International investors are placing their bets on major UK REITs, as disruption from the Covid-19 pandemic continues to pummel share prices.
Canada’s Brookfield Asset Management has been the latest to make an opportunistic play in this arena, after securing a 7.31% stake in British Land worth around £264m, based on a share price of roughly 390p at the time.
Earlier this month the investor, which has a long history in direct and indirect London office investment, said it had “built up toehold positions in a number of companies” that it felt have been “significantly undervalued” in the current market.
Bruce Flatt, chief executive of Brookfield, also pointed to $60bn (£48bn) of liquidity “ready to be deployed globally as opportunities arise”.
Matthew Saperia, real estate analyst at Peel Hunt, tells EG: “When it comes to British Land, Brookfield will have done their due diligence, and their latest move indicates that the shares represent good value in their eyes. They will have considered the retail aspect as much as offices – they know London very well already, particularly in Canary Wharf.”
Before the deal, the REIT was trading at around a 50% discount to EPRA NAV. And with other big discounts on offer among a number of landlords in the listed sector, M&A is likely to rise.
Hammerson, which has been trading at around an 88% discount to NAV, is another prominent example. Earlier today, South Africa’s Lighthouse Capital upped its stake in the landlord to 13.33%, having separately launched a tender offer in exchange for Johannesburg-listed Hammerson shares.
During its interim results update in April, Lighthouse said it planned to “take advantage of strategic investment opportunities arising from the financial market volatility”.
The investor had added that, while it was “mindful” that the road to recovery in Europe will be volatile, it was nonetheless “well positioned to make significant strategic investments at steep discounts to long-term value”.
One analyst, speaking anonymously, says: “There’s a lot of global capital still looking for a home, despite what’s happened with the global economy. The search for yields has become even more acute now that interest rates are likely to stay lower for longer.
“Yields on London offices in particular haven’t moved very much, whereas over the past two or three years [properties in] European cities have gotten relatively more expensive. The UK hasn’t moved because we’ve been busy navel-gazing about Brexit, which has resulted in better value, relatively speaking.
“On top of that, shares at all the REITs are trading at quite big discounts, so altogether it looks like the right time for companies that want to build a stake to do it now.”
Just last week, Hong Kong’s Lifestyle International Holdings, which operates department stores including SOGO’s flagship in Causeway Bay, snapped up a £50.1m stake in Landsec.
“The equity investment in Landsec was to enable the group to participate in the retail and commercial property market in the UK without having the need to own such physical properties,” the company, run by Thomas Lau, brother of property billionaire Joseph Lau, stated at the time.
“The acquisitions will be held by the group for long-term investment purposes, with an aim to enhance the returns on cash for the group in the long run.”
Saperia observes that similar deals may follow. “Given that people may be trying to get their money out of Hong Kong and China right now, London real estate is as safe a place as any to park it,” he says. “We may see more of the likes of Mr Lau buying up stakes in listed landlords.”
More activity is taking place closer to home as well. Capital & Counties is in talks to buy a 26.3% stake in rival landlord Shaftesbury, from selling shareholder and Hong Kong billionaire Sammy Tak Lee.
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