Two small quoted property companies in the UK have unveiled plans to sell off assets and return capital to shareholders, in response to widespread investor disenchantment with the sector.
Wates City of London, the office specialist, said it had agreed to sell four investment properties to Prudential for at least £248m sterling, a discount of roughly 2 per cent of their valuation at the end of December.
The company declined to say how much of that would be repaid to shareholders, or when and how, but analysts expected that at least £100m would be paid out in cash.
Separately, Bourne End, the shopping-centre specialist, announced it would liquidate its entire portfolio and distribute proceeds to shareholders, totalling an estimated 73p per share in cash.
Its last net asset value was 85.5p per share, while its shares, before yesterday's announcement, were 57.5p, a 33 per cent discount. "Small public property companies like us are off the radar screen for investors," said David Roberts, chief executive of Bourne End.
Quoted property companies have been trading at significant discounts to their net asset values for the past year, with gaps sometimes as wide as 50 per cent, despite very healthy underlying property markets where direct investors in property are realising double-digit returns.
Even corporate announcements of strong results or significant acquisitions have been shrugged off by investors, who in prior cycles would have viewed that sort of news as a signal to buy.
John Nettleton, finance director at Wates, said the company had made the move in order to improve returns to shareholders.
"First, it's almost absurd to have assets (shares) trading at a discount of 38 per cent when you can give them back to shareholders at a discount of 2 per cent," he said.
Wates has been the subject of bid rumours for more than a year, and has been the target of renewed speculation in recent weeks. But Mr Nettleton said the move had been contemplated for nearly two years and was unrelated to bid rumours.
Most shares in the sector have traded at a discount for the most part since August 1998 and, although they improved in early 1999 when it became evident that property markets were strengthening, have never regained their premier status.
Shareholders cannot but cheer the new-found realism in the quoted property sector, most recently illustrated by Bourne End's liquidation and Wates's cash distribution. Bourne End's recent announcements that it has cleaned out its portfolio and cleaned up its balance sheet ought to have produced an improvement in its share price.
Investors have been shrugging in response to similar corporate announcements for so long now that it is difficult to classify the poor share performance as cyclical.
Until quoted property companies have a story that equity investors want to hear - such as the ability to deliver equity-like rates of total return - they should, like Bourne End and Wates, return the capital to those who can invest it better.
