Liberum sees 'selective value' in UK REITs, upgrades Hammerson

Analysts at Liberum sounded a bullish note on the outlook for the the UK Real Estate Investment Trust space, telling clients that share prices now reflected the expected declines in direct property values.

Indeed, they expected those declines to slow "markedly" in the first three months of 2023 as yields stabilised, so that the sector now offered "selective value".

Its 'top picks' in the sector were Segro, New River REIT, Derwent London, CLS Holdings, and Hammerson.

Furthermore, in the case of Hammerson the analysts upgraded their recommendation from 'hold' to 'buy'.

Supermarket Income REIT on the other hand they downgraded from 'hold' to 'sell'.

Liberum also expressed a preference for REITs in the sector that offered strong and growing cash flows, lower loan-to-value ratios with balance sheets able to support "opportunistic" acquisitions and with a high ratio of fixed interest repayments.

The broker noted that the declines in the MSCI IPD all-property capital values over the back half of 2022 had been greater than anticipated across all segments.

Almost two years of forecast declines had occurred in a stretch of six months.

"With peak interest rates in sight in 1H23, we believe current pricing offers an attractive entry point for REITs and an opportunity to re-enter quality segments at rebased levels."