US rate cut triggers one-day share spurt

Property shares enjoyed one of their biggest-ever one-day gains on Tuesday after the huge interest rate cut in the US and an upbeat third-quarter trading update from Land Securities.

European property shares, as measured by the EPRA Europe Index, enjoyed their biggest daily gain for at least 10 years, rising 5.2%.

UK property shares, which jumped 6.8%, the second-highest daily rise over the same period, have now outperformed the wider UK stock market by 15.4% so far, while continental property shares have lagged behind with 3.4% outperformance.

Shares in all the large REITs were up by 5% and more. The top performer was Liberty International, whose shares jumped 9% to 1047p.

Land Securities’ were up 8% to 1620p, British Land’s rose 7% to 983p and Hammerson’s shares closed up 6% at 1123p.

The driver for the share price jumps was the Federal Reserve’s slashing of US interest rates by 75 basis points to 3.5%.

‘It sounds the bell for another round of global interest cuts,’ said Lehman Brothers analyst Mike Prew.

Property shares lost some of their Tuesday gains on Wednesday, as it emerged that the Bank of England would not cut interest rates as aggressively as the US Federal Reserve. Economists do expect the Monetary Policy Committee to vote for a quarter-point cut to 5.25% in February, however.

The other shot in the arm for property on Tuesday came from Land Securities’ trading update for the fourth quarter of last year. Although it did not contain much news and did not involve a portfolio revaluation, investors were cheered by the positive tone.

The company said it had sold £508m of investment property in the three months to 31 December 2007, at an average yield of 4.9%, which was nearly 6% above its September valuation.

JP Morgan analyst Harm Meijer said: ‘We believe Land Securities’ comments underpin our view on property markets and stocks. We reiterate our view that it is time to think contrarian and estimate 20% upside for UK property stocks.’

A day later on Wednesday Great Portland Estates reported its own quarterly update, which showed a 6.5% drop to 617p a share in teh net asset value after a 4.1% fall in the value of its properties.

By James Whitmore, Property Week, 18/01/08

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