It has been a touch and go year for UK real estate: the constant Brexit news flow has been bad for both retail and commercial property prices. FTSE 250 Real Estate Investment Trust (REIT) Shaftesbury (LSE: SHB) have fallen this year, in line with the rest of the REIT sector.
London is in the spot light when it comes to Brexit worries: Shaftesbury has a portfolio of property across London’s West End, but beyond that there have been additional concerns caused by problems in the restaurant sector, where there have been some high profile casualties. Investors are still worried about the way the internet is hollowing out the UK high street, and there are severe implications for bricks and mortar retailers.
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The Shaftesbury REIT owns assets covering nearly 15 acres of central London, including in Chinatown, Covent Garden, Fitzrovia, Carnaby Street and Soho. This stretches to around 600 buildings.
Shaftesbury is due to report this coming Tuesday: analysts will be looking closely at its headline net asset value (NAV) per share number. This stood at 983p at the first half stage. Shaftesbury shares are trading at a discount to that, possibly because investors really do believe that rents and capital values are going to come under pressure.
The vacancy rate is also going to be an important measure. This was at 5.6% at the first half point, although it included 2.5% of Shaftesbury REIT assets that were already under offer.
“We can see the post-financial crisis trend here and analysts will be looking for updates on rent renewals on the existing properties and also developments at three recently acquired sites,” says Russ Mould, investment director at AJ Bell.
Mould points to the trio of new sites at Broadwick Street, Neal Street and Great Marlborough Street, all of which were 62% let at the half year stage.
Also in focus will be the Shaftsebury REIT’s balance sheet. The FTSE 250 REIT raised £260 million last December to fund acquisitions and development schemes. Net debt was £779 million at the half year stage, enough for a lowly loan to value ratio of 22%.
Shaftesbury shares were trading slightly up today (Friday), driven perhaps by anticipation about the results. They closed the week down nearly 9%. However the REIT has climbed from a 52 week low which it hit in October, when it plumbed 864p. This was driven partly by the news that a major retailer had fulled out of a deal to rent property from Shaftesbury in Covent Garden.
The Armchair Trader says:
Prospective occupiers of larger space in the West End are currently very cautious. It’s all about the Brexit. Until we have some kind of resolution that businesses can be happy with, any major landlord like this REIT is going to be on uncertain ground. The brokers are turning bearish on Shaftesbury as well. This means stay away from Shaftesbury shares and keep yourself focused on what is happening in Parliament, regardless of the results on Tuesday.