CAPC.L Regulatory News (CAPC)

26 FEBRUARY 2020

CAPITAL & COUNTIES PROPERTIES PLC ("CAPCO")

AUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

Ian Hawksworth, Chief Executive, commented:

"Capco looks forward to the next phase of growth, with a strategic focus on the West End and Covent Garden, where we have created a world-class estate. As a strongly capitalised REIT, with access to substantial liquidity, Capco is well-positioned to take advantage of investment opportunities whilst also offering resilience during periods of economic uncertainty. Our creative approach to leasing and asset management continues to contribute to increased footfall and tenant sales at Covent Garden, giving us confidence in the long-term prospects of the business to deliver superior total returns to our shareholders."

Capco is positioned as a strongly capitalised prime central London REIT

Key financials

- Equity attributable to owners of the Parent of £2.5 billion (2018: £2.7 billion)

- EPRA NAV 293 pence per share, a decrease of 10 per cent (2018: 326 pence per share and Jun 2019: 315 pence per share), driven primarily by Earls Court and Covent Garden valuation movement

- Total property value £2.8 billion, a decrease of 1.7 per cent (like-for-like) (2018: £2.8 billion adjusted for the sale of Earls Court interests)

- Underlying EPS 1.0 pence per share (2018: 0.9 pence per share)

- Proposed final 2019 dividend of 1.0 pence per share resulting in a full-year dividend of 1.5 pence per share

- Total shareholder return of 14 per cent in 2019

Strong balance sheet with significant financial flexibility

- Sale of Capco's interests in Earls Court for £425 million, enhancing financial flexibility and positioning Capco to capitalise on investment opportunities

- Current group loan to value of 16 per cent, before receipt of Earls Court deferred consideration (2018:18 per cent)

- Group cash and undrawn facilities £895 million (2018: £854 million)

- Group net debt £442 million (2018: £573 million), with capital commitments of £14 million (2018: £53 million)

- Weighted average debt maturity of 4.9 years (2018: 6 years) and weighted average cost of debt of 2.97 per cent (2018: 2.92 per cent)

- Intention to grow dividend distributions in line with progression in underlying earnings

- Return of capital of up to £100 million through share buyback programme this year

Covent Garden

An active year across the estate; average sales and footfall continue to trend upwards

- Continued growth in net rental income, up 1.8 per cent (like-for-like) and 7.0 per cent in absolute terms

- Robust demand across all uses; 92 new leases and renewals, representing £17.4 million contracted income transacted at 1.3 per cent above 31 December 2018 ERV

- 13 new brands opened across the estate including Lacoste, Polo Ralph Lauren, VyTA and Glossier

- Expansion and investment by global brands, including upsizing of Bucherer and extension of Apple lease

- High occupancy, renewal rates and strong demand for offices and residential

Resilient performance

- London's West End has proved to be more resilient than the wider UK market but is not unaffected

- Total property value of £2.6 billion, a decrease of 1.4 per cent (like-for-like) (2018: £2.6 billion) driven by positive performance across the estate, offset by negative adjustments at Long Acre and James Street

- ERV broadly stable, -0.1 per cent (like-for-like) to £108 million (2018: £108 million)

- Equivalent yield up 6 basis points to 3.65 per cent (2018: 3.59 per cent)

- Initial yield moved from 2.4 per cent to 2.5 per cent as the reversionary potential continues to be captured

- EPRA vacancy remains stable at 3 per cent (2018: 3 per cent) with a small number of units available for letting

Strong track record of investment activity

- Accretive investment and aggregation of ownership of Covent Garden estate generating £1.2 billion of value since 2010

- Award winning Floral Court residential new-build apartments fully sold for £100 million of cumulative proceeds

- Over £70 million invested in 2019 through targeted acquisitions on the southern side of the estate and pipeline of additional opportunities under review

Other investments

- Sale of Capco's interests in Earls Court for £425 million, in line with long-term strategy

- Deferred consideration of £210.4 million from the sale of Earls Court to be received over the next two years

- Lillie Square Phase 2 completion and handover on track for 2020, over 80 per cent pre-sold representing approximately £100 million of sales proceeds (Capco share)

KEY FINANCIALS

1. On a Group share basis. Refer to Property Data for the Group's percentage ownership of property.

2. On a Group share basis. Refer to the Financial Review.

3. From continuing and discontinued operations. Refer to Consolidated Underlying Profit Statement.

ENQUIRIES

Capital & Counties Properties PLC:

Media enquiries:

A presentation to analysts and investors will take place today at 08.15am at the offices of UBS, 5 Broadgate, London, EC2M 2QS. The presentation will also be available to international analysts and investors through a live audio call and webcast and after the event on the Group's website at www.capitalandcounties.com.

A copy of this announcement is available for download from our website at www.capitalandcounties.com and hard copies can be requested via the website or by contacting the Company (feedback@capitalandcounties.com or telephone +44 (0)20 3214 9170).

CHAIRMAN'S STATEMENT

Overview

It has been an active year for Capco culminating in the separation of its two prime central London estates, through the sale of Earls Court, implementing a long-held strategic objective of the Company. Capco is now positioned as a strongly capitalised prime central London property REIT centred around its Covent Garden estate, with a focus on driving long-term rental and dividend growth. Backed by a strong balance sheet, the business has significant financial flexibility to capitalise on further investment opportunities and is well-positioned to deliver superior long-term total returns for shareholders.

Strongly capitalised prime central London REIT

Having assessed the structure of the Group, the Board determined that separation of its two estates was in shareholders' interests. The Board considered the merits of various options in relation to Earls Court, focusing on value and deliverability whilst having regard to long-term shareholder value, prudent capital management and market conditions.

Towards the end of the year, Capco completed the sale of its interests in Earls Court, excluding Lillie Square, to APG and Delancey (on behalf of its client fund) for £425 million. The transaction was consistent with Capco'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.

On 21 October 2019, Candy Ventures announced that it was in the early stages of considering a possible cash offer for the Company, resulting in Capco entering into an offer period for the purposes of the Takeover Code. On 15 November 2019, following Capco's announcement concerning the sale of its interests in Earls Court, Candy Ventures confirmed that it did not intend to make an offer for Capco. No substantive approach regarding an offer was made to the Company by Candy Ventures or any other party. The Board looks forward with full confidence in the Company's strategy and management to continue to deliver significant shareholder value.

Capco converted to UK REIT status in December 2019 and will grow dividend distributions to shareholders in line with progression in underlying earnings.

Performance 

Capco's total shareholder return for the year, which comprises share price performance plus the dividends paid during the year, was 14 per cent. Total return for the year, which represents the change in net assets plus the dividends paid during the year, was -10 per cent. The total value of Capco's property portfolio fell by 1.7 per cent on a like-for-like basis to £2.8 billion.

Covent Garden continues to capture its reversionary potential, securing 7 per cent growth in net rental income. The West End remains resilient, however it is not unaffected by the well-documented challenges in the retail sector. Against this backdrop, Covent Garden's ERV remained broadly stable at -0.1 per cent like-for-like. Movements in ERV and yield have resulted in a property valuation decline of 1.4 per cent like-for-like.

The implementation of our strategy at Covent Garden has created a highly attractive destination for occupiers and visitors, which has continued to benefit from positive trading conditions with enhanced footfall and average tenant sales trending upwards. High-quality global brands including Dominique Ansel, Polo Ralph Lauren and Glossier have been introduced, further strengthening Covent Garden's attractiveness as a leading global retail and dining destination.

The sales programme for the new-build residential component of Floral Court, The Floral Court Collection, completed successfully with cumulative proceeds of over £100 million received from the sale of all 29 apartments. The Group has invested over £70 million in the acquisition of a number of properties offering significant repositioning opportunities. 

Although the sale of Earls Court resulted in a loss on disposal and related one-off costs, the Board believes that separation of the two assets through sale, enhances the strategic flexibility of Capco, allowing the business to pursue a focused strategy from a position of financial strength, with modest capital commitments and access to close to £900 million of liquidity.

Other investments of Capco include a joint venture interest in the Lillie Square development which continues to progress on schedule. Handover of Phase 2 apartments is expected to complete during 2020. 

Financial position, share buyback programme and dividends

Responsible capital management and a flexible funding structure with access to significant liquidity ensures Capco maintains a strong financial position. Capco maintains a disciplined approach to capital allocation in order to position the business for growth and optimise long-term returns for shareholders. Capco intends to return up to £100 million to shareholders through a share buyback programme this year.

