TIDMCAPC
RNS Number : 5672R
Capital & Counties Properties Plc
09 March 2021
09 MARCH 2021
CAPITAL & COUNTIES PROPERTIES PLC ("CAPCO")
AUDITED PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2020
Prime central London REIT centred around Covent Garden,
well-positioned to benefit from recovery over time
Henry Staunton, Chairman of Capco, commented:
"2020 was an extraordinary year with significant market
uncertainty. Capco's support to its people, customers and broader
Covent Garden community ensures the business is well-positioned to
benefit from a recovery and prosper over time. We remain focused on
responsible stewardship, disciplined capital management and are
committed to delivering long-term value for shareholders from our
unique portfolio of West End focused investments."
Ian Hawksworth, Chief Executive of Capco, commented:
"Capco's financial strength has allowed us to support our
customers and business partners whilst taking advantage of market
opportunities during an unprecedented year which significantly
impacted rents and property valuations. As a long-term investor we
are optimistic about the enduring appeal of Covent Garden and
London's West End and are confident that Capco is well-positioned
to benefit from London's economic recovery."
Key financials
- Equity attributable to owners of the Parent of GBP1.8 billion (2019: GBP2.5 billion)
- EPRA NTA 212 pence per share, a decrease of 28 per cent (2019: 293 pence per share)
- Total property value GBP1.9 billion, a decrease of 26 per cent
(like-for-like) (2019: GBP2.8 billion)
- Group net debt to gross assets ratio of 28 per cent (2019: 15 per cent)
- Underlying earnings per share -0.7 pence (2019: 1.0 pence per share)
Covent Garden, a landmark estate positioned for future value
creation
- Covent Garden total property value of GBP1.8 billion, a
decrease of 27 per cent (like-for-like) since 31 December 2019
- ERV decreased by 22 per cent (like-for-like) to GBP81 million
(2019: GBP108 million) and equivalent yield of 3.91 per cent (2019:
3.65 per cent)
- Reported net rental income down 74 per cent to GBP16 million
against December 2019 and underlying net rental income down 30 per
cent (like-for-like) to GBP44 million
- EPRA vacancy is 3.5 per cent (2019: 3.2 per cent)
- Capco continues to provide support to retail and hospitality
customers on a short-term basis, with rental agreements being
adjusted case-by-case to include deferrals and turnover-linked
arrangements
- Encouraging indicators upon reopening following easing of
measures in the second half of 2020
- 65 new leases and renewals, representing GBP6.2 million of
contracted income were agreed during the year
- Continuing to attract high quality brands including Tiffany
& Co., Vashi, The Gentlemen Baristas and Arc'teryx
- Public realm improvements including pedestrianisation and 500
al fresco dining covers, enhancing trading prospects
- Completed the sale of the Wellington block for GBP76.5
million, in line with June 2020 valuation
Committed to sustainability and innovating to meet customer
needs
- New commitment to achieve Net Zero Carbon by 2030
- A new Environment, Sustainability and Community ("ESC") Board
Committee has been established
- Net Zero Carbon Pathway to be published in 2021
- Additional pedestrianisation of streets around the Piazza further improving air quality
- Assistance provided to COVID-19 funds supporting homelessness,
food banks and the elderly as well as hospitality and retail
foundations.
Acquisition of significant stake in Shaftesbury PLC
- Unique opportunity to acquire a significant stake in a company
with an exceptional mixed-use portfolio of c.600 buildings across
the West End
- GBP501 million invested, resulting in a shareholding of 25.2 per cent
- Represents a compelling investment and entry point at an
implied value of approximately GBP1,200 per square foot
- Consistent with Capco's strategy to invest in complementary
opportunities on or near Covent Garden
Maintaining a strong balance sheet with significant financial
flexibility
- Covent Garden net debt GBP352 million (2019: GBP555 million)
and loan to value ratio of 19 per cent (30 June 2020: 36 per cent)
(2019: 21 per cent)
- Significant headroom against the LTV covenant position, and
interest cover covenant waivers agreed for 2021
- Group net debt of GBP710 million (2019: GBP442 million) and
net debt to gross assets of 28 per cent
- Access to Group liquidity comprising undrawn facilities and
cash of GBP1 billion (2019: GBP895 million), and capital
commitments of GBP2 million (2019: GBP14 million)
- Weighted average maturity on drawn debt of over 5 years (2019:
7.3 years) and average cost of debt of 2.6 per cent (2019: 3.0 per
cent)
- The Directors have decided not to propose a dividend for 2020 (2019: 1.5 pence per share)
Other investments
- GBP195 million of deferred consideration from the Earls Court
sale was received with the final payment of GBP15 million due later
this year
- Completion of Lillie Square Phase 2 with 94 units handed over
this year, representing GBP116 million of net proceeds (GBP58
million Capco share)
KEY FINANCIALS
2020 2019
=================================================== ========== ==========
Equity attributable to owners of the Parent GBP1,760m GBP2,478m
Equity attributable to owners of the Parent per
share 206.8p 290.0p
-27.2% Total return in 2020 (2019: -9.6 %)
EPRA net tangible assets GBP1,806m GBP2,506m
EPRA net tangible assets per share 212.1p 292.9p
Dividend per share - 1.5p
-24.4% Total property return in 2020 (2019: -5.4%)
Property market value(1) GBP1,942m GBP2,774m
Net rental income from continuing operations
(2) GBP15.8m GBP61.2m
Loss for the year attributable to owners of the
Parent -GBP702.7m -GBP253.6m
--------------------------------------------------- ---------- ----------
Headline loss per share -1.3p -2.2p
--------------------------------------------------- ---------- ----------
Basic loss per share(3) -82.5p -29.7p
--------------------------------------------------- ---------- ----------
Underlying (loss)/earnings per share(4) -0.7p 1.0p
=================================================== ========== ==========
1. On a Group share basis. Refer to Property Data on page 73 for
the Group's percentage ownership of property.
2. On a Group share basis. Refer to note 2 "Segmental Reporting"
on page 43.
3. From continuing and discontinued operations. Refer to note 12
"Earnings per share and Net Assets Per Share" on page 53.
4. From continuing and discontinued operations. Refer to note 3
'Underlying Earnings' on page 46.
ENQUIRIES
Capital & Counties Properties PLC:
Ian Hawksworth Chief Executive +44 (0)20 3214 9188
Situl Jobanputra Chief Financial Officer +44 (0)20 3214 9183
Head of Commercial Finance
Sarah Corbett and Investor Relations +44 (0)20 3214 9165
Media enquiries:
UK: Hudson Sandler Michael Sandler +44 (0)20 7796 4133
SA: Instinctif Frederic Cornet +27 (0)11 447 3030
A presentation will take place today at 08.30am through a
webcast on the Group's website www.capitalandcounties.com followed
by analyst Q&A.
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
9170).
CHAIRMAN'S STATEMENT
Overview
2020 was an extraordinary year, with significant market
uncertainty and challenging trading conditions for Capco and many
of its customers due to the pandemic. As a responsible long-term
investor in central London real estate, Capco has prioritised the
health and safety of its people, customers and visitors. I am proud
of our response to the pandemic, which would not have been possible
without the hard work of our employees and service providers, and I
thank them for their commitment.
Capco's strong financial position enabled the Group to take
decisive action to support our customers as well as take advantage
of market opportunities, including the acquisition of a 25.2 per
cent interest in Shaftesbury PLC ("Shaftesbury"). Capco has further
strengthened its financial flexibility through disposals and
financing initiatives. There is continued market uncertainty in
2021, however we are confident in the long-term prospects for the
West End, in particular Covent Garden. Through our long-term
vision, entrepreneurial culture and implementation of strategy, we
have positioned the business competitively to benefit from a
recover y.
COVID-19 response
Capco took decisive action to ensure the safety and security of
Covent Garden, whilst also providing support on a case-by-case
basis to customers experiencing cash flow challenges as a result of
COVID-19. Extensive security and cleaning measures were implemented
across the Covent Garden estate. In collaboration with
stakeholders, Capco has made enhancements to public realm,
including the pedestrianisation of additional streets during 2020
and the provision of al fresco dining to create a welcoming open
air environment. We were encouraged by the response to these
initiatives, which saw footfall and sales rebuilding well, prior to
the implementation of further restrictions in December 2020.
Capco worked closely with local communities to provide
assistance to charity partners in the West End, including providing
financial aid to COVID-19 funds supporting homelessness, food banks
and the elderly as well as hospitality, retail and cultural
foundations. Capco's support to its customers and broader Covent
Garden community will position the business to benefit from a
recovery and prosper over time.
It has been an unprecedented year for all our colleagues. The
work required during 2020 to support our customers and position the
business competitively to benefit from recovery has required
significant effort from employees across the business, and the
Board would like to thank each of them for their contribution and
commitment. Capco did not furlough any of its employees, nor did it
take up any other direct government support measures.
Sustainability
Our purpose is to invest in and create world-class places,
focusing on central London. Using our vision, long-term approach
and responsible stewardship, we deliver economic and social value
and generate benefits for our stakeholders. Capco has renewed its
approach to environment, sustainability and community initiatives
supported by a Board Committee as well as a new "ESC" strategy with
a commitment to achieve Net Zero Carbon by 2030. We will publish a
detailed pathway to Net Zero Carbon during 2021, but given the
urgency of tackling climate change, we make the 2030 commitment
now. Our activities are underpinned by a commitment to the highest
standards of health and safety and ethical practices, focusing our
activities on areas including improving air quality, delivering
best in class heritage environmental performance and responsible
and sustainable development practices in renewing our existing
buildings.
Financial performance and position
The COVID-19 pandemic has had a material impact on the financial
performance of the Group in 2020. Capco's total shareholder return
for the year, which comprises share price performance plus the
dividends paid during the year, is -44 per cent. Total return for
the year, which represents the change in net assets plus the
dividends paid during the year, is -27 per cent. The total value of
Capco's property portfolio has declined by 26 per cent on a
like-for-like basis to GBP1.9 billion.
Challenging occupier and investment market conditions resulting
from the pandemic have had a negative impact on property valuations
and rental values. Covent Garden recorded a 27 per cent
like-for-like decline in property valuation and a 30 per cent
like-for-like decline in underlying net rental income. In view of
disruption to customer cash flows, Capco has provided support to
its customers where appropriate. This aligns with our objective to
maintain the vibrant consumer offer at Covent Garden and support
the long-term value of the estate.
Capco takes a prudent approach to financial management and the
Board implemented a number of actions early in the year in response
to the COVID-19 pandemic, including cancellation of the GBP100
million share buyback programme and suspension of the dividend.
During the year Capco raised over GBP700 million through disposals,
including the Wellington block, and financing activities,
maintaining its disciplined approach to capital management.
Capco's capital management decisions have enhanced its financial
flexibility, providing a more appropriate funding balance across
the Group while providing access to substantial levels of
liquidity. The Group has modest capital commitments and a net debt
to gross assets ratio of 28 per cent. There is substantial headroom
against the Covent Garden loan to value covenant with a loan to
value ratio of 19 per cent . Waivers have been agreed with the
Covent Garden lending banks and noteholders in relation to the
interest cover covenant for June and December 2021.
Whilst there has been some upward pressure on certain costs as a
result of the pandemic, a number of efficiencies have been
implemented, including consolidating the business in one office at
Covent Garden.
Given current market conditions and the significant
uncertainties, the Board has taken the decision to not declare a
dividend for 2020. The Company will recommence dividend payments as
soon as it is appropriate.
Investment in Shaftesbury PLC
Capco has continued to implement its strategy of investing in
complementary opportunities on or near the Covent Garden estate. In
May 2020, Capco agreed to acquire a significant shareholding in
Shaftesbury across two tranches for total consideration of GBP436
million. On 22 October 2020, Capco participated in a capital
raising by Shaftesbury and invested a further GBP65 million
resulting in a 25.2 per cent interest in Shaftesbury. This
shareholding represents a compelling investment which the Board
believes will generate long-term value for Capco shareholders.
Other investments
Other investments include a joint venture interest in the Lillie
Square development. The handover of Phase 2 apartments continued
during the year, with a total of 94 units representing GBP116
million of net cash proceeds (GBP58 million Capco share) completed
during the year. GBP195 million of deferred consideration from the
Earls Court sale was received with the final payment of GBP15
million due later this year.
The Board
The Board continues to keep its composition under review, to
ensure that we have the appropriate mix of skills and experience to
deliver Capco's strategy as a prime central London focused REIT.
Capco embraces diversity with 43 per cent gender and ethnic
diversity on our Board, an increase from 20 per cent in 2019,
recognising that diversity of experience and perspective can bring
benefits across the business.
In February 2020, we were delighted to appoint Michelle McGrath,
who had been a senior executive with the Company for six years,
most recently as Director of Covent Garden, to the Board as an
Executive Director. Michelle has played an important role in
leading the asset management and investment teams of the Covent
Garden portfolio. As I reported last year, Gerry Murphy and Andrew
Strang retired from the Board during 2020, and we thank each of
them for their service to the Company.
Following the establishment of the Board ESC Committee chaired
by Charlotte Boyle, Jonathan Lane will become Chairman of the
Remuneration Committee following the 2021 AGM, and Charlotte Boyle
will step down from that role on the same date, remaining a member
of the Remuneration Committee.
Six of the Company's Directors invested in shares during the
year, demonstrating the Board's continued confidence in the
long-term success of the Company.
Board oversight
Throughout 2020 the Board received regular updates from the
Executive Directors, which ensured the Non-executive Directors were
kept informed on a regular basis on developments relating to
Capco's response to the COVID-19 pandemic, its impact on the
business and management actions. Although the Board was unable to
meet face to face for much of the year, through technology we
maintained our regular programme of Board meetings and updates, and
found the virtual Board Room to be very effective. The Executive
Directors ensured that the Board received updates on the views of a
range of stakeholders including shareholders, local communities,
partners, lenders and government. In addition, Charlotte Boyle has
been invited to attend Capco's ESC Executive Committee meetings,
which ensures that the views of employees are clearly heard by the
Board.
Voting on AGM resolutions
At Capco's 2020 Annual General Meeting, the Company's new
Remuneration Policy was approved, however the Company received
significant shareholder votes against three resolutions. The
Remuneration Committee has engaged with shareholders to understand
the reasons for these votes, and has made a number of commitments
in respect of the implementation of the Directors' Remuneration
Policy to accommodate the feedback received from shareholders.
These commitments are explained within the 2020 Directors'
Remuneration Report.
At the General Meeting held on 10 August 2020, although the
resolution seeking approval for the second tranche of investment in
Shaftesbury PLC was passed, Capco received a significant
shareholder vote against the resolution. The Company has engaged
with shareholders to understand the reasons for these votes, and
also notes that selected corporate governance and shareholder
advisory bodies focused on short-term share price movements, rather
than the long-term strategic rationale for the investment.
Discussions with shareholders indicate a strong level of support
for the investment. The Board thanks the Company's shareholders for
their engagement on these matters.
Looking ahead
Capco's strong financial position and experienced management
have enabled us to take a proactive approach across the estate to
protect long-term value, take advantage of market opportunities and
position the business to return to growth and prosperity as the
market recovers. We thank our customers, our employees and business
partners for the determination and resilience they have shown
throughout this period.
There are many challenges ahead, however the Group is
well-positioned to navigate through this period of uncertainty. We
remain focused on responsible stewardship, and disciplined capital
management, and are committed to delivering long-term value for
shareholders from our unique portfolio of West End focused
investments.
Henry Staunton
Chairman
8 March 2021
Chief Executive's review
Overview
2020 was a very challenging year, COVID-19 has had a major
impact on the valuation of Covent Garden as well as causing
significant disruption to near-term income. However, our strong
financial position enabled us to take proactive decisions to
protect the long-term value of our Covent Garden estate, take
advantage of market opportunities and position the business to
return to growth and prosperity.
Throughout this period of COVID-19 uncertainty Capco has
prioritised the health and safety of our people, customers and
visitors. We have continued to innovate and collaborate with
stakeholders to position the estate for recovery as restrictions
are lifted and the West End gets back to business.
Our objective is to maintain a strong customer line-up ensuring
a world-class estate for the longer term through supporting our
customers on a case-by-case basis and generating new leasing
activity underlining the unique offer of Covent Garden for the
occupational market. Whilst conditions are challenging today, these
actions will support our business to benefit from a gradual
recovery.
Throughout 2020, we continued to engage with our audiences
through multi-channel marketing activities with an extensive
digital outreach programme and estate marketing initiatives, as
well as investment in high quality public realm. This included the
temporary pedestrianisation of additional streets and provision of
over 500 additional outdoor covers enhancing the overall customer
experience. We have been encouraged by the response to these
initiatives. Covent Garden was one of the most vibrant districts of
central London with footfall and sales building prior to the
current restrictions being imposed in December 2020.
Capco has developed its extensive ESC agenda, supported by a new
Board Committee, and has committed to achieve Net Zero Carbon by
2030. This commitment today recognises that a detailed plan for our
heritage estate will be published in 2021, but is made in the
knowledge that tackling the challenges of climate change requires
action now. Capco is focused on responsible stewardship promoting a
cleaner, greener estate through enhanced air quality, greening, and
energy and waste management initiatives.
Over the course of 2020, we reshaped the organisation providing
roles of responsibility and leadership to a number of employees
reflective of our dynamic and entrepreneurial culture. We also
completed the move to our new head office in Covent Garden which
has allowed us to bring efficiencies and reduce our cost base. I
would like to thank every employee for the commitment and
resilience demonstrated through this challenging year.
Capco is financially strong with access to substantial
liquidity, enabling the business to withstand the immediate impact
of COVID-19 whilst taking advantage of opportunities commensurate
with strategy, including the acquisition of an interest of 25.2 per
cent in Shaftesbury PLC.
Purpose, strategy and capital allocation
Our purpose is to invest in and create world-class places,
focusing on central London. Using our vision, long-term approach
and responsible stewardship, we deliver economic and social value
and generate benefits for our stakeholders.
Capco has assembled the Covent Garden portfolio over a period of
14 years. As a long-term steward of the Covent Garden estate, Capco
has utilised creative asset management and investment to establish
a world-class estate rich in heritage and culture in the heart of
London's West End. Covent Garden's scale and concentrated ownership
would be incredibly difficult to replicate making it a scarce and
valuable real estate investment.
The Group is well-positioned financially and with a strategic
focus on Covent Garden and the West End. Capco's investment
strategy is to invest in complementary opportunities on or near the
Covent Garden estate. Capco's ambitious and creative culture
encourages value creation opportunities whilst maintaining cost and
capital discipline.
Substantially all of the Company's property value is within the
Covent Garden business, with the portfolio currently independently
valued at GBP1.8 billion. In addition, the Company has an
investment in Shaftesbury PLC valued at GBP552 million at 31
December 2020. Shaftesbury PLC is a real estate investment trust
which invests exclusively in London's West End. Capco has a track
record of accretive investment and aggregation of ownership in the
West End and it is intended that opportunities to expand our
ownership in the area will be pursued in line with ambitions to
grow the business.
Each capital decision is assessed on its merits including
investment in owned assets, development and repositioning
opportunities, accretive acquisitions on or near the Covent Garden
estate, opportunistic investments in London, the disposal of
non-strategic assets and distributions to shareholders as
appropriate.
The Group raised over GBP700 million in 2020 through disposals
and financing activities, maintaining its disciplined approach to
capital management. Capco disposed of the Wellington block for
GBP76.5 million and received GBP195 million deferred consideration
from the sale of Earls Court, as well as GBP58 million (Capco
share) of net disposal proceeds received during the year in the
Lillie Square joint venture.
Financing activities included a GBP275 million exchangeable bond
and a GBP125 million secured loan which enhance Capco's strong
financial position and provide a more appropriate funding balance
across the investments of the Group. Group net debt to gross assets
is 28 per cent, whilst Covent Garden's loan to value ratio is 19
per cent and net debt is GBP352 million. The Board has set balance
sheet leverage parameters of up to 40 per cent as represented by
the net debt to gross assets ratio. Interest cover covenant waivers
in respect of 2021 have been agreed with the Covent Garden lenders
to address interruption to near-term income.
Following the sale of Earls Court, Capco has continued to reduce
administration costs and is now on track to achieve its underlying
run rate of GBP20 million in 2021.
Given current market conditions and the significant
uncertainties, the Board has taken the decision to not declare a
dividend for 2020. The Company will recommence dividend payments as
soon as it is appropriate. Our ambition is to generate attractive
returns for our shareholders over the long-term through investment
in central London real estate.
Valuation and performance
The total property valuation of the Group declined by 26 per
cent (like-for-like) in the year to 31 December 2020 to GBP1.9
billion. Against a challenging retail and F&B/hospitality
backdrop, Covent Garden declined by 27 per cent (like-for-like) to
GBP1.8 billion, principally driven by movements in ERV which
decreased by 22 per cent (like-for-like) and a widening in the
equivalent yield of 28 basis points to 3.91 per cent.
As a consequence of the unprecedented operating conditions,
underlying net rental income decreased by 30 per cent like-for-like
compared with December 2019. There was positive occupational demand
at the beginning of the year but this was significantly interrupted
from late February onwards. Nevertheless 65 new leases and renewals
representing GBP6.2 million of rental income completed in the year
including the introduction of 14 new brands. EPRA vacancy remains
stable at 3.5 per cent however across the West End there is greater
pressure on customers, which together with a difficult leasing
market, is anticipated to have a negative impact on occupancy
levels over 2021.
Capco's investment at Lillie Square decreased in value by 9 per
cent (like-for-like ) to GBP115 million at 31 December 2020.
The decline in the valuation of the property portfolio has
resulted in EPRA net tangible assets declining by 28 per cent over
the year to 212 pence per share.
Property valuations
Valuation
Market Market Change
Value 2020 Value 2019 Like-for-Like
GBPm GBPm 1
================================ =========== =========== ==============
Covent Garden 1,825 2,596 -27.3%
Other 2 117 178 -9.1%
Group share of total property 3 1,942 2,774 -26.4%
================================ =========== =========== ==============
1 Valuation change takes account of amortisation of tenant lease
incentives, capital expenditure, disposals, fixed head leases and
unrecognised trading surplus.
2 Includes Capco's interest in the Lillie Square joint venture
and Lillie Square Holdings Group.
3 A reconciliation of carrying value of investment, development
and trading property to the market value is shown in note 13
'Property Portfolio'.
CBRE has undertaken an independent valuation of the Covent
Garden estate. The total valuation of the estate is GBP1,825
million and represents the aggregated value of the individual
properties, with no reflection of any additional estate premium
which potential investors may ascribe to the concentrated and
comprehensive nature of ownership within the estate. The
predominantly freehold nature, concentrated ownership, scale of the
estate as well as the portfolio mix may lead prospective purchasers
to regard certain parts of the portfolio, for example by street, to
have a greater value than the aggregate of the individual property
values.
New leasing activity and estate animation
Capco remains confident in its customer mix, continuing to focus
on concepts with differentiated offerings, successful multi-channel
programmes, close customer relationships and brands that recognise
the value of high-profile locations with a complementary leisure
and dining offering.
Contemporary luxury jewellery brand Vashi signed a long-term
lease on James Street for a new London flagship store, which is set
to open in 2021. This new opening joins established luxury brands
Tiffany & Co., which agreed terms in December 2020 for a new
lease, and Bucherer, which has continued with expansion plans at
the Royal Opera House Arcade opening in 2021. Peloton continues the
fit out of its European flagship training studio and retail store
on Floral Street, joining Ganni and American Vintage which opened
stores earlier in the year.
Notwithstanding current disruption to business activity, four
new brands opened in December 2020 including streetwear store Kick
Game, Belgian chocolatiers Neuhaus, British heritage brand
Mackintosh, and vegan cookie concept Floozie Cookie. A number of
new dining concepts have been introduced to the estate, including
acclaimed restaurant Darjeeling Express, The Gentlemen Baristas and
al fresco bar NaNas. The latest additions further enhance Covent
Garden's attractiveness as a dining destination.
Capco continued to implement its clear estate marketing strategy
focusing on its digital capabilities, partnering with retail and
dining brands as well as cultural partners to introduce engaging
pop-ups and events to promote Covent Garden and the West End.
Activities included an open air cinema on Covent Garden's Piazza in
the summer and an immersive LEGO installation on the East Piazza
for the Christmas trading period. Capco's focused digital strategy
continues to drive consumer engagement, with an extensive
digital-first programme centred around 'Covent Garden at Home'
content, delivering aspects of the estate virtually to consumers
via an enhanced website.
Covent Garden positioned for growth
Capco has transformed the Covent Garden estate into a prime
district in the heart of London's West End. The portfolio comprises
526 units of shops and restaurants as well as offices, hotels,
museums and residential assets. Across the estate, 50 per cent of
the value is represented by retail, 21 per cent by F&B use, 15
per cent office, 10 per cent residential and 4 per cent
leisure.
London is one of the world's greatest cities with a long track
record of attracting talent, visitors and investment from around
the world. Covent Garden is a global destination with one of the
world's strongest retail and dining line-ups, in a heritage
setting, competitively positioned as a global brand. Its
differentiated offer has consistently delivered an attractive
environment for over 40 million visitors every year. The consumer
mix in 2019 represented approximately 40 per cent international, 40
per cent Londoners and 20 per cent domestic with the pedestrian
flow across the estate continuing to evolve.
COVID-19 restrictions and social distancing measures imposed by
government have had and continue to have, a material adverse effect
on normal patterns of footfall across the estate. Advice to avoid
unnecessary travel, together with reduced physical office
occupancy, closure of non-essential retail, hospitality and leisure
venues for extended periods and limitations on international
leisure and business travel have had a dramatic impact on footfall
and trade.
We are encouraged by the response to marketing initiatives and
appreciative of the determination, creativity and enthusiasm of our
customers. The enduring appeal of Covent Garden was seen by
recovery in footfall and trade following the easing of measures in
the second half of 2020.
High quality global locations are key to retailers and F&B
concepts when selecting sites around the world. Retailers continue
to adapt to changes in consumer shopping behaviour and evolve their
physical retail offers to place more emphasis on customer
experience, service and flagship retailing with better digital
engagement. Capco offers a unique customer experience, utilising
the historic Piazza through events and cultural installations to
drive global estate recognition. We will continue to innovate at
Covent Garden and to support our customers whilst evolving the mix.
Covent Garden's strong fundamentals and enduring appeal give us
confidence in the long-term prospects of the business.
Other investments
Our investment in Shaftesbury PLC is a unique opportunity to own
a significant stake in an exceptional mixed-use real estate
portfolio, adjacent to Capco's world-class Covent Garden estate.
Capco aims to maximise the strategic and economic value of its
investment which was made at an attractive entry price with an
implied value of approximately GBP1,200 per square foot and we
believe will generate long-term value for Capco shareholders. The
investment is consistent with Capco's strategy to invest in
complementary opportunities on or near the Covent Garden
estate.
GBP195 million of deferred consideration from the sale of Earls
Court was received in 2020, with the balance of GBP15 million
expected in November 2021. The Lillie Square joint venture
continues to progress. Handover of units sold in Phase 1 is
complete, with a small number of units available. 94 Phase 2 units
have been handed over representing net proceeds of GBP116 million
(GBP58 million Capco share). A further 92 units remain in Phase 2,
of which 60 have been pre-sold; should they all complete this will
generate approximately GBP70 million of further proceeds (GBP35
million Capco share).
