When new restaurants apply to open in parts of Soho, central London, they are put through a rigorous Dragons’ Den-style screening process.
Shaftesbury, the landlord for Carnaby Street and Chinatown, is particularly discerning about which tenants it allows onto its 14.5 acres of prime real estate — typically preferring independent outlets over chains. This approach has helped Shaftesbury, a FTSE 250 investment trust, deliver consistent growth in net asset value (NAV) and rental income over the past decade.
Lately, however, a gulf has opened up between its NAV and its share price, which has been on the slide. Under pressure from Brexit and a waning property market, the shares have fallen 16% since January, ending last week at 888p to value the company at £2.7bn. That is 10% below its last recorded NAV of 983p — an independent measure of the value of its portfolio.
And that is despite Shaftesbury managing to dodge the blows that have rained down on many of its bigger rivals — delivered by ailing chains slashing their lease obligations via a controversial scheme called company voluntary arrangements (CVA). Shaftesbury is thought not to have had a single CVA.
Investors’ wariness is understandable. A big chunk of Shaftesbury’s portfolio comprises shops and restaurants, typically frequented by tourists.
While this makes it less exposed to weaker UK consumer confidence than some of its competitors, it is dependent on London maintaining its status as an attractive place to visit.
Others see opportunity where the market does not. For followers of Shaftesbury, last week’s closing share price has particular relevance. It is the price — a lucky number in China — at which the secretive Hong Kong property billionaire Sammy Tak Lee tried to buy Shaftesbury stock in 2015.
Might Lee be gearing up to do something similar again? Last week he quietly bought another slice of the company, lifting his stake to 26.2% from 25%. That puts him in touching distance of the 30% level at which a takeover offer is mandatory. He might have competition — Norges Bank is not far behind with 21%.
Deals are starting to emerge in the bombed-out property sector, as shown by last week’s revelation that property tycoon John Whittaker is trying to engineer a takeover of shopping centre owner Intu Properties. Shaftesbury is a more attractive proposition than Intu, and with similarly contested ownership, I wouldn’t bet on the stalemate between Lee and Norges lasting. Buy.
