BUY, HOLD, SELL

Euro­pean prop­erty de­vel­op­ment stocks are a bit of a mixed bag. Though many face un­cer­tainty, some are mak­ing a bet­ter go of it than oth­ers …

Financial Mail - Investors Monthly - - Contents - Alis­tair An­der­son

HAMMERSON PLC Share price: R89.87 JSE code: HMN BUY HAMMERSON PLC IS MUCH

bet­ter po­si­tioned than many of its com­peti­tors to stave off Brexit un­cer­tainty. The Euro­pean shop­ping cen­tre owner, which op­er­ates out of Lon­don, has spent re­cent months di­ver­si­fy­ing out of the UK to shield it­self from the ef­fects of the Brexit process and other risks in the UK, says the com­pany’s CEO, David Atkins.

The group is ben­e­fit­ing in par­tic­u­lar from its as­sets in Ire­land and out­let cen­tres in Spain. Re­cent fig­ures from Ire­land’s Cen­tral Statis­tics Of­fice show that the coun­try’s econ­omy grew 7.2% last year, out­per­form­ing the rest of the EU. Spain reg­u­larly fea­tures among the coun­tries most vis­ited by tourists, and many smaller shop­ping cen­tres po­si­tioned at the coast per­form well as a re­sult of the tourist trade.

Hammerson should main­tain healthy div­i­dend growth for a num­ber of years.

The group is primed to suc­ceed over the next year. It owns very at­trac­tive shop­ping cen­tres, and it man­aged to stave off a takeover at­tempt by French multi­na­tional Klépierre. It has bought its as­sets well — some­thing that should be re­flected in its per­for­mance. Its out­let cen­tres and Span­ish cen­tres are es­pe­cially ex­cit­ing.

All prop­erty funds in the UK will have some ex­po­sure to Brexit, but Hammerson may be best equipped to cope with it.

INTU PROP­ER­TIES Share price: R29.24 JSE code: ITU HOLD INTU PROP­ER­TIES MAY HAVE

un­der­per­formed for a few years, but it could im­press in its 2019 fi­nan­cial year. The group, which owns some of the most pop­u­lar UK shop­ping cen­tres out­side of Lon­don, has been held back by weak man­age­ment. This is set to change when CEO David Fis­chel leaves at the end of 2018.

In its most re­cent fi­nan­cial re­sults, Intu re­ported a £503m loss for the six months to June. This dis­ap­pointed the mar­ket, and sent the group’s share price plung­ing 9.09% — its big­gest fall since June 2016, post-Brexit vote.

Intu was hurt by re­tail­ers — its tenants — en­ter­ing ad­min­is­tra­tion or clos­ing stores. Its stock has been trad­ing at a dis­count of about 50% to the book value of its as­sets.

In­vestec As­set Man­age­ment port­fo­lio man­ager Peter Clark says Intu’s man­age­ment does not have the best track record in share­holder value cre­ation, as is clear from the group’s long-term un­der­per­for­mance.

“There has been lim­ited ac­tive man­age­ment of the port­fo­lio. These re­sults fi­nally rep­re­sent a more re­al­is­tic view of the as­set val­ues, which have been ex­pected to be marked down for some time,” he says.

A num­ber of levers could un­lock value for Intu, given the large dis­count to NAV its shares are trad­ing at — “a good chal­lenge for a new man­age­ment team”.

CAP­I­TAL & COUNTIES Share price: R48.00 JSE code: CCO SELL CAP­I­TAL & COUNTIES (CAPCO)

has strug­gled to per­form con­sis­tently for a few years. The group in­cludes two main busi­nesses: the Covent Gar­den re­tail de­vel­op­ment, which is per­form­ing strongly in the cen­tre of Lon­don; and Earl’s Court, an am­bi­tious res­i­den­tial de­vel­op­ment.

Capco has been poorly rated by an­a­lysts be­cause of de­lays at Earl’s Court, where it is de­vel­op­ing 92,903m² in hous­ing. Its Covent Gar­den de­vel­op­ment, on the other hand, con­tin­ues to ex­cel.

Capco’s board has de­cided to split the com­pany into two sep­a­rately listed en­ti­ties. It is, how­ever, un­clear how long this process will take, and how it will un­fold. The rec­om­men­da­tion is thus to exit Capco now, and buy the com­pany that owns Covent Gar­den af­ter the split.

Nesi Chetty, head of prop­erty at MMI In­vest­ments, says about 80% of Capco’s ex­po­sure is to Covent Gar­den, but the group is of­ten un­der­val­ued be­cause in­vestors at­tached so much risk to Earl’s Court.

Covent Gar­den — val­ued at more than £2.5bn — will be launched as an in­de­pen­dent, cen­tral Lon­don re­tail-fo­cused real es­tate in­vest­ment trust led by Capco head Ian Hawksworth. It’s un­likely there are many who are bet­ter qual­i­fied to en­sure strong re­turns from the de­vel­op­ment.

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