The song remains the same – The Property Chronicle
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The song remains the same

The Analyst


It’s still all to play for in the REIT sector.

I make no apologies whatsoever for repeating much of my mantra for the quoted REIT sector this year. The themes remain consistent, successful and unlikely to change for the rest of the year. I concluded my article for the summer edition with the phrase, ‘All to play for’, and so it has proven. The REIT sector had shown very modest outperformance against the All Share Index in H1 of this year, a mere 3%, but the past few months have seen this outperformance accelerate to a much more meaningful 10% and an absolute gain for the sector of a very healthy 25%. No hesitation in repeating my ‘something for everyone’ from durable income growth from true REITs, to still-strengthening logistics rents and values, to a recovering London office market, a selectively well-bid retail warehousing market and just maybe close to nadir valuations for certain retail assets. Throw in the swathes of cash from private equity attracted by broader UK equity valuations and the income characteristics of much UK real estate, and the prospect of further corporate activity in the sector isn’t fanciful.

Blackstone increased its offer for St Modwen to a slightly more acceptable level, although it still looks a cheap deal to me, and the same buyer has emerged in partnership with APG to acquire student accommodation specialist GCP Student Living for just under £1b. That represents a 9% premium to GCP’s NAV as at June and a whopping 30% premium to the pre-bid share price. That the shares were trading on such a discount simply reflected the impact of the pandemic. The bid price is identical to where the shares traded in the weeks immediately prior to the first UK lockdown in March last year, when GCP had a portfolio full of rent-paying students and a pipeline of potential development assets.

The pandemic prompted the shares to trade on a discount for an asset class that has historically traded at a premium to NAV in the REIT arena.

“Looking through the 30 or so REITs we follow, there currently remain just six trading at discounts to NAV, mainly characterised by just one thing –they own retail assets”

The Analyst

About Alan Carter

Alan has worked for nearly 40 years as a sell side property analyst and salesman, and has been a salesman at Stifel for the last five years.

Articles by Alan Carter

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