It seems that changing sentiment/expectation on the future of shopping centre values has arrived in the UK. In May I referred to the performance of retail REITs in the US but pointed out that there was
…no sign of contagion to the UK yet, the share price of Intu remains roughly in the same place as it was three months ago.
Things seem to have changed markedly. The two REITs with most relative allocation to retail – Intu (c280p to c230p) and Hammerson (c600p to c 530p) – have experienced substantial share price falls from the end of July. In contrast, Segro’s and British Land’s share prices have stayed broadly flat.
Judith Evans has a good piece on this shift in the FT and on changes in the retail sector more generally. She points to the sale of Bluewater at a discount to its previous valuation and very large discounts to NAV in the retail REITs
Intu is trading at a discount of 43 per cent to the book value of its assets, and Hammerson at a discount of 31 per cent, according to Numis figures, against an average 17 per cent discount for real estate investment trusts.
Albeit British Land have been trading at a c30% discount ti NAV, it’s quite a stunning figure for Intu.
It means that the market thinks that, taking into account Intu’s debt etc., the company is worth nearly half the value of its assets. Either the stock market is wrong, the asset valuations are wrong or both are wrong. Such a discount is either a strong buy signal (prior a private equity company taking it?) over or a signal suggesting that asset valuations are about to fall significantly. Again, it could be both. It will be interesting to see how or whether the IPF Consensus Forecasts for shopping centres shift next month. During the summer, forecasts for shopping centre rents and values were basically flat for the next 3-5 years in nominal terms with real falls in rental and capital values expected.