Shaftesbury and Hammerson swoops show faith in British commercial property sector

Wednesday, December 6, 2017 - 15:32

Shaftesbury’s fund raising so it can acquire one building in Soho and finance the long-term leasehold of another, coupled with Hammerson’s all-share offer for shopping centre-owner Intu, shows that the real estate companies themselves believe there is value to be had in British commercial property, even if investors do not,” says Russ Mould, AJ Bell Investment Director.

Share price Historic NAV Premium / (discount)
Safestore 460.3 314 46.60%
Big Yellow 847 607.6 39.40%
Londonmetric Property 179.9 149.8 20.10%
SEGRO * 545 504 8.10%
TRITAX Big Box  144.6 133.3 8.50%
A & J Mucklow 514.3 471 9.20%
Newriver  317.9 292 8.90%
Hansteen 136.6 132.5 3.10%
Shaftesbury 1,001.00 952 5.10%
Workspace 941.5 1,014.00 -7.10%
Town Centre Securities 295.5 359 -17.70%
CLS 223 268.5 -16.90%
Capital & Counties 268 339.1 -21.00%
Derwent London 2,790.00 3,582.00 -22.10%
Great Portland Estates 622 813 -23.50%
Hammerson * 534.5 771 -30.70%
British Land * 638 939 -32.10%
Land Securities * 936.5 1,432.00 -34.60%
INTU 253.9 403 -37.00%

Source: Company accounts. Share prices based on the close on 5 December, except Intu, which is based on the all-share offer from Hammerson. *Indicates FTSE 100 member

“Shaftesbury, which already owns 14 acres of prime London property, including Chinatown, Soho, Carnaby Street and Charlotte Street, is raising £265 million to fund two deals in Soho and give it financial firepower for further purchases. Management’s decision to act now, plus its confidence in its ability to raise the money at 952p a share, bang in line with its net asset value (NAV), suggests they feel fears over the impact of Brexit on UK commercial property valuations is overdone.

“Although some investors may see the move as opportunistic, as the shares have been buoyed by as-yet unsubstantiated rumours of a bid from Hong Kong billionaire and 20% stakeholder Samuel Tak Lee, similar scepticism surrounding SEGRO’s March rights issue soon dissipated and the fellow FTSE 100 firm’s shares have done well since it raised £557 million.

“Hammerson’s swoop for Intu is even more dramatic, given how terribly Intu’s shares have down this year, amid fears over not just what Brexit may do to consumer confidence but also the fate of bricks-and-mortar retailers at the hands of Amazon and other online rivals.

“Even at the price implied by Hammerson’s offer of 0.475 of its own shares for every one of its target’s, Intu’s shares trade at a 37% discount to net asset value, to suggest that Hammerson’s management think they are picking up a bargain in the form of the owner of the Trafford Centre in Manchester, Lakeside and Gateshead’s Metrocentre.

“For all of the gloom surrounding the FTSE 100’s real estate investment trusts (REITs), they have yet to show any signs of Brexit-related stress. In fact, their net asset values have continued to rise, to confound the sceptics’ worst fears:


Source: Company accounts

“The big four REITs still trade at meaty discounts to net asset value and it will be interesting to see if anyone else shares the faith shown today by Shaftesbury and Hammerson that British UK property is still a good long-term investment, as the lowly valuations on offer are another indication of how you can have cheap stocks and good news, just not both at the same time.”

These articles are for information purposes only and are not a personal recommendation or advice.

The chart of the week is written by Russ Mould, AJ Bell’s Investment Director and his team.