- British Land swoops for Life Science REIT in cash-and-stock deal
- Bid is latest in a string of takeover approaches for UK property stocks
- Offer still values target at a big discount to historic net asset value
- UK REITs trade on average discount to historic NAV of 23.2%
“The big banks used to trade at discounts to net asset, or book, value per share and so did many of the leading London-listed gold miners. Their share prices have all rocketed, so it will be interesting to see if investors turn their attention to another sector where valuations look very depressed, namely real estate,” says AJ Bell investment director Russ Mould.
“Many of the leading names trade at discounts to book value and trade buyers are paying attention, as British Land’s cash-and-stock offer to take over Life Science REIT is the latest in a series of deals in the sector.
Source: Company accounts, LSEG Refinitiv data
“British Land is offering 14.1p in cash, plus 0.07 British Land shares, for every one of Life Science REIT’s 350 million shares in issue.
“Based on British Land’s closing price on Tuesday of 410p, the offer comes to 42.8p a share for Life Science REIT, or some £150 million.
“That represents a 21% premium to Life Science’s closing price on Tuesday, something that may tempt investors to sell, but it also represents a 35% discount to the target’s last stated NAV per share of 66p.
“In this respect, British Land may be getting a bargain. It will therefore be interesting to see if shareholders decide to hang on for a higher offer, either from British Land or a rival suitor, or if this putative transaction flushes out further takeover deals in the bedraggled real estate sector.
“The relentless onslaught faced by brick-and-mortar retailers from online rivals, the rise of hybrid working and worries over the wider economy mean that real estate stocks have been out of favour with investors for what feels like a very long time.
Source: LSEG Refinitiv data
“The price chart for the FTSE 350 Real Estate Investment Trust index is far from pretty, although recent action is suggestive of a long-term bottom, or even some tentative interest, and that may be the result of the depressed valuation afforded to real estate assets.
“Perhaps someone, somewhere thinks UK property stocks are simply too cheap. After all, the average 23% discount to historic book value across the sector compares to the average 11.7% discount implied by the takeover price across the thirteen bids for REITs in the past three years.
Source: Company accounts, LSEG Refinitiv data
“Many REITs also come with a juicy dividend yield, thanks to the rental income they generate, and the requirement to pay out at least 90% of property rental profits to maintain REIT status.
“It is therefore easy to see why REITs might attract the attention of private equity or trade buyers, given the combination of cash flow from rents, asset backing and lowly valuations.
“The lofty dividend yields may also catch the eye, especially if the Bank of England base rate continues to come down, and any further clarity regarding the trajectory of UK economic growth could, too, especially as it may not take too much to surprise on the upside here.”
