In last week’s article, I gave details of the takeover bid of Tigné Mall plc by the subsidiary of Hili Ventures Ltd, Marsamxett Properties Ltd. Many minority shareholders are likely to accept the offer, given the pricing dynamics and the very strong likelihood of miniscule trading activity that will likely take place in Tigné Mall plc shares following the conclusion of the takeover if the company remains listed on the Malta Stock Exchange.

With the offer price of €1.04 per share representing the highest share price in over six years, and at a marginal discount to the company’s net asset value after taking into consideration the two recent dividends received by shareholders, several investors have asked whether the takeover could be a catalyst for a re-rating of the shares of other commercial property companies, many of which are trading at a steep discount to their net asset value.

Apart from the weak investor sentiment that has dominated the Maltese equity market over the past five years, the spike in interest rates between 2022 and the end of 2023 also negatively impacted the share prices of these commercial property companies that generally provide shareholders a stable rental income and a consistent dividend. In a rising interest-rate environment, this dividend will become less attractive compared to bond yields from fixed-income securities that have been rising from very low levels of the past years. Conversely, with bond yields easing from their recent multi-year highs, equities offering consistent dividends will be looked at more positively.

Among the commercial property companies listed on the MSE, some own a single asset similar to Tigné Mall plc, while others own a portfolio of real estate assets that make them ideal candidates for investors who wish to maintain an exposure to the sector given the dynamics of ongoing rental income and regular dividend distributions.

In the latter category there are various companies, namely AX Real Estate plc, Hili Properties plc, Malita Investments plc, Malta Properties Company plc, Trident Estates plc, and VBL plc. However, these companies have very different dynamics and are at different stages of maturity, and therefore are not easily comparable.

The recent interest rate spike negatively impacted the share prices of these MSE-listed commercial property companies that generally provide shareholders a stable rental income and a consistent dividend. Table: Rizzo, Farrugia & Co (Stockbrokers) Ltd

AX Real Estate has a market capitalisation of just over €120m and an investment property portfolio valued at around €300m. Most properties are hotels run by AX Group. The lease agreements include a variable component based on the hotels’ performance, which should positively affect the financial performance in the current financial year due to the surge in tourist arrivals.

The other properties in AX Real Estate have diverse uses and are also mainly leased to AX Group. AX Real Estate also has a pipeline of other projects. The Verdala Wellness Hotel is expected to be operational by March 2025, while there is no timeline or funding plan as yet on the next phases of the sizeable Qawra development close to the recently enlarged AX ODYCY Hotel, which opened in May 2023. The shares of AX Real Estate are trading at an 8% discount to their net asset value.

Hili Properties has a market capitalisation of just over €85m. The investment property portfolio is composed of 22 income-generating properties valued at over €200m in Romania, Latvia, Lithuania, Estonia, and Malta, with a total rentable area of over 115,000sqm. The company has a more diversified portfolio of real estate geographically and in terms of sectoral exposures. The properties comprise offices, restaurants, industrial buildings, retail centres, and a hospital. The company also owns sites in Bengħajsa close to the Malta Freeport.

Hili Properties’ strategy is to generate stable long-term cash flows through its property portfolio and the company does not typically engage in redevelopment activities. In contrast, Hili Properties seeks to dispose of assets deemed to have reached their maturity and seeks others that could enhance the overall portfolio in terms of risk-return dynamics. Hili Properties shares are currently trading at a 27% discount to their net asset value.

These commercial property companies have very different dynamics and are at different stages of maturity, and therefore are not easily comparable

Trident Estates has a market capitalisation of just over €47m. The company was previously part of Simonds Farsons Cisk plc but was spun-off in 2019. Although it owns several properties across Malta, most of its revenue is currently generated by the Trident Park property in Mrieħel, having a book value of over €65m. In the past months, the company has explained that contracted tenancy agreements at Trident Park now account for 83% of the space available, which has resulted in a sharp increase in revenue generation. In fact, revenue for the six-month period ended July 31, 2024, amounted to €2.51m, compared to €1.78m in the same period last year, largely due to the impact of the higher occupancy at Trident Park. Another key property in the portfolio is Trident House in Qormi, with a book value of €18m. This is expected to be vacated in 2026 and the company is currently considering enquires and expressions of interest for it. Trident Estates shares are currently trading at a 33% discount to their net asset value.

Malta Properties has a market capitalisation of just over €33m and it was also the result of a spin-off from GO plc in 2015. The company owns 15 properties across the Maltese islands with a book value of close to €90m, which are mainly office buildings, telecommunication exchanges and storage facilities. The largest property is the Żejtun facility, with a net leasable area of over 10,000sqm. It is leased to GO plc to house their main offices and also offers industrial storage space.

Malta Properties is working on an extension of the exchange property at Spencer Hill, Marsa, which has been leased out, and is seeking tenants for properties that will become vacant later this year, namely, the GO head office in Marsa and the HSBC call centre in Swatar. Malta Properties shares are trading at a 40% discount to their net asset value.

Due to the passage of time, the investing community may fail to appreciate the extent of the downturn in share prices in the past few years and how the weak sentiment continues to translate into evident pricing anomalies across a number of companies.

Mergers and acquisition (M&A) activity can be a good catalyst for improved Maltese investor sentiment, which has been very low since the pandemic. The recent news of potential consolidation in the banking sector is dominating the media and conversations in business circles. The renewed M&A activity in Malta in the property and banking sectors is likely to maintain an elevated level of attention on developments across the Maltese capital market.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd is acting as manager, registrar, collecting and paying agent in connection with the Conditional Voluntary Public Takeover Offer.

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