by Alex Catalano
Rodamco, the Dutch fund which is bidding for Hammerson, is a rare species:a quoted property investor with an international spread of business.
It has virtually no counterpart. “Only Hammerson, really,” says the fund’s UK director, Paul van Romunde, with a wry smile.
He should know. As usual, Rodamco has done its homework. “We’ve looked at 454 quoted property companies across the world … We might have missed one or two in Scandinavia,” he says.
The Hammerson bid is part of Rodamco’s global ambitions. “We’re trying to create an international property company,” says van Romunde. “I think that’s a very exciting concept.”
He is speaking at his office in Carlos Place, the London base that Rodamco acquired when it took over Haslemere Estates in 1986. That acrimonious little tussle lasted barely a month. The Dutch won with a £245m offer, giving them a beach head in Britain.
Now, some two years on, the fund’s UK portfolio is worth £360m, a third of its total property holdings. Over the period, Rodamco has sold about £120m worth of Haslemere’s property and bought £60m worth. “What we have done here is sell the secondary stuff in no-growth areas, stuff people had fallen in love with,” says van Romunde.
Rodamco now has some £1.78bn of assets spread across the United States, the UK and continental Europe; the fund is one of four in the Rotterdam-based Robeco group.
Since it was set up in 1979, Rodamco has yielded its shareholders an average return of 10.3% pa, while net asset value per share has gone from F1 96 to F1 144. It has a very pukka investment policy, concentrating on prime buildings. Last year, Rodamco’s gross income from rents and property sales was £77.7m and net profits, £57.7m.
The portfolio shows a sector split of some 55% offices, 37% shops and 8% industrial. “We fell that in the long term we should have 40-40-20, but you have to take deals as they come,” says van Romunde.
Rodamco currently has just over half its property assets in the United States, where it invests through Hexalon Real Estate. There are 16 shopping centres, scattered across the country from Santa Monica, California, to Paramus, New Jersey, plus four office buildings. The fund is currently renovating its flagship at 745 Fifth Avenue, New York.
Market conditions in the US have recently led Rodamco to concentrate on modernising and expanding existing buildings. The continental European properties account for 15% of the portfolio, consisting principally of offices in the Netherlands, West Germany, France and Belgium. Rodamco is now focusing on Spain; it has two office projects in Madrid.
It also has a £123m property share portfolio, including stakes in MEPC, Hongkong Land and Mitsubishi Estate. Some of these holdings give the fund exposure in countries where direct ownership is difficult; others are providing a short-term home for Rodamco’s cash.
Swallowing Hammerson would almost double Rodamco’s size and take it into Australia and Canada, two markets that the fund has not yet entered. The international spread of Hammerson’s portfolio is one of the reasons why Rodamco is going for it.
The other is what van Romunde calls “management opportunities”. Hammerson, he thinks, is “undermanaged”, as Haslemere was before the takeover: “There, you had a management structure with two people at the top — which doesn’t work — and a slightly dictatorial style.”
He thinks the Dutch style, which he describes as “consensus”, makes for better decisions. “It’s the dilemma between the quality of decisions about very large amounts of money and responding to the local market which requires a fast decision.”
Rodamco’s solution is to field a very small team. “There’s one managing director, Cornelius van Rijn, and three other chaps — one for the United States, one in the UK and one in Europe — plus specialist directors.” The foursome take the decisions. “We do it on the phone; we’ve worked together and trust each other. We’ve made large and successful bids for properties in a matter of hours,” says van Romunde. “Its a very opportunistic and fast-moving thing.”
Because Haslemere is no longer a separate quoted company, and Dutch law does not allow Rodamco to detail its performance, the British market has not been able to judge the success of this formula on its home ground. But van Romunde rejects suggestions that, under the Dutch, Haslemere’s performance has been unexciting. “Warburgs have looked at it for us and we’re among the top UK companies in the property market,” he says. “So much for inefficiency, I think people felt a bit of envy that we got Haslemere at exactly the right time and turned it around.”
Being an international property company also brings an additional management problem: with buildings scattered across the world, your balance sheet is at the mercy of world currency markets. This is something Hammerson knows all too well, having seen the pound value of its overseas portfolios bob around as the Australian, Canadian and American dollars rose or fell against sterling, Rodamco’s offer document exploits this weakness.
For its part, Rodamco devotes quite a bit of attention to managing its currency exposure. This means using instruments like swaps and futures to vary the mix so that the ups and downs of the various currencies cancel each other out. “The effect of it all is to smooth,” says van Romunde. “You protect yourself against the worst of a downfall, but lose some of the upswing.” Rodamco’s annual report details its hedging moves: last year, its juggling of dollars, yens and European currencies meant that asset value per share rose 1.5% less than if it had left itself exposed to currency fluctuations. What it gained on the dollar it lost on sterling.
In choosing to bid for Hammerson, the Dutch have set themselves a difficult target. But van Romunde is not allowing the possibility of failure.
“For the year ahead, Hammerson will fill our plate,” he says, when asked about Rodamco’s 1989 programme, adding, “otherwise we’d be looking at Europe.”
