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UK quoted property worth a look: analyst

Investors may benefit by tapping opportunities in the sector

(LONDON) Investors can benefit from a wealth of opportunities in the UK quoted property sector, currently battling the toughest market conditions seen in more than five years, one of Britain’s fastest-growing fund management firms said.

Alex Ross, manager of Premier Asset Management’s £100 million (S$305 million) Pan-European Property Share Fund, told Reuters, ‘We have seen examples of indiscriminate selling of property stocks recently, regardless of the quality of the company, management team or portfolio.

‘There are concerns that the rapid increase in the five-year swap rate could lead to a correction in capital values of the underlying assets but we think any likely depreciation in prime property is now fully priced into several property shares.’

Premier Asset Management floated on London’s junior stock exchange AIM in 1997. It had more than £1.77 billion worth of assets under management at end-March 2007, according to the company website.

Its European property share fund fell by more than 12 per cent in the year to July 27, but still outperformed the FTSE EPRA/NAREIT European property stock index by 7.39 per cent over the seven-month period, Premier said.

Five-year sterling interest rate swap rates – a property industry benchmark for borrowing costs – have climbed by almost one percentage point to more than 6 per cent since the start of the year. This has increased the gap between the cost of debt and the rental income generated by UK property markets.

Mr Ross told Reuters his fund was in the process of reversing an anti-UK strategy in order to gain exposure to some of Britain’s most valuable pieces of real estate, owned by quoted companies trading at large double-digit discounts to net asset value.

The fund had originally reduced the majority of its holding in UK property stocks in late 2006 and early 2007, after the market performed strongly in the run up to UK’s introduction of real estate investment trusts (Reits) on Jan 1.

Most of UK’s leading quoted property companies have since converted into tax-transparent Reit vehicles.

Mr Ross said he felt shares in several UK property companies holding prime assets had fallen too far in the wake of recent credit market volatility.

‘We have used the market weakness to add to positions in companies like Land Securities and Brixton, each of which are characterised by prime assets likely to be more resilient to weakness in the underlying market,’ Mr Ross said.

He said the fund was now more than 30 per cent invested in UK property stocks specialising in prime retail, office and distribution warehouse property, with plans to further increase weightings if the sell-off in stocks continued.

Outside the UK, Mr Ross said the fund would gravitate strongly towards smaller quoted property companies in less mature markets like Germany, Scandinavia and Italy, which often had well-connected local management teams and tended to own undervalued prime assets.

Investments in continental property companies using index-linked lease structures also provided a good hedge against the spectre of inflation, he said.

 

Source: Business Times 16 Aug 07

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