St Modwen/Blackstone: warehouse fever makes this offer too low
Premium that already looks skimpy against peers shrinks even further with updated valuations
An eye for the market is essential for success in the property business. In the UK, Stanley Clarke saw homes and new businesses, not post-industrial wasteland, when he founded St Modwen in the 1960s. Today, the developer is shifting towards logistics and warehouses as commerce moves online. That has caught Blackstone’s attention. Its lowball £1.2bn bid for the FTSE 250 group was approved by St Modwen’s board on Thursday.
The world’s largest landlord has been steadily hoovering up industrial and warehousing assets for its pan-European logistics business Logicor. The half of St Modwen’s portfolio in these categories would make a nice addition to that project. Blackstone’s capital and higher tolerance for leverage would accelerate development plans. But a premium that already looks skimpy against logistics peers shrinks even further with updated valuations.
Blackstone’s 542 pence per share offer is higher than the shares have traded since the financial crisis and represents a 24 per cent premium to St Modwen’s latest net tangible asset value. But warehousing specialist and stock market favourite Segro trades at a similar premium without any takeover offer on the table. Indeed, a 40 per cent increase in Segro’s net asset value since the start of this year has halved the premium for its shares.
St Modwen shareholders should ask why an asset valuation from last November is being used to calculate the bid price. Valuations for logistics properties have risen on average by about 7 per cent since then, say researchers at IPD. And half of St Modwen’s logistics portfolio is in attractive urban warehouses, suggesting gains might be above that. A one-sixth increase in the NAV pushes the premium below 10 per cent.
A buildout of the land bank suggests a higher valuation still. Fully developed, it could add 269p to last year’s book value or 60 per cent, thinks broker Numis.
The flipside is an underperforming home-building division that appears an unlikely fit for Blackstone’s plans. St Modwen shareholders should not let that cloud their vision. They should join JO Hambro Capital in pushing for a higher price.