The Hammerson (LSE: HMSO) share price has slumped in value this year. Following this decline, the shopping centre owner has started to attract interest from value-seeking investors.
However, if you’re looking to buy the stock, there are several things you should be aware of before adding it to your portfolio.
Hammerson share price drawbacks
Hammerson is the UK’s largest listed shopping centre owner. This is both benefit and a drawback. The business has benefited because it has substantial economies of scale. On the other hand, an over-reliance on retail property has undermined the group’s finances.
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The scale of the group’s problems was laid bare in its latest trading update. The firm collected just 16% of the rent it was owed by retail tenants ahead of the third quarter.
To try and shore up its balance sheet, the company recently completed a £550m emergency rights issue. It also raised a large sum from the sale of a portfolio of European shopping malls.
These actions should help the company weather the storm. The extra cash will also help Hammerson share price avoid the same fate as peer Intu, which collapsed into administration earlier this year.
Unfortunately, the state of its balance sheet is only one of the problems facing the group. It’s currently struggling to find a new chief executive to replace David Atkins after he steps down.
The leading candidate, Simon Betty, recently resigned, putting pay to speculation that the insider, who has been with the group since 2006, would take up the role.
Atkins is planning to stay with the business until the beginning of next year. So management has some breathing space. Nevertheless, this is just one of the many headwinds buffeting the business and the Hammerson share price.
As the coronavirus crisis continues, rent collection will likely remain low for the foreseeable future. This will place further pressure on the group’s balance sheet and asset values.
After selling its European assets, the company is running out of options to strengthen that balance sheet. A further cash call could be on the cards if there’s no improvement in the operating environment anytime soon.
Other opportunities
All of the above makes it difficult to place a value on the Hammerson share price. The stock looks cheap compared to history, but it’s difficult to tell how much the company’s assets are worth.
At this stage, it’s also impossible to tell whether or not the business will be able to resume dividend payouts to investors.
As such, I think it might be sensible to avoid the stock. While the company does look cheap, there are plenty of other ways for investors to get exposure to undervalued property.
Many London-focused real estate investment trusts offer a more diversified portfolio and have strong balance sheets. Low levels of debt have given them more headroom to navigate the crisis without having to ask shareholders for additional funds.
