‘The hope is gone’: Why Europe keeps losing property companies

[LONDON] Europe’s stock markets have lost property companies worth more than 81 billion euros (US$94 billion) since the end of 2020, as stubbornly weak share prices leave firms vulnerable to takeovers. 

In total, 61 landlords have left the public markets since the peak at the start of the decade, mostly through mergers with other listed peers, but also due to de-listings and take-private deals, data compiled by European Public Real Estate Association (EPRA) showed. In the UK alone, 49 landlords have left the market since 2017. 

Shares in European property companies have regularly traded below the value of their portfolios since the financial crisis, and the jump in their funding costs after the 2022 inflation shock has made the trend worse. 

That has led to firms being swallowed up by larger competitors – and even those at the uppermost reaches of the market are at risk.

Prologis’ ongoing deal to take over the UK’s largest real estate investment trust, Segro, in a £14 billion (US$18.9 billion) deal has demonstrated that even the biggest landlords are vulnerable to the advances of larger peers.

The pressure in Europe is good news for US landlords looking for bargains across the wider sector.

“The fact that we have a cost of capital advantage, the fact that we have scale, we can come in and be a solution provider, help consolidate the industry,” Sumit Roy, CEO and president of Realty Income, said in an interview on the sidelines of the EPRA conference. 

Still, some investors feel that management teams should be doing more to protect themselves from the advances of prospective buyers.

“If you haven’t got your ambition out there, if you become prey, if you are targeted in an M&A (mergers and acquisitions) situation, if the activist shareholder comes back into the register, you’re going to have to do it, so why not control the narrative yourself,” said Matthew Norris, head of real estate securities at Gravis. 

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The mood at the conference in the Principe di Savoia hotel in Milan was particularly gloomy this year. The ongoing conflict in the Middle East, combined with upcoming presidential elections in France and the slowdown in some of Europe’s biggest economies, dented confidence among attendees who had been hoping for a resurgence in the continent’s listed landlords. 

“Last year, people were hoping,” said Rogier Quirijns, senior portfolio manager and head of European real estate at Cohen & Steers. “The hope is gone.” 

For some investors, it felt like Groundhog Day following years of lacklustre share price performance among European landlords, with no end to the decline triggered by the Covid pandemic and then the abrupt end of ultra-low interest rates that followed Russia’s invasion of Ukraine.

With oil prices once again hitting US$100 in the days leading up to the conference, attendees were trying to find ways to move forward through the constant uncertainty. “The black swans are breeding and they’re now coming not in ones, (but) in whole flocks at once,” said Bronwen Maddox, director and CEO at Chatham House.

The flood of money into private credit has piled even more pressure on listed companies to justify their presence on the public markets. Investors can now seek returns across infrastructure, private markets and fixed income, without the volatility of stock prices.

Yet, there are a handful of real estate firms looking to buck the trend. Blackstone, the largest global owner of real estate, is weighing a public market exit for two of its portfolios, Hotel Investment Partners and Indurent.  

Appetite for listings could also get a boost from data centres, the hottest asset class in real estate, as technology firms race to build their processing capability around the world. 

“There are noises of four to five IPOs (initial public offerings) coming at some point this year, all of which, unsurprisingly, seem to be related to data centres,” said Tom Walker, co-head of global listed real assets at Schroders, though he added the majority of the activity “is likely to be in the US and Asia”.

It is a welcome sign for the shrinking public market, even if the geopolitical uncertainty makes it difficult for sellers to get their timing right. 

“I think it was very clear over the last few years that the IPO pipeline was completely dry,” said Dominique Moerenhout, CEO of EPRA, noting the recent market debut of a Swiss healthcare real estate company as a reason for optimism. “I think we can say today that we might see one or two similar good surprises before the end of the year.” BLOOMBERG