“Unprecedented space across the West End”: REIT Shaftesbury PLC grapples with a new reality.
In this virus crisis, owning the wrong type of real estate (e.g. brick-and-mortar retail) or real estate in the wrong type of area (e.g. apartments in neighborhoods that are heavily dependent on tourism) can have dire consequences, especially when there’s a blanket ban on evictions. UK listed landlord Shaftesbury is hugely exposed to both, and its shares have dropped 47% from their peak in October 2017.
Not only does it own a vast portfolio of all the wrong kinds of property at the wrong time (retail, leisure and hospitality), many of whose tenants stopped paying rent months ago, but almost all of its real estate — including its residential properties — are in London’s West End, which is at the epicenter of the UK’s pandemic fallout.
To weather the storm this far, Shaftesbury has raised £307 million of fresh capital in a deeply discounted rights issue. It has also increased debt by 10% and was given a string of waivers from its lenders when it was on the verge of breaking some of its debt covenants.
And it has slashed the value of its property portfolio by £700 million, or 18%, to £3.15 billion, as it reported in its 2020 end of year results, published this week. This comes just as more pandemic restrictions are set to hit London, which will put even more pressure on Shaftesbury’s tenants.
The blame for this write-down can be placed on its huge holdings of bars, restaurants, leisure and retail properties, many of which keep having to shutter during lockdowns, and the “exceptional increase” in vacant apartments, as many younger tenants have decided to work or study from family homes. By September, 137 of its 624 apartments were lying empty: a vacancy rate of 22%. There is, Shaftesbury says, “unprecedented space across the West End”:
“Typically, our 624 apartments are occupied by those seeking a base in the West End for either work or study, and are particularly popular with younger people from overseas. As a result of the first lockdown restrictions, many tenants chose to return home, leaving flats unoccupied. With the continuing uncertainty, many chose not to return to the UK for the time being and vacated permanently.”
While many international students and young workers have headed back home, fewer are arriving in London to replace them…
Continue reading the article on Wolf Street