By focusing on delivering income growth and implementing cost efficiencies, the Company will grow dividend distributions to shareholders in line with progression in underlying earnings. The Directors are proposing a final dividend of 1.0 pence per share, which brings the total dividend for 2019 to 1.5 pence per share (2018: 1.5 pence).

The Board and employees

The Board continued to review its composition over the course of 2019, to ensure that we have the appropriate mix of skills and experience at an appropriate cost to deliver Capco's strategy as a central London focused REIT.

Gary Yardley, a founding Executive Director and Managing Director and CIO, stepped down from the Board in June 2019, leaving the company after over nine years of service. We thank him for his outstanding contribution to the development and growth of the Company. In addition, after more than nine years' service as a Non-executive Director and representative of the Gordon family, Graeme Gordon retired from the Board in May 2019. We are grateful for his commitment, wisdom and support of the Company. We welcomed Jonathan Lane as a Non-executive Director in March 2019.

Andrew Strang, who joined the Board on Capco's inception in 2010, and Gerry Murphy, who would have become the Chairman of the Earls Court business had a demerger been undertaken, will each retire from the Board at the forthcoming AGM. We thank Andrew for his long and valuable service and the benefit of his extensive knowledge of the market place, and Gerry for his significant contribution to the Board, not least in respect of preparations for the potential demerger. These Board changes result in a number of changes to Non-executive Directors' Committee memberships and roles, which are set out in a separate announcement.

Following a review of Board composition after the sale of the Group's interests in Earls Court, we are delighted that Michelle McGrath, who has been a senior executive of the company for six years, most recently as Director of Covent Garden, will join the Board as an Executive Director with effect from 26 February 2020. I look forward to working with each of the Directors as we pursue our strategy to deliver long-term total returns as a central London focused REIT.

The work required during 2019 to achieve the separation of the Group's assets required very significant and intensive work from the Executive Directors and employees across the business, during a period of considerable uncertainty. It would not have been possible to deliver the desired outcome for our shareholders without these efforts, and the Board would like to thank each of them for their commitment and professionalism.

Board oversight

The Board ensures that it has clear oversight of the business by receiving regular updates from Executive Directors and senior management at each of our formal Board meetings and the more informal Board updates. We also regularly visit both Covent Garden and Lillie Square to see the assets for ourselves and speak to operational management, ensuring that we are well aware of the business' opportunities and challenges, as well as the views of a range of stakeholders including shareholders, local communities, partners, lenders, government and employees.

Voting on AGM resolutions

Capco is listed in London and Johannesburg, and a significant proportion of the Company's shares is held by South African investors. At 31 December 2019, the South African section of the share register accounted for 31 per cent of the total register (2018: 40 per cent). As we have previously reported, there are sometimes different market expectations in the UK and South Africa. One such example is the level of authority to issue new shares that shareholders expect to grant to Boards. The Board considers that, in order to preserve flexibility, it is appropriate to seek the level of authorities typically expected by shareholders in UK listed companies where possible. In 2019 this resulted in significant votes against two of our AGM resolutions, one of which was withdrawn prior to the meeting, and Capco's repeated inclusion in The Investment Association's public register of shareholder dissent. The Board continues to engage with shareholders to explain its rationale and ensure it understands views on this matter.

Looking ahead

2019 was a year of significant positive change. Capco ended the year in a strong position having achieved its strategic objective of separation of its two London estates. The Company is now positioned as a central London focused REIT with significant financial flexibility to capitalise on growth opportunities. 

Covent Garden demonstrated resilient performance in a challenging environment. Whilst we can expect continued market uncertainty over the year ahead, we are confident about the long-term fundamentals of the Covent Garden estate, our market position and the prospects for central London. Our ambition is to build on the success of Covent Garden, to generate superior total returns for our shareholders over the long-term through creative asset management, investment and specialisation in central London real estate.

With our clear and focused strategy, world-class estate, experienced management team and creative approach, supported by strong financial resources, Capco is well-positioned to deliver income and dividend growth for our shareholders.

Henry Staunton

Chairman

25 February 2020

Chief Executive's review

Capco is positioned as a strongly capitalised REIT centred around its landmark Covent Garden estate

Capco entered 2020 looking forward to the next phase of growth for the business, from a position of financial strength and with a strategic focus on the West End and Covent Garden, where we have assembled and created a world-class estate.

Against a backdrop of political and economic uncertainty, the disposal of Earls Court places the Company in a strong financial position. The subsequent simplification of the Group enables a clear focus on growing the value of our investment at Covent Garden. With the ability to drive growth in net rental income, operate under a much reduced cost base, and access to significant liquidity, the Group is well-positioned to capitalise on investment opportunities and target the delivery of superior long-term total returns to shareholders.

Strategy, investment and capital allocation 

Our investment strategy will focus on value creation opportunities in central London. Our track record in creative asset management has repositioned the Covent Garden estate, now comprising 81 properties, into higher value uses and helped create a world-class estate. We are confident that this experience can be further deployed on the estate and in new acquisitions. Our strong balance sheet and access to significant liquidity provides the opportunity for expansion whilst offering insulation during uncertain economic periods. 

The Group is in a strong financial position, with a loan to value ratio of 16 per cent (before receipt of the deferred consideration from the sale of Earls Court) and access to available facilities and cash of approximately £900 million. Substantially all of the Company's property value is within the Covent Garden business, with the assets currently independently valued at £2.6 billion. Capco has a track record of accretive investment and aggregation of ownership in the district and it is intended that opportunities to expand our ownership in the area will be pursued.

The Board has set balance sheet leverage parameters of up to 40 per cent loan to value, with an appropriate level of interest cover. During 2019, over £70 million of capital has been invested through a number of acquisitions, primarily on the southern side of the estate which offers significant value creation opportunities over the medium-term. Each investment is assessed on its own merits primarily, together with analysis of any wider benefits to the overall portfolio.

The Group will maintain a disciplined approach to capital allocation, assessing the merits of all capital decisions 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 the return of surplus capital to shareholders as appropriate. The Board intends to return up to £100 million to shareholders through a share buyback programme this year. 

In view of Capco's recent conversion to REIT status, its dividend distributions are expected to grow over the coming years in line with progression in underlying earnings. Capco's immediate priority is to right size the Company targeting administration costs of £20 million in 2021. Our ambition is to build on the success of Covent Garden, to grow the income and generate attractive returns for our shareholders over the long-term through investment and specialisation in central London real estate.

Valuation and performance

The total property value of the Group declined by 1.7 per cent (like-for-like) in the year to 31 December 2019 to £2.8 billion. Against a challenging retail backdrop, Covent Garden declined by 1.4 per cent (like-for-like) to £2.6 billion, driven by movements in ERV which decreased by 0.1 per cent (like-for-like) and a widening in the equivalent yield of 6 basis points.

The majority of the portfolio continues to generate positive performance, offset by negative adjustments on Long Acre and James Street, which have seen high rates of growth over recent years and have the characteristics of relatively larger store sizes and absolute rents. At the end of the year, there was a small number of units, with a concentration in retail space, available for letting on the estate representing 3.2 per cent vacancy overall. 

Capco continues to capture the portfolio's reversionary potential into contracted income, reporting 7 per cent overall growth in net rental income for the year. Positive demand across all uses has resulted in 92 new lettings and renewals, securing £17.4 million of rental income at 1.3 per cent above December 2018 ERV.

Central London retail is not unaffected by the challenged environment, with examples of national retailers making group-wide decisions which are not necessarily reflective of trading performance on the estate. Capco takes a proactive approach to tenant management and closely monitors performance whilst ensuring it provides an environment for brands to thrive. Trading performance on the estate remains positive with average retail and restaurant sales continuing to grow, demonstrating Covent Garden's differentiation and strength.

Capco's investment at Lillie Square decreased in value by 5.4 per cent (like-for-like) to £178 million at 31 December 2019 due to changes in valuers' assumptions. The sale of Earls Court is consistent with Capco's long-term strategy of monetising a series of investments over time with a focus on growing its central London property investment business, centred around Covent Garden. Although the sale of Earls Court crystallised a loss against balance sheet value, Capco has strengthened its financial flexibility and positioned the Company with significant liquidity to enable it to capitalise on further investment opportunities. The loss on sale of Earls Court and the decline in the value of Covent Garden have resulted in EPRA net asset value declining by 10 per cent over the year to 293 pence per share.

Valuations

1. Valuation change takes account of amortisation of tenant lease incentives, capital expenditure, fixed head leases and unrecognised trading surplus.

