Capco has secured £225m in debt to invest in its Covent Garden estate through a private placement with eight institutional investors.
In a half-year trading update, the company said it had raised unsecured notes with maturities ranging from seven to 20 years, which would be used to pay down debt and then invest in Covent Garden. The debt has a weighted average fixed rate interest rate of 2.75%.
Simultaneously, Capco announced that its Earls Court holdings had dropped in value by 2.4%, dragged down by a revision of its Lillie Square residential project of 5.4%, as the squeeze in prime London residential values continued. The overall valuation is down from £1.142bn to £1.113bn since last December.
The revaluation came against a backdrop of an increase in the value of its overall asset base. The revaluation loss at Earls Court of £27.4m was offset by gains of £34.7m at its £2.4bn Covent Garden estate, making Capco’s overall property value £3.5bn, up 0.2%. Its net asset value was adjusted by 0.1% to 339.1p per share.
The company’s estimated rental value target of £125m by December 2020 remains in place, “reflecting the positive growth prospects” of the Covent Garden estate.
At Earls Court, the company said that adjustments had been made to the component parts of the valuation, including amendments to the development programme and cost inflation as well as “moderation” of sales values on future phases at Lillie Square.
Sales prices achieved in phase two of Lillie Square, which is held in a 50:50 joint venture with Hong Kong’s Kwok family, continue to be at a “modest premium” to comparable units in phase one. It has completed 78 units to date, and phase one handovers are on track to mostly complete by the end of the year, while half the units in phase two are reserved or exchanged.
The new private placement will share the same financial covenants as an existing £325m of private placement notes issued in 2014 and 2016 and a £705m facility signed in December 2015. Proceeds of the issue will be used initially to repay the bank facility and for subsequent investment on the Covent Garden estate.
Ian Hawksworth, chief executive of Capco, said: “Our two central London estates have had an active start to the year. Covent Garden, which now represents two-thirds of our business, is established as a world-class retail and dining destination and continues to deliver positive rental and value growth. There has been strong operational progress across the estate with 43 new leasing transactions signed during the period, including brands such as Kent & Curwen, and a number of new openings including the Henrietta Hotel. Our ERV target of £125m by December 2020 remains in place, reflecting the positive growth prospects of the estate.
“At Earls Court, land enablement works are on track and we continue to progress plans for the enhanced masterplan to maximise the potential of this strategic land holding. At Lillie Square, we have now pre-sold over half of the entire development and handover of phase one is expected to complete by the end of the year.
“Following the sale of venues and the financing activities undertaken during the period, Capco enters the second half of the year with a strong balance sheet, low leverage and high liquidity. Whilst the broader macroeconomic and political outlook remains uncertain, Capco is very well positioned to drive long-term value creation from its two unique estates and take advantage of opportunities to create further value as they arise.”
Barclays Bank and Natwest Markets acted as joint active agents on the private placement and were supported by Santander and HSBC.
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