Wrap Text
Interim Results for the six months ended 30 June 2019
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
Number 2010/003387/10)
JSE code: CCO
ISIN: GB00B62G9D36
PRESS RELEASE
25 JULY 2019
LEI: 549300TTXXZ1SHUI0D54
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY
JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR
REGULATIONS OF THAT JURISDICTION
FOR IMMEDIATE RELEASE
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
CAPITAL & COUNTIES PROPERTIES PLC ("CAPCO")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2019
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 GBP2.6 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 GBP2.6 billion (Dec 2018: GBP2.7 billion)
- EPRA NAV declined by 3.3 per cent to 315 pence per share (Dec 2018: 326 pence per share)
- Total property value of GBP3.2 billion, a decrease of 2.0 per cent (like-for-like) (Dec 2018: GBP3.3 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 GBP2.6 billion, 0.5 per cent increase (like-for-like) (Dec 2018: GBP2.6
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 GBP108 million (Dec 2018: GBP108 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 GBP599 million, a decrease of 11.5 per cent (like-for-like) (Dec 2018: GBP658
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 GBP845 million (Dec 2018: GBP854 million)
- Capital commitments of GBP49 million (Dec 2018: GBP53 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
ENQUIRIES
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
Media enquiries:
Director of Communications Sarah Hagan +44 (0)20 3214 9185
UK: Tulchan Jessica Reid +44 (0)20 7353 4200
SA: Instinctif Frederic Cornet +27 (0)11 447 3030
A presentation to analysts and investors will take place today at 09:00am at UBS, 5 Broadgate, London, EC2M 2QS. The presentation
will also be available to international analysts and investors through a live audio call and webcast and after the
event on the Group's website www.capitalandcounties.com.
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 9814).
Person responsible:
The person responsible for arranging the release of this announcement is Ruth Pavey, Company Secretary.
https://senspdf.jse.co.za/documents/2019/jse/isse/CCO/25July2019.pdf
FINANCIAL HIGHLIGHTS
30 June 31 December
2019 2018
Equity attributable to owners of the Parent GBP2,644m GBP2,736m
Equity attributable to owners of the Parent per share 310.5p 321.6p
-3.0% Total return for six months ended 30 June 2019 (full year 2018: -2.0%)
EPRA net asset value GBP2,690m GBP2,777m
EPRA net asset value per share 315.0p 325.7p
Dividend per share 0.5p 1.5p
-1.1% Total property return for six months ended 30 June 2019 (full year 2018: -0.4%)
Property market value(1) GBP3,210m GBP3,268m
Net rental income(2) 32.1m GBP63.5m
Loss for the period attributable to owners of the Parent (GBP87.2)m (GBP56.9)m
Underlying earnings per share(3) 0.5p 0.9p
(1) On a Group share basis. Refer to Property Data on page 48 for the Group's percentage ownership of property.
(2) On a Group share basis. Refer to note 2 "Segmental Reporting" on page 29.
(3) Refer to Consolidated Underlying Profit Statement on page 50.
Intention to proceed with the demerger
Capco today announces as detailed in a separate statement, its intention to launch Covent Garden as an independent central
London focused REIT through its demerger from Capco.
Capco's strategy is focused on driving long-term value creation. Since listing in 2010, the Company has realised significant
value from various investments and allocated capital to the growth of Covent Garden. Both businesses now have different risk
and reward profiles. The scale and changing income profile of Covent Garden as well as the ECPL land being available for
development have been taken into account by the Board in determining to proceed with a demerger of Covent Garden.
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 Earls Court Partnership Limited ("ECPL") land.
Covent Garden and Earls Court are two central London estates with positive long-term growth prospects.
Covent Garden is a highly attractive and globally recognised destination for occupiers and consumers. This world-class estate
has a rich heritage, situated around the historic Covent Garden Market Building and Piazza, adjacent to the iconic Royal Opera
House. The carefully accumulated group of assets provides a source of long-term growth in income and capital value. Capco's
distinct approach to rigorous asset management and strategic investment continues to attract target brands and experiences to
meet evolving consumer demand. Covent Garden aims to deliver long-term sustainable returns underpinned by driving rental
growth and securing income from its mixed-use estate in London's West End.
Earls Court represents one of the most important opportunities to deliver a large-scale, mixed-use development to meet
London's evolving needs. Earls Court 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 already benefits from a detailed planning consent.
Earls Court is a key strategic scheme for the capital, providing the opportunity to create much needed new homes, jobs and
additional benefits for London. EC Properties aims to optimise and realise the value of its Earls Court land interests over time,
by facilitating delivery of the Masterplan through the introduction of third-party capital.
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.
Outlook
London continues to demonstrate its status as a truly global city with high levels of visitor numbers and strong consumer
spending relative to the rest of the UK; the macroeconomic and political environment remains uncertain and could further
impact the property market.
Through the successful execution of our strategy over the past nine years, at Covent Garden and Earls Court we have created
two central London estates that could each now stand alone as strongly positioned independent businesses, with positive long-
term growth prospects.
Covent Garden is a world-class mixed-use estate. Its scale and attractive income profile now position the business for
continued long-term success and growth as an independent REIT based in the heart of London's West End. Capco's creative
approach and emphasis on the consumer ensures the estate continues to thrive and is well-positioned to deliver further rental
growth and capture its reversionary income. Capco will continue to invest strategically in assets which offer value creation
opportunities, with the southern part of the estate in particular offering a number of significant growth prospects.
Earls Court is one of the most important mixed-use development opportunities in London. The ECPL land, which represents
Capco's principal investment in Earls Court, is available for development. Whilst the environment for large-scale residential
development remains challenging, the level of interest being shown in the land suggests that capital is available to support
activity on site. Earls Court has the ability to adapt to the dynamics of the market and to bring forward much needed new
homes for London.
Covent Garden and Earls Court are two strongly positioned estates, both of which have positive long-term growth prospects.
Backed by a strong balance sheet, with low leverage and significant levels of liquidity, Capco is well-positioned to create two
independent businesses with appropriate capital structures. Separation of the two assets would enhance strategic flexibility,
allowing each business to pursue independent strategies to deliver long-term value for shareholders.
OPERATING REVIEW
Valuations
The total property value of the Group decreased by 2.0 per cent (like-for-like) in the period to 30 June 2019 to GBP3.2 billion.
The valuation of Covent Garden has risen by 0.5 per cent (like-for-like) to GBP2.6 billion, driven by ERV growth of 1.0 per cent
achieved over the period. The equivalent yield remains unchanged at 3.6 per cent, reflecting the independent valuer's view of
the strength of demand for central London retail investments. The performance of retail and dining operators in the West End of
London has proved to be more resilient in general than the wider UK market, although this does vary by area with signs of
weaker rents and values in certain sub-markets.
The valuation of Earls Court Properties was GBP599 million, representing a decrease of 11.5 per cent (like-for-like). The
independent valuer made adjustments to the gross development value, the cost of delivery and the developer's margin,
resulting in a net decline of 15.9 per cent for ECPL.
Market Value Market Value
30 June 31 December Valuation
2019 2018 Change
GBPm GBPm Like-for-like(1)
Covent Garden 2,611 2,610 0.5%
Earls Court Properties
Earls Court Partnership Limited ("ECPL")(2) 389 461 (15.9)%
Lillie Square(3) 173 159 (1.5)%
Other 37 38 (4.4)%
Group share of Earls Court Properties 599 658 (11.5)%
Group share of total property(4) 3,210 3,268 (2.0)%
(1) Valuation change takes account of amortisation of tenant lease incentives, capital expenditure, fixed head leases and unrecognised trading surplus.
(2) Represents the Group's 63 per cent interest in ECPL.
(3) Represents the Group's 50 per cent share of the Lillie Square joint venture.
(4) A reconciliation of the carrying value of investment, development and trading property to the market value is shown in note 11 'Property Portfolio' within the
condensed consolidated financial statements.
COVENT GARDEN
A world-class retail and dining led destination
Covent Garden is 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. Covent Garden is established as an
exceptional mixed-use portfolio of approximately 1.2 million square feet of lettable space, across 79 buildings and 526 units.
The assembly of such an estate in central London has been delivered through disciplined investment over time. Ownership of
these assets has enabled Capco to build significant scale and embed its strategy for the estate.
The emphasis on the customer ensures that the estate thrives as a leading destination for Londoners, domestic and
international visitors as well as office workers and residents, attracting over 40 million visitors a year. The area is now home to a
vibrant mix of luxury and contemporary, global and British brands including Apple, Balthazar, Bucherer, RedFarm, Peloton and
Tiffany & Co.
Despite the challenging national economic and retail backdrop, Covent Garden continues to deliver rental growth and capture
income. The increasing significance of online purchases by consumers and the evolving omni-channel sales strategies pursued
by retailers underpins the importance for brands in choosing leading global destinations. Covent Garden offers retailers and
visitors a differentiated experience in a managed estate environment.
During the period to 30 June 2019, 40 leasing transactions including new leases and renewals representing GBP13.0 million of
annualised rental income were transacted at 2.0 per cent above 31 December 2018 ERV. Net rental income was GBP31.1 million
for the first half of the year, up 7.0 per cent (like-for-like) or 9.8 per in absolute terms compared to June 2018.
The value of the estate increased by 0.5 per cent like-for-like to GBP2.6 billion. The ERV of the estate has increased by 1.0 per
cent like-for-like to GBP108 million. Occupancy on the estate remains high at 97 per cent and NRI growth continues to outperform
ERV growth as the reversionary income potential of the portfolio is captured. Both tenant sales and footfall have recorded
positive growth during the period.
Retail
The West End offers greater insulation from the well-documented wider retail challenges and whilst not immune, Capco's
thoughtful approach to brand selection which contributes to driving rental tones and income growth, is central to management
of the estate. High quality footfall locations are key to retailers when choosing locations around the world. The success of
Capco's approach to date is demonstrated through many brands choosing Covent Garden to be their flagship, first or only
London presence.
Apple recently confirmed Covent Garden as one of its top global locations, by carrying out an extensive refurbishment on this
flagship store, and during the period Apple has agreed to extend its lease, resulting in its occupation for a further 15 years. This
underlines the importance of the Covent Garden location for global brands and the positive trading prospects of the estate.
Polo by Ralph Lauren is the latest brand to agree terms to open on King Street and French luxury sportswear brand Lacoste
opened a new store on James Street. These additions continue to position Covent Garden as one of London's best retail
destinations offering a wide range of high quality brands.
The luxury retail operator Bucherer has agreed terms to upsize its offering to a more prominent flagship store within the Royal
Opera House Arcade with an increased floor plate. Bucherer's re-location builds on the ongoing strategic positioning of the
arcade as a premium shopping location.
Strong demand for the Market Building continues; new leasing deals were agreed with premium retailer Happy Socks, an
international brand with stores in LA and Tokyo among other major cities. In addition eyewear brand For Art's Sake opened its
first standalone retail store in the Market Building.
Parisian womenswear brand ba&sh will open a flagship store on King Street in the coming months. American casual men's
apparel brand, Untuckit, has agreed terms to open on Long Acre. This retailer originated online and this will be its first physical
store in the UK.
Repositioning of Floral Street continues with US ethical fashion brand Free People opening its first permanent store outside of
the US at 28 Floral Street. Fitness technology company Peloton continues its fit out of its European flagship training studio over
four floors, and will live-stream classes to members worldwide.
Dining
Capco has turned Covent Garden into one of the best dining destinations in London. The estate now offers differentiated dining
experiences, from casual to premium. The estate's transformation has been very well received and recognised by consumers,
with the restaurants generally reporting growth in turnover in contrast to well documented issues experienced in the broader UK
market.
Adding to the depth and quality is the latest signing on Floral Street, Dominique Ansel Bakery, the cafe responsible for inventing
the Cronut and bringing it to London. The new bakery will anchor the western end of Floral Street, which continues its ongoing
repositioning.
Emirati cafe concept, Mlkcake by Gossip has agreed terms to open its first permanent UK site within the Market Building. The
letting follows its successful pop-up in the summer of 2018. Santa Nata, which specialises in authentic Portuguese custard tarts
opened on Russell Street and Italian-style boulangerie VyTA Santa Margherita opened in the Market Building offering all-day
dining on the Piazza.
Wahlburgers, the casual dining burger restaurant and bar, has opened its first restaurant outside the US on James Street,
offering a menu of quality American food.
Capco continues to work closely with retail and dining brands as well as cultural partners to introduce engaging consumer
events and provide ancillary revenue opportunities. This year this has included the PIMM's Bar and popular Wimbledon
Screening Experience on the East Piazza, which featured a large astroturf screen complete with deck chairs and PIMM's stand.
Acquisitions and developments
Capco's ownership of the estate continues to expand, and 39-40 Bedford Street was acquired for GBP13.2 million. This presents a
repositioning opportunity on an important entrance to the estate. There are a number of further properties on or around the
estate being tracked for acquisition and repositioning opportunities.
Capco continues to review proposals for the Wellington block, a scarce island site in central London with various planning
consents in place across multiple uses including office on the upper floors with retail and restaurants on ground floor as well as
consent for a 83-room hotel. Capco has submitted a planning application to increase the number of rooms to 146 and to
introduce a rooftop bar with determination expected over the coming months.
Offices
Covent Garden has become a prime office location underpinned by the appeal of the overall place and its excellent
connectivity. Covent Garden has a contemporary office portfolio offering both multi-tenanted and single occupancy workspace.
The portfolio continues to attract professional services, creative industries and SMEs with high occupancy rates. Office space
represents 14 per cent of the portfolio by value.
A number of office lettings have been achieved during the period most notably the letting of 22 Long Acre to global co-working
space provider WeWork. The opening of WeWork on Long Acre is an important addition to the already thriving office
community in the area.
In addition, Peloton has chosen Floral Street for its London offices, extending its lease to cover approximately 4,000 square foot
of office space taking its total floorplate to 23,000 square foot in total including the retail component.
Residential
The residential for lease portfolio is performing very well. There is positive demand across the estate, with a high rate of
renewals recorded above previous passing rent.
Demand for the new build residential collection at Floral Court has been very positive. Residents are attracted to the distinctive
product, iconic location and personalised services available. The product has recently been named 'Best London Home -
Under 100 units' at the Evening Standard Awards 2019. A successful sales programme has resulted in 24 of the 29 apartments
being sold to date, generating GBP69 million of gross sales proceeds.
EARLS COURT PROPERTIES
One of London's most important development opportunities
At Earls Court Capco has created one of the most important opportunities to deliver a large-scale, housing led, mixed-use
development to meet London's evolving needs. Earls Court has a highly attractive location in an established and desirable part
of central London with excellent connectivity and limited competing supply. Located within two London Boroughs, the Royal
Borough of Kensington and Chelsea ("RBKC") and the London Borough of Hammersmith & Fulham ("LBHF"), the majority of
the site benefits from a detailed planning consent.
The strategic approach to date has been to carry out land assembly, establish and manage partnerships, achieve and
implement a planning consent and undertake complex enabling works. The ECPL land, Capco's principal investment at Earls
Court is now available for development. The strategy is to optimise and realise value from the ECPL land and bring forward
development of the Masterplan through the introduction of third-party capital to deliver this important opportunity for London.
The Masterplan has the ability to adapt to market dynamics and the needs of London.
The current political and economic environment presents challenges for large-scale residential development activity. Capco
notes comments from LBHF suggesting that it is considering the use of Compulsory Purchase Orders ("CPO") on various parts
of the Earls Court masterplan. There is a clear and detailed legal framework in place which must be followed and the bar is set
high for the compulsory acquisition of land. No formal decision has been made by LBHF to commence the CPO process. The
Company will continue to take a constructive approach to all stakeholders to advance this important scheme for London, whilst
protecting its commercial interests.
A number of expressions of interest have been received, including from institutional capital, to participate in development of the
ECPL land.
Investments at Earls Court
Earls Court Properties represents Capco's investments within the Earls Court and West Kensington Opportunity Area and
principally comprises:
- 63 per cent interest in ECPL: the investment vehicle with Transport for London ("TfL") in respect of EC1 & EC2, and
including certain assets on and around Lillie Road.
- 50 per cent interest in the Lillie Square joint venture, with KFI.
- In addition, in 2013, Capco exercised its option under the Conditional Land Sale Agreement ("CLSA"), a binding
agreement in relation to the West Kensington and Gibbs Green Estates ("The Estates").
ECPL
ECPL owns 999 year leases (granted in April 2015) over the EC1 & EC2 land together with certain adjacent properties primarily
located on or around Lillie Road. Capco continues to lead the venture in its role as business manager, with TfL a 37 per cent
shareholder.