2. Represents the Group's 50 per cent share of the Lillie Square joint venture in 2019. 2018 includes Capco's interests in Earls Court Properties which were disposed of during 2019.

3. A reconciliation of carrying value of investment, development and trading property to the market value is shown in note 11 'Property Portfolio'.

As required by the provisions of Royal Instituion of Chartered Surveyors ("RICS") guidelines, the valuer has evaluated each Covent Garden property on an individual basis, rather than valuing the portfolio as a whole or in combinations of parts. The total valuation of the estate is £2.6 billion 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.

Environment, Stakeholders and People

As responsible owners of the estate we continue to support and preserve Covent Garden's rich heritage which is an integral part of the West End. Capco promotes a collaborative approach to working with local communities to ensure understanding and support of the business initiatives on the estate. These include minimising 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.

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, improving pedestrian flows and dwell times.

We aim to release the potential of our talented and diverse workforce, providing opportunities for leadership and responsibility whilst harnessing the creative passion we all share for Covent Garden.

Covent Garden, a world-class estate

Capco has transformed the Covent Garden estate into a prime district in the heart of London's West End with a differentiated offer, delivering an attractive environment for over 40 million visitors every year. The estate is of a scale and in single ownership which is difficult to assemble or replicate. The portfolio comprises 549 units of shops and restaurants as well as offices, hotels, museums and residential assets. Its rare attributes underpin the resilience of the estate and continue to provide a degree of insulation from broader economic headwinds. Across the estate, 53 per cent of the value is represented by retail, 22 per cent by F&B use, 14 per cent office, 8 per cent residential and 3 per cent leisure.

Generally, trading conditions on the estate in 2019 were positive and average tenant sales continued to trend upwards. We are also encouraged by positive footfall data as the pedestrian flow across the estate continues to evolve. The demographic breakdown of consumers visiting the estate has changed significantly over time with higher levels of consumer spend on average. The customer mix is now approximately 40 per cent international, 40 per cent Londoners and 20 per cent domestic visitors which compares with an historic mix heavily oriented towards the UK and lower spend tourists. Improving the brand mix and targeted marketing initiatives have resulted in higher dwell times, frequency of visits and average spend. These positive operating fundamentals give us confidence in the long-term prospects of the business.

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 and footfall. Our focused digital outreach continues to drive engagement and customer insight opportunities.

Covent Garden's global positioning continues to appeal to brands to meet evolving consumer demand. During the year Apple agreed to extend its lease, resulting in its occupation for a further 15 years and luxury retail operator Bucherer agreed terms to upsize its offering underlining the importance of the Covent Garden location for global brands. We have seen strong demand for the Market Building with leasing deals agreed with premium retailers Strathberry, Happy Socks, Hawkers and L'Occitane. The repositioning of Floral Street continues with the introduction of A.P.C., American Vintage, Ganni and Glossier. Polo Ralph Lauren and Lulu Guinness have been signed to King Street as well as Pandora and Lacoste on James Street, strengthening the position of Covent Garden as one of London's most desirable retail destinations.

The range of dining concepts on the estate has been broadened further, with the introduction of differentiated concepts including Big Mamma, VyTA, The Dominique Ansel Treehouse, Santa Nata and Wahlburgers. The latest additions further enhance Covent Garden's attractiveness as a dining destination.

Demand for office space in Covent Garden remains strong as the district has become a prime office location underpinned by the appeal of the iconic estate and its excellent connectivity. The residential for lease portfolio is performing well, with a high rate of renewals recorded above previous passing rent. A successful sales programme in relation to the award winning Floral Court residential collection has resulted in the sale of all 29 apartments, at better than anticipated prices, for £100 million cumulative proceeds demonstrating our disciplined approach to capital management. This year we have invested over £70 million in the estate through targeted acquisitions on the southern side which offer value creation opportunities.

Other investments

The Lillie Square joint venture continues to progress. Handover of units sold in Phase 1 is complete, with a small number of units available. Over 80 per cent of Phase 2 has been reserved or exchanged, with gross proceeds of approximately £100 million (Capco share) expected on handover during 2020.

Sir Donald Gordon

In November 2019, we were very sorry to learn that Sir Donald Gordon had passed away at the age of 89. Sir Donald was a remarkable man who, in addition to many philanthropic works, founded both the Liberty Life Insurance group in South Africa, and the Liberty International property group in the UK, from which the Capco business was launched in its current form. Sir Donald was the Chairman of Liberty International until 2005.

Outlook

Capco has grown significantly over the last 10 years and we are proud of our achievements. The Company has extensive knowledge of investing in the central London property market which is our core business. As a result of actions in 2019, Capco is a strong and resilient company positioned for future growth from the iconic Covent Garden estate in the heart of London. Whilst there will be broader market challenges, not least as the UK transitions from exiting the EU, with new government policy directives including changes to labour access, trade regulations and movement of goods and the potential impact of the coronavirus (COVID-19), however we firmly believe that London remains a destination of choice for capital, talent and tourism.

Our investment strategy will focus on generating superior long-term returns from investing in central London, with a focus on the continued progression of value and income at Covent Garden alongside a reduced cost base. Our strong balance sheet and access to significant liquidity provides resilience, a platform for expansion and confidence in the long-term prospects of the business.

Ian Hawksworth

Chief Executive

25 February 2020

Strategic Report

COVENT GARDEN

A word-class retail and dining destination in the heart of London's West End

Capco's Covent Garden estate is a carefully assembled property portfolio in the heart of London's West End, comprising retail, dining, leisure and cultural space complemented by high quality offices and premium residential apartments. The assembly of the estate has been delivered through disciplined investment over time. Capco has established Covent Garden as a world-class estate of approximately 1.2 million square feet of lettable space, across 81 buildings and 549 units, currently valued at £2.6 billion, through a clear and focused strategy centred on creative asset management, focusing on the consumer and introducing high quality restaurant and retail concepts complemented by high quality office and residential accommodation.

Covent Garden is a highly attractive location, recognised as one of the world's most popular business, leisure and visitor destinations attracting over 40 million domestic and international customer visits per annum.

Despite the challenging backdrop, average tenant sales and footfall have recorded positive growth during the year. Capco continues to focus on relevant concepts and highly-productive categories such as jewellery and watches, accessories, cosmetics, health and wellbeing and there is an increasing representation from brands generating higher sales densities.

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. Covent Garden is a high footfall location and offers retailers and visitors a differentiated experience in a managed estate environment, with many brands chosing Covent Garden as their first physical global or UK presence.

In researching emerging ideas and concepts, the team identifies global trends, meeting retailers, identifying brands and concepts suitable for its vision for Covent Garden. Digitally native brands which originate online are increasingly recognising the importance of a physical presence in terms of customer acquisition and retention, alongside the economic opportunity. Capco has the infrastructure and platform in place to support new to the UK or physical format retailers in order to accelerate the process of bringing target brands to London. This forward-thinking dynamic approach to contemporary retail and dining ensures Covent Garden provides a differentiated offering to meet ever-evolving consumer expectations. Capco has a clear estate marketing strategy focusing on the consumer calendar. Capco's collaborative approach provides brands with an opportunity to participate in the estate marketing, particularly through its digital channels and activations using the Piazza. The collaborative and integrated approach helps drive footfall and tenant sales.

Capco engages actively with its audiences through multi-channel marketing activities such as events, brand partnerships and digital outreach, as well as investment in high quality public realm to enhance the overall customer experience on the estate. Covent Garden has a significant social media presence and is established as one of the most highly engaged destinations in the world through Instagram, Facebook and Twitter.

2019 was another active year with the portfolio delivering resilient performance. Demand for space continued to be positive. 92 leasing transactions including new leases and renewals were completed representing £17.4 million of rental income per annum transacted at 1.3 per cent above 31 December 2018 ERV (H1 2019: 40 transactions representing £13 million of rental income, H2 2019: 52 transactions representing £4.4 million of rental income).

In 2019, net rental income was £61.5 million, up 1.8 per cent (like-for-like) or 7 per cent overall compared to 2018, as the reversionary potential continued to be captured. The valuation of the estate decreased by 1.4 per cent on a like-for-like basis to £2.6 billion. ERV remained broadly stable at £108 million, a like-for-like decline over the year of -0.1 per cent. The valuation adjustment occurred mainly on Long Acre and James Street, with positive performance across the balance of the estate. The equivalent yield increased by 6 basis points to 3.65 per cent.

Retail - a leading destination for brands

As one of central London's most iconic destinations, Covent Garden is home to over 140 British, global and independent retail brands. An emphasis on the customer is essential to ensuring that the estate continues to thrive as a leading destination for Londoners, domestic and international visitors, as well as office occupiers and residents. Retail space represents 53 per cent of the portfolio by value.

Demand for the Market Building continues to be strong, sunglasses brand Hawkers and beauty concept L'Occitane opened stores in the Market Building, joining Happy Socks which was introduced earlier in the year. British independent premium accessories brand Strathberry is the latest signing and will open in the coming months. In addition, eyewear brand For Art's Sake opened its first standalone retail store in the Market Building. 

Polo Ralph Lauren opened a menswear store on King Street in December 2019. British brand Lulu Guinness has agreed terms to open on King Street, joining Parisian womenswear brand ba&sh which opened a store. French sportswear brand Lacoste and jewellery brand Pandora both opened new stores on James Street.

Apple carried out an extensive refurbishment of its flagship store in Covent Garden and during the year the lease was extended, resulting in occupation for a further 15 years.

Luxury retail operator Bucherer has agreed terms to upsize its offering to a more prominent flagship store within the Royal Opera House Arcade. Bucherer's re-location over the coming months builds on the ongoing strategic positioning of the arcade as a premium shopping location.

In addition, travel money specialist ChangeGroup, will open a new lounge located on Russell Street, the first of its kind in London's West End offering cash VAT refunds for shoppers from outside the EU.

Repositioning of Floral Street continues with US ethical fashion brand Free People opening its first permanent store outside of the US at 28 Floral Street. American Vintage will open this summer offering ready-to-wear and accessories collections, influenced by the founder's extensive travels throughout the US. British fashion brand Jigsaw upsized its Floral Street store to a flagship Jigsaw in Carriage Hall, replacing The Shop at Bluebird. Parisian label A.P.C. opened on Floral Street in December offering menswear, womenswear and accessories. Fitness technology company Peloton continues the fit-out of its European flagship training studio which will live-stream classes to members worldwide. American casual men's apparel brand UNTUCKit opened on Long Acre, its first physical store in the UK. Subsequent to the year end, Danish fashion brand Ganni signed on Floral Street and is due to open in the coming months. 

The new retail additions continue to position Covent Garden as one of London's best retail destinations offering a wide range of high quality brands. Capco continues to create unique customer experiences on the estate. For the Christmas trading period, cosmetics brands Glossier and Huda Beauty launched concepts on Floral Street and the East Piazza, which also hosted the Tiffany & Co. ice-skating rink.

Glossier is a digital-first beauty company and a millennial-favourite with a cult online following. Its Floral Street store has been its most successful to date welcoming over 100,000 customers since opening in November 2019, with the highest average daily sales of any of its global stores. Due to its success, occupation has been extended for a further 12 months.

Dining - one of London's best dining destinations

Introducing high quality innovative food concepts has been central to the dining strategy for Covent Garden. The estate offers differentiated dining experiences, from casual to premium and is one of London's best dining destinations. Dining space represents 22 per cent of the portfolio by value. The estate's transformation has been well received and recognised by consumers, with the restaurants continuing to generally report growth in turnover in contrast to well-documented issues experienced in the broader UK market.

Set within a stunning two-storey space on Floral Street, The Dominique Ansel Treehouse opened in February 2020. This new first to London restaurant from Chef Dominique Ansel, named World's Best Pastry Chef by the World's Best 50 Awards, offers a bakery boutique with a wide range of desserts and pastries on the ground floor. A cosy seated bistro is located in the 'treetop canopy' on the upper floor. The new addition anchors the western end of Floral Street, which continues its ongoing repositioning.

Santa Nata, which specialises in authentic Portuguese custard tarts opened on Russell Street and Italian restaurant VyTA Santa Margherita opened in the Market Building offering all-day dining on the Piazza. Wahlburgers, the casual dining burger restaurant and bar, opened its first restaurant outside the US on James Street, offering a classic American menu.

Big Mamma restaurant group, which is behind recently launched London venues Gloria and Circolo Popolare, plans to open a new 227-cover restaurant later this year, with dual frontage on Henrietta Street and Maiden Lane, offering a vibrant take on traditional Italian trattoria experience.

Offices - prime office location

Covent Garden is a prime office location underpinned by the appeal of the overall estate and its excellent connectivity. There is a population of over 140,000 workers within a half mile radius of the estate. Covent Garden has a contemporary office portfolio ranging from warehouses to newly refurbished space, offering both multi-tenanted and single occupancy workspace. The portfolio continues to attract financial services, technology, creative industries and SMEs maintaining high occupancy rates. Office space represents 14 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 24-hours a day.

Flexible office space continues to be a growing component of the London office market, helping to promote small businesses and contributing to the city's growth. In recent years, the demand for greater flexibility has grown. A number of office lettings have been achieved during the year, most notably the letting of 22 Long Acre to global co-working space provider WeWork. WeWork will add to the already thriving office community in the area.

In addition, Peloton has chosen Floral Street for its London offices, extending its lease to cover approximately 4,000 square feet of office space taking its total space to 23,000 square feet in total, including the retail component.

Residential - prime residential address

Covent Garden is established as a premium residential address with over 10,000 residents living within a 15 minute walk of the estate.

During the year, there continued to be strong leasing demand for residential accommodation across the estate. Residential space represents 8 per cent of the portfolio by value. The residential portfolio is operating close to full occupancy with a high rate of renewals recorded above previous passing rent.

All 29 new-build apartments comprising the Floral Court Collection have been sold, generating over £100 million in cumulative gross proceeds, including 22 apartments representing over £80 million in 2019. Residents are attracted to the iconic location, distinctive product and high levels of customer service.

This award winning development was named 'Best London Home - Under 100 units' at the Evening Standard Awards 2019 and Best Interior Design as well as the Development and Judges Award: Interior Design of the Year at The Sunday Times British Home Awards 2019. Global awards include Chicago Athenaeum International Architecture Award and AIA NY Design Awards Winner 'Honor'. The development has also been shortlisted for an award in the global BREEAM 2020 Awards under the category Homes: Post Construction Award.

Leisure

The broader Covent Garden area contains over 7,000 hotel rooms within a half mile radius, with over 60 per cent operating as 4-star and 5-star hotels. This reflects the spending power of visitors who stay in close proximity to the estate. The area is also home to numerous theatres containing approximately 40,000 seats, further enhancing the estate's destination and leisure status.

Hotel accommodation on the estate continues to be well received. The Henrietta Hotel will launch an additional 22 rooms this summer, in response to strong demand. The design-led boutique hotel originally opened in 2017 with 18 rooms, and is home to the Henrietta bistro, offering Basque-inspired cuisine. In addition, Z Hotels operates a 111-room hotel on the estate.

Investment activity

Capco's strong balance sheet and access to substantial liquidity provides significant financial flexibility. Capco's extensive knowledge of the district, close network of contacts and proven track record means Capco is often the best positioned to acquire properties, frequently off-market. Every building has a plan that is updated regularly, analysing forward-looking returns.

In 2019, over £70 million has been invested through the acquisition of target properties located on the southern side of the estate, which offer value creation opportunities. In February 2019, Capco acquired 39-40 Bedford Street which comprises 11,140 square feet of office and residential space, for £13.2 million (before purchaser's costs) located at an important entry point to the estate.

In November 2019, Capco acquired the freehold interest of Sussex Mansions, 36-39 Maiden Lane for £17.8 million (before purchaser's costs). The building comprises a restaurant let to Franco Manca, as well as office and residential space, presenting asset management opportunities. The property generates an annual rental income of £0.6 million across 13,300 square feet. 

In addition, Capco also completed the acquisition of the freehold interest of 5-6 Henrietta Street for £35 million (before purchaser's costs). The multi-let building produces an annual rental income of £1.2 million across 14,300 square feet which comprises 8,200 square feet of restaurant space let to Din Tai Fung and four floors of office space which are currently vacant.

There are a number of properties on or around the estate being actively tracked for acquisition and repositioning opportunities. There are active asset management and refurbishment initiatives across the estate. Capco undertakes repurposing activities to ensure units are readily utilisable for tenants upon signing. Opportunities to implement further creative asset management initiatives are identified to improve the rental prospects and value of buildings across the portfolio, the timing of which is dependent on when vacant possession is achieved. Capco also regularly considers opportunities for value creation in the upper parts of buildings, typically through high quality office conversions for lease or premium apartments for sale or lease or in certain cases maison style retailing and F&B.