Sustainability, Environment and Stakeholders
Capco has developed its extensive ESC agenda, supported by a new
Board Committee, and committed to achieve Net Zero Carbon by 2030.
We are focused on responsible stewardship, promoting a cleaner,
greener estate through enhanced air quality, greening and energy
and waste management initiatives. We seek to generate positive
outcomes for our stakeholders and the community, upholding high
standards of professional ethics and corporate governance whilst
encompassing a dynamic, inclusive and diverse corporate
culture.
The heritage of Covent Garden is incredibly important to the
West End; therefore Capco took decisive action to ensure the safety
and security of the estate when government lockdown measures were
announced. Being a good neighbour is important to us and we have
refocused our community programme to prioritise initiatives and
charity partners in Covent Garden. This includes the provision of
financial aid to COVID-19 funds supporting homelessness, food banks
and the elderly as well as hospitality and retail foundations.
In partnership with Westminster City Council, there were
additional pedestrianised streets in the Covent Garden area for an
extended period during 2020, as well as additional outdoor seating
areas for our restaurants, providing approximately 500 temporary
incremental outdoor covers across 20 al fresco dining
locations.
Our People
We reshaped the organisation this year through the
simplification of the Group, providing our talented and diverse
workforce opportunities for leadership and responsibility. Our
employees are key to our business which promotes a culture of
creative passion for Covent Garden to allow employees to reach
their potential whilst creating value for our stakeholders.
Technology has enabled the business to continue to operate
remotely. Effective communication and keeping everyone connected
have been vital to managing this challenging period. We supported
our employees through regular town halls, business updates and
seminars focusing on well-being initiatives including nutrition,
exercise and mental health awareness.
Outlook
We are optimistic that the enduring appeal of Covent Garden will
drive a recovery of footfall and trade over the course of this year
and next. Operating conditions will remain difficult for our
customers which is anticipated to lead to enhanced levels of
vacancy and further adjustments in valuation and rental levels.
However our immediate priority is focused on making sure our
customers reopen successfully. Getting office workers back will
help the economy move towards more normal levels of activity. There
is a clear roadmap for our retailers and restaurateurs to build
trade. The upcoming easing of restrictions and the reopening of
hospitality, retail and leisure activities will lead to a gradual
return of domestic footfall.
We continue to seek efficiencies across the business and remain
disciplined in the allocation of our capital. We will continue to
focus on responsible stewardship, implementing our ESC strategy and
working to achieve our Net Zero Carbon target by 2030. Our actions
in 2020 ensure the business is very well-positioned to benefit from
the economic recovery. We are confident in the future of the West
End and the long-term value of our unique portfolio of
investments.
Ian Hawksworth
Chief Executive
8 March 2021
Strategic Report
COVENT GARDEN
A world-class destination
The Covent Garden estate represents 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. Through creative asset
management and disciplined investment, Covent Garden has been
established as an exceptional mixed-use portfolio of approximately
1.1 million square feet of lettable space, across 75 buildings and
526 units. Covent Garden provides a broad range of unit sizes,
ensuring it attracts a wide spectrum of retail and F&B
occupiers.
Capco has transformed Covent Garden into a global destination
having curated one of the strongest retail and dining line-ups in
the world in a heritage setting, positioning Covent Garden
competitively as a global brand. Occupiers across all uses are more
discerning than ever and in particular, retail and hospitality
value more than the location alone. Capco's approach focuses on the
creation of brand value, the understanding of consumer behaviour
and trends and crucially how these interplay with heritage, culture
and experience within a sustainable vision for the estate.
Supporting the reopening of retail and hospitality customers
Capco began the year with a strong leasing pipeline and growth
in sales and footfall, however activity levels were significantly
affected by the pandemic. By 23 March 2020 the majority of retail
and F&B (food and beverage) customers closed across the estate.
Throughout this period of COVID-19 uncertainty, Capco has
prioritised the health and safety of its people, customers and
visitors.
The heritage of Covent Garden is incredibly important. Capco
therefore took early action to ensure the safety of the estate with
additional security deployed to protect residential homes and
commercial premises. Working with our customers, Capco implemented
social distancing protocols across the estate, including marked
queuing systems, social distancing signage and enhanced cleaning
regimes, including hand sanitiser stations. Capco has been
encouraged by the resilience and creativity of our customers
through this challenging period.
As a long-term investor in the estate, Capco has provided
support on a case-by-case basis to customers experiencing cash flow
challenges as a result of COVID-19. Bespoke solutions have been
agreed which include rent deferrals, rent-free periods and other
arrangements reflecting the position of each customer. For certain
customers, rental agreements were linked to turnover for the second
half of the year in exchange for other provisions including lease
extensions and greater landlord flexibility. Against a backdrop of
significant market uncertainty and challenging trading conditions,
Capco continues to provide support to customers where appropriate.
Capco continues to maintain regular engagement with its customers,
offering assistance to provide confidence to our customers to
resume trading as restrictions are eased.
Understanding customers' businesses has always been part of
Capco's leasing approach and this year Capco has engaged in several
hundred direct discussions with its customers. Customers were
requested to provide detailed business information which was
analysed on a case-by-case basis and bespoke solutions agreed. The
objective is to maintain a strong customer line-up ensuring a
world-class estate for the longer term and whilst conditions are
challenging today, these actions will support the business to
benefit from a recovery over time.
After extended periods of closure, the vast majority of
retailers reopened during the summer and again in December,
adapting their operations to ensure effective social distancing
measures were in place and many have adopted revised trading hours
to reflect footfall patterns. The overwhelming response from
customers and the consumer drove the vibrancy of the estate which
continued to offer the Covent Garden experience with ongoing
activities through brand partnerships across the Piazza. The
enduring appeal of Covent Garden remains, with an encouraging
recovery in footfall and trade following the easing of measures in
the second half of 2020. The current government restrictions remain
in place and are expected to ease over the coming months.
Performance
The valuation of the estate decreased by 27 per cent
like-for-like to GBP1.8 billion over the year. Substantially all of
the valuation movement relates to the retail, leisure and F&B
portfolio which represents 75 per cent of total property value. The
main contributors were a 22 per cent (like-for-like) decline in ERV
to GBP80.8 million, expansion in the equivalent yield of 28 basis
points to 3.91 per cent and the valuer's assumption on loss of
near-term income (GBP27 million).
65 leasing transactions with a rental value of GBP6.2 million
(2019: GBP17.4 million) completed during the year, 29 per cent
below 31 December 2019 ERV (excluding seven short-term lettings).
Of the 65 leasing transactions, 43 took place in the second half of
the year.
Underlying net rental income was GBP44.1 million for the year,
down 30 per cent (like-for-like) compared to 2019. During this
challenging period a small number of tenants have entered into
administration, representing GBP4 million of passing rent.
The leasing market has been disrupted as a result of COVID-19
with some occupiers seeking more flexible arrangements rather than
committing to longer term leases until there is better visibility,
however Covent Garden continues to attract high quality brands and
operators. At 31 December 2020, EPRA vacancy was 3.5 per cent (31
December 2019: 3.2 per cent). Approximately 6.5 per cent of ERV is
in or is held for development or refurbishment (31 December 2019:
4.6 per cent (adjusted for the sale of the Wellington block)).
Whilst EPRA vacancy has been stable, the disrupted trading
environment combined with a difficult leasing market is anticipated
to have a negative impact on occupancy levels over 2021.
In view of recent and ongoing restrictions to trading activity,
support continues to be provided to our customers on a case-by-case
basis. Overall, 62 per cent of rent has been collected for 2020. As
an update to levels previously announced, 47 per cent of December
rents (in respect of Q1 2021) have been collected. Rent collection
levels for previous periods have continued to increase, with 2020
quarter collections at 53 per cent, 45 per cent and 53 per cent for
Q2 to Q4 2020. Capco's retail and hospitality customers have had
significantly reduced income following the national lockdown during
the Christmas trading period, which traditionally has been an
important source of revenue and provided liquidity through the
slower first quarter of the year. The gradual return to more normal
rent collection levels will be connected to the recovery in
footfall and sales.
Retail
Capco's emphasis on the consumer is essential to ensuring that
the estate is positioned as a leading destination for visitors.
Retail space represents 50 per cent of the portfolio by value.
Capco continues to focus on concepts relevant to the consumer and
highly productive categories such as jewellery, gifting,
accessories, fashion, cosmetics, fitness and well-being. The
increasing significance of online purchases by consumers and the
evolving omni-channel sales strategies pursued by retailers
underpin the importance for brands in choosing leading global
destinations.
Capco has always taken a creative approach to leasing, providing
high quality concepts the opportunity to trade on the estate, often
with turnover arrangements, which have transitioned into longer
term occupation. The new concepts introduced to the estate during
2020 include both long and shorter-term arrangements, providing the
opportunity for both Capco and the customer to benefit from a
recovery over time. Given the highly productive nature of the
categories and concepts on the Covent Garden estate these
arrangements are expected to deliver value when more normal trading
conditions return.
Although occupational demand has reduced, Covent Garden
continues to attract high quality brands and operators. Luxury
jewellery brand Vashi signed a long-term lease on James Street for
a new London flagship store which is set to open in 2021. This new
opening joins established luxury brands Tiffany & Co., which
agreed terms in December 2020 for a new lease, and Bucherer, which
has continued with expansion plans in a larger unit at the Royal
Opera House Arcade opening in 2021.
Luxury Belgian chocolatier Neuhaus opened a new store in the
iconic Market Building, selling handcrafted, artisanal chocolates.
Peloton continues the fit out of its European flagship training
studio and retail store on Floral Street joining Ganni and American
Vintage which opened stores earlier in the year.
Kick Game opened on James Street in December offering designer
styles in sneakers and streetwear, including limited edition
sneakers from brands such as Off-White, Yeezy, Supreme and the DIOR
collaboration. Traditional British coatmakers Mackintosh opened a
new store on James Street and apparel brand Arc'teryx agreed terms
in January 2021 to open a store on Long Acre.
Dining
Introducing high quality innovative food concepts has been
central to the dining strategy for Covent Garden. The estate offers
a diverse range of dining experiences, from casual to premium, and
is one of London's best dining destinations. The majority of
restaurants focus on quality and experience, often with an all-day
offer, with many brands choosing Covent Garden as their first
physical global or UK presence rather than standard chain
restaurants. Restaurateurs tend to invest significant capital
fitting out, therefore, leases tend to be longer than for retail
units. Dining space represents 21 per cent of the portfolio by
value.
A number of new dining concepts have been introduced to the
estate, including acclaimed restaurant Darjeeling Express which has
taken the space formerly occupied by Carluccios. Headed by
celebrated chef Asma Khan, the restaurant offers an all-day casual
deli menu alongside a newly launched tasting menu.
The dining offering on James Street continues to evolve with the
introduction of vegan cookie brand Floozie Cookie, from former
Claridge's Pastry Chef Kimberly Lin. The all-vegan restaurant,
which opened in December, serves Lin's signature "stuffed cookies"
alongside plant based hot chocolates and milks. Bubblewrap has also
opened joining the host of dining concepts across the estate
providing casual treats for the consumer.
Al fresco garden bar NaNas has signed a new long-term lease for
a bar and restaurant overlooking the Piazza and will provide an
all-day food and drinks menu inspired by French-Lebanese heritage.
The Gentlemen Baristas has signed a new flagship restaurant on
Henrietta Street. These were both summer pop-ups which have
converted into longer term opportunities.
The latest introductions further enhance Covent Garden's
attractiveness as a dining destination. The Big Mamma Group is
scheduled to open its new restaurant during the year on Henrietta
Street.
Office
Covent Garden is a prime office location underpinned by the
appeal of the overall estate and its excellent connectivity. There
is a significant working population in the district which provides
consumers for the hospitality and retail sectors.
Covent Garden has a contemporary office portfolio ranging from
warehouses to newly refurbished space, offering both multi-tenanted
and single occupancy workspace. The portfolio contains a variety of
spaces, from boutique offices to 10,000 square foot open plans and
attracts financial services, technology, creative industries and
SMEs. Joining the existing line-up, global co-working space
provider WeWork completed its fit out during 2020 and opened at 22
Long Acre. Office space represents 15 per cent of the portfolio by
value. Occupants are attracted to the estate environment, which
includes high quality retail and F&B options in the surrounding
area as well as offering a secure environment.
As a result of the pandemic, office utilisation has been low in
2020 in line with other locations in central London. COVID-19 has
accelerated existing trends of a growing demand for 'plug and play'
space on flexible lease terms in the London office market.
Furthermore, remote working may change the way offices are used
once the recovery begins, which may result in a change to space
requirements.
Residential
Covent Garden is established as a premium residential address.
Residential space represents 10 per cent of the portfolio by value
and comprises 213 units. Generally there is strong leasing demand
for residential accommodation across the estate with a high
incidence of leases that renew at the end of the term, however this
year there has been an increased level of vacancy across the
portfolio with many overseas residents in particular not renewing
tenancies.
Investment activity
Capco continues its disciplined approach to capital allocation.
In October 2020, Capco completed the sale of the Wellington block
to The Portfolio Club for GBP76.5 million (before costs) which was
in line with the property valuation as at 30 June 2020. The sale
price represented a capital value per square foot of approximately
GBP1,100 for an undeveloped site. The Portfolio Club, a joint
venture between APG and London Central Portfolio, is a new
lifestyle hospitality brand in prime central London locations. The
Wellington block is a freehold island site located on the south
east corner of Covent Garden comprising six separate properties and
has recently received planning consent to develop a 146-room hotel
with retail and restaurant space. The innovative owner operators
have plans to redevelop the Wellington block into a contemporary
hotel which will further contribute to Covent Garden's position as
a world-class destination. Vacant possession of the property has
been secured over the majority of the site and the ERV of the
properties as at 30 June 2020 was GBP4.2 million.
Capco has a strong balance sheet and access to significant
liquidity to take advantage of market opportunities. Capco's
extensive knowledge of the district, close network of contacts and
proven track record mean Capco is often the best positioned to
acquire properties, frequently off-market. There are a number of
properties on or around the estate being actively tracked for
acquisition and repositioning opportunities. There are also active
asset management and refurbishment initiatives across the estate. 3
Henrietta Street has been transformed into an F&B townhouse
with terms agreed with The Gentlemen Baristas. Refurbishment of
29-30 Maiden Lane is complete with Big Mamma's restaurant set to
open later this year.
Consumer engagement and positioning a world-class estate
Capco engages actively with its audiences through multi-channel
marketing activities such as events, brand partnerships and digital
outreach. Covent Garden has a significant social media presence and
is established as one of the most highly engaged retail
destinations globally through Instagram, Facebook and Twitter.
During 2020, Capco continued to engage directly with the
consumer throughout lockdown periods with a digital outreach
programme centred around 'Covent Garden at Home' content, bringing
elements of the estate home to consumers via an enhanced
website.
Capco continues to implement its consumer focused marketing
strategy and is collaborating closely with occupiers and
stakeholders to promote Covent Garden and the West End, encouraging
a gradual recovery of trade and footfall over time. A number of
initiatives were delivered to support the reopening of the estate
in the summer including floating a rainbow above the Market
Building, suspending 'Thank You NHS' flags on King Street and an
art installation by British graphic artist Anthony Burrill entitled
'Love Hope & Joy'.
With many of the area's restaurants open for take away, Covent
Garden hosted an al fresco, socially distanced dining area on the
Piazza providing the opportunity for visitors to dine outside in
the heart of the West End. As part of the ongoing cultural
programming for the estate, Capco partnered with the Royal Opera
House in September to offer a free open air cinema on the Piazza,
providing a unique experience for visitors to enjoy al fresco
culture.
A number of initiatives were delivered over the Christmas period
providing an inviting festive setting for the consumer, including
daily snowfall in front of the iconic 60 foot Christmas tree on the
Piazza. Covent Garden hosted an immersive LEGO installation on the
East Piazza as well as the estate's first ever Mulled Wine Festival
with 25 dining concepts participating.
Sustainability, environment and stakeholder engagement
Capco has renewed its commitment to environmental,
sustainability and community initiatives, launching a new ESC
strategy, supported by a Board Committee. Capco aims to minimise
the impact of our activities on the environment and has committed
to achieve Net Zero Carbon by 2030.
Capco works closely with stakeholders and collaborates on key
estate initiatives, including public realm, to further enhance the
customer experience and accessibility of the estate. It seeks to
minimise the impact of operations on the environment by employing
an active approach to air quality, congestion, environmental and
sustainability issues, and implementing initiatives that improve
the quality of the environment for all, such as pedestrianisation
and increasing greenery.
One of Covent Garden's key differentiators is its largely
pedestrianised nature. For a period during 2020, in partnership
with Westminster City Council, Capco made enhancements to the
public realm by introducing additional pedestrianised streets in
the Covent Garden area to allow for greater freedom of movement and
use of outdoor space. Newly pedestrianised streets included
Henrietta Street, Floral Street, Maiden Lane and Tavistock Street
alongside extended car-free hours for the Piazza and King Street.
Further to this, there were additional outdoor seating areas across
these streets for our restaurants, providing over 500 incremental
outdoor covers across over 20 al fresco dining spots.
Capco has been working closely with local communities and
continues to provide assistance to charity partners in the West
End. Capco is one of the founding sponsors of the Covent Garden
food bank. Financial aid has been provided to COVID-19 funds
supporting homelessness, food banks and the elderly, as well as
hospitality and retail foundations.
During November 2020, in partnership with charity Only A
Pavement Away which works alongside Crisis, Capco ran a charity
auction with prizes from shops and restaurants from across the
Covent Garden estate including a one-to-one cooking masterclass
with Darjeeling Express' Asma Khan, and exclusive dining
experiences at Red Farm, Din Tai Fung and The Gentlemen Baristas.
All proceeds were donated to the charity to help purchase and
distribute over 2,000 thermal refillable flasks for those most in
need during the festive season.
Future priorities
Capco will continue to take a proactive approach to creative
asset management and investment across the estate to protect
long-term value and take advantage of market opportunities. Capco's
immediate priority is focused on supporting our customers to reopen
successfully. There are challenges in the near-term with operating
conditions for our customers remaining difficult, which is
anticipated to lead to enhanced levels of vacancy. However Capco's
decisive actions taken in 2020 position the estate to benefit from
a recovery and to prosper over time.
Further to this, Capco will continue to invest in the estate and
expand its ownership through acquisitions. Capco is committed to
consumer engagement, aiming to continue enhancing the customer
environment and develop an extensive ESC agenda. Further to our Net
Zero Carbon 2030 commitment, a detailed pathway will be published
during the course of 2021. We will continue to focus on our
commitments to air quality, greening and waste management,
alongside charitable support and community engagement as a
responsible owner.
Other investments
Ownership of 25.2% Shaftesbury PLC shares
In May 2020, Capco agreed to acquire a significant shareholding
in Shaftesbury across two tranches for total consideration of
GBP436 million, at a price of 540 pence per Shaftesbury share. The
investment comprised the acquisition of 64.4 million shares for
GBP347.7 million in cash, representing 20.94 per cent of
Shaftesbury's shares, which completed on 3 June 2020 (the "First
Tranche") and the acquisition of a subsequent tranche of
approximately 16.3 million shares for GBP88.2 million in cash,
representing 5.31 per cent of Shaftesbury's shares (the "Second
Tranche").
Capco published a shareholder circular on 21 July 2020 in
respect of the acquisition of the Second Tranche, which, when
aggregated with the First Tranche, constituted a Class 1
transaction for the purposes of the Listing Rules and was therefore
conditional on approval by shareholders at the General Meeting.
Shareholder approval was granted on 10 August 2020.
In October 2020, Shaftesbury announced its intention to raise up
to GBP307 million of gross proceeds through a firm placing, placing
and open offer and an offer for subscription (the "Capital
Raising"). Capco committed to subscribe for GBP65 million of new
Shaftesbury shares at the placing price of 400 pence, resulting in
a shareholding in Shaftesbury following completion of the Capital
Raising of 25.2 per cent (96.97 million shares). Capco's weighted
average entry price (before associated costs) for its investment in
Shaftesbury is 517 pence per share at a cost of GBP501 million.
The Shaftesbury investment is a unique opportunity to acquire a
significant stake in an exceptional mixed-use real estate portfolio
of approximately 600 buildings, adjacent to Capco's world-class
Covent Garden estate. Shaftesbury PLC is a real estate investment
trust which invests exclusively in London's West End. It represents
a compelling investment and entry price with an implied value of
approximately GBP1,200 per square foot, which the Directors believe
will generate long-term value for Capco shareholders. The
investment is consistent with Capco's strategy to invest in
complementary opportunities on or near the Covent Garden
estate.
Earls Court deferred proceeds
GBP195 million of deferred consideration from the Earls Court
sale was received in 2020 with the balance of GBP15 million due in
November 2021. Proceeds have been used to reduce borrowings under
the Covent Garden revolving credit facility.
Lillie Square
Capco owns 50 per cent of the Lillie Square joint venture, a one
million square foot (GEA) residential development located in West
London. The development can deliver a total of over 600 private
homes plus 200 affordable homes across three phases.
The property valuation as at 31 December 2020 was GBP115 million
(Capco share), a 9 per cent decline (like-for-like) against the 31
December 2019 valuation of GBP177 million. In addition, Capco owns
GBP2 million of other related assets adjacent to the Lillie Square
estate. Net debt was GBP1.8 million (GBP0.9 million Capco share) at
31 December 2020.
Development of Lillie Square is well-progressed. Handover of 227
Phase 1 units is complete, with a small number of units available.
The completion of Phase 2 continues with 94 units handed over,
representing GBP116 million of net proceeds (GBP58 million Capco
share). Six contracts, representing approximately GBP8 million in
value, have been rescinded resulting in non-completion of pre-sold
units. 92 units remain in Phase 2, of which 60 have been pre-sold;
should they all complete this will generate approximately GBP70
million of further proceeds (GBP35 million Capco share). This
includes the previously announced bulk sale of 49 units and 31 car
parking spaces representing GBP66 million (GBP33 million Capco
share).
FINANCIAL REVIEW
The COVID-19 pandemic has had a material impact on the financial
results of the Group in the year, as demonstrated by the 27.3 per
cent like-for-like decline in the independent property valuation of
the Covent Garden portfolio and a 74.2 per cent reduction in the
Group's net rental income (30.3 per cent on an underlying basis),
primarily due to additional impairment charges in the year. Levels
of cash collection have reduced significantly with rent collection
for the year significantly lower than normal levels with 62 per
cent collected for the year. Collection for the first quarter of
2021 stands at 47 per cent compared with 98 per cent for the first
quarter of 2020.
Overall EPRA NTA (net tangible assets) per share decreased by
27.6 per cent during the year, from 292.9 pence at 31 December 2019
to 212.1 pence. Combined with the 1.0 pence per share dividend paid
to shareholders during the year, the total return for the year is
-27.2 per cent. Total shareholder return for the year, reflecting
the movement in the share price from 262 pence to 145 pence,
together with the value of dividends, was -44.3 per cent.
The underlying loss from continuing activities was GBP6.2
million compared with underlying earnings of GBP9.5 million for
2019, driven primarily by the reduction in net rental income.
Rental income
In view of disruption to business and consumer activity, bespoke
support has been provided to customers on a case-by-case basis,
which includes rent deferrals, rent-free periods and other
arrangements reflecting the position of each customer. For many
retail and food & beverage customers, rental agreements have
been linked to turnover for the second half of 2020 in exchange for
other provisions such as insertion of landlords flexibility, lease
extensions and enhanced sharing of data. The accounting treatment
for customer support, which results in divergence between net
rental income on a reported and cash flow basis, can be summarised
as follows:
-- In relation to rent deferrals, the rental income is
recognised as normal with the deferred rent receivable balance
remaining in trade receivables until settled. The balance is
assessed for impairment at each balance sheet reporting date.
-- Rent-free periods provided during a lease term are generally
considered to constitute a lease modification under IFRS 16 with
the rental income recalculated based on the revised consideration
over the remaining lease term, in line with current accounting
practice for tenant lease incentives. The balance will be assessed
for impairment at each reporting date. On entering into a lease
modification any initial direct costs associated with the lease,
including surrender premia previously paid to outgoing customers,
are derecognised and charged against income.
-- Turnover-linked rents are recorded in the period in which they are earned.
Gross rental income decreased by GBP2.6 million to GBP75.8
million, a 3.3 per cent reduction compared with 2019. Net rental
income has reduced by GBP45.4 million compared with 2019, driven
largely by:
-- GBP16.7 million of derecognition of initial direct costs
associated with entering into lease modifications;
-- GBP11.1 million impairment of tenant lease incentives;
-- GBP14.0 million of bad debt expense. This represents an
increase in bad debt expense of GBP12.4 million from 2019.
The lease modification costs and impairment of tenant lease
incentives of GBP27.8 million are excluded from underlying net
rental income as they are at levels not experienced in the past nor
expected to be incurred once tenant support measures required as a
result of COVID-19 conclude. On an underlying basis, net rental
income has reduced by GBP17.6 million to GBP43.6 million, driven
predominantly by the increase in bad debt expense.
Balance sheet
The property valuation of the Covent Garden estate has decreased
by 27.3 per cent (like-for-like) to GBP1,825 million as a result of
a 22.2 per cent decline in ERV to GBP80.8 million, expansion in the
equivalent yield of 28 basis points to 3.91 per cent and other
movements including the valuer's assumption on loss of near-term
income over the next six to 12 months of GBP27 million.
Despite the impact of COVID-19, the Group is well-positioned
with a clear focus to grow its property investment business centred
around the West End, supported by a strong financial position. With
net debt to gross assets of 28 per cent and access to substantial
cash and undrawn facilities, currently GBP1 billion, the Group has
the ability to withstand market volatility, capitalise on
investment opportunities and deliver long-term value creation.
The Company's strong financial position enabled it to complete
the acquisition of a significant stake in Shaftesbury PLC
("Shaftesbury") during the year. The initial acquisition was
completed over two tranches in June and August 2020 for GBP436
million. A further GBP65 million was invested through participation
in a capital raising by Shaftesbury which completed in November
2020. As a result of these transactions, the Company has a
shareholding of 25.2 per cent in Shaftesbury represented by
96,971,003 shares at a weighted in-price (before costs) of 517
pence per share.
During the year, GBP400 million of capital was raised through
the issuance of exchangeable bonds and a secured loan, both having
reference to the investment in Shaftesbury. The GBP275 million of
exchangeable bonds, exchangeable for shares of Shaftesbury or cash
at the Company's election, carry a cash coupon of two per cent per
annum and are redeemable at par in March 2026. The exchangeable
bonds benefit from a pledge over approximately 10.0 per cent of
shares in Shaftesbury. The GBP125 million secured loan has a
maturity of three years, is secured against shares in Shaftesbury
and is at an interest rate broadly in line with the Group's
weighted average cost of debt.
In March 2020, GBP90 million of deferred consideration was
received in relation to the sale of Earls Court and an additional
GBP105 million was received in November 2020. A final payment of
GBP15 million from the sale is due in November 2021.
