Analysts see REIT and asset value falls ‘overdone’

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.” To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews Image © Oleg Gamulinskiy/Pixabay