UK-based Capital & Counties (Capco) is on track to split into two property companies, one focusing on a mega residential development at Earl’s Court and the other owning the iconic retail centre Covent Garden.
Fund managers have said the group will perform more efficiently if its two large property assets are run separately with strong balance sheets.
Capco has been poorly rated by analysts because of delays that it faces at its Earl’s Court development, where it is building 92,903m² in housing, while its Covent Garden development is excelling.
Nesi Chetty, head of property at MMI Investments, said Capco had been an "underperformer for years", ever since its creation out of the former Liberty International. "About 80% of Capco’s exposure is to Covent Garden, but it gets undervalued as a company because investors attach so much risk to Earl’s Court. Many investors would welcome the company being split in two," Chetty said.
Capco, which gave an update on the demerger with the release of financial results for the six months to June on Wednesday, reported it maintained its net asset value per share at 334p and proposed an interim dividend of 0.5p per share, as it had done in the comparable June 2017 period.
"Backed by a strong balance sheet, with an experienced and professional management team, Capco is well positioned to support the current capital requirements of its two prime estates, both of which have positive long-term growth prospects and distinct investment characteristics," group CEO Ian Hawksworth said.
Capco was devising a structure that would be the most effective way of splitting the businesses. "Against this backdrop, the board is considering the structure of the group in order to realise the potential of these two prime central London estates and enhance shareholder value. Constructive early steps have been taken in preparing for a possible demerger," Hawksworth said.
The group said Covent Garden, valued at more than £2.5bn at December 31 2017, would be launched as an independent, prime central London retail-focused real estate investment trust, led by Hawksworth. The second business would be a London development company that is undertaking the enormous development at Earl’s Court. The development, led by Gary Yardley and set to include more than 10,000 homes, took a £52m valuation hit in the reporting period, being valued at £707m in the half-year results.
Hawksworth said Earl’s Court was a long-term project that would perform better when there was more certainty about Brexit and its potential effects on London property prices. Capco had also sold a building during the period to raise funds for the Earl’s Court development.
"The focus remains on creating and realising the value of the investment as recently demonstrated through the sale of the Empress State Building for £250m, at a £30m premium to the December valuation, and continued sales at Lillie Square," he said.