PICK OF THE MONTH
here are plenty of reasons why retail property is no longer the flavour of the month — especially in the UK, where weak consumer spending, the threat of e-commerce and Brexit concerns continue to weigh on investor sentiment.
But it is becoming hard to ignore the value proposition offered by Hammerson, one of the largest mall owners in the UK and Western Europe. The counter is currently trading at a discount to NAV of almost 40%.
The company differentiates itself from other British mall owners through a diversified earnings base. Only about 50% of its £10.6bn property portfolio is exposed to the UK; the rest is spread across 13 countries, including Ireland, France, Portugal, the Netherlands and Spain.
Flagship assets include Birmingham’s Bullring, as well as Bicester Village in Oxfordshire, Dundrum Town Centre in Dublin, Ireland, and Les Terrasses du Port in Marseille, France. The company also has a strong pipeline of new developments and extensions in various countries.
Hammerson owns three different types of retail centres: traditional shopping malls that dominate their catchment areas, retail parks (similar to value centres in SA) and premium-outlet villages across Europe. The latter typically focus on top-end international fashion and luxury brands.
Hammerson’s intention to merge with fellow JSE-listed UK mall owner Intu Properties later this year should place it on the radar of more investors, as the combined entity will become the JSE’s largest property stock, with a market cap of about R110bn.
Hammerson CEO David Atkins told IM in March that the merger makes sense as the size (in terms of portfolio value) and quality of the two portfolios are well matched. The deal will also result in savings by reducing overhead and procurement costs.
“The transaction will enhance our portfolio and operating platform, providing further opportunity to expand in higher-growth markets,” Atkins said.
He referred specifically to Intu’s presence in Spain, where the company has a strong development pipeline. “We are keen to grow our footprint in Spain as it is currently one of the fastest-growing economies in Europe,” he said.
Intu’s most notable new project is Intu Costa del Sol, near Malaga, which at 230,000 m² will become one of the largest retail developments in Europe. It also owns three super-regional shopping centres in the country: Madrid’s 153,000 m² Xanadú mall, the 120,000 m² Intu Asturias in Oviedo and the 200,000 m² Puerto Venecia in Zaragoza.
Atkins dismissed market concerns that some of Intu’s shopping centres and its management capabilities may be inferior to those of Hammerson. “Intu is our closest competitor in the UK and we have huge respect for the company.”
But he conceded that Intu’s share price performance has disappointed in recent years, and its operational business may not be as strong as that of Hammerson. “That doesn’t mean the quality of Intu’s assets aren’t great. Besides, we plan to sell about £2bn worth of properties from both portfolios — mostly UK assets.”
Hammerson, which has been listed on the London Stock Exchange since 1954, has underperformed in terms of share price since it debuted on the JSE on September 1 2016. In March the counter slumped to about R74, roughly 36% below its R115.75 listing price. That places Hammerson on an attractive forward dividend yield of more than 6%.
“At these levels, the investment case for Hammerson is particularly compelling,” says Keillen Ndlovu, Stanlib’s head of listed property funds. He notes that the strength of the rand is an added bonus, making this a good time for SA investors with a three- to five-year view to buy rand-hedge stocks.
“Hammerson remains our top pick for UK property exposure on the JSE. The management team has been doing a great job to achieve record leasing activity and to grow rentals, earnings and NAV. The cost of debt has also been reduced and the debt maturity profile extended. Unfortunately, from a share price performance point of view, the good work has been overshadowed by Brexit concerns,” he notes.
Hammerson owns three different types of retail centres: traditional shopping malls that dominate their catchment areas, retail parks (similar to value centres in SA) and premium-outlet villages