The Big Beasts Of The U.K. Listed Sector Have Performed Badly And It Could Get Worse
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An investor in the U.K. listed real estate sector in the autumn of 2007, when the credit crunch first started to take hold, would have made more money picking smaller companies rather than the industry's biggest names.
Data from the European Public Real Estate Association shows size has no correlation with success when it comes to returns for shareholders, with the U.K.’s biggest list company, Landsec, the second-worst performer and Intu, Segro, Hammerson and British Land in the top 11 worst.
The discount to net asset value at which a lot of the bigger names currently trade indicates the stock market thinks things are going to get worse before they get better.
Here are the best and worst performers in terms of shareholder total return over the past decade, the companies with the biggest premiums and discounts to NAV, and indication of where the market thinks values are headed.
Primary Health Properties: 19% shareholder total return over the past 10 years
Primary Health has built up a portfolio of primary healthcare facilities valued at £1.3B. Investors have looked favourably on the company with an average lease length of 13 years with most of the income paid by the government and a dividend that has risen steadily year-on-year.
Safestore: 14% total return
Self-storage is having a day in the sun with both Safestore and Big Yellow having massively higher premiums to NAV than any other company in the sector. A combination of cyclical and structural demand has seen Safestore provide a higher dividend yield than other REITs.
Shaftesbury: 10% total return
Shaftesbury is consistently among the best-performing REITs in the U.K., with its combination of a well-managed, irreplaceable West End portfolio including Carnaby Street. It has not hurt that it it is constantly the subject of takeover speculation.
Palace Capital: -43% total return over 10 years
Being a small diversified company with just £183M in assets in primarily regional locations means investors have not looked favourably on Palace Capital.
Landsec: -37% total return
The biggest property company in the U.K. has the second-worst total return over the last decade. The two sectors in which it invests are the two that investors dislike the most at the moment — regional shopping centres and London offices — and in spite of big transactions like the £1.3B Walkie Talkie, investors are sellers rather than buyers at the moment.
Healthcare is seen as a sector with positive demographics but while Primary Health Properties is top of the charts for performance MedicX is near the bottom, with a smaller portfolio and external manager making it less appealing to investors.
Biggest premiums to net asset value
Safestore, 48% and Big Yellow, 45%
Self-storage companies have performed strongly recently, but the stock market is indicating the underlying value of their assets and income is set to rise dramatically, with both trading at premiums vastly higher than the rest of the sector. It is seen as a sector with high barriers to entry where income can grow because of relatively scarce supply and increasing demand from a population living in ever smaller houses.
LondonMetric - 21%
LondonMetric Chief Executive Andrew Jones explained to Bisnow how he had changed his company from a retail specialist to a leader in logistics, and also learned to chill out and stop buying and selling to focus on income. The market has rewarded him with one of the largest premiums in the sector.
Simon Property offered 400p a share to buy Intu in 2010, an offer that the board rejected because it felt the company was worth more than 600p a share. Today the shares stand at 197p, a discount to net asset value of more than 50%. That is partly a result of the negative sentiment toward retail, but it is worth noting it is significantly higher than fellow shopping centre specialist Hammerson.
Deajan Holdings: -41%
Deajan is majority owned by the Freshwater family and its share price often lags peers because of its smaller than average free float and the fact that as an investor in both the U.K. and U.S. it has a unique strategic focus.
Landsec and Helical Bar: -37%
Landsec has lagged the sector in terms of shareholder total returns over the past 10 years and the market is indicating the value of its portfolio will continue to fall. Helical Bar increased its focus on London after the financial crisis, which paid off during the capital’s resurgence but is less helpful now investors are worried about the value of London offices.