Proceeds from the financing activities and disposals, including
the sale of the Wellington block for GBP76.5 million, were used to
reduce the amount of drawn borrowings under the Covent Garden
revolving credit facility.
Phase 2 of Lillie Square completed with 94 units handed over
during the year, generating net proceeds of GBP58 million (Capco
share). 92 units remain in Phase 2, of which 60 have been pre-sold;
should they all complete this will generate approximately GBP70
million of further proceeds (GBP35 million Capco share). This
includes the bulk sale of 49 units representing GBP66 million
(GBP33 million Capco share). Six contracts, representing
approximately GBP8 million in value, have been rescinded resulting
in non-completion of pre-sold units. The joint venture had net debt
of GBP1.8 million as at year end (Capco share: GBP0.9 million).
Basis of preparation
As required by IFRS 11 'Joint Arrangements', the Group presents
its joint ventures under the equity method in the 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 key
financials 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. With
effect from 1 January 2020, EPRA net asset value ("EPRA NAV") and
EPRA triple net asset value ("EPRA NNNAV") have been replaced by
three new net asset valuation metrics, being EPRA Net Reinstatement
Value ("EPRA NRV"), EPRA Net Tangible Assets ("EPRA NTA") and EPRA
Net Disposal Value ("EPRA NDV"). EPRA NTA is considered to be the
most relevant measure for the Group's operating activity and is the
primary measure of net asset value, replacing the metric EPRA NAV
previously reported. These measures have been adopted with the
comparator year shown in EPRA measures on page 69.
One of the key performance measures the Group uses is underlying
earnings. The Group considers the presentation of underlying
earnings to be useful supplementary information as it removes
unrealised and certain other items and therefore better represents
the recurring, underlying performance of the business. Items that
are excluded are net valuation gains or losses (including profits
or losses on disposals), fair value changes, impairment charges,
net refinancing charges, costs of termination of derivative
financial instruments and other non-recurring costs and income.
Given the scale of the rental support provided to tenants during
the course of the year, the non-cash lease modification expenses
and impairment of incentives totalling GBP27.8 million are highly
material and at levels not experienced in the past nor expected to
be incurred once tenant support measures required as a result of
COVID-19 conclude. Accordingly, they have been excluded from
underlying earnings. Underlying earnings is reported on a Group
share basis.
A summary of EPRA performance measures and key Group measures
included within these condensed financial statements is shown in
EPRA measures on page 69.
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, 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.
Discontinued operation
On 29 November 2019, the Group completed the sale of its
interests in Earls Court, excluding Lillie Square, to APG and
Delancey (on behalf of its client fund) for GBP425 million. As
Earls Court Properties represented a major line of business, its
results and cash flows have been reported in the comparator period
1 January 2019 to 29 November 2019 as having arisen from a
discontinued operation. Further information on the disposal of the
Earls Court Properties business is set out in note 10 'Discontinued
Operation'.
FINANCIAL PERFORMANCE
The Group presents underlying earnings and underlying earnings
per share on a Group share basis. The Group considers this
presentation to provide useful information as it removes unrealised
and certain other items and therefore better represents the
recurring, underlying performance of the business.
SUMMARY INCOME STATEMENT
2020
============================================ === ==================================
Group Joint
share ventures(1) IFRS
Continuing operations GBPm GBPm GBPm
============================================ === ======= ================ =======
Net rental income(2) 15.8 0.1 15.9
Loss on revaluation and sale of investment
and development property (693.3) 0.2 (693.1)
Change in fair value of listed equity
investment 50.9 - 50.9
Administration expenses(3) (31.5) 0.5 (31.0)
Net finance costs (23.8) 0.2 (23.6)
Taxation 1.0 - 1.0
Other(4) 1.1 (24.9) (23.8)
Loss for the year attributable to owners of
the Parent from continuing operations (679.8) (23.9) (703.7)
Adjustments(5) :
Net rental income - non-underlying 27.8
Loss on revaluation and sale of investment
and development property 693.1
Change in fair value of listed equity
investment (50.9)
Administration expenses - non-underlying 6.5
Other 22.5
Taxation on non-underlying items (1.5)
================================================= ======= ================ =======
Underlying loss from continuing operations (6.2)
================================================= ======= ================ =======
Underlying earnings from discontinued
operations -
============================================ === ======= ================ =======
Underlying loss (6.2)
================================================= ======= ================ =======
Underlying loss per share (pence):
From continuing operations (0.7)
From discontinued operation -
============================================ === ======= ================ =======
Underlying loss per share (pence) (0.7)
================================================= ======= ================ =======
Weighted average number of shares 852.0m
================================================= ======= ================ =======
1. Lillie Square and Innova Investment.
2. Net rental income includes GBP27.8 million of non-underlying
expenses in relation to lease modification and impairment of tenant
incentives. Underlying net rental income, excluding these items, is
GBP43.6 million.
3. Administration expenses includes GBP6.5 million of
non-underlying transaction related costs primarily related to the
acquisition of the Shaftesbury investment which are non-recurring
in nature.
4. Includes other costs, impairment of other receivables and
other finance income.
5. Further details regarding the EPRA and Company specific
adjustments are disclosed within note 12 'Earnings Per Share and
Net Assets Per Share'.
2019
=============================================== ==================================
Group Joint
share ventures(1) IFRS
Continuing operations GBPm GBPm GBPm
=============================================== ====== ================= ======
Net rental income 61.2 (0.1) 61.1
Loss on revaluation and sale of investment
and development property (43.3) - (43.3)
Administration expenses(2) (42.6) (0.8) (43.4)
Net finance costs (20.9) 0.2 (20.7)
Taxation (1.0) - (1.0)
Other (3) (18.3) 3.3 (15.0)
Loss for the year attributable to owners
of the Parent from continuing operations (64.9) 2.6 (62.3)
Adjustments(4) :
Loss on revaluation and sale of investment
and development property 43.3
Administration expenses - non-underlying 9.7
Other 16.6
Taxation on non-underlying items 2.2
================================================ ====== ================= ======
Underlying earnings from continuing operations 9.5
================================================ ====== ================= ======
Underlying loss from discontinued operations (0.5)
================================================ ====== ================= ======
Underlying earnings 9.0
================================================ ====== ================= ======
Underlying earnings per share (pence):
=============================================== ====== ================= ======
From continuing operations 1.1
================================================ ====== ================= ======
From discontinued operation (0.1)
================================================ ====== ================= ======
Underlying earnings per share (pence) 1.0
================================================ ====== ================= ======
Weighted average number of shares 855.5m
================================================ ====== ================= ======
1. Lillie Square and Innova Investment.
2. Administrative expenses includes GBP9.7 million of
non-underlying transaction related costs primarily related to the
proposed demerger and which are non-recurring in nature.
3. Includes other income, impairment of other receivables and other finance income.
4. Further details regarding the EPRA and Company specific
adjustments are disclosed within note 12 'Earnings Per Share and
Net Assets Per Share'.
Net rental income
2020 2019
============= === =============================================== ==================================================
Joint Joint
Group share ventures(1) IFRS Group share ventures(1) IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
============= === ============== =============== ============== =============== ================ ===============
Rental income 75.8 (1.9) 73.9 78.4 (0.8) 77.6
Property and
service charge
expenses (18.2) 2.0 (16.2) (15.6) 0.7 (14.9)
Bad debt expenses (14.0) - (14.0) (1.6) - (1.6)
=================== ============== =============== ============== =============== ================ ===============
Underlying net
rental income 43.6 0.1 43.7 61.2 (0.1) 61.1
Impairment of
tenant lease
incentives (11.1) - (11.1) - - -
Lease modification
expenses (16.7) - (16.7) - - -
=================== ============== =============== ============== =============== ================ ===============
Net rental income 15.8 0.1 15.9 61.2 (0.1) 61.1
=================== ============== =============== ============== =============== ================ ===============
1. Lillie Square.
Overall rental income has reduced by GBP2.6 million, a 3.3 per
cent reduction, to GBP75.8 million from GBP78.4 million. During the
year a small number of tenants have entered administration
representing GBP4.0 million of passing rent. In addition, due to
market conditions there was a GBP1.0 million reduction in marketing
and non lease income. Rental income includes GBP9.7 million (net)
of non-cash tenant lease incentives reflecting the tenant support
provided in the year.
Property expenses have increased by GBP2.6 million reflecting
increased void costs across Covent Garden and Lillie Square as well
as GBP1.2 million of additional costs which have been incurred in
the year for increased security, cleaning and protective equipment
for the Covent Garden estate.
Net rental income has been impacted significantly in the year
due to the disruption caused by COVID-19. Overall reported net
rental income has reduced by GBP45.4 million from GBP61.2 million
to GBP15.8 million.
Included in the 2020 net rental income is GBP16.7 million of
lease modification expenses reflecting the derecognition of initial
direct costs associated with entering into lease modifications with
tenants. Due to the impact of COVID-19 on our customers, with
increased failures and challenging market conditions, an assessment
of the tenant lease incentives held on balance sheet has resulted
in a GBP11.1 million impairment being recorded in 2020. Both of
these items represent significant non-cash items for the year.
Further impairment analysis has been undertaken on the
recoverability of rent receivables representing outstanding rent,
service charge, deferrals and other lease charges. As at 31
December 2020 the rent receivable balance was GBP34.7 million.
Based on this assessment, the balance sheet position has been
impaired by GBP12.4 million reflecting 36 per cent of the gross
balance (43 per cent net) being provided against with the majority
of this relating to the retail and F&B sector. Additional cash
collateral and guarantors are held and if included in the
assessment, 73 per cent of the net balance has been covered
against. Including bad debt write-offs in the year the total charge
to net rental income is GBP14.0 million. Within this charge is
GBP4.3 million representing provisions made against GBP10.6 million
of the total rent receivable balance related to quarterly rent due
on 25 December 2020 which reflects income for the period 25
December 2020 to 24 March 2021. The majority of this income has not
been recognised in rental income but is held on balance sheet as
rent in advance within current liabilities. However, a provision
for the expected credit loss is required to be recorded in net
rental income and therefore creates a mismatch in the period
between recognised rental income and impairment of the rent
receivable.
Loss on revaluation and sale of investment and development
property
The loss on revaluation and sale of the Group's investment and
development property was GBP693.3 million. The loss is
predominantly as a result of a 22.2 per cent (like-for-like)
decline in ERV, an outward yield movement of 28 basis points
resulting in an equivalent yield of 3.91 per cent, and other
movements including the valuer's assumption on loss of near-term
income over the next six to 12 months of GBP27 million.
Administration expenses
2020 2019
=============================== === ===================================== =====================================
Group share Joint ventures(1) IFRS Group share Joint ventures(1) IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
=============================== === =========== ================= ===== =========== ================= =====
Depreciation 1.5 - 1.5 1.3 - 1.3
Administration expenses 23.5 (0.5) 23.0 31.6 0.8 32.4
===================================== =========== ================= ===== =========== ================= =====
Underlying administration expenses 25.0 (0.5) 24.5 32.9 0.8 33.7
Transaction-related costs 6.5 - 6.5 9.7 - 9.7
Administration expenses 31.5 (0.5) 31.0 42.6 0.8 43.4
===================================== =========== ================= ===== =========== ================= =====
1. Lillie Square.
Administration expenses have decreased by GBP11.1 million from
GBP42.6 million to GBP31.5 million. Underlying administration
costs, excluding the impact of GBP6.5 million of
transaction-related costs incurred in the year, were GBP25.0
million representing a like-for-like reduction of GBP7.9 million.
In the prior period, GBP9.7 million of costs associated with the
potential demerger were incurred.
The Group is targeting underlying administration costs of no
more than GBP20 million for the 2021 financial year, and
notwithstanding disruption to business activity caused by COVID-19
and certain upward cost pressures, progress towards this has been
made through 2020. This includes consolidation of the Company's
operations to one office location within the Covent Garden
estate.
Net finance costs
Net finance costs increased by GBP2.9 million to GBP23.8
million, due to additional interest expense following a drawdown of
GBP450 million under the revolving credit facility in May 2020.
Interest costs have been offset in part by additional interest
income due to higher levels of cash being held on deposit.
Taxation
The Group's tax policy, which has been approved by the Board and
has been disclosed to HM Revenue & Customs ("HMRC"), is aligned
with the business strategy. The Group seeks to protect shareholder
value by structuring operations in a tax efficient manner, with
external advice as appropriate, which complies with all relevant
tax law and regulations and does not adversely impact our
reputation as a responsible taxpayer. As a Group, we are committed
to acting in an open and transparent manner.
Consistent with the Group's policy of complying with relevant
tax obligations and its goal in respect of its stakeholders, the
Group maintains a constructive and open working relationship with
HMRC which regularly includes obtaining advance clearance on key
transactions where the tax treatment may be uncertain. The Group
maintains a low risk rating from HMRC.
As a UK REIT, the Group is exempt from UK corporation tax on
income and gains from qualifying activities. As a minimum, 90 per
cent of the income arising from qualifying activities is required
to be distributed as a Property Income Distribution ("PID") to the
shareholders of the Group. Non-REIT activities, such as disposals
of trading property, are subject to UK corporation tax in the
normal way. A tax charge can arise for the Group at 19 per cent if
the minimum PID requirement is not met within 12 months of the end
of the period. The Group did not pay a PID in 2020 in relation to
income arising on qualifying activities during its first REIT
period from 9 December 2019 to 31 December 2019, for which a GBP0.1
million tax charge arose.
The UK REIT provisions also require a group to satisfy certain
tests to maintain its REIT status. The Group satisfied all REIT
requirements needed to maintain REIT status throughout 2020. The UK
REIT provisions can impose a UK tax charge on the Group if certain
interest cover tests are not met. HMRC has indicated that it is not
within the intention of the REIT regime to issue a tax charge in
relation to these interest cover tests, where it can be established
that COVID-19 is the reason for a breach. As this was the case for
the period to 31 December 2020 the Group does not anticipate a tax
charge arising.
The tax credit of GBP1.0 million in the income statement
comprises current tax credit of GBP0.8 million in relation to prior
periods and deferred tax credit of GBP0.2 million in relation to
share-based payments and derivative financial instruments. The main
rate of corporation tax remained unchanged at 19 per cent
throughout the year.
A disposal of the Group's trading properties at their market
value, before the utilisation of carried forward available losses,
would result in a UK corporation tax charge to the Group of GBP0.4
million (19 per cent of GBP2.2 million).
Whilst the Group is a REIT, it is subject to a number of taxes
and certain sector specific charges in the same way as non-REIT
companies. The Group is committed to paying its fair share of tax
including liabilities arising from stamp duty land tax, employment
taxes, irrecoverable VAT, and corporation tax on non-REIT
income.
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 certain losses
carried forward.
Dividends
Given current market conditions and the significant
uncertainties due to COVID-19, the Board has taken the decision to
not declare a year end dividend. The Company will recommence
dividend payments as soon as it is considered appropriate.
FINANCIAL POSITION
At 31 December 2020 the Group's EPRA NTA was GBP1.8 billion (31
December 2019: GBP2.5 billion) representing 212.1 pence per share
(31 December 2019: 292.9 pence).
SUMMARY ADJUSTED BALANCE SHEET
2020
=============================================== ================================
Group Joint
share ventures(1) IFRS
GBPm GBPm GBPm
=============================================== ======== ============ ========
Investment, development and trading property 1,908.8 (113.0) 1,795.8
Financial assets at fair value through
profit and loss 551.8 - 551.8
Net debt (710.4) (5.1) (715.5)
Other assets and liabilities(2) 42.9 84.7 127.6
Net assets attributable to owners of the
Parent 1,793.1 (33.4) 1,759.7
================================================ ======== ============ ========
Adjustments:
Fair value of derivative financial instruments 7.2
Fair value adjustment of financial instruments
- exchangeable bond option 5.5
Unrecognised surplus on trading property 2.2
Revaluation of other non-current assets 33.4
Deferred tax adjustments (2.2)
================================================ ======== ============ ========
EPRA net tangible assets 1,805.8
================================================ ======== ============ ========
EPRA net tangible assets per share (pence)(3) 212.1
================================================ ======== ============ ========
1. Primarily Lillie Square.
2. IFRS includes amounts receivable from joint ventures which
eliminate on a Group share basis.
3. Adjusted, diluted number of shares in issue at 31 December
2020 was 851.5 million.
2019
=============================================== ==============================
Group Joint
share ventures(1) IFRS
GBPm GBPm GBPm
=============================================== ======= ============ =======
Investment, development and trading property 2,706.8 (161.3) 2,545.5
Net debt (441.8) 38.0 (403.8)
Other assets and liabilities(2) 222.1 113.7 335.8
Net assets attributable to owners of the
Parent 2,487.1 (9.6) 2,477.5
================================================ ======= ============ =======
Adjustments:
Fair value of derivative financial instruments 3.6
Unrecognised surplus on trading property 15.9
Revaluation of other non-current assets 9.6
Deferred tax adjustments (0.8)
EPRA net tangible assets 2,505.8
================================================ ======= ============ =======
EPRA net tangible assets per share (pence)(3) 292.9
================================================ ======= ============ =======
1. Primarily Lillie Square.
2. IFRS includes amounts receivable from joint ventures which
eliminate on a Group share basis.
3. Adjusted, diluted number of shares in issue at 31 December
2019 was 855.5 million.
Investment, development and trading property
The Group share of investment, development and trading property
carrying value has decreased from GBP2,706.8 million at 31 December
2019 to GBP1,908.8 million. This movement primarily comprises
capital expenditure and acquisitions of GBP27.3 million, offset by
disposals of GBP131.5 million at Lillie Square and the Wellington
block at Covent Garden, a revaluation loss of GBP692.4 million and
write-down of trading property of GBP1.4 million. Capital
expenditure of GBP19.1 million at Covent Garden relates to a number
of smaller projects and the Lillie Square spend of GBP7.1 million
was in relation to final construction and fit-out of Phase 2 of the
development which completed during the first half of 2020.
The IFRS loss on revaluation of investment and development
property was GBP692.2 million which relates predominantly to the
Covent Garden portfolio. The portfolio valuation reduced by 27.3
per cent like-for-like with substantially all of this movement
relating to the retail, leisure and F&B portfolio which
represents 75 per cent of total property value. The main drivers
for the valuation loss were a 22.2 per cent (like-for-like) decline
in ERV to GBP80.8 million, expansion in the equivalent yield of 28
basis points to 3.91 per cent and other movements including the
valuer's assumption on loss of income over the next six to 12
months of GBP27 million.
The unrecognised surplus on trading property declined by GBP13.7
million, and together with the revaluation on investment and
development property the total revaluation loss was GBP686.7
million, representing a 26.4 per cent decrease in value, which
compares to the MSCI Capital Return for the equivalent period of a
6.3 per cent loss.
Total property return for the year was -24.4 per cent. The MSCI
Total Return Index recorded a 1.0 per cent loss for the
corresponding period.
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 tangible assets
measure. At 31 December 2020, the unrecognised surplus on trading
property was GBP2.2 million (31 December 2019: GBP15.9 million)
which arises solely on the Group's share of trading property at
Lillie Square.
Financial assets at fair value through profit or loss
During the year the Group acquired 97.0 million shares
representing a 25.2 per cent shareholding in Shaftesbury PLC ("the
Investment"). The acquisition of 80.7 million shares took place in
June and August 2020 for GBP435.9 million reflecting an acquisition
share price of 540 pence per share. An additional 16.3 million
shares were acquired for GBP65.0 million through participation in
the capital raising of Shaftesbury at a price of 400 pence per
share. The acquisition and further investment were funded from cash
resources and drawdown of committed facilities. The gain in fair
value of listed equity investment of GBP50.9 million reflects the
difference in the blended investment price of 517 pence per share
and the share price at the reporting date of 569 pence per share
(which represents a discount of 15 per cent to the pro forma NTA
per share of Shaftesbury at its year end of 30 September 2020 of
672 pence per share).
Debt and gearing
The Group maintains a strong financial position with significant
resilience and flexibility, targeting diversified sources of
funding, an appropriate level of leverage, headroom against debt
covenants, access to substantial liquidity, limited capital
commitments, a balanced debt maturity profile and hedging against
movements in interest rates.
The Group's cash and undrawn committed facilities at 31 December
2020 were GBP1,010.2 million (31 December 2019: GBP895.2 million).
A reconciliation between IFRS and Group share is shown below:
2020 2019
================================ === ===================================== =====================================
Group share Joint ventures(1) IFRS Group share Joint ventures(1) IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
================================ =========== ================= ===== =========== ================= =====
Cash and cash equivalents 375.8 (10.7) 365.1 170.6 (17.5) 153.1
Undrawn committed facilities 634.4 (59.4) 575.0 724.6 (9.6) 715.0
===================================== =========== ================= ===== =========== ================= =====
Cash and undrawn committed facilities 1,010.2 (70.1) 940.1 895.2 (27.1) 868.1
===================================== =========== ================= ===== =========== ================= =====
1. Primarily Lillie Square.
Net debt increased by GBP268.6 million to GBP710.4 million in
the year, principally as a result of a total investment in shares
of Shaftesbury of GBP501 million offset in part by receipts from
sales. Disposal proceeds included the receipt of GBP194.7 million
of deferred consideration on the Earls Court sale, GBP76.5 million
on sale of the Wellington block and GBP58 million of completed
sales from the handover of 94 units at Lillie Square.
During the year, GBP400 million of financing activity related to
the investment in Shaftesbury was completed through an exchangeable
bond issue and a secured loan. During November 2020, GBP275 million
of exchangeable bonds were issued at a coupon of two per cent per
annum redeemable at par in March 2026. The proceeds were used to
reduce borrowings under the Covent Garden revolving credit
facility. In December 2020, a three-year secured loan of GBP125
million was completed with the proceeds being reflected within the
Group cash balance at year end. Subsequent to this, the proceeds
have been used in part to further reduce borrowings under the
Covent Garden revolving credit facility.
The gearing measure most widely used in the industry is loan to
value ("LTV"), however in order to address the fact that LTV does
not take into account the value of the shareholding in Shaftesbury,
the Group focusses on net debt to gross assets which stood at 27.5
per cent at 31 December 2020. This is comfortably within the
Group's limit of no more than 40 per cent.
2020 2019
=================================================== ========= =========
Net debt to gross assets 27.5% 14.7%
Loan to value - Covent Garden debt covenant 19.3% 21.3%
Interest cover - Group 76.1% 130.8%
Interest cover - Covent Garden debt covenant 53.8% 292.7%
Weighted average debt maturity - drawn and undrawn
facilities 4.1 years 4.9 years
Weighted average debt maturity - drawn facilities 5.4 years 7.3 years
Weighted average cost of debt 2.6% 3.0%
Gross debt with interest rate protection 100% 100%
==================================================== ========= =========
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 31 December 2020 the proportion of gross debt with
interest rate protection was 100 per cent (31 December 2019: 100
per cent). GBP565 million of the revolving credit facility was
undrawn at year end and subsequent to year end increased to GBP675
million undrawn due to a reduction in the outstanding balance with
proceeds received from the secured loan.
The principal financial covenants within the Covent Garden debt
are to maintain a loan to value ratio of not more than 60 per cent
and an interest cover ratio of at least 120 per cent. Based on the
current loan to value position under the Covent Garden debt, there
is substantial headroom with the ability for property valuations to
fall by a further 68 per cent. Due to the impact on reported net
rental income of COVID-19, the interest cover covenant has not been
met for the year ended 31 December 2020. A waiver had previously
been agreed with the Covent Garden lenders in relation to this
period and in view of the anticipated ongoing impact of the
pandemic on 2021 net rental income, the waivers have been extended
to also cover the six month period ending 30 June 2021 and the year
ending 31 December 2021.
At 31 December 2020 the Group had capital commitments of GBP2.2
million (GBP13.6 million at 31 December 2019), comprising GBP0.8
million for Covent Garden and GBP1.4 million for Lillie Square.
The net debt of the Lillie Square joint venture at 31 December
2020 was GBP0.9 million (Capco 50 per cent share) and it is
currently anticipated that the bank facility will be repaid in
advance of its maturity in May 2021 or that the facility will be
extended.
2020 2019
====================== ===================================== =====================================
Group share Joint ventures(1) IFRS Group share Joint ventures(1) IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
==================== =========== ================= ===== =========== ================= =====
Capital commitments 2.2 (1.4) 0.8 13.6 (6.6) 7.0
====================== =========== ================= ===== =========== ================= =====
1. Primarily Lillie Square.
CASH FLOW
A summary of the Group's cash flow for the year ended 31
December 2020 is presented below:
SUMMARY CASH FLOW
2020
========================================= =======================================
Group Joint
share ventures(1) IFRS
GBPm GBPm GBPm
========================================= === ======= ================= =======
Operating cash flows after interest
and tax from continuing activities (51.7) (3.1) (54.8)
Purchase and development of property,
plant and equipment (31.0) 7.1 (23.9)
Transactions with joint venture partners 1.6 1.6 3.2
Net sales proceeds from discontinued
operations 194.1 - 194.1
Net sales proceeds from property and
investments 134.5 (57.5) 77.0
Equity investment acquisition (500.9) - (500.9)
============================================== ======= ================= =======
Net cash flow before financing (253.4) (51.9) (305.3)
Financing 488.8 51.2 540.0
Share buyback (11.8) - (11.8)
Dividends paid (4.6) - (4.6)
Other (6.3) - (6.3)
Net cash flow (2) 212.7 (0.7) 212.0
============================================== ======= ================= =======
1. Primarily Lillie Square.
2. 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 GBP7.5 million.
2019
=============================================== ===================================
Group Joint
share ventures(1) IFRS
GBPm GBPm GBPm
=============================================== ======= ================= ======
Operating cash flows after interest and
tax from continuing activities (1.4) (5.4) (6.8)
Purchase and development of property,
plant and equipment (126.5) 32.1 (94.4)
Transactions with joint venture partners
and non-controlling interests (0.8) (0.7) (1.5)
Net sales proceeds from discontinued
operation 156.6 - 156.6
Net sales proceeds from subsidiaries (0.1) - (0.1)
Net sales proceeds from property 84.3 (4.7) 79.6
================================================ ======= ================= ======
Net cash flow before financing from continuing
activities 112.1 21.3 133.4
Issue of shares 0.5 - 0.5
Financing 25.5 (25.5) -
Dividends paid (9.5) - (9.5)
Other (1.8) - (1.8)
Net cash flow from continuing activities
(2) 126.8 (4.2) 122.6
================================================ ======= ================= ======
Net cash flow from discontinued operation (2.0) - (2.0)
================================================ ======= ================= ======
Net cash flow 124.8 (4.2) 120.6
================================================ ======= ================= ======
1. Primarily Lillie Square.
2. 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 GBP4.1 million.
Operating cash outflows of GBP51.7 million are as a result of
net working capital requirements impacted in particular by the
reduced cash rental collections in the period leading to increased
rent receivable balance, the payment of administration, interest
and transaction related costs as well as a reduction in payables
due to the payment of transaction-related costs for the sale of
Earls Court accrued as at the prior year end. The Company is
currently assessing whether it may be entitled to claim for loss of
income from business interruption insurance up to a maximum amount
of GBP10 million.
