November 2009 Archives

More than two thirds of UK property disposals last year were sold at prices below their valuations, according to the IPD/RICS Valuation and Sale Price Study 2009.

The study was published yesterday at the annual IPD/IPF Property Investment Conference in Brighton.

Rebecca Graham, senior analyst at IPD told delegates at the pre-conference briefing on property valuation accuracy that by contrast the three other major European markets in the study - France, Netherlands and Germany - all achieved a sale premium to valuation.

For more news from the IPD/IPF conference, check out the conference blog here.

We're starting to see predictions for property's outlook for 2010 filter through.
Fidelity International's head of European Real Estate Neil Cable says he believes 2010 will be a "kinder" year for investors in European property with values stabilising across much of northern and western Europe - and even rising for prime assets in the core markets of the UK, France and Germany.
"However, this first phase of the new property cycle will see the emergence of a multi-speed market," he said.
"The upturn in investment activity across the major western European cities will contrast sharply with weak demand for secondary assets and locations, especially those in CEE and southern Europe.
"Stock selection, rather than asset allocation, will remain key for investors in 2010.
"To benefit from the early stages of this new cycle, an ability to identify long-term value will make the difference, not just buying in a given general location. Getting the mix right between the quality of assets, strength of location and, especially in this environment, creditworthiness of tenants will be paramount."

Land Securities' first half results came across as "very solid" and were in line with management's goals, according to JP Morgan.
Analyst Harm Meijer said adjusted net asset value came in at 565p versus JP Morgan's estimated of 567p.
"The NAV was highly impacted by a hit of £74.5m on cancellation of swap contracts and, interestingly, the portfolio fell 1.4% in value over the last six months outperforming British Land by 1%," said Meijer.
"As said before, the company is maintaining its view that rental growth will return first in the West End (in line with our view), while most property agents seem to bet on the City.
"As a result, the company has lined up three developments for 2012-2013.
"On acquisitions, Land Securities said that it has £500m bids outstanding. Overall: very solid set of numbers, but already priced in the share price in our view.
"While Land Securities believes that property values have turned the corner in July and will rise on a five years view, the company is not rushing out to spend its money on acquisitions.
"It will not join the current bidding contest, but remain disciplined, as better opportunities are likely to follow once banks start to work through their loan books."

Analysts's opinions of today's half year and second quarter results from British Land have started to come through.
JP Morgan analyst Harm Meijer said the company's results were in line with expectations.
"British Land reported an Adj NAV of 372p and 367p if the 50% Broadgate disposal is taken into account, which compares to JP Morgan estimated of 364p," he said.
"The capital growth of 1.4% over the quarter (1.7% for the UK portfolio) was in line with our estimate, which was also the case for Adj EPS at 15p.
"On potential acquisitions, the company said it has bids outstanding on £500m (which we believe includes the Silverburn shopping centre in Glasgow for around £290m) and is screening another £2bn.
"British Land sounded cautious on outlook saying that the sector is still facing structural issues (on the occupational side).
"Overall: results in line and did not contain positive surprises. We remain Overweight, but believe one has to be very bullish on property values to see good upside from the current share price level."
Meijer added that British Land had told analysts it was eyeing "at least £1bn of investments over the next 12-24 months".

Overall confidence in property valuations is poor with just 16.7% of "buyside" respondents having high or very high confidence, according to a property valuation survey by JP Morgan.
This contrasts starkly with the management teams, with 76% having high or very high confidence in property valuations.
JP Morgan said the Buyside vs Management groups differed particularly on their faith in property valuations in Austria, Italy and Spain.
But, there was high confidence in UK valuations, with 67% responding with high or very high ratings, followed by Netherlands at 44%, and Sweden at 39%.
Two thirds of respondents to the survey believe the disclosure of valuation statistics by Continental companies is poor, compared with just 18% for UK companies.
Some 56% regard the UK disclosure above average vs. 4% for the Continent.
The JP Morgan survey found British Land has the most complete disclosure within the EPRA top 30 regarding its portfolio valuation, followed by Land Secs, Eurocommercial Pr. (Continent's no. 1), Hammerson & Great Portland.
Ca Immobilien needs to improve its disclosure the most, followed by Deutsche Wohnen, Gecina, Fonciere des Regions and conwert.

