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Reita sees property investment recovery for second half of 2008


Reita, the education and awareness campaign for property investment and real estate investment trusts, has predicted a stabilisation of the property sector by mid-year and a gradual recove

Reita, the education and awareness campaign for property investment and real estate investment trusts, has predicted a stabilisation of the property sector by mid-year and a gradual recovery for the second half of 2008 in its first quarterly property investment perspective.

UK property stocks, which are mainly Reits, are currently trading at a discount to net asset value of around 20 per cent. The discount has narrowed considerably from around 35 per cent in mid-November, partly as a result of falling net asset values, but also on the back of a moderate rally.  Since January 9, UK property shares are up 17 per cent, while the FTSE All Share index is down 2 per cent.

Patrick Sumner, chairman of Reita and head of property equities at Henderson Global Investors, led the market review panel discussion, which included representatives from other Reita member companies.

The past three months have seen further falls in the capital value of UK commercial property, as measured by Investment Property Databank. The November and December declines were both around 4 per cent, but the January fall of 2 per cent suggested that the rate of decline is slowing, the panel believes.

The Reita experts predict that the end of the re-pricing is in sight, with a stabilisation by mid-year and a gradual recovery in the second half. ‘There is clearly a limit to the yield movement, and many feel that we are close to it, at least in the absence of any unexpected shocks from the broader economy,’ Sumner says.
According to the panel, it is encouraging to see foreign buyers in the market, including Qatari investors funding the Shard of Glass office tower project at London Bridge, Singapore sovereign wealth fund GIC buying into prime UK shopping centres, and a German fund buying One London Wall.

‘The IPD monthly index is likely to show capital values falling for another few months, but at a slowing rate,’ Sumner says. ‘The full year results announcements from British Land and Land Securities in May will show further value write-downs, but this is already in the price, and the pattern of income and dividend growth could well be encouraging. There is also evidence that sentiment is improving, with flows to property equities funds turning positive for the first time in nearly a year.

‘It is perhaps axiomatic that property share prices are a good predictor, six months in advance, of underlying property trends. If that is true, then the bottom of the share market was in November and the IPD capital value index will stop falling in May.’

The Reita market review panel says it is important not to assume that the UK is typical of other markets. The full year results announced by Hammerson on February 25 showed an increase in NAV of 3 per cent for the year, with a decline in UK valuations more than offset by strong growth in its offices and shopping centres in France, where – in stark contrast to the UK – yields actually fell in 2007. Hammerson also increased underlying earnings per share by 23 per cent.

Unibail-Rodamco, a French company with the largest market capitalisation at more than GBP10bn and a pan-European shopping centre operator, declared full year results in line with expectations, with net assets per share up 20 per cent and recurring earnings up 15 per cent. Other French and Swedish stocks reported values and earnings in line with these numbers.

Over the past year, Reita has continued to grow its membership, which now includes 12 of the biggest quoted Reits and property companies, 10 fund managers, the London Stock Exchange, 11 investment banks and advisers, law firm DLA Piper, the British Property Federation and the Investment Property Forum.

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