Stephen Cranston

When Liberty International split into two, there was no doubt that the larger listed company, Capital Shopping Centres, was easier to understand. It is a portfolio of 14 shopping centres in the UK earning rental income space and is very much like a northern hemisphere version of SA’s Hyprop.

Capital & Counties (Capco) is more complex, but also more interesting. Liberty founder Donald Gordon always had an eye for a spicy deal, though building and buying clones of Sandton and Eastgate was his core business in the UK.

Capco represents the spice extracted from the butter and flour of Capital Shopping Centres.

Capco CEO Ian Hawksworth says Capco is highly focused on Central London. Its highest-profile asset is an estate of 45 buildings in Covent Garden, including the old fruit and vegetable market building itself. It has a 50% interest in the Great Capital Partnership which owns some office, retail and residential properties in soughtafter Regent Street and Piccadilly.

These properties may be glamorous, but they do not justify buying Capco on a yield of barely 1%.

Capco possesses the largest exhibition business in London, owning Earls Court and Olympia and much of the surrounding area. Its only traditional commercial property in this estate is 50% of the Empress State Building, which is let on a long lease to the Metropolitan Police — apparently without leading to calls for probes on the commissioner from the British press.

Otherwise the attraction of the estate is that if — and it is still if — Capco gets approval from the various authorities, it will be able to institute its master plan to turn a rough area of railway sidings and car parks into four villages and a high street. Hawksworth says the paper needed for a planning application in the UK could fill half a classroom, but Capco is on track to make a planning application by midyear.

However, Capco has a backbone of high-quality buildings. Covent Garden makes up 46% of the NAV. Hawksworth says he started buying properties in the area five years ago. The area was starting to look tatty as more downmarket retailers and restaurants took premises.

Capco has brought in some much stronger brands that have been happy to pay more than the businesses they replaced. For example, Ralph Lauren leased a property in King Street, Covent Garden for its “young” Rugby brand at an 88% premium to the previous tenant. Sunglass Hut is paying the highest rent ever paid in the area — £657/ft²/year (in round numbers about R6000/m²/month).

Hawksworth says that after years of trying, he finally kicked out Ponti’s, a down-market “family” restaurant, from the market building. Jewellers Links of London will take less than a quarter of the space and pay 46% of the previous rent. Capco also attracted the largest Apple store in the world into Covent Garden. Hawksworth says that as Apple stays open until 9pm it brings significant spin-off business to the bars and restaurants in the vicinity. One of the most symbolic changes is the news that the West Cornwall Pasty Company is closing its Covent Garden outlet and will be replaced by Ladurée, a branch of perhaps the most expensive patisserie in Paris.

Capco has some prize assets it is working hard to sweat. This is an example the new owners of the V&A Waterfront in Cape Town — which has parallels with Covent Garden — should follow.

Many SA investors sold their Capco shares after the unbundling from Capital Shopping Centres in May 2010 — but it has a role in a more adventurous share portfolio, especially as a pure rand hedge.

Source: Financial Mail