Shaftesbury back on the stage

Liner notes to Shaftesbury's (SHB) full-year figures found chief executive Brian Bickell hailing the recovery in “footfall and trading across our villages".

Quaint branding is all very well, but the resilience and adaptability of the West End landlord's properties - whose exposure to hospitality, leisure and retail has proved particularly susceptible to a raging pandemic - owes more to its world-renowned 16-acre locale than village life. Then again, it’s easy to overlook the fact that international tourism remains subdued, which makes several reported operational metrics all the more impressive.

For one, tenant demand is no longer the issue it was at the end of March, when vacancies made up 11.9 per cent of the portfolio by estimated rental value. This halved within half a year and has since dropped to 4.9 per cent and toward the long-term pre-pandemic average.

Meanwhile, Shaftesbury shares are about a third down on where their pre-Covid level, thanks in part to last autumn’s dilutive rights issue. The drop in like-for-like estimated rental values has been less drastic, however, with core holdings dipping to 6.4 per cent to £132m. Still, it’s worth noting that estimates for the Longmartin joint venture in Covent Garden were already declining before 2020.

The landlord has had greater luck with residential stock, which is now fully let and defied a jittery prime London market to put on 4.4 per cent during the year. Swings in valuations elsewhere were more fitting of a company based in the heart of the UK’s drama scene. By March, hospitality and leisure holdings had contracted 11 per cent, before rebounding 5.6 per cent in the second half of the year. Retail values whipsawed even more violently, falling 18.2 per cent before rising 6 per cent.

This came out in the wash as a 5.4 per cent full-year decline at group level, after independent valuer Cushman & Wakefield revised numbers upward on the back of pent-up consumer and visitor demand in the second half. Such volatility makes it hard to call the direction, especially as businesses and consumers digest news of the Omicron variant. Highlighting Shaftesbury’s reports of sustained occupier demand, analysts at Peel Hunt expect adjusted net assets to rise to 651p per share by September 2022, and 669p a year later.

On balance, that looks about fair. Shaftesbury’s “trophy portfolio” (management’s preference to “trophy buildings”) has proved its worth this year, but still-improving rent collection and thin equivalent yields suggest the market is up to speed with events. Hold.

Last IC View: Buy, 521p, 15 Dec 2020