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Asset Managers Predict Real Estate M&A in Brexit Gloom

Discounts to net-asset values are fueling mergers and acquisitions in retail-focused real estate investment trusts.

Fund managers are anticipating sustained merger activity in U.K. listed real estate next year as discounts on real estate investment trusts grow.

The predictions come after Hammerson, one of the largest shopping mall owners in the U.K., announced plans to buy its smaller rival, Intu, in a £3.4 billion ($4.6 billion) deal. The acquisition would create one of the largest property groups in Europe, second only to French real estate group Unibail.

Egbert Nijmeijer, a senior portfolio manager at Kempen Capital Management, told Institutional Investor that the current discounts to net-asset values of U.K. listed shopping mall owners shows there is a “disconnect between buyers and sellers.”

“Whenever people have a difference in opinion as to the true value of a company, is when M&A appears,” he said. “The appraised value in the private market seems not to be correct, and, as long as there is a disconnect, it is likely that further M&A deals will occur.”

Nijmeijer said interest in U.K. retail REITs is likely to increase due to the weakness of the pound and the economic forecasts for the British consumer as the country prepares to leave the European Union in 2019.

“The pound’s weakness has made U.K. companies a takeover target,” he added. “They are quite exposed at the moment.”

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Sovereign wealth funds have been showing an international appetite for shopping malls in recent years, according to data from Institutional Investor’s Sovereign Wealth Center.

Last month, Singapore’s GIC exchanged a 49 percent stake in Vicinity Centre’s Chatswood Chase mall in Sydney, for a stake in GIC’s Queen Victoria Building. GIC also acquired stakes in malls in the U.K., South Korea, and Brazil during 2016.

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