Member Info for JGFFourie

There was slight excitement in the market today for this sector. I am not sure if the prospects are really much better, however, when the price rose to the dizzying heights of 28.5 I thought that when it fell back to 28 it might be worth topping up a bit. However, not really sure.

Still a good buy, in my opinion. The market makers kindly marked down the price this morning for those who wish to buy in today for the dividend, so I took a small position at 430. With falling inflation and falling interest rates, a return of about 5% does look quite attractive.

Normally, I don’t try to take the dividend early, because it is rarely successful. However, yesterday, I thought that it would be likely to work, so I sold my entire holding yesterday at 6.46 and bought it back again this morning at 6.22. This gave me the 12p dividend early, covered the dealing charges and even resulted in a small profit. However, it does not always work that way. If the market is rising, it is easy to be “caught short”.

The share price could rise to about 30p if this sale does materialise. On the one hand, the company will become more solvent. On the other hand, it will lose a prime income producing asset.

The only reason why I consider it to be unlikely is that it has been talked about now for almost five years, with no definite proposal ever materialising. The sale of the interest in Bicester Village would be definitely to the advantage of the company - it would then be able to pay down most of its debt and trade much more safely and profitably. However, the property market is very depressed at the moment and there are far more sellers than buyers willing to invest in commercial property just at the moment.

If this sale does ever materialise (it has been talked about for the last five years with nothing definite ever seeming to happen) then it could see the share price rocket - it might even hit 30p although that is rather on the optimistic side, I think. If the sale falls through, then the share price will probably settle back again to about 25p.

It is remarkable how the market makers have been able to keep the share price fixed at almost exactly 25.5p now for days on end. The consensus is that the share price should be exactly one half of the net asset value of the company. It is unusual for the market makers to retain a fixed share price for so long a period. It will be interesting to see how long this fixed price will last.

As far as I know, there are no restrictions on how often a company can make use of a scrip dividend. A scrip dividend is like a mini “rights issue”. It bolsters the cash position of the company, eventually, over time, making it more valuable, as the net debt of the company is reduced.

There is a different between the profits from trading and the overall value of the company. As an REIT, Hammerson must pay out at least 90% of its trading profits. It has consistently done so, generally by way of the issue of a scrip dividend, by which shares equal to the value of the trading profit, about 2p per share, are distributed, rather than an actual cash dividend. Those shareholders wishing to have an income in cash can then simply sell their scrip dividend shares. So, in fact, with the current share price of 25p, a dividend of 2p represents a distributed profit of about 8% which is excellent, by comparison with other REITs, which generally, do not achieve a return (based on their share price) any higher than 6%.

The low share price is a result of the company being seen as a risky investment, the risk being associated largely with its high level of indebtedness. This risk can be reduced, of course, if the company pays out its profits in the form of a scrip dividend.

All REITs must pay out all of their net profit so Hammerson will always pay a dividend as it is running quite profitably. It makes no difference at all whether the dividend is paid out in cash or by way of a scrip dividend, since the shareholder is able to sell the new scrip shares so as to have the dividend in cash, if he wishes. So, the form in which the dividend pays will have no affect on the share price at all. This is clear enough - in announcing that part of the profits will be paid out as a cash dividend, rather than as a scrip dividend, the share price has not altered at all, for the simple reason that the net position is exactly the same, in whatever form the dividend is paid. However, in the longer term, the company will become more attractive if the dividend is paid out in the form of a scrip dividend, since the indebtedness of the company will be reduced, making it a less risky investment.

For a long time now, the market has set the share price for Hammerson at one-half of its net asset value per share, so, with a NAV of 51p, the current share price of 25.5p seems in accordance with historic market sentiment. However, if the sale of the share in Bicester Village were to come off, then the share price would, of course, depart from this historic setting, since the company would then have a much lower indebtedness and most risk would disappear. There does not appear to be any news on this possible disposal, though.

A full year dividend of 1.5p per share represents a return of 6%, based on the current share price. That involves distributing only about two-thirds of the profits.

It makes absolutely no difference to the shareholders whether the dividend is paid out in cash or by way of a scrip dividend. To comply with the rules relating to a REIT, the dividend does need to be paid out in one way or the other, but it makes absolutely no difference to the shareholders in what form they receive the dividend. Paying the dividend as a scrip dividend does enhance the cash position of the company, and is, in principle, more in the interests of the shareholders. So, let us hope for a prudent decision to pay out the dividend in the form of shares, rather than cash.

This sale is good news. The share price had, possibly, been marked up rather higher than this news really merited. It has settled back to a more realistic level now, at about 25.5p where it is likely to remain, with a little bit of a fluctuation when the figures which everyone expects are finally confirmed on Thursday. The sale of the interest in Bicester Village would be likely to lift the share price considerably, of course.

The “cash” option is offered only as a matter of form. No shareholder is expected to actually ele to to receive it. For those who require an income from their holding, the procedure is to wait until the scrip dividend has been issued and to then sell the shares. For the shareholders, the payment of the dividend by way of a scrip dividend is entirely neutral. For the company, it is very beneficial, since it amounts, in practical terms, to a rights issue. Essentially, those buying the scrip dividend shares are boosting the company’s cash position.

Yes - based on a share price of, say, 25p, a dividend of 2p per share represents an income of 8%. I cannot see any difference, in principle, between a scrip dividend and a cash dividend. Once the new shares have been issued, they can be sold and turned into cash. So, what is the difference?

Hammerson has, of course, being paying a very generous dividend in recent years. I am not able to follow why those who do require a cash income from their holding do not simply sell the script dividend when the new shares are issued. What is the difference between receiving a cash dividend of 2p per share and new shares of a value of 2p per share? Those who need a cash income may simply sell the new shares when they are issued. In accounting terms it is quite neutral. On the one hand, the value of the company goes up by the amount of the dividend retained, this being balanced by the number of shares held going down if the new script dividend shares are sold.

I don’t think that it will work that way. Most of the shares are held by large, institutional, investors, who are concerned about the long term prospects for the company. These can only be improved by reducing the net debt position. A low share price does not bother large institutional investors. They did not buy to sell quickly at a profit, but to achieve a long term capital gain. The shares are, currently, trading at almost half of the net asset value per share, so that the artificially depressed share price affords large institutional investors the opportunity of increasing their holdings in the company on very favourable terms.

Hopefully, Hammerson will continue with its wise policy of issuing new shares instead of paying a dividend this year. For those who need an income, the new shares can be sold. It is a simple say of having an annual “rights issue” to bolster the financial position of the company. Paying out a dividend in cash does not, in fact, improve the market value of the company. The market value of the company will be improved by reducing its net debt.