Hammerson's losses narrow, but net rental income falls

Those waiting on a Hammerson (HMSO) recovery may have to wait a little longer. The shopping centre landlord's IFRS losses narrowed in its results for the last calendar year as it lost less value due to interest rate stabilisation, and revenue ticked up as it increased its headline rent roll. However, net rental income fell as it spent more on service charges and cost of sales.

In other words, tenants will pay more on a headline basis so long as Hammerson gives them more. And even with this lavish attitude towards its tenants, the vacancy rate rose from 4.8 per cent to 5.8 per cent. The implication is that rents have yet to reach a floor for Hammerson, with tenants willing to go elsewhere.

Of course, some of the movement has to do with property sales. The landlord has offloaded over £500mn in unwanted assets since 2022 as part of its euphemistically named "non-core disposal programme". With those sales now complete, Hammerson can theoretically focus on what it wants to keep. Here, things look better, with like-for-like rental income up 5.5 per cent. 

Meanwhile, the full-year dividend has been reinstated at 1.5p per share, covered by adjusted earnings, which rose from 2.1p to 2.3p. However, analysts do not expect the dividend to move much, with the consensus predicting it will nudge up to 1.61p for 2024 before dropping to 1.5p in 2025 due to flat earnings projections in the face of weak tenant demand.

The shares trade at around half net asset value (NAV). That assumes either more asset sales or further devaluations. With interest rates stabilising, we judge this to be overly harsh, predicting that both the NAV and the share price will stay flat for the foreseeable future. As such, we upgrade to a neutral rating. Hold.

Last IC view: Sell, 26p, 27 July 2023