The UK’s listed real estate market should offer yet more attractive targets for acquirers after a bumper spell for takeovers.
Capital & Counties, Helical, Capital & Regional and Grainger are among the companies that could attract bidders, according to Berenberg analysts Kieran Lee and Tom Horne, who say the market can still provide “rich pickings” for buyers.
The pair said the market “remains increasingly attractive for investors who are able to commit to a longer-term investment horizon or need to deploy substantial amounts of capital to generate a return, such as private equity”.
So far this year, RDI REIT, St Modwen Properties, Sigma Capital and GCP Student Living have agreed takeover offers, with Drum Income Plus REIT last week confirming an approach from Custodian REIT. Those deals follow moves last year for Urban&Civic and McCarthy & Stone.
More than three-quarters of the UK real estate deals struck or mooted this year have involved private equity, Berenberg’s analysts said.
“With a structured, well-understood market and cheap debt finance widely available, infrastructure and real estate provide obvious, low-risk vehicles for generating returns,” Lee and Horne wrote.
“The UK and the listed sector also screens attractively due to its robust legislative environment, the reduced scrutiny for management teams in the private sector, improving economic fundamentals, relative underperformance and attractive valuations.”
The team highlighted Capital & Counties as “the most obvious target” among the companies it covers, its share price offering “an attractive entry point to a portfolio that would otherwise take decades to curate”.
Lee and Horne also pointed to Helical, trading at a 13% discount to its last reported net tangible assets and offering “a well-respected, experienced development team which can be used to generate additional value over the next office cycle”; and Capital & Regional, 52% owned by Growthpoint Properties, which they said is still in a “challenged position” and could find a balance sheet recapitalisation better done privately.
A “less obvious” but “increasingly attractive” M&A target is Grainger, the Berenberg team added, due to a development pipeline of 8,850 homes that “could be accelerated materially in private ownership, much as Lone Star did with Quintain at Wembley Park”.
The analysts said the targets of recent takeovers shared several characteristics, among them models that have been misunderstood by public investors, leading to “deeply discounted” valuations; the ability for buyers to scale and deploy further capital into development pipelines; exit routes for management; and assets within an in-demand sector.
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