Todays announcement that the part-owner of Canary Wharf, Songbird Estates (LSE: SBD), has rejected an improved offer of 2.6 billion for the financial district is perhaps unsurprising. After all, Songbirds board has repeatedly hinted that an offer in excess of its net asset value would be needed to secure its approval.
And, with the bid from the Qatar Investment Authority and Brookfield Property Partners being 350p (versus Songbirds net asset value of 381p), it seems as though a deal was still some way off. Thats despite the offer being 33% higher than Songbirds share price prior to the first bid.
Looking ahead, does this mean that Songbirds share price will now drift downwards as the bid premium evaporates? Or, is now a good time to buy what appears to be an undervalued asset?
With Songbird owning the vast majority of the Canary Wharf district, it stands to benefit from the further development of the area. For example, two major developments are due to kick-off imminently. The first is a 60-storey tower block that will be the first residential development in the Canary Wharf financial district, while the second is a 20-acre development that will include over 3,000 homes, as well as offices, shops and a school.
Furthermore, Songbird also has stakes in other high-profile, prime London property developments. For instance, it part-owns the so-called Walkie Talkie skyscraper in central London and, as a result, it appears to offer investors the chance to own stakes in iconic sites in London, which could mean relatively consistent performance as well as strong long term growth potential.
With the Qatar Investment Authority owning 28.6% of Songbird and being known to favour high-profile, unique properties in London (such as The Shard), a further bid cannot be ruled out in the medium term. After all, there are few sites that offer the potent mix of development potential and international recognition that Canary Wharf does.
However, with the Qatar Investment Authority having made a bid for J Sainsbury in 2007 and still being owners of around 26% of the company, there is no guarantee that a further bid for Songbird will be forthcoming. Thats because, despite its share price falling to below net asset value in recent years, J Sainsbury has still not been the subject of a further bid approach by the Qatar Investment Authority. As such, Songbird could turn out to be a similar situation over the medium to long term.
Assuming there is no further bid, it is likely that shares in Songbird will shed their bid premium in the short run. Certainly, they seem to offer long term potential in terms of further redevelopment potential and, with them trading below net asset value, they do not appear to be overpriced.
However, with the prospect of short-term weakness, they may be worth watching for now, since investors may be able to buy-in at a keener price during the course of 2015.
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Peter Stephensowns shares in J Sainsbury. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.