Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

<ul>
<li>In this insight, we take a look at the potential ADDs and DELs for the F100 and F250 indices during the December 2024 index rebal event.</li>
<li>We see up to seven M&amp;A-related intra-review changes in the run up to the December 2024 review.</li>
<li>Our latest estimates suggest there could be one change for the F250 index during the December 2024 rebalance. We do not currently see any changes for the F100.</li>
</ul>


In this insight, we take a look at the potential ADDs and DELs for the F100 and F250 indices during the December 2024 index rebal event.
We see up to seven M&amp;A-related intra-review changes in the run up to the December 2024 review.
Our latest estimates suggest there could be one change for the F250 index during the December 2024 rebalance. We do not currently see any changes for the F100.


Quiddity Leaderboard F100/F250 Dec 24: Intra-Review Changes Galore; High-Impact Replacement Names

<ul>
<li>In this insight, we take a look at the potential index changes for F100 and F250 in the run-up to the March 2024 index rebal event.</li>
<li>Although I do not see any regular ADDs/DELs for the March 2024 rebalance, there might be one or two intra-review changes during the first quarter of 2024. </li>
<li>These intra-review changes will be triggered by the completion of M&amp;A events and it is important to know which names are leading the race to become intra-review ADDs.</li>
</ul>


In this insight, we take a look at the potential index changes for F100 and F250 in the run-up to the March 2024 index rebal event.
Although I do not see any regular ADDs/DELs for the March 2024 rebalance, there might be one or two intra-review changes during the first quarter of 2024. 
These intra-review changes will be triggered by the completion of M&amp;A events and it is important to know which names are leading the race to become intra-review ADDs.


Quiddity Leaderboard F100/​​​250 Mar 24: Intra-Review Replacements for NETW and LXI REIT

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>Brookfield intends to launch an all-cash voluntary and conditional (50%+1) offer for underperforming, leveraged and Belgium-portfolio concentrated <a href="https://www.smartkarma.com/entities/befimmo-sa" target="_blank" data-smartkarma-citation="entities:21316:1" rel="noopener">Befimmo SA (BEFB BB)</a> at a 52% premium, 0.82x P/Fwd BV and 21.3x equity value/FFOe.</li>
<li>The offer represents a 21% discount to EPRA NTA (€60.32/share), large in comparison with other recent deals in the European space (in line with EPRA NTA).</li>
<li>Considering the share price underperformance, shareholders are likely to take the cash. Gross spread is -0.1%. Trading volume has been rather high over the last sessions.</li>
</ul>


Brookfield intends to launch an all-cash voluntary and conditional (50%+1) offer for underperforming, leveraged and Belgium-portfolio concentrated Befimmo SA (BEFB BB) at a 52% premium, 0.82x P/Fwd BV and 21.3x equity value/FFOe.
The offer represents a 21% discount to EPRA NTA (€60.32/share), large in comparison with other recent deals in the European space (in line with EPRA NTA).
Considering the share price underperformance, shareholders are likely to take the cash. Gross spread is -0.1%. Trading volume has been rather high over the last sessions.


Brookfield/Befimmo: Recommended (Cheap) Cash Offer

<a href="https://www.smartkarma.com/entities/hammerson-plc" target="_blank" data-smartkarma-citation="entities:21974:1" rel="noopener">Hammerson PLC (HMSO LN)</a> announced on 6 August a fully covered highly dilutive <a href="https://www.hammersontransaction.com/system/files/2020/launch-announcement.pdf" target="_blank" rel="noopener">rights issue</a> combined with a sale of VIA Outlets; both should raise £825 mn gross proceeds (c. £794 mn net) to recapitalise the business.
<ul>
<li>Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 billion on a pro-forma basis as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis.</li>
<li>Those £794 mn net proceeds seem somewhat far from what's needed to restore Hammerson to a more comfortable leverage, another £500 mn, in my view.</li>
<li>Hammerson reported a £1.09 bn loss in H1 2020 (vs. a £319 mn loss in H1 2019).</li>
</ul>
The capital increase is highly dilutive. Considering the share consolidation, the UK issue price of 15p represents a discount of 94.6% to the closing price of 279.80 p on 5 August, and a 41.4% discount to the TERP of 25.59 p (by reference to the LSE closing price on 5 August).
Shares closed at 47p on 7 August, 15% below the closing price prior to the announcement.
Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 bn pro-forma (57% gearing) as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis (vs. a dangerously high 51%). The focus, according to Hammerson, remains on further disposals to reduce debt over the medium term.
From a covenant perspective, Hammerson's announcements buy some time and allow trading and capex to continue in the short term. But I have already pointed out that Moody's has placed the rating under review, and that a downgrade to high yield is not unlikely (with higher financing costs). This and the refinancing profile should put pressure on Hammerson.
It is also worth considering that these businesses have been the growth drivers for Hammerson over the last years, and disposing of them is akin to selling the family silver.
I see further downside in Hammerson. The analyst consensus on S&amp;P Market Intelligence is underperform, and I also recommend a straight short in Hammerson.
Pair trade. Over the last two years, Hammerson has underperformed <a href="https://www.smartkarma.com/entities/british-land-co-plc-the" target="_blank" data-smartkarma-citation="entities:21839:1" rel="noopener">British Land Co (BLND LN)</a> by a lot. The S&amp;P Market Intelligence analyst consensus on British Land is neutral BLND. Looking at the charts it seems that Hammersons could outperform British Land in the short term, if it does, would be a good time to short Hammersons and buy British Land on a bounce in the price ratio.

