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QuotedData’s Real Estate Roundup – January 2022

Real Estate Roundup

Kindly sponsored by Aberdeen Standard Investments

Performance data

December’s biggest movers in price terms are shown in the charts below.

The year of 2021 ended with positive news that the Omicron variant was less serious than first thought, resulting in a lockdown over the Christmas-trading period being avoided. It was Home REIT that saw the biggest price move in December off the back of the announcement of new debt facilities and positive investment news as it continues to grow. Ediston Property Investment Company reported a bounce back in the value of its retail park assets in full year results, proving the resilience of the retail sub-sector. There seems no end in sight for the positive characteristics at play in the industrial and logistics sector, with demand for space far outstripping supply, and three such specialists make the top 10 best performing property companies in December. Urban Logistics REIT was buoyed by an oversubscribed fund raise and a move to the premium segment of the main market during the month (see page 3). Meanwhile, Tritax EuroBox posted strong annual results (see page 2). Residential Secure Income was also rewarded for strong full year results, seeing its share price rise 10.5% in December. Generalist property trusts Custodian REIT and Standard Life Investments Property Income also fared well, owing to expanding portfolios.

Ground Rents Income Fund continues to be dogged by the regulatory uncertainty that persists in the ground rents market, which was behind a fall in its NAV reported in annual results. Despite making several NAV-accretive acquisitions during the month (see page 4), generalist fund UK Commercial Property REIT saw its share price drop slightly. Over the year, however, its share price was up 8.3%. Cuban real estate investor CEIBA Investments ended a tough 2021 with another month of share price falls. The impact of the pandemic on the Cuban tourist sector has affected the value of CEIBA’s hotel assets, while a mooted lessening of US sanctions on the country has yet to materialise. Over the course of the year, CEIBA’s share price has fallen 24.3%. Yew Grove REIT’s share price came off slightly after its takeover by Slate Office was approved by shareholders (see page 3). Pan-African property company Grit Real Estate had a busy and potentially transformational month, raising €156.7m in an open offer and placing. It hopes to be able to provide investors with greater returns with the acquisition of a controlling stake in a development company. Part of the proceeds will also be used to lower its loan to value (LTV) ratio (see page 3 for more details).

Valuation moves

Corporate activity

Land Securities completed the purchase of U and I Group for around £190m. Under the terms of the acquisition, U and I shareholders received 149p per share, which was a 73% premium to its prevailing closing price of 86.0p.

Yew Grove REIT shareholders approved its €177.4m takeover by Slate Office Ireland. The deal still needs court approval but it is expected that the last trading day in the company’s shares will be 7 February 2022.

Urban Logistics REIT raised £250m through an oversubscribed issue, exceeding its £200m target. The group will use the proceeds to acquire assets from its £400m investment pipeline. During the month, the group’s shares were elevated from AIM to the premium segment of the London Stock Exchange’s Main Market.

Grit Real Estate Income Group, the pan-African property investor, raised $156.7m through an open offer and placing. Part of the proceeds, $80.6m, was made through the issue of new ordinary shares to the shareholders of development company Gateway Real Estate Africa Limited (GREA) and its asset manager Africa Property Development Management Limited (APDM) as consideration for the sale of their stakes in GREA and APDM to Grit. The remainder, $76.1m, will be used to pay off debt and reduce the group’s LTV, which had reached 53.1% at 30 June 2021, to a much more sustainable level.

Conygar Investment Company raised £10.7m in an equity raise. The issue price of 150p was a discount of 31.0% to net asset value of 217.4 pence as at 30 September 2021. The company said it would use the proceeds to progress the development of The Island Quarter site in Nottingham.

Tritax EuroBox signed an agreement with institutional investors for a new private placement of €200m senior unsecured notes. The notes comprise three tranches with a weighted average coupon of 1.368%, and a weighted average maturity of nine years. The three tranches comprise: €100m at a fixed coupon of 1.216%, with 7-year maturity; €50m at a fixed coupon of 1.449%, with 10-year maturity; and €50m at a fixed coupon of 1.59%, with 12-year maturity. The group said it would use the proceeds on its acquisition pipeline and will be deployed in conjunction with the €250m of new equity raised by the company in September 2021.

Home REIT finalised a £130m interest-only debt facility with Scottish Widows. The facility was secured on a 15-year term with a fixed all-in rate of 2.53% per annum. The margin charged on the facility is five basis points lower than that of the company’s existing £120m facility, also with Scottish Widows.

