3rd Nov 2023 09:22
(Alliance News) - Real estate investment trusts enjoyed a decent rally on the stock market on Thursday, after the Bank of England decided against a rate hike, and Shore Capital believes it could be time for the sector to shine again.
November is often a busy month for REITs due to it being reporting season. Next week, Regional REIT Ltd and Urban Logistics REIT PLC are among those to report on trading.
Quoting the famous line from Jaws "just when you thought it was safe to go back into the water", Shore noted that sentiment towards the property sector is fragile.
"With real estate still reeling from the explosive correction in borrowing costs and post-pandemic structural shifts in some markets, recent concerns about inflation reigniting in the event of a wider escalation of the conflict have punished REIT share prices yet again. That said, this may actually present an attractive time for investors to re-evaluate the sector as underlying fundamentals are more resilient than the market currently gives credit for and with growing evidence that the rate cycle may now have peaked-illustrated by yesterday's stock rally," Shore analyst Andrew Saunders commented.
"November is always a busy month for UK REITs, with many reporting interim results or trading updates that will provide new data and narrative with which investors can reassess the sector. In our view, some of this generic data is already out there with available stats from MSCI confirming a lot of what many commentators already suspect. Industrial & logistics asset valuations have stabilised and have actually returned to growth over recent months, along with purpose-built residential and student accommodation."
Shore noted that logistics and industrial assets are "well-positioned" with demand still topping supply. There has also been some deal-making activity recently, Shore noted, and above March 2023 valuations to boot.
"These transactions help validate forecasts for net tangible assets and with stocks such as Segro, Tritax Big Box REIT and LondonMetric Property currently trading on [around] 25% discounts to these forecasts, suggests, to our minds, there is good value to be had," Saunders added.
In retail, valuations have "proved more stable" recently, suggesting the health of that portion of the property sector is healthy, if you like through the headlines of Wilko's collapse.
Saunders added: "While the collapse of Wilko made headlines recently, retail property continues to benefit from the growing dominance of omni-channel operator models (including M&S, Next, Boots etc) while pure-play online operators have struggled post-pandemic. With positive real wage growth underpinning consumer spending retail parks remain in strong demand for investors (given that there are no longer any new ones being built) while interest in major shopping centres is also rumoured to be growing -British Land, Landsec and NewRiver REIT look well-placed in this regard."
By Eric Cunha, Alliance News news editor
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Regional ReitUrban LogisticsBritish LandLand SecuritiesNewRiver