Commercial property group Shaftesbury PLC is being seen by some analysts as an excellent canary in the coal mine of the UK commercial property market. So far, this bird is chirping loud and clear. Shaftesbury Plc shares saw a 12% increase in NAV and the company a 9% annual dividend increase. This is all great news for shareholders to date, but what of next year? Should you still be holding Shaftesbury shares?

Shaftesbury shares: NAV well north of 2007

The NAV per share figure of 952p is well above the 646p which Shaftesbury shares hit in 2007, right before the Great Financial Crisis demolished the UK commercial property market. This has been boosted by lettings, lease renewals and rent reviews.

There are also rumours that  Hong Kong billionaire Samuel Tak Lee is thinking of making a bid for the company. Lee currently owns 20%. This means that Shaftesbury shares are currently trading at a premium to NAV. This makes the shares look more expensive than real estate investment trusts (REITs) which have heavy exposure to the same London commercial property market.

Of course, if Lee was sensible, he’d wait for the inevitable crash in London property prices that will be caused by a hard Brexit, but there is no sign of that so far, and commercial property in the capital keeps getting more expensive.

“Shaftesbury’s valuation does benefit from its lack of exposure to the City and relatively limited new development program,” observes Russ Mould, Investment Director at AJ Bell. “Sceptics will point to an increase in the vacancy rate from 3% to 6% during the second half, although 0.8% of that space is under offer, and 3.5% refers to three recently completed large projects.”

Analyst Liberum Capital kept Shaftesbury shares on a hold rating this morning. The broker kept a target price of 1025 on the stock. At the time of writing Shaftesbury shares were trading at 994.

Ongoing pessimism over Brexit

Of 17 analysts covering Shaftesbury, only four have it as a buy. This reflects ongoing pessimism about the prospects for London commercial property, particularly as City institutions continue to announce further operational moves to continental Europe ahead of Brexit. Shaftesbury shares were trading at a premium to NAV of 4.7% today, making them a lot cheaper than the likes of Safestore or Big Yellow, but a lot more expensive than other property plays like Derwent London (-24.9%) or Great Portland Estates (-25.2%).

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28th November 2017
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