The agreed objective of ECPL is to maximise economic value by enabling development of the consented Masterplan,
development of which is expected to be brought forward through the introduction of third-party capital. There are opportunities
to evolve the development and product mix to deliver additional density which could include increased levels of housing across
all tenures.
The level of interest being shown in the land suggests that capital is available to support activity on site. This could include
forward sales to end-users such as senior living and private for rent or land sales or the formation of joint ventures. A number of
approaches have been received from potential investors and occupiers in respect of certain individual parts of ECPL land, a
selection of which are being explored.
On site operational progress continues. Various planning initiatives have been undertaken during the period, in respect of the
consented Masterplan including Reserved Matters Applications which were approved by RBKC. Railway track suppression
works undertaken by London Underground are progressing on schedule and are expected to complete by autumn 2019.
Lillie Square
Lillie Square is a one million square foot (GEA) residential development located adjacent to the Earls Court Masterplan. The
development has the ability to deliver over 600 private and 200 affordable homes across three phases. Development of Lillie
Square is very well-progressed with over GBP450 million of cumulative sales contracted across Phase 1 and 2.
Construction of Phase 2 continues to progress, with first completions and hand over of sold units expected in H1 2020. Over 80 per
cent of the units (155 of the 186), have now been reserved or exchanged with sales of the remaining units expected when
the completed product is available for viewings. Pricing of Phase 2 sales to date remains at a modest premium to comparable
units in Phase 1.
West Brompton Crossing
West Brompton Crossing is a successful pop-up high street that attracts consumers from the local area and from across
London. The pop-up high street is anchored by The Prince which converted four buildings and a pub into an innovative food
and beverage offering which continues to report significant levels of bookings. Elsewhere on the street, The Crossing retail
space continues to provide a pop-up area for local artists and businesses and is booked until the end of 2019.
CLSA
In November 2013 Capco exercised its option under the CLSA, which it entered into with LBHF, for the purchase of the West
Kensington and Gibbs Green housing estates ("The Estates"). Under its terms, residents of The Estates would have the
opportunity to be rehoused by the Council within the Earls Court Opportunity Area. To date, Capco has paid GBP90 million of the
GBP105 million cash consideration payable to LBHF including four of the five annual instalments of GBP15 million. The final
instalment is due to be paid in December 2019.
In November 2018, Capco submitted a Reserved Matters Application for part of the land that is subject to the CLSA. The
detailed proposals cover 1.3 million square feet of the Earls Court Masterplan and include residential, office and retail space.
The application is due to be determined later this year.
Capco notes the recent decision by the Ministry of Housing, Communities and Local Government ("MHCLG") to halt an
application put forward by the West Ken Gibbs Green Community Homes Limited ("WKGGCH") for the transfer of the property
and land of The Estates. The decision is in line with legislation which states that applications should be halted if they have a
significant detrimental effect on housing services or regeneration of an area.
LBHF has expressed interest in terminating the CLSA, which is a legally binding agreement. Capco will continue to engage with
LBHF and other relevant stakeholders in order to seek a positive outcome in relation to future plans for The Estates in the
context of the wider Masterplan.
Innova
Capco has a 50 per cent interest in the Innova Investment joint venture ("Innova") with Network Rail, which explores potential
opportunities for future redevelopments at significant railway station sites across London.
Capco and Network Rail have funded works which has enabled significant progress in developing a technical solution to allow
re-development of Clapham Junction station. With such a large, complex project the business funding model is yet to be
determined and a detailed review by Network Rail regarding next steps is underway. There still exists an opportunity for Capco
through the Innova investment to participate over the long-term, however at this stage there is no certainty and therefore Capco
has taken the prudent approach to impair its investment in Innova in full.
BOARD CHANGES
On 1 March 2019, Jonathan Lane OBE was appointed as an independent Non-executive Director of the Company.
Graeme Gordon did not seek re-election at the Company's AGM on 3 May 2019 and retired from the Board on that date.
On 30 June 2019, Gary Yardley, Managing Director & Chief Investment Officer, stepped down from the Board and left the Company.
FINANCIAL REVIEW
The Group's prime central London focus and strong capital structure provides financial resilience, enabling the Group to
withstand prevailing market conditions, take advantage of opportunities as they arise, and position itself to deliver long-term
value to shareholders. At 30 June 2019 the Group loan to value ratio was 19 per cent and the level of cash and undrawn
facilities was GBP845 million.
The Group continued to invest in Covent Garden during the first half of the year through GBP13 million of acquisitions and GBP9
million of capital expenditure. As at 30 June 2019 Covent Garden accounted for 81 per cent of the Group's property portfolio by
value. The value of the Covent Garden estate increased by 0.5 per cent (like-for-like) as a result of rental growth achieved
during the period and stable yields, with ERV up by 1.0 per cent on a like-for-like basis.
Uncertainties in the broader political and economic environment continue to impact sentiment around London residential
property. As a result the market value of Earls Court Properties, which represents the Group's interests at Earls Court, has
decreased by 11.5 per cent (like-for-like).
Overall, the Group share of the total property value has decreased by 2.0 per cent (like-for-like). EPRA net asset value per
share decreased by 3.3 per cent during the period, from 325.7 pence at 31 December 2018 to 315.0 pence. This decrease
together with the 1.0 pence dividend paid to shareholders during the period resulted in a total return of -3.0 per cent.
Underlying earnings were GBP4.5 million, resulting in an underlying earnings per share of 0.5 pence.
The Group has today announced its intention to proceed with a demerger. 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 GBP145 million (after the settlement of demerger costs). On an illustrative basis, this would result in a pro forma
LTV for Covent Garden London of approximately 27 per cent and a net cash position for EC Properties of GBP100 million.
The administrative costs of Covent Garden London and EC Properties are targeted to be approximately GBP20 million and
approximately GBP10 million per annum respectively on a run rate basis with effect from the end of 2020.
Basis of preparation
As required by IFRS 11 'Joint Arrangements' the Group presents its joint ventures under the equity method in the condensed
consolidated 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. A summary of EPRA
performance measures and key Group measures included within these financial statements is shown on pages 51 and 52.
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 but excludes the non-controlling interest share of our subsidiaries, 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 POSITION
At 30 June 2019 the Group's EPRA net asset value was GBP2.7 billion (31 December 2018: GBP2.8 billion) representing 315 pence
per share (31 December 2018: 326 pence).
SUMMARY ADJUSTED BALANCE SHEET
30 June 2019
Group Joint
Share ventures(1) NCI(2) IFRS
GBPm GBPm GBPm GBPm
Investment, development and trading property 3,133.3 (149.7) 228.6 3,212.2
Net debt (588.3) 24.8 (22.2) (585.7)
Other assets and liabilities(3) 113.1 110.5 (1.0) 222.6
Non-controlling interest - - (205.4) (205.4)
Net assets attributable to owners of the Parent 2,658.1 (14.4) - 2,643.7
Adjustments:
Fair value of derivative financial instruments 3.7
Unrecognised surplus on trading property 23.3
Revaluation of other non-current assets 14.4
Deferred tax adjustments 5.2
EPRA net asset value 2,690.3
EPRA net asset value per share (pence)(4) 315
(1) Primarily Lillie Square.
(2) Non-controlling interest represents TfL's 37 per cent share of ECPL.
(3) IFRS includes amounts receivable from joint ventures which eliminate on a Group share basis.
(4) Adjusted, diluted number of shares in issue at 30 June 2019 was 854.0 million.
31 December 2018
Group Joint
Share ventures(1) NCI(2) IFRS
GBPm GBPm GBPm GBPm
Investment, development and trading property 3,198.2 (133.4) 270.7 3,335.5
Net debt (572.7) 9.4 (21.4) (584.7)
Other assets and liabilities(3) 123.0 111.7 (1.9) 232.8
Non-controlling interest - - (247.4) (247.4)
Net assets attributable to owners of the Parent 2,748.5 (12.3) - 2,736.2
Adjustments:
Fair value of derivative financial instruments (0.7)
Unrecognised surplus on trading property 25.7
Revaluation of other non-current assets 12.3
Deferred tax adjustments 3.5
EPRA net asset value 2,777.0
EPRA net asset value per share (pence)(4) 326
(1) Primarily Lillie Square.
(2) Non-controlling interest represents TfL's 37 per cent share of ECPL.
(3) IFRS includes amounts receivable from joint ventures which eliminate on a Group share basis.
(4) Adjusted, diluted number of shares in issue at 31 December 2018 was 852.6 million.
Investment, development and trading property
The revaluation loss on the Group's property portfolio was GBP65.3 million for the period, representing a 2.0 per cent decrease in
value on a like-for-like basis compared with the MSCI Capital Return for the equivalent period of a 1.4 per cent loss. The Group
revaluation loss consists of a GBP12.6 million gain at Covent Garden and a GBP77.9 million loss at Earls Court.
Total property return for the period was -1.1 per cent. The MSCI Total Return Index recorded a 1.1 per cent gain for the
corresponding period.
The revaluation loss of GBP65.3 million occurred on investment, development and trading property. On an IFRS basis, which
includes ECPL at 100 per cent and does not include Lillie Square on a line by line basis, loss on revaluation and sale of
investment and development property was GBP107.5 million.
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 asset value
measure. At 30 June 2019, the unrecognised surplus on trading property was GBP23.3 million (31 December 2018: GBP25.7 million)
which arises solely on the Group's share of trading property at Lillie Square.
Debt and gearing
The Group's cash and undrawn committed facilities at 30 June 2019 were GBP844.9 million (31 December 2018: GBP854.4 million).
A reconciliation between IFRS and Group share is shown below:
30 June 2019 31 December 2018
Group Joint Group Joint
Share ventures(1) NCI(2) IFRS Share ventures(1) NCI(2) IFRS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents 83.0 (20.2) 4.0 66.8 49.9 (20.4) 3.0 32.5
Undrawn committed facilities 761.9 (19.9) 30.5 772.5 804.5 (35.0) 32.0 801.5
Cash and undrawn committed facilities 844.9 (40.1) 34.5 839.3 854.4 (55.4) 35.0 834.0
(1) Primarily Lillie Square.
(2) Non-controlling interest represents TfL's 37 per cent share of ECPL.
Net debt increased by GBP16 million to GBP588 million, principally as a result of capital expenditure at Lillie Square for the
construction of phase 2. As set out in the summary adjusted balance sheet, net debt on an IFRS basis was GBP586 million.
The gearing measure most widely used in the industry is loan to value ("LTV"). LTV is calculated on the basis of net debt
divided by the carrying value of the Group's property portfolio. The Group focuses most on an LTV measure that includes the
notional share of joint venture interests but excludes the share of the non-controlling interest. The LTV of 18.8 per cent remains
comfortably within the Group's limit of no more than 40 per cent.
30 June 31 December
2019 2018
Loan to value 18.8% 17.9%
Interest cover 147% 149%
Weighted average debt maturity 5.5 years 6.0 years
Weighted average cost of debt 3.0% 2.9%
Gross debt with interest rate protection 86% 88%
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 2019 the proportion of gross debt with interest rate protection was 86 per cent (31 December 2018: 88
per cent).
The Group remains compliant with all of its debt covenants, details of which are set out on page 51, and has substantial levels
of headroom against its covenants across all of its debt facilities.
At 30 June 2019 the Group had capital commitments of GBP48.9 million (GBP53.4 million at 31 December 2018). Capital
commitments consist of GBP11.4 million for Covent Garden and GBP37.5 million for Earls Court Properties (including the GBP15.0 million
of CLSA instalments and GBP20.0 million in relation to Lillie Square).
30 June 2019 31 December 2018
Group Joint Group Joint
Share ventures(1) NCI(2) IFRS Share ventures(1) NCI(2) IFRS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Capital commitments 48.9 (20.0) 1.5 30.4 53.4 (32.4) 1.4 22.4
(1) Primarily Lillie Square.
(2) Non-controlling interest represents TfL's 37 per cent share of ECPL.
Conditional Land Sale Agreement ("CLSA")
In November 2013 the Group exercised its option under the CLSA, which it entered into with LBHF, for the purchase of the
West Kensington and Gibbs Green housing estates ("The Estates"). The overall consideration payable is expected to be GBP105
million cash plus the planning requirement to provide up to 760 replacement homes.
The CLSA investment property remains unrecognised in the condensed consolidated financial statements of the Group as its
main underlying asset (the land relating to The Estates) does not currently meet the recognition criteria under IFRS required for
investment and development property. Annual payments of GBP15 million commenced in December 2015 and the final payment
is due to be paid in December 2019. Where amounts are paid prior to the transfer of property, they will be carried on the
Group's balance sheet as prepayments against future land draw down. Of the GBP90 million paid to date, GBP15 million relates to the
acquisition of two properties, held as investment and development property, and GBP75 million relates to options over The Estates
which is held as a prepayment within other receivables. The remaining future payment totalling GBP15 million is disclosed as a
capital commitment as referred to above.
The prepayment balance will be transferred to investment and development property once the recognition criteria for
investment and development property have been met. Once this occurs, in line with the Group's accounting policy, the land will
become subject to bi-annual valuation with any changes reflected in the Group's reported net asset measure.
CASH FLOW
A summary of the Group's cash flow for the period ended 30 June 2019 is presented below:
SUMMARY CASH FLOW
30 June 2019
Joint
Group Share ventures(1) NCI(2) IFRS
GBPm GBPm GBPm GBPm
Operating cash flows after interest and tax (3.0) (6.4) 0.5 (8.9)
Purchase and development of property, plant and equipment (42.8) 18.1 (2.3) (27.0)
Transactions with joint venture partners and non-controlling interests (0.7) (1.0) 0.5 (1.2)
Net sales proceeds from discontinued operation (0.3) - - (0.3)
Net sales proceeds from property and investments 51.1 (0.9) 0.9 51.1
Net cash flow before financing 4.3 9.8 (0.4) 13.7
Financing 41.9 (14.4) 1.5 29.0
Dividends paid (7.5) - - (7.5)
Other (0.9) - - (0.9)
Net cash flow(3) 37.8 (4.6) 1.1 34.3
(1) Primarily Lillie Square.
(2) Non-controlling interest represents TfL's 37 per cent share of ECPL.
(3) Net cash flow is based on unrestricted cash and cash equivalents and therefore does not include the movement in Lillie Square deposits on a Group share basis of
GBP4.7 million.
30 June 2018
Non-
Group Joint controlling
share ventures(1) interest(2) IFRS
GBPm GBPm GBPm GBPm
Operating cash flows after interest and tax (5.9) 1.4 0.3 (4.2)
Purchase and development of property, plant and equipment (63.7) 12.3 (7.3) (58.7)
Transactions with joint venture partners and non-controlling interests (0.9) (1.1) 6.2 4.2
Net sales proceeds from discontinued operation (0.3) - - (0.3)
Sale of subsidiaries 250.4 - - 250.4
Net sales proceeds from property and investments 24.4 (24.4) - -
Net cash flow before financing 204.0 (11.8) (0.8) 191.4
Issue of shares 0.1 - - 0.1
Financing (177.5) 14.3 1.0 (162.2)
Dividends paid (5.0) - - (5.0)
Other (4.0) - - (4.0)
Net cash flow(3) 17.6 2.5 0.2 20.3
(1) Primarily Lillie Square.
(2) Non-controlling interest represents TfL's 37 per cent share of ECPL.
(3) Net cash flow is based on unrestricted cash and cash equivalents and therefore does not include the movement in Lillie Square deposits on a Group share basis of
GBP1.1 million.
Operating cash outflows of GBP3.0 million are as a result of changes in net working capital requirements.
During the period, GBP20.7 million was invested at Covent Garden for the purchase of 39-40 Bedford Street and subsequent
expenditure. At Earls Court, total expenditure of GBP22.1 million primarily relates the construction of Lillie Square Phase 2.
The disposal of 17 apartments at Floral Court resulted in a net cash inflow of GBP48.6 million. There were further disposals at
Earls Court resulting in cash inflow of GBP2.5 million.
Net borrowings drawn during the period were GBP41.9 million.
Dividends paid of GBP7.5 million reflect the final dividend payment made in respect of the 2018 financial year. This was higher
than the previous year due to a lower take up of the scrip dividend alternative, 12 per cent versus 40 per cent in 2018.
Cash and cash equivalents increased by GBP33.1 million to GBP83.0 million, which includes GBP12.4 million of Lillie Square deposits.
FINANCIAL PERFORMANCE
The Group presents underlying earnings and underlying earnings per share in addition to the amounts reported on a Group
share basis. The Group considers this presentation to provide useful information as it removes unrealised and certain other
items and therefore represents the recurring, underlying performance of the business.
