Shaftesbury slumps as Barclays cuts rating to 'underweight'

British real estate investment trust Shaftesbury was under the cosh on Wednesday after Barclays downgraded the stock to ‘underweight’ from ‘equal weight’ and cut the target price to 820p from 870p, saying it has seen more attractive valuations elsewhere.

Barclays said the valuation spread between Shaftesbury and other London-focused companies is “significant”. Shaftesbury trades on a 2% premium to net asset value with a portfolio valued on a 3.6% equivalent yield, giving the stock an implied yield of 3.5%, compared to London peers Derwent at 5.7% and Great Portland at 5.4%.

“Shaftesbury was the second best performing stock of our UK REITs coverage last year, which is unsurprising given the tumultuous year of political and macro events,” Barclays said.

“We believe Shaftesbury’s unique offering is a relative safe haven and the steadiest of crutches for REIT investors to lean on, but having seen its share price hold up well we see more attractive valuations elsewhere in the sector.”

The bank reduced its target price based on expected slowdown on rental growth due to rising occupancy costs.

There is also a lack of external growth opportunities, Barclays said.

“But in our view, current stock pricing seems to be attributing negative value to external growth opportunities. Looking through the current uncertainty in the London market, we would maintain a strong preference for business models with the optionality of potential development opportunities and external growth.”

Shares dropped 3.5% to 869.50p at 0925 GMT.