The FTSE 250 real estate investment trust (REIT) Hammerson (LSE: HMSO) had an uneventful start to 2021 on the stock market. Until late last month, that is. The Hammerson share price started rallying in the second half of February. And as I write, it has risen more than 77% in a month.
Hammerson share price up despite poor results
While many stocks have gained in recent months, I have not come across too many to make such impressive share price gains recently.
Even more impressive is the fact that the Hammerson share price climb is undeterred by its poor recent results. The shopping malls owner has reported its biggest loss to date. It also saw a sharp drop in rental income. Covid-19-related closures have meant that retailers have deferred payments.
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Improving outlook for retailers post-lockdown
The outlook for retailers has got better though. Signs of a pick-up in retail are visible already, even though we are only in the first phase of a lockdown easing programme. Retailers are slated to reopen from April 12 onwards. This should improve some prospects for shopping malls further.
Growth forecasts for 2021 and 2022 have been upped recently for the UK. Economists are bullish on consumer spending in the foreseeable future, going by existing pent-up demand. There is also some speculation that we are in for a decade of high growth, which could mean a boom for many consumer-linked businesses.
Macro risks ahead
However, the one catch here is that we will know how the economy is doing only after the lockdown ends. There is the risk of business closures as supportive policies are gradually withdrawn. Taxes are also slated to rise to fund the government’s high debts accrued during the pandemic.
And there is still the very real risk that the pandemic may not really be over. There are new coronavirus variants out there, and vaccines may be less effective against them.
HMSO’s weak performance
Even if the economy does pick up pace and the spread of coronavirus variants is controlled, I am not sure that HMSO’s fortunes will improve significantly. I say this because both the company’s revenues and profits have been falling for a few years now. It has been streamlining its property portfolio, but so far the rewards of this have not been visible.
Challenges for the physical retail industry
Hammerson’s poor performance can be seen in the context of the challenges that bricks-and-mortar retailers have faced in the past few years. Online shopping was on the rise in any case pre-pandemic, and in the post-Covid 19 world it will likely be stronger than ever before.
I reckon that this sharp switch could make it harder than before for retailers to attract footfall to their stores. Shopping malls will, of course, be impacted as a result.
The takeaway
Even though the Hammerson share price increase may look attractive right now, I am not convinced it is the right pick for the long-term investor. I may instead want to consider another REIT with strong exposure to e-commerce — Tritax Big Box — which I also wrote about last week as a share with long-term potential.