During the year, GBP19.1 million was invested at Covent Garden
for capital expenditure on a number of small projects. At Lillie
Square, GBP7.1 million was incurred in relation to the construction
and fit-out of Phase 2.
The handover of 94 units of Phase 2 at Lillie Square generated
GBP57.5 million (Group share) of net sales proceeds from property.
Funds were used partly to repay GBP51.2 million (Group share) of
the Lillie Square debt. At Covent Garden the Wellington block
disposal generated gross proceeds of GBP76.5 million.
GBP194.7 million of deferred consideration from the Earls Court
sale was received in March and November 2020. The payment of
GBP89.7 million in March was received on an accelerated basis based
on certain contractual triggers being satisfied. A working capital
adjustment of GBP0.6 million was refunded to the purchaser.
GBP500.9 million cash outflow was incurred on the investment in
a 25.2 per cent shareholding in Shaftesbury. This was funded from
cash resources and drawdown of the Covent Garden revolving credit
facility.
An additional GBP400 million of debt was raised in the year via
the issuance of GBP275 million exchangeable bonds and a GBP125
million secured loan. Proceeds from these financings together with
those from Earls Court deferred consideration and disposal of the
Wellington block were used to reduce borrowings under the Covent
Garden revolving credit facility or held as cash.
As announced on 26 February 2020, the Group undertook a share
buyback programme with the intention of returning up to GBP100
million to shareholders. GBP11.8 million was returned to
shareholders before the decision was made to suspend the programme
in March 2020 due to the uncertainty of COVID-19 and then not to
complete the programme following the acquisition of the
shareholding in Shaftesbury.
Dividends paid of GBP4.6 million reflect the final dividend
payment made in respect of the 2019 financial year. This was lower
than the previous year due to a higher level of take-up of the
scrip dividend alternative, 46 per cent versus 12 per cent in
2019.
IFRS cash and cash equivalents increased by GBP212.0 million to
GBP365.1 million.
Going concern
Further information on the going concern assessment is set out
in note 1 to the condensed financial statements.
At 31 December 2020 the Group had cash and undrawn committed
facilities of GBP1,010.2 million and its capital commitments were
GBP2.2 million. The Covent Garden loan to value ratio was 19 per
cent compared with a covenant level of 60 per cent and covenant
waivers have been agreed with the Covent Garden lenders in relation
to interest cover for the period up to and including 31 December
2021. During the remainder of the going concern period (being the
first half of 2022) there is projected to be headroom against the
interest cover covenant in a severe but plausible downside
scenario.
There continues to be a reasonable expectation that the Group
will have adequate resources to meet both ongoing and future
commitments for at least 12 months from the date of signing these
condensed financial statements. Accordingly, the Directors consider
it appropriate to adopt the going concern basis of accounting in
preparing the 2020 Annual Report & Accounts.
Situl Jobanputra
Chief Financial Officer
8 March 2021
principal risks and uncertainties
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 all 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
commercial and operational 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, the Group Financial Controller and the
Director of Sustainability and Technology, 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 at least three times a year by the Executive Risk
Committee so that trends and emerging risks can be identified and
reported to the Board.
Senior management from each part of the business identify and
manage the risks for their area 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 year. 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 note 1 'Principal
Accounting Policies', to the condensed consolidated financial
statements within 'Critical accounting judgements and key sources
of estimation and uncertainty'.
The COVID-19 pandemic has brought about unprecedented challenges
and disruption to the broader economy, our customers and business.
Understanding the effects of the crisis and the impact on our
business and the market remains critical and the Board continues to
monitor this carefully.
COVID-19 has resulted in a significant reduction in levels of
footfall and activity across the Covent Garden estate,
significantly lower levels of local and international travel, lower
level of office occupiers and changing customer and consumer
behaviour due to government restrictions imposed. The significant
reduction in visitor numbers and store revenues for our customers
has led to a large number of them experiencing cash flow pressures
and, in turn, reduced rental collection rates. Challenging
occupation and investment market conditions, particularly in retail
and F&B sector, have had a negative impact on property
valuations, and rental values and income.
The long-term impact of COVID-19 on future demand for and use of
lettable space, evolution of consumer behaviour (including an
acceleration of trends in online shopping) and travel patterns
could have further implications for the real estate market and our
portfolio. In view of the unpredictable nature of the pandemic, the
evolution of policy measures and government guidance will be
monitored closely together with the impact of related emerging
risks.
During the course of the COVID-19 pandemic, the Company has
prioritised the health and safety of its people, customers and
visitors, while working co-operatively and in a co-ordinated manner
with stakeholders to protect and promote Covent Garden and the West
End, encouraging a return of footfall to more normalised levels
over time.
A COVID-19 steering group committee was established in March
2020 to help co-ordinate the Company's response to the pandemic.
The steering group, led by the Chief Executive and comprised of
senior management and those responsible for key areas of
operational activity, plus additional groups set up to monitor and
manage the impact of COVID-19 on the business, meets regularly to
discuss issues surrounding COVID-19 and the impact on the business,
and approve decisions and actions promptly. In addition, the
leadership team across the business has discussed relevant matters
as a group on a very regular basis since March 2020. The Board
receives weekly updates and has convened regular additional
meetings as required, in order to provide appropriate oversight and
governance. In recent weeks the committee has been focused on plans
to prepare for an easing of lockdown restrictions, reopening of the
Covent Garden estate in a safe manner and ensuring the business is
fully prepared to support stakeholders during this transition. Our
risk assessment on COVID-19 has led to us to conclude that COVID-19
is not a separate principal risk but rather an overarching risk
which has a significant impact on all of our principal risks.
Across the business we have seen an intensification in our
principal risks as a result of COVID-19 and our focus has been on
implementing appropriate measures on a timely basis to mitigate
this impact. Included within the description of each principal risk
is a summary of the impact of COVID-19 and additional mitigating
actions taken.
In recent years the UK has experienced heightened economic and
political uncertainty after voting to leave the EU from 31 January
2020 and completing the transaction period on 31 December 2020.
Uncertainty remains in particular in relation to international
trade arrangements and the overall impact on the UK economy. As a
result there may be continued volatility in consumer, occupier and
broader corporate behaviour and decision-making.
Whilst the impact on our business and the market remains
uncertain, the Board continues to monitor this carefully and has
assessed risks to the business that may result. 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 customers, for instance
management of their inventory, labour issues, tariffs or other
barriers, and the impact on consumer demand (for example due to
travel disruption) leading to reduced rents and capital values
During the period, the Group acquired a 25.2 per cent
shareholding in Shaftesbury PLC ("the Investment"). Due to the
listed nature of the Investment, the market price of Shaftesbury
PLC shares may be volatile and subject to wide fluctuations as a
result of a variety of factors, including, but not limited to,
Shaftesbury PLC operating results, financial position, performance
or prospects.
Although the Group owns a minority interest, the Investment
represents a material proportion of the Group's value and certain
of the Group's financing has reference to the share price. The
terms of our investment do not provide us with the ability to
influence the strategic direction of Shaftesbury PLC, or its
financial or operating performance, as our influence is limited to
the extent of our voting power over matters requiring approval of
Shaftesbury PLC's shareholders. The interests of other shareholders
in Shaftesbury PLC may not always be aligned with those of the
Group.
The operational and business risks faced by Shaftesbury PLC are
similar to those faced by the Group which are set out in the tables
below, but the steps taken to address and respond to any such risks
by Shaftesbury PLC are outside of the control of the Group.
Climate change was previously considered an emerging risk.
Recognising the potential impact of climate change on the business,
it has been determined that climate change is a principal risk in
its own right reflecting the growing requirements for action.
A summary of the potential impacts on our principal risks as
well as the measures we have put in place to mitigate these impacts
is set out in the tables below.
Emerging risks
The Group monitors its emerging risks and considers mitigating
actions which the Group currently deploys and could deploy with
regards to these emerging risks. Emerging risks include the
longer-term implications of COVID-19 including on consumer
behaviour and changes to the way in which real estate will be used
in the future, including how lease arrangements are structured, as
well as changes to tax and economic policy impacting real estate
(including capital gains, VAT and other sales taxes, stamp duty and
business rates).
CORPORATE
Risk Impact on strategy Mitigation Change
in 2020
==================================== ================================ ============================= =========
Economic conditions
==================================== ================================ ========================================
Decline in real estate Reduced return on investment Focus on prime assets
valuations due to macro-economic and development property Regular assessment
conditions Reduced return on listed of investment market
Decline in fair value of investments conditions including
listed investments held Higher finance costs bi-annual external
Relative attractiveness Reduced profitability valuations
of other asset classes Regular strategic
or locations reviews
Inability of the Group Strategic focus on
to adopt the appropriate creating retail-led
strategy or to react to destinations and
changing market conditions residential districts
or changing consumer behaviour with unique attributes
==================================== ================================ ============================= =========
COVID-19 impact and measure to mitigate
Impact:
COVID-19 has resulted in high levels of macro-economic and market
uncertainty and volatility. This uncertainty combined with a significant
reduction in footfall due to government action has led to a reduction
in rental income and property valuations.
Restrictions on international and local travel have had a significant
impact on footfall and business activity on the estate, leading to
customer's liquidity issues.
The Group focuses on prime assets in the West End of London primarily
in the retail and hospitality sector. Due to travel restrictions
and changing consumer behaviour the geographical and asset class
concentration risk of asset valuation and rents has been increased.
The increased risk of an economic downturn as a result of COVID-19
could further impact demand for space, and result in changes to lease
structures, and therefore the valuation of our assets and rental
income.
Measures to mitigate:
We remain in regular dialogue with our customers to understand their
financial position and provide support where needed. Rental support
has been provided to retail and hospitality customers experiencing
cash flow pressures, with rental agreements being adjusted on a case-by-case
basis to include deferrals and turnover-linked arrangements where
appropriate.
The Group remains in regular dialogue with local authorities to understand
future plans and work constructively to position the estate in the
best possible manner to benefit from a recovery and prosper over
the medium term including implementing al fresco dining where appropriate.
The Group has had a long-term focus on maintaining a strong balance
sheet, with sufficient liquidity, and continues to do so to ensure
it is able to withstand market volatility and take advantage of opportunities.
This has been supported by an additional GBP400 million of financing
raised in the year from different sources and related to the Shaftesbury
PLC investment via exchangeable bonds and a secured loan.
Limited business interruption insurance is held by the Group and
is currently being assessed for applicability to the COVID-19 impacts
up to a maximum of GBP10 million.
Extensive forecasting, stress testing and modelling of various scenarios
has been undertaken, including sensitivities arising from the COVID-19
pandemic to help plan for future impacts on the business.
================================================================================================================
Funding
==================================== ================================ ============================= =========
Lack of availability or Reduced financial and Maintain appropriate
increased cost of debt operational flexibility liquidity to cover
or equity funding Increased cost of borrowing commitments
Delay to development Target longer and
works staggered debt maturities,
Constrained growth, and diversified sources
lost opportunities of funding
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
==================================== ================================ ============================= =========
COVID-19 impact and measure to mitigate
Impact:
Reduction in net rental income and property valuation as well as
increased finance costs as a result of COVID-19 has increased the
risk of the Group having limited headroom against or not meeting
its financial covenants.
Measures to mitigate:
Funding, debt and treasury metrics are monitored on a continual basis
with a focus on preserving liquidity and capital. Extensive forecasting,
stress testing and modelling of various scenarios has been undertaken,
including sensitivities arising from the COVID-19 pandemic to help
monitor any impact on debt covenants.
Due to the impact of COVID-19 on the Group's net rental income, the
Covent Garden interest cover covenant has not been met for the year
ended 31 December 2020, however waivers are in place with the lenders.
Due to the continued anticipated impact of the pandemic during the
course of 2021 waivers have been agreed for the interest cover covenant
for the period up to and including 31 December 2021.
In determining the potential impact of COVID-19, the Group has assessed
a "severe but plausible" downside scenario which takes into account
UK government restrictions in response to the pandemic. Details of
this analysis are set out in note 1 to the accounts and the financial
statements have been prepared on a going concern basis.
GBP400 million of capital has been raised in the year related to
the Shaftesbury PLC investment via exchangeable bonds and a secured
loan to further diversify sources of funding.
================================================================================================================
Political climate
================================== ================================== ============================= =========
Uncertain political climate Inability to deliver Monitoring proposals
or changes to legislation business plan and emerging policy
and policies Reduced rental income and legislation
Disruption from completing and/or capital values Engagement with key
the transition period as customers could suffer stakeholders and
of leaving the EU could staff shortages, increased politicians
result in an adverse impact import prices, longer Diversified occupiers
on business and consumer lead times and lower with limited exposure
confidence, increase material availability of stock to any one customer
costs and reduce labour
supply
================================== ================================== ============================= =========
COVID-19 impact and measure to mitigate
Impact:
The economic and political uncertainty around legislation and
policy changes has been heightened due to the global impact of
COVID-19 with potential long-term impacts. In addition Brexit
remains a risk with disruption likely.
Measures to mitigate:
As part of our annual budgeting and forecasting process we have
considered the impact of changes to legislation and policies from
COVID-19 and Brexit and continue to monitor this in light of the
current situation.
Catastrophic external
event
=============================== =============================== ================================== =========
Such as a terrorist Diminishing London's Terrorist insurance
attack, health pandemic status On-site security
or cyber security crime Heightened by concentration Health and safety
of investments policies and procedures
Reduced rental income Close liaison with
and/or capital values police, National Counter
Business disruption Terrorism Security
or damage to property Office (NaCTSO) and
Reputational damage local authorities
Regular training
COVID-19 impact and measure to mitigate
Impact:
The COVID-19 pandemic is a global crisis which has brought about
unprecedented challenges and disruptions to our customers and visitor
numbers in the near-term.
Measures to mitigate:
The Group's priority throughout the pandemic has been the health
and safety of the Group's people, customers and visitors. Additional
cleaning and security measures have been implemented and deployed
across the Group's estate and offices and other initiatives have
been pursued including pedestrianisation to enable social distancing.
With all employees working from home, a review of cyber security
has been performed to ensure appropriate controls are in place and
ensure all employees remain vigilant to potential risks.
=================================================================================================================
Risk Impact on strategy Mitigation Change
in 2020
=============================== =============================== ==================================== =========
People
=============================== =============================== ================================== =========
Inability to retain Inability to execute Succession planning,
and recruit the right strategy and business performance evaluations, -
people and develop plan training and development
leadership skills within Constrained growth, Long-term and competitive
the business lost opportunities incentive rewards
=========
COVID-19 impact and measure to mitigate
Impact:
In response to COVID-19, all employees have been working from home
to a large extent since March 2020. This has presented certain working-level,
management and infrastructure challenges.
There remains a risk of mass illness across employees, management
or service providers which would disrupt the day-to-day activities
of the Group's business and running of the estate.
Measures to mitigate:
Risk assessments were performed for all employees to ensure they
are well equipped and able to work from home effectively.
Government guidance has been followed with regular contact with
staff to ensure well-being.
Revised team communication strategies have been implemented to ensure
managers can adequately supervise and support employees working
from home.
The Group's offices have been made COVID-secure in readiness for
a return to normal working practices.
Government guidelines will be followed as employees return to normal
working practices including rotas to enable physical distancing.
Business continuity plans for both employees and service providers,
including introduction of external resources if required, and other
policies have been reviewed together with HR policies, technology
and communication where appropriate.
Recruiting and on-boarding policies have been adjusted where necessary
to ensure that the business is able to continue to attract, develop
and retain the best possible resources.
We continue to carefully monitor employees' mental and physical
well-being and the health and safety of our employees and service
providers remains a top priority. Risk assessments for returning
to the office have been undertaken with all employees.
=================================================================================================================
Health and safety
================================================================ ================================== =========
Accidents causing loss Prosecution for non-compliance Health and safety
of life or very serious with legislation procedures across
injury to employees, Litigation or fines the Group
contractors, occupiers Reputational damage Appointment of reputable
and visitors to the Distraction of management contractors
Group's properties External consultants
undertake annual audits
in all locations
Adequate insurance
held to cover the
risks inherent in
construction projects
=============================== =============================== ==================================== =========
COVID-19 impact and measure to mitigate
Impact:
The COVID-19 pandemic resulted in various closures of all non-essential
retail and F&B premises and required employees to work from home.
Health and safety risks and new guidelines and legislation have
been taken into account across the business.
Measures to mitigate:
We have worked closely with our customers to safely and securely
close non-essential retail and F&B premises and will work with our
customers to support reopening as required by government guidance.
We have also ensured the health and safety of our residential customers
through measures such as increased cleaning of communal areas and
closure of certain facilities.
As the lockdown restrictions are eased, and occupancy and footfall
levels on the estate increase, efforts will be focused on ensuring
that the estate is well-prepared for the safe return of customers
and visitors.
Health and safety protocols have been implemented across all of
the Group's assets and offices. This includes signage and measures
across the estate and throughout our offices to keep customers,
visitors and employees aware and safe.
Certain areas of the estate were pedestrianised to ensure safe social
distancing can be maintained.
=================================================================================================================
Risk Impact on strategy Mitigation Change
in 2020
=============================== =============================== ==================================== =========
Compliance with law, regulations and contracts
================================================================ === =============================== =========
Breach of legislation, Prosecution for non-compliance Appointment of external
regulation or contract with legislation advisers to monitor
Inability to monitor Litigation or fines changes in law or
or anticipate legal Reputational damage regulation
or regulatory changes Distraction of management Members of staff attend
Exit from REIT regime external briefings
due to non-compliance to remain cognisant
with REIT requirements of legislative and
regulatory changes
=============================== =============================== ==================================== =========
COVID-19 impact and measures to mitigate
Impact:
Measures to respond to COVID-19 include the imposition of new legislation,
regulations and requirements for our people, customers and visitors,
which have an impact on matters such as recoverability of rents,
health and safety and other matters.
Reduced rental income as a result of COVID-19 has made it more challenging
for the Group to meet the REIT requirements, without some dispensation
from HMRC.
Measures to mitigate:
The COVID-19 steering group, plus additional groups set up to monitor
and manage the impact of COVID-19 on the business, has been meeting
regularly to review emerging legislation and requirements and regularly
communicated these to the business and employees, ensuring timely
implementation.
Formal protocols have been put in place and communicated across
the various stakeholder groups to ensure everyone is aware of the
new legislation and requirements.
We remain in close communication with HMRC regarding our REIT status,
the Group's ability to comply with the requirements and the approach
which HMRC will take in relation to a breach of the REIT conditions
resulting from COVID-19.
=================================================================================================================
Climate change
================================================================ === =============================== =========
Physical impact on Reduced capital values Board and management New
our assets from rising or business disruption, ESC Committees established risk
temperatures or other reduced income through to manage climate-related for
extreme climate-related disruption risks and opportunities 2020
event such as flooding Increased operating with appointment of
Transitional challenge costs to meet reporting Director Sustainability
of increasing and more and target metrics and and Technology
onerous compliance compliance. Increased Net Zero Carbon commitment
and reporting requirements, capital costs of retrofitting, for 2030 and full
as well as retrofitting, or inability to resolve asset by asset review
insuring or leasing listed building or planning to be completed in
our assets in a heritage challenges, leads to 2021 as part of Net
environment on an appropriate buildings becoming carbon Zero Carbon pathway.
whole life carbon basis stranded Continued engagement
Inability to keep pace with planning stakeholders
with customer and consumer Reduced income through to preserve heritage
demand for proactive lower rents and longer buildings, while enhancing
action to manage and void periods due to environmental performance
mitigate climate-related reduced customer demand Pro-active customer
risk and consumer engagement
programme and setting
of appropriate climate-related
targets on both development
and operations
=============================== =============================== ==================================== =========
COVID-19 impact and measure to mitigate
Impact:
Reduced ability to access the estate to implement planned carbon
reduction measures.
Reduced customer engagement on environmental matters due to focus
on their own COVID-19 related business challenges.
Measures to mitigate:
Long term planning and mobilisation of asset by asset carbon mitigation
strategy and continued implementation of appropriate measures where
still on site.
A bespoke approach to COVID-19 support has been undertaken by the
Group with its customers, which will encourage climate-related engagement
following lifting of current restrictions.
=================================================================================================================
PROPERTY
Risk Impact on strategy Mitigation Change
in 2020
============================ ============================= ====================== ============
Leasing and asset management
============================ ============================= ======================== ==========
Inability to achieve Decline in customer demand Quality customer mix
target rents or to for the Group's properties Strategic focus on
attract target customers Reduced income and increased creating mixed-use
due to market conditions vacancy destinations with
Competition from other Reduced return on investment unique attributes
locations/formats and development property
============================ =============================
COVID-19 impact and measures to mitigate
Impact:
The majority of retail and F&B customers were closed for business
or operated on a very restricted basis between March and June 2020,
and subsequently through tiered restrictions and subsequent lockdown
periods which have continued into 2021. This has had a significant
impact on leasing activity, rent collection and resulted in some
customers going into administration leading to additional voids
on the estate.
Evolving lease structures may also have an impact on underlying
property valuations and rental income.
COVID-19 has affected suppliers and their business activities,
which could lead to delays or inability to provide some services.
Measures to mitigate:
As a long-term investor in the estate, the Group took early action
to ensure the safety and security of Covent Garden whilst also
providing support on a case-by-case basis to customers experiencing
cash flow challenges as a result of COVID-19.
Bespoke solutions have been agreed which include rent deferrals,
rent-free periods and other arrangements reflecting the financial
position of each customer.
For certain customers which are experiencing short-term cash flow
issues, rental agreements have been linked to turnover for certain
periods in exchange for other provisions such as lease extensions.
We have a focused reopening strategy in place and through active
asset management our main objective is to assist our customers
to return as the lockdown measures continue to ease, ensuring the
business is well-positioned to benefit from a recovery and prosper
over time.
We continuously engage with our suppliers to understand their ability
to meet our demands during this challenging time.
=================================================================================================
Planning and development
============================ ============================= ======================== ==========
Unfavourable planning Impact on land valuations Engagement with
policy, legislation and realisation local and national
or action impacting Lower development returns authorities
on the ability to secure due to lower sales proceeds, Pre-application
planning approvals higher costs or delay and consultation
or consents with key stakeholders
Decline in returns and landowners
from development due Engagement with
to market conditions local community
or increased construction bodies
costs or delays Focus on prime assets
Regular assessment
of market conditions
and development
strategy
Business strategy
based on long-term
returns
Professional teams
in place to manage
costs and deliver
programme
============================ ============================= ====================== ============
COVID-19 impact and measure to mitigate
Impact:
Given the broad implications and evolving nature of the pandemic
and its economic implications, there is an increased risk of misalignment
of objectives with stakeholders and business partners.
Delays in development due to government restrictions on how building
contracts operate on-site during COVID-19.
Changes to planning regulations with the amendment to The Town
and Country Planning Regulations 2020, from September 2020 allowing
for flexibility in change in use of commercial units. Higher than
anticipated reductions in sales prices as a result of the pandemic
might deliver lower returns on units not yet completed.
COVID-19 impact and measure to mitigate
Measures to mitigate:
The Group maintains strong relationships and regular, open and
constructive dialogue with stakeholders.
Work at Lillie Square halted for a short period in line with
government guidelines during 2020. Once operations recommenced
social distancing procedures were followed and monitored to ensure
the completion of Phase 2. Subsequently 94 units have been handed
over successfully. Future handovers will be closely monitored in
line with government guidelines.
We continue to consider different market scenarios in light of
evolving market circumstances.
DIRECTORS' RESPONSIBILITIES
Statement of Directors' responsibilities
The statement of Directors' responsibilities has been prepared
in relation to the Group's full Annual Report & Accounts for
the year ended 31 December 2020. Certain parts of the Annual Report
& Accounts are not included within this announcement.
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group and
Company's position and performance, business model and
strategy.
We confirm to the best of our knowledge:
- the Group consolidated condensed financial statements, which
have been prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006 and accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union, give a true and fair view of the
assets, liabilities, financial position and loss of the Group;
and
- the Strategic Report includes a fair review of the development
and performance of the business and the position of the Group,
together with a description of the principal risks and
uncertainties that it faces.
Signed on behalf of the Board on 8 March 2021
Ian Hawksworth
Chief Executive
8 March 2021
Situl Jobanputra
Chief Financial Officer
8 March 2021
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2020
2020 2019
Note GBPm GBPm
============================================= ==== ======= =======
Continuing operations
Revenue 2 73.0 79.4
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Rental income 2 73.9 77.6
Rental expenses(1) 4 (58.0) (16.5)
============================================= ==== ======= =======
Net rental income 2 15.9 61.1
Other (costs)/income (1.0) 1.8
Loss on revaluation and sale of investment
and development property 5 (693.1) (43.3)
Change in fair value of financial
assets through profit or loss 15 50.9 -
Impairment of investments and other
receivables 6 (28.2) (21.0)
(655.5) (1.4)
Administration expenses (31.0) (43.4)
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Operating loss (686.5) (44.8)
============================================= ==== ======= =======
Finance income 7 0.5 0.5
Finance costs 8 (24.1) (21.2)
Other finance income 7 20.5 11.9
Other finance costs 8 (0.6) -
Change in fair value of derivative
financial instruments 16 (14.5) (5.2)
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Net finance costs (18.2) (14.0)
============================================= ==== ======= =======
(704.7) (58.8)
Share of post-tax loss from joint
ventures 14 - (2.5)
============================================= ==== ======= =======
Loss before tax (704.7) (61.3)
============================================= ==== ======= =======
Current tax 0.8 (2.1)
Deferred tax 0.2 1.1
============================================= ==== ======= =======
Taxation 9 1.0 (1.0)
============================================= ==== ======= =======
Loss for the year from continuing
operations (703.7) (62.3)
============================================= ==== ======= =======
Discontinued operation
Profit/(loss) for the year from discontinued
operation 10 1.0 (245.5)
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Loss for the year (702.7) (307.8)
============================================= ==== ======= =======
Loss attributable to:
Owners of the Parent (702.7) (253.6)
Non-controlling interest - (54.2)
============================================= ==== ======= =======
Earnings per share attributable to owners of
the Parent(2)
============================================================ =======
Basic and diluted loss per share (82.5)p (29.7)p
============================================= ==== ======= =======
Earnings per share from continuing operations
attributable to owners of the Parent(2)
============================================================ =======
Basic and diluted loss per share 12 (82.6)p (7.3)p
============================================= ==== ======= =======
Weighted average number of shares 12 852.0m 855.5m
============================================= ==== ======= =======
1. Included in rental expenses is GBP25.1 million (2019: GBP1.6
million) of expected credit loss relating to bad debt expense in
relation to rent receivables and impairment of tenant lease
incentives. Rental expenses also include GBP16.7 million of lease
modification expenses. See note 4 'Rental Expenses' for further
information.