Impact Healthcare REIT entered into an agreement to issue £75m of senior secured notes, comprising two tranches with a weighted average coupon of 2.967%, and a weighted average maturity of 14 years. The notes were provided by two large insurance companies and represent the group’s debut transaction in the institutional debt market.

Major news stories

Secure Income REIT paid £33.45m in cash to Merlin Entertainments in exchange for Merlin extending the lease terms at Alton Towers, Thorpe Park, Warwick Castle and Heide Park, Germany by 35 years. The weighted average unexpired lease term (WAULT) across the portfolio increases from 19.2 years to 30.0 years, the longest amongst the UK REIT sector.

  • SEGRO buys Slough offices for £425m

SEGRO bought a portfolio of offices on the Bath Road, Slough, for £425m, reflecting a net initial yield of 4.6%. The portfolio represents 89,000 sqm of built space spread across 39 acres of land, which SEGRO plans to redevelop into data centres, life science assets and industrial space.

  • ASLI secures €227m Madrid logistics portfolio

Abrdn European Logistics Income acquired a portfolio of ‘last mile’ urban logistics assets in Madrid for €227m, fully deploying the proceeds of its recent equity raise. The portfolio comprises seven newly constructed logistics warehouses and one under construction logistics warehouse. It is let to five tenants, including Amazon.

Hibernia REIT pre-let 288,500 sq ft of its office development at Harcourt Square, in Dublin to KPMG Ireland on a 20-year lease from practical completion of the development (scheduled for 2026). KPMG will pay €17.0m a year in rent.

Life Science REIT deployed £177.65m of proceeds from its £350m IPO in November across four deals. The largest of which was the £77m acquisition of Rolling Stock Yard, a nine-storey office and laboratory building near London’s St Pancras station.

LondonMetric acquired Savills IM UK Income and Growth Fund in a corporate transaction for £122.2m, reflecting a blended yield on cost of 4.3%. The fund owns a portfolio of 15 assets across 482,000 sq ft with 75% in urban logistics and the remainder comprising long income assets.

UK Commercial Property REIT acquired Precision Park in Leamington Spa, Warwick, which includes a government-let ‘Megalabs’ aimed at increasing the UK’s daily testing capacity for COVID-19, for £94m.

Supermarket Income REIT bought a Tesco supermarket in Sheffield, Yorkshire, for £73.2m, representing a net initial yield of 4.5%. The store serves as a hub for omnichannel fulfilment in the region and was acquired with an unexpired lease term of 17 years, with annual, upwards only, RPI-linked rent reviews.

  • Helical secures £160m City office refurb opportunity

Helical exchanged contracts to acquire an office refurbishment opportunity at 100 New Bridge Street, London EC4, for £160m. The 167,026 sq ft office building, which is held on a 999-year long leasehold at a peppercorn from National Rail Infrastructure Limited, was completed in 1992 and is let to international lawyers Baker McKenzie until December 2023.

Hammerson continued its non-core asset sell off with the disposal of six properties for £92m, the largest of which was the sale of its 50% stake in Silverburn shopping centre in Glasgow for £70m. The group said the sales were in line with its strategy of reducing debt, simplifying the portfolio and generating capital for redeployment.

Managers’ views

A collation of recent insights on real estate sectors taken from the comments made by chairmen and investment managers of real estate companies – have a read and make your own minds up. Please remember that nothing in this note is designed to encourage you to buy or sell any of the companies mentioned.

Retail

Ediston Property Investment Company

William Hill, chairman:

There are compelling investment reasons for the retail warehouse sector to recover further and provide ongoing value opportunities. It has proved to have been the most resilient retail sub-sector during the COVID-19 pandemic, with favourable rent collection figures and an active tenant market.

Following the sell down across all retail markets, the investment manager considers the retail warehouse sub-sector to have been oversold, and there is now increasing recognition in the market that is the case. Yields look attractive when compared to other property sub-sectors, often with income secured on high quality tenants. The anticipated recovery in consumer spending will likely favour many of the retailers that trade from retail warehouses. The format also works well alongside on-line retailing, supporting retailers’ omnichannel strategies.

Industrial

Industrials REIT

Paul Arenson, chief executive:

The multi-let industrial asset class, together with the ever-diversifying customer base that occupies our space, has continued to demonstrate resilience, performing well against the sustained backdrop of COVID-19 and into the recovery. Moreover, Industrials REIT has seen increasing tenant demand, high levels of occupancy and consistently strong like-for-like rental growth at year-on-year levels of circa 5%. Rental values continue to improve in the sector and the incentives agreed on leases remain low, driven by strong supply/demand fundamentals and the quality of our product.

