Capital and Counties Properties - a closer look at its assets

Well over ninety percent of Capital and Counties Properties, Capco’s (LSE:CAPC) property is in or around Covent Garden. Only £178m is outside of it, so, for all intents and purposes, we need to focus on Covent Garden. (Market capitalisation when I bought on Friday was 855m shares x 103p = £881m. The vaccine has lifted the shares this week to 137p. So MCap is now £1.17bn.


Net Current Asset Value
£m June 2020 December 2019 December 2018
Receivables (current) 160 139 38
Cash 295 153 33
CURRENT ASSETS 455 292 71
Deduct all liabilities -1075 -622 -681
Deduct one-fifth receivables -32 -28 -8
Conventional NCAV -652 -358 -618
Add property (investment, development & trading) 2122 2546 3336
Add financial assets (shares in Shaftesbury) 340 0 0
Add 80% of long-term receivables 133 199 179
NCAV plus long-term marketable assets 1,943 2,387 2,897Property (investment, development & trading)
“The fair value of the Group’s investment, development and trading property at 30 June 2020 was determined by independent external valuers…based on the highest and best use…A valuer will consider, on a property by property basis, its actual and potential uses…A number of the Group’s properties have been valued on the basis of their development potential which differs from their existing use. In respect of development valuations, the valuer ordinarily considers the gross development value of the completed scheme based upon assumptions of capital values, rental values and yields of the properties which would be created through the implementation of the development. Deductions are then made for anticipated costs, including an allowance for developer’s profit before arriving at a valuation.” (Interim Report)
While there is some degree of speculation concerning the valuation of development properties, and therefore cause for scepticism at a time of falling rents and property values, this need not worry us too much because most of the Covent Garden estate is already developed and in a steady state.
The weighted average rent per square foot in Covent Garden is £82 per annum, but the range is wide (£17 - £281). After a 17% decrease in the valuation over the first six months of 2020 Covent Garden is valued in the 30th June accounts at £2,165 million. The main contributors to the devaluations are:

• A 12 per cent (like-for-like) decline in Estimated Rental Value to £95.5 million
• Valuers reckon the yield investors in West End Commercial property has gone up by 0.17% to 3.82% in the last few months.
• Valuers assume that rent will be lost in the near term due to retailers, restauranteurs, etc not paying, amounting to £31m

The valuers are making educated guesses about income flow from the properties and about the yield required by buyers of that type of property.
Here is the company’s sensitivity analysis around those guesses (Interims to 30th June 2020):

• “An increase in estimated rental value of 10% would result in an increased asset valuation of £185.9 million.”
• “A decrease in the estimated rental value of 10% would result in a decreased asset value of £182.2 million.” So if rents fell due to lower demand by retailers by £9.55m then the portfolio value falls from £2,122m to £1,940m………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1