Strong activity in Covent Garden and the prospects for a major development in west London should help drive further momentum in Capital & Counties Properties (CAPC) even if the stock already trades at a meaty premium to net asset value (NAV). The 334.5p share price compares to an adjusted NAV of 203p.

Last week’s upbeat trading statement, which covered the period from 1 January to 3 May, revealed the property investor and developer had signed eight leases in Covent Garden, including one for lauded restaurant Balthazar. Better still, the new deals were contracted at levels 10.3% above December’s estimated rental values (ERV).

A further opportunity could come from the Earls Court & West Kensington Opportunity Area (ECOA), an area reserved for housing and commercial property development. At the start of the year management at Capital & Counties secured an option to buy some 22 acres of land in the ECOA for £105 million.

As part of the project, the FTSE 250 firm bought the air rights above the West London line from Network Rail, a requirement for the development of the Earls Court site. Capital & Counties will pay £5.3 million cash for a 999-year lease.

By the end of 2012 the £2.5 billion cap’s portfolio was worth £1.7 billion, 16.7% more than it was in 2011. The rental hikes underpin this valuation and the additional net asset value growth required to justify the company’s premium valuation, which is also supported by a sound balance sheet. Net debt of £198 million compares to year-end equity of £1.5 billion and property with a book value of £1.6 billion, for net gearing and loan-to-value ratios of just 13% and 12% respectively. The average debt maturity is 4.6 years while interest cover exceeds 11 using the 2012 figures.

Shares says The London exposure and robust balance sheet make for a powerful combination.

SWOT ANALYSIS