EUR 5bn recapitalisation is stabilising UK market: EPRA

The estimated £4.3 bn (EUR 5 bn) in new equity that has been pumped into the UK listed property sector via rights issues and share placings in the past ten months appears to be having a strong stabilising influence on the market, new Net Asset Value (NAV) research data from the European Public Real Estate Association (EPRA) indicates.

The average discount of share prices for companies in the FTSE EPRA/NAREIT UK Index to their NAVs, or value of underlying assets, was a record 46% at the market’s lowest point in March, but moved to a 4% premium - significantly above the 20-year average, as stock prices have soared, the latest data for August shows.

EPRA CEO Philip Charls told journalists at the association’s annual conference: “The success of UK property companies in raising capital to bolster their balance sheets in the face of falling asset values and extremely tight credit conditions is a tribute to the reputation of these firms in the eyes of investors. We now appear to be moving away from restructuring towards companies positioning themselves to take advantage of investment opportunities as the market recovers.'

Published NAV data for companies in the FTSE EPRA/NAREIT Europe Index has been distributed by EPRA to association members on a monthly basis since June 2009, but an historical data record is available from 1989. While UK property stocks have leaped over 90% over the last six months, since the market’s floor, continental European real estate securities prices and discounts to NAV have shown less extreme movements.

The average NAV discount of the FTSE EPRA/NAREIT Europe Ex UK Index was 20% at the end of August compared with 45% in March, and the index has risen about 70% since its March 09, 2009 bottom. Net Asset Value is an extremely important metric in the valuation of listed real estate securities and EPRA has created a common standard for expressing NAV, to allow the transparent comparison of companies in the sector.

This addresses gaps in the International Financial Reporting Standards (IFRS) fair value model for NAV. The EPRA triple net NAV (NNNAV) represents the fair value of equity. The metric includes fair value adjustments of all material balance sheet items, which are not reported at their fair value as part of the NAV per IFRS balance sheet statement. Deferred taxes are included at fair value.