2. Earnings per share from the discontinued operation are shown
in note 12 'Earnings per Share and Net Assets per Share'.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
2020 2019
Note GBPm GBPm
===================================== ==== ======= =======
Loss for the year (702.7) (307.8)
Total comprehensive income/(expense)
for the year (702.7) (307.8)
===================================== ==== ======= =======
Attributable to:
Owners of the Parent (702.7) (253.6)
Non-controlling interest - (54.2)
===================================== ==== ======= =======
Arising from:
Continuing operations (703.7) (62.3)
Discontinued operation 10 1.0 (245.5)
===================================== ==== ======= =======
CONSOLIDATED Balance sheet
As at 31 December 2020
2020 2019
Note GBPm GBPm
======================================== ==== ========= =======
Non-current assets
Investment and development property 13 1,795.8 2,545.5
Property, plant and equipment 4.4 5.7
Investment in joint ventures 14 0.3 0.3
Financial assets at fair value
through profit or loss 15 551.8 -
Deferred tax 22 6.8 6.6
Trade and other receivables 17 118.2 248.8
2,477.3 2,806.9
======================================== ==== ========= =======
Current assets
Trade and other receivables 17 65.7 139.4
Cash and cash equivalents 18 365.1 153.1
========================================= ==== ========= =======
430.8 292.5
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Total assets 2,908.1 3,099.4
========================================= ==== ========= =======
Non-current liabilities
Borrowings, including lease liabilities 20 (1,079.0) (555.3)
Derivative financial instruments 16 (22.5) (3.6)
(1,101.5) (558.9)
======================================== ==== ========= =======
Current liabilities
Borrowings, including lease liabilities 20 (1.6) (1.6)
Tax liabilities (1.0) (2.1)
Trade and other payables 19 (44.3) (59.3)
(46.9) (63.0)
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Total liabilities (1,148.4) (621.9)
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Net assets 1,759.7 2,477.5
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Equity
======================================== ==== ========= =======
Share capital 23 212.8 213.6
Other components of equity 1,546.9 2,263.9
========================================= ==== ========= =======
Equity attributable to owners
of the Parent 1,759.7 2,477.5
========================================= ==== ========= =======
CONSOLIDATED STATEMENT OF changes in equity
For the year ended 31 December 2020
Equity attributable to owners of the Parent
========================================================================================
Capital Share-based
Share Share redemption Merger payment Other Retained Total
capital premium reserve reserve(1) reserve reserves earnings equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ==== ======== ======== =========== =========== =========== ========= ========= =======
Balance at 1 January
2020 213.6 228.9 - 367.6 6.0 (0.4) 1,661.8 2,477.5
Loss for the year - - - - - - (702.7) (702.7)
Total comprehensive
expense for the
year - - - - - - (702.7) (702.7)
==================== ==== ======== ======== =========== =========== =========== ========= ========= =======
Transactions with
owners
Ordinary shares
issued(2) 23 0.7 3.3 - - - - - 4.0
Share buyback 23 (1.5) - 1.5 - - - (11.8) (11.8)
Dividends 11 - - - - - - (8.5) (8.5)
Realisation of
merger reserve(1) - - - (53.9) - - 53.9 -
Realisation of
share-based
payment
reserve on issue
of shares - - - - (0.9) - 0.8 (0.1)
Fair value of
share-based
payment - - - - 1.3 - - 1.3
Total transactions
with owners (0.8) 3.3 1.5 (53.9) 0.4 - 34.4 (15.1)
========================== ======== ======== =========== =========== =========== ========= ========= =======
Balance at 31
December
2020 212.8 232.2 1.5 313.7 6.4 (0.4) 993.5 1,759.7
==================== ==== ======== ======== =========== =========== =========== ========= ========= =======
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. Realised merger reserve relates to the
Wellington block disposed of in the year as the properties were
originally acquired using proceeds from the share placements. In
the prior year the realised merger reserve related to properties
held in Earls Court Properties and Floral Court that were disposed
of during 2019.
2. Share premium includes GBP3.3 million of ordinary shares
issued relating to the bonus issue in lieu of cash dividends. Refer
to note 11 'Dividends' for further information.
CONSOLIDATED STATEMENT OF changes in equity
For the year ended 31 December 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
Note 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 year - - - - - (253.6) (253.6) (54.2) (307.8)
Total comprehensive
expense for the
year
ended 31 December
2019 - - - - - (253.6) (253.6) (54.2) (307.8)
=================== ======= ======== ========== =========== ======== ======== ======= ============ =======
Transactions with
owners
Ordinary shares
issued(2) 23 0.9 3.3 - - - (0.4) 3.8 - 3.8
Dividends 11 - - - - - (12.7) (12.7) - (12.7)
Realisation of
merger
reserve(1) - - (54.2) - - 54.2 - - -
Realisation of
share-based
payment reserve
on
issue of shares - - - (3.5) - 6.2 2.7 - 2.7
Fair value of
share-based
payment - - - 0.9 - - 0.9 - 0.9
Realisation of
cash
flow hedge - - - - 0.2 - 0.2 - 0.2
Contribution from
non-controlling
interest - - - - - - - 1.0 1.0
Derecognition of
non-controlling
interest at
disposal - - - - - - - (194.2) (194.2)
Total transactions
with owners 0.9 3.3 (54.2) (2.6) 0.2 47.3 (5.1) (193.2) (198.3)
=================== ======= ======== ========== =========== ======== ======== ======= ============ =======
Balance at 31
December 2, 477
2019 213.6 228.9 367.6 6.0 (0.4) 1,661.8 2,477.5 - .5
=================== ======= ======== ========== =========== ======== ======== ======= ============ =======
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. Realised merger reserve relates to
properties held in Earls Court Properties and Floral Court that
were disposed of during the year, as the properties were originally
acquired using proceeds from the share placements.
2. Share premium includes GBP3.2 million of ordinary shares
issued relating to the bonus issue of shares in lieu of cash
dividends. Refer to note 11 'Dividends' for further
information.
CONSOLIDATED STATEMENT OF cash flowS
For the year ended 31 December 2020
2020 2019
Note GBPm GBPm
===================================== ==== ======= =======
Cash flows from operating activities
Cash (utilised)/generated from
operations 26 (32.3) 1.7
Interest paid (22.7) (20.2)
Interest received 0.5 0.5
Tax paid (0.3) (1.4)
===================================== ==== ======= =======
Net cash outflow from continuing
operating activities (54.8) (19.4)
Net cash outflow from discontinued
operating activities 26 - (2.2)
===================================== ==== ======= =======
Net cash outflow from operating
activities (54.8) (21.6)
===================================== ==== ======= =======
Cash flows from investing activities
Purchase and development of
property (23.9) (94.4)
Sale of property 76.8 79.6
Sale of discontinued operation 10 194.1 168.9
Sale of subsidiaries(1) 0.2 0.2
Acquisition of listed equity
investment (500.9) -
Loan advances to/(from) joint
ventures 3.2 (1.5)
===================================== ==== ======= =======
Net cash (outflow)/inflow from
continuing investing activities (250.5) 152.8
Net cash outflow from discontinued
investing activities 10 - (4.8)
===================================== ==== ======= =======
Net cash (outflow)/inflow from
investing activities (250.5) 148.0
===================================== ==== ======= =======
Cash flows from financing activities
Issue of shares - 0.5
Share buyback (11.8) -
Borrowings drawn 26 930.0 105.0
Borrowings repaid 26 (390.0) (105.0)
Principal element of lease
payment (0.9) (0.9)
Purchase and repayment of derivative
financial instruments (5.4) (0.9)
Cash dividends paid 11 (4.6) (9.5)
Net cash inflow/(outflow) from
continuing financing activities 517.3 (10.8)
Net cash inflow from discontinued
financing activities 10 - 5.0
===================================== ==== ======= =======
Net cash inflow/(outflow) from
financing activities 517.3 (5.8)
===================================== ==== ======= =======
Net increase in cash and cash
equivalents 212.0 120.6
Unrestricted cash and cash
equivalents at 1 January 153.1 32.5
Unrestricted cash and cash
equivalents at 31 December 18 365.1 153.1
===================================== ==== ======= =======
1. Sale of subsidiaries includes deferred consideration of
GBP0.2 million (2019: GBP0.2 million) relating to the disposal of
The Brewery by EC&O Limited on 9 February 2012.
NOTES TO THE ACCOUNTS
1 PRINCIPAL ACCOUNTING POLICIES
The financial information set out in this announcement does not
constitute the Group's consolidated financial statements for the
years ended 31 December 2020 or 2019, but is derived from those
financial statements. Statutory financial statements for 2019 have
been delivered to the Registrar of Companies and those for 2020
will be delivered following the Company's Annual General Meeting.
The external auditor has reported on those financial statements;
their report was unqualified, did not draw attention to any matters
by way of emphasis and did not contain statements under section 498
of Companies Act 2006.
The Group's consolidated condensed financial statements are
prepared in accordance with International Financial Reporting
Standards ("IFRS"), as adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union and in accordance
with International Accounting Standards (IAS) in conformity with
the requirements of the Companies Act 2006. While the financial
information included in this preliminary announcement has been
prepared in accordance with the recognition and measurement
criteria of IAS in conformity with the requirements of the
Companies Act 2006 and IFRS adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union and complies with the
disclosure requirements of the Listing Rules of the UK Financial
Conduct Authority, this announcement does not itself contain
sufficient information to comply with IASs and IFRSs. The Group
expects to publish full financial statements that comply with IFRS
in March 2021.
The consolidated condensed financial statements have been
prepared under the historical cost convention as modified for the
revaluation of property and derivative financial instruments.
The accounting policies used by the Group in these condensed
financial statements are consistent with those applied in the
Group's financial statements for the year to 31 December 2019, as
amended to reflect the adoption of new standards, amendments and
interpretations which became effective in the year.
In the current year, the Group has applied the below amendments
to IFRS Standards and Interpretations issued by the Board that are
effective for annual periods that begin on or after 1 January 2020.
Their adoption has not had any material impact on the disclosures
or on the amounts reported in these condensed financial
statements.
Amendments to References to the Conceptual Framework in IFRS
Standards
IAS 1 'Presentation of Financial Statements' (amendment)
(Definition of material)
IAS 8 'Accounting Policies, Changes in Accounting Estimates and
Errors' (amendment) (Definition of material)
IFRS 3 'Business Combinations' (amendment) (Definition of a
business)
IFRS 7 'Financial Instruments: Disclosures' (amendment)
(Interest Rate Benchmark Reform)
IFRS 9 'Financial Instruments' (amendment) (Interest Rate
Benchmark Reform)
IFRS 16 'Leases' (amendment) (COVID-19 related Rent
Concessions)
Amendments to IFRS (Annual improvements cycle 2015-2017)
At the date of approval of the consolidated condensed financial
statements the following standards and interpretations which have
not been applied in these condensed financial statements were in
issue but not effective, and in some cases have not been adopted
for use in the European Union pursuant to Regulation (EC) No
1606/2002:
IAS 1 'Presentation of Financial Statements' (amendment)
(Classification of Liabilities as Current and Non-Current)
IFRS 3 'Business Combinations' (amendment) (Reference to
Conceptual Framework)
IAS 16 'Property, Plant and Equipment' (amendment) (Proceeds
before Intended Use)
IFRS 10 and IAS 28 (amendments) (Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture)
IAS 37 'Provisions, Contingent Liabilities and Contingent
Assets' (Onerous contracts - Cost of fulfilling a contract)
Amendments to IFRS (Annual improvements cycle 2018-2020)
The Group has assessed the impact of these new standards and
interpretations and does not anticipate any material impact on the
condensed financial statements.
Going concern
Taking account of current market conditions and significant
uncertainties resulting from COVID-19, the Directors continue to
assess the impact of the pandemic on the business in particular
focusing on the appropriateness of adopting the going concern basis
in preparing the consolidated condensed financial statements. The
Group's going concern assessment covers the period to 30 June 2022,
being a period of at least 12 months from the date of authorisation
of these consolidated condensed financial statements (the "going
concern period").
The Group's conservative base case assumes a gradual recovery in
business and consumer sentiment, including the implementation over
time of easing measures in relation to COVID-19. A recovery in
footfall and sales has been assumed from the second half of 2021
onwards, driven by the vaccination programme and restrictions being
eased enabling non-essential retail and hospitality operators to
reopen. The outlook for international travel remains uncertain,
however it is anticipated that footfall and sales return to pre
COVID-19 levels by the end of 2023.
Severe but plausible downside scenario
In determining the potential impact of COVID-19, the Group has
also assessed a "severe but plausible" downside scenario which
takes into account current and potential further UK Government
restrictions in response to the pandemic. This includes the
following key assumptions:
-- Rent concessions, including turnover-linked arrangements over
the near term, continue to be provided to a range of tenants,
focusing particularly on the retail, F&B and leisure sectors
combined with extended voids and further tenant failures, leading
to a substantial reduction in forecast net rental income over the
going concern period. The rental concessions provided to tenants,
notably rent free periods, create a divergence between cash
collected and reported net rental income as rent-free periods are
amortised over the lease term. These assumptions have also been
factored into the expected credit loss assessment.
-- Declines in rental values, the impact of which will be seen
through lease breaks, expiries or defaults, along with a widening
of yields, result in further reduced asset values and a significant
reduction in rental income.
The Group has a strong balance sheet with net debt to gross
assets of 28 per cent and access to cash and undrawn facilities of
GBP1 billion as at 31 December 2020. As at the year end, the Covent
Garden group had net debt of GBP352 million and there is
substantial headroom against the Covent Garden loan to value
covenant with a loan to value ratio of 19 per cent. The Covent
Garden debt matures between 2022 and 2037, with the December 2022
maturity relating to the revolving credit facility which is
substantially undrawn. No material debt facilities are due to
mature during the going concern period, no new financing is assumed
during the going concern period and existing facilities are assumed
to remain available.
The Group has long-term relationships with its lenders, and the
Directors believe that the Group's lenders will continue to view
the Group as a well-positioned customer throughout the going
concern period. The Group's financial resources are expected to be
sufficient to cover forecast property operating costs,
administrative expenses, finance and other costs over the going
concern period. The Covent Garden debt facilities have two
principal financial covenants, being a loan to value ratio of up to
60 per cent and interest cover of at least 120 per cent. Each of
these is tested as at or in respect of the six months ending 30
June and the 12 months ending 31 December.
The independent property valuation could withstand a further 68
per cent decline during the going concern period before a breach of
the LTV covenant, absent any mitigating actions which the Group may
take. Due to the anticipated impact on reported net rental income
of COVID-19, a waiver of the interest cover covenant has been
agreed with the Covent Garden lenders in relation to the period up
to and including 31 December 2021, in addition to that already in
place for 31 December 2020. During the remainder of the going
concern period (being the first half of 2022) there is projected to
be headroom against the interest cover covenant even in the severe
but plausible scenario. Mitigating actions, including those within
the Group's control such as reducing certain discretionary expenses
and/or finance costs, would provide further substantial
headroom.
Conclusion
Based on their analysis the Directors are satisfied that there
is a reasonable expectation that the Group will be able to meet its
ongoing and future commitments for at least 12 months from the date
of approval of the consolidated condensed financial statements and
have therefore resolved that the condensed financial statements be
prepared on a going concern basis.
Critical accounting judgements and key sources of estimation and
uncertainty
The preparation of consolidated condensed 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.
The significant areas of estimation and uncertainty are:
Property valuation: The most significant area of estimation and
uncertainty in the consolidated condensed financial statements is
in respect of the valuation of the property portfolio, where
external valuations are obtained.
The fair value of the Group's investment, development and
trading property at 31 December 2020 was determined by independent,
appropriately qualified external valuers CBRE for the Covent Garden
estate and JLL for Lillie Square. The valuations conform to the
Royal Institution of Chartered Surveyors ("RICS") Valuation
Professional Standards.
As various inputs used in the valuation calculations are based
on assumptions, property valuations are inherently subjective and
subject to a degree of uncertainty. Our external valuers have made
a number of assumptions as outlined within note 13 'Property
Portfolio' in forming their opinion on the valuation of our
investment and trading properties and although these assumptions
are in accordance with the RICS Valuation Professional Standards,
if any prove to be incorrect, it may mean that the value of the
Group's properties differs from their valuation reported in the
condensed financial statements, which could have a material effect
on the Group's financial position.
Impairment of trade receivables: COVID-19 has caused significant
operational and financial challenges to our tenants and as a result
tenant default risk has increased with rent collections
significantly impacted. In view of disruption to business and
consumer activity, bespoke support has been provided to customers
on a case-by-case basis, which includes rent deferrals, rent-free
periods and other arrangements reflecting the position of each
customer.
Assumptions are involved in the calculation of the impairment
provision, using the expected credit loss model within IFRS 9, in
respect of rent receivable balances outstanding at the period end.
The expected credit loss rates are based on forward-looking
information as well as historical evidence of collection with the
Q2 to Q4 2020 quarterly collection statistics providing nine months
of information as an indication of the COVID-19 trading period.
However, in the current market, with greater uncertainty,
additional information has been reviewed in calculating the
expected credit loss. All tenants are allocated a risk rating, as
determined by management, and provided a rating of maximum, high,
medium and low risk. Maximum risk tenants, which account for 10 per
cent of the commercial portfolio, are predominantly in the retail
and F&B sector. The classification is developed by taking into
consideration information on the tenant's credit rating, current
financial position, historical trading performance, historical
default
rate and the current impact of COVID-19 on the operational
performance of the business.
In assessing the provision the Group identifies risk factors
associated by sector (food and beverage, retail, office, leisure
and residential) and the type of rent receivable outstanding (rent
arrears, service charge, insurance, other). In determining the
provision on a tenant-by-tenant basis, the Group considers both
recent payment history and future expectations of the tenant's
ability to pay or possible default in order to recognise an
expected credit loss allowance. Based on sector and rent receivable
type a provision is provided in additional to full provision for
maximum risk tenants or known issues.
The provision for expected credit loss against rent receivables
is GBP12.4 million (2019: GBP1.4 million) and is included within
the rent receivable balance included in note 17 'Trade and Other
Receivables'. An overall expense has been recorded through net
rental income of GBP14.0 million (2019: GBP1.6 million) reflecting
the rent receivables derecognised in the year for tenant failures
or tenants who have vacated as well as the movement on the balance
sheet provision. The year end balance sheet provision is GBP12.4
million.
Retail and F&B represents approximately 75 per cent of the
Group's portfolio and have been the sectors most impacted by
COVID-19 and government restrictions, with these sectors making up
over 85 per cent of the rent receivable balance. Tenants classified
as maximum risk have been provided in full. High and medium risk
tenants within the retail and F&B sectors represented 52 per
cent of the overall provision and the Group have effectively
provided for 44 per cent of the arrears. If the expected credit
loss was increased by ten per cent the provision would increase by
GBP0.5 million, and including low risk tenants would increase this
to GBP0.7 million. If the expected credit loss was reduced by ten
per cent the provision would decrease by GBP0.7 million and
including low risk tenants would reduce the provision by GBP0.9
million.
The key areas of accounting judgement are:
Property classification: Judgement is required in the
classification of property between investment and development,
trading and owner occupied. Management considers each property
separately and reviews factors including the long-term intention
for the property, in determining if trading, and the level of
ancillary income, in determining if owner occupied, to ensure the
appropriate classification.
Other less significant judgements and sources of estimation and
uncertainty relate to revenue recognition, REIT compliance,
significant disposals, scope of consolidation, provisions,
share-based payment and contingent liabilities.
New accounting policies
New accounting policies adopted during the year ended 31
December 2020 are set out below:
Investments and other financial assets
On initial recognition, a financial asset is classified as
measured at amortised cost, fair value through other comprehensive
income, or fair value through profit or loss.
Financial assets are not reclassified subsequent to their
initial recognition unless the Group changes its business model for
managing financial assets, in which case all affected financial
assets are reclassified on the first day of the first reporting
period following the change in the business model.
For assets measured at fair value through profit or loss, gains
and losses will be recorded in profit or loss.
Purchases and sales of financial assets are recognised on trade
date, being the date on which the Group commits to purchase or sell
the asset. Financial assets are derecognised when the rights to
receive cash flows from the financial assets have expired or have
been transferred and the Group has transferred substantially all
the risks and rewards of ownership.
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss, transaction costs that are directly
attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at fair value through profit or
loss are expensed in profit or loss.
Financial assets at fair value through profit or loss comprise
listed equity investments. The Group subsequently measures all
equity investments at fair value. Changes in the fair value of
financial assets at fair value through profit or loss are
recognised in other gains or losses in the statement of profit or
loss as applicable.
Borrowings
Compound financial instruments issued by the Group comprise
exchangeable bonds that are convertible into shares of another
entity. The exchangeable bonds are bifurcated into a liability and
embedded derivative option component on initial recognition. The
carrying value of the liability at initial recognition is the
difference between the fair value of the entire instrument as a
whole and the embedded derivative's fair value. Any directly
attributable transaction costs are allocated to each component in
proportion to their initial carrying amounts. The issue costs
apportioned to the embedded derivative are recognised immediately
in the income statement.
Subsequent to initial recognition, the liability component of a
compound financial instrument is measured at amortised cost using
the effective interest method. Any transaction costs apportioned to
the liability is included in the carrying amount and recognised
over the contractual life of the liability using the effective
interest rate method.
Interest related to the financial liability is recognised in
profit or loss. The embedded derivative is measured at fair value
with the fair value adjustment accounted for directly through
profit or loss.
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, underlying
earnings per share and net asset value.
For management and reporting purposes the Group is organised
into the following divisions:
- Covent Garden;
- Other comprises the Shaftesbury Investment, Innova, The Great
Capital Partnership, Earls Court Properties (up until disposal on
29 November 2019) and other head office companies and investments,
including the payment of internal rent;
- Lillie Square represents the Group's interests in Lillie
Square and a number of smaller properties in the adjacent area.
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%
Other
Other, including the investment in Shaftesbury 100%
Innova 50%
GCP 50%
Earls Court Properties(1) 0%
Lillie Square
Lillie Square joint venture 50%
Lillie Square Holding Group 100%
================================================= ===========
1. Earls Court Properties represented the Group's interest in
the Earls Court area comprising properties held in ECPL and EC
Properties LP. ECPL was 63 per cent owned until 29 November 2019.
EC Properties LP was 100 per cent owned until 29 November 2019.
Subsequent to this the Group share ownership in ECPL and EC
Properties LP is nil.
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
2020
==================================================================
Covent Lillie Group Consolidation IFRS
Garden Other Square total adjustments total
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm
============================= ========= ======= ======== ========= ============== =========
Rental income 73.9 - 1.9 75.8 (1.9) 73.9
Proceeds from sale of
trading property - - 64.9 64.9 (64.9) -
Other costs - (0.4) - (0.4) (0.5) (0.9)
============================= ========= ======= ======== ========= ============== =========
Revenue 73.9 (0.4) 66.8 140.3 (67.3) 73.0
============================= =========
Rent receivable 68.8 - 0.2 69.0 (0.2) 68.8
Service charge income 5.1 - 1.7 6.8 (1.7) 5.1
============================= ========= ======= ======== ========= ============== =========
Rental income 73.9 - 1.9 75.8 (1.9) 73.9
Property and service charge
expenses (15.8) (0.4) (2.0) (18.2) 2.0 (16.2)
Bad debt expenses (14.0) - - (14.0) - (14.0)
============================= ========= ======= ======== ========= ============== =========
Underlying net rental
income/(expense) 44.1 (0.4) (0.1) 43.6 0.1 43.7
Lease modification and
impairment of tenant lease
incentives (27.8) - - (27.8) - (27.8)
============================= ========= ======= ======== ========= ============== =========
Net rental income/(expense) 16.3 (0.4) (0.1) 15.8 0.1 15.9
Profit on sale of trading
property - - 8.9 8.9 (8.9) -
Write down of trading
property - - (1.4) (1.4) 1.4 -
Other costs - (0.5) - (0.5) (0.5) (1.0)
Loss on revaluation and
sale of investment and
development property (692.6) - (0.7) (693.3) 0.2 (693.1)
Impairment of investments
and other receivables - - - - (28.2) (28.2)
Change in fair value of
financial asset at fair
value through profit or
loss - 50.9 - 50.9 - 50.9
Segment (loss)/profit (676.3) 50.0 6.7 (619.6) (35.9) (655.5)
============================= ========= ======= ======== ========= ============== =========
Unallocated costs:
Administration expenses (31.5) 0.5 (31.0)
============================= ========= ======= ======== ========= ============== =========
Operating loss (651.1) (35.4) (686.5)
Net finance costs(1) (29.7) 11.5 (18.2)
Loss before tax (680.8) (23.9) (704.7)
Taxation 1.0 - 1.0
============================= ========= ======= ======== ========= ============== =========
Loss for the year from
continuing operations (679.8) (23.9) (703.7)
Discontinued operation
Profit for the year from
discontinued operation 1.0 - 1.0
Loss for the year (678.8) (23.9) (702.7)
Loss attributable to:
Owners of the Parent (678.8) (23.9) (702.7)
Summary balance sheet
Total segment assets(2) 2,209.6 586.8 137.1 2,933.4 (46.8) 2,886.6
Total segment liabilities(2) (740.5) (408.3) (12.9) (1,161.7) 13.4 (1,148.3)
============================= ========= ======= ======== ========= ============== =========
Segmental net assets 1,469.1 178.5 124.2 1,771.7 (33.4) 1,738.3
Unallocated assets(1) 21.4 - 21.4
============================= ========= ======= ======== ========= ============== =========
Net assets 1,793.1 (33.4) 1,759.7
============================= ========= ======= ======== ========= ============== =========
Other segment items:
Depreciation (0.3) (1.2) - (1.5) - (1.5)
Capital expenditure (19.1) - (8.1) (27.2) 7.0 (20.2)
============================= ========= ======= ======== ========= ============== =========
1. Represents Group cash held outside of the Covent Garden
group. The Group operates a central treasury function which manages
and monitors the Group's finance income and costs on a net basis
and a portion of the Group's cash balances.
2. Total segmental assets and total segmental liabilities
exclude loans between and investments in Group undertakings.
