Proactive Investors - Houses don’t typically come with seat belts, but you should fasten them anyway, reckons Shore Capital Markets, as deals in the UK real estate investment trust (REIT) scene are about to accelerate at breakneck speed.
ShoreCap contended that consolidation within the sector “remains a strong likelihood” following an extended period of depressed valuations and burdensome upcoming debt refinancings.
How does Commercial Property REIT fit into this thesis though? The Abrdn PLC (LON:ABDN)-managed trust just nixed merger talks with Picton Property Income at the behest of its largest shareholder, who disagreed with the takeover “on the terms proposed”.
The deal might not be totally in the bin, with ShoreCap stating that “it is likely a revised offer will be made before the 6th December deadline under the Takeover Code”.
“As we have said over recent weeks, more of this activity should follow in 2024,” contended ShoreCap, continuing: “The pain of forthcoming debt refinancings and redemptions from open-ended funds will present attractive opportunities for those REITs with ample cash resources while discounted equity valuations also offer further consolidation potential.”
These ongoing debt burdens aside, this week saw improving earnings and dividends announcements, stabilising valuations, and forward-looking optimism from the likes of LondonMetric (LON:LMPL) Property, NewRiver REIT and Grainger.
London offices remain a black spot though, with Helical (LON:HLCL) this week reporting a further decline in valuations as rising financing costs and increasing vacancy rates continue to hit development valuations.
It all adds up to attractive buying opportunities for the players in the position to do so, according to ShoreCap.
“Further consolidation within the sector remains a strong likelihood in our view, as depressed valuations and upcoming debt refinancings make the operational gearing of combining portfolios increasingly attractive.”