Part-time working has become more common during the recession, and may have helped commercial property demand to hold up better than if firms were simply laying-off staff.
Research by Capital Economics says employment has fallen much less than its close historical relationship with GDP would suggest and one reason for this is that some companies have chosen to cut working hours or wages rather than staff.
Employment figures show that full-time employment fell from 22.1m at its peak in May 2008, to 21.3m in September 2009.
By contrast, part-time employment has continued to rise, up from 7.5m in May 2008 to 7.7m in September.
However, property economist Kelvin Davidson said overall employment still has "considerably further" to fall and this means that property rental values will continue to decline until at least late 2010.

Colliers has today warned that the strength of the current rally in UK commercial property prices could lead to a second correction.
The agent has predicted the ongoing recovery in prices could erase the losses suffered in the first half of this year.
It is now expecting positive total returns for 2009 of 0.4%, up from -7.3% previously estimated.
JP Morgan analyst Harm Meijer said the 0.4% total return forecast implies around 7% capital growth for the second half of 2009 and "should not come as a surprise to the market".

Last week, a further £441m was raised for corporate balance sheet repairs by two companies - Grainger and Quintain.
Grainger announced it would raise £250m by issuing up to 277.6m new shares through a two for one rights issue at 90p.
Quintain announced a three for one rights issue of 390.1m new shares, raising £191m.
In his weekly property sector note, Nomura Real Estate analyst Mike Prew said the two capital raisings take this year's total to £6.6bn, against a real estate sector capitalisation of £25bn.
"Derwent London is now the only FT-350 real estate company not to have resorted to dilutive equity financing," says Prew.
"We find it increasingly difficult to think of many other relevant real estate companies which need to, or can, tap the equity market for fresh capital with the possible exception of Minerva.
"Of the majors, Liberty International is the most likely we think to have a follow on placing, having raised £901m in two tranches in the year to date."

So, the Government decided to continue with its program of quantative easing, pumping another £25bn into the UK economy, taking the total amount of QE so far to £200bn.

As JP Morgan analyst Harm Meijer has been pointing out for a few months, it is the amount of liquidity being created in the wider financial system that is mainly responsible for the recent sharp rise in prices:

In a world in which it seems almost every 'light' is engineered on 'green' and appears likely to stay that way for a while, we believe property prices will be boosted by government/bank policies - much more strongly than most market participants currently appear to expect and perhaps even more strongly than some can even imagine.

"Indeed, we forecast real estate values in the UK to jump by 10% in the next 12 months, albeit to unsustainable levels, and those on the continent to stabilise. Yield compression is back; we forecast a 100bp reduction for the UK.

But be warned, there are risks:  

We've now seen some opinions filter through on today's interim management statement from SEGRO.
JP Morgan analyst Harm Meijer said the announcement was in line with expectations and the company even mentioned UK property value stabilization in the third quarter - although Continental values still appear under pressure.
"Now that the (well timed) Brixton acquisition is done and dusted, we believe the company needs to deliver on realizing the potential from the deal, particularly in reducing the vacancy rate which remained at 14% for the overall group (14% at 30-Jun)," he said.

Quintain has to be one of the most remarkable recovery stories of the current downturn.

Earlier this year, the smart money was betting that they would go bust - that's not just my hyperbole, in March the company's shares were trading at 8p, and they failed to get a rescue rights issue away.

Now, the company is set to unveil a larger, proactive rights issue, with the share price sitting at a far more healthy 183p. Admittedly this is down from a high of 240p, but it shows what can be done by companies who engage early with lenders, renegotiate covenants to more sensible levels and mark concessions in terms of selling assets to pay back debt.

There will be more of a couple of companies in the private markets who will do well to follow that example.