Credit Suisse initiates coverage of Hammerson, Intu Properties

Credit Suisse started Hammerson at ‘outperform’ with a 630p price target and Intu Properties at ‘underperform’ with a 300p price target as it initiated coverage of the European retail REIT sector.

The bank said Hammerson was its preferred retail REIT in the UK due to its higher quality portfolio and balance sheet than nearest peer Intu, despite similar NAV discounts, and its lower earnings multiple.

In addition, it said higher growth potential in Ireland and premium outlets should drive outperformance.

CS highlighted Hammerson’s unique exposure among European REITs to designer retail outlets across Europe which totals 14% of the portfolio, adding that Bicester Village in Oxfordshire is still one of the most productive retail locations in the UK.

It also pointed to a significant development pipeline of ground-up schemes and extensions, most notably two suburban London schemes: Croydon in South London and Brent Cross in North London

As far as Intu is concerned, it said the company’s portfolio includes a number of old, large centres with high capex requirements and limited upside potential given rents have been managed well over time, leaving relatively high occupancy cost ratios.

It also pointed to persistently weak like-for-like net rental income growth due to a lack of pricing tension with retailers, and a weaker balance sheet than peers.

“Intu has an interest cover of just 1.9x compared to the 3.3x we calculate for Hammerson,” CS said.

At 1040 GMT, Hammerson shares were up 0.1% to 577p and Intu shares were down 0.4% to 314.40p.