Questor: Shaftesbury’s mixed London portfolio is well placed to benefit from Crossrail effect

It has long been a strategy of Bickell’s to mix eating and drinking with shopping across his 15-acre estate that is clustered around Carnaby Street, Seven Dials, Chinatown, Covent Garden and Soho. That is just as well, given the troubles in the retail sector that have seen Toys R Us and Maplin become the latest casualties of a high street shakeout.

However, what is labelled as casual dining – mainly branded eateries with short sittings – has also been struggling. Higher commodity costs, the minimum wage, business rates and a choosier consumer can be blamed for the radical downsizing of burger chain Byron, pizzeria Prezzo and Jamie Oliver’s empire.

Shaftesbury is not like other retail landlords, however. That is clear to see in its share price performance. While Land Securities, Intu Properties and Hammerson have all headed south on fears that shoppers favour clicks over bricks these days, Shaftesbury has ticked down just 8pc since the start of the year in common with the real estate sell-off.

Its shares are still worth more than they were when the Brexit vote was cast in June 2016. That might be because the ensuing tumbling pound has drawn record tourist numbers to the capital. Investors also recognise the scarcity value of the group’s assets, and their enduring appeal to consumers as a leisure destination long after other high streets have been hollowed out.

Improved transportation is predicted to increase domestic visitors this year. The Elizabeth Line, a new east-west rail link, begins running through central London in December. Company watchers at Liberum point out that all of Shaftesbury’s main clusters are within a 10-minute walk of the stations the new line will stop at, citing forecasts from engineer Arup that Tottenham Court Road station will see a 236pc uplift in footfall by 2026.

Lunch recently with a commercial property expert persuaded me that London property is still seen internationally as a safe haven – even if the auction ranks for prime assets have thinned over the last 12 months. In an update a month ago, Shaftesbury reported that footfall and occupancy levels continue to be high, with 52pc of completed space from its recent larger schemes let or under offer.

Stripping those out, the vacancy rate stands at 2.8pc, in line with the group’s 10-year average. There is selective spending on additional buildings as they come available and Shaftesbury strengthened its arm by raising £260m in a placing in December. But the financing is low-risk and average debt maturity stretches out more than a decade.

The company’s appeal has caught the eye of Sammy Tak Lee, the Hong Kong billionaire who owns the similarly sized Langham Estate close by. He has amassed a 25pc stake in Shaftesbury over several years. One theory, advanced by Mike Prew at Jefferies, is that Lee will press Shaftesbury into trading his stake in the group for its Chinatown portfolio.

It might be the Year of the Dog, but so far Bickell and colleagues have shown no inclination to throw their top investor a bone. In fact, relations took a turn for the worse at the annual shareholders’ meeting last month when Lee blocked a resolution that would have let the company raise money by issuing shares without being obliged to first offer those shares to existing investors.

Shaftesbury’s owners are jostling for position, with Norges Bank – which has significant interests along nearby Regent Street and Oxford Street – recently upping its stake to 21pc.

Barclays initiated coverage on the stock in December with an “equal weight” rating. Over the next three or so years the bank forecasts 25pc reversions – that is, re-lettings and renewals of properties currently generating rent below the market value – implying a near-50pc increase in earnings per share.

There is structural growth to be had and in the meantime this stock will continue dining out on the hope of corporate activity. 

Questor says: buy

Ticker: SHB

Share price at close:  960p