SUMMARY INCOME STATEMENT
30 June 2019
Group Share ventures(1) NCI(2) IFRS
GBPm GBPm GBPm GBPm
Net rental income 32.1 - 0.5 32.6
Loss on revaluation and sale of investment and development property (64.2) - (43.3) (107.5)
Administration expenses (21.1) (0.4) (0.2) (21.7)
Net finance costs (10.4) - - (10.4)
Taxation (1.3) - (0.1) (1.4)
Other (20.2) (1.7) 0.1 (21.8)
Non-controlling interest - - 43.0 43.0
Loss for the period attributable to owners of the Parent (85.1) (2.1) - (87.2)
Adjustments:
Loss on revaluation and sale of investment and development property 107.5
Non-controlling interest in respect of Group adjustments (43.3)
Administration expenses - non-underlying 3.9
Other(3) 22.7
Taxation on non-underlying items 0.9
Underlying earnings 4.5
Underlying earnings per share (pence) 0.5
Weighted average number of shares 851.2m
(1) Lillie Square and Innova Investment.
(2) Non-controlling interest represents TfL's 37 per cent share of ECPL.
(3) Further details regarding the EPRA and Company specific adjustments are disclosed within note 10 'Earnings Per Share and Net Assets Per Share'.
30 June 2018
Non-
Group Joint controlling
share ventures(1) interest(2) IFRS
GBPm GBPm GBPm GBPm
Net rental income 33.1 0.1 0.4 33.6
Loss on revaluation and sale of investment and development property (17.1) (0.1) (30.1) (47.3)
Administration expenses (19.2) (0.3) (0.2) (19.7)
Net finance costs (9.4) - - (9.4)
Taxation (1.8) - - (1.8)
Other 37.6 0.3 - 37.9
Non-controlling interest - - 29.9 29.9
Profit for the period attributable to owners of the Parent 23.2 - - 23.2
Adjustments:
Loss on revaluation and sale of investment and development property 17.1
Other(3) (36.7)
Taxation on non-underlying items 0.7
Underlying earnings 4.3
Underlying earnings per share (pence) 0.5
Weighted average number of shares 850.8m
(1) Lillie Square and Innova Investment.
(2) Non-controlling interest represents TfL's 37 per cent share of ECPL.
(3) Further details regarding the EPRA and Company specific adjustments are disclosed within note 10 'Earnings Per Share and Net Assets Per Share'.
Income
Covent Garden net rental income has increased by GBP2.8 million compared to the first half of 2018 due to GBP1.9 million of like-for-
like growth and GBP0.9 million through current and prior year acquisitions and developments. The like-for-like net rental income
growth at Covent Garden was 7.0 per cent as the Group continues to convert reversionary potential into contracted rents. ERV
growth at Covent Garden was 1.0 per cent like-for-like.
Earls Court net rental income has decreased by GBP3.8 million to GBP1.1 million, primarily as a result of the Empress State Building
disposal.
Overall, the increased net rental income at Covent Garden has been offset by the loss of income from the Empress State
Building resulting in a decrease in the Group net rental income of GBP1.0 million (IFRS: GBP1.0 million).
Loss on revaluation of investment and development property
The loss on revaluation of the Group's investment and development property was GBP62.7 million. Covent Garden recorded a
gain on revaluation of GBP12.6 million, driven by rental growth. The loss on revaluation at Earls Court of GBP75.3 million was driven
by changes in valuers' assumptions. The IFRS loss on revaluation, which includes the non-controlling interest share of ECPL
losses, was GBP106.0 million.
The sale of 17 apartments at Floral Court and five properties in Earls Court resulted in a GBP1.5 million loss compared to the 31
December 2018 recorded value.
Administration expenses
Underlying administration expenses have decreased by GBP2.0 million in comparison with the first half of 2018 due to efficiency
initiatives. GBP3.9 million of costs were incurred during the period in relation to the possible separation of Covent Garden and
Earls Court. Including these costs, the overall administration costs were GBP21.1 million (IFRS: GBP21.7 million).
Net finance costs
Net finance costs have increased by GBP1.0 million to GBP10.4 million due to the higher average debt drawn during the period, as a
result of the decision to hold greater levels of cash during periods of heightened market volatility.
Taxation
The total tax charge for the first half of the year, made up of both underlying tax and non-underlying tax, is GBP1.3 million (IFRS:
GBP1.4 million). Further detail is set out in note 8 'Taxation'.
Contingent tax, being the amount of tax that would become payable on a theoretical disposal of all investment property held by
the Group, was nil (31 December 2018: nil). A disposal of the Group's trading properties at their market value, before utilisation
of carried forward losses, would result in a corporation tax charge to the Group of GBP4.4 million (19 per cent of GBP23.3 million).
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 decreases to the carrying value of investment property at Earls Court and certain
losses carried forward.
The Group's tax policy, which has been approved by the Board and is available on the Group website, is aligned with the
business strategy. As a Group, we are committed to acting in an open and transparent manner with all stakeholders.
Dividends
The Board has proposed an interim dividend of 0.5 pence per share to be paid on 20 September 2019 to shareholders on the
register at 30 August 2019. Subject to SARB approval, the Board intends to offer a scrip dividend alternative.
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 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 operational and commercial activity across the Group and are
therefore responsible for the management of business risk. The Executive Risk Committee, comprising the Executive Directors,
the Group Legal Director and the Group Financial Controller, 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 quarterly
basis by the Executive Risk Committee so that trends and emerging risks can be identified and reported to the Board.
Senior management from each division and corporate function of the business identify and manage the risks for their division 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 & Accounts 2018, note 1 'Principal Accounting Policies' to the
consolidated financial statements for the year ended 31 December 2018, within 'Critical accounting judgements and key
sources of estimation and uncertainty'.
Since the EU Referendum, there has been ongoing heightened economic and political uncertainty. As the new date at which
the UK is set to depart from the EU approaches, there may be an increased level of volatility in consumer, occupier and
broader corporate behaviour and decision-making. This risk is heightened by the possibility of a disorderly Brexit. To date, we
have not identified an adverse impact on occupier demand for the Covent Garden estate, which has seen strong rental growth.
At Earls Court, valuation of residential-led development land has been impacted by the overall economic and political backdrop.
Whilst the impact on our business and the market remains uncertain, the Board continues to monitor progress in this area and
wider activity and has assessed risks to the business that may result from the UK leaving the EU, including the implications of a
'no deal' scenario. 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, whether it be on management of their inventory, workforce labour,
tariffs or other barriers, and the impact on consumer demand (for example due to travel disruption) leading to reduced
rents and capital values
- the impact on the supply chain, such as delay to delivery of materials and foreign exchange exposure on
development materials
- the impact on the demand from prospective purchasers as a result of market uncertainty and foreign exchange
exposure leading to reduced capital values
Brexit uncertainty has continued after the period end date. Whilst it is not possible to predict the overall outcome, the Board is
continuing to monitor external events and appropriate action is being undertaken to prepare for short-term risk during and after
a political decision is reached to ensure that the business remains resilient and well-positioned for the long-term.
London, as a highly desirable global city, continues to attract both domestic and international businesses and people and we
would expect this leading position to be maintained over time. Uncertainty remains, however, around the exit mechanism and
longer-term implications of Brexit, and this will continue to have a direct or indirect impact on a number of the principal risks set
out on the following pages.
The political framework for large scale residential development has become more difficult and there is an increased risk of
political intervention. The Government continues to review housing and planning policy which may result in beneficial or
adverse change for landowners.
In May 2018 the Group announced that it was considering a demerger, which would result in two separately-listed businesses
based around its prime central London estates. In November 2018 the Group noted press speculation and confirmed that it
continued to advance preparations for a possible demerger, however that it had received a number of proposals in relation to
the Group's interests in Earls Court which it was considering. If a demerger or a sale of a significant proportion of the Group's
interests in Earls Court Properties interests were to occur this would have an impact on the Group's principal risks. Furthermore
corporate transactions themselves carry their own risks such as failure to complete, inability to realise the anticipated benefits
and risks associated with the resultant Group or Groups.
CORPORATE
Risk Impact on strategy Mitigation
Economic conditions
Decline in real estate valuations due to Reduced return on investment and Focus on prime assets
macro-economic conditions development property
Regular assessment of investment market
Relative attractiveness of other asset Higher finance costs conditions including bi-annual external
classes or locations valuations
Reduced profitability
Inability of the Group to adopt the Regular strategic reviews
appropriate strategy or to react to
changing market conditions or changing Strategic focus on creating retail-led
consumer behaviour destinations and residential districts with
unique attributes
Funding
Lack of availability or increased cost of Reduced financial and operational flexibility Maintain appropriate liquidity to cover
debt or equity funding commitments
Increased cost of borrowing
Target longer and staggered debt maturities,
Delay to development works and diversified sources of funding
Constrained growth, lost opportunities Consideration of early refinancing
Covenant headroom monitored and stress
tested
Derivative contracts to provide interest rate
protection
Development phasing to enable flexibility and
reduce financial exposure
Political climate
Uncertain political climate or changes to Inability to deliver business plan Monitoring proposals and emerging policy
legislation and policies, including as a and legislation
result of political change or the process of Reduced rental income and/or capital
elections values as tenants could suffer staff Engagement with key stakeholders and
shortages, increased import prices, longer politicians
A disorderly Brexit could cause an lead times and lower availability of stock
adverse impact on business and Diversified occupiers with limited exposure to
consumer confidence, increase material any one tenant
costs and reduce labour supply
Catastrophic external event
Such as a terrorist attack, health Diminishing London's status Terrorist insurance
pandemic or cyber crime
Heightened by concentration of investments On-site security
Reduced rental income and/or capital Health and safety policies and procedures
values
Close liaison with police, National Counter
Business disruption or damage to property Terrorism Security Office (NaCTSO) and local
authorities
Reputational damage
Regular training
People
Inability to retain and recruit the right Inability to execute strategy and business Succession planning, performance
people and develop leadership skills plan evaluations, training and development
within the business
Constrained growth, lost opportunities Long-term and competitive incentive rewards
Health, safety and the environment
Accidents causing loss of life or very Prosecution for non-compliance with Health and safety procedures across the
serious injury to employees, contractors, legislation Group
occupiers and visitors to the Group's
properties Litigation or fines Appointment of reputable contractors
Activities at the Group's properties Reputational damage External consultants undertake annual audits
causing detrimental impact on the in all locations
environment Distraction of management
Adequate insurance held to cover the risks
inherent in construction projects
Compliance with law, regulations and contracts
Breach of legislation, regulation or Prosecution for non-compliance with Appointment of external advisers to monitor
contract legislation changes in law or regulation
Inability to monitor or anticipate legal or Litigation or fines Members of staff attend external briefings to
regulatory changes remain cognisant of legislative and regulatory
Reputational damage changes
Distraction of management
PROPERTY
Risk Impact on strategy Mitigation
Leasing
Inability to achieve target rents or to Decline in tenant demand for the Group's Quality tenant mix
attract target tenants due to market properties
conditions Strategic focus on creating retail destinations
Reduced income and increased vacancy with unique attributes
Competition from other locations/formats
Reduced return on investment and
development property
Planning
Unfavourable planning policy, legislation Impact on land valuations and realisation Engagement with local and national
or action impacting on the ability to secure authorities
planning approvals or consents
Pre-application and consultation with key
Secretary of State or Mayoral intervention stakeholders and landowners
or judicial review
Engagement with local community bodies
Outline planning permission already granted
for the Earls Court Masterplan, including
detailed planning for the ECPL land, and
implemented on ECPL land
Development
Decline in returns from development and Lower development returns due to lower Focus on prime assets
impact on land valuations due to: sales proceeds, higher costs or delay
Regular assessment of market conditions and
- Market conditions development strategy
- Site constraints leading to an Business strategy based on long-term returns
increase in overall development
costs Professional teams in place to manage costs
and deliver programme
- Increased construction costs or
delays (including as a result of Earls Court Masterplan designed to allow
complexity of developing adjacent to phased implementation
and above public transport
infrastructure) ECPL planning consent implemented
- Failure to implement business plans
or strategic agreements on
acceptable terms (including as a
result of diverging stakeholder
objectives, such as Compulsory
Purchase Orders)
DIRECTORS' RESPONSIBILITIES
Statement of Directors' responsibilities
The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union 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 2018. A list of current Directors is maintained on the Capital & Counties Properties PLC website:
www.capitalandcounties.com.
By order of the Board
Ian Hawksworth
Chief Executive
25 July 2019
Situl Jobanputra
Chief Financial Officer
25 July 2019
INDEPENDENT REVIEW REPORT TO CAPITAL & COUNTIES PROPERTIES PLC
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed Capital & Counties Properties PLC's condensed consolidated financial statements (the "interim financial
statements") in the interim results of Capital & Counties Properties PLC for the six month period ended 30 June 2019. Based
on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as
adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
- the Consolidated Balance Sheet as at 30 June 2019;
- the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then
ended;
- the Consolidated Statement of Cash Flows for the period then ended;
- the Consolidated Statement of Changes in Equity for the period then ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The interim results, including the interim financial statements, is the responsibility of, and has been approved by, the Directors.
The Directors are responsible for preparing the interim results in accordance with the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the interim results based on our review. This
report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no
other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Report on the condensed consolidated financial statements continued
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review
of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for
use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK)
and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
25 July 2019
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the six months ended 30 June 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Notes GBPm GBPm GBPm
Revenue 2 41.9 42.3 83.5
Rental income 41.0 40.5 80.1
Rental expenses (8.4) (6.9) (15.7)
Net rental income 2 32.6 33.6 64.4
Other income 0.9 1.8 3.4
Loss on revaluation and sale of investment and development property 3 (107.5) (47.3) (146.1)
Impairment of investments and other receivables 4 (20.6) (2.3) (23.2)
Profit on sale of subsidiaries 5 - 29.6 29.5
(94.6) 15.4 (72.0)
Administration expenses (21.7) (19.7) (42.5)
Operating loss (116.3) (4.3) (114.5)
Finance income 6 0.2 0.1 0.3
Finance costs 7 (10.6) (9.5) (19.3)
Other finance income 6 5.7 6.3 12.0
Change in fair value of derivative financial instruments (5.3) 2.5 2.2
Net finance costs (10.0) (0.6) (4.8)
(126.3) (4.9) (119.3)
Share of post-tax loss from joint ventures 12 (2.5) - -
Loss before tax (128.8) (4.9) (119.3)
Current tax (0.1) (1.1) (2.2)
Deferred tax (1.3) (0.7) (2.1)
Taxation 8 (1.4) (1.8) (4.3)
Loss for the period (130.2) (6.7) (123.6)
(Loss)/profit attributable to:
Owners of the Parent (87.2) 23.2 (56.9)
Non-controlling interest 13 (43.0) (29.9) (66.7)
Earnings per share attributable to owners of the Parent
Basic (loss)/earnings per share 10 (10.2)p 2.7p (6.7)p
Diluted (loss)/earnings per share 10 (10.2)p 2.7p (6.7)p
Weighted average number of shares 10 851.2m 850.8m 851.2m
All results derive from continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the six months ended 30 June 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Notes GBPm GBPm GBPm
Loss for the period (130.2) (6.7) (123.6)
Total comprehensive expense for the period (130.2) (6.7) (123.6)
Attributable to:
Owners of the Parent (87.2) 23.2 (56.9)
Non-controlling interest 13 (43.0) (29.9) (66.7)
All results derive from continuing operations.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
As at 30 June 2019
As at As at
30 June 31 December
2019 2018
Notes GBPm GBPm
Non-current assets
Investment and development property 11 3,212.2 3,335.5
Property, plant and equipment 7.3 3.1
Investment in joint ventures 12 0.3 17.3
Derivative financial instruments 18 - 0.7
Deferred tax 19 4.2 5.5
Trade and other receivables 14 230.6 222.8
3,454.6 3,584.9
Current assets
Trade and other receivables 14 39.3 38.3
Cash and cash equivalents 15 66.8 32.5
106.1 70.8
Assets classified as held for sale 11 - 8.4
106.1 79.2
Total assets 3,560.7 3,664.1
Non-current liabilities
Borrowings, including finance leases 17 (650.9) (616.5)
Derivative financial instruments 18 (3.7) -
(654.6) (616.5)
Current liabilities
Borrowings, including finance leases 17 (1.6) (0.7)
Other provisions - (2.0)
Tax liabilities (1.7) (2.4)
Trade and other payables 16 (53.7) (58.9)
(57.0) (64.0)
Total liabilities (711.6) (680.5)
Net assets 2,849.1 2,983.6
Equity
Share capital 20 212.8 212.7
Other components of equity 2,430.9 2,523.5
Equity attributable to owners of the Parent 2,643.7 2,736.2
Non-controlling interest 13 205.4 247.4
Total equity 2,849.1 2,983.6
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
For the six months ended 30 June 2019
Equity attributable to owners of the Parent
Share-
based Non-
Share Share Merger payment Other Retained controlling Total
capital premium reserve(1) reserve reserves earnings Total interest equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January 2019 212.7 225.6 421.8 8.6 (0.6) 1,868.1 2,736.2 247.4 2,983.6
Loss for the period - - - - - (87.2) (87.2) (43.0) (130.2)
Total comprehensive expense for
the period - - - - - (87.2) (87.2) (43.0) (130.2)
Transactions with owners
Ordinary shares issued(2) 20 0.1 1.0 - - - - 1.1 - 1.1
Dividends 9 - - - - - (8.5) (8.5) - (8.5)
Realisation of merger reserve - - (10.5) - - 10.5 - - -
Fair value of share-based payment - - - 2.0 - - 2.0 - 2.0
Contribution from non-controlling - - - - - - - 1.0 1.0
interest
Realisation of cashflow hedge - - - - 0.1 - 0.1 - 0.1
Total transactions with owners 0.1 1.0 (10.5) 2.0 0.1 2.0 (5.3) 1.0 (4.3)
Balance at 30 June 2019 212.8 226.6 411.3 10.6 (0.5) 1,782.9 2,643.7 205.4 2,849.1
Equity attributable to owners of the Parent
Share-
based Non-
Share Share Merger payment Other Retained controlling Total
capital premium reserve(1) reserve reserves earnings Total interest equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January 2018 212.2 221.1 425.8 6.3 (0.6) 1,935.0 2,799.8 305.8 3,105.6
Profit/(Loss) for the period - - - - - 23.2 23.2 (29.9) (6.7)
Total comprehensive
income/(expense) for the period - - - - - 23.2 23.2 (29.9) (6.7)
Transactions with owners
Ordinary shares issued(2) 20 0.4 3.5 - - - (0.5) 3.4 - 3.4
Dividends 9 - - - - - (8.5) (8.5) - (8.5)
Realisation of share-based payment - - - (0.1) - - (0.1) - (0.1)
reserve on issue of shares
Fair value of share-based payment - - - 1.5 - - 1.5 - 1.5
Contribution from non-controlling - - - - - - - 6.1 6.1
interest
Total transactions with owners 0.4 3.5 - 1.4 - (9.0) (3.7) 6.1 2.4
Balance at 30 June 2018 212.6 224.6 425.8 7.7 (0.6) 1,949.2 2,819.3 282.0 3,101.3
(1) Represents non-qualifying consideration received by the Group following the share placing in May 2014 and previous share placements. The amounts taken to the
merger reserve do not currently meet the criteria for qualifying consideration and therefore will not form part of distributable reserves as they form part of linked
transactions.
