Prologis, the San Francisco-based industrial real estate giant, has won its battle for control of Segro, Britain's largest listed property company, agreeing to pay £14.3 billion for the business founded in 1920. The offer represents a 42 per cent premium to Segro's closing share price on June 23, the day before Prologis emerged as a suitor.
Segro, known under its former name Slough Estates as the setting for the comedy drama The Office, owns commercial property including logistics sheds, offices, GPs' surgeries, shops and warehouses. Some observers believe Prologis is still paying too little, while others say the American bidder's pursuit shows how attractive Reits (real estate investment trusts) have become to such investors.
US private equity firm Blackstone acquired Warehouse Reit last year and may be interested in more such deals.
Matthew Norris, manager of the Gravis UK Listed Property fund, described Segro as a "fantastic business" whose merits have been overlooked by UK pension funds and other institutional investors.
"The stock market is pricing Reits as if they're broken. They aren't. These companies own high-quality, income-producing assets, yet many still trade at deep discounts to what they're worth," Norris said. "If British investors don't wake up to this soon, there's evidence that overseas buyers like Blackstone and Prologis will continue to do it for them."
Why Reits quietly started to rock
The US appetite for Reits is based on the view that there are bargains to be had in an undervalued sector. The share prices of most Reits stand at a discount of 20 per cent or more to their net asset values, due to economic and political uncertainty, higher interest rate fears and gloom over the prospects for some high street retail units and shabby office space.
Conditions have been suppressed since 2022, according to Laura Elkin, manager of the AEW Reit, who believes the tide could be turning. Derwent, a £2.34 billion Reit, is currently trading at a discount of about 40 per cent, reflecting the less desirable nature of some of its offices, even though the trust also owns luxury workplaces sought by Silicon Valley AI companies setting up London headquarters.
US bank Goldman Sachs, which became an enthusiast for the Reit sector this summer, rates Derwent shares a "buy," with a target price of 2370p against Thursday's price of 2054p.
Even the £4.6 billion Tritax Big Box trades at a 14 per cent discount, despite winning approval last week to build a 74-acre data centre complex at Manor Park, near Heathrow. On Thursday, Tritax Big Box announced it was raising £350 million for further data centre investment, prompting Andrew Saunders, equity research analyst at Shore Capital, to restate his view that Tritax is "one of the most appealing Reits." Britain has a third of the data centre capacity per person of the United States.
Reits and retail therapy
A renewed desire to shop is proving good news for smaller Reits such as the £162 million AEW and the £354 million NewRiver. Elkin invests for income and growth in what she calls the "future-proofed" parts of high streets, sections where shoppers can browse and get a coffee, as well as on retail warehousing sites at the edges of towns that combine stores such as Marks & Spencer, DIY chains, cafes and even dentists.
Saunders points to NewRiver's The Moor retail park in Sheffield, where tenants include HSBC, Five Guys, Next, Sainsbury's and Primark. Estate agencies Knight Frank and Savills both report negligible retail park vacancy rates.
That pattern holds at Land Securities, a £5.3 billion Reit that also owns the Bluewater and Liverpool One shopping centres. Land Securities yields 5.8 per cent and is another Goldman Sachs "buy." The bank is also positive on British Land, which yields 5.5 per cent, prized for offices including the refurbished Broadgate in the City and Regent's Place in the Knowledge Quarter around King's Cross, a complex that has attracted the AI company Anthropic.
LondonMetric, a £4.6 billion Reit yielding 6.6 per cent, specialises in "last-mile" warehouse sheds that speed package delivery to online shoppers. Goldman Sachs takes a neutral stance on LondonMetric, but other analysts rate the shares a "buy" at 198p, citing its cost focus.
Can Reits keep rising?
More bids are rumoured across the sector. Investors seeking exposure to that activity can look at Gravis UK Listed Property and TR Property, which hold shares in both possible targets and predators.
The discounts have also drawn the attention of Saba, the New York hedge fund led by Boaz Weinstein, which has taken a holding in Workspace Reit. Weinstein is using his position to push for reforms that are unlikely to benefit the Reit or its investors, a playbook he has used at other trusts.
Saba's intervention has been described as dispiriting. But should ordinary investors reassess the merits of Reits, Saba's brand of activism could become prohibitively expensive.
