In this short video interview, Matthew Norris, manager of the VT Gravis UK Listed Property (PAIF) Fund, and James Peel, senior research analyst, discuss recent bids for UK REITs and whether we are at a pivotal moment, when takeover activity is replaced by mergers.

A transcript of the interview, which has been edited for ease of reading, is below.

What are your thoughts on recent bids for UK REITs?

Matthew Norris: At Gravis, we're investors, not traders. We undertake a lot of fundamental research and valuation. And we have a clear framework. There's price, there's value, and there's worth. Price is what we see on the screen every day, moving around on the stock market. Value, we can have a great discussion about. Is it the valuer’s assessment of value? The net tangible asset value? Is it a dividend discount model? Is it a discounted cash flow model? And then there's worth. What are these businesses worth to a motivated buyer?

For many of the companies that we invest in, it's taken them 10 or 20 years to curate a fantastic portfolio of assets. They've created fantastic brands - whether that's Big Yellow Self Storage, whether it's Unite Student. And those portfolio values, those balance sheet values, those brand values, we feel are not being accurately reflected or rewarded in the takeover offers that we're seeing from private equity.

Are we at a pivotal moment in M&A activity?

Matthew Norris: The opportunity to acquire REITs at a discount appears to be closing. Public equity investors are finding their voice and saying to the boards that they would like to continue to be investors in these businesses and would prefer a merger to a takeout. So definitely, it feels like an inflection point. James, what would you add?

James Peel: I think one thing that we've noticed with so much M&A activity this year, is that with each new deal, as Matt says, there have been more and more shareholders willing to get involved and do the hard work to engage with boards and really understand the difference between price, value, and worth.

I think that it's probably fair to say some of the deals that completed earlier this year maybe snuck through without a whole lot of opposition. Now, with the current deals that we see on the table, there's a whole host of different types of stakeholder and investor getting involved. And I think ultimately that's great to see, and one of the reasons that we've ultimately got competitive tension in the marketplace now.

Matthew Norris: I think that's a great point. One of the areas that Gravis feels strongly about is dividends. So we're investors in business. While our investors' capital is at risk, the rent that is generated and collected by the businesses that we invest in - that rent belongs to the shareholders, belongs to our investors. We expect those dividends to be paid to us. What we've seen in the recent past is private equity has tried to quietly claim those past dividends as their own as part of the deal. For us, that makes no sense at all. It's clear in public equities that when a stock trades ex-dividend, those dividends belong to the holder of the stock at that moment in time, not to the future owner of the stock.

James Peel: And I don’t think we're alone in our views, and increasingly, when we're reading through the RNS that come out on the deals, whether it's the value implied in the debt book of a company or the operating platform, or as you make the point on the dividend timetable, that language was maybe a little bit absent earlier in the year. And we're really seeing a lot of information on that in the deals that are on the table at the moment, which is good to see.

Important information

This video and transcript are issued by Gravis Advisory Limited (“GAL” or the “Firm”), which is authorised and regulated by the Financial Conduct Authority. GAL’s registered office address is 24 Savile Row, London, United Kingdom, W1S 2ES. The company is registered in England and Wales under registration number 09910124.

VT Gravis UK Listed Property (PAIF) Fund (the “Fund”) is a sub-fund of VT Gravis Real Assets ICVC, which is a non-UCITS retail scheme and an umbrella company for the purposes of the OEIC Regulations. The Fund is a Property Authorised Investment Fund (“PAIF”). Valu-Trac Investment Management Limited is the Authorised Corporate Director of VT Gravis Real Assets ICVC and GAL is the investment manager of the Fund.

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