(2) Share premium includes GBP1.0 million (30 June 2018: GBP3.5 million) of ordinary shares issued relating to the bonus issued in lieu of cash dividends. Refer to note 9
'Dividends' for further information.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
For the year ended 31 December 2018
Equity attributable to owners of the Parent
Share-
based Non-
Share Share Merger payment Other Retained controlling Total
capital premium reserve(1) reserve reserves earnings Total interest equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January 2018 212.2 221.1 425.8 6.3 (0.6) 1,935.0 2,799.8 305.8 3,105.6
Loss for the year - - - - - (56.9) (56.9) (66.7) (123.6)
Total comprehensive expense for
the year ended 31 December 2018 - - - - - (56.9) (56.9) (66.7) (123.6)
Transactions with owners
Ordinary shares issued(2) 20 0.5 4.5 - - - (0.5) 4.5 - 4.5
Dividends 9 - - - - - (12.7) (12.7) - (12.7)
Realisation of merger reserve - - (4.0) - - 4.0 - - -
Realisation of share-based - - - (0.1) - - (0.1) - (0.1)
payment reserve on issue of
shares
Fair value of share-based
payment - - - 2.4 - - 2.4 - 2.4
Tax relating to share-based
payment 19 - - - - - (0.8) (0.8) - (0.8)
Contribution from non-
controlling interest - - - - - - - 8.3 8.3
Total transactions with owners 0.5 4.5 (4.0) 2.3 - (10.0) (6.7) 8.3 1.6
Balance at 31 December 2018 212.7 225.6 421.8 8.6 (0.6) 1,868.1 2,736.2 247.4 2,983.6
(1) Represents non-qualifying consideration received by the Group following the share placing in May 2014 and previous share placements. The amounts taken to the
merger reserve do not currently meet the criteria for qualifying consideration and therefore will not form part of distributable reserves as they form part of linked
transactions.
(2) Share premium includes GBP4.5 million of ordinary shares issued relating to the bonus issued in lieu of cash dividends. Refer to note 9 'Dividends' for further
information.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the six months ended 30 June 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Notes GBPm GBPm GBPm
Cash flows from operating activities
Cash generated from operations 23 1.9 7.1 7.8
Interest paid (10.1) (10.4) (20.3)
Interest received 0.2 0.1 0.3
Tax paid (0.9) (1.0) (2.2)
Net cash outflow from operating activities (8.9) (4.2) (14.4)
Cash flows from investing activities
Purchase and development of property, plant and equipment (27.0) (58.7) (84.8)
Sale of property(1) 50.9 - 20.9
Investment in joint venture - - (0.4)
Sale of discontinued operation (0.3) (0.3) (0.3)
Sale of subsidiaries(2) 0.2 250.4 250.7
Loan advances to joint ventures (2.2) (1.9) (1.8)
Net cash inflow from investing activities 21.6 189.5 184.3
Cash flows from financing activities
Issue of shares - 0.1 0.1
Borrowings drawn 54.0 22.8 22.8
Borrowings repaid (25.0) (185.0) (185.0)
Purchase and repayment of derivative financial instruments (0.9) (4.0) (4.0)
Cash dividends paid 9 (7.5) (5.0) (8.2)
Contribution from non-controlling interest 1.0 6.1 8.3
Net cash inflow/(outflow) from financing activities 21.6 (165.0) (166.0)
Net increase in cash and cash equivalents 34.3 20.3 3.9
Unrestricted cash and cash equivalents at 1 January 32.5 28.6 28.6
Unrestricted cash and cash equivalents at period end 66.8 48.9 32.5
(1) Includes GBP9.0 million for the disposal of property designated as held for sale at 31 December 2018.
(2) Sale of subsidiaries relate to cash inflows of GBP0.2 million relating to the sale of the Brewery (31 December 2018: GBP248.9 million of proceeds from the sale of
Empress State Building and GBP1.8 million relating to deferred consideration on the disposal of The Brewery by EC&O Limited on 9 February 2012).
All cash flows derive from continuing operations.
NOTES TO THE ACCOUNTS (UNAUDITED)
1 PRINCIPAL ACCOUNTING POLICIES
General information
Capital & Counties Properties PLC (the "Company") was incorporated and registered in England and Wales on 3 February
2010 under the Companies Act as a public company limited by shares, registration number 7145051. The registered office of
the Company is 15 Grosvenor Street, London, W1K 4QZ, United Kingdom. The principal activity of the Company is to act as
the ultimate parent company of Capital & Counties Properties PLC Group (the "Group"), whose principal activity is the
development and management of property.
The Group's assets principally comprise investment and development property at Covent Garden and Earls Court.
Basis of preparation
The Group's condensed consolidated financial statements are prepared in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and with IAS 34 'Interim Financial
Reporting' as adopted by the European Union. The condensed consolidated financial statements should be read in conjunction
with the Annual Report & Accounts for the year ended 31 December 2018, which have been prepared in accordance with
IFRSs as adopted by the European Union. The condensed consolidated financial statements are prepared in British pounds sterling.
The condensed consolidated financial statements for the six months ended 30 June 2019 are reviewed, not audited and do not
constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year
ended 31 December 2018 were approved by the Board of Directors on 26 February 2019 and delivered to the Registrar of
Companies. The auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did
not contain a statement made under Section 498 of the Companies Act 2006.
The condensed consolidated financial statements have been prepared under the historical cost convention as modified for the
revaluation of property and derivative financial instruments.
There is no material seasonal impact on the Group's financial performance.
These condensed consolidated financial statements were approved by the Board of Directors on 25 July 2019.
The condensed consolidated financial statements have been prepared using the accounting policies, significant judgements,
key assumptions and estimates set out on pages 98 to 102 of the Group's Annual Report & Accounts for 2018.
Critical accounting judgements and key sources of estimation and uncertainty
The preparation of condensed consolidated financial statements in accordance with IFRS requires the Directors to make
judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, income and expenses
from sources not readily apparent. Although these estimates and assumptions are based on management's best knowledge of
the amount, historical experiences and other factors, actual results ultimately may differ from those estimates. The estimates
and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period. This is consistent with the financial statements for the
previous year end. Full disclosure of the critical judgements, assumptions and estimates is included in the Group's Annual
Report & Accounts for 2018.
During 2019, the following accounting standards and interpretations have been adopted by the Group:
IFRS 9 'Financial Instruments' (amendment)
IFRS 16 'Leases'
IAS 19 'Employee benefits' (amendment)
IAS 28 'Investments in associates' (amendment)
Amendments to IFRS (Annual improvements cycle 2015-2017)
As the Group is predominantly a lessor, IFRS 16 'Leases' did not have a material impact on adoption. Where the Group is
currently a lessee, this relates only to immaterial contracts.
These pronouncements had no significant impact on the condensed consolidated financial statements.
The following standards and interpretations which have not been applied in these financial statements were in issue but
not effective, and in some cases have not been adopted for use in the European Union:
IFRS 3 'Business combinations' (amendment)
IAS 1 'Presentation of financial statements' (amendment)
IAS 8 'Accounting policies, changes in accounting estimates and errors' (amendment)
The Group has assessed the impact of these new standards and interpretations and does not anticipate any material
impact on the financial statements.
Going Concern
The Directors are satisfied that the Group has adequate resources to continue in operational existence for a period of at least
12 months from the date of approval of the financial statements and for this reason the condensed consolidated financial
statements have been prepared on a going concern basis.
2 SEGMENTAL REPORTING
Management has determined the operating segments based on reports reviewed by the Executive Directors, who are deemed
to be the chief operating decision makers. The principal performance measures have been identified as net rental income and
net asset value.
For management and reporting purposes the Group is organised into three divisions:
- Covent Garden;
- Earls Court Properties represents the Group's interests in the Earls Court area, comprising properties held in ECPL, Lillie
Square and a number of smaller properties in the Earls Court area; and
- Other comprises Innova and The Great Capital Partnership, the Group's residual China investments, other head office
companies and investments, including the payment of internal rent.
Management information is reported to the chief operating decision makers on a Group share basis. Outlined below is the
Group share by segment:
Segment Group share
Covent Garden 100%
Earls Court Properties
ECPL 63%
Lillie Square 50%
Other 100%
Other
Innova 50%
GCP 50%
Other 100%
Segmental reporting has been presented in line with management information and therefore consolidation adjustments are
presented to reconcile segmental performance and position to the IFRS total.
The Group's operating segments derive their revenue primarily from rental income from lessees.
Unallocated expenses consist primarily of costs incurred centrally which are neither directly nor meaningfully attributable to
individual segments.
Reportable segments
Six months ended 30 June 2019
Covent Earls Court Group Consolidation IFRS
Garden Properties Other total adjustments total
GBPm GBPm GBPm GBPm GBPm GBPm
Rental income 38.5 2.0 - 40.5 0.5 41.0
Proceeds from sale of trading property - 1.0 - 1.0 (1.0) -
Other income - - 0.5 0.5 0.4 0.9
Revenue 38.5 3.0 0.5 42.0 (0.1) 41.9
Rent receivable 36.2 1.3 - 37.5 0.5 38.0
Service charge income 2.3 0.7 - 3.0 - 3.0
Rental income 38.5 2.0 - 40.5 0.5 41.0
Rental expenses(1) (7.4) (0.9) (0.1) (8.4) - (8.4)
Net rental income/(expense) 31.1 1.1 (0.1) 32.1 0.5 32.6
Write down of trading property - (0.1) - (0.1) 0.1 -
Other income - - 0.5 0.5 0.4 0.9
Gain/(loss) on revaluation and sale of 11.2 (75.4) - (64.2) (43.3) (107.5)
investment and development property
Write down of trading property - (0.2) - (0.2) 0.2 -
Impairment of investments and other - - (15.0) (15.0) (5.6) (20.6)
receivables
Segment result 42.3 (74.6) (14.6) (46.9) (47.7) (94.6)
Unallocated costs:
Administration expenses (21.1) (0.6) (21.7)
Operating loss (68.0) (48.3) (116.3)
Net finance costs(2) (15.8) 5.8 (10.0)
Share of post-tax loss from joint ventures - (2.5) (2.5)
Loss before tax (83.8) (45.0) (128.8)
Taxation (1.3) (0.1) (1.4)
Loss for the period (85.1) (45.1) (130.2)
Loss attributable to:
Owners of the Parent (85.1) (2.1) (87.2)
Non-controlling interest - (43.0) (43.0)
Summary balance sheet
Total segment assets(3) 2,635.1 695.4 28.9 3,359.4 145.4 3,504.8
Total segment liabilities(3) (632.0) (114.5) (10.8) (757.3) 45.6 (711.7)
Segmental net assets 2,003.1 580.9 18.1 2,602.1 191.0 2,793.1
Unallocated assets(2) 56.0 - 56.0
Net assets 2,658.1 191.0 2,849.1
Other segment items:
Depreciation (0.1) (0.4) (0.5) (1.0) - (1.0)
Capital expenditure (22.5) (21.4) 0.1 (43.8) 15.4 (28.4)
(1) Comprises service charge and other non-recoverable costs.
(2) The Group operates a central treasury function which manages and monitors the Group's finance income and costs on a net basis and the majority of the Group's
cash balances.
(3) Total segmental assets and total segmental liabilities exclude loans between and investments in Group undertakings.
Reportable segments
Six months ended 30 June 2018
Covent Earls Court Group Consolidation IFRS
Garden Properties Other total adjustments total
GBPm GBPm GBPm GBPm GBPm GBPm
Proceeds from sale of trading property - 25.0 - 25.0 (25.0) -
Other income - - 0.9 0.9 0.9 1.8
Revenue 34.4 30.6 0.9 65.9 (23.6) 42.3
Rent receivable 32.4 5.0 - 37.4 0.5 37.9
Service charge income 2.0 0.6 - 2.6 - 2.6
Rental income 34.4 5.6 - 40.0 0.5 40.5
Rental expenses(1) (6.1) (0.7) (0.1) (6.9) - (6.9)
Net rental income/(expense) 28.3 4.9 (0.1) 33.1 0.5 33.6
Profit on sale of trading property - 5.0 - 5.0 (5.0) -
Other income - - 0.9 0.9 0.9 1.8
Gain/(loss) on revaluation and sale of
investment and development property 36.1 (53.3) 0.1 (17.1) (30.2) (47.3)
Profit on sale of subsidiaries - 29.6 - 29.6 - 29.6
Write down of trading property - (0.4) - (0.4) 0.4 -
Impairment of investments and other
receivables - - - - (2.3) (2.3)
Segment result 64.4 (14.2) 0.9 51.1 (35.7) 15.4
Unallocated costs:
Administration expenses (19.2) (0.5) (19.7)
Operating profit/(loss) 31.9 (36.2) (4.3)
Net finance costs(2) (6.9) 6.3 (0.6)
Profit/(loss) before tax 25.0 (29.9) (4.9)
Taxation (1.8) - (1.8)
Profit/(loss) for the period 23.2 (29.9) (6.7)
Profit/(loss) attributable to:
Owners of the Parent 23.2 - 23.2
Non-controlling interest - (29.9) (29.9)
Summary balance sheet
Total segment assets(3) 2,642.5 785.8 40.3 3,468.6 262.3 3,730.9
Total segment liabilities(3) (598.6) (86.3) (7.6) (692.5) 19.7 (672.8)
Segmental net assets 2,043.9 699.5 32.7 2,776.1 282.0 3,058.1
Unallocated assets(2) 43.2 - 43.2
Net assets 2,819.3 282.0 3,101.3
Other segment items:
Depreciation (0.2) (0.6) (0.1) (0.9) (0.1) (1.0)
Capital expenditure (32.5) (23.4) - (55.9) 8.2 (47.7)
(1) Comprises service charge and other non-recoverable costs.
