PIGS listed real estate ‘punished by investors’

The sovereign debt crisis in Europe is taking a huge toll on the share prices of real estate companies in Portugal, Italy, Greece and Spain, or companies with a big exposure to those countries, the annual European Public Real Estate (EPRA) conference heard this morning.

Speaking at the event in London, Dick Boer, an executive director of real estate corporate finance at Kempen & Co bank, said: “Over the last few months we have seen an astonishing decoupling between the valuations of those real estate firms who are exposed to the full brunt of the sovereign debt crisis, and so also fear the Eurozone may disintegrate, and those who are largely sheltered from the store.”

Kempen examined the performance of Europe’s major listed real estate companies either located in four of the “peripheral countries” at the centre of the sovereign debt crisis (the PIGS), or with at least 20 percent of the value of their property holdings in those markets. It then compared share prices with those real estate companies with limited exposure to the PIGS in the Eurozone like the UK, Sweden and Switzerland.

The average discount to net asset value for companies located in PIGS was 48 percent and for those with a sizable exposure to these markets, 22 percent. In contrast, discounts to net asset value for European firms outside this group were roughly half or a quarter in comparison.

Boer said liquid real estate equities may be indicating future price moves in the far less liquid underlying physical property markets months beforehand. “Investors appear to be selling down those stocks with the greatest exposure to a ‘worst-case scenario’ in the crisis, such as peripheral countries, crashing out of the Eurozone. This might mean, for example, Spanish shopping centres and debt attached to them, being valued in steeply discounted euros relative to comparable real estate assets priced in a new currency bloc centred around Germany.”

Boer concluded: “If the apocalyptic scenario now being priced into European real estate stocks…proves too pessimistic, then the current situation could also represent a great investment opportunity as these companies bounce back.”