As consolidation continues in the real estate sector, Peel Hunt analysts weigh up whether transactions are a good or bad deal for investors.
In a note, Matthew Sapeira and James Carswell of Peel Hunt, said while they are strong advocates of consolidation in the sector, with deals being done with big discounts there are questions over whether they are in the best interests of both sets of shareholders.
They added: “Another important factor to consider is overall investment appetite for the asset class, which has been muted for the past 18 months.
“While we expect liquidity to improve, particularly as the anticipated loosening of monetary policy plays out, there is no guarantee that we will go back to the heady days of 2022 any time soon.”
However, taking an optimistic view, the analysts contemplated what a resurgence in deal making in the market coupled with the Bank of England starting to cut rates could mean.
“In this situation, a rush to ‘buy at the bottom’ could mean discounted Reits find themselves in the crosshairs of private capital once again,” they said.
Peel Hunt estimated there are currently 48 real estate companies in either the FTSE All-Share index or Aim All-Share index, with a combined market capitalisation of more than £57bn.
A merger between LondonMetric Property and LXi Reit this year created the fourth largest Reit.
This could soon be joined by the merger of Tritax Big Box Reit and UK Commercial Property Reit which would create a similar sized £4.4bn Reit.
The terms of this merger were agreed last month and would see each Commercial Property shareholder entitled to 0.444 new Tritax Big Box shares for each share they already have.
tara.o'connor@ft.com
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