(2) The Group operates a central treasury function which manages and monitors the Group's finance income and costs on a net basis and the majority of the Group's
cash balances.
(3) Total segmental assets and total segmental liabilities exclude loans between and investments in Group undertakings.
Reportable segments
Year ended 31 December 2018
Covent Earls Court Group Consolidation IFRS
Garden Properties Other total adjustments total
GBPm GBPm GBPm GBPm GBPm GBPm
Rental income 71.3 7.9 - 79.2 0.9 80.1
Proceeds from sale of trading property - 31.0 - 31.0 (31.0) -
Other income - - 1.8 1.8 1.6 3.4
Revenue 71.3 38.9 1.8 112.0 (28.5) 83.5
Rent receivable 66.9 6.7 - 73.6 0.9 74.5
Service charge income 4.4 1.2 - 5.6 - 5.6
Rental income 71.3 7.9 - 79.2 0.9 80.1
Rental expenses(1) (13.8) (1.6) (0.3) (15.7) - (15.7)
Net rental income/(expense) 57.5 6.3 (0.3) 63.5 0.9 64.4
Profit on sale of trading property - 6.7 - 6.7 (6.7) -
Other income - - 1.8 1.8 1.6 3.4
Gain/(loss) on revaluation and sale of
investment and development property 39.4 (118.2) - (78.8) (67.3) (146.1)
Profit on sale of subsidiaries - 29.5 - 29.5 - 29.5
Write down of trading property - (0.5) - (0.5) 0.5 -
Impairment of investments and other
receivables - (3.8) - (3.8) (19.4) (23.2)
Segment result 96.9 (80.0) 1.5 18.4 (90.4) (72.0)
Unallocated costs:
Administration expenses (41.6) (0.9) (42.5)
Operating loss (23.2) (91.3) (114.5)
Net finance costs(2) (17.1) 12.3 (4.8)
Loss before tax (40.3) (79.0) (119.3)
Taxation (4.3) - (4.3)
Loss for the year (44.6) (79.0) (123.6)
Loss attributable to:
Owners of the Parent (44.6) (12.3) (56.9)
Non-controlling interest - (66.7) (66.7)
Summary balance sheet
Total segment assets(3) 2,642.7 751.3 40.9 3,434.9 205.2 3,640.1
Total segment liabilities(3) (603.8) (98.0) (8.6) (710.4) 29.9 (680.5)
Segmental net assets 2,038.9 653.3 32.3 2,724.5 235.1 2,959.6
Unallocated assets(2) 24.0 - 24.0
Net assets 2,748.5 235.1 2,983.6
Other segment items:
Depreciation (0.4) (1.2) (0.2) (1.8) (0.1) (1.9)
Capital expenditure (60.3) (49.6) - (109.9) 24.6 (85.3)
(1) Comprises service charge and other non-recoverable costs.
(2) The Group operates a central treasury function which manages and monitors the Group's finance income and costs on a net basis and the majority of the Group's
cash balances.
(3) Total segmental assets and total segmental liabilities exclude loans between and investments in Group undertakings.
3 LOSS ON REVALUATION AND SALE OF INVESTMENT AND DEVELOPMENT PROPERTY
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Loss on revaluation of investment and development property (106.0) (47.3) (148.2)
(Loss)/gain on sale of investment and development property (1.5) - 2.1
Loss on revaluation and sale of investment and development property (107.5) (47.3) (146.1)
4 IMPAIRMENT OF INVESTMENTS AND OTHER RECEIVABLES
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Impairment of investments and other receivables 20.6 2.3 23.2
Following an impairment review of investments and amounts receivable from joint ventures by the Group, a net impairment of
GBP20.6 million has been recognised (30 June 2018: GBP2.3 million). GBP8.1 million of the impairment relates to the Lillie Square joint
venture. This venture incurs amortisation charges on deep discount bonds that were issued to the Group and Kwok Family
Interests ("KFI") which has contributed to the cumulative losses. The Group has recognised GBP5.7 million (30 June 2018: GBP6.3
million) finance income on these deep discount bonds.
An impairment assessment was performed in accordance with IFRS 9 'Financial instruments' comparing the carrying amount
of the intercompany debtor and deep discount bonds to the present value of the estimated future cash flows. This has resulted
in a write down of GBP8.1 million, of which GBP2.0 million has been recognised against the intercompany debtor (30 June 2018: GBP0.6
million) and GBP6.1 million against the deep discount bonds (30 June 2018: GBP1.7 million).
The impairment of amounts receivable from joint ventures recognised by the Group in the period of GBP8.1 million (cumulative
GBP75.1 million) and the finance income on the Lillie Square deep discount bonds of GBP5.7 million have been calculated based on
the requirements under IFRS 9 'Financial instruments'. Had the impairments been calculated taking into consideration the
Group's economic position with reference to the Group's share of losses in the Lillie Square joint venture the impairment of
amounts receivable from joint venture would have been GBP3.5 million (cumulative GBP56.6 million) and the finance income on the
deep discount bonds would have been GBP3.2 million in the period. The total current period difference between the IFRS 9 basis
and economic position basis of GBP2.1 million (cumulative GBP14.4 million) are adjusted from EPRA adjusted earnings and EPRA
NAV measures as the difference does not reflect the operational performance or the assets and liabilities expected to
crystallise in normal circumstances.
The remaining impairment, of GBP12.5 million, relates to the Group's impairment of its investment in Innova.
The comparative for 31 December 2018 also includes GBP3.8 million of costs relating to intensifying the planning consent of the
CLSA which were written off due to uncertainty surrounding the inclusion of the CLSA within an intensified scheme.
5 PROFIT ON SALE OF SUBSIDIARIES
On 26 March 2018, the Group completed the sale of the Empress State Building for total cash consideration of GBP250.0 million.
The disposal was effected by way of a sale of the entire issued share capital of Empress Holdings Limited and its subsidiaries
("Empress Holdings Group") which held the freehold interest in the Empress State Building. The disposal was in line with the
Group strategy of realising value at Earls Court over time. After transaction related costs, net proceeds received were GBP248.9
million (30 June 2018: GBP249.0 million). Based on the net assets at the date of disposal a profit of GBP29.5 million was recognised
on the sale for the year ended 31 December 2018 (30 June 2018: GBP29.6 million).
Net assets at the date of disposal were as follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Net assets on disposal - 219.4 219.4
Net consideration(1,2) - 249.0 248.9
Profit on disposal - 29.6 29.5
(1) Sale of subsidiaries per the consolidated statement of cash flows at 30 June 2018 is GBP250.4 million. This differs to the net consideration above of GBP249.0 million by
GBP1.4 million due to accrued transaction costs of GBP0.1 million and GBP1.3 million relating to deferred consideration relating to the disposal of The Brewery by
EC&O Limited on 9 February 2012.
(2) Sale of subsidiaries per the consolidated statement of cash flows at 31 December 2018 is GBP250.7 million. This differs to the net consideration above of GBP248.9
million by GBP1.8 million due to deferred consideration relating to the disposal of The Brewery by EC&O Limited on 9 February 2012.
6 FINANCE INCOME
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Finance income:
On deposits and other 0.2 0.1 0.3
Finance income 0.2 0.1 0.3
Other finance income:
On deep discount bonds(1) 5.7 6.3 12.0
Other finance income 5.7 6.3 12.0
(1) Excluded from the calculation of underlying earnings as deep discount bonds eliminate on a Group share basis.
7 FINANCE COSTS
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Finance costs:
On bank overdrafts, loans and other 11.0 11.2 22.3
On obligations under finance leases 0.5 0.4 0.7
Gross finance costs 11.5 11.6 23.0
Interest capitalised on property under development (0.9) (2.1) (3.7)
Finance costs 10.6 9.5 19.3
Interest is capitalised, before tax relief, on the basis of the weighted average cost of debt of 3.0 per cent (30 June 2018: 2.9 per
cent) applied to the cost of property under development during the period.
8 TAXATION
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Current income tax:
Current income tax charge excluding non-underlying items 1.2 1.0 1.4
Current income tax 1.2 1.0 1.4
Deferred income tax:
On accelerated capital allowances 0.6 0.5 1.1
On other items - non-exceptional (0.1) (0.5) -
On fair value of investment and development property 2.2 - -
On fair value of derivative financial instruments (1.1) 0.5 1.2
On losses - exceptional (0.3) 0.2 -
On Group losses - - 0.9
On other temporary differences - - (0.6)
Deferred income tax 1.3 0.7 2.6
Current income tax charge on non-underlying items 0.1 0.1 0.8
Adjustments in respect of previous periods - current income tax (1.2) - -
Adjustments in respect of previous periods - deferred income tax - - (0.5)
Total income tax charge reported in the consolidated income statement 1.4 1.8 4.3
Following the enactment of Finance (No. 2) Act 2015 and Finance Act 2016, the main rate of corporation tax reduced to 19 per
cent from April 2017 and will reduce further to 17 per cent from April 2020.
Following an announcement during Budget 2017 and a consultation period, legislation has now been enacted (Finance Act
2019) that will impact the Group as follows:
- UK tax will be charged on gains made by non-resident entities on direct and certain indirect disposals of UK
immovable property, with effect from 6 April 2019;
- non-UK resident companies that carry on a UK property business or have UK property income will be charged to UK
corporation tax, rather than UK income tax, with effect from 6 April 2020.
9 DIVIDENDS
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Ordinary shares
Prior period final dividend of 1.0p per share 8.5 8.5 8.5
Interim dividend of 0.5p per share - - 4.2
Dividend expense 8.5 8.5 12.7
Bonus issue in lieu of cash dividends(1) (1.0) (3.5) (4.5)
Cash dividends paid 7.5 5.0 8.2
Proposed interim dividend of 0.5p per share 4.3 4.3 -
Proposed final dividend of 1.0p per share - - 8.5
(1) Adjustments for bonus issue arise from those shareholders who elect to receive their dividends in scrip form prior to the declaration of dividend which occurs at the
Company's Annual General Meeting and shareholders who elect to receive their shares on an evergreen basis. These shares are treated as a bonus issue and
allotted at nominal value.
10 EARNINGS PER SHARE AND NET ASSETS PER SHARE
a) Weighted average number of ordinary shares
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
million million million
Weighted average ordinary shares in issue for calculation of basic (loss)/earnings per
share(1) 851.2 850.8 851.2
Dilutive effect of contingently issuable share option awards 1.6 0.8 0.9
Dilutive effect of contingently issuable deferred share awards 0.5 0.4 0.2
Dilutive effect of contingently issuable matching nil cost option awards 0.1 0.1 0.1
Dilutive effect of deferred bonus share option awards 0.6 0.6 0.6
Weighted average ordinary shares in issue for calculation of diluted earnings/(loss) per share 854.0 852.7 853.0
ed average number of shares in issue for the comparatives has been adjusted by 0.4 million for the issue of bonus shares in connection with the scrip
dividend scheme.
b) Basic and diluted (loss)/earnings per share
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
(Loss)/earnings used for calculation of basic and diluted (loss)/earnings per share (87.2) 23.2 (56.9)
Basic (loss)/earnings per share (pence) (10.2) 2.7 (6.7)
Diluted (loss)/earnings per share (pence) (10.2) 2.7 (6.7)
c) EPRA and underlying earnings per share
Re-presented
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Basic (loss)/earnings (87.2) 23.2 (56.9)
Group adjustments:
Profit on sale of subsidiaries(1) - (29.6) (29.5)
Impairment of investments and other receivables(2) 17.1 - 16.1
Loss on revaluation and sale of investment and development property 107.5 47.3 146.1
Change in fair value of derivative financial instruments 5.3 (2.5) (2.2)
Deferred tax adjustments 1.8 1.0 2.3
Non-controlling interest in respect of the Group adjustments (43.3) (30.1) (67.3)
Joint venture adjustments:
Loss/(profit) on sale of trading property(3) 0.1 (5.0) (6.7)
Gain on revaluation and sale of investment and development property - (0.1) -
Write down of trading property 0.2 0.4 0.5
EPRA adjusted earnings(4) 1.5 4.6 2.4
Administration expenses - non-underlying(5) 3.9 - 4.9
Tax adjustments (0.9) (0.3) 0.7
Underlying earnings(4) 4.5 4.3 8.0
Underlying earnings per share (pence) 0.5 0.5 0.9
EPRA earnings per share (pence) 0.2 0.5 0.3
(1) In the interim results for the six months ended 30 June 2018 profit on sale of subsidiaries of GBP29.6 million was included in the EPRA adjusted earnings of
GBP34.2 million. EPRA adjusted earnings have been represented to remove profit on sale of subsidiaries.
(2) Impairment of investments and other receivables consists of GBP12.5 million relating to the Group's impairment of its investment in Innova, GBP2.5 million for the Group's
share of post-tax losses from joint ventures and a GBP2.1 million impairment under IFRS 9 of amounts receivable from joint ventures above the Group's share of
losses in the Lillie Square joint venture (30 June 2018: nil; 31 December 2018: GBP12.3 million). The 31 December 2018 comparative also included GBP3.8 million
relating to the write off of costs incurred on intensifying the planning consent for the CLSA.
(3) Loss/(profit) on sale of trading property relates to Lillie Square sales and includes GBP0.1 million (30 June 2018: nil; 31 December 2018: GBP0.2 million) marketing and
selling fees on a Group share basis. Marketing fees include costs for units that have not yet completed.
(4) EPRA earnings and underlying earnings have been reported on a Group share basis.
(5) Non-underlying administration expenses totalled GBP3.9 million (31 December 2018: GBP4.9 million) which relates to corporate transactions, being the potential demerger
and potential sale of the Group's interests in Earls Court. These costs have been classified as non-underlying as they do not represent the recurring, underlying
performance of the Group.
d) Headline earnings per share
Headline earnings per share is calculated in accordance with Circular 2/2015 issued by the South African Institute of Chartered
Accountants (SAICA), a requirement of the Group's JSE listing. This measure is not a requirement of IFRS.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
Basic (loss)/earnings (87.2) 23.2 (56.9)
Group adjustments:
Loss on revaluation and sale of investment and development property 107.5 47.3 146.1
Deferred tax adjustments 2.2 - 0.9
Non-controlling interest in respect of the Group adjustments (43.3) (30.1) (67.3)
Joint venture adjustment:
Gain on revaluation and sale of investment and development property - (0.1) -
Headline (loss)/earnings (20.8) 40.3 22.8
Headline (loss)/earnings per share (pence) (2.4) 4.7 2.7
Diluted headline (loss)/earnings per share (pence) (2.4) 4.7 2.7
e) Net assets per share
As at As at
30 June 31 December
2019 2018
million million
Number of ordinary shares in issue 851.3 850.8
Adjustments:
Effect of dilution on exercise of contingently issuable share option awards 1.6 0.8
Effect of dilution of contingently issuable deferred share awards 0.4 0.3
Effect of dilution on exercise of contingently issuable matching nil cost option awards 0.1 0.1
Effect of dilution on exercise of deferred bonus share option awards 0.6 0.6
Adjusted, diluted number of ordinary shares in issue 854.0 852.6
Net assets attributable to owners of the Parent 2,643.7 2,736.2
Fair value of derivative financial instruments 3.7 (0.7)
Unrecognised surplus on trading property - Joint venture 23.3 25.7
Revaluation of other non-current assets(1) 14.4 12.3
Deferred tax adjustments 5.2 3.5
EPRA NAV 2,690.3 2,777.0
Fair value of derivative financial instruments (3.7) 0.7
Excess fair value of debt over carrying value (17.2) 14.0
Deferred tax adjustments (5.2) (3.5)
EPRA NNNAV 2,664.2 2,788.2
Basic net assets per share (pence) 310.5 321.6
Diluted net assets per share (pence) 309.6 320.9
EPRA NAV per share (pence) 315.0 325.7
EPRA NNNAV per share (pence) 312.0 327.0
(1) This relates to the impairment under IFRS 9 of amounts receivable from joint ventures above the Group's share of losses in the Lillie Square joint venture. Further
details are disclosed within Note 4 'Impairment of investments and other receivables'.
