BULL POINTS:
■ Scope to grow rents by improving properties
■ Management's track record with deals
■ Big exposure to booming Germany
■ Nice dividend yield
BEAR POINTS:
■ Tough environment for attracting tenants in the UK
■ Discount to net assets is narrow
Most commercial landlords have no cause to sing the joys of property ownership from their rooftops this spring. Outside globalised London and a few choice retail destinations in the provinces, there’s little scope for rents to grow and valuations are, at best, stagnant. That makes companies with overseas exposure attractive – particularly if they have a track record of picking up bargains. Enter Hansteen.
| IC TIP RATING | |
|---|---|
| Tip style | Growth |
| Risk rating | Medium |
| Timescale | Long-term |
| What do these mean? Find out in our | |
Morgan Jones and Ian Watson, who founded the company in 2005, have a refreshingly simple plan. They buy cheap industrial properties in Europe and the UK that have been badly managed and poorly let. Then they undercut rivals to draw in more tenants and increase the rent roll. Good property management should allow them to boost profits even in the absence of financial leverage or rising markets.
True, the plan will only work if they can buy property cheaply enough to allow rents to be cut a bit. Happily, Hansteen’s latest annual report reads like a manual on how to capitalise on market distress. In December, the team bought two business parks – in Cardiff and Birmingham – for initial yields just shy of 10 per cent and less than half what the sellers had paid. That deployed most of the £90m Messrs Jones and Watson had raised a year earlier for Hansteen UK Industrial Property Unit Trust (HPUT), which Hansteen manages and part-owns.
for another £150m last month for Hansteen’s use. The plan is to buy up more high-yielding business parks. With plenty of property rot still left with European banks and almost no debt finance available for low-quality real estate, they have every chance of repeating their trick.
| ORD PRICE: | 85p | MARKET VALUE: | £386m | |
| TOUCH: | 84.5-85p | 12M HIGH / LOW | 89p | 59p |
| DIVIDEND YIELD: | 4.7% | TRADING STOCK: | £16.4m | |
| DISCOUNT TO NAV: | 2% | |||
| INVEST PROPERTIES: | £728m | NET DEBT: | 104% | |
| Year to 31 Dec | Net asset value (p)* | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 138 | 20.4 | 8.1 | 3.2 |
| 2008 | 128 | -60.9 | -33.4 | 3.2 |
| 2009 | 84 | -21.3 | -3.9 | 3.2 |
| 2010 | 86 | 33.2 | 6.7 | 3.5 |
| 2011** | 87 | 36.1 | 6.2 | 4.0 |
| % change | +1 | +9 | -7 | +14 |
NMS: 4,000 Matched Bargain Trading BETA: 0.5 * Matrix estimates | ||||
Doing juicy deals is only half the work of a property company, however; filling vacant lots is important too. Here there has been some progress, though it is early days for last year’s acquisitions. Occupancy improved marginally at those German properties Hansteen owned for all of last year, with particularly strong uptake in the second half as local business owners regained confidence in Germany's industrial might. With Germany accounting for nearly two thirds of Hansteen’s assets, the strong recovery of Europe’s dominant economy bodes well.
Whether that can be repeated elsewhere remains to be seen. The rent roll in Holland declined last year, though it was stable in the second half. Hansteen owned no British assets at the start of 2010, making comparisons impossible. With a vacancy rate of 41 per cent on those it has bought since, management will have to work hard to attract tenants.
