Rugby in line for private conversion

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Covent Garden property group Rugby Estates may be close to going private as the management becomes increasingly frustrated with its share price.

The company reported a solid set of results at its full-year statement on Tuesday, and the share price rose about 10 per cent over the week. Although the market's reaction was described by chief executive Andrew Wilson as "a very pleasant surprise", the stock is still trading at a hefty 42 per cent below the net asset value of the group's sites. The group specialises in mixed-use properties in the Covent Garden area of central London.

But that discount is a common story throughout the property sector, and more and more executives are considering the idea of launching management buy-outs. The most prominent recent example came a year ago when Mercury Asset Management backed the £260m management buy-out of Greycoat.

Mr Wilson said: "We will be watching the market very closely and if it isn't going in the right direction, then privatisation is a real option."

At the end of last year, Rugby bought back 10 per cent of its stock for cancellation, with the effect that the board's holding increased to 20 per cent. Management has also said it is hoping to further bolster that level, and is aiming to take the stake to about 29 per cent as soon as it can.

The shares currently stand at £1.50, and Mr Wilson added: "Even if we liquidated we'd get £2.50 a share. It's obvious why we're unhappy."

It has been tipped as a management buy-out candidate for some time, but only recently have the conditions had been right to make the move, according to Mr Wilson. Group performance has been strong with net asset value rising 23 per cent in the year ending 1 January. It has aggressively branched into other areas of the capital, notably Clerkenwell and Smithfield.

The management views both of these areas as undervalued despite the booming property market. Many of the sites have been rented to dot com start-up companies, which have been flocking to locations just north of the City. One difficulty which Rugby would have to overcome is the reluctance of venture capitalists to back property companies, which the view as risky.