Redevelopment opportunities have been identified including the Wellington block and other large scale opportunities in particular on the southern side of the estate. Capco continues to review proposals for the Wellington block, a scarce island site in central London, with various planning consents in place across multiple uses including office on the upper floors with retail and restaurants on ground floor as well as consent for a hotel. Capco recently secured an enhanced hotel planning consent extending the key count to 146, with an investment decision expected to be made this year. 

Environment and Public Realm

Capco acts as a responsible owner of the estate. As the principal landowner of such a high footfall, globally recognised destination in London's West End, Capco has responsibilities to and works closely with a wide range of stakeholders. The heritage of Covent Garden is central to the fabric of the West End and Capco works to restore the heritage of its iconic buildings whilst also improving the energy efficiency of them. Capco promotes a collaborative approach to working with local communities to ensure understanding and support of the business initiatives on the estate and provides support for selected charity partners. Capco aims 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 which improve the quality of the environment for all, such as pedestrianisation and increasing greenery.

In early 2020, environmental charity Hubbub had an interactive 'Pollution Pavilion' in Covent Garden to raise public awareness of air quality issues and encourage conversation about air pollution. The unique installation displayed large balloons that changed colour reflecting annual nitrogen dioxide (NO2) data drawn from five different locations across London to help visitors visualise air pollution levels. As the pedestrianised heart of the capital, Covent Garden enjoys some of the best air quality in central London, and Capco continues to embrace measures to improve and maintain this. Capco was proud to support this important initiative which will help to work towards a cleaner, greener capital.

Future Priorities 

Capco continues to implement its strategy for Covent Garden through creative asset management and investment, and attracting high quality retail brands and dining concepts to the estate. By introducing a differentiated tenant mix to address the evolving needs of the consumer, Capco aims to capture the reversionary income potential of the portfolio while continuing to drive ERV progression over the medium-term.

Further to this, Capco will continue to judge the long-term return profile of its assets and monetise value selectively as demonstrated by the sale of the new-build apartments at Floral Court as well as continue to invest in the estate and expand its ownership through acquisitions. The southern side of the estate offers a number of opportunities to create value and an investment decision on the repositioning of the Wellington block is expected later this year. Capco is committed to consumer engagement, aiming to continue enhancing the customer environment and develop Capco's extensive ESG agenda including a commitment to air quality, greening, waste management, charitable support, community engagement and responsible ownership.

Other Investments

Sale of Capco's interests in Earls Court for £425 million

In November 2019, having prepared the land for future development, Capco completed the sale of its interests in Earls Court, excluding Lillie Square, to APG and Delancey (on behalf of its client fund) for £425 million (the "Disposal").

Net proceeds from the initial payment were approximately £175 million (adjusting for net debt and other completion items). The balance of £210 million will be payable in two equal instalments, 12 months and 24 months after completion. The second deferred payment receivable by Capco would be accelerated in part to the extent that payments made by Capco to the London Borough of Hammersmith and Fulham pursuant to the Conditional Land Sale Agreement ("CLSA") are refunded to the Purchaser. Further consideration may be payable to Capco in limited circumstances.

This transaction is consistent with Capco'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. The disposal is for total consideration of £425 million, and compares to a balance sheet value at 30 June 2019 of £508 million. Taking into account revaluation movements in the first half, transaction costs and the present value adjustment on the deferred consideration, the disposal resulted in a decline in NAV of £191 million, equivalent to 22 pence per share.

The balance sheet value of the Earls Court interests at 30 June 2019 subject to the transaction (the "Disposal Group") comprised:

- 63 per cent interest in Earls Court Partnership Limited ("ECPL"): the investment vehicle with Transport for London ("TfL") in respect of the site formerly the location of the Earls Court exhibition centres and certain assets on and around Lillie Road valued at £389 million (Capco's share of ECPL net debt as at 30 June 2019 was approximately £38 million);

- Other related assets around Earls Court valued at £36 million; and

- Capco's interests in respect of the Conditional Land Sale Agreement ("CLSA") in relation to the West Kensington and Gibbs Green Estates, comprising prepayments and capitalised costs, with a carrying value of £83 million.

Lillie Square

Capco owns 50 per cent in Lillie Square, a one million square foot (GEA) residential development located in West London. The development can deliver over 600 private and 200 affordable homes across three phases. Development of Lillie Square is well-progressed with over £450 million of cumulative sales contracted across Phase 1 and 2.

Handover of Phase 1 sold units is complete, with a small number of units available. £133 million (Capco share) of Phase 1 sales proceeds have been received. Over 80 per cent of Phase 2 (160 of the 186 units) have been reserved or exchanged. Handover of sold units is expected in 2020 with gross proceeds of approximately £100 million (Capco share).

Future priorities are to continue to progress Lillie Square through the delivery of Phase 2, ensuring successful completion and handover to all purchasers and continued sales of the remaining inventory.

Innova

Capco has a 50 per cent interest in the Innova Investment joint venture ("Innova") with Network Rail, which explores potential opportunities for future redevelopments at significant railway station sites across London. Capco and Network Rail have funded works which has enabled significant progress in developing a technical solution to allow re-development of Clapham Junction station. With such a large, complex project the business funding model is yet to be determined and a detailed review by Network Rail regarding next steps is underway. There still exists an opportunity for Capco through the Innova investment to participate over the long-term, however at this stage there is no certainty and therefore Capco took the prudent approach to impair its investment in Innova in full in the first half of 2019.

FINANCIAL REVIEW

During 2019 the Group completed the sale of its interests at Earls Court and converted to REIT status. The Group is now well-positioned with a clear focus to grow its property investment business centred around the Covent Garden estate, supported by a strong balance sheet. With a loan to value ratio of 16 per cent and access to liquidity of £895 million the Group has the ability to capitalise on investment opportunities and deliver long-term shareholder value.

The Covent Garden estate has recorded positive performance with growth in rental income, an active period in terms of letting and asset management activity, and encouraging indicators including enhanced footfall and tenant sales. In addition, £94 million was invested into Covent Garden through £75 million of acquisitions (including costs) and £19 million of capital expenditure.

Covent Garden now accounts for 94 per cent of the portfolio value as measured by the Group's share of total investment, development and trading property. The remaining new-build Floral Court apartments, including the award winning penthouse, have been sold during the year generating £80 million of net proceeds (and cumulative proceeds of £100 million). The property valuation of the Covent Garden estate has decreased by 1.4 per cent as a result of movements in yields and ERV. The Group has, however, continued to realise rental growth with an increase of 7.0 per cent overall in net rental income or 1.8 per cent on a like for like basis.

On 29 November 2019 the Group sold its interests in Earls Court Properties, retaining its interests in the Lillie Square joint venture. Headline consideration was £425 million and after the deduction of net debt and working capital, the Group received cash proceeds of £175 million on completion with £210 million to be received over the next two years. The total loss on sale, including revaluation movements and transaction costs, was £191 million. This includes £10 million representing the time-discounted value of the deferred consideration, which will be recognised as income as the balance of the consideration is received.

Handover and completion in relation to the sale of Phase 2 apartments at Lillie Square is expected during the course of 2020, with proceeds of £100 million (Group share) expected to be received by the joint venture.

Overall net assets of the Group were £2.5 billion. EPRA net asset value per share decreased by 10.1 per cent during the year, from 325.7 pence at 31 December 2018 to 292.9 pence. Combined with the 1.5 pence dividend paid to shareholders during the year, the total return for 2019 is -9.6 per cent. Total shareholder return for the year, reflecting movement in the share price together with the value of dividends, is 14 per cent.

Underlying earnings from continuing activities were £9.5 million compared to £9.8 million for 2018, with continued net rental income growth at Covent Garden offset by an increase in administration expenses.

As a REIT and with a simpler organisational structure, the Group will focus on growing rental income and achieving operating efficiencies to develop dividend distributions in line with underlying earnings, whilst maintaining an appropriate capital structure and investing strategically to grow the business and deliver shareholder value.

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 and report on the performance of the business. These include a number of the Financial Highlights shown on page 2. Many of the APMs included are based on the EPRA Best Practice Recommendations reporting framework which aims to improve the transparency, comparability and relevance of published results of public real estate companies in Europe.

