Intention to launch Covent Garden as a central London focused REIT
- 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
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.”
Intention to proceed with the demerger
Capital & Counties Properties PLC today announces its intention to launch Covent Garden as a central London focused REIT through its demerger from Capco (the "Demerger"). Through successful execution of strategy, Capco has created two central London estates that could now stand alone as strongly positioned independent businesses, Covent Garden London and EC Properties.
Capco intends to publish shareholder documentation, and hold management presentations, in September 2019, with completion, subject to shareholder approval, anticipated before the end of 2019.
Covent Garden London
Covent Garden London will be a central London focused REIT which owns and manages the Covent Garden estate, in the heart of London’s West End.
This world-class mixed-use estate has a rich heritage, situated around the historic Covent Garden Market Building and Piazza, adjacent to the iconic Royal Opera House. Covent Garden is a highly attractive and globally recognised destination for occupiers and consumers. This carefully accumulated group of assets has provided, and the Board believes will continue to provide, a source of long-term growth in income and capital value. The business will be targeting a progressive dividend policy through income growth and cost discipline, to deliver long-term sustainable returns.
Covent Garden London principally comprises the Covent Garden estate and also includes Capco’s 50 per cent interest in the Lillie Square joint venture, the development of which is very well-progressed with its second phase expected to be delivered in 2020. The total property interests were valued at £2.8 billion at 30 June 2019.
The remaining business of Capco comprising the interests at Earls Court will become EC Properties.
EC Properties will be a London land enablement and development company, whose Earls Court interests are held primarily through Earls Court Partnership Limited (“ECPL”), the investment vehicle with Transport for London (“TfL”). Earls Court represents one of the most important opportunities to deliver a mixed-use development to meet London’s evolving needs. The Earls Court site has a highly attractive location in an established and desirable part of central London with excellent connectivity and limited competing supply. The majority of the site benefits from a detailed planning consent.
EC Properties’ strategy will be to optimise and realise value from its interests at Earls Court over time, by facilitating delivery of the Masterplan through the introduction of third-party capital. As value is realised from its interests, EC Properties will seek to return capital to shareholders as appropriate.
The property interests of EC Properties were independently valued at £426 million as at 30 June 2019. In addition Capco’s interests in respect of the Conditional Land Sale Agreement are carried on balance sheet at £84 million, comprising land prepayments and associated costs.
Background to and Reasons for a Demerger
Capco’s strategy to date has been to deliver long-term value for shareholders from its focused approach and emphasis on its two London estates. The Board believes this strategy has been highly successful, resulting in a total return (change in net assets and dividends paid) of 11 per cent per annum since the demerger of Capco from Liberty International PLC in 2010. Covent Garden and Earls Court are distinct businesses with different risk and reward profiles. The Demerger would be expected to create the following benefits:
(a) Enhanced flexibility for Covent Garden London and EC Properties to manage their assets, which have different characteristics and opportunities, and pursue independent strategies appropriate to their respective objectives;
(b) the ability for Covent Garden London and EC Properties to manage their respective balance sheets to ensure an optimal capital structure for each business; and
(c) the opportunity for shareholders, and other market participants, to invest separately and determine their own weightings in two distinct investment propositions, with each business being able to attract the most appropriate shareholder base for their independent strategies.
The Demerger will give rise initially to one-off transaction costs and costs associated with establishing both Covent Garden London and EC Properties as stand-alone companies. However, the Board believes that the initial costs associated with the Demerger will be outweighed by the longer-term benefits of the Demerger for Covent Garden London and EC Properties, and therefore for shareholders.
There has been a broad range of interest in Earls Court expressed to the Company and its financial advisers. In assessing proposals from interested parties, the Board focuses on value and deliverability. The 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. There is no certainty of a sale transaction. The Board believes that separation of the two businesses is in shareholders' interests and is therefore announcing today its intention to proceed with the Demerger.
Separately a number of expressions of interest have been received, including from institutional capital, to participate in development of the ECPL land.
Expected capital and cost structure
Since 2010 Capco has had a clear and focused strategy to optimise and realise value from its interests at Earls Court. This includes the capital realised from entering into the joint venture on Lillie Square and the sale of both the Venues business and the Empress State Building.
Over that time, Capco has reinvested its capital principally into the Covent Garden estate driving the long-term strategy to reposition the estate as a world-class destination. Covent Garden is now globally recognised with the scale and income profile to be a successful stand-alone business.
Following the Demerger, Covent Garden London and EC Properties would each retain their existing debt facilities. In addition, it is proposed that EC Properties would retain cash of approximately £145 million (after the settlement of its share of Demerger costs). This would result in an illustrative pro forma LTV for Covent Garden London of approximately 27 per cent and a net cash position for EC Properties of approximately £100 million.
The target administration costs of Covent Garden London and EC Properties are expected to be approximately £20 million and £10 million respectively, on a run rate basis from the end of 2020.
Following the Demerger, the proposed leadership structure for Covent Garden London is as follows:
- Henry Staunton, Chairman (current Chairman of Capco)
- Ian Hawksworth, Chief Executive (current Chief Executive of Capco)
- Situl Jobanputra, Chief Financial Officer (current Chief Financial Officer of Capco)
- Michelle McGrath, Executive Director (current Director of Covent Garden, Capco)
Following the Demerger, the proposed leadership structure for EC Properties is as follows:
- Gerry Murphy, Chairman (current Senior Independent Non-executive Director of Capco)
- Mike Hood, Chief Executive (current Managing Director, Earls Court, Capco)
- Terry O’Beirne, Chief Financial Officer (current Director of Finance, Capco)
- Alison Fisher, Executive Director (current Group Legal Director, Capco)
It is intended that Covent Garden London, which would be a UK REIT, and EC Properties would both have premium listings on the London Stock Exchange ("LSE") as well as secondary listings on the Johannesburg Stock Exchange ("JSE").
Further details are expected to be announced in September.