Two weekend press articles have made me think about the property sector. The first is centred on one of the worst deals in recent years: the bonkers purchase by the Aussie company Wesfarmers of the Homebase DIY chain, on which it burned a cool one billion Aussie dollars before it sold out for a nominal sum to private equity. You can guess the rest: a proposed company voluntary arrangement (CVA), some closure of stores (well 70% amazingly are currently loss-making) and for those that will continue to stay open up to a 90% asked for rent reduction from the landlords.
Unsurprisingly, I also read that the landlords are desperately unhappy about this...but given the relative dearth of alternative immediate users of such space, I think they are going to have to suck it up. Throw in the dodgy (for landlords) trends we all know about such as the rise of e-commerce and the ugly share price movement of Hammerson (HMSO), British Land (BLND) or Intu (INTU) have not bottomed yet. I still cannot believe that those numpties at Hammerson - as I talked about here - turned down a market busting bid a few months ago. Enjoy the rent downgrades, boys...
Meanwhile in the world of the housebuilders I draw similar negative/cautious conclusions for names in the space, as I talked about last in the context of Bovis Homes (BVS) and Crest Nicholson (CRST) here. Again the share charts look ugly. However the issue that tipped me even further over the edge was the comment in the self-styled 'World's Leading Financial Newspaper' that 'more than 32,000 households have used the UK government's flagship Help to Buy scheme to trade up for bigger properties rather than buying a first home'. Now that smacks of a completely mad property market, even worse than just knowing about the x6 to income multiple for the average house price sale in this country (and way higher in London, quelle surprise).
You can guess the next step, especially in a world where the Bank of England seems set more to edge up interest rates over time rather than keep them at ultra-cheap levels. The above link highlighted my prior observation about falling housebuilder margins. This is not an industry to be hoovering up shares in despite, in some cases, attractive looking headline dividends and PE ratios. In the investment world it is where you are going rather than where - statically - you have been. So ignore the urges and avoid the space.
Filed under: property sector, CSF Group, Conroy Gold, Bunzl, Accrol, David Scott, Andrews Gwynne
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