11 PROPERTY PORTFOLIO
a) Investment and development property
Property portfolio Tenure
Covent Earls Court
Garden Properties Total Freehold Leasehold
GBPm GBPm GBPm GBPm GBPm
At 1 January 2018 2,493.7 1,152.0 3,645.7 1,720.5 1,925.2
Additions from acquisitions 18.7 10.6 29.3 19.2 10.1
Additions from subsequent expenditure 41.6 14.4 56.0 23.2 32.8
Disposals (17.3) (221.6) (238.9) (238.1) (0.8)
Classified as held for sale(1) (8.4) - (8.4) (8.4) -
Gain/(loss) on revaluation(2) 37.3 (185.5) (148.2) 5.7 (153.9)
At 31 December 2018 2,565.6 769.9 3,335.5 1,522.1 1,813.4
Additions from acquisitions 13.2 - 13.2 13.2 -
Additions from subsequent expenditure 9.2 6.0 15.2 6.3 8.9
Disposals (43.1) (2.6) (45.7) (43.1) (2.6)
Gain/(loss) on revaluation(2) 12.6 (118.6) (106.0) (8.4) (97.6)
At 30 June 2019 2,557.5 654.7 3,212.2 1,490.1 1,722.1
(1) This relates to three apartments at The Floral Court Collection in Covent Garden which had exchanged prior to 31 December 2018. These units completed during
the period to 30 June 2019.
(2) Loss on revaluation of GBP106.0 million (31 December 2018: loss GBP148.2 million) is recognised in the consolidated income statement within loss on revaluation and
sale of investment and development property. This loss was unrealised and relates to assets held at the end of the period.
b) Market value reconciliation of total property
Covent Earls Court
Garden Properties Total
GBPm GBPm GBPm
Carrying value of investment and development property at 30
June 2019(1) 2,557.5 654.7 3,212.2
Adjustment in respect of fixed head leases (6.1) - (6.1)
Adjustment in respect of tenant lease incentives 59.2 - 59.2
Market value of investment and development property at 30 June
2019 2,610.6 654.7 3,265.3
Joint venture:
Carrying value of joint venture investment, development and trading
property at 30 June 2019 - 149.7 149.7
Unrecognised surplus on joint venture trading property(2) - 23.3 23.3
2,610.6 827.7 3,438.3
Non-controlling interest adjustment:
Market value of non-controlling interest in investment, development
and trading property at 30 June 2019 - (228.6) (228.6)
Market value of investment, development and trading property on
a Group share basis at 30 June 2019 2,610.6 599.1 3,209.7
(1) Included within investment and development property is GBP0.9 million of interest capitalised during the period on developments in progress.
(2) The unrecognised surplus on trading property is shown for information purposes only and is not a requirement of IFRS. Trading property continues to be measured
at the lower of cost and net realisable value in the condensed consolidated financial statements.
Covent Earls Court
Garden Properties Total
GBPm GBPm GBPm
Carrying value of investment, development and trading property
at 31 December 2018(1) 2,565.6 769.9 3,335.5
Adjustment in respect of fixed head leases (6.1) - (6.1)
Adjustment in respect of tenant lease incentives 50.5 - 50.5
Market value of investment, development and trading property
at 31 December 2018 2,610.0 769.9 3,379.9
Joint venture:
Carrying value of joint venture investment, development and trading
property at 31 December 2018 - 133.4 133.4
Unrecognised surplus on joint venture trading property(2) - 25.7 25.7
2,610.0 929.0 3,539.0
Non-controlling interest adjustment:
Market value of non-controlling interest in investment, development
and trading property at 31 December 2018 - (270.7) (270.7)
Market value of investment, development and trading property on a
Group share basis at 31 December 2018 2,610.0 658.3 3,268.3
(1) Included within investment and development property is GBP3.7 million of interest capitalised during the period on developments in progress.
(2) The unrecognised surplus on trading property is shown for information purposes only and is not a requirement of IFRS. Trading property continues to be measured
at the lower of cost and net realisable value in the condensed consolidated financial statements.
At 30 June 2019, the Group was contractually committed to GBP30.4 million (31 December 2018: GBP22.4 million) of future
expenditure for the purchase, construction, development and enhancement of investment, development and trading property.
Refer to note 21 'Capital Commitments' for further information on capital commitments.
The fair value of the Group's investment, development and trading property at 30 June 2019 was determined by independent,
appropriately qualified external valuers JLL for Earls Court Properties and CBRE for the remainder of the Group's property
portfolio. The valuations conform to the Royal Institution of Chartered Surveyors ("RICS") Valuation Professional Standards.
Fees paid to valuers are based on fixed price contracts.
Each year the Executive Directors, on behalf of the Board, appoint the external valuers. The valuers are selected based upon
their knowledge, independence and reputation for valuing assets such as those held by the Group.
Valuations are performed bi-annually and are performed consistently across all properties in the Group's portfolio. At each
reporting date appropriately qualified employees of the Group verify all significant inputs and review computational outputs.
Valuers submit and present summary reports to the Group's Audit Committee, with the Executive Directors reporting to the
Board on the outcome of each valuation round.
Valuations take into account tenure, lease terms and structural condition. The inputs underlying the valuations include market
rent or business profitability, likely incentives offered to tenants, forecast growth rates, yields, EBITDA, discount rates,
construction costs including any site specific costs (for example Section 106), professional fees, planning fees, developer's
profit including contingencies, planning and construction timelines, lease re-gear costs, planning risk and sales prices based on
known market transactions for similar properties or properties similar to those contemplated for development.
Valuations are based on what is determined to be the highest and best use. When considering the highest and best use a
valuer will consider, on a property by property basis, its actual and potential uses which are physically, legally and financially
viable. Where the highest and best use differs from the existing use, the valuer will consider the cost and the likelihood of
achieving and implementing this change in arriving at its valuation.
A number of the Group's properties have been valued on the basis of their development potential which differs from their
existing use. In respect of development valuations, the valuer ordinarily considers the gross development value of the
completed scheme based upon assumptions of capital values, rental values and yields of the properties which would be
created through the implementation of the development. Deductions are then made for anticipated costs, including an
allowance for developer's profit before arriving at a valuation.
There are often restrictions on both freehold and leasehold property which could have a material impact on the realisation of
these assets. The most significant of these occur when planning permission is required or when a credit facility is in place.
These restrictions are factored into the property's valuation by the external valuer. Refer to disclosures surrounding property
risks on page 17.
12 INVESTMENT IN JOINT VENTURES
Investment in joint ventures is measured using the equity method. All joint ventures are held with other joint venture investors
on a 50:50 basis.
At 30 June 2019, joint ventures comprise the Lillie Square joint venture ("LSJV"), Innova Investment ("Innova"), and The Great
Capital Partnership ("GCP"). On 29 April 2013, the Group exchanged contracts for the disposal of the final asset, Park Crescent
West, in GCP which has since been accounted for as a discontinued operation.
LSJV
LSJV was established as a joint venture arrangement with the Kwok Family Interests ("KFI"), in August 2012. The joint venture
was established to own, manage and develop land interests at Lillie Square. LSJV comprises Lillie Square LP, Lillie Square GP
Limited, acting as general partner to the partnership, and its subsidiaries. All major decisions regarding LSJV are taken by the
Board of Lillie Square GP Limited, through which the Group shares strategic control.
The summarised income statement and balance sheet of LSJV are presented below.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
LSJV GBPm GBPm GBPm
Summarised income statement
Revenue 2.1 50.0 62.3
Net rental income/(expense) 0.1 (0.1) 0.1
Gain on revaluation of investment and development property 0.1 0.1 -
Proceeds from the sale of trading property 2.0 49.9 62.0
Cost of sale of trading property (2.0) (39.0) (48.2)
Agent, selling and marketing fees (0.1) (1.0) (0.4)
Write down of trading property (0.4) (0.7) (1.0)
Administration expenses 0.1 (1.1) (2.4)
Finance costs(1) (6.8) (12.7) (21.2)
Loss for the period (7.0) (4.6) (11.1)
(1) Finance costs relate to the amortisation of deep discount bonds that were issued by LSJV to the Group and KFI. The bonds are redeemable at their nominal value
of GBP276.1 million on 24 August 2021. The discount applied is unwound over the period to maturity using an effective interest rate. Finance income receivable to the
Group of GBP5.7 million (30 June 2018: GBP6.3 million) is recognised in the consolidated income statement within other finance income.
As at As at
30 June 31 December
2019 2018
LSJV GBPm GBPm
Summarised balance sheet
Investment and development property 3.7 3.7
Other non-current assets 4.8 4.6
Trading property 295.6 263.1
Cash and cash equivalents(1) 39.4 40.2
Other current assets 1.0 0.2
Borrowings (89.9) (59.5)
Other non-current liabilities(2) (246.1) (239.7)
Amounts payable to joint venture partners(3) (75.6) (73.7)
Other current liabilities (46.1) (45.3)
Net liabilities (113.2) (106.4)
Capital commitments 40.0 64.8
Carrying value of investment, development and trading property 299.3 266.8
Unrecognised surplus on trading property(4) 46.7 51.4
Market value of investment, development and trading property(4) 346.0 318.2
(1) Includes restricted cash and cash equivalents of GBP24.9 million (31 December 2018: GBP34.3 million) relating to amounts received as property deposits that will not be
available for use by LSJV until completion of building work. There is a corresponding liability of GBP24.9 million (31 December 2017: GBP34.3 million) within other current
liabilities.
(2) Other non-current liabilities relate to deep discount bonds. Recoverable amounts receivable by the Group of GBP94.0 million (31 December 2018: GBP94.4 million) are
recognised on the consolidated balance sheet within non-current trade and other receivables.
(3) Amounts payable to joint venture partners relate to working capital funding advanced by the Group and KFI.
(4) The unrecognised surplus on trading property and the market value of LSJV's property portfolio are shown for information purposes only and are not a requirement
of IFRS. Trading property continues to be measured at the lower of cost and net realisable value.
Innova
On 29 June 2015, the Group acquired a 50 per cent interest in Innova, a joint venture arrangement with Network Rail
Infrastructure Limited ("NRIL"). Total acquisition costs were GBP14.5 million, GBP2.0 million of which is contingent on achieving
consent to develop specific railway sites with NRIL. The joint venture will explore opportunities for future redevelopments on
and around significant railway station sites in London. During the period the Group impaired its investment in Innova by GBP12.5 million.
Innova comprises Innova Investment Limited Partnership and Innova Investment GP Limited, acting as general partner to the
partnership. All major decisions regarding Innova are taken by the Board of Innova Investment GP Limited, through which the
Group shares strategic control.
The summarised income statement and balance sheet of Innova are presented below.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Innova GBPm GBPm GBPm
Summarised income statement
Impairment of other receivables (5.0) - -
Loss for the period (5.0) - -
As at As at
30 June 31 December
2019 2018
Innova GBPm GBPm
Summarised balance sheet
Other receivables - 5.4
Cash and cash equivalents 0.9 0.5
Other current liabilities (0.4) (0.4)
Net assets 0.5 5.5
Reconciliation of summarised financial information
The table below reconciles the summarised joint venture financial information previously presented to the carrying value of
investment in joint ventures as presented on the consolidated balance sheet.
GCP LSJV Innova Total
GBPm GBPm GBPm GBPm
Net assets/(liabilities) of joint ventures at 31 December 2018 0.1 (106.4) 5.5 (100.8)
Elimination of joint venture partners' interest - 53.2 (2.8) 50.4
Cumulative losses restricted(1) - 53.2 - 53.2
Goodwill on acquisition of joint venture(2) - - 14.5 14.5
Carrying value at 31 December 2018 0.1 - 17.2 17.3
Net assets/(liabilities) of joint ventures at 30 June 2019 0.1 (113.2) 0.5 (112.6)
Elimination of joint venture partners' interest - 56.6 (0.3) 56.3
Cumulative losses restricted(1) - 56.6 - 56.6
Carrying value at 30 June 2019 0.1 - 0.2 0.3
(1) Cumulative losses restricted represent the Group's share of losses in LSJV which exceed the Group's investment in the joint venture. As a result the carrying value
of the investment in LSJV is nil (31 December 2018: nil) in accordance with the requirements of IAS 28.
(2) In accordance with the initial recognition exemption provisions under IAS 12 'Income Taxes', no deferred tax is recognised on goodwill.
Reconciliation of investment in joint ventures
The table below reconciles the opening to closing carrying value of investment in joint ventures presented on the consolidated
balance sheet.
GCP LSJV Innova Total
Investment in joint ventures GBPm GBPm GBPm GBPm
At 1 January 2018 0.1 - 16.8 16.9
Loss for the year(1) - (5.6) - (5.6)
Loss restricted(1) - 5.6 - 5.6
Issue of equity loan notes - - 0.4 0.4
At 31 December 2018 0.1 - 17.2 17.3
Loss for the period(1) - (3.5) (2.5) (6.0)
Loss restricted(1) - 3.5 - 3.5
Impairment of goodwill - - (14.5) (14.5)
At 30 June 2019 0.1 - 0.2 0.3
(1) Share of post-tax loss from joint ventures in the consolidated income statement of GBP2.5 million (31 December 2018: nil) comprise loss for the period of GBP6.0 million
(31 December 2018: GBP5.6 million) and loss restricted totalling GBP3.5 million (31 December 2018: GBP5.6 million).
13 NON-CONTROLLING INTEREST
TTL Earls Court Properties Limited, a subsidiary of TfL, holds a 37 per cent non-controlling interest in ECPL, a subsidiary of the
Group. The principal place of business of ECPL is within the UK.
The accumulated non-controlling interest is presented below.
As at As at As at
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
At 1 January 247.4 305.8 305.8
Loss and total comprehensive expense for the period attributable to non-controlling interest (43.0) (29.9) (66.7)
Unsecured loan notes issued to non-controlling interest 1.0 6.1 8.3
Non-controlling interest 205.4 282.0 247.4
Unsecured, non-interest bearing loan notes have been issued by ECPL to TTL Earls Court Properties Limited. As the
transaction price of the loan notes was not an approximation of their fair value, the Group determined the fair value by using
data from observable inputs. As a result, the initial fair value of the loan notes was valued at less than GBP0.1 million (31
December 2018: less than GBP0.1 million) and therefore GBP412.2 million (31 December 2018: GBP411.2 million) has been classified as equity.
Set out below is summarised financial information, before intercompany eliminations, for ECPL.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Summarised income statement GBPm GBPm GBPm
Net rental income 1.3 1.2 2.6
Administration expenses (0.3) (0.6) (1.2)
Loss on sale of investment property (0.1) - -
Loss on revaluation of investment and development property (116.9) (81.4) (181.8)
Taxation (0.1) - -
Loss for the period after taxation (116.1) (80.8) (180.4)
As at As at
30 June 31 December
2019 2018
Summarised balance statement GBPm GBPm
Investment and development property 617.7 731.3
Cash at bank and at hand 10.9 8.0
Other current assets 0.6 0.8
Other current liabilities (3.3) (5.7)
Borrowings (70.8) (65.8)
Net assets 555.1 668.6
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Summarised cash flows GBPm GBPm GBPm
Operating cash (outflow)/inflow after interest and tax (0.1) 0.9 1.5
Sale of property 2.5 - 1.6
Purchase and development of property, plant and equipment (6.2) (19.7) (25.7)
Net cash flow before financing (3.8) (18.8) (22.6)
Financing(1) 6.7 19.3 25.2
Net cash flow 2.9 0.5 2.6
(1) Financing comprises GBP2.7 million (31 December 2018: GBP22.4 million) of unsecured, non-interest bearing loan notes and GBP4.0 million (31 December 2018: GBP2.8
million) of external borrowings.
14 TRADE AND OTHER RECEIVABLES
As at As at
30 June 31 December
2019 2018
GBPm GBPm
Non-current
Other receivables(1) 83.5 83.5
Prepayments and accrued income(2) 53.1 44.9
Amounts receivable from joint ventures(3) 94.0 94.4
Trade and other receivables 230.6 222.8
Current
Rent receivable 6.4 6.7
Other receivables 16.6 16.6
Prepayments and accrued income(2) 16.3 15.0
Trade and other receivables 39.3 38.3
(1) Includes GBP75.0 million (31 December 2018: GBP75.0 million) payment to LBHF which forms part of the CLSA.
(2) Includes tenant lease incentives, comprising surrender premia paid and incentives offered to new tenants, of GBP59.2 million (31 December 2018: GBP50.5 million).
(3) Non-current amounts receivable from joint ventures relate to deep discount bonds that were issued by LSJV to the Group. The bonds are redeemable at their
nominal value of GBP138.1 million on 24 August 2021. This balance has been impaired by GBP33.1 million (31 December 2018: GBP27.0 million). Current amounts of GBP42.0
million due from LSJV in relation to working capital funding advanced by the Group have been impaired in full.