Reportable segments
2019
=============================================== =====================================================================
Covent Lillie Group IFRS
Garden Other Square total Consolidation adjustments total
GBPm GBPm GBPm GBPm GBPm GBPm
=============================================== ======= ====== ======= ======= ========================= =======
Rental income 77.6 - 0.8 78.4 (0.8) 77.6
Proceeds from sale of trading property - - 5.1 5.1 (5.1) -
Other income - 0.9 - 0.9 0.9 1.8
=============================================== ======= ====== ======= ======= ========================= =======
Revenue 77.6 0.9 5.9 84.4 (5.0) 79.4
=============================================== ======= ====== ======= ======= ========================= =======
Rent receivable 72.7 - 0.2 72.9 (0.2) 72.7
Service charge income 4.9 - 0.6 5.5 (0.6) 4.9
=============================================== ======= ====== ======= ======= ========================= =======
Rental income 77.6 - 0.8 78.4 (0.8) 77.6
Property and service charge expenses (14.5) (0.3) (0.8) (15.6) 0.7 (14.9)
Bad debt expenses (1.6) - - (1.6) - (1.6)
=============================================== ======= ====== ======= ======= ========================= =======
Net rental income/(expense) 61.5 (0.3) - 61.2 (0.1) 61.1
Profit on sale of trading property - - 0.9 0.9 (0.9) -
Other income - 0.9 - 0.9 0.9 1.8
Loss on revaluation and sale of investment and
development property (43.3) - - (43.3) - (43.3)
Impairment of other receivables - (15.0) - (15.0) (6.0) (21.0)
Write down of trading property - - (0.4) (0.4) 0.4 -
Segment profit/(loss) 18.2 (14.4) 0.5 4.3 (5.7) (1.4)
=============================================== ======= ====== ======= ======= ========================= =======
Unallocated costs:
Administration expenses (42.6) (0.8) (43.4)
=============================================== ======= ====== ======= ======= ========================= =======
Operating loss (38.3) (6.5) (44.8)
Net finance costs(1) (25.6) 11.6 (14.0)
Share of post-tax loss from joint ventures - (2.5) (2.5)
Loss before tax (63.9) 2.6 (61.3)
Taxation (1.0) - (1.0)
=============================================== ======= ====== ======= ======= ========================= =======
Loss for the year from continuing operations (64.9) 2.6 (62.3)
=============================================== ======= ====== ======= ======= ========================= =======
Discontinued operation
=============================================== ======= ====== ======= ======= ========================= =======
Loss for the year from discontinued operation (245.5) - (245.5)
=============================================== ======= ====== ======= ======= ========================= =======
Loss for the year (310.4) 2.6 (307.8)
=============================================== ======= ====== ======= ======= ========================= =======
Loss attributable to:
Owners of the Parent (256.2) 2.6 (253.6)
Non-controlling interest (54.2) - (54.2)
Summary balance sheet
Total segment assets(2) 2,617.8 223.7 189.7 3,031.2 (84.9) 2,946.3
Total segment liabilities(2) (600.9) (20.0) (76.3) (697.2) 75.3 (621.9)
=============================================== ======= ====== ======= ======= ========================= =======
Segmental net assets 2,016.9 203.7 113.4 2,334.0 (9.6) 2,324.4
Unallocated assets(1) 153.1 - 153.1
=============================================== ======= ====== ======= ======= ========================= =======
Net assets 2,487.1 (9.6) 2,477.5
=============================================== ======= ====== ======= ======= ========================= =======
Other segment items:
Depreciation (0.2) (1.1) - (1.3) - (1.3)
Capital expenditure(3) (94.3) (6.1) (32.2) (132.6) 28.5 (104.1)
=============================================== ======= ====== ======= ======= ========================= =======
1. 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.
2. Total segmental assets and total segmental liabilities
exclude loans between and investments in Group undertakings. Total
segment assets for Other includes GBP200.8 million which is the
discounted balance of the deferred consideration from the sale of
Earls Court Properties which is receivable in two equal
instalments, 12 months and 24 months after completion.
3. Capital expenditure for Other includes GBP6.1 million
relating to Earls Court Properties which was disposed of on 29
November 2019.
3 UNDERLYING EARNINGS
The Group has applied the European Securities and Markets
Authority ("ESMA") guidelines on alternative performance measures
("APMs") in these annual 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.
One of the key performance measures the Group uses is underlying
earnings. 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. Items that are
excluded are net valuation gains/losses (including profits/losses
on disposals), fair value changes, impairment charges, net
refinancing charges, costs of termination of derivative financial
instruments and other non-recurring costs and income.
Due to the impact of COVID-19 the calculation of underlying
earnings has been reviewed and it has been determined to remove the
impairment of tenant incentives and lease modification expenses
recorded in rental expenses from underlying earnings. The GBP16.7
million lease modification expenses comprise directly attributable
lease costs previously held on balance sheet and amortised in
accordance with IFRS 16.These non-cash costs have been incurred as
a result of the Group providing rental support to its tenants
during the COVID-19 pandemic and written off in the current period
in accordance with our accounting policy. The GBP11.1 million costs
relate to impairment of tenant incentives in respect of tenants who
have entered administration or are experiencing significant
disruption to cash flows.
Given the scale of the rental support provided to tenants in
2020 these non-cash lease modification expenses and impairment of
incentives are highly material and at levels not experienced in the
past nor expected to be incurred once tenant support measures
required as a result of COVID-19 conclude. Accordingly they have
been excluded from underlying profit on that basis, as disclosed in
our APM policy. Details of all APMs used by the Group are set out
in the APM section on page 68.
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. Underlying earnings is reported on a Group
share basis.
The calculation of underlying earnings per share, reconciled to
the IFRS loss for the year, is set out below:
2020 2019
Continuing operations Note GBPm GBPm
================================================ ==== ======= ======
Net rental income 43.6 61.2
Other (costs)/income (0.5) 0.9
Administration costs (25.0) (32.9)
================================================ ==== ======= ======
Operating profit 18.1 29.2
================================================ ==== ======= ======
Finance costs (24.3) (21.4)
Finance income 0.5 0.5
================================================ ==== ======= ======
Net finance costs (23.8) (20.9)
(Loss)/profit before tax (5.7) 8.3
Taxation (0.5) 1.2
================================================ ==== ======= ======
Underlying (loss)/earnings from continuing
operations (6.2) 9.5
================================================ ==== ======= ======
Underlying loss from discontinued operations 10 - (0.5)
================================================ ==== ======= ======
Underlying (loss)/earnings (6.2) 9.0
================================================ ==== ======= ======
Underlying (loss)/earnings per share from
continuing operations (pence) (0.7) 1.1
Underlying loss per share from discontinued
operations (pence) - (0.1)
================================================ ==== ======= ======
Underlying (loss)/earnings per share (pence) (0.7) 1.0
================================================ ==== ======= ======
Weighted average number of shares in issue 12 852.0m 855.5m
================================================ ==== ======= ======
Reconciliation to IFRS:
Underlying (loss)/ earnings from continuing
operations (6.2) 9.5
Adjustment to reconcile to IFRS:
Lease modification expense 4 (16.7) -
Impairment of tenant lease incentives 4 (11.1) -
Loss on revaluation and sale of investment
and development property 5 (693.1) (43.3)
Impairment of investments and other receivables 6 (28.2) (21.0)
Transaction related administration expenses (6.5) (9.7)
Other finance income 7 20.5 11.9
Other finance costs 8 (0.6) -
Change in fair value of derivative financial
instruments 16 (14.5) (5.2)
Change in fair value of financial asset at
fair value through profit or loss 15 50.9 -
Taxation 1.5 (2.2)
Other 0.3 (2.3)
Loss for the year from continuing operations (703.7) (62.3)
================================================ ==== ======= ======
4 RENTAL EXPENSES
2020 2019
Continuing operations GBPm GBPm
========================================= ===== =====
Property expenses(1) 11.1 10.0
Service charge costs 5.1 4.9
Bad debt expenses 14.0 1.6
===== =====
Total property outgoings 30.2 16.5
========================================= ===== =====
Lease modification expenses(2) 16.7 -
Impairment of tenant lease incentives(2) 11.1 -
=========================================
Rental expenses 58.0 16.5
========================================= ===== =====
1. Included in property expenses for the current year is GBP1.2
million of COVID-19 related security, cleaning and equipment
costs.
2. Lease modification expenses and impairment of tenant lease
incentives have been excluded from underlying earnings. See note 3
'Underlying Earnings' for further details.
5 LOSS ON REVALUATION AND SALE OF INVESTMENT AND DEVELOPMENT
PROPERTY
2020 2019
Continuing operations GBPm GBPm
===================================== ===== =====
Loss on revaluation of investment
and development property 692.2 41.1
Loss on sale of investment and
development property 0.9 2.2
===================================== ===== =====
Loss on revaluation and sale of
investment and development property 693.1 43.3
===================================== ===== =====
6 IMPAIRMENT OF INVESTMENT AND OTHER RECEIVABLES
2020 2019
Continuing operations GBPm GBPm
============================== ===== =====
Impairment of investments and
other receivables 28.2 21.0
============================== ===== =====
Following an impairment review of amounts receivable from joint
ventures by the Group, a net impairment of GBP28.2 million (2019:
GBP 21.0 million) has been recognised. The impairment of GBP28.2
million (2019: GBP21.0 million) consisted of GBP28.2 million (2019:
GBP8.5 million) in relation to the Lillie Square joint venture and
GBPnil (2019: GBP12.5 million) in relation to the Group's
investment in the Innova joint venture.
The Lillie Square joint venture is in a net liability position.
It incurs amortisation charges on deep discount bonds that were
issued to the Group and KFI which has contributed to the cumulative
losses. The Group has recognised GBP11.3 million (2019: GBP11.3
million) finance income on these deep discount bonds. Although the
Group's investment in the Lillie Square joint venture has been
previously fully impaired and the Group's carrying value of
investment in Lillie Square is GBPnil, the Group has issued funding
to the joint venture in the form of a working capital loan and deep
discount bonds.
An impairment assessment was performed in accordance with IFRS 9
'Financial Instruments' comparing the carrying amount of the loan
and deep discount bonds to the present value of the estimated
future cash flows from the joint venture. This has resulted in a
write down of GBP28.2 million (2019: GBP8.5 million) during the
year, of which GBP3.1 million has been recognised against the
working capital loan (2019: GBP1.2 million) and GBP25.1 million
against the deep discount bonds (2019: GBP7.3 million).
The key assumptions made in the impairment assessment were the
cash flows to be generated over the project life and the timing
thereof. In terms of IFRS 9 requirements the Group applied a
pre-tax discount rate of 12 per cent, being the historical
effective interest rate on the deep discount bonds to the cash
flows which are in line with the strategic plan of the joint
venture. As a result, the Group concluded that the recoverable
amounts were not greater than the carrying amounts and an
impairment was required.
A sensitivity analysis was performed to consider the impact of
reasonably possible changes to the assumptions. By way of
illustration, a delay to the timing of the cash flows as a result
of COVID-19 and other market conditions by an additional six months
would have resulted in an impairment charge of GBP32.3 million.
Alternatively, a reduction to net cash flows of five per cent would
have resulted in an impairment of GBP31.9 million.
Impairment of amounts receivable from joint ventures recognised
by the Group of GBP28.2 million (cumulative GBP103.7 million) and
the finance income on the Lillie Square deep discount bonds of
GBP11.3 million have been calculated based on the requirements
under IFRS 9 'Financial Instruments'. The accounting for the
Group's deep discount bonds differs from the Lillie Square joint
venture based on a difference arising in the application of
derecognition guidance under IFRS 9 'Financial Instruments', which
is different for financial assets and financial liabilities. An
amendment to the terms of the deep discount bonds in 2018 resulted
in a derecognition of the financial liability in the Lillie Square
joint venture and a new financial liability being recognised based
on the revised terms of the bond. The application of the
derecognition guidance in IFRS 9 to the financial asset recognised
by the Group for the deep discount bonds resulted in a modification
to the carrying value of the balance rather than derecognition. Had
the Group recognised a new financial asset based on the revised
terms of the bond in 2018, the current year impairment of the deep
discount bonds from the joint venture would have been GBPnil
(cumulative GBP59.5 million) and the finance income on the deep
discount bonds would have been GBP6.9 million, compared to GBP11.3
million in the year. The total current year difference between the
financial asset accounting by the Group and the financial liability
accounting by the joint venture is adjusted from EPRA adjusted
earnings and EPRA net assets per share measures to reflect the
accounting mismatch between the two treatments.
7 FINANCE INCOME
2020 2019
Continuing operations GBPm GBPm
============================= ===== =====
Finance income:
On deposits and other 0.5 0.5
============================= ===== =====
Finance income 0.5 0.5
============================= ===== =====
Other finance income:
On deep discount bonds(1) 11.3 11.3
On deferred consideration(2) 9.2 0.6
============================= ===== =====
Other finance income 20.5 11.9
============================= ===== =====
1. Excluded from the calculation of underlying earnings as deep
discount bonds eliminate on a Group share basis due to the Lillie
Square joint venture having the corresponding finance cost.
2. Excluded from the calculation of underlying earnings as the
deferred consideration relates to the proceeds from the sale of
Earls Court Properties during the prior year.
8 FINANCE COSTS
2020 2019
Continuing operations GBPm GBPm
======================================= ===== =====
On bank facilities and loan notes 22.4 20.4
On exchangeable bonds(1) 0.9 -
On obligations under lease liabilities 0.8 0.8
======================================= ===== =====
Finance costs 24.1 21.2
======================================= ===== =====
Other finance costs:
Exceptional finance charges(2) 0.6 -
======================================= ===== =====
Other finance costs 0.6 -
======================================= ===== =====
1. Includes GBP0.3 million of transaction costs.
2. Excluded from the calculation of underlying earnings as the
charges relate to non-recurring costs in connection with debt
covenant waivers during the year. These charges have been
classified as non-underlying as they do not represent the
recurring, underlying performance of the Group.
9 TAXATION
2020 2019
Continuing operations GBPm GBPm
====================================== ===== =====
Current income tax:
Current income tax charge excluding
non-underlying items - 1.4
====================================== ===== =====
Current income tax - 1.4
====================================== ===== =====
Deferred income tax:
On accelerated capital allowances 0.1 (3.4)
On fair value of derivative financial
instruments (1.5) (0.9)
On Group losses 0.4 3.2
On other temporary differences 0.8 0.3
Deferred income tax (0.2) (0.8)
====================================== ===== =====
Adjustments in respect of previous
years - current income tax (0.8) 0.7
Adjustments in respect of previous
years - deferred income tax - (0.3)
Total income tax (credit)/charge
reported in the consolidated income
statement (1.0) 1.0
====================================== ===== =====
As a UK REIT, the Group is exempt from UK corporation tax on
income and gains from qualifying activities. Non-qualifying
activities are subject to UK corporation tax.
As a REIT, Capco must distribute at least 90 per cent of the
Group's income profits from its tax-exempt property rental business
and 100 per cent of the Group's UK REIT investment profits, by way
of a dividend, which is known as a Property Income Distribution
(PID). A corporation tax charge will arise for the Group at 19 per
cent if the minimum PID requirement is not met within 12 months of
the end of the period. Further details regarding the PID is set out
in note 11 'Dividends'.
Tax arising on items recognised in other comprehensive income is
also reflected within other comprehensive income. This includes
deferred tax on movements on the cash flow hedge. Tax arising on
items recognised directly in equity is reflected in equity. This
includes deferred tax on an element of the share-based payment.
Tax on discontinued operations is GBPnil (2019: GBP1.2 million).
As disclosed within note 10 'Discontinued Operation' the prior year
charge relates to tax adjustments in respect of previous years.
Finance Act 2016 set the main rate of UK corporation tax at 19
per cent from 1 April 2017, reducing to 17 per cent from 1 April
2020. As announced in the UK Budget on 11 March 2020 and
substantively enacted on 17 March 2020, the main rate of UK
corporation tax will remain unchanged at 19 per cent. This has been
reflected in the consolidated condensed financial statements.
10 DISCONTINUED OPERATION
On 29 November 2019, the Group sold its interests in Earls
Court, excluding Lillie Square, to APG and Delancey (on behalf of
its client fund) for GBP425 million. As Earls Court Properties
represented a major line of business, its results and cash flows
have been reported for the period 1 January 2019 to 29 November
2019 as having arisen from a discontinued operation.
Profit/(loss) from discontinued operation after tax included in
the consolidated income statement:
2020 2019
GBPm GBPm
========================================== ===== =======
Profit/(loss) from discontinued operation
after tax
Earls Court Properties - (151.3)
Profit/(loss) on disposal of discontinued
operation 1.0 (10.2)
IFRS 5 impairment of discontinued
operation - (84.0)
========================================== ===== =======
Profit/(loss) from discontinued operation
after tax 1.0 (245.5)
========================================== ===== =======
Attributable to:
Owners of the Parent 1.0 (191.3)
Non-controlling interest - (54.2)
========================================== ===== =======
Earls Court Properties
On 29 November 2019, the Group completed the sale of its
interest in Earls Court Properties (excluding Lillie Square) for a
total gross cash consideration of GBP425.0 million, on a cash-free
and debt-free basis. The disposal was in line with the Group's
strategy of monetising investments at Earls Court over time with a
focus on growing its central London property investment business,
centred around Covent Garden. After adjusting for net debt, working
capital adjustments, transaction-related costs and other completion
items, net proceeds received were GBP145.3 million. Based on the
net assets at the date of disposal, after the deduction of an IFRS
5 impairment, a loss of GBP10.2 million was recognised on the
sale.
The balance of the consideration of GBP210.4 million was
receivable in two equal instalments 12 months and 24 months after
completion. It was agreed that the deferred payments receivable by
the Group would be accelerated to the extent that payments made by
Capco to the London Borough of Hammersmith and Fulham pursuant to
the CLSA were refunded to the purchaser after completion and as a
result Capco received an accelerated payment in respect of the
deferred consideration of GBP89.7 million in March 2020. The first
instalment of the deferred consideration of GBP105.0 million was
received in November 2020 with the balance of GBP15.3 million due
November 2021.
The total net assets at the date of disposal were as
follows:
29 November
2019
GBPm
================================================= ===================
Investment and development property 623.7
Other non-current assets 0.4
Cash and cash equivalents 9.2
Other current assets 0.7
Other current liabilities (2.2)
Borrowings (71.5)
Net assets 560.3
================================================= ===================
Non-controlling interest (194.4)
================================================= ===================
Net identifiable assets and liabilities disposed
of 365.9
Net consideration on completion(1) (145.3)
Deferred consideration (210.4)
Loss on disposal of discontinued operation 10.2
================================================= ===================
1. Cash consideration received on completion was GBP174.7
million. This differs to net consideration above by GBP29.4 million
due to transaction-related costs of GBP17.9 million, working
capital adjustments of GBP1.3 million and discounting of the
deferred consideration of GBP10.2 million.
The Earls Court Properties results, which have been included in
the income statement as part of the discontinued operation,
were:
Period
Year ended ended
31 December 29 November
2020 2019
Summarised income statement GBPm GBPm
========================================== ============ ==================
Revenue - 3.6
========================================== ============ ==================
Net rental income - 3.1
Loss on revaluation and sale of
investment and development property - (151.6)
Administration expenses - (4.0)
Operating loss - (152.5)
========================================== ============ ==================
Loss from discontinued operation
before tax - (152.5)
Taxation - 1.2
========================================== ============ ==================
Loss from discontinued operation
after tax(1) - (151.3)
========================================== ============ ==================
IFRS 5 impairment of discontinued
operation - (84.0)
Profit/(loss) on disposal of discontinued
operation(2) 1.0 (10.2)
========================================== ============ ==================
Profit/(loss) on disposal and
IFRS 5 impairment of discontinued
operation 1.0 (94.2)
========================================== ============ ==================
Profit/(loss) for the period from
discontinued operation after tax 1.0 (245.5)
========================================== ============ ==================
Attributable to:
Owners of the Parent 1.0 (191.3)
Non-controlling interest - (54.2)
Underlying earnings/(loss) from
discontinued operation
Profit/(loss) for the period from
discontinued operation 1.0 (191.3)
Group adjustments:
Loss on revaluation and sale of
investment and development property - 151.6
Profit/(loss) on disposal and
IFRS 5 impairment of discontinued
operation (1.0) 94.2
Non-controlling interest in respect
of the Group adjustments - (55.0)
Underlying profit/(loss) from
discontinued operation - (0.5)
========================================== ============ ==================
1. Consists of GBPnil (2019: GBP97.1 million) attributable to
owners of the Parent and GBPnil (2019: GBP54.2 million)
attributable to non-controlling interest.
2. Relates to working capital adjustments in the current
year.
The following table summarises the consideration received, the
net cash flow and loss arising on the disposal of the Earls Court
Properties business:
2020 2019
GBPm GBPm
============================================= ====== =======
Headline consideration - 425.0
Net debt(1) - (39.6)
Working capital and related adjustments(2) (0.6) (0.3)
============================================= ====== =======
(0.6) 385.1
Deferred consideration 194.7 (210.4)
============================================= ====== =======
Cash consideration received on completion(3) 194.1 174.7
Group share of cash transferred with
disposal group - (5.8)
Net cash consideration 194.1 168.9
============================================= ====== =======
1. Net debt represents the Group share of external debt and cash
held on disposal.
2. Current year amount relates to post-completion adjustments on
working capital refunded to the purchaser.
3. Cash consideration received on completion of the disposal in
2019 was GBP174.7 million. Current year cash consideration received
represents the accelerated payment of GBP89.7 million which was
received in March 2020 in respect of payments made by Capco to the
London Borough of Hammersmith and Fulham pursuant to the CLSA that
was refunded by the purchaser after completion and the first
instalment of the deferred consideration of GBP105.0 million which
was received in November 2020.
The Earls Court Properties cash flows, which have been included
in the statement of cash flows as a discontinued operation,
were:
Year Period
ended ended
31 December 29 November
2020 2019
Summarised cash flows GBPm GBPm
======================================= ============ ============
Net cash outflow from discontinued
operating activities - (2.2)
======================================= ============ ============
Purchase and development of property,
plant and equipment - (7.9)
Sale of property - 3.1
Net cash outflow from discontinued
investing activities - (4.8)
Borrowings drawn - 4.0
Contribution from non-controlling
interest - 1.0
Net cash inflow from discontinued
financing activities - 5.0
======================================= ============ ============
Net movement in unrestricted cash
and cash equivalents - (2.0)
Unrestricted cash and cash equivalents
at 1 January - 8.0
======================================= ============ ============
Unrestricted cash and cash equivalents
at period end - 6.0
======================================= ============ ============
11 DIVIDS
2020 2019
GBPm GBPm
========================================= ===== =====
Ordinary shares
Prior year final dividend of
1.0p per share (2019: 1.0p) 8.5 8.5
Interim dividend of nil pence
per share (2019: 0.5p) - 4.2
========================================= ===== =====
Dividend expense 8.5 12.7
Bonus issue in lieu of cash dividends(1) (3.9) (3.2)
========================================= ===== =====
Cash dividends paid 4.6 9.5
========================================= ===== =====
No final dividend had been proposed
for 2020 (2019: 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.
As a REIT, Capco must distribute at least 90 per cent of the
Group's income profits from its tax-exempt property rental business
and 100 per cent of the Group's UK REIT investment profits, by way
of a dividend, which is known as a Property Income Distribution
(PID). These distributions can be subject to withholding tax at 20
per cent. Dividends from profits of the Group's taxable residual
business are non-PID and will be taxed as an ordinary dividend. A
corporation tax charge will arise for the Group at 19 per cent if
the minimum PID requirement is not met within 12 months of the end
of the period.
The Group did not pay a PID in 2020 in relation to income
arising on qualifying activities during its first REIT period from
9 December 2019 to 31 December 2019, for which a GBP0.1 million tax
charge arose. While a decision has not been made on whether the
Group will pay a PID in 2021 in relation to income arising on
qualifying activities in 2020, such a tax charge would be less than
GBP0.1 million.
12 EARNINGS PER SHARE AND NET ASSETS PER SHARE
(a) Weighted average number of ordinary shares
2020 2019
GBPm GBPm
====================================== ===== =====
Number of ordinary shares in issue(1) 852.0 855.5
========================================== ===== =====
Adjustments:
Dilutive effect of contingently
issuable share option awards(2) 0.3 0.7
Dilutive effect of contingently
issuable deferred share awards(2) 0.1 0.5
Adjusted, diluted number of ordinary
shares in issue 852.4 856.7
========================================== ===== =====
1. Weighted average number of shares in issue for 2019 has been
adjusted by 2.5 million (2019: 1.6 million) for the issue of bonus
shares in connection with the scrip dividend scheme.
2. The dilutive effect of contingently issuable share option
awards were not included in the calculation of diluted earnings per
share for the year ended 31 December 2020 because they are
anti-dilutive. These options could potentially dilute basic
earnings per share in the future.
(b) Basic and diluted (loss)/earnings per share
Continuing and discontinued operations 2020 2019
attributable to owners of the Parent GBPm GBPm
========================================= ======= =======
Continuing operations
========================================= ======= =======
Loss used for calculation of basic
and diluted loss per share (703.7) (62.3)
============================================== ======= =======
Basic and diluted loss per share (pence) (82.6) (7.3)
============================================== ======= =======
Discontinued operation
========================================= ======= =======
Earnings/(loss) used for calculation
of basic and diluted earnings/(loss)
per share 1.0 (191.3)
============================================== ======= =======
Basic and diluted earnings/(loss)
per share (pence)(1) 0.1 (22.4)
============================================== ======= =======
2. EPRA Earnings per share is disclosed in Table 1 of the EPRA
measures on page 69.
(c) Headline earnings per share
Headline earnings per share is calculated in accordance with
Circular 1/2019 issued by the South African Institute of Chartered
Accountants ("SAICA"), a requirement of the Group's Johannesburg
Stock Exchange ("JSE") listing. This measure is not a requirement
of IFRS.
2020 2019
=============================== ===============================
(Loss)/ (Loss)/
earnings earnings
(Loss)/ per (Loss)/ per
earnings Shares(1) share earnings Shares(1) share
GBPm million (pence) GBPm million (pence)
======================================= ========= ========= ========= ========= ========= =========
Continuing and discontinued operations
attributable
to owners of the Parent
Basic loss (702.7) 852.0 (82.5) (253.6) 855.5 (29.7)
======================================= ========= ========= ========= ========= ========= =========
Group adjustments:
Loss on revaluation and sale of
investment and development property 693.1 194.9
Deferred tax adjustments - 0.3
Current tax adjustments (0.6) -
Non-controlling interest in respect
of the Group adjustments - (54.2)
(Profit)/loss on disposal and IFRS
5 impairment
of discontinued operation (1.0) 94.2
Joint venture adjustments:
Loss on revaluation and sale of
investment and development property 0.2 -
Headline loss (11.0) 852.0 (1.3) (18.4) 855.5 (2.2)
======================================= ========= ========= ========= ========= ========= =========
Dilutive effect of contingently
issuable share option awards - 0.3 - 0.7
Dilutive effect of contingently
issuable deferred share awards - 0.1 - 0.5
Diluted headline loss (11.0) 852.4 (1.3) (18.4) 856.7 (2.2)
======================================= ========= ========= ========= ========= ========= =========
1. Weighted average number of shares in issue has been adjusted
by 2.5 million (2019: 1.6 million) for the issue of bonus shares in
connection with the scrip dividend scheme.
(d) Net assets per share
2020 2019
GBPm GBPm
===================================== ===== =====
Number of ordinary shares in issue 851.1 854.3
========================================= ===== =====
Adjustments:
Dilutive effect of contingently
issuable share option awards 0.3 0.7
Dilutive effect of contingently
issuable deferred share awards 0.1 0.5
Adjusted, diluted number of ordinary
shares in issue 851.5 855.5
========================================= ===== =====
2020 2019
=========================
EPRA EPRA EPRA EPRA EPRA EPRA
NRV NTA NDV NRV NTA NDV
GBPm GBPm GBPm GBPm GBPm GBPm
======= ======= =======
IFRS Equity attributable to owners
of the Parent 1,759.7 1,759.7 1,759.7 2,477.5 2,477.5 2,477.5
Diluted NAV 1,759.7 1,759.7 1,759.7 2,477.5 2,477.5 2,477.5
=================================== ======= ======= ======= ======= ======= =======
Group adjustments:
Revaluation of other non-current
assets (1) 33.4 33.4 33.4 9.6 9.6 9.6
Unrecognised surplus on trading
property - joint venture 2.2 2.2 2.2 15.9 15.9 15.9
Diluted NAV at Fair Value 1,795.3 1,795.3 1,795.3 2,503.0 2,503.0 2,503.0
=================================== ======= ======= ======= ======= ======= =======
Fair value of derivative financial
instruments(2) 7.2 7.2 - (3.6) (3.6) -
Fair value adjustment of financial
instruments - bond option 5.5 5.5 - - - -
Real Estate Transfer Tax 124.5 - - 171.6 - -
Excess fair value of debt over
carrying value(3) - - (37.1) - - (1.7)
Deferred tax adjustments (2.2) (2.2) - 0.8 0.8 -
=================================== ======= ======= ======= ======= ======= =======
NAV 1,930.3 1,805.8 1,758.2 2,677.4 2,505.8 2,501.3
=================================== ======= ======= ======= ======= ======= =======
Diluted number of shares 851.5 851.5 851.5 855.5 855.5 855.5
=================================== ======= ======= ======= ======= ======= =======
NAV per share (pence) 226.7 212.1 206.5 312.9 292.9 292.4
=================================== ======= ======= ======= ======= ======= =======
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 6 'Impairment of Investments and Other
Receivables'.
