Seizing Opportunities in Securitized Real Estate Investments

In this article, Alain Freymond, our Group Chairman, and Ahmad Saidali, our Group CEO, offer their valuable insights into the significant discounts observed in securitized real estate when compared to their intrinsic values.

High discounts compared to intrinsic values

The decline in listed real estate values has now reached levels that, in our view, largely reflect the risks associated with a possible increase in debt refinancing difficulties for many real estate companies. For a large number of them, current price levels do not reflect their true financial situation. Securitized real estate in Europe is still experiencing the effects of inflation, the restrictive monetary policy of the ECB, and the tensions induced by interest rates for nearly twenty-four months.

The risks of financial system instability caused by the bankruptcy of SVB had once again created damaging uncertainty in the valuation of securitized real estate investments, considering the possible effects of a potential tightening of credit access conditions for real estate companies. In this context, the EPRA Nareit Eurozone index struggled to stabilize after a 28% decline between February and March and was near its lowest level just a few days ago, down 53% since August 2021.

The collapse of European listed real estate prices seems clearly excessive to us, even in the context of continued rising interest rates and more difficult credit access. At current levels, the EPRA Nareit Eurozone index indeed presents an average yield of 5.23%, 6.69% for 2023, and 7.02% for 2024. Its total debt/total asset ratio is 42.8%, and its price/net asset ratio is 0.54. Some European values are already trading at less than 50% of their book value, taking into account these risks, even though their financing and rental income are not genuinely threatened. Therefore, we believe that the European real estate market offers rare investment opportunities.