Hammerson waits for post-Covid boost

It is fair to say that prior to the pandemic, Hammerson (HMSO) had a lot of questions hanging over its portfolio of increasingly obsolete and rapidly emptying retail units. It is difficult to predict how the remaining value in the estate is going to be rescued after the pandemic hit has subsided – the overall impression remains that the past six months has merely accelerated a very long-term trend away from trophy retail assets. Investors did see the return of a small dividend, if only to allow the company to maintain its REIT status.

Consumers are clearly still cagey about going into large, enclosed spaces and management reported that footfall across all its territories was 75 per cent below 2019 levels, prior to a big return to the office once most restrictions have been fully lifted. That the company doesn’t expected much once people do come back was evident in the revaluation losses for the half. These totalled £140m, valuing its total development and investment estate at £1.61bn at the period end. Hammerson also has the option of pursuing more disposals after booking £396m of property sales in these results.

There was some stabilisation in net rental income, with more shops able to open and earn; this was £93.8m, compared with £87.3m last time, while management also signalled that there would be no more rental concessions to tenants, though what impact this might have is hard to predict. The overall retail rental market can only really improve from this low point. According to data from commercial property management platform Re-leased, retail landlords collected 67 per cent of owed rent in the second quarter, whereas the figure had been 75 per cent this time last year, leaving room for growth in revenues.

While many of the self-help measures Hammerson has taken have given the company some room underneath its loan covenants, on an operational level it is still bleeding cash. Interest payments of £74m are nearly 50 per cent more than the company generates from its operations. That can be covered by asset sales in the medium term, and debt refinancing in the long, but it is difficult to escape the impression that management is trying to work with rapidly diminishing assets. Even with a recovery in the share price since Christmas, these still trade at about half of tangible book value per share. In this context, that sounds more like distress than a buy signal. Sell.

Last IC view: Sell, 22.5p, 19 Jan 2021