Disruption spurs strategy shift for listed real estate
Recent deals show how key players in real estate investment are reshaping their portfolios
Listed real estate companies have been shifting their strategies in response to disruption from the global pandemic.
Recent strategies from real estate investment trusts (REITs) globally have included selling assets, issuing bonds, and forming joint ventures with new partners.
“Bringing in capital can mean many things right now,” says Matthew Richards, EMEA Capital Markets chief executive at JLL. “We’ve seen some REITs divest certain assets, others turn to their investors via bonds, or seek out willing and highly capable allies who can partner up for the long term.”
The rethink comes following the effect of lockdowns on the sectors they invest in, from rising office vacancies to shuttered shopping centers, as well as share price turbulence. The FTSE EPRA/Nareit Global Real Estate Index Series has lost 22 percent in U.S. dollar terms since January 2020. However, news of a vaccine breakthrough in November triggered stock market rallies, and share prices in U.S. REITs with a focus on the multifamily and industrial sectors rose. By then, many REITs had already embarked on a range of new strategies.
In the UK, a recent £401 million (US$545 million) deal saw UK REIT British Land sell majority stakes in three London office assets to Allianz Real Estate. The Munich-based investment manager took a 75 percent interest in the properties. The sale took British Land’s total asset disposal in the financial year 2020-21 to £1.1 billion.
British Land’s peer, Landsec, also sold London office property, with private Singapore-based Sun Venture paying £552 million for 1 & 2 New Ludgate in late 2020. LandSec said proceeds will be used to pay down debt before being reinvested in growth opportunities over time, having just invested £87 million in a London city office property.
“You can see how listed companies’ credentials – from high transparency to solid management – help draw and attract a broader base of investors to the real estate sector,” says Richards.
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With many REITs holding property in major global cities, their appeal remains strong, says John Woodger, central London capital markets director at JLL.
“Best-in-class assets remain attractive to international investors taking a long-term view, despite headwinds during 2020,” he says.
The popularity of REITs as a vehicle to make inroads into global real estate has not waned amid COVID-19. South Korea’s Public Officials Benefit Association has just unveiled a plan to commit US$100 million indirectly to foreign real estate investment trusts in developed countries. The institutional investor is focusing on listed REITs in the U.S., Japan, the UK and other European nations.
“The flight to quality we have seen in the direct real estate market applies just as much to the allocations made to strong, stable REITs, which are often moderately-leveraged,” says Richards.
Unibail-Rodamco Westfield priced €2 billion of senior bond offerings in two tranches. The issuance was more than three times oversubscribed, attracting over €6.5 billion of demand.
In India, Blackstone’s Embassy Office Parks REIT, the country’s first listed REIT, recently raised Rs 750 crore through non-convertible debentures to grow its on-campus development projects and fund acquisitions.
Also in Asia, OUE Commercial REIT is selling a 50 percent stake in its OUE Bayfront asset to an Allianz Real Estate and National Pension Service of Korea joint venture. At the same time, Singapore REITs focused on the industrial sector have been tipped for growth through new acquisitions in 2021, according to research by the DBS Group. REITs with a focus on industrial property have lost less than their peers in other sectors; in Europe, stocks in listed industrial property companies rose by around 5.7 percent in 2021.
“There’s a natural correlation with the bigger real estate picture, which explains the favorable performance in 2020 of logistics and residential,” says Richards. “As we move through 2021, I would expect other sectors to recover.”
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