Hedge funds are looking to profit from falling shares in commercial property companies by taking out large short positions following the EU referendum.
Short sellers are going after companies including Great Portland Estates,
Intu, Capital & Counties, and Shaftesbury.
The amount of their stock out on loan, which is a proxy for short selling, has surged since
the Brexit vote, according to exclusive data from Markit.
The shorting activity represents a major shift from earlier in the
year, when firms exposed to London’s residential market, such as Berkeley Group
and Foxtons, were the main targets.
The most shorted property company is Intu, which
has seen the percentage of its shares on loan more than double since the day
before the referendum, from 4.3% to 10.4%.
Filings to the Financial Conduct Authority show that Adelphi
Capital has significantly increased its short position against Intu to more
than 1% and Odey Asset Management, which has long shorted the company, also
increased its position.
Intu’s acquisition on the eve of the Brexit vote of the 50% of
Merry Hill shopping centre it did not already own at an 8% discount to
December’s valuation has been taken as a sign of the slowing retail property
market.
Capital & Counties is the second most shorted company and has
seen short interest increase from 6.3% to 8.9% since the referendum.
Ahead of the referendum, sales rates at Capco’s Earls Court development had
dwindled to a trickleand a recent note from Deutsche Bank warned
that the company could lose as much as 65% of its value in the face of a
slowdown in London’s upmarket residential market. Adelphi Capital, Carlson
Capital and Marshall Wace have all built up significant positions betting on
further falls in the company’s share price.
Marshall Wace, one of Europe’s largest and most successful hedge
funds, has also established a short position of nearly 0.7% in Great Portland
since the referendum, helping increase the amount of its stock on loan by 72%
to 3.1%.
Marshall Wace bet against 1% of Berkeley’s stock before the
referendum - a position it has since wound down as the housebuilder’s shares
slumped following the vote.
Great Portland’s shares have already suffered more than most since the referendum amid growing concerns about the London office market.
Last week, its chief executive Toby Courtauld acknowledged in a trading update that the company expected “London’s commercial property markets to weaken during this period of uncertainty”, before adding that the business was “well positioned” to exploit any opportunities.
Shaftesbury’s high valuation has also attracted a number of short sellers even though most analysts believe it is relatively well insulated and may even benefit from the weak pound attracting more tourists to the West End.
Gruss Capital Management and BlackRock have both upped bets against the company since the referendum, and 3.3% of its shares are now on loan, compared with 1.8% before the Brexit vote.
Estate agency companies, Foxtons and Countrywide, which have been targeted since the start of the year, have also seen an increase in shorting activity since the referendum.
Countrywide’s shares on loan have doubled to 3.1% and Foxtons’ shares on loan have edged up a third to 4.4%.
Markit data showed that average short interest across 63 listed companies in the property sector had spiked 26% since the referendum.