Morgan Stanley set a price target of 450p down from 540p as it cautioned that UK retail property values are “in free fall”.
The bank, meanwhile, retained an ‘overweight’ rating for British Land. It comes as Morgan Stanley lowered all price targets across the sector by 10-20% in anticipation of lower returns and lower property valuations.
British Land retains its long-term potential, but, will be dragged down in the medium-term because of its retail holdings.
“UK retail property values have been falling significantly, effectively from 2017, and are down on average 30-35%. But it looks as though their decline is far from over; CBRE indicated that in March 2020 it marked UK retail property down by another -5.1% on average, and shopping centres -6.7%.
“We continue to assume around a 50% peak-to-trough fall in UK retail.
“As a working assumption, we assume around a 50% drop in capital values, on the basis that a good quality asset yielding around 4.5% at the peak could see around a 30% drop in rent, and yields re-setting to around a 6.0% level.”
Morgan Stanley has a wide view of BLND with a ‘bear case’ price target pitched at 300p on the assumption of a severe UK recession, the ‘bull case’ envisages a “back to boom” scenario with a 770p target.
The base case meanwhile expects BLND to ride out a recession in 2020 as it is well capitalised and its balance sheet offers a strong buffer.
Elsewhere, the US Bank similarly keeps ‘overweight’ on Land Securities (LON:LAND) which it described as a diversified play on UK commercial real estate with a retail property drag, and, set a 740p price target.
Morgan Stanley, meanwhile, reckons Intu Properties PLC (LON:INTUP) could fall away to zero in the ‘bear case’ assuming a new equity raise without pre-emption rights to existing shareholders – though it noted that the 0p is a theoretical value not a prediction of bankruptcy.
The base case anticipates a liquidation value of 7p per share, while a ‘bull case’ whereby new capital is sourced privately lands a 14p per share estimation.