Internally the Board focuses on and reviews information and reports prepared on a Group share basis, which includes the Group's share of joint ventures but excludes the non-controlling interest share of our subsidiaries, as this represents the economic value attributable to the Company's shareholders. In order, therefore, 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 £425 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. This extends to the prior period comparative which has been re-presented to reflect the disposal. The Empress State Building which was sold on 26 March 2018 was previously part of the Earls Court Properties business and therefore has also been classified as a discontinued operation in the comparative period. Further information on the disposal of the Earls Court Properties business is set out in note 8 'Discontinued Operation'.

FINANCIAL POSITION

At 31 December 2019 the Group's EPRA net asset value was £2.5 billion (31 December 2018: £2.8 billion), representing 293 pence per share (31 December 2018: 326 pence).

SUMMARY ADJUSTED BALANCE SHEET

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.

1. Primarily Lillie Square.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

3. IFRS includes amounts receivable from joint ventures which eliminate on a Group share basis.

4. Adjusted, diluted number of shares in issue at 31 December 2018 was 852.6 million.

Investment, development and trading property

The Group share of investment, development and trading property carrying value, excluding the discontinued Earls Court Properties business, has increased from £2,700.4 million at 31 December 2018 to £2,706.8 million. This movement comprises acquisitions of £74.9 million and capital expenditure of £51.5 million offset by disposals at Floral Court and Lillie Square of £78.9 million, and a revaluation loss of £41.1 million. 

The acquisitions were located mainly in the southern side of the estate at Covent Garden, enhancing the Group's position in the area and providing medium term repositioning and asset management opportunities. Capital expenditure of £19.4 million at Covent Garden relates to a number of smaller projects and the Lillie Square spend of £32.1 million was in relation to construction and fit out of phase 2 of the development. 

The IFRS loss on revaluation of investment and development property was £41.1 million which relates to the Covent Garden portfolio, driven by movements in yield and ERV. Including the revaluation loss on Earls Court Properties for the period to 29 November 2019 of £96.6 million (Group share), the total loss on revaluation of investment and development property from continuing and discontinued operations was £137.7 million. The unrecognised surplus on trading property declined by £10.2 million, and together with the revaluation on investment and development property the total revaluation loss was £147.9 million representing a 5.2 per cent decrease in value, which compares with the MSCI Capital Return for the equivalent period of a 3.1 per cent loss.

Total property return, including the loss on disposal of Earls Court Properties, was a 5.4 per cent loss. The MSCI Total Return Index recorded a 2.1 per cent gain for the corresponding period.

Trading property is carried on the consolidated balance sheet at the lower of cost and market value, therefore valuation surpluses on trading property are not recorded. Any unrecognised surplus is however reflected within the EPRA net asset value measure. During the year £1.4 million of the unrealised trading property surplus has been realised. At 31 December 2019, the unrecognised surplus on trading property was £15.9 million (31 December 2018: £25.7 million) which arises solely on the Group's share of trading property at Lillie Square.

Debt and gearing

The Group maintains a strong balance sheet with diversified sources of funding, a relatively low loan to value ratio, significant headroom against debt covenants, access to substantial liquidity, limited capital commitments, a balanced debt maturity profile and appropriate hedging against movements in interest rates. This enables the Group to deploy capital on the estate and in new acquisitions as well as the ability to return surplus capital to shareholders. The Company intends to return up to £100 million to shareholders through a share buyback programme in 2020.

The Group's cash and undrawn committed facilities at 31 December 2019 were £895.2 million (31 December 2018: £854.4 million). A reconciliation between Group share and IFRS is shown below:

1. Primarily Lillie Square.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

Net debt decreased by £131 million to £442 million, principally as a result of receiving the initial disposal proceeds from the sale of Earls Court Properties. Further proceeds of £210 million are expected to be received over the next two years. As set out in the summary adjusted balance sheet, net debt on an IFRS basis was £404 million.

During the year the Lillie Square joint venture exercised a one-year extension to its credit facility. As a result the Group's earliest repayment date on its facilities is May 2021.

The gearing measure most widely used in the industry is loan to value ("LTV"), which is calculated on the basis of net debt divided by the carrying value of the Group's property portfolio. The Group focuses most on an LTV measure that includes the notional share of joint venture interests but excludes the share of the non-controlling interest. The LTV of 16.3 per cent remains comfortably within the Group's limit of no more than 40 per cent with the level of interest cover expected to improve as rental income growth and cost efficiencies are delivered.

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 2019 the proportion of gross debt with interest rate protection was 91 per cent (31 December 2018: 88 per cent) and the £705 million revolving credit facility was undrawn.

The Group remains compliant with all of its debt covenants, details of which are set out on page 53, and has significant levels of headroom against covenants across all of its debt facilities. 

At 31 December 2019 the Group had capital commitments of £13.6 million (£53.4 million at 31 December 2018), of which £7.0 million related to Covent Garden and £6.6 million to Lillie Square.

1. Primarily Lillie Square.

2. Non-controlling interest represents TfL's 37 per cent share of ECPL.

CASH FLOW

A summary of the Group's cash flow for the year ended 31 December 2019 is presented below:

SUMMARY CASH FLOW

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 £4.1 million.

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 £1.9 million.

Operating cash outflows of £14.0 million are as a result of changes in net working capital requirements and transaction-related costs.

During the year, £94.4 million was invested at Covent Garden for the purchase of three properties and subsequent expenditure for the development of property. At Lillie Square, £32.1 million was incurred for the construction of Lillie Square Phase 2.

The sale of 22 apartments at Covent Garden, including three that were classified as held for sale as at 31 December 2018, generated £79.6 million of net sales proceeds from property with a further £4.7 million received on Lillie Square phase 1 disposals. The completion of Lillie Square Phase 2 handovers is expected during 2020. 

The disposal of the discontinued operation Earls Court Properties resulted in a net inflow of £168.9 million after taking into account the transfer of the disposal Group's bank accounts.

An additional £25.5 million was drawn on the Lillie Square facility to fund the construction of Phase 2, resulting in a year-end debt position of £55.5 million (Capco share).

Dividends paid of £9.5 million reflect the final dividend payment made in respect of the 2018 financial year and the interim dividend paid in September 2019. This was higher than the previous year due to a lower level of take-up of the scrip dividend alternative, 25 per cent versus 35 per cent for the dividends in 2018.

IFRS cash and cash equivalents increased by £120.6 million to £153.1 million.

FINANCIAL PERFORMANCE

The Group presents underlying earnings and underlying earnings per share in addition to the amounts reported on a Group share basis. The Group considers this presentation to provide useful information as it removes unrealised and certain other items and is therefore more representative of the recurring, underlying performance of the business.

SUMMARY INCOME STATEMENT

1. Lillie Square and Innova.

2. Includes impairment of other receivables and other finance income.

3. Further details regarding the EPRA and Company specific adjustments are disclosed within note 10 'Earnings Per Share and Net Assets Per Share'.

1. Lillie Square and Innova.

2. Includes impairment of other receivables and other finance income.

3. Further details regarding the EPRA and Company specific adjustments are disclosed within note 10 'Earnings Per Share and Net Assets Per Share'.

Income

Net rental income has increased by £3.7 million due to £0.7 million of like-for-like growth and £3.0 million through current and prior year acquisitions and developments. The Group continues to convert reversionary potential into contracted rents resulting in like-for-like net rental income growth at Covent Garden of 1.8 per cent. ERV at Covent Garden decreased like-for-like by 0.1 per cent though due to acquisitions has increased overall from £107.7 million to £108.4 million. Rental collection metrics continue to be strong with limited bad debt provisions and a small number of units available for letting, representing a vacancy rate of 3.2 per cent. CVAs and tenant failures have not been a material feature at Covent Garden, however actions in relation to a small number of tenancies have had an impact on net rental income in 2019.

Loss on revaluation and sale of investment and development property

The loss on revaluation of the Group's investment and development property was £41.1 million. The loss is predominantly as a result of an outward yield movement of six basis points, resulting in an equivalent yield of 3.65 per cent at 31 December 2019.

The sale of all 22 remaining new-build apartments at Floral Court, including the three apartments which were accounted for as held for sale at 31 December 2018, completed with gross proceeds of £81.0 million. This resulted in a loss for the year of £2.2 million when compared to 2019 opening valuation, taking into account marketing and other costs. The successful residential sales programme marks the completion of an important project for the Covent Garden estate, which has contributed to enhanced footfall patterns and the repositioning of Floral Street.

