Hammerson offers more bad news

This time last year, we wondered whether Hammerson’s (HMSO) asset values had bottomed. Then the disastrous 'mini' Budget caused interest rates to spike, and the beleaguered shopping centre landlord found a new bottom. Much like its real estate investment trust (Reit) peers, it swung from a pre-tax profit to a loss in its results for the six months to 30 June thanks to a valuation hit.

Unlike its peers, however, this valuation hit came after years of Hammerson’s properties cratering in value due to the existential crisis to physical retail from the rise of online shopping. Also, unlike its peers, a big chunk of this period’s valuation slump was a £22.1mn impairment charge from the collapse of its Highcross and O'Parinor joint ventures, in which it had 50 per cent and 25 per cent interests respectively and had secured £125mn of debt against.

Despite this, the company’s leverage has been reduced from last year. By increasing its cash coffers through a sell-off of assets, reducing its debt, and increasing its revenue, its bank balance looks healthier. Moreover, its reported group net rental income, which shows rental income less the costs of running the buildings and before valuation changes, has increased, albeit by a mere 2.3 per cent on a like-for-like basis. The return of its cash dividend is also a sign of recovery.

We remain bearish on Hammerson, though. Lower than expected inflation figures gave it and many other Reits a share price bump earlier this month, but a recession reversing its net rental income growth is still possible. Investors cannot rule out further slumps in the value of its assets either. We stand by our call. Sell.

Last IC view: Sell, 26.3p, 20 Apr 2023