Tipped takeover target Capco has seen the value of its portfolio slide by 1.7% over the course of 2019 to £2.8bn following the sale of the majority of its Earls Court development holdings last year.
Against the ongoing turbulence in the retail market the value of its Covent Garden estate declined by 1.4% to £2.6bn.
Reporting its full-year results, Capco said this was driven by movements in ERV, which decreased by 0.1%, and a widening in the equivalent yield of six basis points, resulting in an equivalent yield of 3.65% at 31 December 2019.
Capco added that the issues were from its holdings on Long Acre and James Street, where the store sizes are relatively large, but the majority of the portfolio continued to generate a positive performance.
Vacancy was 3.2% across the estate at the end of 2019, although the REIT reported 7% growth in its net rental income for the year and 92 new lettings and renewals, securing £17.4m of rental income at 1.3% above December 2018’s ERV.
Capco’s remaining investment in Earls Court at Lillie Square also decreased in value by 5.4% to £178m at 31 December 2019 owing to changes in valuers’ assumptions.
The joint venture with the Kwok Family is expected to provide Capco with gross proceeds of around £100m during 2020 as it hands over the sold homes in phase two of the scheme.
Handover of the units sold in phase one is complete, with a small number of units available, while more than 80% of phase two has been reserved or exchanged.
Capco admitted that although the £425m sale of the rest its holdings in Earls Court to APG and Delancey had resulted in a loss against its balance sheet value, it had strengthened the REIT’s “financial flexibility and positioned the company with significant liquidity to enable it to capitalise on further investment opportunities”.
However, the loss on sale of Earls Court and the decline in the value of Covent Garden has resulted in EPRA net asset value declining by 10% over the year to 293p per share.
Capco also reported a pretax loss of £61.3m for 2019, compared to £41.6m profit in 2018. Revenue grew to £79,4m, up from £74.7m in 2018.
The firm’s net debt stood at £442m at the end of 2019 with capital commitments of £14m.
Ian Hawksworth, chief executive of Capco, said the REIT, following the sale of the majority of its Earls Court holdings, now intends to pursue investment opportunities.
He added: “Our strong balance sheet and access to significant liquidity provides the opportunity for expansion whilst offering insulation during uncertain economic periods.”
Capco currently has a loan-to-value ratio of 16% before the receipt of the deferred consideration from the sale of Earls Court and access to available facilities and cash of approximately £895m.
The company said it would invest in assets its already owns, development and repositioning opportunities, accretive acquisitions on or near its Covent Garden estate and opportunistic investments in London.
Capco also intends to return up to £100m to shareholders through a share buyback programme this year.
The company also announced the promotion of Michelle McGrath to executive director. She has been a senior executive of Capco for six years, most recently as director of Covent Garden with responsibility for investment and asset management of the portfolio.
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