Jefferies’ Prew says ‘it’s time to buy’
Jefferies analyst Mike Prew has made buy recommendations on 12 REIT stocks and predicted an uptick M&A activity in the wake of Covid-19.
New guidance said REITs have become cheaper than real estate, with NAV declines, dividend cuts and efforts to boost solvency making them more attractive.
Derwent London, Great Portland Estates and Landsec were upgraded from “underperform” to “buy” recommendations.
Jefferies analyst Mike Prew has made buy recommendations on 12 REIT stocks and predicted an uptick M&A activity in the wake of Covid-19.
New guidance said REITs have become cheaper than real estate, with NAV declines, dividend cuts and efforts to boost solvency making them more attractive.
Derwent London, Great Portland Estates and Landsec were upgraded from “underperform” to “buy” recommendations.
SEGRO, LondonMetric, Big Yellow, Safestore, Empiric Student Property, Unite Group, Primary Health Properties and Gecina are also recommended to buy.
Prew said he was repealing his “uniquely contrarian bear call” after five years, as the economic consequences of Covid-19 “purge legacy asset over valuation so NAVs get credible again”.
Former “underperforms” Capital & Counties, Shaftesbury, British Land and Workspace rose to “hold”.
However, retail giants Intu and Hammerson were branded “uninvestable” following mass closures and unpaids rents. The analyst note added that prime shopping centres “look unsalvageable”.
Jefferies said: “Bank of England monetary policy is out of gas, so it’s back to fiscal fuelling and estate agents’ valuations now have ‘material uncertainty’ clauses, which scuppers refinancing.
“The economic consequences of Covid-19 will be the catalyst for the great overvaluation ‘unwind’, with rental and capital value declines getting a short sharp shock instead of the multi-year salami slicing.”
REITs seeking to boost liquidity and stockpiling cash “are beginning to look attractive on a yield-relative basis”, it said.
Jefferies predicted consolidation in the sector, with cash takeover bids below book value, comparable to market trends two decades ago.
“Our new theme is modelling the sector on 2000, when property company shares traded at half their trailing NAVs.
“This arbitrage paved the way for £16bn of public real estate equity being privatised an £30bn of asset stripping in 42 public-to-private deals pitched at average 6% discounts to NAV.”
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