“After all, for that value to be unlocked (should any indeed exist) then a catalyst is needed and a successful bid by Klepierre for Hammerson or by Hammerson for Intu may have done just that.
“These ultimately unsuccessful approaches had brought REITs, and especially retail-exposed property landlords, back into the limelight. Intu’s shares have slipped on the news of the withdrawn bid although shares in its former suitor Hammerson are up, to show just how wary investors were of the would-be buyer’s plan to double down on its exposure to British shopping centres.
“However, investors are not completely ignoring Mark Twain’s advice to ‘Buy land, they aren’t making it any more.’
“SEGRO is up slightly today after releasing an upbeat trading update, while Tritax Big Box REIT has announced a £156 million equity raising priced at 142.25p a share, to fund its pipeline of planned acquisitions.
“SEGRO pushed through a similarly opportunistic capital raising in 2017 and was ultimately rewarded with promotion to the FTSE 100, and it does make sense for distribution specialist Tritax Big Box to raise money now, since the new shares are being sold at a price that is almost slap bang in line with its net asset value (NAV) per share of 142.24p.
“Looking at the REITs sector overall, it is easy to spot which parts of the real estate world investors like and which they do not.
| Share price (p) | Historic NAV (p) | Premium / (discount) |
Safestore | 519.0 | 329.0 | 57.8% |
Big Yellow | 889.0 | 640.8 | 38.7% |
Londonmetric Property | 179.9 | 155.7 | 15.5% |
SEGRO | 629.4 | 556.0 | 13.2% |
A & J Mucklow | 545.0 | 506.0 | 7.7% |
Shaftesbury | 982.5 | 952.0 | 3.2% |
TRITAX Big Box | 142.3 | 142.2 | 0.0% |
Workspace | 1,002.0 | 1,014.0 | (1.2%) |
Newriver | 288.5 | 297.0 | (2.9%) |
Hansteen | 126.8 | 130.6 | (2.9%) |
Derwent London | 3,083.0 | 3,582.0 | (13.9%) |
Capital & Counties | 286.0 | 334.0 | (14.4%) |
Great Portland Estates | 675.2 | 813.0 | (16.9%) |
CLS | 231.5 | 286.0 | (19.1%) |
Town Centre Securities | 286.0 | 375.0 | (23.7%) |
British Land | 658.0 | 939.0 | (29.9%) |
Land Securities | 956.3 | 1,432.0 | (33.2%) |
Hammerson | 506.2 | 790.0 | (35.9%) |
INTU | 199.0 | 411.0 | (51.6%) |
Source: Company accounts (based on historic NAV per share), Thomson Reuters Datastream
“Distribution, logistics and warehouses – all related to the rise of online shopping, click-and-collect and almost-instant customer fulfilment are popular, as are self-storage plays. This can be seen how they generally trade at a premium to their historic net asset value per share figures, as investors price in future capital appreciation for their land and rent increases.
“By contrast, the more exposure a REIT has to retail, the City, London more generally and also to new developments, the lower the valuation relative to net asset value and the wider the discount.
“It may well be that investors are correct to take a dim view of Britain’s economy in a post-Brexit world and to be cautious of those property developers who are adding fresh floor space, especially in the City.
“But at least valuations are lowly and sentiment already depressed at those REITs with exposure to the City, retail, new development or all three.”