Capital & Counties to demerge Covent Garden as standalone REIT

Capital & Counties Properties announced its intention to launch Covent Garden as a central London-focussed real estate investment trust by way of a demerger on Thursday.

It came as the firm also reported continuing rental income growth in its half-year results, 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 explained that, through the successful execution of its strategy, it had created two central London estates that could now stand alone as independent businesses - Covent Garden London and EC Properties.

It said Covent Garden was now of a scale and income profile to be “strongly positioned” as a central London-focussed REIT, while EC Properties aimed to optimise and realise the value of its Earls Court land interests over time.

CapCo said there had been a “broad range” of interest in Earls Court, and in assessing proposals from interested parties, with the board focusing on value and deliverability.

It claimed that the indicative pricing it had received was at a “range of discounts” to the balance sheet value, with the proposals subject to differing levels of further due diligence and a number of conditions, including third-party rights.

There was no certainty that it would result in a sale transaction, the board cautioned.

The board said it believed that separation of the two businesses was in the interest of shareholders, and as such it intended to proceed with the demerger.

CapCo said it expected to publish shareholder documentation in September, with completion of the demerger - subject to shareholder approval - expected before the end of 2019.

“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, and offered “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, 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.”

Hawksworth said that at Earls Court, the firm 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.”