Capital & Regional set to lose asset management of £1bn retail park fund
Fund manager Morley is gearing up to take complete control of The Junction from Capital & Regional, which currently manages the assets.
Merrill Lynch analyst Bernd Stahli raised questions over the future of the £1bn fund after C&R failed to include it in its “core distinctive offering” during its six-month results on Thursday.
He said: “Is management distancing itself or perhaps signalling that it is ready to accept that it will lose the contract? Or perhaps even wind up the fund?”
The group – which announced a pretax loss of £201m and a £1bn reduction in its property under management in the six months ended 30 June – said that it was unable to comment on the future of the fund until a continuation vote takes place in 2011.
Chief executive Hugh Scott-Barratt said that C&R was “exploring strategic options” for The Junction, which is four percentage points away from breaching its 60% loan-to-value covenant. It owns 27.3% of the fund.
Scott-Barratt said that negotiations with its banks to “significantly enhance headroom within its banking covenants” were at an advanced stage, but that until a solution could be found The Junction would continue to sell assets.
EG revealed in May that C&R was trying to sell a circa £300m portfolio of Junction parks (3 May, p39).
A source close to the group said that The Junction – which owns 15 parks – was likely to be dramatically reduced in size during the next year.
Discussions about whether to sell further assets from the £2.7bn Mall Fund are also continuing. A decision is expected next month.
“All the funds will be much smaller in the future, and C&R will have a reduced role in its management,” said an insider. “It will simply be an asset manager. Control is all with Morley now.”
Scott-Barratt said that C&R was working with “vigour and aggression” to resolve The Junction’s LTV issue, but added that this may lead to its restructuring. But he ruled out a rights issue.
“We don’t want to find ourselves in a position where we are overextended in terms of capital. Financial stability is our priority,” he said. “Over the next 6-12 months, we will either be disposing of assets or looking at more fundamental ways of protecting value.”
In a bid to “free up capital” from its wholly owned assets, C&R has put its HQ on the market. C&R has owned the 21,000 sq ft offices at 10 Lower Grosvenor Place, SW1, since 1999, when it paid Grosvenor £12.5m for the freehold. It is selling the property with vacant possession.
