Delivering on promises
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.