Back at the start of the year, EG gathered five new chief executives from some of the biggest London-listed real estate companies for a discussion on the market outlook. Among them was Sarwjit Sambhi, two months into his CEO role at St Modwen, his first real estate job. Sambhi brought a fresh perspective to the roundtable – and outsider’s view of an industry in change. And within months, he was driving change himself.
In May, St Modwen joined a growing list of public real estate companies snatched from the market as buyers – many of them private equity firms – saw value in underpriced stocks. Blackstone struck a £1.2bn takeover of St Modwen, a price it later boosted to nearer £1.3bn.
Also on the block was RDI REIT, bought for £468m by Starwood Capital Group; GCP Student Living, which has agreed a yet-to-close, £970m takeover and break-up at the hands of APG Asset Management’s Scape Living and Blackstone’s iQ; and PRS developer Sigma Capital Group, bought for £188.4m by PineBridge Benson Elliot.
Peel Hunt real estate analyst Matthew Saperia told EG there were cyclical and structural issues driving transactions.
“There is clearly a mismatch in pricing between the public and private markets – some of that is warranted, some of it isn’t,” he said. “The public market probably tends to be a little more short-sighted than the private market, so other capital pools will be willing to look beyond the next two years and understand either value or demand for real estate that the equity market might be concerned about in the short term.”
But not all of the buyers splashing out were private equity – in November, Landsec struck a £190m takeover of U+I, giving it access to the latter’s development pipeline, which includes schemes in Manchester and London.
Speaking with EG as that deal was announced, Landsec chief executive Mark Allan acknowledged the pressures put on real estate companies on the public market.
“What was very clear in the case of U+I is that it has got this pipeline of fantastic regeneration projects that it simply can’t fund itself – so it’s very difficult for the markets to ascribe any value to that when you don’t know how much of the value is going to end up being transferred to whoever comes in to fund the projects,” Allan said. “By bringing those on to a balance sheet where you haven’t got to worry as an investor in terms of [whether you are] giving away return to other people, I think we can now value that properly and markets can value that properly.”
And he added that there may be more consolidation to come as smaller public companies decide whether their future lies on the exchange or in private hands.
“If you’re a business with a clear business plan, it’s clearly funded and markets understand how you can execute it and you can signal the progress you are making, then things will make sense,” he said. “If you’re struggling to fund things or people have questions about the execution of your business plan, then there are going to be question marks.
“The private capital side of real estate has grown far more quickly in recent years than the public side of things. So it’s incumbent upon companies like Landsec to be really clear in what we’re trying to deliver for shareholders and in banging the drum for listed real estate.”
As companies disappeared from the stock market, those looking to replace them encountered challenges. Two planned real estate IPOs fell through during the course of the year – neither UK Residential REIT’s £150m IPO nor a £250m listing of BMO’s Responsible Housing REIT happened.
But there was a different story for a new investor set up to capitalise on the growing market for life sciences real estate. Life Science REIT succeeded where others couldn’t and raised £350m in its November IPO – £50m more than it had expected when the deal was announced. The company has since been busy building outs its portfolio, striking several acquisitions.
That new market entrant appears to have the kind of clear strategy that investors want to support. Indeed, for the REIT with the right pitch, there is plenty of money looking for a home. Analysis by financial services firm Goodbody has pegged real estate as one of the busiest sectors this year for equity raises, with companies such as Tritax Big Box and Home REIT raising fresh funds for acquisitions. There’s life for listed REITs yet – both new and old.
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