Hammerson PLC (HMSO LN) announced on 6 August a fully covered highly dilutive rights issue combined with a sale of VIA Outlets; both should raise £825 mn gross proceeds (c. £794 mn net) to recapitalise the business.

Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 billion on a pro-forma basis as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis.
Those £794 mn net proceeds seem somewhat far from what's needed to restore Hammerson to a more comfortable leverage, another £500 mn, in my view.
Hammerson reported a £1.09 bn loss in H1 2020 (vs. a £319 mn loss in H1 2019).

The capital increase is highly dilutive. Considering the share consolidation, the UK issue price of 15p represents a discount of 94.6% to the closing price of 279.80 p on 5 August, and a 41.4% discount to the TERP of 25.59 p (by reference to the LSE closing price on 5 August).
Shares closed at 47p on 7 August, 15% below the closing price prior to the announcement.
Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 bn pro-forma (57% gearing) as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis (vs. a dangerously high 51%). The focus, according to Hammerson, remains on further disposals to reduce debt over the medium term.
From a covenant perspective, Hammerson's announcements buy some time and allow trading and capex to continue in the short term. But I have already pointed out that Moody's has placed the rating under review, and that a downgrade to high yield is not unlikely (with higher financing costs). This and the refinancing profile should put pressure on Hammerson.
It is also worth considering that these businesses have been the growth drivers for Hammerson over the last years, and disposing of them is akin to selling the family silver.
I see further downside in Hammerson. The analyst consensus on S&amp;P Market Intelligence is underperform, and I also recommend a straight short in Hammerson.
Pair trade. Over the last two years, Hammerson has underperformed British Land Co (BLND LN) by a lot. The S&amp;P Market Intelligence analyst consensus on British Land is neutral BLND. Looking at the charts it seems that Hammersons could outperform British Land in the short term, if it does, would be a good time to short Hammersons and buy British Land on a bounce in the price ratio.

Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

Accelerating Tomorrow’s Independent Research

Boost Research

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Equity Bottom-Up

A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues unabated. But if things are tough for retailers they are equally bad for UK property companies with a significant proportion of retail in their portfolios. Declining rents and rising yields are not positive for valuations. Landlords also have to deal with an increasing incidence of tenant insolvencies. 
British Land: what does it do ?
British Land is the third largest property company in the FTSE100 with a market capitalisation of £5.6bn and property portfolio of £12.8bn split almost equally between Retail and Central London offices. 
Why is it in the Short portfolio ?
Trading pressure in the retail sector is translating into rent reductions for landlords, or worse, vacant space. Yields are rising due to decreased investment demand. Property consultancies anticipate a double digit decline in retail capital values over the next two years. The consensus expectation is for British Land's EPRA NAV to decline 8% over the next two years.

A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues unabated. But if things are tough for retailers they are equally bad for UK property companies with a significant proportion of retail in their portfolios. Declining rents and rising yields are not positive for valuations. Landlords also have to deal with an increasing incidence of tenant insolvencies. 
British Land: what does it do ?
British Land is the third largest property company in the FTSE100 with a market capitalisation of £5.6bn and property portfolio of £12.8bn split almost equally between Retail and Central London offices. 
Why is it in the Short portfolio ?
Trading pressure in the retail sector is translating into rent reductions for landlords, or worse, vacant space. Yields are rising due to decreased investment demand. Property consultancies anticipate a double digit decline in retail capital values over the next two years. The consensus expectation is for British Land's EPRA NAV to decline 8% over the next two years.    

British Land (BLND:LN): Retail in Reverse

United Kingdom

British Land Company PLC is a diversified real estate business that owns, manages, finances, and develops high-quality commercial properties across the UK. Its portfolio focuses on office-led campuses in Central London and retail parks. The company leverages its expertise in development, asset management, and property management to create and manage commercial real estate assets. Headquartered in London, England, the company was founded in 1856.

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British Land (BLND LN)

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Hammerson's Rescue Rights Issue

Hammerson PLC (HMSO LN) announced on 6 August a fully covered highly dilutive rights issue combined with a sale of VIA Outlets; both should raise...

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