- Richard Williams
November 2024
Winners and losers in October 2024
| Best performing funds in price terms | (%) |
|---|---|
| Life Science REIT | 7.2 |
| Residential Secure Income | 4.0 |
| PRS REIT | 3.1 |
| Phoenix Spree Deutschland | 2.6 |
| Globalworth Real Estate | 2.1 |
| Henry Boot | 0.9 |
| Target Healthcare REIT | 0.8 |
| Balanced Commercial Property Trust | 0.3 |
| Schroder European REIT | 0.1 |
| Triple Point Social Housing REIT | 0.0 |
Source: Bloomberg, Marten & Co
| Worst performing funds in price terms | (%) |
|---|---|
| Workspace Group | (14.9) |
| Great Portland Estates | (11.9) |
| Tritax Big Box REIT | (11.3) |
| Helical | (11.3) |
| IWG | (10.2) |
| SEGRO | (10.2) |
| Safestore | (9.8) |
| Hammerson | (9.6) |
| Derwent London | (8.8) |
| Sirius Real Estate | (8.5) |
Source: Bloomberg, Marten & Co
Best performing funds
Speculation and apprehension over the contents of the budget dominated October and was reflected in the share price moves among real estate companies with a median decline of 4.8%. There were a handful of positive movers, however, with Life Science REIT leading the way. This follows an uplift in its share price last month after its chair commented that the board was willing to take any action necessary to address its steep discount to NAV, which still lingers at around 45%. Residential Secure Income decided to throw in the towel having battled a persistently wide discount for much of its life (see the corporate activity section for more detail). Meanwhile, PRS REIT hoisted a ‘for sale’ flag over the company following shareholder pressure to act on its wide discount. Investors seem to be appreciating the solid progress Phoenix Spree Deutschland is making in delivering on its strategy to sell condominiums at large premiums to book value, with the Berlin residential landlord’s share price up almost 14% over the past three months. Target Healthcare REIT’s share price move was in step with its NAV performance over the quarter to the end of September (see below for more detail), while Balanced Commercial Property Trust was up slightly following last month’s take-private offer.
Worst performing funds
Budget nerves saw some of the largest listed real estate companies suffer the most as concerns move from inflation and interest rates to economic growth. It was no surprise, then, to see some of the largest office investors and developers in the bottom 10. Flexible workplace providers Workspace and IWG both succumbed to double-digit falls in their value over the month while, similarly, London office developers Great Portland Estates, Helical and Derwent London also experienced sharp share price falls. There is an integral link between GDP growth and demand for office space and worries that growth will be anaemic under Labour have surfaced. It was not just office players that got hammered, all of the property big guns were on the wrong end of investor caution, with logistics heavyweights SEGRO (which now has a market cap of £10.6bn) and Tritax Big Box REIT (£3.4bn market cap) also losing just over 10% in value during October. Retail behemoth Hammerson’s recent positive share price momentum was stopped in its tracks despite continued operational and balance sheet strengthening, including the launch of a £140m share buyback programme. It was a torrid month all round, with property bellwethers British Land (down 8.5%) and Land Securities (down 7.6%) also suffering.
Valuation moves
| Company | Sector | NAV move (%) | Period | Comments |
|---|---|---|---|---|
| AEW UK REIT | Diversified | 3.0 | Quarter to 30 Sept 24 | 2.9% like-for-like valuation increase for the quarter to £215.6m |
| Target Healthcare REIT | Healthcare | 0.9 | Quarter to 30 Sept 24 | Like-for-like valuation increased by 0.6% to £916.4m |
| Alternative Income REIT | Diversified | 0.5 | Quarter to 30 Sept 24 | Value of portfolio up 0.4% to £103.1m |
| PRS REIT | Residential | 10.9 | Full year to 30 June 24 | Value of group’s portfolio was £1.1bn, up from £1.0bn in 2023 |
| Town Centre Securities | Diversified | (2.4) | Full year to 30 June 24 | Like for like portfolio valuation down 4.7% to £256.0m |
| Grit Real Estate Income Group | Rest of world | (20.5) | Full year to 30 June 24 | NAV impacted by high debt levels and debt costs |
Source: Marten & Co
Corporate activity in August
Tritax EuroBox’s board recommended a cash offer for the company from Canadian private equity giant Brookfield that usurps SEGRO’s bid for the company. Brookfield’s bid of 69.0p per share values Tritax EuroBox at around £557m. This represents a premium of 6% to the implied value of the SEGRO offer of 65.1p at 9 October 2024. The offer price also represents a premium of 28% to the closing price of 53.8p per Tritax EuroBox share on 31 May 2024 (the last business day prior to the commencement of the offer period), but a discount of 12% to its last reported NAV.
British Land raised £301m in a placing, retail offer and subscription and will use the proceeds to part fund the acquisition of a portfolio of retail parks for £441m (see below for details). In aggregate 71,227,309 new ordinary shares were placed at a price of 422p, which represents a discount of 3.6% to the closing price on 2 October 2024.
Empiric Student Property raised £56.1m in a placing and retail offer.
A total of 59,686,950 new ordinary shares representing 9.9% of the company’s existing share capital were placed at a price of 93p, raising proceeds of £55.5m, with an additional £0.6m raised via retail investors. The proceeds will be used to acquire two operational assets in Manchester and Edinburgh for combined £30m, while the company has a broader pipeline of a further eight assets under negotiation.
PRS REIT announced that it was undertaking a strategic review to consider the future of the company following shareholder pressure. The review will explore all the various strategic options available to the company, which may include a potential sale. This follows the requisition notice made by a number of shareholders to replace the chairman, Steve Smith, and another director with Robert Naylor and Christopher Mills. The shareholders were unhappy at the award of a multi-year investment management contract to current manager Sigma without proper shareholder consultation and the lack of action to narrow the company’s discount to NAV. In September, Smith announced he would step down at the next AGM, while both Naylor and Mills were appointed to the board.
The board of Residential Secure Income proposed a managed wind-down of the company following a review of options for maximising shareholder value. The company’s persistent and material share price discount to NAV and its small market cap of around £101m (which it said may be a deterrent to some potential investors due to lower share liquidity) led the board and manager (Gresham House) to conclude that executing a managed wind-down and portfolio realisation strategy is the best course of action for shareholders. To implement this proposal, the board said that it intends to propose resolutions to change the company’s investment policy.
Impact Healthcare REIT changed its name to Care REIT plc to align with the Financial Conduct Authority’s updated sustainability disclosure requirements. Its stock market ticker is now CRT.
Hammerson commenced a £140m share buyback programme, with the sole purpose of reducing the company’s share capital. Shares purchased will be cancelled
