Analysts at Berenberg say the dynamics of the nearing Shaftesbury and Capital & Counties merger have changed since it was agreed, with rising debt costs now threatening the deal’s synergies, but that the prospects for the REITs “remain compelling – together or apart”.
Last month the companies said their merger to form Shaftesbury Capital is expected to close before the end of March, with a deadline for the Competition and Markets Authority phase 1 review of 22 February.
In a note published on Friday, Berenberg analyst Kieran Lee pointed to five “primary considerations” for the deal, led by any CMA intervention, which he believes has a 20% probability of any forced asset disposals.
He also highlighted “sizeable M&A advisory costs”; “conservative operating synergy guidance”; rising combined debt costs that could threaten synergies; and the “historically very different approach of each management team” when it comes to asset management and strategy.
“Although asset yields will increase, valuations will fall and increased financing costs are likely to offset all guided cost savings, we expect occupational demand, consumer footfall and rental growth to remain robust,” Lee wrote. “As a result, we expect these globally relevant, best-in-class assets to remain enduringly attractive.”
He added: “We also take comfort from the underlying resilience and stability of the assets. The superprime central London subsector is one of the few to: offer structural growth, with a capital growth CAGR among the highest in the wider sector; and outpace CPI, achieved with a low variance of returns.”
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