Financial Mail - Investors Monthly - - Opening Bell - Joan Muller

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.

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