Administration expenses

Underlying administration expenses have increased by £4.1 million from £28.8 million to £32.9 million. £9.7 million (2018: £4.9 million) of costs were incurred during the year in relation to the possible demerger and related activities. The allocation of administration expenses to the discontinued operation has been based primarily on asset value. The consolidation of Group central and business activities, including the rationalisation of office locations, is ongoing. The Group is targeting underlying administration costs of £20 million for the 2021 financial year, and encouraging early progress towards this has been made.

Net finance costs

Net finance costs increased to £20.9 million from £19.2 million, due in part to interest being capitalised on the Floral Court scheme in the prior year. The principal components of interest costs relate to the Covent Garden private placement notes and revolving credit facility together with commitment fees, offset in part by interest income on cash balances.

Taxation

The Group's tax policy, which has been approved by the Board and has been disclosed to HM Revenue & Customs, 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.

The Group elected for UK tax purposes to convert to a UK Real Estate Investment Trust ("REIT"), with effect from 9 December 2019. As a result the Capco group will therefore no longer pay UK direct tax on profits and gains arising from its qualifying property rental business provided that certain conditions are met.

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 HM Revenue & Customs 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.

The total tax charge for the year, made up of both underlying tax and non-underlying tax, is £1.0 million.

Tax on underlying profits of the Group was a tax credit of £1.2 million which arose mainly from the reversal of a £3.4 million deferred tax liability following conversion to a UK REIT. The main rate of corporation tax remained unchanged at 19 per cent throughout the period. The corporation tax rate is set to fall to 17 per cent with effect from 1 April 2020.

Contingent tax, the amount of tax that would become payable on a theoretical disposal of all investment property held by the Group, was nil (31 December 2018: nil). A disposal of the Group's trading properties at their market value, before the utilisation of carried forward available losses, would result in a corporation tax charge to the Group of £3.0 million (19 per cent of £15.9 million).

The provisions of IAS 12 provide for the recognition of a deferred tax asset where it is probable there will be future taxable profit against which a deductible temporary difference can be utilised. As a result of the application of this provision, the Group has not recognised the deferred tax asset on certain losses carried forward.

Dividends and share buyback

The Board has proposed a final dividend of 1.0 pence per share to be paid on 14 May 2020 to shareholders on the register at 17 April 2020. Subject to SARB approval, the Board intends to offer a scrip dividend alternative.

As a REIT, the Group is required to distribute at least 90 per cent of its net rental income (calculated with reference to tax rules) to shareholders as a PID. The Board intends that the interim dividend for 2020 will include an element which will be treated as a PID, for tax purposes, in respect of the qualifying rental profits arising in 2019. The Group is targeting a progressive dividend policy in line with growth in underlying earnings as a result of delivering growth in net rental income, reduction of cost and capital efficiency.

The Group is in a strong financial position and maintains a disciplined approach to capital allocation. It is well-positioned to invest in existing assets through creative asset management, repositioning and development initiatives, as well as in new assets through acquisitions. In addition, surplus capital will be returned to shareholders as appropriate. As part of its capital management activities in 2020, Capco intends to return up to £100 million to shareholders through an on-market share buyback programme.

Going concern

At 31 December 2019 the Group had cash and undrawn committed facilities of £895.2 million and its capital commitments were £13.6 million. With a weighted average debt maturity of five years, loan to value ratio of 16 per cent and sufficient headroom against all financial covenants, there continues to be a reasonable expectation that the Company and Group will have adequate resources to meet both ongoing and future commitments for at least 12 months from the date of signing these financial statements. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing the 2019 Annual Report & Accounts.

Situl JobanputraChief Financial Officer

25 February 2020

PRINCIPAL RISKS AND UNCERTAINTIES

Risk Management

The Board has overall responsibility for Group risk management. It determines its risk appetite and reviews principal risks and uncertainties regularly, together with the actions taken to mitigate them. The Board has delegated responsibility for the review of the adequacy and effectiveness of the Group's internal control framework to the Audit Committee.

Risk is a standing agenda item at management meetings. This gives rise to a more risk-aware culture and consistency in decision-making across the organisation in line with the corporate strategy and risk appetite. All corporate decision-making takes risk into account, in a measured way, while continuing to drive an entrepreneurial culture.

The Executive Directors are responsible for the day-to-day operational and commercial activity across the Group and are therefore responsible for the management of business risk. The Executive Risk Committee, comprising of the Executive Directors, the Group Financial Controller, Director of Covent Garden and Managing Director of Earls Court is the executive level management forum for the review and discussion of risks, controls and mitigation measures. The corporate and business division risks are reviewed on a quarterly basis by the Executive Risk Committee so that trends and emerging risks can be identified and reported to the Board.

Senior management from each division and corporate function of the business identify and manage the risks for their division or function and complete and maintain a risk register. The severity of each risk is assessed through a combination of each risk's likelihood of an adverse outcome and its impact. In assessing impact, consideration is given to financial, reputational and regulatory factors, and risk mitigation plans are established. A full risk review is undertaken annually in which the risk registers are aggregated and reviewed by the Executive Risk Committee. The Directors confirm that they have completed a robust assessment of the principal risks faced by the business, assisted by the work performed by the Executive Risk Committee.

The Group's principal risks and uncertainties, which are set out on the following pages, are reflective of where the Board has invested time during the 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 consolidated financial statements, within 'Critical accounting judgements and key sources of estimation and uncertainty'.

In recent years the UK has experienced heightened economic and political uncertainty. The UK is now in a transition period after leaving the EU on 31 January 2020 with discussions around trade and other arrangements expected to continue throughout the year. Uncertainty remains as to the outcome of those discussions, 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. The risk of a disorderly outcome remains and will continue to be a relevant consideration for decision-making. To date, occupier demand for the Covent Garden estate has remained resilient with tenant sales continuing to trend upwards, in contrast with much of the broader market.

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 from the UK leaving the EU. The main areas that may affect the Group directly are:

- the impact on the London and UK economy, including exchange rate volatility and potential disruption in the financial markets

- the impact on current and prospective tenants, whether it be on management of their inventory, workforce labour, tariffs or other barriers, and the impact on consumer demand (for example due to travel disruption) leading to reduced rents and capital values

Whilst it is not possible to predict the overall outcome, the Board continues to monitor external events and appropriate action is being undertaken to ensure that the business remains resilient and well-positioned for the long-term.

London, as a highly desirable global city, continues to attract both domestic and international businesses and people and we would expect this leading position to be maintained over time, particularly for the West End.

In November 2019 the Group sold its interests in Earls Court Properties, excluding Lillie Square, and the Group's principal risks have been updated accordingly. As noted in the financial review, deferred consideration of approximately £210 million is due to be received by the Group by the end of 2021.

Emerging risks

The Group monitors its emerging risks, including the impacts of climate change and more recently the spread of the coronavirus (COVID-19), and considers mitigating actions which the Group currently deploys and could deploy with regards to these emerging risks.

CORPORATE RISKS

PROPERTY RISKS

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 2019. Certain parts of the Annual Report & Accounts are not included within this announcement.

We confirm to the best of our knowledge:

- the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, 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 25 February 2020

Ian Hawksworth

Chief Executive

25 February 2020

Situl Jobanputra

Chief Financial Officer

25 February 2020

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2019

1. The comparative period has been re-presented to present the discontinued operation separately from continuing operations. Details of the discontinued operation are disclosed within note 8 'Discontinued operation'.

2. Earnings per share from the discontinued operation are shown in note 10 'Earnings per Share and Net Assets Per Share'.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2019

1. The comparative period has been re-presented to present discontinued operation separately from continuing operations. Details of the discontinued operation are disclosed within note 8 'Discontinued operation'.

CONSOLIDATED Balance sheet

As at 31 December 2019

CONSOLIDATED STATEMENT OF changes in equity

For the year ended 31 December 2019

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 £3.2 million (2018: £4.5 million) of ordinary shares issued relating to the bonus issued in lieu of cash dividends. Refer to note 9 'Dividends' for further information.

CONSOLIDATED STATEMENT OF cash flowS

For the year ended 31 December 2019

1. Includes £9.0 million for the disposal of property designated as held for sale at 31 December 2018.

2. Sale of subsidiaries includes deferred consideration of £0.2 million (2018: £1.8 million) relating to the disposal of The Brewery by EC&O Limited on 9 February 2012.

3. Relates to transactions between the Group's treasury function and the discontinued operation. The Group operates a central treasury function which manages and monitors the Group's cash balances.

