Not a day goes by when we don’t get some more bad news about the state of the UK property market. The latest data show that home prices across the UK have fallen by £10,000 in just two months, according to the online property portal Rightmove.
In this environment, the outlook for buy-to-let investing is bleak. Capital growth has always been a significant component of buy-to-let returns over the long term, and if property prices are falling, then investors could end up with a negative return on their investment.
With this being the case, I think London-focused real estate investment trust Shaftesbury (LSE: SHB) is a much better bet on the UK property market. I like the company so much, I’ve bought the shares for my stocks and shares ISA.
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Bucking the trend
Shaftesbury is a pretty unique business. The company owns 14.9 acres across the West End of London, nearly 600 buildings across Carnaby, Chinatown Covent Garden and Soho. This is some of the most valuable real estate in the world.
While the rest of the UK commercial property sector is struggling with retailer restructurings and falling rents, demand in these locations is showing no signs of slowing down. According to the firm’s figures for the year to the end of September, annualised income increased 5.1% on a like-for-like basis while the overall value of the portfolio increased by 3.8%.
The reason why the company seems to be bucking the trend is its unique take on finding tenants. Shaftesbury says that it is looking for tenants with “distinctive concepts, something we don’t have and which add more depth to the existing offer,” which helps bring affluent customers to its destinations. Each of these new concepts must have a “good” business plan, social media following and “be well-financed.”
By focusing on creating a selection of unique businesses, management believes Shaftesbury can continue to avoid the carnage taking place across the rest of the UK retail sector.
“Much of the publicised financial distress,” the full-year results release notes, has been in “national chain” formats that are suffering from a national slowdown in spending or “poor site selection.”
The best in the sector
Considering the above, I think Shaftesbury is, to a certain extent, immune from the slowdown in the rest of the property market. Unfortunately, it seems that the market is not willing to take this risk. Investors have been selling recently, pushing the share price below the latest reported net asset value per share of 990p.
At the time of writing, the shares are trading at a near 14% discount to the asset value. I reckon this discount is far too steep for such a collection of world-class property assets.
There is also a strong possibility that one of the company’s largest shareholders, secretive Hong Kong billionaire Samuel Tak Lee, who owns just under 30% of the business will move to take over the rest of the enterprise. Another reason why I reckon Shaftesbury is a better investment than buy-to-let.
