Capco has been hit by a further decline in the value of its scheme at Earls Court, dragging down the company’s entire portfolio value by £17.1m to £3.3bn off the back of the ongoing decline in values of London residential property.
The value of the scheme at Earls Court in the first six months of 2018 has fallen by £53.2m, which includes £1.2m of capital expenditure, since December to £707m, but was countered by a £36.1m increase in the value of Capco’s holdings at Covent Garden to £2.6bn.
Capco said the independent valuer at Earls Court has taken a “more conservative view on gross development value and the cost of delivery together with a higher developer’s margin, resulting in a net decline of 9%”.
Land is now available for development at the Earls Court project after a long demolition process and Capco, which owns the site in partnership with TfL, said it would look to bring in third-party capital to bring forward phases. It said there was ongoing interest from potential partners and end users at the project.
At Lillie Square, which Capco holds in partnership with the Kwok family, 217 residential units have been handed over to residents with sales of the nine remaining ones continuing to progress.
In phase 2, 153 of the 186 units have been reserved or exchanged, of which 60 transacted this year, including the exchange of contracts with an unnamed international investor for 49 apartments and 31 parking spaces, which make up one of the four blocks in phase 2.
What could a CapCo demerger mean?
In May, Capco signalled that it was considering demerger splitting its portfolio in two and said in its latest half year results to ended in June that “constructive early steps” had been taken on the route to a possible demerger.
The firm added that if the demerger went ahead the Earls Court residential-led business would retain a significant portion of the £250m received from the sale of the Empress State Building in the area to the Mayor’s Office for Policing and Crime.
Capco’s EPRA net asset value per share increased by 0.2% during the period, from 333.8p at 31 December 2017 to 334.4p.
Its LTV has fallen to 17% and it has increased its level of undrawn facilities and cash to £886m.
Total net debt stood at £539m and total EPRA net asset value at £2.8bn.
Capco also recorded an operating loss of £4.3m for the six months ended 30th June 2018.
Ian Hawksworth, chief executive of Capco, said: “Capco has had an active start to the year across its two prime central London estates. At Covent Garden we delivered another period of strong performance and an increase in value, with excellent demand across all uses driving 21% overall growth in net rental income.
“At Earls Court, the consented land is now ready for development and we have realised significant proceeds over the last twelve months from the sale of the Empress State Building and continued sales at Lillie Square.
“Capco has achieved significant growth since listing, with long-term value creation across the business. Against this backdrop, the board is considering the structure of the group and constructive early steps have been taken in preparing for a possible demerger.
“Whilst the broader macroeconomic outlook remains uncertain, Capco is backed by a strong balance sheet and remains focused on creating long-term value for shareholders.”
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