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Property: bargain hunters eye European opportunities

by Alex Plough on Mar 29, 2012 at 10:46

Property: bargain hunters eye European opportunities

The growing value in European property was underlined after the biggest US real estate investment trust (Reit), Simon Property Group, completed its acquisition of a 28.7% stake in Klépierre, a French property company, for an estimated $2 billion (£1.2 billion).

Simon Property paid a 20% premium for the equity from the French bank BNP Paribas, which owned around a quarter of the Paris-based Reit.

The deal highlights a number of reasons why listed European property companies have become an increasingly attractive proposal for the world’s biggest investors.

‘It is interesting that the most respected property company in the world has identified value in European Reits. Even though Simon Property bought it at a premium, it still paid a 10% discount for the underlying asset values,’ said Alex Ross, fund manager at Premier Funds.

‘Today, there is no better opportunity to pick up quoted European real estate stocks because they are trading at discounts to underlying value of 10% to 30%. You are not just buying assets at a good discount, you are buying the best assets.’

Profits for bargain hunters

Ross’s Premier Pan European Property Share fund has returned 60.52% over a three-year period compared with the FTSE AW Europe (Dev)/Real Estate Invest & Svcs index’s -9.57% over the same period.

He says in terms of value on the Continent, the discounts are even wider in southern Europe and at the smaller end of the market.

In December 2011 and January this year, Ross bought the Italian property company Beni Stabili at a 70% discount to net asset value (NAV).

‘It only owns prime assets in the north of Italy and is a highly reliable income stream. Even though the price has gone up significantly since we bought it, the shares are still trading at a 57% discount,’ he said.

Good quality Reits with prime assets were caught up badly in the market sell-off in the second half of last year, when the eurozone debt crisis triggered many overseas investors to pull their money out of the troubled region.

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