The UK’s listed commercial property companies have been caught up in this year’s global equities sell-off – but some have fared better than others.
Shares in UK property companies, as measured by the FTSE EPRA UK Index, fell 4.9% in the first three months of the year as stock markets across the world slumped amid concerns about rising interest rates, the outlook for the tech sector and an escalating trade dispute between the US and China.
UK propcos outperformed the FTSE 100, which suffered its worst quarter since the financial crisis, falling 8.2%. However, experts say Klépierre’s unsolicited £5bn approach for Hammerson accounts for much of the difference in performance between the FTSE EPRA UK index and FTSE 100. News of the offer, which Hammerson’s board rejected, caused the retail property giant’s share price to soar 24%.
“We don’t know what would have happened if Kléppiere hadn’t bid for Hammerson, but that alone may have accounted for the difference,” says Peel Hunt analyst James Carswell. “The point is that it [the EPRA index] is roughly in line [with the FTSE].”
Interest rate rise fears
Fears of an interest rate rise have affected investors’ appetite for real estate stocks. However, Carswell says the gap between the cost of borrowing and property yields remains “well above historic norms” and that rates would have to rise significantly before yields looked unattractive.
The fortunes of individual companies varied significantly during the quarter. Several companies suffered double-digit share price falls. The Kléppiere move on Hammerson hit shares in intu, for instance, as investors fear it could scupper the proposed merger of the two UK companies.
Other big fallers include Capital & Counties, which revealed an 11.8% fall in the value of its Earls Court scheme to £1bn in its February annual results, and retail specialist NewRiver REIT, which has been hit by a slew of negative headlines about the retail market this year.
“Everyone in listed markets just really hates physical retail real estate at the moment,” says J.P. Morgan analyst Tim Leckie, who adds that his view, by contrast, is that “prime retail will be an important part of retail distribution for some time to come”.
However, several companies remained in positive territory, including industrial company SEGRO, which continues to benefit from the shift to ecommerce, and F&C Commercial Property Trust.