Capital and Counties (Capco) updates ahead of Shaftesbury deal – the company is updating shareholders on progress within the business up to 30 June 2020.
In the face of social distancing restrictions, the company takes comfort from the pedestrianised nature of its core Covent Garden asset. It says that additional streets around the Piazza have been pedestrianised, allowing for greater freedom of movement and increased al fresco dining across the estate. The majority of retail and dining concepts on the Covent Garden estate have reopened
Capco has provided support to retail and hospitality customers experiencing cash flow pressures, with rental agreements being adjusted on a case by case basis to include deferrals and turnover-linked arrangements where appropriate.
The value of the estate is thought to have fallen by 17% since the start of the year – to about £2.2bn. That makes the LTV about 26%. The company has £616 million of cash and undrawn facilities plus £105m of deferred consideration from the Earls Court sale expected later this year and a further £15m due in 2021.
A 20.94% stake in Shaftesbury PLC has been acquired and a further 5.31% stake will be added to this, subject to approval by Capco’s shareholders.
Revaluation
Substantially all of the valuation movement relates to the retail, leisure and F&B (food and beverage) portfolio which represents 75% of total property value. (Portfolio value by use represented by retail 52%, F&B 20%, office 16%, residential 9% and leisure 3%).
ERV fell by 12% to £95.5 million, the valuation yield increased by 17 basis points (0.17%) to 3.82%. The valuer assumed £31m of near-term income would be lost.
For tenants affected by COVID-19 lockdown measures, bespoke solutions have been agreed which include rent deferrals, rent-free periods and other arrangements reflecting the position of each customer. For certain tenants which are experiencing short-term cash flow issues, rental agreements will be linked to turnover for the second half of the year in exchange for other provisions such as lease extensions.
98% of Q1 2020 rents were collected. Rent collection for the March (Q2) and June (Q3) quarter rent dates was significantly lower – 44% for the second quarter and just 27% for the third quarter. Overall 71% of rent has been collected in the first six months of the year compared to 99% for the equivalent period in 2019.
Capco says that the majority of retail and hospitality customers on the estate have reopened or are set to reopen imminently. Whilst initial indicators are encouraging, the trading environment remains challenging. It is too early to predict when footfall will return to previous levels whilst physical office occupancy remains significantly reduced, and with the ongoing travel restrictions and fragile consumer sentiment.
Operational performance and leasing update
22 leasing transactions completed with a rental value of £2.7 million (H1 2019: £13.0 million). A small number of tenants entered into administration representing £3.0 million of passing rent. EPRA vacancy has increased by 0.9 percentage points to 4.1 per cent (31 December 2019: 3.2 per cent). Approximately 12 per cent of ERV is in or is held for development or refurbishment (31 December 2019: 8 per cent). “Notwithstanding the significant disruption to the occupational market, leasing interest in the Covent Garden estate has been encouraging.”
Since the announcement of Capco’s 2019 results, Bucherer’s expansion in the Royal Opera House Arcade is underway and its opening is on track for later this year, while Ganni has opened its new flagship on Floral Street and will be joined by American Vintage later in the year. Jewellery brand Vashi is the latest signing on James Street for a new London flagship store while Bubblewrap and Belgian chocolatier Neuhaus have both agreed terms to open in the Market Building.