As prop­erty in­vest­ment niches go, you can’t get much more de­sir­able than this cen­tral de­vel­op­ment, writes Joan Muller

Financial Mail - Investors Monthly - - Contents -

Lon­don projects still of­fer an up­side for South African in­vestors

Back in 2010 when SA in­sur­ance ty­coon Don­ald Gor­don’s for­mer Lib­erty In­ter­na­tional first split into Lon­don-fo­cused Cap­i­tal & Coun­ties Prop­er­ties (Capco) and Cap­i­tal Shop­ping Cen­tres (now Intu Prop­er­ties), most fund man­agers favoured the lat­ter. Many were scep­ti­cal of the de­merger and whether Capco’s man­age­ment would de­liver on its prom­ises to un­lock value at Covent Gar­den, the once shabby precinct for shop­ping, restau­rants and en­ter­tain­ment.

But Capco turned out to be the more lu­cra­tive rand hedge bet by far. In­vestors who held onto the cen­tral Lon­don de­vel­op­ment play have been richly re­warded with cap­i­tal growth of close to 530% since its May 2010 list­ing (to July 10). Mall owner Intu showed a more pedes­trian 65% rise over the same time. Capco owns a £3bn prop­erty port­fo­lio in cen­tral Lon­don in­clud­ing var­i­ous build­ings in the Covent Gar­den precinct, Olympia ex­hi­bi­tion cen­tre, some West End of­fices and a 77 ha tract of land at the Earls Court ex­hi­bi­tion cen­tre which it plans to turn into a huge new residentia­l-led precinct.

Granted, Intu pays a big­ger div­i­dend. The stock is cur­rently trad­ing at a yield of around 4% ver­sus Capco’s mea­gre 0,3%. Still, Capco’s growth story has been phe­nom­e­nal — de­spite the share price drop­ping around 20% be­tween Fe­bru­ary and Oc­to­ber last year.

It ap­pears that 2014 weak­ness was merely a tem­po­rary lull amid un­cer­tainty about how this year’s UK elec­tions, held in May, would pan out. There was talk last year of the pos­si­ble in­tro­duc­tion of fur­ther taxes on higher-end residentia­l prop­er­ties, which neg­a­tively af­fected in­vestor sen­ti­ment to­wards listed com­pa­nies that had ex­po­sure to the UK’s hous­ing mar­ket.

Capco plans to turn Earls Court, a stone’s throw away from sought-af­ter Chelsea, into an en­tirely new dis­trict in­clud­ing about 8 000 apart­ments, parks and two high street shop­ping nodes.

With the elec­tion out of the way, it ap­pears that mar­ket sen­ti­ment has im­proved. Capco’s share price is up 16% since early May and around 48% higher than the 18-month low of R56,45 hit in Oc­to­ber last year.

The ques­tion arises whether SA in­vestors who have not yet bought into the Lon­don and JSE-listed com­pany have missed the boat. It seems not. Coro­na­tion Fund Man­agers prop­erty an­a­lyst An­ton de Goede be­lieves Capco is likely to of­fer fur­ther up­side over the next three to five years as man­age­ment starts to roll out its Earls Court de­vel­op­ment and con­tin­ues to re­po­si­tion Covent Gar­den.

In fact, de­vel­op­ment prof­its could be re­alised sooner than ex­pected if po­ten­tial part­ners in the Earls Court pro­ject are keen to ac­quire stakes in the de­vel­op­ment, says De Goede. The first residentia­l phase of Earls Court (800 apart­ments at Lil­lie Square) is nearly sold out, un­der­scor­ing the strong de­mand for hous­ing in cen­tral Lon­don. De Goede says the sec­ond phase could po­ten­tially be launched in the sec­ond half of this year.

While man­age­ment, un­der the helm of CEO Ian Hawksworth, has al­ready made big strides in

In­vestors who held onto the cen­tral Lon­don de­vel­op­ment play have been richly re­warded with cap­i­tal growth of close to 530%

repo­si­tion­ing Covent Gar­den as one of cen­tral Lon­don’s prime mixed-use precincts, the de­vel­op­ment con­tin­ues to re­port healthy growth in sales and foot­fall fig­ures.

Man­age­ment is gain­ing ex­po­sure to sought-af­ter streets sur­round­ing Covent Gar­den, the most re­cent be­ing a strate­gic move on to Bed­ford Street to­wards Le­ices­ter Square. There are also plans to add a new mixed-use de­vel­op­ment be­tween Long Acre and King Street to Covent Gar­den over the next two years which would in­clude a re­tail, residentia­l and res­tau­rant com­po­nent. Capco re­cently also in­tro­duced a residentia­l com­po­nent to Covent Gar­den via of­fice-to-apart­ment con­ver­sions, which are al­ready set­ting a new bench­mark for residentia­l selling prices for the area.

Capco may ap­pear ex­pen­sive at first glance as it al­ready trades at a size­able pre­mium to net as­set value (NAV). But that is not nec­es­sar­ily cause for con­cern as other cen­tral Lon­don prop­erty de­vel­op­ers also tend to trade above NAV at var­i­ous points in the in­vest­ment cy­cle.

Though Capco doesn’t of­fer SA in­vestors the same level of diver­si­fi­ca­tion as some off­shore prop­erty plays such as Re­de­fine In­ter­na­tional, Rock­cas­tle or MAS Real Es­tate, its niche ex­po­sure to the of­fice, re­tail and residentia­l mar­kets of cen­tral Lon­don, ar­guably the most de­sir­able real es­tate hub in the world, is un­ri­valled on the JSE.

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