measures and other government guidance will be monitored closely together with the impact of related emerging risks. Since the July 2021 announcements about the relaxation of restrictions we expect to see a gradual return to more normal economic conditions but the length of time it will take to get to pre-pandemic levels remains uncertain.

During the course of the COVID-19 pandemic, the Company has prioritised the health and safety of its people, customers and visitors, while working co-operatively and in a co-ordinated manner with stakeholders to protect and promote Covent Garden and the West End, encouraging a return of footfall to more normalised levels over time.

A COVID committee was established in March 2020 to help co-ordinate the Company's response to the pandemic. The committee, led by the Chief Executive and comprised of senior management and those responsible for key areas of operational activity, plus additional groups set up to monitor and manage the impact of COVID-19 on the business, meets regularly to discuss issues surrounding COVID-19 and the impact on the business, and approve decisions and actions promptly. In addition, the leadership team across the business has discussed relevant matters as a group on a very regular basis since March 2020. The Board receives weekly updates and has convened regular additional meetings as required, in order to provide appropriate oversight and governance. In recent weeks the committee has been focused on plans to prepare for a fuller easing of remaining restrictions and ensuring the business is fully prepared to support stakeholders during this transition. Our risk assessment on COVID-19 has concluded that it is not a separate principal risk but rather an overarching risk which has a significant impact on all of our principal risks. Our focus has been on implementing appropriate measures on a timely basis to mitigate this impact. Included within the description of each principal risk is a summary of the impact of COVID-19 and additional mitigating actions taken.

In recent years the UK has experienced heightened economic and political uncertainty after voting to leave the EU from 31 January 2020 and completing the transitional period on 31 December 2020. Uncertainty remains in particular in relation to international trade arrangements and the overall impact on the UK economy. As a result there may be continued volatility in consumer, occupier and broader corporate behaviour and decision-making.

Whilst the impact on our business and the market remains uncertain, the Board continues to monitor this carefully and has assessed risks to the business that may result. The main areas that may affect the Group directly are:

·      the impact on the London and UK economy, including exchange rate volatility and potential disruption in the financial markets

·      the impact on current and prospective tenants, for instance management of their inventory, labour issues, tariffs or other barriers, and the impact on consumer demand (for example due to travel disruption) leading to reduced rents and capital values

During 2020, the Group acquired a 25.2 per cent shareholding in Shaftesbury PLC ("the Investment"). Due to the listed nature of the investment, the market price of Shaftesbury PLC shares may be volatile and subject to wide fluctuations as a result of a variety of factors, including, but not limited to, Shaftesbury PLC's operating results, financial position, performance or prospects.

Although the Group owns a minority interest, the Investment represents a material proportion of the Group's value. The terms of our investment do not provide us with the ability to influence the strategic direction of Shaftesbury PLC, or its financial or operating performance, as our influence is limited to the extent of our voting rights over matters requiring approval of Shaftesbury PLC's shareholders. The interests of other shareholders in Shaftesbury PLC may not always be aligned with those of the Group.

The operational and business risks faced by Shaftesbury PLC are similar to those faced by the Group which are set out in the tables below, but the steps taken to address and respond to any such risks by Shaftesbury PLC are outside of the control of the Group.

A summary of the potential impacts on our principal risks as well as the measures we have put in place to mitigate these impacts is set out in the tables below. 

Emerging risks

The Group monitors its emerging risks and considers mitigating actions which the Group currently deploys and could deploy with regards to these emerging risks. Emerging risks include the longer-term implications of COVID-19 including on consumer behaviour and changes to the way in which real estate will be used in the future, and how lease arrangements are structured, as well as changes to tax and economic policy impacting real estate (including capital gains, VAT and other sales taxes, stamp duty and business rates).

CORPORATE

COVID-19 impact and measure to mitigate

Impact:

The economic and political uncertainty around legislation and policy changes has been heightened due to the global impact of COVID-19 with potential long-term impacts. In addition the impact of Brexit remains a risk with disruption likely.

Measures to mitigate:

As part of our budgeting and forecasting process we have considered the impact of changes to legislation and policies from COVID-19 and Brexit and continue to monitor this in light of the current situation.

PROPERTY

DIRECTORS' RESPONSIBILITIES

Statement of Directors' responsibilities

The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority 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 2020. A list of current Directors is maintained on the Capital & Counties Properties PLC website: www.capitalandcounties.com.