Capital & Regional - a new yield kid on the block

Capital & Regional (CAL.L): The group has been through some major upheavals over the last decade, but now seems to be on a steadier course. It is focused on “The Mall” brand of community shopping centres. There are six in the portfolio at present, at Wood Green, Walthamstow, (both London), Luton, Blackburn, Maidstone and Camberley. The Mall fund was originally set up in 2001 as a joint venture with Morley Fund Management (Aviva to you and me), but C&R gained full control and ownership last year. The other Morley fund set up in 2001 was the Junction Fund, but this was sold to Hammerson in 2012. C&R also own the Kingfisher centre in Redditch and have a 50% jv stake in the Buttermarket in Ipswich. The final portfolio component is the rather incongruous Snozone dry ski slopes at Milton Keynes and Castleford. The German portfolio was sold at the end of last year, raising £42.1m of cash.

Gaining full control of The Mall fund has enabled C&R to save £1.5m in costs, which is significant in the context of CY2014 operating profits of £19.3m. It has also allowed the group to convert to REIT status. They now have a roadmap development plan to add value to these assets over the next three years, with the aim of becoming recognised as the UK’s leading community shopping centre player. They have just announced the interim valuation for The Mall at 30^th June 2015, showing a healthy 6.2% asset value rise to £791.0m over six months, largely due to yields having compressed from 6.27% to 5.95%.

The key for income investors is that adopting REIT status means that their new dividend policy can be to distribute 90% of The Mall’s operating profits, split equally between interim and final. For CY2015, they anticipate paying at least 2.9p of dividend. On a share price of 58p, that is a handsome 5%, with growth to come in the next few years at say mid to high single digits percentage rates. Last year’s EPRA NAV was 59p, so the shares are trading pretty much in line with historic NAV, with a 10% plus uplift on the cards for this year. Whilst the rise of on-line shopping has been well documented, a well-managed shopping centre can still flourish as a retail/leisure destination. Even though the shares have climbed steadily from lows of 23p in November 2012, on these valuations Capital & Regional still seems to be a very attractive stock for income hunters. (Neil Cumming^, 7^th July 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower