PICK of the MONTH
The September 1 listing on the JSE of UK mall owner Hammerson, which is the third-largest property stock on the London Stock Exchange, wasn’t accompanied by much fanfare. And given how many new rand hedge offerings SA investors have to choose from these days, property punters may understandably have overlooked the counter.
Hammerson was the third rand hedge listing to debut on the JSE in the four weeks to mid-September. The other two were Polish-focused Echo Polska Properties (EPP), in which Redefine Properties acquired a strategic 49.9% earlier this year, and Central and Eastern European-focused Global Trade Centre (GTC).
Hammerson’s listing on the JSE was off to a rocky start — the share price was down 15% between September 1 and October 12 — but that was not out of sync with the performance of most other UK-focused property counters, such as Capital & Counties Properties, Intu Properties, Capital & Regional, Tradehold, Atlantic Leaf Properties, Stenprop and Texton.
The share prices of these companies have all come under pressure in recent weeks, no doubt on the back of a weaker pound and ongoing uncertainty about how Britain’s exit from the EU will eventually play out.
Hammerson owns 56 shopping centres and factory outlet retail parks valued at £9bn (R160bn). About 60% of its assets are UK-based; the remaining 40% are in France, Ireland and the Netherlands. So the income stream from the portfolio is well spread from a geographic and currency perspective. Flagship malls include Brent Cross in London — the UK’s first shopping centre, which was built 40 years ago — Bullring in Birmingham, Dundrum Town Centre in Dublin, Bicester Village in Oxford and Les Terrasses du Port in Marseille in the South of France.
The management team, led by CEO David Atkins, has a track record of delivering above-market earnings and dividend growth. Over the five years to December 2015, Hammerson achieved annual compound earnings and net asset value growth of 8.7%/share and 7.6%/share respectively. Dividend growth per share has increased by 7.7%/year over the same time, which is impressive in Europe’s low-growth inflation environment.
Given such a strong track record, Hammerson unsurprisingly already had a strong following among SA investors before its inward secondary listing on the JSE. At the time of listing about 12% of its issued shares were owned by local investors, including the Resilient group of companies, which is known for creating value for shareholders.
On a visit to SA last month Atkins told Investors Monthly that he expected the SA shareholding to rise to between 15% and 17% in the next six months. He said there had been strong demand from SA fund managers for Hammerson shares but that many had already reached their offshore allowance threshold.
“A JSE listing therefore made sense, as it removed the exchange control barrier. A secondary listing also improves the depth and spread of the company’s shareholder base, improving liquidity and tradability, and ensures access to a wider pool of international capital.”
Nesi Chetty, head of property at MMI Investments and Savings, says Hammerson is a good buy at levels of around R98 to R100, which places the stock on a forward yield of 4.4%. “That’s very attractive relative to its peer group.” Chetty says that despite volatile retail trading conditions in the UK, Hammerson has managed to grow like-for-like net rental income consistently.
The portfolio has very few vacancies, with management being proactive on lease renewals and signing up new tenants on expiries. The company has two new promising developments under construction in strong retail nodes that Chetty says will be earnings accretive — Victoria Gate in Leeds and WestQuay Watermark in Southampton, which will deliver 52,400 m² of new retail and leisure space in the next six months.
Both developments are 80% pre-let and are expected to realise 19% profit on cost. Chetty notes that the company also has a strong balance sheet that will allow it to pursue future deals.
For those who don’t yet own Hammerson shares, the share price weakness, coupled with a relatively stronger rand, creates an ideal opportunity to gain exposure to what is now not only the JSE’s largest property stock, with a market cap of around R76bn, but is arguably also one of the best-quality rand hedges in the sector.
Brent Cross mall was the UK’s first shopping centre.