15 CASH AND CASH EQUIVALENTS
As at As at
30 June 31 December
2019 2018
GBPm GBPm
Cash at hand 6.6 4.6
Cash on short-term deposit 60.2 27.9
Cash and cash equivalents 66.8 32.5
16 TRADE AND OTHER PAYABLES
As at As at
30 June 31 December
2019 2018
GBPm GBPm
Rent received in advance 16.6 16.7
Accruals and deferred income 18.4 22.9
Trade payables - 0.1
Other payables 15.8 15.5
Other taxes and social security 2.9 3.7
Trade and other payables 53.7 58.9
17 BORROWINGS, INCLUDING FINANCE LEASES
30 June 2019
Carrying Fixed Floating Fair Nominal
value Secured Unsecured rate rate value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Current
Finance lease obligations 1.6 1.6 - 1.6 - 1.6 1.6
Borrowings, including finance leases 1.6 1.6 - 1.6 - 1.6 1.6
Non-current
Bank loans 93.7 70.8 22.9 - 93.7 96.3 96.3
Loan notes 547.8 - 547.8 547.8 - 562.4 550.0
Borrowings 641.5 70.8 570.7 547.8 93.7 658.7 646.3
Finance lease obligations 9.4 9.4 - 9.4 - 9.4 9.4
Borrowings, including finance leases 650.9 80.2 570.7 557.2 93.7 668.1 655.7
Total borrowings, including finance leases 652.5
Cash and cash equivalents (66.8)
Net debt 585.7
31 December 2018
Carrying Fixed Floating Fair Nominal
value Secured Unsecured rate rate value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Current
Finance lease obligations 0.7 0.7 - 0.7 - 0.7 0.7
Borrowings, including finance leases 0.7 0.7 - 0.7 - 0.7 0.7
Non-current
Bank loans 63.4 65.8 (2.4) - 63.4 66.4 66.4
Loan notes 547.7 - 547.7 547.7 - 530.7 550.0
Borrowings 611.1 65.8 545.3 547.7 63.4 597.1 616.4
Finance lease obligations 5.4 5.4 - 5.4 - 5.4 5.4
Borrowings, including finance leases 616.5 71.2 545.3 553.1 63.4 602.5 621.8
Total borrowings, including finance leases 617.2
Cash and cash equivalents (32.5)
Net debt 584.7
18 CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES
The tables below set out each class of financial asset, financial liability and their fair values at 30 June 2019 and 31 December 2018.
30 June 2019 31 December 2018
Notes Carrying Loss Loss to other Carrying (Loss)/gain Loss to other
value to income comprehensive value to income comprehensive
GBPm statement income GBPm statement income
GBPm GBPm GBPm GBPm
Derivative financial assets - (1.6) - 0.7 (1.6) -
Total held for trading assets - (1.6) - 0.7 (1.6) -
Cash and cash equivalents 15 66.8 - - 32.5 - -
Other financial assets(1) 117.1 - - 117.8 - -
Total cash and other financial assets 183.9 - - 150.3 - -
Derivative financial liabilities (3.7) (3.7) - - 3.8 -
Total held for trading liabilities (3.7) (3.7) - - 3.8 -
Borrowings, including finance leases 17 (652.5) - - (617.2) - -
Other financial liabilities(2) (38.8) - - (44.6) - -
Total borrowings and other financial
liabilities (691.3) - - (661.8) - -
(1) Includes rent receivable, amounts due from joint ventures and other receivables.
(2) Includes trade and other payables and tax liabilities.
Fair value estimation
Financial instruments carried at fair value are required to be analysed by level depending on the valuation method adopted
under IFRS 13 'Fair Value Measurement'.
The different levels are defined as follows:
Level 1: valuation based on quoted market prices traded in active markets.
Level 2: valuation based on inputs other than quoted prices included within Level 1 that maximise the use of observable data
either directly or from market prices or indirectly derived from market prices.
Level 3: where one or more inputs to valuation are not based on observable market data. Valuations at this level are more
subjective and therefore more closely managed, including sensitivity analysis of inputs to valuation models. Such testing has
not indicated that any material difference would arise due to a change in input variables.
Derivative financial instruments are carried at fair value on the balance sheet and representing Level 2 fair value measurement.
The fair values of derivative financial instruments are determined from observable market prices or estimated using appropriate
yield curves at each reporting date by discounting the future contractual cash flows to the net present values. There has been
no transfer between levels in the period.
19 DEFERRED TAX
The decrease in corporation tax rate referred to in Note 8 'Taxation' has been enacted for the purposes of IAS 12 'Income
Taxes' and therefore has been reflected in these condensed consolidated financial statements based on the expected timing of
the realisation of deferred tax.
Deferred tax on investment and development property is calculated under IAS 12 provisions on a disposals basis by reference
to the properties' original tax base cost. Elements factored into the calculation include indexation relief and the Group's holding
structure. The Group's recognised deferred tax liability on investment and development property as calculated under IAS 12 as
at 30 June 2019 is GBP2.2 million (31 December 2018: nil). Following the enactment of Finance Act 2019, UK tax will be charged
on gains made by non-resident entities on direct and certain indirect disposals of UK immovable property, with effect from 6 April 2019.
A disposal of the Group's trading properties at their market value, before utilisation of carried forward losses, would result in a
corporation tax charge to the Group of GBP4.4 million (19 per cent of GBP23.3 million).
Fair value of Fair value of
Accelerated investment derivative Other
capital & development financial temporary Group
allowances property instruments differences losses Total
GBPm GBPm GBPm GBPm GBPm GBPm
Provided deferred tax liabilities/(assets):
At 1 January 2018 3.0 - (1.2) (1.8) (7.8) (7.8)
Recognised in income 1.1 - 1.2 (1.1) 0.1 1.3
Recognised directly in equity - - - 0.8 - 0.8
Reduction due to rate change - - - - 0.8 0.8
Released on discontinued operation (0.6) - - - - (0.6)
At 31 December 2018 3.5 - - (2.1) (6.9) (5.5)
Recognised in income 0.6 2.2 (1.1) (0.1) (0.3) 1.3
At 30 June 2019 4.1 2.2 (1.1) (2.2) (7.2) (4.2)
Unprovided deferred tax (assets):
At 1 January 2019 - (95.7) - - (9.3)
Movement during the period - (20.1) - - (0.4)
At 30 June 2019 - (115.8) - - (9.7)
In accordance with the requirements of IAS 12 'Income Taxes', the unprovided deferred tax asset has not been recognised in
the Group Financial Statements due to uncertainty on the level of profits that will be available in the future periods.
20 SHARE CAPITAL AND SHARE PREMIUM
Issue Share Share
Transaction price Number capital premium
Issue type date (pence) of shares GBPm GBPm
At 1 January 2018 849,060,146 212.2 221.1
Scrip dividend - 2017 final May 265 1,295,154 0.3 3.5
Scrip dividend - 2018 interim September 253 394,791 0.1 1.0
Share-based payment 56,165 0.1 -
At 31 December 2018 850,806,256 212.7 225.6
Scrip dividend - 2018 final May 245 409,364 0.1 1.0
Share-based payment 75,799 - -
At 30 June 2019 851,291,419 212.8 226.6
21 CAPITAL COMMITMENTS
At 30 June 2019, the Group was contractually committed to GBP30.4 million (31 December 2018: GBP22.4 million) of future
expenditure for the purchase, construction, development and enhancement of investment, development and trading property.
Of the GBP30.4 million committed, GBP27.0 million is committed 2019 expenditure.
In November 2013, the Group exercised its option under the CLSA which it entered into with LBHF in January 2013 in relation
to LBHF's land interest within the Earls Court Masterplan. Under the terms of the CLSA, the Group can draw down land in
phases but no land can be transferred unless replacement homes for the residents of the relevant phase have been provided
and vacant possession is given. The Group has already paid GBP90.0 million of the GBP105.0 million cash consideration payable
under the CLSA. The residual GBP15.0 million will be settled in one remaining instalment of GBP15.0 million which is due on
31 December 2019.
The Group's share of joint venture capital commitments arising on LSJV amounts to GBP20.0 million (31 December 2018: GBP32.4 million).
22 CONTINGENT LIABILITIES
The Group has contingent liabilities in respect of legal claims, guarantees and warranties arising from the ordinary course of
business. Contingent liabilities that may result in material liabilities are described below.
Under the terms of the CLSA the Group has certain compensation obligations relating to achieving vacant possession, which
are subject to an overall cap of GBP55 million. The overall total consideration for the CLSA is GBP105 million therefore if
compensation obligation payments results in overall payments exceeding GBP105 million the excess will be reimbursed by LBHF.
To date GBP90 million has been paid to LBHF for the CLSA therefore the net contingent liability is GBP15 million.
In March 2013, an agreement with Network Rail was signed to acquire a 999 year leasehold interest in the air rights above the
West London Line where it runs within the Earls Court and West Kensington Opportunity Area. Within the terms of the
agreement, the Group can exercise options during the next 50 years for further 999 year leases over the remainder of the West
London Line to allow for development within the Earls Court Masterplan. Network Rail is entitled to further payments of 5.55 per
cent of the residual land value which will be payable at the time of development or disposal of each phase of the Earls Court
Masterplan. Any further payments to Network Rail will be treated as contingent rent within finance lease obligations.
Within the terms of the agreement of the acquisition of the Northern Access Road land, the vendor's successor in title is entitled
to further payments until 2027 if certain conditions are met. Further payments become due following the grant of a planning
permission for change of use or on disposal. In the event such planning permission is implemented, the payment is calculated
at 50 per cent of the uplift in land value following the grant of the permission. In the event of a disposal, the payment is
calculated as 50 per cent of the difference between the sale value against the land value without the relevant permission.
23 CASH FLOW INFORMATION
The table below presents the cash generated from operations:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Notes GBPm GBPm GBPm
Loss before tax (128.8) (4.9) (119.3)
Adjustments:
Loss on revaluation and sale of investment and development property 3 107.5 47.3 146.1
Impairment of investments and other receivables 4 20.6 2.3 23.2
Profit on sale of subsidiaries 5 - (29.6) (29.5)
Depreciation 1.0 1.0 1.9
Amortisation of tenant lease incentives and other direct costs (0.1) (1.2) (1.0)
Share-based payment 2.0 1.5 2.4
Finance income 6 (0.2) (0.1) (0.3)
Finance costs 7 10.6 9.5 19.3
Other finance income 6 (5.7) (6.3) (12.0)
Change in fair value of derivative financial instruments 5.3 (2.5) (2.2)
Change in working capital:
Change in trade and other receivables (6.3) (6.3) (21.6)
Change in trade and other payables (4.0) (3.6) 0.8
Cash generated from operations 1.9 7.1 7.8
The table below provides an analysis of financial liabilities and derivative financial instruments arising from financing
activities:
Derivative Total liabilities
Long-term Short-term financial from financing
borrowings borrowings instruments activities
Note GBPm GBPm GBPm GBPm
Balance at 1 January 2019 616.5 0.7 (0.7) 616.5
Cash flows from financing activities
Proceeds from loans and borrowings 54.0 - - 54.0
Repayment of borrowings (25.0) - - (25.0)
Purchase and repayment of derivatives - - (0.9) (0.9)
Total cash flows used in financing activities 29.0 - (0.9) 28.1
Non-cash flows from financing activities
Facility fees amortised 0.5 - - 0.5
Changes in fair value 18 - - 5.3 5.3
Finance leases 4.0 0.9 - 4.9
Borrowing costs capitalised 0.9 - - 0.9
Total non-cash flows from financing activities 5.4 0.9 5.3 11.6
Balance at 30 June 2019 650.9 1.6 3.7 656.2
24 RELATED PARTY TRANSACTIONS
Transactions with Directors
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Key management compensation(1) GBPm GBPm GBPm
Salaries and short-term employee benefits 1.3 1.3 3.0
Share-based payment 1.3 0.9 1.5
2.6 2.2 4.5
(1) Key management comprises the Directors of the Company who have been deemed to be the only individuals with authority and responsibility for planning, directing
and controlling the activities of the Company.
Transactions between the Group and its joint ventures
Transactions during the period between the Group and its joint ventures, which are related parties, are disclosed in notes 12
'Investment in Joint Ventures', 14 'Trade and other receivables' and 21 'Capital commitments'. During the period the Group
recognised management fee income of GBP0.9 million (31 December 2018: GBP3.4 million) that was earned on an arm's length basis.
Property purchased by Directors of the Company
A related party of the Group, Lillie Square GP Limited, entered into the following related party transactions as defined by IAS 24
'Related Party Disclosures':
- Henry Staunton, Chairman of Capital & Counties Properties PLC, Andrew Strang, a Non-executive Director of Capital
& Counties Properties PLC, Graeme Gordon, a non-executive Director up to 3 May 2019 and Situl Jobanputra, Chief
Financial Officer of Capital & Counties Properties PLC all own apartments in the Lillie Square development either
solely or together with family members. The disclosures in respect of these purchases were included in previous
financial statements.
- As owners of apartments in the Lillie Square development, these Directors are required to pay annual ground rent and
insurance premium fees and biannual service charge fees. As at 30 June 2019, GBP17,599.47 had been received in
relation to these charges for 2019, and GBP11,713.71 was outstanding.
The above transactions with Directors were conducted at fair and reasonable market price based upon similar comparable
transactions at that time. Where applicable, appropriate approval has been provided.
Lillie Square GP Limited acts in the capacity of general partner to Lillie Square LP, a joint venture between the Group and KFI.
25 EVENTS AFTER THE REPORTING PERIOD
The Company today announced as detailed in a separate statement, its intention to launch Covent Garden as an independent
central London focused REIT through its demerger from Capco.
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.
The Company intends to publish shareholder documentation, and hold management presentations, in September 2019, with
completion, subject to shareholder approval, anticipated before the end of 2019. See page 2 and 3 for further details.
ANALYSIS OF PROPERTY PORTFOLIO (UNAUDITED)
1. PROPERTY DATA AS AT 30 JUNE 2019
Market
Value
GBPm Ownership
Covent Garden 2,610.6 100%
Earls Court Properties
ECPL 389.2 63%
Lillie Square 173.0 50%
Other 36.9 100%
Earls Court Properties (Group share) 599.1
Group share of total property 3,209.7
Investment and development property 3,038.6
Trading property 171.1
2. ANALYSIS OF CAPITAL RETURN FOR THE PERIOD
Revaluation
Market Market gain/
Value Value (loss)(1)
30 June 31 December 30 June
2019 2018 2019 Increase/
Like-for-like capital GBPm GBPm GBPm (decrease)
Covent Garden 2,598.2 2,560.1 13.4 0.5%
Earls Court Properties 599.1 655.7 (77.9) (11.5)%
Total like-for-like capital 3,197.3 3,215.8 (64.5) (2.0)%
Investment and development property 3,026.2 3,059.5 (61.9) (2.0)%
Trading property(2) 171.1 156.3 (2.6) (1.5)%
Non like-for-like capital
Acquisitions 12.4 - (0.8)
Disposals - 52.5 -
Group share of total property 3,209.7 3,268.3 (65.3) (2.0)%
Investment and development property 3,038.6 3,111.1 (62.7) (2.1)%
Trading property 171.1 157.2 (2.6) (1.5)%
All property
Covent Garden 2,610.6 2,610.0 12.6 0.5%
Earls Court Properties 599.1 658.3 (77.9) (11.5)%
Group share of total property 3,209.7 3,268.3 (65.3) (2.0)%
(1) Revaluation gain/(loss) includes amortisation of lease incentives and fixed head leases.
(2) Trading property market value and the revaluation surplus/deficit thereon are presented for information purposes only. The revaluation surplus/deficit on trading
property represents the unrecognised surplus and write down or write back to market value.
3. ANALYSIS OF NET RENTAL INCOME FOR THE PERIOD
Six months Six months
ended ended
30 June 30 June
2019 2018 Increase/
Like-for-like net rental income GBPm GBPm (decrease)
Covent Garden 29.0 27.1 7.0%
Earls Court Properties 1.1 1.0 10.2%
Other (0.1) (0.1) 4.6%
Total like-for-like net rental income 30.0 28.0 7.1%
Like-for-like investment and development property 30.0 28.0 7.1%
Like-for-like trading property - - -
Non like-for-like net rental income
Acquisitions 0.1 -
Disposals - 3.9
Developments 1.9 1.2
Prior year acquisitions (like-for-like capital) 0.1 -
Group share of total net rental income 32.1 33.1 (3.0)%
Investment and development property income 32.1 33.2 (3.1)%
Trading property income - (0.1)
All property
Covent Garden 31.1 28.3 9.8%
Earls Court Properties 1.1 4.9 (76.9)%
Other (0.1) (0.1) 3.9%
Group share of total net rental income 32.1 33.1 (3.0)%
4. ANALYSIS OF COVENT GARDEN BY USE
30 June 2019
Weighted Gross
Initial Nominal Passing average Market area
yield equivalent rent(1) Occupancy unexpired value ERV million
(EPRA) yield GBPm rate lease years GBPm GBPm Sq ft
Retail 2,044.7 82.6 0.7
Office 352.4 19.3 0.3
Residential 212.0 5.9 0.2
Other 1.5 0.1 -
Total 2.46% 3.60% 67.6 97.0% 8.3 2,610.6 107.9 1.2
(1) Non-leased income of GBP1.8 million (31 December 2018: GBP1.9 million) is added to passing rent to arrive at gross income.
