The company is focusing on large shopping centres and retail parks, where it believes it can add value and differentiate itself
With a market capitalisation last month of £225m, Capital and Regional is one of the scores of middle-ranking UK quoted property companies that compete for investors’ and analysts’ attentions. Founded in 1978, the company was first quoted on the London Stock Exchange in 1986, and has gone through several incarnations.
In order to add value and differentiate itself, Capital and Regional embarked in 1997 on a strategy that focused on acquiring shopping centres and retail parks that dominate their catchment area. The majority of the 17 retail developments now owned by the company are large properties in second-tier locations that should benefit from active management, improvement and extension.
The restructuring saw sales of offices and smaller retail properties totalling £120m in 1997 and 1998. New purchases last year added up to £198m, including the acquisition in April of The Pallasades Shopping Centre in Birmingham, for £93.8m. This was partly financed by a £59m rights issue.
At the end of 1998, Capital and Regional’s portfolio was valued at £654.6m. By value, 88% of the portfolio was retail and leisure, 11% industrial and 1% other. In addition, there was a trading portfolio valued at £24m, and joint venture stakes in developments worth £8m.
The emphasis on physical improvements and active management of the investment portfolio paid off.
On a like-for-like basis, looking at properties that were owned at the end of 1997 and retained throughout 1998, Capital and Regional saw an uplift in value of 9%, compared with the IPD industry benchmark of 4.2%.
This outperformance was mainly rent- rather than yield-driven. With passing rents still substantially below current values, there should be more growth to come: the existing portfolio should generate up to an extra £12m a year during the next few years, as rent reviews kick in.
Net assets per share stood at 321p at 31 December, an 18% increase over the year. Analysts at Merrill Lynch consider that the valuation yields of 6.8% initial and 8.7% reversionary “do not look too demanding”.
They have upgraded their forecasts of net asset value and rate the stock “accumulate”. The share price practically halved last year, but has been recovering steadily from a 52-week low of 154p to stand at 224p.
At an estimated 112% of net asset value, gearing is “high but safe” according to Merrill Lynch, which points out that 72% of the rental income is from leases with 10 years or more to run.
Historically, Capital and Regional had substantial interests in the US; in April 1993, 55% of its gross assets were industrial and residential property across the Atlantic. That year, it floated off the US assets, mainly industrial property around Chicago, in a Reit called CentrePoint Properties Trust. The company retains a 5% stake in CentrePoint, valued at the end of the year at £20.45m. There are no immediate plans to sell the stake, says Barber, who adds that it represents useful “rainy day money”.
|
year to 31 Dec (£000) |
1998 |
1997 |
|
net rental income |
38,507 |
23,728 |
|
profit on sales of trading properties |
517 |
1,326 |
|
profit/(loss) on sale of investments |
(38) |
4,828 |
|
pre-tax profit |
11,519 |
6,100 |
Capital and Regional Properties plc
22 Grosvenor Gardens
London SW1W 0DH
tel +44 171 730 5565
fax +44 171 730 0151
