The UK commercial property market is in the midst of a 25-35% correction, which we
predict will be followed by an extended period of sub-inflation rental growth. Our cashflow
analysis exposes UK REITs’ weak return on capital, economically value-dilutive
development programmes and structural erosion in rental pricing power.
We believe that the sector bounce in the year to date has exacerbated significant
downside opportunities, which we appraise with our new discounted cash-flow
valuations. The weak cash returns are reflected in an average 12% 2008e dividend yield
discount to the FTSE All-Share Index.
We now rate all the stocks in our coverage universe Underweight. We downgrade Land
Securities (target price: 1,565p, from 1,850p), Brixton (target price: 275p, from 425p) and
SEGRO (target price: 450p, from 580p) from Overweight, and Hammerson (target price:
765p, from 1,230p) and British Land (target price: 945p, from 1,160p) from Neutral. We
reiterate our Underweight on Liberty International (target price: 750p, from 960p).

目录

Significant downside on DCF
valuations 7
REITs struggle to earn their
cost of capital 21
NAV crunch under way 29
Appendices 39
Disclosure appendix 68
Disclaimer 71