PICK OF THE MONTH

Financial Mail - Investors Monthly - - Contents - Joan Muller

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

Source: IRESS

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