Capco weighs break-up of Covent Garden and Earls Court estates in London

LONDON (Reuters) - British property group Capital & Counties Properties CAPCC.L (Capco) is considering a break-up by splitting its prime London estates of Covent Garden and Earls Court into two separately listed companies.

The FTSE 250 company said on Thursday that it was examining a demerger into a real estate investment trust that would own the central London shopping district of Covent Garden and a development company focused on the Earls Court regeneration project.

The split will be formalised by the end of the year if a demerger is given the greenlight, Capco said.

There has long been speculation that the company could break itself up in an attempt to boost the value of the two assets.

At the end of last year, Covent Garden on its own was independently valued at about 2.5 billion pounds, which is equal to Capco’s current market capitalisation. The group’s share of the Earls Court site was also estimated to be worth a further 759 million pounds.

Demerging the two would give investors a chance to weigh up the individual prospects for the sites, which are at different stages of development.

While Covent Garden has already been extensively revamped, Capco only recently completed the final demolition phase of the Earls Court project, which aims to transform the 77-acre site into a luxury development.

“I think it just reflects where we are in the cycle of these assets,” Capco’s Chief Executive Ian Hawksworth said of the decision to explore a split. “We think it gives an opportunity for the market and shareholders to consider the relative merits of them.”

Hawksworth would become head of the Covent Garden business while Gary Yardley, Capco’s Chief Investment Officer, would lead the Earls Court business under the plan being considered by the company.

Ian Durant, Capco’s chairman, will stand down next month after eight years in the role and will be replaced by board member Henry Staunton, Capco said, adding that Durant supports the plan to consider a break-up but believes his successor should steer the business through the initiative.

It comes as the Earls Court project faces mounting headwinds as prices for high-end London property fall amid worries about the impact of Britain’s looming exit from the European Union. This has dragged on the value of the site, which dropped by almost 12 percent on a like-for-like basis last year.

In a further blow, the redevelopment project has also been hit by criticism from the local Hammersmith & Fulham Council, whose leader earlier this year called the scheme “undeliverable”.

These problems have stoked speculation that the Earls Court site could be sold.

“Confirmation of a demerger could be perceived as putting the business officially in play, or equally confirmation of a lack of trade interest in buying all or part of the estate,” analysts at Liberum said on Thursday.

However, Hawksworth said Capco has not been looking for a buyer for all or parts of the company.

“There’s no mandate to sell anything,” he said.

Capco shares were up 1.7 percent at 300.8 pence.

Reporting By Ben Martin and Pamela Barbaglia, editing by Sinead Cruise and Susan Fenton