2. This relates to the fair value of interest rate collars.
Further details are disclosed within note 16 'Derivative Financial
Instruments'.
3. Includes fair value of exchangeable bond option component
included under derivative liabilities as disclosed in note 16
'Derivative Financial Instruments'.
4. EPRA NRV, NTA and NDV are alternative performance measures
that are calculated in accordance with the Best Practices
Recommendations of the European Public Real Estate Association
(EPRA) to provide a transparent and consistent basis to enable
comparison between European property companies. See Alternative
Performance Measures and EPRA measures on pages 68 to 72.
13 PROPERTY PORTFOLIO
a) Investment and development property
Property portfolio Tenure
========================== ===================
Covent
Garden Other(1) Total Freehold Leasehold
GBPm GBPm GBPm GBPm GBPm
=============================== ======= ======== ======= ======== =========
At 1 January 2019 2,565.6 769.9 3,335.5 1,522.1 1,813.4
Additions from acquisitions 74.9 - 74.9 69.2 5.7
Additions from subsequent
expenditure 19.4 9.8 29.2 15.6 13.6
Disposals (74.8) (2.9) (77.7) (15.6) (62.1)
Sale of discontinued operation - (623.7) (623.7) (124.7) (499.0)
Loss on revaluation(2) (41.1) (151.6) (192.7) (24.9) (167.8)
=============================== ======= ======== ======= ======== =========
At 31 December 2019 2,544.0 1.5 2,545.5 1,441.7 1,103.8
Additions from acquisitions - 1.1 1.1 - 1.1
Additions from subsequent
expenditure 19.1 - 19.1 14.7 4.4
Disposals (77.7) - (77.7) (77.5) (0.2)
Loss on revaluation (691.7) (0.5) (692.2) (344.2) (348.0)
=============================== ======= ======== ======= ======== =========
At 31 December 2020 1,793.7 2.1 1,795.8 1,034.7 761.1
=============================== ======= ======== ======= ======== =========
1. Included in 'Other' in the prior year is the Group's interest
in Earls Court Properties which was disposed of on 29 November
2019. Details of the disposals are set out in note 10 'Discontinued
Operation'.
2. Loss on revaluation of GBP192.7 million in 2019 includes a
loss on revaluation of GBP151.6 which relates to Earls Court
Properties for the period prior to disposal which was included in
the loss from discontinued operation in the consolidated income
statement. The remainder of the loss, relating to continuing
operations, is recognised in the consolidated income statement
within loss on revaluation and sale of investment and development
property.
b) Market value reconciliation of total property
Covent
Garden Other Total
GBPm GBPm GBPm
======================================== ======= ===== =======
Carrying value of investment and
development property at 31 December
2020 1,793.7 2.1 1,795.8
Adjustment in respect of fixed
head leases (6.1) - (6.1)
Adjustment in respect of tenant
lease incentives 37.5 - 37.5
Market value of investment and
development property at 31 December
2020 1,825.1 2.1 1,827.2
======================================== ======= ===== =======
Joint venture:
Group share of carrying value of
joint venture investment, development
and trading property at 31 December
2020 - 113.0 113.0
Group share of unrecognised surplus
on joint venture trading property(1) - 2.2 2.2
======================================== ======= ===== =======
Market value of investment, development
and trading property on a Group
share basis at 31 December 2020 1,825.1 117.3 1,942.4
======================================== ======= ===== =======
1. 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 consolidated condensed financial
statements.
Covent
Garden Other Total
GBPm GBPm GBPm
========================================== ======= ===== =======
Carrying value of investment, development
and trading property at 31 December
2019 2,544.0 1.5 2,545.5
Adjustment in respect of fixed
head leases (6.1) - (6.1)
Adjustment in respect of tenant
lease incentives 57.7 - 57.7
Market value of investment, development
and trading property at 31 December
2019 2,595.6 1.5 2,597.1
========================================== ======= ===== =======
Joint venture:
Group share of carrying value of
joint venture investment, development
and trading property at 31 December
2019 - 161.2 161.2
Group share of unrecognised surplus
on joint venture trading property(1) - 15.9 15.9
========================================== ======= ===== =======
Market value of investment, development
and trading property on a Group
share basis at 31 December 2019 2,595.6 178.6 2,774.2
========================================== ======= ===== =======
1. 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 consolidated condensed financial
statements.
At 31 December 2020, the Group was contractually committed to
GBP0.8 million (2019: GBP7.0 million) of future expenditure for the
purchase, construction, development and enhancement of investment,
development and trading property. Refer to note 24 'Capital
Commitments' for further information on capital commitments.
The fair value of the Group's investment, development and
trading property at 31 December 2020 was determined by independent,
appropriately qualified external valuers, CBRE for the Covent
Garden estate and JLL for Lillie Square. 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, 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. As at 31 December 2020 all Covent
Garden properties are valued under the income capitalisation
technique.
Due to the impact of COVID-19 CBRE have included an assumption
on loss on near-term income over the next six to 12 months of GBP27
million. There has been no other change in the valuation
methodology used as a result of COVID-19.
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, held in the Lillie Square
joint venture, 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 30.
14 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 31 December 2020, joint ventures comprise the Lillie Square
joint venture ("LSJV"), Innova Investment ("Innova") and The Great
Capital Partnership ("GCP").
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.
2020 2019
LSJV GBPm GBPm
=========================================== ======= ======
Summarised income statement
Revenue 133.6 11.8
=========================================== ======= ======
Net rental (expense)/income (4.1) -
Proceeds from the sale of trading property 129.8 10.2
Loss on revaluation of investment and
development property (0.5) -
Cost of sale of trading property (106.1) (7.6)
Agent, selling and marketing fees (2.1) (0.8)
Write down of trading property (2.8) (0.7)
Administration expenses 0.1 (0.6)
Finance costs1 (14.3) (13.4)
Loss for the year after taxation - (12.9)
=========================================== ======= ======
1. Finance costs includes GBP13.9 million (2019: GBP13.2
million) which relates 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 GBP11.3 million (2019: GBP11.3 million) is recognised in
the consolidated income statement within other finance income.
2020 2019
LSJV GBPm GBPm
============================================= ======= =======
Summarised balance sheet
Investment and development property 3.3 3.7
Other non-current assets 6.4 4.6
Trading property 222.7 318.9
Cash and cash equivalents(1) 20.4 33.9
Borrowings (11.2) (110.9)
Other non-current liabilities(2) - (252.9)
Amounts payable to joint venture partners(3) (77.5) (74.8)
Other current liabilities(2) (283.5) (41.9)
============================================= ======= =======
Net liabilities (119.4) (119.4)
============================================= ======= =======
Capital commitments 2.8 13.3
============================================= ======= =======
Carrying value of investment, development
and trading property 226.0 322.6
Unrecognised surplus on trading property(4) 4.4 31.7
Market value of investment, development
and trading property(4) 230.4 354.3
============================================= ======= =======
1. Includes restricted cash and cash equivalents of GBP10.9
million (2019: GBP26.0 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
GBP10.9 million (2019: GBP26.0 million) within other current
liabilities.
2. Other non-current liabilities in the prior year relate to
deep discount bonds. The current year balance of GBP266.8 million
is included under other current liabilities as the bonds are
redeemable at their nominal value of GBP276.1 million on 24 August
2021. Recoverable amounts receivable by the Group, net of
impairments, of GBP85.0 million (2019: GBP98.4 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 informational
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. The joint venture will explore
opportunities for future redevelopments on and around significant
railway station sites in London.
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 balance sheet of Innova are presented below.
There were no movements through the income statement during the
year.
2020 2019
Innova GBPm GBPm
========================== ====== =====
Summarised balance sheet
Cash and cash equivalents 0.9 0.9
Other current liabilities (0.5) (0.5)
Net assets 0.4 0.4
========================== ====== =====
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
2019 0.1 (119.4) 0.4 (118.9)
Elimination of joint venture
partners' interest - 59.7 (0.2) 59.5
Cumulative losses restricted(1) - 59.7 - 59.7
Carrying value at 31 December
2019 0.1 - 0.2 0.3
================================ ===== ======= ====== =======
Net assets/(liabilities) of
joint ventures at 31 December
2020 0.1 (119.4) 0.4 (118.9)
Elimination of joint venture
partners' interest - 59.7 (0.2) 59.5
Cumulative losses restricted(1) - 59.7 - 59.7
Carrying value at 31 December
2020 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 GBPnil (31 December 2019: GBPnil) in accordance with the
requirements of IAS 28.
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 2019 0.1 - 17.2 17.3
Loss for the year(1) - (6.4) (2.5) (8.9)
Loss restricted(1) - 6.4 - 6.4
Impairment of goodwill - - (14.5) (14.5)
At 31 December 2019 0.1 - 0.2 0.3
At 31 December 2020 0.1 - 0.2 0.3
============================= ===== ===== ====== ======
1. The prior year share of post-tax loss from joint ventures in
the consolidated income statement of GBP2.5 million comprises the
loss for the year of GBP8.9 million and loss restricted totalling
GBP6.4 million. No loss was reported in the current year.
15 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Financial assets mandatorily measured at fair value through
profit or loss include the following:
2020 2019
GBPm GBPm
============================ ====== =====
Non-current assets
============================ ====== =====
Listed equity securities(1) 551.8 -
============================ ====== =====
1. Listed equity securities comprise 97.0 million shares in
Shaftesbury held at the 31 December 2020 closing share price of 569
pence per share.
During the year, the following gain was recognised in profit or
loss:
2020 2019
Profit or loss GBPm GBPm
============================================ ====== ======
Fair value gain on financial assets at fair
value through profit or loss 50.9 -
============================================ ====== ======
16 DERIVATIVE FINANCIAL INSTRUMENTS
2020 2019
Derivative liabilities GBPm GBPm
=========================================== ====== =====
Non-current
Interest rate collars 7.2 3.6
Derivative liability - exchangeable bonds1 15.3 -
Derivative financial liabilities 22.5 3.6
=========================================== ====== =====
1. Details of exchangeable bonds issued during the year are set
out in note 20 'Borrowings'.
During the year, the following fair value movement on derivative
financial liabilities was recognised in profit or loss:
2020 2019
Profit or loss GBPm GBPm
============================================= ===== =====
Fair value loss on interest rate collars 9.0 5.2
Fair value loss on derivative liability
- exchangeable bonds 5.5 -
============================================== ===== =====
Change in fair value of derivative financial
instruments 14.5 5.2
============================================== ===== =====
17 TRADE AND OTHER RECEIVABLES
2020 2019
GBPm GBPm
========================================== ====== =====
Non-current
Other receivables(1) 0.1 99.1
Prepayments and accrued income(2) 33.1 51.3
Amounts receivable from joint ventures(3) 85.0 98.4
========================================== ====== =====
Trade and other receivables 118.2 248.8
========================================== ====== =====
Current
Rent receivable(4) 22.3 4.3
Other receivables(1) 31.0 118.6
Prepayments and accrued income(2) 12.4 16.5
Trade and other receivables 65.7 139.4
========================================== ====== =====
1. Includes GBP15.1 million (2019: GBP200.8 million) which
represents the discounted balance of the deferred consideration in
respect of the Earls Court disposal, which was receivable in two
tranches in November 2020 and 2021. During 2020 a payment of
GBP89.7 million in respect of payments made by Capco to the London
Borough of Hammersmith and Fulham pursuant to the CLSA was
refunded, while the repayment of the first tranche of GBP105.0
million was received in November 2020.
2. Includes tenant lease incentives, comprising surrender premia
paid and incentives offered to new tenants, of GBP37.5 million
(2019: GBP57.7 million).
3. Amounts receivable from joint ventures relate to deep
discount bonds that were issued by LSJV to the Group. The nominal
value of the bonds including accrued interest of GBP144.5 million
has been impaired by GBP25.1 million in the current year
(cumulative GBP59.5 million). Working capital funding has been
advanced to LSJV from the Group for GBP44.2 million (2019: GBP41.1
million) which has been impaired in full in both years. The deep
discount bonds are due for repayment in August 2021 but it is the
intention of the Group, and joint venture partner, that the deep
discount bonds will be restructured, extending the maturity past
the end of 2021, and therefore they are presented as non
current.
4. Rent receivable is shown net of bad debt provision of GBP12.4
million (2019: GBP1.4 million).
18 CASH AND CASH EQUIVALENTS
2020 2019
GBPm GBPm
============================ ===== =====
Cash at hand 1.5 1.1
Cash on short-term deposits 363.6 152.0
============================ ===== =====
Cash and cash equivalents 365.1 153.1
============================ ===== =====
19 TRADE AND OTHER PAYABLES
2020 2019
GBPm GBPm
================================ ====== =====
Rent in advance 15.5 15.9
Accruals 12.1 23.6
Other payables 13.9 17.7
Other taxes and social security 2.8 2.1
Trade and other payables 44.3 59.3
================================ ====== =====
20 BORROWINGS, INCLUDING LEASE LIABILITIES
2020
============================ ===============================================================
Carrying Fixed Floating Fair Nominal
value Secured Unsecured rate rate value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ======== ======= ========= ===== ======== ======= =======
Current
Lease liability obligations 1.6 0.7 0.9 1.6 - 1.6 1.6
============================ ======== ======= ========= ===== ======== ======= =======
Borrowings, including
lease liabilities 1.6 0.7 0.9 1.6 - 1.6 1.6
============================ ======== ======= ========= ===== ======== ======= =======
Non-current
Bank loans 262.2 123.4 138.8 - 262.2 265.0 265.0
Loan notes 548.2 - 548.2 548.2 - 514.5 550.0
Exchangeable bonds 260.3 260.3 - 260.3 - 269.4 275.0
Borrowings 1,070.7 383.7 687.0 808.5 262.2 1,048.9 1,090.0
Lease liability obligations 8.3 5.4 2.9 8.3 - 8.3 8.3
============================ ======== ======= ========= ===== ======== ======= =======
Borrowings, including
lease liabilities 1,079.0 389.1 689.9 816.8 262.2 1,057.2 1,098.3
============================ ======== ======= ========= ===== ======== ======= =======
Total borrowings, including
lease liabilities 1,080.6
Cash and cash equivalents (365.1)
============================ ========
Net debt 715.5
============================ ========
2019
============================ ==============================================================
Carrying Fixed Floating Fair Nominal
value Secured Unsecured rate rate value value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ======== ======= ========= ===== ======== ====== =======
Current
Lease liability obligations 1.6 0.7 0.9 1.6 - 1.6 1.6
============================ ======== ======= ========= ===== ======== ====== =======
Borrowings, including
l ease liabilities 1.6 0.7 0.9 1.6 - 1.6 1.6
============================ ======== ======= ========= ===== ======== ====== =======
Non-current
Loan notes 546.1 - 546.1 546.1 - 547.9 550.0
Borrowings 546.1 - 546.1 546.1 - 547.9 550.0
Lease liability obligations 9.2 5.4 3.8 9.2 - 9.2 9.2
============================ ======== ======= ========= ===== ======== ====== =======
Borrowings, including
l ease liabilities 555.3 5.4 549.9 555.3 - 557.1 559.2
============================ ======== ======= ========= ===== ======== ====== =======
Total borrowings, including
l ease liabilities 556.9
Cash and cash equivalents (153.1)
============================ ========
Net debt 403.8
============================ ========
On 30 November 2020 the Group issued GBP275 million of secured
exchangeable bonds maturing in March 2026. The notes are
exchangeable into cash or ordinary shares of Shaftesbury. The net
proceeds received from the issue of the exchangeable bonds have
been split between the financial liability element and an option
component, representing the fair value of the embedded option to
convert the financial liability into equity of Shaftesbury.
Transaction costs of GBP5.9 million were allocated between the two
components and the element relating to the debt component is being
amortised through the effective interest rate method. The issue
costs apportioned to the embedded derivative of GBP0.3 million have
been expensed through the income statement.
In addition, the Group entered into a GBP125 million three-year
secured loan in December 2020 which is secured against shares in
Shaftesbury.
21 CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES
The table below sets out each class of financial asset and
financial liability at 31 December:
2020 2019
======================================== ========================================= ===============================
Carrying (Loss)/gain Carrying (Loss)/gain
value to income statement value to income statement
Note GBPm GBPm GBPm GBPm
======================================== === ==== ========= ==================== ========= ====================
Cash and cash equivalents 18 365.1 - 153.1 -
============================================= ==== ========= ==================== ========= ====================
Other financial assets(1) 138.4 - 320.1 -
============================================= ==== ========= ==================== ========= ====================
Total cash and other financial assets 503.5 - 473.2 -
============================================= ==== ========= ==================== ========= ====================
Investment held at fair value through profit
or loss 15 551.8 50.9 - -
============================================= ==== ========= ==================== ========= ====================
Total investment held at fair value through
profit or loss 551.8 50.9 - -
============================================= ==== ========= ==================== ========= ====================
Derivative financial liabilities 16 (22.5) (14.5) (3.6) (5.2)
============================================= ==== ========= ==================== ========= ====================
Total held for trading liabilities (22.5) (14.5) (3.6) (5.2)
============================================= ==== ========= ==================== ========= ====================
Borrowings, including l ease liability 20 (1,080.6) - (556.9) -
Other financial liabilities(2) (29.7) - (45.5) -
============================================= ==== ========= ==================== ========= ====================
Total borrowings and other financial
liabilities (1,110.3) - (602.4) -
============================================= ==== ========= ==================== ========= ====================
1. Includes rent receivable, amounts due from joint ventures,
deferred consideration on the sale of Earls Court Properties and
other receivables.
2. Includes trade and other payables (excluding rents in
advance) 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.
2020 2019
============================ ==========================
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================= ===== ====== ===== ====== ===== ===== ===== =====
Financial assets
at fair value through
profit or loss
========================= ===== ====== ===== ====== ===== ===== ===== =====
Listed equity investment 551.8 - - 551.8 - - - -
========================= ===== ====== ===== ====== ===== ===== ===== =====
Derivative financial
liabilities
========================= ===== ====== ===== ====== ===== ===== ===== =====
Total liabilities - (22.5) - (22.5) - (3.6) - (3.6)
========================= ===== ====== ===== ====== ===== ===== ===== =====
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.
Listed equity investments are carried at fair value on the
balance sheet and representing Level 1 fair value measurement. The
fair value of listed equity investments are based on quoted market
prices traded in active markets.
The fair values of the Group's cash and cash equivalents, other
financial assets carried at amortised cost and other financial
liabilities are not materially different from those at which they
are carried in the financial statements.
22 DEFERRED TAX
The change in corporation tax rate referred to in note 9
'Taxation' has been enacted for the purposes of IAS 12 'Income
Taxes' ("IAS 12") and therefore has been reflected in these
consolidated condensed 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. Properties
that fall within the Group's qualifying REIT activities will be
outside the charge to UK corporation tax subject to certain
conditions being met. The Group's recognised deferred tax position
on investment and development property as calculated under IAS 12
is GBPnil at 31 December 2020 (2019: GBPnil). The Group's
contingent tax liability on investment properties, calculated on
the same basis but based on a deemed market value disposal at year
end is GBPnil (2019: GBPnil).
A disposal of the Group's trading properties at their market
value as per note 13 'Property Portfolio', before utilisation of
carried forward losses, would result in a corporation tax charge to
the Group of GBP0.4 million (19 per cent of GBP2.2 million).
Fair value Fair value
Accelerated of investment of derivative Other
capital and development financial temporary Group
allowances property instruments differences losses Total
GBPm GBPm GBPm GBPm GBPm GBPm
========================= =========== ================ ============== ============ ======= =====
Provided deferred tax
provision:
At 1 January 2019 3.5 - - (2.1) (6.9) (5.5)
Adjustment to opening
balance - - - - (0.3) (0.3)
Recognised in income - - (0.8) - (0.1) (0.9)
Released on conversion
to UK REIT (3.4) - - - 3.3 (0.1)
Adjustment in respect
of rate change - - - 0.2 - 0.2
========================= =========== ================ ============== ============ ======= =====
At 31 December 2019 0.1 - (0.8) (1.9) (4.0) (6.6)
========================= =========== ================ ============== ============ ======= =====
Recognised in income 0.1 - (1.3) 1.0 0.4 0.2
Adjustment in respect
of rate change - - (0.2) (0.2) - (0.4)
========================= =========== ================ ============== ============ ======= =====
At 31 December 2020 0.2 - (2.3) (1.1) (3.6) (6.8)
========================= =========== ================ ============== ============ ======= =====
Unprovided deferred
tax assets:
At 1 January 2019 - (95.7) - - (9.3)
Income statement items - - - - (8.3)
Released on discontinued
operation - 95.7 - - 7.3
========================= =========== ================ ============== ============ =======
At 31 December 2019 - - - - (10.3)
========================= =========== ================ ============== ============ =======
Income statement items - - - - 2.0
========================= =========== ================ ============== ============ =======
At 31 December 2020 - - - - (8.3)
========================= =========== ================ ============== ============ =======
In accordance with the requirements of IAS 12, deferred tax
assets are only recognised to the extent that the Group believes it
is probable that future taxable profit will be available against
which the deferred tax assets can be recovered.
23 SHARE CAPITAL AND SHARE PREMIUM
Issue Share Share
Transaction price Number capital premium
Issue type date (pence) of shares GBPm GBPm
========================= =============== ======== =========== ======== ========
At 1 January 2019 850,806,256 212.7 225.6
Scrip dividend -
2018 final May 245 409,364 0.1 1.0
Scrip dividend -
2019 interim September 187 1,197,901 0.3 2.2
Share-based payment(1) 1,885,642 0.5 0.1
At 31 December 2019 854,299,163 213.6 228.9
Share buyback February/March (6,060,000) (1.5) -
Scrip dividend -
2019 final May 152 2,530,598 0.6 3.3
Share-based payment(2) 313,882 0.1 -
========================================== ======== =========== ======== ========
At 31 December 2020 851,083,643 212.8 232.2
========================================== ======== =========== ======== ========
1. In 2019 a total of 1,885,642 new shares were issued to
satisfy employee share scheme awards.
2. In 2020 a total of 313,882 new shares were issued to satisfy
employee share scheme awards.
In accordance with the authority granted by shareholders at the
Company's Annual General Meeting on 3 May 2019 and as part of its
share repurchase programme, between 26 February 2020 and 20 March
2020 (inclusive), the Company purchased and subsequently cancelled
6,060,000 ordinary shares. The shares were acquired at an average
price of 195.1 pence per share, with prices ranging from 131.6
pence to 229.5 pence per share. The total cost of GBP11.8 million,
including GBP0.1 million of after-tax transaction costs, was
deducted from shareholder equity. The total reduction in paid-up
capital was GBP1.5 million.
At 8 March 2021, the Company had an unexpired authority to
repurchase shares up to a maximum of 84,854,916 shares with a
nominal value of GBP21.2 million, and the Directors had an
unexpired authority to allot up to a maximum of 562,603,144 shares
with a nominal value of GBP140.7 million of which 282,566,871 with
a nominal value of GBP70.6 million can only be allotted pursuant to
a fully pre-emptive rights issue.
24 CAPITAL COMMITMENTS
At 31 December 2020, the Group was contractually committed to
GBP0.8 million (31 December 2019: GBP7.0 million) future
expenditure for the purchase, construction, development and
enhancement of investment, development and trading property. The
full amount is committed 2021 expenditure.
The Group's share of joint venture capital commitments arising
on LSJV amounts to GBP1.4 million (2019: GBP6.6 million).
25 CONTINGENT LIABILITIES
The Group has contingent liabilities in respect of legal claims,
guarantees and warranties arising from the ordinary course of
business. There are no contingent liabilities that require
disclosure or recognition in the financial statements.
26 CASH FLOW INFORMATION
The tables below presents the cash generated from
operations:
(a) Cash generated from continuing operations
2020 2019
Continuing operations Note GBPm GBPm
========================================== ==== ======= ======
Loss before tax (704.7) (61.3)
Adjustments:
Loss/(gain) on revaluation and sale
of investment and development property 5 693.1 43.3
Impairment of investments and other
receivables 6 28.2 21.0
Loss from joint ventures - 2.5
Fair value gain of financial assets
at fair value through profit or loss 15 (50.9) -
Depreciation 1.5 1.3
Amortisation of tenant lease incentives
and other direct costs 23.4 2.3
Bad debt expenses 4 14.0 1.6
Share-based payment(1) 1.4 4.1
Finance income 7 (0.5) (0.5)
Finance costs 8 24.1 21.2
Other finance income 7 (20.5) (11.9)
Other finance costs 8 0.6 -
Change in fair value of derivative
financial instruments 16 14.5 5.2
Change in working capital:
Change in trade and other receivables (37.5) (8.0)
Change in trade and other payables (19.0) (19.1)
Cash (utilised)/generated from continuing
operations (32.3) 1.7
========================================== ==== ======= ======
1. This relates to IFRS 2 'Share based payment' charge.
(b) Cash used in discontinued operation
2020 2019
Discontinued operation Note GBPm GBPm
=========================================== ==== ===== =======
Loss before tax - (152.5)
Adjustments:
Loss on revaluation and sale of investment
and development property 10 - 151.6
Depreciation - 0.8
Change in working capital:
Change in trade and other receivables - 0.3
Change in trade and other payables - (2.4)
=====
Cash used in discontinued operation - (2.2)
=========================================== ==== ===== =======
(c) Reconciliation of cash flows from financing activities
The table below provides an analysis of financial liabilities
and derivative financial instruments arising from financing
activities:
Derivative liability - Total liabilities from
Long-term borrowings Short-term borrowings exchangeable bond financing activities
GBPm GBPm GBPm GBPm
====================== ==================== ===================== ====================== ======================
Balance at 1 January 555.3 1.6 - 556.9
Cash flows from
financing activities
Proceeds from
borrowings 920.2 - 9.8 930.0
Repayment of
revolving credit
facility (390.0) - - (390.0)
Facility fees
capitalised (6.6) - - (6.6)
Principal element of
lease payment - (0.9) - (0.9)
Total cash flows used
in financing
activities 523.6 (0.9) 9.8 532.5
======================= ==================== ===================== ====================== ======================
Non-cash flows from
financing activities
Facility fee
amortised 1.2 - - 1.2
Lease liability (0.9) 0.9 - -
Changes in fair value - - 5.5 5.5
Finance cost
amortised 0.7 - - 0.7
Facility fees
capitalised (0.9) - - (0.9)
==================== ===================== ====================== ======================
Total non-cash flows
from financing
activities 0.1 0.9 5.5 6.5
======================= ==================== ===================== ====================== ======================
Balance at 31 December 1,079.0 1.6 15.3 1,095.9
======================= ==================== ===================== ====================== ======================
27 RELATED PARTY TRANSACTIONS
Transactions with Directors
2020 2019
Key management compensation(1) GBPm GBPm
========================================== ===== =====
Salaries and short-term employee benefits 2.3 3.7
Share-based payment 0.9 2.9
Termination benefits - 0.7
========================================== ===== =====
3.2 7.3
========================================== ===== =====
1. Key management comprises the Directors of the Company who
have been determined to be the only individuals with authority and
responsibility for planning, directing and controlling the
activities of the Company.