As an operating business, we see considerable value in our platform and believe that our ability to manage multi-let industrial assets is best in class. The increasing benefits of our Industrials Hive platform with regards to digital marketing and a fast and effective leasing process are particularly noteworthy. Over time, we see our Industrials Hive platform as the key to creating further efficiencies as we continue to digitise and scale our business.

Notwithstanding the setback in the global fight against COVID-19 with the appearance of Omicron, we remain confident that our multi-let industrial portfolio will prove to be resilient and will continue to deliver strong fundamental performance in the second half of the year.

Residential

Civitas Social Housing

Civitas Investment Management, investment advisor:

The National Housing Federation estimated in September 2020 that there were 8m people in some form of housing need, 1.6m households on official waiting lists and at least 129,000 children living in temporary accommodation. Given the level of supply of new social homes was, in 2020, only 6,338 (social homes at 50% of market rent) this demand will never be met. In addition, supply is further constrained by the demands placed upon existing large housing providers in meeting the costs generated by fire safety measures post Grenfell, remediation of cladding, the cost of reducing carbon emissions and additional consumer regulation proposed in the recent White Paper on social housing “The Charter for Social Housing Residents”. This all points to the continued very high demand for private and institutional capital to contribute to meeting the exceptionally high demand for high-quality specialist social housing.

Healthcare being provided as close to the community as possible and in homes or small residential settings is clearly demonstrated to be the focus of government and has considerable cross-party support. The private sector, both in terms of service delivery and investment, has a pivotal and essential role to play in this regard. Civitas is at the forefront of bringing the skills and experience required to work across sectors to further develop its high-quality portfolio and be influential in helping the sector to mature.

Residential Secure Income

Rob Whiteman, chairman:

The UK’s structural housing shortfall continues and most of the population lives in areas where home purchase is unaffordable. These twin factors drive the fundamental need for new, long-term investment into this sector. The government continues to support Homes England’s Affordable Homes Programme, with total funding of £12.2bn for new affordable housing over five years. However, housing associations, the traditional investors, need to invest huge sums into their existing stock to ensure safety and energy efficiency, which reduces their ability to provide new affordable homes. We remain excited by the opportunity to help housing associations recycle their capital with developers to deliver new affordable homes, helping to meet the critical shortage of affordable homes for independent retirement living and home ownership and in turn delivering inflation-linked income to our investors.

Europe

Tritax EuroBox

Robert Orr, chairman:

The [European logistics] occupational market is increasingly favourable and we expect the trends of strong occupier demand, driven by e-commerce and the reinforcement of fragile supply chains, to continue in the long term. When considered alongside limited new supply of logistics space, we expect consistent, sustained rental growth in prime logistics markets. We are confident of being able to extract further value from the existing portfolio through, amongst other initiatives, capturing this rental growth through asset management and development activities.

Schroder European REIT

Sir Julian Berney, chairman:

Confidence within the Eurozone has improved and expectations are for economies to move back to their pre-COVID GDP levels during 2022. Near term, markets are dealing with increasing energy costs and supply constraints, particularly regarding materials and labour, which are collectively heightening inflationary concerns. As a result, there is a risk that the European Central Bank will move to control inflation via an increase in interest rates, albeit we see this risk as modest. Despite this, both the board and the investment manager are confident in the outlook of the company, given the strong cash position, diversification characteristics, exposure to higher growth cities and local management expertise. Whilst we remain committed to scaling the company and are acutely aware of the benefits that this will bring, patience will remain in our critique of new investments to improve income cover and diversification. The company continues to be a unique and compelling proposition for investors and is well placed to benefit from the trends that have accelerated as a result of the pandemic. These include changes in occupier demand, delivering operational excellence and ensuring that sustainability priorities are instilled within the company’s investment process.

Real estate research

Urban Logistics REIT – In the sweet spot

Grit Real Estate Income Group – Showing some grit

Civitas Social Housing – Short shrift to short seller

Lar Espana Real Estate – Ducks in a row

Legal

This note was prepared by Marten & Co (which is authorised and regulated by the Financial Conduct Authority). This note is for information purposes only and is not intended to encourage the reader to deal in the security or securities mentioned within it. Marten & Co is not authorised to give advice to retail clients. The note does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. This note has been compiled from publicly available information. This note is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of this note is prohibited.

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220107 December property roundup

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