Investors fleeing the property sector have pushed shares of several companies well below the values of their portfolios, leading broker Peel Hunt to make several upgrades on Monday.
One of the most prominent was an upgrade to Hammerson PLC (LON:HMSO), which was hiked to ‘add’ from ‘hold’ even though the target price was cut to 350p from 400p, helping lift its shares more than 3% to 292p on Monday morning.
Peel Hunt’s property analysts have been cautious on the retail property sector for several years now and, in particular, have been negative on both Hammerson and Intu as the retail property pair scrapped a proposed merger last year.
Hammerson’s shares have lost more than half of their value over the past two years and now trade on a 60% discount to net asset value and a 9.1% dividend yield.
“Investor sentiment is likely to remain negative and we still foresee a material rebasing of prime retail rents over the long term,” the analysts said, but calculated that Hammerson could withstand a near-30% decline in UK rents, rebuild the balance sheet from selling off a chunk of its non-core portfolio, and could still trade at a 40% NAV discount and 6%-plus dividend yield.
Following conversations with Hammerson's board, the analysts believe "serious consideration" is being made for partial sales of assets in the value retail portion of the portfolio, plus stakes in French and Irish shopping centres, in addition to a more gradual disposal of UK retail parks.
Selling roughly half its interests in value retail assets, 40% of its interests in France and just under 50% of its retail parks portfolio, Hammerson’s loan-to-value ratio would be back below 40, which Peel Hunt noted would preserve an earnings yield of circa 6.5% and allow a dividend yield of almost 6%, which sales of its core UK parks would not.
Other upgrades and downgrades
Shaftesbury shares have fallen beneath the broker’s 900p target price and now trade on a 17% discount to NAV – the highest discount since the 2008/09 financial crisis, which trumps the slower rental growth and slowing and low yields.
Capital & Regional’s shares have also been very weak and now trade on a 70% discount to NAV, the analysts said. “Whilst leverage remains too high, the company is relatively small and one material sale would quickly de-lever the balance sheet.”
Shaftesbury was up 1% to 824p on Monday morning, while C&R was down 1% at 14.72p.
Helical was down more than 2% to 380p on Monday morning, while PHP was down almost 1% to 138p.