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Starting gun fired for government’s stake sell-off in King’s Cross regeneration scheme

By James Wallace - Monday, August 17, 2015 13:39

The government has started the firing gun on the sale of its 36.5% stake in Europe’s largest city centre redevelopment scheme, at London’s Kings Cross, which is expected to fetch above £360m.

The sale in King’s Cross Central Limited Partnership (KCCLP), the company which is developing 50 new and refurbished buildings totalling 7.9m sq ft adjacent to London’s King’s Cross Station, follows the 25% stake sale by existing non-government shareholders in March.

Australian superannuation fund, AustralianSuper, acquired the 25% stake as part of a piecemeal shareholding dilution in KCCLP by Argent and Hermes’ joint stake and DHL, formerly Excel.

The sale price of the 25% stake was never officially disclosed. Perhaps the most reliable guide is implied by the previous carrying valuation of the government’s stake – which as £345m as recorded in the Department for Transport’s accounts for the 2013-14 financial year. This implies a 25% stake would be worth £236m.

Since which time, in the new Conservative government’s ‘summer budget’ the 36.5% stake owned by London & Continental Railways Limited (LCR), the 100% government-owned vehicle which holds its shareholding in KCCLP, has risen by £15m to £360m.

This is based on the Office for Budget Responsibilities’ (OBR) forecasts which takes into account “wider market information”.

The sell-off of the government’s 36.5% stake in King’s Cross Central Limited Partnership (KCCLP) is twinned with the sale of logistics provider DHL’s 6% stake. Together, the combined 42.5% stake could fetch around £419.2m, implying the entire regeneration scheme valued at £986.3m.

Based on the OBR forecast and intelligence, DHL’s 6% stake would be worth £59.2m.

DHL released a statement to CoStar News in response to its decision to exit KCCLP, which stated: “As a matter of policy we will not comment on M&A transactions.”

Back in 2009, during the nadir of the UK commercial property collapse and amid the global financial crisis, the then Labour government, under former Prime Minister Gordon Brown, sold half of its original stake in the land at King’s Cross to Argent for £41.47m – which at the time crystallised a £10m loss on the £102.96m carrying value LCR’s stake in KCCLP.

Six years later, the newly-elected Conservative majority government could sell the remaining stake for almost nine times more, but even this falls massively short of the projected gross development value of the UK government’s stake in KCCLP.

Earlier this morning, Reuters reported that Savills projected that the estimated end value of the completed scheme was in excess of £5bn.

On which numbers, the government’s remaining 36.5% stake in the sprawling King’s Cross regeneration scheme would have a gross end value somewhere north of £1.825bn. The majority of the King’s Cross scheme is forecast to be built and let by 2021.

This would reflect more than five times the current guide price for a 2015 sale and an eye-watering 45 times greater than the price the previous Labour government achieved in the teeth of the global financial crisis.  

Other parties involved have cast some doubt over the accuracy of the above £5bn figure, with more conservative assumptions projecting the gross development value at somewhere between £2bn and £3bn.

Assuming the mid-point of this conservative scenario – at £2.5bn – the government’s 36.5% stake in KCCLP would be worth £912.5m. This would reflect two-and-a-half times the current anticipated sale price and 22 times the equivalent stake sale price achieved in 2009.

The government’s decision to sell its stake has been well-trailed and its position is straightforward: the government is not a property developer or a property market speculator and private sector capital is better placed to develop this ambitious scheme to conclusion.

The counter arguments lead down a cul-de-sac of political ideologies and economic considertions of “the time value of money”.

Robert Goodwill, Transport Minister, said in a statement this morning: “By selling the government’s shares in King’s Cross Central we are selling an asset we no longer need to keep and realising its value for the taxpayer. The sale will help reduce the deficit and by doing so deliver lasting economic security for working people.”

The sell-off of the government’s 36.5% stake in KCCLP forms part of £31bn in financial and commercial asset sales expected to conclude in this financial year alone in the largest-ever privatisation programme in the history of the UK.

Chief Secretary to the Treasury Greg Hands added: “Cutting the deficit and building a strong economy are priorities for this government. Key to this is getting out of the business of owning assets that should be in the private sector.

“Selling our stake in the land around King’s Cross is an important milestone which will raise money to pay down the public debt while also encouraging private sector investment in an important London site.”

The government’s press release added that its principal objective is to maximise “value for money” for the UK taxpayer by executing a competitive sale process.

The returns in prospect for incoming investors are mouth-watering in this enduring yield-starved environment, leaving few doubting that the government will fare better than the £360m forecast by the OBR and the Department for Transport’s “wider market information”.  It may even tempt private equity.

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