263: Bid talk, rate hopes underpin European REITs
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LONDON, Jan 24 (Reuters) - Takeover speculation was not the only trigger for the surge in European property stocks and real estate investment trusts (REITs) this week but it will keep gripping the sector in 2007.
Britain's listed property sector, Europe's biggest, has underperformed its peers on the continent since the Bank of England surprised markets this month with an interest rate hike. But it rose sharply on Wednesday after soothing overnight comments from the UK's central bank governor, analysts said.
"M&A was an additional driver but not the specific trigger for today," said Harm Meijer, a property stock analyst at JP Morgan, who spoke of an "absolute disconnection" in recent weeks between UK property stocks and REITs and their more expensive peers in continental Europe.
The FTSE NAREIT/EPRA index of Pan-European property shares <.FTUPRA> has risen three percent since Friday as investors took the view that UK rates may not rise much further.
"UK property stocks are just better value. They had been hammered, especially by the surprise rate hike, and now you're seeing them bounce back," he said.
Takeover speculation was nonetheless also part of the story and swept up the shares of shopping mall specialist Liberty International (LII.L: Quote, Profile , Research).
Although Liberty, owners of London's Covent Garden, later said it was unaware of any bid interest, the flurry of bets placed on the stock was the latest sign that equity investors were itching to ride an expected wave of consolidation among European property companies.
"People are trying to see if they can make bids work and I think there will be a reasonable amount of bid activity this year," Edmund Craston, European head of real estate investment banking at Lehman Brothers, said.
"But that's not to say that any specific story or piece of bid speculation you might hear about will necessarily come to anything," he said.
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On Monday, Dutch retail property managers Rodamco Europe (RDMB.AS: Quote, Profile , Research), Corio (COR.AS: Quote, Profile , Research), VastNed Retail (VASN.AS: Quote, Profile , Research) and Eurocommercial Properties (SIPFc.AS: Quote, Profile , Research) all saw their shares surge on the back of takeover talk.
There is also some expectation that local REIT laws could be tweaked to allow more development, which would make the Dutch companies more attractive to predators.
Over the full course of the year, Meijer said he expected "one of the Dutch companies to be taken out."
REITs, broadly, are property-managing firms which pay little or no tax as long as most of their earnings are paid to shareholders as dividends.
They trade like shares and exist in France, the Netherlands, and -- since the start of 2007 -- in the UK. They are expected to be introduced in Germany and Italy later this year.
On paper, property firms that convert to REITs will have greater firepower to turn predator on non-REITs using equity finance because their shares will be more highly valued.
But REITs could also become attractive prey if they underperformed, due to strong global demand for property and because they had low debt levels, which made them easier targets for debt-financed investors, including private equity groups.
Even the biggest property firms were no longer considered out of bounds given the current $20 million-plus takeover battle for Equity Office Properties (EOP.N: Quote, Profile , Research).
Land Securities (LAND.L: Quote, Profile , Research) and British Land (BLND.L: Quote, Profile , Research) were the obvious candidates, Meijer said.
Traders said investors had been encouraged to look for potential new targets after news late on Friday that Spain's Inmocaral (MOC.MC: Quote, Profile , Research) had agreed to buy shopping centre developer Riofisa (RFS.MC: Quote, Profile , Research).
Meanwhile in France there was a report in French newspaper Le Monde on Tuesday that said local property firms Credit Foncier and Nexity (NXI.PA: Quote, Profile , Research) could merge.
Source:
Reuters.co.uk