PICK OF THE MONTH

“We believe best in class destinations will remain a part of how and where consumers continue to spend their money

Hammerson shareholders are no doubt still licking their wounds after a highly dilutive rights issue and capital reorganisation this month.

The latter led to a consolidation of one share for every five held. It made the UK and Western European-focused mall owner’s share price plunge to new lows of R6.40 (by September 10), taking the year-to-date loss to 97%.

Hammerson listed at R580 when it made its JSE debut on September 1 2016. At the time, it was the JSE’s largest real estate counter with a market cap around R100bn. This has dwindled to barely R1bn.

Hammerson has been one of many UK-focused mall owners hit by negative investor sentiment, as online shopping gained traction and Brexit concerns put pressure on real estate valuations. But the advent of Covid-19 in March and subsequent trading restrictions on shopping centres has accelerated losses for retail property owners worldwide.

Hammerson reported a 44% drop in net rental earnings and adjusted profits for the six months to the end of June. Earnings per share fell by 84%. Interim dividends have been postponed and shareholders will have to be satisfied with a year-end scrip instead of a cash dividend.

The flip side to Hammerson’s value destruction is that the company may be poised for a post-Covid recovery. It presents a great buying opportunity as the stock is trading at what seems to be a giveaway price. That notion appears to be supported by astute property heavyweight Des de Beer, MD and founder of SA mall owner Resilient Reit, who last month bought a chunk of Hammerson shares. He joined the Hammerson board as a nonexecutive director in June.

Stephen Delport, CEO of Lighthouse Capital, the JSE-listed European-focused property and infrastructure play that is a major shareholder in Hammerson, also remains bullish on its longer-term prospects. Following Hammerson’s announcement in August that it would seek to raise capital and sell some assets, he came out in support of these transactions.

Delport acknowledged that retail has been hit hard globally by the structural changes taking place in the sector, made worse by Covid-19. But he added: “We have a firm belief, shared by many retailers, that best in class destinations will remain a key part of how and where consumers continue to spend their money.”

Granted, no-one knows exactly what the long-term impact of the Covid-induced rise in online shopping will be on sales in traditional retail centres. But investors who are willing to bet that there will still be a place for brick-and-mortar stores where shoppers can engage their senses and interact with people to guide their purchase decisions (IM certainly does) should take a fresh look at Hammerson.

The company, after all, owns and operates one of the largest and most diversified retail portfolios in the UK and Europe. Hammerson’s £7.7bn portfolio of assets across the UK, Ireland, France and Spain include flagship leisure and shopping destinations such as Brent Cross in London and Bullring in Birmingham, the Dundrum Town Centre south of Dublin and Les Terrasses du Port in Marseille. It also owns stakes in various premium outlet centres that sell discounted luxury brands as well as socalled value villages.

Management has been highly rated for its proactive moves to unlocking value for shareholders. While the rights issue wasn’t popular, it underscores management’s willingness to make hard decisions.

The rights issue, as well as the disposal of the company’s 50% interest in premium outlet business VIA Outlets for £274m, is expected to deliver proceeds of about £794m, which will be used in its entirety to reduce Hammerson’s £3bn debt burden. In another bold move, CEO David Atkins plans to replace the UK’s outdated leasing model with a simpler, more flexible approach, which will no doubt be welcomed by retailers. “The pandemic has exacerbated structural shifts in retail and provided further evidence that the UK’s historic leasing model has served its time. It is outdated, inflexible and needs to change,” he says.

Investors need to adopt a three- to five-year horizon: an overnight recovery in the share price is unlikely. Stanlib property analyst Ahmed Motara says there are still unknowns that “make it difficult to see material value being realised in the short term”.

These “unknowns” include how much further rentals and asset valuations in the UK could potentially fall. ●