Intention to launch Covent Garden as a central London focused REIT through demerger from Capco
Capital & Counties Properties PLC
(Incorporated and registered in the United Kingdom and
Wales with registration Number 07145041 and registered in
South Africa as an external company with Registration
JSE code: CCO
25 July 2019
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ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT
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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
CAPITAL & COUNTIES PROPERTIES PLC (“Capco”)
Intention to launch Covent Garden as a central London focused REIT through
demerger from Capco
- 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
- 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
(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.
Capital & Counties Properties PLC
Ian Hawksworth Chief Executive +44 (0)20 3214 9188
Situl Jobanputra Chief Financial Officer +44 (0)20 3214 9183
Sarah Corbett Head of Investor Relations +44 (0)20 3214 9165
Sarah Hagan Director of Communications +44 (0)20 3214 9185
UK: Tulchan Jessica Reid +44 (0)20 7353 4200
SA: Instinctif Frederic Cornet +27 (0)11 447 3030
The person responsible for arranging the release of this announcement is Ruth Pavey, Company Secretary.
Merrill Lynch South Africa (Pty) Limited
Notes to Editors
About Capital & Counties Properties PLC (Capco)
Capital & Counties Properties PLC is one of the largest investment and development property companies that
specialises in central London real estate and is a constituent of the FTSE-250 Index. Capco's landmark London
estates at Covent Garden and Earls Court were valued at £3.2 billion as at 30 June 2019 (Group share). The
company is listed on the London Stock Exchange and the Johannesburg Stock Exchange.
This press release contains “forward-looking statements” regarding the belief or current expectations of Capital &
Counties Properties PLC, its Directors and other members of its senior management about Capital & Counties
Properties PLC’s businesses, financial performance and results of operations. These forward-looking statements are
not guarantees of future performance. Rather, they are based on current views and assumptions and involve known
and unknown risks, uncertainties and other factors, many of which are outside the control of Capital & Counties
Properties PLC and are difficult to predict, that may cause actual results, performance or developments to differ
materially from any future results, performance or developments expressed or implied by the forward-looking
statements. These forward-looking statements speak only as at the date of this press release. Except as required by
applicable law, Capital & Counties Properties PLC makes no representation or warranty in relation to them and
expressly disclaims any obligation to update or revise any forward-looking statements contained herein to reflect
any change in Capital & Counties Properties PLC’s expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
Any information contained in this press release on the price at which shares or other securities in Capital & Counties
Properties PLC have been bought or sold in the past, or on the yield on such shares or other securities, should not be
relied upon as a guide to future performance.
Date: 25/07/2019 08:00:00
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