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Capital & Counties Properties Plc - Half-year Report



Continuing rental income growth and intention to demerge Covent Garden as a central London focused REIT

Henry Staunton, Chairman of Capco, commented:

"Capco has achieved significant growth since listing in 2010. Covent Garden in the heart of London's West End is now of considerable scale, valued at over £2.6 billion with an attractive long-term income profile. At Earls Court we have created one of London's most important development opportunities. Against this successful execution of strategy for both assets, the Board has considered the structure of the Group and believes that a separation of Covent Garden and Earls Court is in shareholders' interests and offers significant benefits. As two distinct and focused businesses, with experienced management and growth prospects, Covent Garden and Earls Court can pursue independent strategies to deliver long-term shareholder value."

Ian Hawksworth, Chief Executive of Capco, commented:

"Through the successful execution of our strategy, we have created two fantastic estates that could now stand alone as strongly positioned independent businesses. I am delighted that the Board's long-term ambition of seeing Covent Garden become a focused REIT is reaching fruition. Having assembled a remarkable portfolio, the business is now of a scale and quality to perform and grow in one of the world's most exciting real estate markets, the West End in Central London and is well-positioned for continued long-term success.

At Earls Court, we have created one of London's most important mixed-use development opportunities, which has the ability to evolve with market dynamics and bring forward much needed homes for London. Separation of the two estates would enhance strategic flexibility, and allow each business to pursue independent strategies and deliver long-term value for our shareholders."

Key financials

-       Equity attributable to owners of the Parent £2.6 billion (Dec 2018: £2.7 billion)

-       EPRA NAV declined by 3.3 per cent to 315 pence per share (Dec 2018: 326 pence per share)

-       Total property value of £3.2 billion, a decrease of 2.0 per cent (like-for-like) (Dec 2018: £3.3 billion)

-       Proposed interim dividend of 0.5 pence per share (Jun 2018: 0.5 pence per share)

Covent Garden continued income growth and reversion capture

-       Covent Garden total property value of £2.6 billion, 0.5 per cent increase (like-for-like) (Dec 2018: £2.6 billion)

-       Net rental income up 7.0 per cent (like-for-like) or 9.8 per cent in absolute terms against June 2018

-       Positive operational momentum; 40 new leases and renewals 2 per cent above December 2018 ERV

-       ERV increased by 1.0 per cent (like-for-like) to £108 million (Dec 2018: £108 million)

-       Positive trading environment, increase in footfall and tenant sales

-       Continuing to attract high quality brands

-       High occupancy, renewal rates and strong demand for office and residential portfolio

Earls Court investments

-       Earls Court interests valued at £599 million, a decrease of 11.5 per cent (like-for-like) (Dec 2018: £658 million)

-       Ongoing operational progress on ECPL land with railway track suppression works progressing on schedule

-       ECPL land available for development; ongoing interest from potential investors and occupiers

-       Lillie Square Phase 2 construction continues on schedule with first handovers expected in H1 2020

Strong financial position with significant financial flexibility

-       Group loan to value ratio of 19 per cent (Dec 2018: 18 per cent)

-       Group undrawn facilities and cash of £845 million (Dec 2018: £854 million)

-       Capital commitments of £49 million (Dec 2018: £53 million)

-       Weighted average debt maturity of 5.5 years (Dec 2018: 6.0 years)

-       Weighted average cost of debt of 3.0 per cent (Dec 2018: 2.9 per cent)

Intention to proceed with the demerger  

-       Intention to launch Covent Garden as a central London focused REIT through demerger from Capco

-       Through successful execution of strategy, Capco has created two central London estates that could now stand alone as independent businesses, Covent Garden London and EC Properties

-       Covent Garden is now of a scale and income profile to be strongly positioned as a central London focused REIT

-       EC Properties aims to optimise and realise the value of its Earls Court land interests over time

-       There has been a broad range of interest in Earls Court and in assessing proposals from interested parties, the Board focuses on value and deliverability

-       Indicative pricing received is at a range of discounts to the balance sheet value and the proposals are subject to differing levels of further due diligence and a number of conditions, including third-party rights

-       No certainty that this will result in a sale transaction

-       The Board believes that separation of the two businesses is in shareholders' interests and therefore intends to proceed with the demerger

-       Capco expects to publish shareholder documentation in September 2019

-      Completion of demerger, subject to shareholder approval, anticipated before the end of 2019