Share dealings
No Director had any dealings in the shares of any Group company
between 31 December 2020 and 8 March 2021, being a date less than
one month prior to the date of the notice convening the Annual
General Meeting.
Other than as disclosed in these accounts, no Director of the
Company had a material interest in any contract (other than service
contracts), transaction or arrangement with any Group company
during the year ended 31 December 2020.
Transactions between the Group and its joint ventures
Transactions during the year between the Group and its joint
ventures, which are related parties, are disclosed in notes 14
'Investment in Joint Ventures', 17 'Trade and other receivables'
and 24 'Capital commitments'. During the year the Group paid
management fees of GBP1.0 million (2019: income of GBP1.8 million)
that was charged 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, Situl Jobanputra, Chief Financial Officer of Capital &
Counties Properties PLC, and Andrew Strang, who was a Non-executive
Director of Capital & Counties Properties PLC until 1 May 2020,
either solely or together with family members, own apartments in
the Lillie Square development. The disclosures in respect of these
purchases were included in previous financial statements.
- In addition, in September 2019, Henry Staunton, Chairman of
Capital & Counties Properties PLC, together with a family
member completed the acquisition of a car parking space in the
Lillie Square development, for a purchase price of GBP75,000.
GBP33,900 reflecting VAT and legal fees was received on completion
and the balance was settled from a refund for apartment
enhancements that were previously paid for but not implemented.
- As owners of apartments in the Lillie Square development, the
Directors are required to pay annual ground rent and insurance
premium fees and bi-annual service charge fees. Should a car
parking space be owned in the Lillie Square development, the
Directors are required to pay insurance premium fees and bi-annual
service charge fees. During 2020, GBP17,931.54 had been received in
relation to these charges. GBP367.47 of such charges for 2020
remained outstanding as at 31 December 2020. Certain payments in
relation to these charges were made in advance and GBP1,858.03 had
been received in advance as at the date the Director retired from
the Company.
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.
ALTERNATIVE PERFORMANCE MEASURES (UNAUDITED)
for the year ended 31 December 2020
The Group has applied the European Securities and Markets
Authority ("ESMA") guidelines on alternative performance measures
("APMs") in these annual 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.
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 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.
Explanation
Nearest IFRS and
APM Definition of measure measure reconciliation 2020 2019
======================= ======================= ======================== ================ =========== ===========
Underlying earnings (Loss)/profit for (Loss)/profit Note 3 (GBP6.2)m GBP9.0m
the year excluding for the year
unrealised and one-off
items
======================= ======================= ======================== ================ =========== ===========
Underlying earnings
Underlying earnings per weighted number Basic (loss)/earnings
per share of ordinary shares per share Note 3 (0.7)p 1.1p
======================= ======================= ======================== ================ =========== ===========
EPRA earnings Recurring earnings (Loss)/profit EPRA measures GBP17.9m (GBP6.7)m
from core operational for the year Table 1
activity
======================= ======================= ======================== ================ =========== ===========
EPRA earnings per
EPRA earnings weighted number of Basic earnings/(loss) EPRA measures
per share ordinary shares per share Table 1 2.1p (0.8)p
======================= ======================= ======================== ================ =========== ===========
EPRA NTA Net asset value Net assets attributable Note 12 GBP1,805.8m GBP2,505.8m
adjusted to shareholders
to include properties
and other investment
interests at fair
value and to exclude
certain items not
expected to crystallise
in a long-term
investment
property business
model
======================= ======================= ======================== ================ =========== ===========
EPRA NTA per the Net assets attributable
EPRA NTA per diluted number of to shareholders
share ordinary shares per share Note 12 212.1p 292.9p
======================= ======================= ======================== ================ =========== ===========
Market value Market value of Investment, Note 13 GBP1,942.4m GBP2,774.2m
of property portfolio investment, development
development and trading and trading
properties properties
======================= ======================= ======================== ================ =========== ===========
Underlying operating
profit divided by Financial
net underlying finance Review,
Interest cover costs N/A page 21 76.1% 130.8%
======================= ======================= ======================== ================ =========== ===========
Net debt divided
by total assets
excluding Financial
Net debt to gross cash and cash Review,
assets equivalents N/A page 21 27.5% 14.7%
======================= ======================= ======================== ================ =========== ===========
Proportion of the
Gross debt with gross debt with Financial
interest rate interest Review,
protection rate protection N/A page 21 100% 100%
======================= ======================= ======================== ================ =========== ===========
Cost of debt weighted Financial
Weighted average by the drawn balance Review,
cost of debt of external borrowings N/A page 21 2.6% 3.0%
======================= ======================= ======================== ================ =========== ===========
Cash and undrawn Cash and cash N/A Financial GBP1,010.2m GBP895.2m
committed facilities equivalents Review,
(Group share) plus undrawn committed page 20
facilities shown
on a Group share
basis
======================= ======================= ======================== ================ =========== ===========
Cash and undrawn Cash and cash N/A Financial GBP940.1m GBP868.1m
committed facilities equivalents Review,
(IFRS) plus undrawn committed page 20
facilities shown
on an IFRS basis
======================= ======================= ======================== ================ =========== ===========
ERV of occupied space
as a percentage of
ERV of combined
Occupancy portfolio N/A N/A 96.5% 96.8%
======================= ======================= ======================== ================ =========== ===========
Where this report uses like-for-like comparisons, these are
defined within the Glossary.
EPRA measures (unaudited)
for the year ended 31 December 2020
In October 2019, the European Public Real Estate Association
("EPRA") published new best practice recommendations which aim to
improve the transparency, comparability and relevance of published
results of public real estate companies in Europe.
Effective from 1 January 2020 EPRA net asset value ("EPRA NAV")
and EPRA triple net asset value ("EPRA NNNAV") have been replaced
by three new net asset valuation metrics, being EPRA Net
Reinstatement Value ("EPRA NRV"), EPRA Net Tangible Assets ("EPRA
NTA") and EPRA Net Disposal Value ("EPRA NDV"). EPRA NTA is
considered to be the most relevant measure for the Group's
operating activity and is the primary measure of net asset value,
replacing the metric EPRA NAV previously reported. The previously
reported EPRA measures of net assets are included in Table 2 below
for comparative purposes.
The following is a summary of EPRA performance measures and key
Group measures included within this Annual Report. The measures are
defined in the Glossary.
EPRA measure Definition of measure Table 2020 2019
=================== ============================================== ========== =========== ===========
EPRA earnings Recurring earnings from core operational 1 GBP17.9m (GBP6.7)m
activity
=================== ============================================== ========== =========== ===========
EPRA earnings EPRA earnings per weighted number
per share of ordinary shares 1 2.1p (0.8)p
=================== ============================================== ========== =========== ===========
EPRA NTA (Net Net asset value adjusted to include 2 GBP1,805.8m GBP2,505.8m
Tangible Assets) properties and other investment interests
at fair value and to exclude certain
items not expected to crystallise
in a long-term investment property
business model
=================== ============================================== ========== =========== ===========
EPRA NTA per EPRA NTA per the diluted number of
share ordinary shares 2 212.1p 292.9p
=================== ============================================== ========== =========== ===========
EPRA NDV (Net EPRA NTA amended to include the fair 2 GBP1,758.4m GBP2,501.3m
Disposal Value) value of financial
instruments and debt
=================== ============================================== ========== =========== ===========
EPRA NDV per EPRA NDV per the diluted number of
share ordinary shares 2 206.5p 292.4p
=================== ============================================== ========== =========== ===========
EPRA NRV (Net EPRA NTA amended to include real estate 2 GBP1,930.3m GBP2,677.4m
Reinstatement transfer tax
Value)
=================== ============================================== ========== =========== ===========
EPRA NRV per EPRA NRV per the diluted number of
share ordinary shares 2 226.7p 312.9p
=================== ============================================== ========== =========== ===========
Annualised rental income less non-recoverable
EPRA net initial costs as a percentage of market value
yield plus assumed purchaser's costs 3 3.3% 2.3%
=================== ============================================== ========== =========== ===========
EPRA topped-up
net Net initial yield adjusted for the
initial yield expiration of rent-free periods 3 3.6% 2.8%
=================== ============================================== ========== =========== ===========
ERV of un-let units expressed as a
percentage of the ERV of the Covent
Garden portfolio excluding units under
EPRA vacancy development 4 3.5% 3.2%
=================== ============================================== ========== =========== ===========
Net rental income for properties which
has been owned throughout both years Property
without significant capital expenditure portfolio
Like-for-like in either year, so income can be compared Table
net rental growth on a like-for-like basis. 3 (30.3)% 1.7%
=================== ============================================== ========== =========== ===========
1) EPRA Earnings per share
2020 2019
============================== ===============================
(Loss)/ (Loss)/
earnings earnings
(Loss)/ per (Loss)/ per
earnings Shares1 share earnings Shares(1) share
GBPm million (pence) GBPm million (pence)
====================================== ========= ======== ========= ========= ========= =========
Basic loss from continuing operations (703.7) 852.0 (82.3) (62.3) 855.5 7.3
Group adjustments:
Impairment of investments and
other receivables 2 28.2 11.9
Loss on revaluation and sale of
investment and
development property 693.1 43.3
Change in fair value of derivative
financial instruments(3) 9.0 5.2
Deferred tax adjustments (1.4) (4.3)
Joint venture adjustments:
Profit on sale of trading property
4 (8.9) (0.9)
Loss on revaluation and sale of
investment and development property 0.2 -
Write down of trading property 1.4 0.4
====================================== ========= ======== ========= ========= ========= =========
EPRA adjusted earnings/(loss)
on continuing operations5 17.9 852.0 2.1 (6.7) 855.5 (0.8)
====================================== ========= ======== ========= ========= ========= =========
1. Weighted average number of shares in issue has been adjusted
by 2.5 million (2019: 1.6 million) for the issue of bonus shares in
connection with the scrip dividend scheme.
2. Impairment of other receivables of GBP28.2 million (2019:
GBP11.9 million) includes impairments under IFRS 9 of the amounts
receivable from joint ventures above the Group's share of losses in
the Lillie Square joint venture, and impairment in relation to the
Group's investment in the Innova joint venture. Further details are
disclosed within note 6 'Impairment of Other Receivables'.
3. Change in fair value of derivative financial instruments
excludes change in fair value of derivative liability on bifurcated
exchangeable bonds.
4. Profit on sale of trading property relates to Lillie Square
sales and includes GBP1.0 million (2019: GBP0.4 million) of
marketing and selling fees on a Group share basis. Marketing fees
include costs for units that have not yet completed.
5. EPRA earnings has been reported on a Group share basis.
2) Net assets per share
2020 2019
============================= ===========================
NAV
Net NAV Net per
assets Shares per share assets Shares share
Group GBPm million (pence) GBPm million (pence)
=================================== ======= ======== ========== ======= ======== ========
Net assets attributable to owners
of the Parent 1,759.7 851.1 206.8 2,477.5 854.3 290.0
Effect of dilution on exercise
of contingently issuable share
option awards - 0.3 - 0.7
Effect of dilution on vesting
of contingently issuable deferred
share awards - 0.1 - 0.5
=================================== ======= ======== ========== ======= ======== ========
Diluted NAV 1,759.7 851.5 206.7 2,477.5 855.5 289.6
=================================== ======= ======== ========== ======= ======== ========
Group adjustments:
Fair value of derivative financial
instruments 7.2 3.6
Fair value adjustment of financial
instruments - exchangeable bond
option 5.5 -
Unrecognised surplus on trading
property - Joint venture 2.2 15.9
Revaluation of other non-current
assets1 33.4 9.6
Deferred tax adjustments (2.2) (0.8)
=================================== ======= ======== ========== ======= ======== ========
EPRA NAV and NTA 1,805.8 851.5 212.1 2,505.8 855.5 292.9
=================================== ======= ======== ========== ======= ======== ========
Fair value of derivative financial
instruments (7.2) (3.6)
Fair value adjustment of financial
instruments - exchangeable bond
option (5.5) -
Excess fair value of debt over
carrying value (36.9) (1.7)
Deferred tax adjustments 2.2 0.8
=================================== ======= ======== ========== ======= ======== ========
EPRA NNNAV and NDV 1,758.4 851.5 206.5 2,501.3 855.5 292.4
=================================== ======= ======== ========== ======= ======== ========
Fair value of derivative financial
instruments 7.2 3.6
Fair value adjustment of financial
instruments - exchangeable bond
option 5.5 -
Real Estate Transfer Tax 124.5 171.6
Excess fair value of debt over
carrying value 36.9 1.7
Deferred tax adjustments (2.2) (0.8)
=================================== ======= ======== ========== ======= ======== ========
EPRA NRV 1,930.3 851.5 226.7 2,677.4 855.5 312.9
=================================== ======= ======== ========== ======= ======== ========
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 6 'Impairment of Other Receivables'.
3) Net Initial Yield and 'topped-up' Net Initial Yield
EPRA Net Initial Yield and 'topped-up' Net 2020 2019
Initial Yield GBPm GBPm
================================================ ======== =======
Investment property - wholly owned 1,827.2 2,597.1
Investment property - share of joint ventures 1.6 1.8
Trading property (including share of joint
ventures) 113.6 175.3
Less: developments (225.9) (242.7)
================================================ ======== =======
Completed property portfolio 1, 716.5 2,531.5
Allowance for estimated purchasers' costs 117.7 178.7
================================================ ======== =======
Gross up completed property portfolio valuation
(A) 1,834.2 2,710.2
Annualised cash passing rental income 64.5 66.5
Property outgoings (4.3) (3.7)
================================================ ======== =======
Annualised net rents (B) 59.9 62.8
Add: notional rent expiration of rent periods
or other lease incentives 6.7 11.6
================================================ ======== =======
Topped-up net annualised rent (C) 66.6 74.4
================================================ ======== =======
EPRA Net Initial Yield (B/A) 3.27% 2.32%
================================================ ======== =======
EPRA 'topped-up' Net Initial Yield (C/A) 3.63% 2.75%
================================================ ======== =======
4) EPRA vacancy rate
2020 2019
EPRA vacancy rate GBPm GBPm
====================================================== ===== =====
Estimated rental value of vacant space 2.7 3.2
Estimated rental value of the whole portfolio less
development and refurbishment estimated rental value 75.6 99.6
====================================================== ===== =====
EPRA vacancy rate 3.5% 3.2%
====================================================== ===== =====
EPRA vacancy rate is performed only for the Covent Garden
portfolio. Other investment and development properties held at
Lillie Square total GBP1.6m Group share (2019: GBP1.9m Group share)
and disclosure is not applicable.
5) Property Related CapEx 2020 2019
Group Group
(excluding (excluding
Joint Joint Total Joint Joint Total
Ventures) Ventures Group Ventures)(1) Ventures Group
================================ =========== ========= ====== ============= ========= ======
Acquisitions 1.1 - 1.1 74.9 - 74.9
Development - 5.6 5.6 - 30.1 30.1
Investment property 19.1 - 19.1 19.4 - 19.4
Capitalised interest - 1.5 1.5 - 2.0 2.0
================================ =========== ========= ====== ============= ========= ======
Total CapEx 20.2 7.1 27.3 94.3 32.1 126.4
================================ =========== ========= ====== ============= ========= ======
Conversion from accrual to cash
basis 3.7 - 3.7 0.1 - 0.1
================================ =========== ========= ====== ============= ========= ======
Total CapEx on cash basis 23.9 7.1 31.0 94.4 32.1 126.5
================================ =========== ========= ====== ============= ========= ======
1. The 2019 Group capital expenditure is based on the continuing
operations and excludes any capital expenditure relating to Earls
Court Properties disposed of in the prior year.
Analysis of property portfolio (unaudited)
1. PROPERTY DATA AS AT 31 DECEMBER 2020
Market
Value
GBPm Ownership
====================================== ======= =========
Covent Garden 1,825.1 100%
Lillie Square 115.2 50%
Other 2.1 100%
Group share of total property 1,942.4
====================================== ======= =========
Investment and development property 1,828.8
Trading property 113.6
====================================== ======= =========
2. ANALYSIS OF CAPITAL RETURN FOR THE YEAR
Market Market Revaluation
Value Value loss(1)
31 December 31 December 31 December
2020 2019 2020
Like-for-like capital GBPm GBPm GBPm Decrease
====================================== ============= ============= ============= ========
Covent Garden 1,825.1 2,507.9 (675.1) (27.3)%
Other(2) 116.3 124.8 (11.6) (9.1)%
====================================== ============= ============= ============= ========
Total like-for-like capital 1,941.4 2,632.7 (686.7) (26.4)%
Investment and development property 1,827.8 2,511.2 (675.4) (27.3)%
Trading property(3) 113.6 121.5 (11.3) (9.0)%
====================================== ============= ============= ============= ========
Non like-for-like capital
Acquisitions 1.0 - (0.3)
Disposals - 141.5 (20.4)
====================================== ============= ============= ============= ========
Group share of total property 1,942.4 2,774.2 (707.4) (27.0)%
====================================== ============= ============= ============= ========
Investment and development property 1,828.8 2,598.9 (692.4) (27.8)%
Trading property(3) 113.6 175.3 (15.0) (11.7)%
====================================== ============= ============= ============= ========
All property
====================================== ============= ============= ============= ========
Covent Garden 1,825.1 2,595.6 (691.7) (27.8)%
Other(2) 117.3 178.6 (15.7) (11.3)%
Group share of total property 1,942.4 2,774.2 (707.4) (27.0)%
====================================== ============= ============= ============= ========
1. Revaluation loss includes amortisation of lease incentives and fixed head leases.
2. Relates to the Group's interest in Lillie Square and Earls
Court Properties. Earls Court Properties was disposed of 29
November 2019.
3. Represents unrecognised surplus and write down or write back
to market value of trading property. Presented for information
purposes only.
3. ANALYSIS OF NET RENTAL INCOME FOR THE YEAR
Year Year
ended ended
31 December 31 December
Like-for-like net rental income from 2020 2019
continuing operation GBPm GBPm Decrease
=========================================== ============ ============ ========
Covent Garden 40.6 57.8 (29.8)%
Other (0.5) (0.3) 66.7%
=========================================== ============ ============ ========
Total like-for-like net rental income 40.1 57.5 (30.3)%
Like-for-like investment and development
property 40.2 57.6 (30.2)%
Like-for-like trading property (0.1) (0.1) -
=========================================== ============ ============ ========
Non like-for-like net rental income
Acquisitions 1.8 0.3
Developments 1.5 3.4
Disposals 0.2 -
Group share of total net rental income
(underlying) 43.6 61.2 (28.8)%
=========================================== ============ ============ ========
Investment and development property
income 43.7 61.3 (28.7)%
Trading property (0.1) (0.1) -
=========================================== ============ ============ ========
All property
=========================================== ============ ============ ========
Covent Garden 44.1 61.5 (28.3)%
Other (0.5) (0.3) 66.7%
=========================================== ============ ============ ========
Group share of total net rental income
(underlying) 43.6 61.2 (28.8)%
=========================================== ============ ============ ========
Lease modifications and impairment
of tenant incentives (27.8) -
=========================================== ============ ============ ========
Reported net rental income 15.8 61.2 (74.2)%
=========================================== ============ ============ ========
Covent Garden 16.3 61.5 (73.5)%
Other (0.5) (0.3) 66.7%
=========================================== ============ ============ ========
4. ANALYSIS OF COVENT GARDEN BY USE
31 December 2020
============================================================================================
Weighted
average
Initial Nominal Passing unexpired Market Net area
yield equivalent rent Occupancy lease value ERV million
(EPRA) yield GBPm rate years GBPm GBPm Sq ft
============ ======= =========== ======= ========= ========== ======= ===== ========
Retail 916.8 39.4 0.4
F&B 373.5 16.7 0.2
Offices 282.2 16.1 0.2
Residential 175.5 5.1 0.2
Leisure 75.8 3.4 0.1
Other 1.3 0.1 -
============ ======= =========== ======= ========= ========== ======= ===== ========
Total 3.10% 3.91% 64.1 96.5% 8.2 1,825.1 80.8 1.1
============ ======= =========== ======= ========= ========== ======= ===== ========
Financial covenants (UNAUDITED)
For the year ended 31 December 2020
Financial covenants on non-recourse debt
31 December 2020
================== =====================================================
Loan(s) outstanding
at 31 December Interest
2020(1) LTV cover
Group share Maturity GBPm covenant covenant
================== ========== =================== ========= =========
Covent Garden (2) 2022-2037 690.0 60% 120%
Lillie Square 2021 5.6 75% n/a
Total 695.6
============================== =================== ========= =========
1. The loan values are the nominal values at 31 December 2020
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 December 2022, GBP565.0 million
of which is undrawn at 31 December 2020, and GBP550.0 million
Private Placement unsecured notes maturing between 2024 and
2037.
Glossary
Alternative Performance Measure (APM)
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".
Cash and undrawn committed facilities
Cash and cash equivalents plus undrawn committed facilities.
CDP
Carbon Disclosure Project Worldwide, a sustainability index.
Capco participates in the CDP Climate Change Programme.
CLSA
Conditional Land Sale Agreement, an agreement with LBHF relating
to its land in the Earls Court and West Kensington Opportunity
Area. The CLSA was disposed of as part of the Earls Court
Properties disposal on 29 November 2019.
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 Properties
The Group's interests in the Earls Court area, comprising
properties held in ECPL (up until disposal on 29 November 2019),
Lillie Square (a 50:50 joint venture partnership with the Kwok
Family Interests), the Empress State Building (up until disposal on
26 March 2018) and a number of smaller properties in the Earls
Court area (a number of which were disposed on 29 November
2019).
ECPL
Earls Court Partnership Limited is the investment vehicle with
TfL. The Group held 63 per cent controlling interest (up to
disposal on 29 November 2019) and TfL holds 37 per cent. ECPL holds
interests in EC1 & EC2 and other adjacent property primarily
located on and around Lillie Road.
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 or loss for the period excluding gains or losses on the
revaluation and sale of investment and development property, profit
on sale of subsidiaries, impairment of other receivables, 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 disposal value (NDV)
The net assets as at the end of the period including the excess
of the fair value of trading property over its cost, revaluation of
other non-current investments and the fair value of fixed interest
rate debt over their carrying value.
EPRA net disposal value per share
EPRA net disposal 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 net tangible assets (NTA)
The net assets as at the end of the period including the excess
of the fair value of trading property over its cost and revaluation
of other non-current investments, excluding the fair value of
financial instruments and deferred tax on revaluations.
EPRA net tangible assets per share
EPRA net tangible assets divided by the diluted number of
ordinary shares.
EPRA net reinstatement value (NRV)
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 plus a gross up
adjustment for related costs such as Real Estate Transfer Tax.
EPRA net reinstatement value per share
EPRA net reinstatement value divided by the diluted number of
ordinary shares.
EPRA topped-up initial yield
Net initial yield adjusted for the expiration of rent-free
periods.
EPRA triple net asset value (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.
EPRA triple net asset value per share
EPRA triple net asset value divided by the diluted number of
ordinary shares.
EPRA vacancy
The ERV of un-let units expressed as a percentage of the ERV of
let and under offer units plus ERV of un-let units, excluding units
under development.
ESC
Environment, Sustainability and Community
Estimated rental value (ERV)
The external valuers' estimate 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.
F&B
Food and Beverage.
FTSE4GOOD
FTSE4GOOD Index Series, hosted by FTSE Russell, a sustainability
index to which Capco participates.
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.
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.
HMRC
Her Majesty's Revenue and Customs.
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.
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 the 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.
NAV
Net Asset Value.
Net debt
Total borrowings less cash and cash equivalents.
NIA
Net Internal Area.
Net debt to gross assets
Net debt divided by the Group's total assets excluding cash and
cash equivalents.
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.
Net Zero Carbon
Net Zero Carbon means that the Company's total greenhouse gas
(GHG) emissions would be equal to or less than the emissions the
company removed from the environment.
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.
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.
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. Contracted annual rents in respect of tenants in
administration are excluded.
P.A.
Per annum.
Property income distributions (PIDs)
Distribution under the REIT regime that constitutes at least 90
per cent of the Group's taxable income profits arising from its
qualifying property rental business, by way of dividend. PIDs can
be subject to withholding tax at 20 per cent. If the Group
distributes profits from their non-qualifying business, the
distribution will be taxed as an ordinary dividend in the hands of
the investors.
Real estate investment trust (REIT)
On 9 December 2019, Capital & Counties Properties PLC
elected to convert to REIT status. A REIT is exempt from
corporation tax on income and gains of its property rental business
(qualifying activities) provided a number of conditions are met. It
remains subject to corporation tax on non-exempt income and gains
(non-qualifying activities) which would include any trading
activity, interest income and development and management fee
income.
Real Estate Transfer Tax
Purchasers' cost as included within the independent valuation of
investment, development and trading properties.
RICS
Royal Institution of Chartered Surveyors.
SAICA
South African Institute of Chartered Accountants.
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.
Shaftesbury
Shaftesbury PLC.
Tenant lease incentives
Any incentives 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 amortised 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 movement in EPRA NAV per share plus dividends per share paid
during the period.
Total shareholder return (TSR)
The movement in the price of an ordinary share plus dividends
paid during the period assuming re-investment in ordinary
shares.
Underlying earnings
Profit for the year excluding impairment charges, net valuation
gains/losses (including profits/losses on disposals), fair value
changes, net refinancing charges, costs of termination of
derivative financial instruments and other non-recurring costs and
income. Given the scale of the rental support provided to tenants
in 2020, non-cash lease modification expenses and impairment of
tenant lease incentives have been excluded from underlying earnings
due to being highly material and at levels not experienced in the
past nor expected to be incurred once tenant support measures
required as a result of COVID-19 conclude. 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 period.
Underlying net rental income
Net rental income excluding lease modification expenses and
impairment of tenant lease incentives. Given the scale of the
rental support provided to tenants in 2020, these balances have
been excluded from underlying net rental income due to being highly
material and at levels not experienced in the past nor expected to
be incurred once tenant support measures required as a result of
COVID-19 conclude.
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 announcement includes statements that are forward-looking
in nature. Forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Capital & Counties
Properties PLC to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements. Any information contained in this
announcement 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
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END
FR UWVORASUORUR
(END) Dow Jones Newswires
March 09, 2021 02:00 ET (07:00 GMT)
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