Analysts at investment bank Stifel say the biggest public UK real estate companies will see portfolio values continue to fall over the remainder of this year – but that the correction could be “overdone”.
In his team’s August real estate chartbook, analyst John Cahill said UK REIT discounts to net tangible assets of 20-50% “remain commonplace for all but those lucky few companies in the desirable sub-sectors of student accommodation, healthcare and logistics”.
Cahill added: “Valuers moved quickly in late 2022 and early 2023 to reflect the increase in the risk-free rate, but this is only half the story for property valuation yields because of the significant and ever-moving property risk-premium.”
The team expects capital values to fall “over the remainder of this year”, noting that “an increase in investment market liquidity would provide the catalyst for valuers to mark-to-market the REIT portfolios more accurately”.
But Cahill said: “The equity market remains markedly more downbeat about the outlook.”
He continued: “In capital value terms, the equity market is implying that the investment portfolios of the diversified REITs – Landsec, British Land – will fall by 25-35% compared with the most recent balance sheet date, London offices fall over 30%, industrial down 3% and retail 27%. We think this looks overdone and illustrates value opportunities in the sector.”
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