‘Cheesegrater’ sale highlights UK property market divergence

07/03/2017

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​​Guy Barnard, Co-head of Global Property Equities, comments on the recent sale of The Leadenhall Building, the largest ever property transaction in the UK. While uncertainty about the outlook for UK property has increased following the Brexit vote, the deal highlights the divergence between the direct and listed property markets with continued foreign interest in key London assets.

UK REIT (real estate investment trust) British Land and its joint venture partner Oxford Properties announced on 1 March 2017 that they have exchanged contracts for the sale of The Leadenhall Building (nicknamed the ‘Cheesegrater’ for its distinctive wedge shape) in the heart of the City of London to Chinese property company CC Land. The proposed sale price of £1.15bn makes it one of the largest ever single property transactions in London, representing a net yield of around 3.5%.

Strong demand for London property despite Brexit vote

For British Land, the price represented a significant premium of around 25% to the asset’s latest appraised value. Although a unique asset, the sale highlights the ongoing strength of international demand for London property in spite of the uncertainty following the UK’s vote to leave the European Union. While the direct property market has bounced back from the immediate declines after the Brexit vote (with assets such as this selling at prices higher than before the referendum), UK REITs remain out of favour and continue to trade at significant discounts.

Source: iStock. Credit: AIphotographic

British Land premium/discount to net asset value (NAV)

Source: UBS, Thomson Reuters Datastream, Henderson Global Investors. Data from 28 January 2007 to 28 January 2017.

In the case of British Land, the shares currently trade at a discount to net asset value of c.30% (see chart). While we do not expect stocks to trade at net asset value given the opaque outlook for UK property we think the current discounts are overly pessimistic. In particular, real estate companies are operating with relatively low leverage compared to pre-Global Financial Crisis levels, with robust and growing income streams. As an example, British Land at 6 March 2017 offers a 4.7% dividend yield.*

In our view, British Land currently offers a potentially more attractive entry point to access property for an investor with a medium-term investment horizon.


*Yield may vary and is not guaranteed.

Note: The above example is intended for illustrative purposes only and is not indicative of the historical or future performance of the strategy or the chances of success of any particular strategy. Henderson Global Investors, one of its affiliated advisors, or its employees, may have a position mentioned in the securities mentioned in the report. References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security.



Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

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Anything non-factual in nature is an opinion of the author(s), and opinions are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in market or economic conditions. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its us.


Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Horizon Global Property Equities Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund may invest in real estate investment trusts which can involve different risks to investing directly in the underlying assets. Such schemes may increase risk due to factors such as restrictions on withdrawals and less strict regulation. The value of your investment may fall as a result.

Risk rating

Janus Henderson Horizon Pan European Property Equities Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • The Fund may invest in real estate investment trusts which can involve different risks to investing directly in the underlying assets. Such schemes may increase risk due to factors such as restrictions on withdrawals and less strict regulation. The value of your investment may fall as a result.

Risk rating

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