Covent Garden growth underpins first half at CapCo

Capital & Counties Properties reported continuing rental income growth in its half-year results on Thursday, while its equity attributable to owners slipped to £2.6bn from £2.7bn at the end of the 2018 financial year.

The FTSE 250 company also announced its intention to demerge Covent Garden as a standalone London-focussed real estate investment trust in a separate announcement.

Its EPRA net asset value declined 3.3% to 315p per share, while its total property value was down 2% on a like-for-like basis to £3.2bn for the six months ended 30 June.

The board proposed an interim dividend of 0.5p per share, in line with the half-year distribution a year earlier.

At Covent Garden, the company saw continued income growth and reversion capture, with the total property value there rising 0.5% to £2.6bn.

Net rental income at Covent Garden was up 7% on a like-for-like basis, or 9.8% in absolute terms, against June 2018.

CapCo saw positive operational momentum at the asset, with 40 new leases and renewals two per cent above the December 2018 estimated recovery value.

The estimated recovery value increased 1.0% on a like-for-like basis to £108m, with the board reporting a “positive” trading environment, and increases in footfall and tenant sales.

CapCo said the asset was continuing to attract high quality brands, with high occupancy, renewal rates and strong demand for the office and residential portfolio.

Over at Earls Court, the company said its interests were valued at £599m, which was a decrease of 11.5% on a like-for-like basis from December.

It said it saw ongoing operational progress on ECPL land, with railway track suppression works progressing on schedule.

ECPL land was available for development, with CapCo reporting ongoing interest from potential investors and occupiers.

The second phase of construction at Lillie Square was continuing on schedule, with the first handovers expected in the first half of 2020.

On the financial front, CapCo said it was in a “strong” financial position, with “significant” financial flexibility, as the group loan-to-value ratio rose to 19% from 18% in December.

Group undrawn facilities and cash totalled £845m, down from £854m, with capital commitments totalling £49m, down from £53m.

CapCo’s weighted average debt maturity was 5.5 years, compared to six years at the end of December, while its weighted average cost of debt was 3%, rising marginally from 2.9%.

“CapCo has achieved significant growth since listing in 2010,” said chairman Henry Staunton.

“Covent Garden in the heart of London's West End is now of considerable scale, valued at over £2.6bn with an attractive long-term income profile.

“At Earls Court we have created one of London's most important development opportunities.”

Against that successful execution of strategy for both assets, Staunton said the board had considered the structure of the group, and believed that a separation of Covent Garden and Earls Court was in the interest of shareholders, offering “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 officer of CapCo, said that through the successful execution of its strategy, the company had 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, Hawksworth said it had created one of London's “most important” mixed-use development opportunities, which had 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.”