On the day real estate firm Hammerson PLC (LON:HMSO) launched a bid for shopping centres owner Intu Properties PLC (LON:INTU), Credit Suisse has proffered a note on the London Office REITs, downgrading its rating for blue chip Land Securities PLC (LON:LAND) but upgrading two mid-cap peers.
In a note to clients, the Swiss bank’s analysts said: “London office focused REITs have been out of favour with investors for almost two years as fears over the late stage of the property cycle and the impact of Brexit have sustained material NAV discounts.”
They added: “Robust demand from occupiers and investors have proven REIT values and confounded the sceptics so far which has also deprived the REITs of value opportunities.
“CBRE forecasts a mild correction in rents over the next two years of only c.5% before a return to growth, although a hard Brexit remains a potentially negative risk.”
The Credit Suisse analysts said they prefer the specialists to the diversified REITs at similar discounts to asset values of around 20%, hence the downgrade for Land Securities to ‘neutral’ from ‘outperform’, while Derwent London PLC (LON:DLN) and Great Portland Estates PLC (LON:GPOR) both upgrades to ‘outperform’ from ‘neutral’
The analyst pointed out: “The markets in which Derwent and Great Portland operate continue to offer robust occupier and investment markets with more constrained new supply than financial districts and balance sheets are well positioned to selectively acquire assets should more attractively priced opportunities arise.”
All property shares find gains
In mid-morning trading, Derwent London shares were up 1.7%, or 48p to 2,828p, with Credit Suisse upping its target price to 3,410p from 2,800p, while Great Portland shares were 2%, or 12.5p higher at 634.5p, with its target hiked to 740p from 630p.
Land Securities’ shares were still higher, however, despite the rating downgrade and cut in target price to 1,035p from 1,141p, adding nearly 1%, or 9p at 945.5p, buoyed by the property sector consolidation move.
Fellow blue chip office REIT British Land Company PLC was also higher, up 1.7%, or 11p to 649p as Credit Suisse raised its target price to 710p from 630 while retaining a ‘neutral’ stance on the stock.