- Infrastructure specialist Peel Group bids for FTSE real estate developer Harworth
- Target is shifting its portfolio toward industrial and logistics sites, notably data centres for artificial intelligence
- Bidder is one of three major shareholders in the target so this one could be a done deal
- Offer premium is in line with recent real estate bids, although is not generous relative to net asset value
- Trade and financial buyers continue to snap up UK real estate plays at pace to suggest someone somewhere sees long-term value in British brick and mortar
“Enthusiasm for all matters related to artificial intelligence (AI) continues to stir interest in a lot of different parts of the stock market, and for the moment investors seem more interested in those companies who are benefiting from the huge amount of investment in the area than the ones who are actually doing the spending,” says AJ Bell investment director Russ Mould.
“Land regeneration and development specialist Harworth is shifting its portfolio of assets toward industrial and logistics sites, including data centres, and away from residential opportunities. This may be one factor behind the takeover offer from infrastructure investor Peel Group.
“Peel already owns a 29.96% stake in Harworth, via Goodweather Holdings, and two more institutions own a further 46% of the shares between them. It is therefore tempting to think the deal is as good as done, even if the timing is opportunistic given how Harworth’s shares were languishing at 30-month lows in late June.
Source: LSEG Refinitiv data
“Judicious asset sales and recycling of that cash into new projects means Harworth has already taken industrial and logistics projects to 70% of its portfolio, as part of a long-term plan to increase that to 85% and thus reduce residential to 15% by 2029.
“One land sale back in 2024 to Microsoft showed that Harworth had assets that were suitable for the development of a hyperscaler data centre, and the FTSE 250 index member has identified a second project where sale negotiations have already commenced. Perhaps it was this news that focused Peel Group’s mind, and the share price has shot up to match the all-cash offer price of 172.5p in response.
“The bid does not look overly generous relative to Harworth’s last stated net asset value (NAV) per share of 215.6p, as it represents a 20% discount to that figure. The average discount to NAV, or book, value per share across the UK real estate sector is some 24%.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts. Based on LSEG share prices at 10:00 on Thursday 6 August
“Worries over tighter environmental regulations and the soggy UK economy, as well as higher interest rates and government bond yields, have all worked against the Real Estate Investment Trust (REIT) sector, and its sub-components, to varying degrees this decade.
“Higher interest rates and bond yields can crimp demand for credit, and thus growth, while they also increase developers’ cost of capital and raise the bar for returns they must make from a project for it to be economic and worth the attendant risks. In addition, higher bond yields lessen the relative attractiveness of the dividend yields of real estate stocks, especially as equity can come with downside risk as well as upside potential.
“The post-Great Financial Crisis recovery, when investors reached for a reliable yield during an era of zero interest rates, is well and truly over, especially as gilt yields are rising – and rising.
“Investors seem to be giving up hope on the Bank of England cutting interest rates in 2026 and are even pricing in hikes in the headline cost of borrowing. Throw in fears over inflation, thanks to energy and oil prices, and worries over the trajectory of government borrowing under the new prime minister and chancellor, and gilt yields stand at levels not seen for 18 years.
Source: LSEG Refinitiv data
“The average forward dividend yield on the UK real estate sector for 2026 is some 6.1%, according to consensus analysts’ forecasts. This is a premium to the 10-year gilt yield of 4.89%, but investors do not seem fully convinced that is sufficient additional compensation for the perceived risks associated with holding real estate equities and their business models, at least in the current economic and interest rate environment.
“All of that said, trade and financial buyers continue to snap up UK real estate plays at pace, so perhaps investors should be taking the hint. Someone somewhere clearly sees long-term value in British brick and mortar.”
