The retail squeeze is starting to show on property values, said Credit Suisse as it reappraised real estate investment trusts Hammerson, British Land and Shaftesbury.
Hammerson and British Land were downgraded by the Swiss bank to 'underperform' from 'neutral' ratings, while Shaftesbury's focus on London's West End saw it upgraded with the reverse rating change and its price target lifted to 1,015p from 860p.
Hammerson's share price target was cuts to 540p from 545p and British Land's to 695p from 710p.
Recent results were generally robust, with activity rewarded by modest upticks in net asset values, Credit Suisse analysts believe recent numbers from Land Securities boded ill for the wider sector.
"The write down in value of several shopping centres by LandSec was a partial admission of the weak occupier and investment demand in that sector and we would think it illogical if UK shopping centre yields did not expand more widely given that Bluewater (which was revalued down by 11%) was widely used to mark values up after Landsec's acquisition of a 30% stake in 2014".
The analysts said the outlook for London "appears to be for a flat-to-soft market with downside risk" and while the persistently wide NAV discounts have increased pressure on management teams to explore M&A, with low leverage presenting an opportunity for private capital to take advantage, they said "our assessment of potential M&A amongst our coverage, we see Intu as most likely to be a target given its wide NAV discount and apparent willingness of major shareholders and management to sell".
Taking account of potential mark-downs in retail property values, a review of historical NAV premiums and potential M&A, Derwent London and Great Portland are rated 'outperform' with target prices of 3,510p and 830p, seen to offer potential returns over a one-year timeline of 15% or more.
British Land and Hammerson were seen offering potential returns 5% or lower, while Shaftesbury, Landsec and Intu are in the middle on 'neutral' ratings.