Private investors who bought in at the top have seen share prices demolished, with launched across the sector at the beginning of this year to shore up battered balance sheets.
Saved from insolvency, since March the "relief rally" has caused the FTSE 350 Real Estate Index to almost double. Sales of key property assets to keep debt levels down have improved the finances of the big Reits, but selling at the bottom of the market has left a nasty taste in investors' mouths.
The last few weeks has brought renewed hopes that the big Reits are over the worst. The market has seen the completion of two long-anticipated sales – Land Securities sold its stake in Birmingham's shopping centre for £210m, and British Land effectively sold half of its office complex in the City of London for £1bn.
Analysts hope that the next round of news flow will concern asset acquisitions or even development starts as the market turns a corner. This "hope value" is already evidenced in share prices; most Reits are trading at steamy 20 to 30 per cent premiums to net asset value (NAV).
Up until now, the strategy has been one of survival. Now managements can direct their attention away from fighting financial fires, the Reits need to come up with compelling strategies to exploit the recovery.
Having had their thunder stolen by the new wave of opportunistic property companies entering the listed sector, the big Reits are expected to adopt a more conservative approach.
Last week, Land Securities decided to use much of its surplus cash to pay down £1.5bn of debt, taking gearing below 50 per cent. Some had hoped a greater level would have been directed at opportunistic acquisitions, but at least it should stave off fears of a second rights issue being needed.
Going forwards, chief executive Francis Salway promises the time is "rapidly approaching" to dust down development plans in central London, which would be a bold statement of intent. Up 41 per cent since we suggested , its relative discount to the sector makes it a key pick.
In a stark reminder of how fragile market conditions still are, Liberty International's surprise £280m placing last week was its second raise since . The cash will be used to fund development work on its existing portfolio, and help refinance debts secured on its flagship Lakeside mall.
British Land is already back on the acquisitions trail, snapping up a retail park in the north of England. Chief executive Chris Grigg promises the group will direct £1bn at new acquisitions as the cycle turns.
As for Hammerson, David Atkins will be replacing retiring chief executive John Richards next week, and the market eagerly awaits the unveiling of his strategy.
However, the most thrusting of the big Reits is undoubtedly industrial specialist Segro, which was propelled back into the FTSE 100 following its shrewd takeover of indebted rival Brixton. Now up 39 per cent on , management will drive growth by placing a sizeable dent in the 20 per cent vacancy rate on the former Brixton assets.
In conclusion, although shares are currently expensive, the big Reits should not be underestimated. Their strength and size means they are well placed to become asset aggregators for the banks, applying their asset management expertise to portfolios of distressed property as the recovery progresses. Dividend yields may not be spectacular, but unlike the listed opportunity vehicles, Reits must distribute 90 per cent of income to shareholders which will appeal to risk-averse investors.
