Occupier downturn set to trigger rent
falls, further weakness in property
prices and to stifle profit, cash and
dividend growth
 Structural shift in the balance of power
to the tenant undermines long-term
investment case
 Underweight sector stance reinforced.
We are projecting over 30% downside
returns for Underweight-rated Liberty
Intl on a TP reduced to 680p from 750p,
and Hammerson on a TP reduced to
700p from 765p. We upgrade Land
Securities to Neutral from Underweight
on a TP reduced to 1500p from 1565p
Income returns rooted below the
cost of capital
We expect the economic downturn to selectively herald a
fall in rents as weaker occupational demand combines with
development oversupply in most subsectors. In this
environment, we expect REITs will struggle to let
developments and raise cash returns that are currently
significantly below the cost of capital.
The average dividend yield of the REITs we cover, at 3.9%,
is a 5% discount to the FTSE 350 index and, in our opinion,
is too low for a cyclical sector in a downturn.
Significant downside opportunities
We believe the sector’s outperformance in the year to date
overestimates the resilience of rental income and is
discounting takeovers that we expect to be elusive in an
uncertain economic environment in which debt finance
appetite is thin.
We reiterate our Underweight ratings on all of our UK
coverage, except for Land Securities, which we upgrade to
Neutral from Underweight. We reduce our target prices on
Liberty Intl to 680p from 750p, Hammerson to 700p from
765p, British Land to 800p from 945p, SEGRO to 425p from
450p, Brixton to 255p from 275p and Land Securities to
1500p from 1565p.

目录

Occupier downturn to push
REIT valuation line backwards 5
Rental income foundations
face subsidence 18
NAV crunch has refuelled 27
Disclosure appendix 40
Disclaimer 43