Brexit means discounts for U.K. companies

By Sarah Cunningham-Scharf | May 24, 2016 | Last updated on May 24, 2016
2 min read

The U.K.’s equity markets and currency have been dipping, as the country grapples with the Brexit debate.

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The good news for investors is that debate is creating opportunities to buy strong companies at discounted prices, particularly in the real estate sector, says Chip McKinley, senior vice-president and portfolio manager with Cohen & Steers in New York. Among other real estate funds, he manages the Renaissance Global Real Estate Fund.

“In the last few months, investor confidence has been damaged because of the growing possibility of the country voting to leave the Eurozone,” he explains. “I think it’s likely that would be a very negative event; not just for equity markets but also for the economy and the British pound.”

Read: What would Brexit mean for investors

But McKinley doesn’t believe Brexit will happen. Further, he finds “the U.K. economy is on solid footing even though it’s decelerating.”

In particular, he says the underlying fundamental drivers of real estate are strong. So, “This is a unique opportunity where we can pick up more exposure to a property sector that’s performing strongly. [It’s] abnormally cheap due to a very transitional and ultimately negligible risk.”

Read: Don’t panic about Brexit, say economists

McKinley says two examples of undervalued U.K.-based property companies are:

  • Hammerson, which is “an owner and developer of high-quality retail shopping centres and malls, primarily in the London metro area.”
  • SEGRO, which is “an owner and developer of logistics and warehouse space” in London, the U.K. and Western Europe.

He favours these two companies because they “trade at very large discounts to fair value [and] exhibit strong year-over-year cash flow growth expectations. They’ve been beaten up because of this concern [over Brexit] but that ultimately will dissipate at Brexit is voted down.”

For more on real estate, read:

Don’t fear mortgage-related assets

It’s time for a ‘flipping tax’ on foreign investors

China is buying Canada: Inside the real estate frenzy

Key trends in luxury real estate market

Sarah Cunningham-Scharf