Disrupted by Brexit, COVID-19 and the most aggressive interest rate hike cycle in living memory, Europe's listed real estate investment trusts are more unloved than ever.
Bloomberg Intelligence analyst Sue Munden said in a research note Monday that potential new entrants prefer less market oversight and easier access to financing from the private market, making the outlook for publicly traded real estate more difficult. said it was dark.
“The fall from grace by European landlords since 2016 signals the twilight of the industry, as REITs are hampered by undervalued stocks and fail to attract investment, accounting for just 1.37% of the benchmark Stoxx600. “There may be,” Munden wrote.
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REITs and daily traded real estate funds help individual investors access the commercial real estate market without locking up their cash for long periods of time. However, the illiquidity of real estate and the discrepancy with the daily trading of listed companies and funds have caused problems for the sector, with stock prices declining as market conditions deteriorate and funds are overwhelmed by investor demands for refunds. It is said that it moves before the asset value.
Landlords, particularly those in the UK, home to one of Europe's biggest REIT markets, have been trading at deep discounts to reported asset values for several years as a series of shocks undermined confidence. The total market capitalization of real estate companies currently included in the Stoxx 600 index is 160 billion euros ($174 billion), representing an average discount of 24% to asset value.
Poor returns and a series of private takeovers have shrunk the size of the sector relative to the overall stock market, which currently makes it a “no-notable prospect as it contributes little to overall portfolio performance.” Low,” Munden wrote. To combat this, the sector must improve dividends and asset value growth and aim for total returns of over 7-8%, he added.
While the prospect of lower interest rates has helped lift real estate stocks in recent weeks, analysts' price targets remain, on average, just 10% above the current share price. This means that, given historical discounts, most companies are likely to continue trading below their current asset values.
Landlords have responded to investor apathy with a series of mergers aimed at increasing scale and cutting costs. Londonmetric Property agreed to buy LXI REIT this month, and last week Custodian Property Income REIT Plc agreed to buy Abdon Property Income Trust. Shaftesbury Capital Plc was formed last year through the merger of two of the largest landlords in London's West End.
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