Increased attention towards property development companies

Over recent months there was an increased focus by the investing community towards the three property development companies, namely MIDI plc, Malta Properties Company plc and Trident Estates plc.

Trading activity increased notably in the shares of these three companies which may not be surprising given the strong momentum across the local economy and the historic appetite by investors in property development activities.

The three companies are all in the throes of major development projects and it is important to highlight the explanations given by the top executives in the latest Annual Reports.

Almost 9 million MIDI plc shares changed hands during the course of 2018 for a value of just over €4.2 million. The equity of MIDI was the best performer in 2018 as the share price almost doubled from €0.35 to €0.67. On the other hand, since the start of 2019, the share price has so far eased by 13% also on heightened volumes of 2.5 million shares. This downturn is possibly due to the uncertainty related to the funding of the upcoming development of Manoel Island after MIDI had announced in June 2018 that it had entered into discussions with Tumas Group and no formal agreement has since been reached. However, MIDI’s Chairman Alec Mizzi stated in the Annual Report that “discussions are ongoing as the parties are exploring a number of alternative opportunities”. Moreover, CEO Mark Portelli commented “now that Manoel Island’s revised Masterplan and Outline Permit have been approved, we can look forward to bring to fruition our vision for a world class development at Manoel Island. We are confident that this will serve as a springboard to unlocking significant shareholder value which we believe exists in this development over the coming years”.

MIDI also has plans for a final phase of development on Tigne Point consisting of 63 apartments and 4 levels of car parking, the development of a commercial block and the landscaping, paving and embellishment of the Garden Battery and adjoining areas. A full development application was submitted to the Planning Authority in 2018 and subject to the issuance of the relevant development permits, the company expects to commence works in early 2020.

The net asset value per share of MIDI increased to €0.45 as at the end of 2018 and it would be interesting to verify the expected net asset value once the company publishes its 2019 financial projections within the updated Financial Analysis Summary due by 25 June. The 2019 financial statements should reflect the sale of most of the remaining Q2 apartments valued at circa €26.5 million. Moreover, in due course, one would also need to reflect the possible uplift in the net asset value assuming the successful sale of all the units within the Q3 development as well as any revaluations necessary should positive developments materialise with respect to the Manoel Island project.

Malta Properties Company plc restructured various parts of its property portfolio since the spin-off from GO plc in November 2015. In fact, 2018 was a rather eventful year for the company in this respect. In August 2018, the company concluded the sale of the old Sliema exchange for €5 million compared to a valuation upon listing of €2.8 million. Also in August 2018, Malta Properties Company announced that one of its wholly-owned subsidiaries entered into a promise of sale agreement (valid and effective up to three years) with Mercury Exchange Limited for the sale and transfer of the St George’s Exchange (including its surrounding land) for €13.75 million. The St George’s Exchange was valued at €2.2 million in September 2015 before the spin-off from GO plc.

Moreover, in 2018, MPC announced that it had entered into negotiations with SmartCity Dubai to purchase its majority shareholding in SmartCity Malta. Chairman Deepak Padmanabhan explained in the Annual Report that “the due diligence on this potential transaction has now been completed and negotiations on the final transaction are ongoing”. Mr Padmanabhan elaborated by stating that “the decision to enter these negotiations clearly underlines our determination to pursue our strategy” which he described earlier in the report as one of developing “a commercial property portfolio of outstanding quality”. The Chairman also argued that the decision to invest in Smart City was also taken on “the basis of MPC’s sound financial position and a careful analysis of the risks and potential returns that could be accrued from the purchase of this prime destination which is, in many ways, unique”.

MPC’s Chairman also remarked that “if successfully completed, this has the clear potential to transform our income streams and take this Group to a completely different level”.

MPC is currently finalising the development of the Zejtun exchange which is expected to be completed and handed over to their main tenants GO plc and BMIT Technologies plc early in 2020.

Additionally, MPC is also finalising the planning process of the development in Marsa and this new commercial property is expected to be completed by 2024. In due course, the company also intends to redevelop the old B’Kara Exchange and the surrounding area.

The share price of MPC traded up to a 3-year high of €0.64 last week while the net asset value per share of MPC increased to €0.51 as at the end of December 2018. The company will be paying its maiden dividend shortly once this is approved by shareholders at the upcoming Annual General Meeting on 11 June.

Trident Estates plc also recommended the payment of its maiden dividend to shareholders. The company is currently focusing on the development of Trident Park which is reportedly progressing in line with established timeframes in order to welcome its first tenants in early 2021. Trident Estates launched the Trident Park project on the market during 2018 and the company also indicated that the “interest received so far from potential tenants has been encouraging and indicative of the project’s future success”. In fact, CEO Charles Xuereb commented in the Annual Report published this week that “we are looking forward to finalise an agreement with an anchor tenant within the coming months”. The company secured a banking facility of €28.5 million for the Trident Park development and additionally a €15 million rights issue is expected to take place during the fourth quarter of 2019.

The share price of Trident has been exceptionally volatile especially considering the nature of the company’s activities. Shortly upon listing at the end of January 2018, the equity rallied by 53% to a high of €2.00 within a few weeks. It subsequently declined by 33% heading back towards the spin-off price of €1.24 but then started to edge higher again towards the end of 2018 to close at the €1.50 level representing an overall increase of 20.9%. The share price eased by over 11% during the first three months of 2019 but then began to rally once again in recent weeks as it traded up to a high of €1.76. Meanwhile, the net asset value per share as at 31 January 2019 was of €1.2610 and given the nature of the company’s property development activities, periodic movements in property values will influence the company’s financial performance and resultant net asset value also in subsequent years.

The other major asset of Trident Estates is Trident House in Qormi having a total site area of 13,215 sqm which is valued in the financial statements at €10.7 million. The current built footprint of Trident House is of only 3,210 sqm and is leased to the food important subsidiary of Simonds Farsons Cisk plc. The eventual development of this sizeable parcel of land could be an interesting initiative for shareholders, however this will only materialise following completion of the Trident Park in 2021.

Given the various changes taking place in each of these three companies, regular communications to the market via company announcements are important for all investors to be kept abreast of the developments taking place.

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