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 2019 or 2018, but is derived from those financial statements. Statutory financial statements for 2018 have been delivered to the Registrar of Companies and those for 2019 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 financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union, IFRS Interpretations Committee ("IFRS IC") interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements that comply with IFRS in March 2020.

The consolidated 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 2018, as amended to reflect the adoption of new standards, amendments and interpretations which became effective in the year.

During 2019, the following accounting standards and interpretations have been adopted by the Group:

IFRS 9 'Financial Instruments' (amendment)

IFRS 16 'Leases'

IAS 19 'Employee benefits' (amendment)

IAS 28 'Investments in associates' (amendment)

Amendments to IFRS (Annual improvements cycle 2015-2017)

As the Group is predominantly a lessor, IFRS 16 'Leases' did not have a material impact on adoption. Where the Group is currently a lessee, this relates only to immaterial contracts.

The Group has made changes to its accounting policies however the adoption did not have a material impact on the consolidated financial statements of the Group.

The other pronouncements had no significant impact on the condensed consolidated financial statements.

At the date of approval of the consolidated financial statements the following standards and interpretations which have not been applied in the financial statements were in issue but not effective, and in some cases have not been adopted for use in the European Union:

IFRS 3 'Business combinations' (amendment)

IAS 1 'Presentation of financial statements' (amendment)

IAS 8 'Accounting policies, changes in accounting estimates and errors' (amendment)

The Group has assessed the impact of these new standards and interpretations and does not anticipate any material impact on the financial statements.

Critical accounting judgements and key sources of estimation and uncertainty

The preparation of consolidated financial statements in accordance with IFRS requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, income and expenses from sources not readily apparent. Although these estimates and assumptions are based on management's best knowledge of the amount, historical experiences and other factors, actual results ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period.

The significant areas of estimation and uncertainty are:

Property valuation: The most significant area of estimation and uncertainty in the consolidated financial statements is in respectof the valuation of the property portfolio, where external valuations are obtained. The valuation of the Group's property portfolio is inherently subjective due to the assumptions as outlined within note 11 'Property Portfolio' and this subjectivity may result in a material adjustment to the carrying amounts of the assets and liabilities year on year. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate and could therefore have a material effect on the Group's financial performance and position.

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, significant disposals, scope of consolidation, provisions, share-based payment and contingent liabilities.

Going Concern

The Directors are satisfied that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of the financial statements and for this reason the consolidated financial statements have been prepared on a going concern basis.

2 SEGMENTAL REPORTING

Management has determined the operating segments based on reports reviewed by the Executive Directors, who are deemed to be the chief operating decision makers. The principal performance measures have been identified as net rental income, underlying earnings per share and net asset value.

For management and reporting purposes the Group is organised into the following divisions:

- Covent Garden;

- Lillie Square represents the Group's interests in Lillie Square and a number of smaller properties in the adjacent area;

- Other comprises Innova, The Great Capital Partnership, Earls Court Properties (up until disposal on 29 November 2019), the Empress State Building (up until disposal on 26 March 2018) and other head office companies and investments, including the payment of internal rent.

Management information is reported to the chief operating decision makers on a Group share basis. Outlined below is the Group share by segment:

1. Earls Court Properties represented the Group's interest in the Earls Court area comprising properties held in ECPL, EC Properties LP and Empress State Building. ECPL was 63 per cent owned until 29 November 2019. EC Properties LP was 100 per cent owned until 29 November 2019. Empress State was 100 per cent owned until 26 March 2018. Subsequent to this the Group share ownership in ECPL, EC Properties LP and Empress State Building 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

1. Comprises service charge and other non-recoverable costs.

2. The Group operates a central treasury function which manages and monitors the Group's finance income and costs on a net basis and the majority of the Group's cash balances.

3. Total segmental assets and total segmental liabilities exclude loans between and investments in Group undertakings. Total segment assets for Other includes £200.8 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.

4. Capital expenditure for Other includes £6.1 million relating to Earls Court Properties which was disposed of on 29 November 2019.

Reportable segments

1. Comprises service charge and other non-recoverable costs.

2. The Group operates a central treasury function which manages and monitors the Group's finance income and costs on a net basis and the majority of the Group's cash balances.

3. Total segmental assets and total segmental liabilities exclude loans between and investments in Group undertakings.

4. Earls Court Properties represented the Group's interest in the Earls Court area which comprised of properties held in ECPL, Lillie Square, the Empress State Building (up until disposal on 28 March 2018) and a number of smaller properties in the Earls Court area. ECPL and a number of smaller properties in the Earls Court area were disposed of on 29 November 2019.

3 (LOSS)/GAIN ON REVALUATION AND SALE OF INVESTMENT AND DEVELOPMENT PROPERTY

4 IMPAIRMENT OF OTHER RECEIVABLES

Following an impairment review of amounts receivable from joint ventures by the Group, a net impairment of £21.0 million has been recognised (2018: £19.4 million). This impairment consists of £8.5 million (2018: £19.4 million) in relation to the Lillie Square joint venture and £12.5 million (2018: nil) 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 Kwok Family Interests ("KFI") which has contributed to the cumulative losses. The Group has recognised £11.3 million (2018: £12.0 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 nil, the Group has issued funding in the joint venture in the form of an intercompany loan and deep discount bonds.

An impairment assessment was performed in accordance with IFRS 9 'Financial instruments' comparing the carrying amount of the intercompany debtor and deep discount bonds to the present value of the estimated future cash flows. This has resulted in a write down of £8.5 million (2018: £19.4 million) during the year, of which £1.2 million has been recognised against the intercompany debtor (2018: £1.8 million) and £7.3 million against the deep discount bonds (2018: £17.6 million).

The impairment of amounts receivable from joint ventures recognised by the Group in the year of £8.5 million (cumulative £75.5 million) and the finance income on the Lillie Square deep discount bonds of £11.3 million have been calculated based on the requirements under IFRS 9 'Financial instruments'. Had the impairments been calculated taking into consideration the Group's economic position with reference to the Group's share of losses in the Lillie Square joint venture the impairment of amounts receivable from joint venture would have been £2.9 million (cumulative £56.1 million) and the finance income on the deep discount bonds would have been £6.6 million in the year. The total current year difference between the IFRS 9 basis and economic position basis of £2.7 million (cumulative £9.6 million) is adjusted from EPRA adjusted earnings and EPRA NAV measures as the difference does not reflect the operational performance or the assets and liabilities expected to crystallise in normal circumstances.

5 FINANCE INCOME

1. Excluded from the calculation of underlying earnings as deep discount bonds eliminate on a Group share basis.

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 year.

6 FINANCE COSTS

Interest is capitalised, before tax relief, on the basis of the weighted average cost of debt of 3.0 per cent (2018: 2.9 per cent) applied to the cost of property under development during the year.

7 TAXATION

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 operation of £1.2 million (2018: nil) as disclosed within note 8 'Discontinued operation' relates to current tax adjustments in respect of previous years.

Following the enactment of Finance (No. 2) Act 2015 and Finance Act 2016, the main rate of corporation tax reduced to 19 per cent from April 2017 and will reduce further to 17 per cent from April 2020.

Following conversion to a UK REIT on 9 December 2019 the Capco Group is exempt from UK Corporation Tax and UK Capital Gains Tax on its Qualifying REIT activities. Non-REIT activities will continue to be subject to UK Corporation Tax and UK Capital Gains Tax.

8 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 £425 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. This extends to the prior period comparative which has been re-presented to reflect the disposal. The Empress State Building which was sold on 26 March 2018 was previously part of the Earls Court Properties business and therefore has also been classified as a discontinued operation in the comparative period.

(Loss)/ profit from discontinued operation after tax included in the consolidated Income Statement:

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 £425.0 million, on a cash-free and debt-free basis. Total consideration will be paid to Capco on a phased basis, with 45 per cent received on completion and the balance receivable in two equal tranches over two years. The disposal was in line with the Group's stratgy 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 £145.3 million with £7.0 million outstanding to pay on transaction related costs and working capital adjustments. The balance of £210.4 million is receivable in two equal instalments 12 months and 24 months after completion. The deferred payments receivable by the Group would be accelerated in part to the extent that payments made by Capco to the London Borough of Hammersmith and Fulham pursuant to the CLSA are refunded to the Purchaser after completion. Further consideration may be payable to Capco in limited circumstances, however this is not expected to be material. Based on the net assets at the date of disposal, after the deduction of an IFRS 5 impairment, a loss of £10.2 million has been recognised on the sale.

The total net assets at the date of disposal were as follows: