focused on income growth and cost cutting as it completes Capco merger

This week marks the start of a new chapter for the UK property sector with the completed merger of London’s West End landlord Shaftesbury and rival Capco.

Shaftesbury, which first listed in 1987, was formed by the Levy family as a vehicle to invest in areas such as Carnaby Street, Chinatown and Seven Dials, and brings to the marriage two million square feet of lettable space including over 600 cafes, pubs, bars and restaurants as well as offices and posh apartments.

Capco – previously known as Capital & Counties – is much older, having been established with a portfolio of properties in London and the Home Counties in 1933, but it only hit the headlines in 2006 when it acquired the iconic Covent Garden market and piazza along with several neighbouring properties.

The newly merged group, which is now known as Shaftesbury Capital (SHC), is a mixed-use real estate investment trust with a portfolio of 2.9 million square feet of prime rental space in some of London’s most vibrant areas, including Soho and Fitzrovia.

Its asset base, valued at £4.9 billion, is split roughly one-third retail, one-third hospitality and one-third office and residential.

The old Shaftesbury shares have been delisted and Capco has issued new equity, with Shaftesbury investors receiving new shares in Capco (albeit now under the name of Shaftesbury Capital) into their account on or after 6 March, but in any event no later than 20 March.

In order to deliver value to shareholders, the managers of the merged company have two major tasks ahead of them, cutting costs while at the same time growing revenues.

Integrating the two businesses to create a ‘stronger operational platform of scale and efficiency’ is set to deliver £12 million of recurring pre-tax cost savings from the end of the secondyear post-completion. Meanwhile, the managers claim the portfolio has ‘significant revenue growth potential, to be delivered through incremental asset management opportunities, dynamic leasing and strategic consumer marketing strategies, enhanced connectivity of adjacencies, leveraging insights from its improved access to valuable data and cross-location marketing opportunities’.

At the start of this month, Capco reported an increase in net rental income of 17% to £57.2 million for 2022 but a loss for the year of £212 million against a profit of £34.8 million in 2021.

Also, group net debt and gearing rose last year –especially for assets in Covent Garden – while cash on hand and undrawn facilities shrank, so there is a lot riding on management’s ability to continue growing its income while cutting costs. [IC]