CONSOLIDATED UNDERLYING PROFIT STATEMENT (UNAUDITED)
For the six months ended 30 June 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
Group share GBPm GBPm GBPm
Net rental income 32.1 33.1 63.5
Other income 0.5 0.9 1.8
Administration expenses (17.2) (19.2) (36.7)
Operating profit 15.4 14.8 28.6
Finance costs (10.6) (9.5) (19.5)
Finance income 0.2 0.1 0.3
Net finance costs (10.4) (9.4) (19.2)
Profit before tax 5.0 5.4 9.4
Taxation (0.5) (1.1) (1.4)
Underlying earnings 4.5 4.3 8.0
Underlying earnings per share (pence) 0.5 0.5 0.9
Weighted average number of shares 851.2m 850.8m 851.2m
FINANCIAL COVENANTS (UNAUDITED)
For the six months ended 30 June 2019
Financial covenants on non-recourse debt
30 June 2019
Loan(s) outstanding
at 30 June Interest
2019(1) LTV cover
Group share Maturity GBPm covenant covenant
Covent Garden(2) 2022-2037 575.0 60% 120%
ECPL 2026 44.9 40% n/a
Lillie Square(3) 2021 45.1 75% n/a
Total 665.0
(1) The loan values are the nominal values at 30 June 2019 shown on a Group share basis. The balance sheet value of the loans includes any unamortised fees.
(2) Covent Garden comprises GBP705 million unsecured Revolving Credit Facility ("RCF") maturing in 2022, GBP680 million of which is undrawn at 30 June 2019, and GBP550
million Private Placement unsecured notes maturing between 2024 and 2037.
(3) Subject to exercise of extension options (2020 - 2021) by the borrower.
ALTERNATIVE PERFORMANCE MEASURES
The Group has applied the European Securities and Markets Authority ("ESMA") guidelines on alternative performance
measures ("APMs") in these interim results. An APM is a financial measure of historical or future finance performance, position
or cash flow of the Group which is not a measure defined or specified in IFRS.
Set out below is a summary of the APMs used in these interim results.
Many of the APMs included are based on the EPRA Best Practice Recommendations reporting framework, a set of standard
disclosures for the property industry, which aims to improve the transparency, comparability and relevance of published results
of public real estate companies in Europe.
The Group also uses underlying earnings, property portfolio and financial debt ratios APMs. The Group considers the
presentation of underlying earnings to be useful supplementary information as it removes unrealised and certain other items
and therefore represents the recurring, underlying performance of the business. The property portfolio presents the Group
share of property market value which is the economic value attributable to the owners of the Parent. Financial debt ratios are
supplementary ratios which we believe are useful in monitoring the capital structure of the Group. Additionally loan to value and
interest cover are covenants within many of the Group's borrowing facilities.
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 but excludes the non-controlling interest share of our subsidiaries.
APM Nearest IFRS measure Explanation and reconciliation
EPRA earnings and earnings per share Profit for the period and basic earnings per share
EPRA NAV and NAV per share Net assets attributable to shareholders Note 10
Underlying earnings and earnings per
share Basic earnings per share
Market value of property portfolio Investment, development and trading properties Note 11
Loan to value N/A
Interest cover N/A Financial Review, page 10
Gross debt with interest rate protection N/A
Weighted average cost of debt N/A
Where this report uses like-for-like comparisons, these are defined within the Glossary.
SELECTED PERFORMANCE MEASURES
The following is a summary of EPRA performance measures and key Group measures included within these interim results.
The measures are defined in the Glossary.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
APM Definition of measure Page 2019 2018 2018
Alternative to Income Statement
EPRA earnings Recurring earnings from core operational activity 35 GBP1.5m GBP4.6m GBP2.4m
EPRA earnings per share EPRA earnings per weighted number of ordinary shares 35 0.2p 0.5p 0.3p
Underlying earnings Profit for the period excluding unrealised and one-off items 35 GBP4.5m GBP4.3m GBP8.0m
Underlying earnings per share Underlying earnings per weighted number of ordinary shares 35 0.5p 0.5p 0.9p
Six months Year
ended ended
30 June 31 December
APM Definition of measure Page 2019 2018
Alternative to Balance Sheet
Market value of property Market value of investment, development and trading properties 37 GBP3,210m GBP3,268m
portfolio
EPRA NAV Net asset value adjusted to include properties and other investment 36 GBP2,690m GBP2,777m
interests at fair value and to exclude certain items not expected to
crystallise in a long-term investment property business model
EPRA NAV per share EPRA NAV per the diluted number of ordinary shares 36 315p 326p
EPRA triple net assets EPRA NAV amended to include the fair value of financial 36 GBP2,664m GBP2,788m
instruments and debt
EPRA triple net assets per Diluted triple net assets per the diluted number of ordinary shares 36 312p 327p
share
Other
EPRA net initial yield Annualised rental income less non-recoverable costs as a N/A 2.5% 2.4%
percentage of market value plus assumed purchaser's costs
EPRA topped-up initial yield Net initial yield adjusted for the expiration of rent-free periods N/A 2.8% 2.7%
Occupancy ERV of occupied space as a percentage of ERV of combined 49 97.0% 97.3%
portfolio
Loan to value Net debt divided by the carrying value of the property portfolio 10 18.8% 17.9%
Interest cover Underlying operating profit divided by net underlying finance costs 10 147.0% 149.0%
Gross debt with interest rate Proportion of the gross debt with interest rate protection 10 86% 88%
protection
Weighted average cost of debt Cost of debt weighted by the drawn balance of external borrowings 10 3.0% 2.9%
DIVIDENDS
The Directors of Capital & Counties Properties PLC have proposed an interim dividend per ordinary share (ISIN
GB00B62G9D36) of 0.5 pence payable on 20 September 2019.
Dates
The following are the salient dates for payment of the proposed interim dividend:
Sterling/Rand exchange rate struck: 16 August 2019
Sterling/Rand exchange rate and dividend amount in Rand announced: 19 August 2019
Ordinary shares listed ex-dividend on the JSE, Johannesburg: 28 August 2019
Ordinary shares listed ex-dividend on the LSE, London: 29 August 2019
Record date for interim dividend in UK and South Africa: 30 August 2019
Election date for scrip dividend alternative (SA) 30 August 2019
Election date for scrip dividend alternative (UK) 6 September 2019
Dividend payment date for shareholders 20 September 2019
South African shareholders should note that, in accordance with the requirements of Strate, the last day to trade cum-dividend
will be 27 August 2019 and that no dematerialisation of shares will be possible from 28 August 2019 to 30 August 2019
inclusive. No transfers between the UK and South Africa registers may take place from 16 August 2019 to 30 August 2019.
Subject to SARB approval, the Board intends to offer an optional scrip dividend alternative in respect of the 2019 interim
dividend.
The above dates are proposed and subject to change.
Important Information for South African Shareholders
The interim dividend declared by the Company is a foreign payment and the funds are sourced from the UK.
The interim cash dividend declared by the Company will constitute a dividend for Dividends Tax purposes. Dividends Tax will
therefore be withheld from the amount of the interim cash dividend which is paid at a rate of 20 per cent, unless a shareholder
qualifies for an exemption and the prescribed requirements for effecting the exemption, as set out in the rules of the Scrip
Dividend Scheme, are in place.
It is the Company's understanding that the issue and receipt of shares pursuant to the scrip dividend alternative will not have
any Dividends Tax nor income tax implications. The new shares which are acquired under the scrip dividend alternative will be
treated as having been acquired for nil consideration.
This information is included only as a general guide to taxation for shareholders resident in South Africa based on Capco's
understanding of the law and the practice currently in force. Any shareholder who is in any doubt as to their tax position should
seek independent professional advice.
GLOSSARY
APM
Alternative Performance Measure, a financial measure of historical or future financial performance, position or cash flows of the
Group which is not a measure defined or specified in IFRS.
Capco
Capco represents Capital & Counties Properties PLC (also referred to as "the Company" or "the Parent") and all its subsidiaries
and Group undertakings, collectively referred to as "the Group".
CLSA
Conditional Land Sale Agreement, an agreement with LBHF relating to its land in the Earls Court and West Kensington
Opportunity Area.
Diluted figures
Reported amounts adjusted to include the dilutive effects of potential shares issuable under employee incentive arrangements.
Earls Court
The London district made up of a series of residential neighbourhoods crossing the boundaries of London Borough of
Hammersmith & Fulham and Royal Borough of Kensington & Chelsea.
Earls Court Masterplan
The Earls Court Masterplan, created by Sir Terry Farrell and Partners, is the consented scheme for the transformation of Earls
Court and West Kensington Opportunity Area. The London Borough of Hammersmith & Fulham and The Royal Borough of
Kensington & Chelsea formally granted outline planning permission for the Earls Court Masterplan on 14 November 2013.
Earls Court Properties
The Group's interests in the Earls Court area, comprising properties held in ECPL, Lillie Square (a 50:50 joint venture
partnership with the Kwok Family Interests), and a number of smaller properties in the Earls Court area.
EBITDA
Earnings before interest, tax, depreciation and amortisation.
ECPL
Earls Court Partnership Limited is the investment vehicle with TfL. The Group holds 63 per cent controlling interest and TfL
holds 37 per cent. ECPL holds interests in EC1 & EC2 and other adjacent property primarily located on and around Lillie Road.
EC1 & EC2
The site formerly the location of the Earls Court 1 and Earls Court 2 Exhibition Centres.
EPRA
European Public Real Estate Association, the publisher of Best Practice Recommendations intended to make financial
statements of public real estate companies in Europe clearer, more transparent and comparable.
EPRA earnings
Profit for the period excluding gains or losses on the revaluation and sale of investment and development property, write down
of trading property, changes in fair value of derivative financial instruments and associated close-out costs and the related tax
on these items.
EPRA earnings per share
EPRA earnings divided by the weighted average number of shares in issue during the period.
EPRA net asset value (EPRA NAV)
The net assets as at the end of the period including the excess of the fair value of trading property over its cost and excluding
the fair value of financial instruments, deferred tax on revaluations and diluting for the effect of those shares potentially issuable
under employee share schemes divided by the diluted number of shares at the period-end.
EPRA net asset value per share
EPRA net asset value divided by the diluted number of ordinary shares.
EPRA net initial yield
Annualised net rent (after deduction of revenue costs such as head rent, running void, service charge after shortfalls and empty
rates) on investment and development property expressed as a percentage of the gross market value before deduction of
theoretical acquisition costs.
EPRA triple net asset value (EPRA NNNAV)
EPRA NAV adjusted to reflect the fair value of derivative financial instruments, excess fair value of debt over carrying value and
deferred tax on derivative financial instruments, revaluations and capital allowances.
Estimated rental value (ERV)
The external valuers' estimate of the Group's share of the open market rent which, on the date of valuation, could reasonably
be expected to be obtained on a new letting or rent review of the property.
GCP
The Great Capital Partnership is a 50 per cent Joint Venture between Capital & Counties Limited and Great Portland Estates
PLC.
GEA
Gross external area.
GLA
Greater London Authority.
Gross income
The Group's share of passing rent plus sundry non-leased income.
Headline earnings
Headline earnings per share is calculated in accordance with Circular 2/2015 issued by the South African Institute of Chartered
Accountants ("SAICA"), a requirement of the Group's JSE listing. This measure is not a requirement of IFRS.
IFRS
International Financial Reporting Standards.
Innova
Innova Investment Limited Partnership is a 50 per cent Joint Venture between the Group and Network Rail Infrastructure
Limited.
JSE
Johannesburg Stock Exchange.
Kwok Family Interests (KFI)
Joint venture partner in the Lillie Square development.
LBHF
The London Borough of Hammersmith & Fulham.
Like-for-like property
Property which has been owned throughout both periods, without significant capital expenditure in either period, so income can
be compared on a like-for-like basis. For the purposes of comparison of capital values, this will also include assets owned at the
previous balance sheet date but not necessarily throughout the prior period.
Loan to value (LTV)
LTV is calculated on the basis of Group's net debt divided by the carrying value of the Group's property portfolio.
LSJV
The Lillie Square joint venture is a 50 per cent Joint Venture between the Group and Kwok Family Interests.
MSCI
Producer of an independent benchmark of property returns. Previously known as Investment Property Databank (IPD).
NAV
Net Asset Value.
Net Debt
Total borrowings less cash and cash equivalents.
NIA
Net Internal Area.
Net rental income (NRI)
Gross rental income less ground rents, payable service charge expenses and other non-recoverable charges, having taken
due account of bad debt provisions and adjustments to comply with International Financial Reporting Standards regarding
tenant lease incentives.
Nominal equivalent yield
Effective annual yield to a purchaser on the gross market value, assuming rent is receivable annually in arrears, and that the
property becomes fully occupied and that all rents revert to the current market level (ERV) at the next review date or lease
expiry.
NRIL
Network Rail Infrastructure Limited.
Occupancy rate
The ERV of let and under offer units expressed as a percentage of the ERV of let and under offer units plus ERV of un-let units,
excluding units under development. This is equivalent to 100 per cent less the EPRA vacancy rate.
Opportunity Area
In September 2011 the GLA published the 'Opportunity Area Planning Frameworks Report'. Opportunity Areas are London's
major reservoirs of brownfield land with significant capacity to accommodate new housing, commercial and other developments
linked to existing or potential improvements to public transport accessibility. Typically, they can accommodate at least 5,000
jobs or 2,500 new homes or a combination of the two, along with other supporting facilities and infrastructure.
Passing rent
Contracted annual rents receivable at the balance sheet date. This takes no account of accounting adjustments made in
respect of rent-free periods or tenant lease incentives, the reclassification of certain lease payments as finance charges or any
irrecoverable costs and expenses, and does not include excess turnover rent, additional rent in respect of unsettled rent
reviews or sundry income such as from car parks etc. Contracted annual rents in respect of tenants in administration are
excluded.
RBKC
Royal Borough of Kensington and Chelsea.
RICS
Royal Institution of Chartered Surveyors.
Reserved Matters Application (RMA)
Reserved Matters Applications seek approval for detailed design including landscaping, the scale of buildings and their layout
and appearance. These detailed designs must comply with the Parameter Plans, Design Guidelines and Planning Conditions
that form part of the consented outline planning permission.
SAICA
South African Institute of Chartered Accountants.
SARB
South African Reserve Bank.
Section 106
Section 106 of the Town and Country Planning Act 1990, pursuant to which the relevant planning authority can impose
planning obligations on a developer to secure contributions to services, infrastructure and amenities in order to support and
facilitate a proposed development.
SMEs
Small and medium-sized enterprises.
Tenant lease incentives
Any incentive offered to tenants to enter into a lease. Typically incentives are in the form of an initial rent-free period and/or a
cash contribution to fit-out the premises. Under International Financial Reporting Standards the value of incentives granted to
tenants is amortized through the income statement on a straight-line basis over the lease term.
TfL
Transport for London and any subsidiary of Transport for London including Transport Trading Limited and London
Underground Limited.
Total property return (TPR)
Capital growth including gains and losses on disposals plus rent received less associated costs, including ground rent.
Total return (TR)
The growth in EPRA NAV per share plus dividends per share paid during the year.
Total shareholder return (TSR)
The increase in the price of an ordinary share plus dividends paid during the year assuming re-investment in ordinary shares.
Underlying earnings
Profit for the year excluding impairment charges, net valuation gains/losses (including profits/losses on disposals), net
refinancing charges, costs of termination of derivative financial instruments and non-recurring costs and income. Underlying
earnings is reported on a Group share basis.
Underlying earnings per share (EPS)
Underlying earnings divided by the weighted average number of shares in issue during the year.
Weighted average unexpired lease term
The unexpired lease term to lease expiry weighted by ERV for each lease.
Zone A
A means of analysing and comparing the rental value of retail space by dividing it in to zones parallel with the main frontage.
The most valuable zone, Zone A, falls within a 6m depth of the shop frontage. Each successive zone is valued at half the rate
of the zone in front of it. The blend is referred to as being 'ITZA' ("In Terms of Zone A").
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.
Sponsor
Merrill Lynch South Africa (Pty) Limited
Date: 25/07/2019 08:00:00
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