De­liv­er­ing on prom­ises

Finweek English Edition - - COMPANIES&MARKETS - JOAN MULLER joanm@fin­media24.com

CAP­I­TAL & COUN­TIES’ (Capco) first an­nual re­port as a stand-alone listed prop­erty com­pany puts paid to any lin­ger­ing fears that split­ting Lib­erty In­ter­na­tional into a Lon­don-based busi­ness and a shop­ping cen­tre arm would back­fire. A num­ber of South African in­vestors bailed out of Capco fol­low­ing Lib­erty In­ter­na­tional’s de­merger in May last year on the back of ex­change con­trol im­pli­ca­tions and un­cer­tainty about how the split would ul­ti­mately play out. So much so that Capco’s SA share­hold­ing dwin­dled from 46% in May last year to the cur­rent 30% (in­clud­ing SA in­surance ty­coon and Lib­erty In­ter­na­tional founder Don­ald Gor­don’s 9% stake). At the time, SA in­vestors clearly favoured the more es­tab­lished and much larger £6,7bn (around R72,7bn) re­tail arm, now known as Cap­i­tal Shop­ping Cen­tres.

But those who sold down Capco must surely be kick­ing them­selves, as they have missed out on spec­tac­u­lar cap­i­tal growth over the past 10 months: the stock is up 60% from its June 2010 low.

Capco’s an­nual re­port high­lights the im­pres­sive strides man­age­ment has al­ready made in ex­tract­ing value from its £1,4bn (R15,19bn) port­fo­lio of cen­tral Lon­don-based prop­er­ties. The lat­ter com­prises iconic tourist at­trac­tion Covent Gar­den in the West End, Earls Court and Olympia, which houses three ex­hi­bi­tion venues and one of the big­gest un­de­vel­oped land sites in Lon­don, plus var­i­ous of­fice and re­tail prop­er­ties in the vicin­ity of Re­gent Street, Pic­cadilly and Park Cres­cent.

The rein­ven­tion of the £640m (R6,94bn) Covent Gar­den – com­pris­ing 46% of Capco’s as­sets – from a rather run­down hub for back-pack­ers into a trendy eat, shop and play des­ti­na­tion is par­tic­u­larly en­cour­ag­ing. A num­ber of new leases were signed at the mixed-use precinct in sec­ond-half 2010, with rental val­ues up an av­er­age 12% last year. These in­clude Ralph Lau­ren’s first “Rugby” store, Ap­ple’s largest store world­wide, a new out­let for fash­ion chain Burberry and Kurt Geiger’s Euro­pean flag­ship store.

Man­age­ment’s strat­egy to at­tract more up­mar­ket stores and wealth­ier shop­pers to Covent Gar­den is clearly pay­ing off: the av­er­age spend per bas­ket is up from an av­er­age £40 (R434) to £100 (R1 085) over the past three years. Man­age­ment last month scored an­other coup by sign­ing a lease with New York­based restau­rant Balt­hazar to open its first ven­ture in Bri­tain at Covent Gar­den. Let­ting deals with French patis­serie Laduree and jew­ellery store Links of Lon­don have also been con­cluded since year-end 2010. Capco CE Ian Hawksworth says some of the new ten­ants will be pay­ing three times more for their space than pre­vi­ous rental lev­els, which is tes­ta­ment to the ex­tent Covent Gar­den’s pop­u­lar­ity has taken off. Hawksworth says Capco at first be­lieved it would take three years to reach an es­ti­mated rental value of £40m/year (R434m) at Covent Gar­den. “But we’re al­ready at £37,5m (R406m) less than a year af­ter the de­merger.” And there’s still plenty of rental up­side to be had, it seems. Hawksworth ex­pects in­come growth at Covent Gar­den of 20% to 25%/year for at least the next three years.

Capco last year re­ceived plan­ning per­mis­sion to re­de­velop its events venue Olympia, which will no doubt fur­ther boost prof­its over the next few years.

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