Capital & Counties (Capco), which was spun out of SA businessman Donald Gordon’s Liberty International in 2010, is banking on its iconic retail estate asset, Covent Garden, to drive its future growth, having agreed to sell its interest in Earls Court for more than R8bn.
This is a change in strategy as the company, which has a market capitalisation of R40bn, had previously wanted to split into two separate groups, one focusing on a residential scheme at Earls Court and the other holding Covent Garden as its asset. Designed and laid out in 1630, Covent Garden was the first modern shopping square in London.
Capco CEO Ian Hawksworth said earlier in 2019 the two assets needed to be housed separately because of the wide divergence in their performance. While Covent Garden has been a strong retail asset in the UK despite Brexit uncertainty, the value of Earls Court has been eroded.
Now Capco has decided to rather sell its 63% stake in the residential scheme at Earls Court, excluding Lillie Square, to APG and Delancey for £425m (about R8.09bn). Government agency Transport for London owns the other 37%.
At the end of June 2019, Covent Garden was valued at £2.6bn (R49.9bn), reflecting an increase of 0.5% compared with December 2018, supported by continued income growth and upward rental reversions.
Covent Garden spans about 112,000m² of lettable space across 79 buildings and 526 units.
Hawksworth said its “scale and attractive income profile now positioned the business for continued long-term success and growth as an independent Reit (real estate investment trust) based in the heart of London’s West End”.
The transaction is expected to be completed before the end of November, the company said.
The Earls Court disposal to APG and Delancey’s client fund was for a total consideration of £425m, on a cash-free and debt-free basis. It compares to a balance sheet value at June 30 of £508m.
Capco will continue to own a stake in Lillie Square, which is owned and developed by a 50/50 joint venture between Capco and the interests of certain members of the Kwok family (KFI).
KFI is a major shareholder in Sun Hung Kai Properties, one of the largest real estate companies listed on the Hong Kong Stock Exchange.
Lillie Square is a 92,903m² residential development located adjacent to the Earls Court Masterplan. Capital and Counties’s 50% stake was valued at £173m (R3.3bn).
A portfolio manager at Investec Asset Management, Peter Clark, said Capco was becoming more focused as a company and this was the best outcome for its investors.
“Although the sales price for Capco’s stake in the Earls Court JV was at a discount to book value, the share price over the last year would imply the market was pricing a much deeper discount for the land parcel,” he said.
He said residential values in central London continued to come under pressure amid Brexit uncertainty but Covent Garden had bucked the retail trend by providing a resilient income and capital growth profile.
“The sale of Earls Court allows the company to allocate further funds to its outperforming asset, Covent Garden, while maintaining a relatively robust balance sheet. This creates a simpler story with some optionality and asset focus, and should serve shareholders well going forward,” said Clark.