There’s no denying that Hammerson (LSE: HMSO) shares have been hit by the coronavirus crisis. The 2020 full-year results emphasise the extent of the damage the pandemic has caused. But the question I ask myself is are Hammerson shares a buying opportunity? Is the worst over? Here’s my take on the stock.
Hammerson: an overview
Hammerson is a commercial property landlord. In other words, it owns non-residential properties and earns rental income from its tenants.
Hammerson predominately owns shopping centres in the UK and across Europe. Its property portfolio includes prime sites such as the Bullring and Grand Central in Birmingham, as well as Brent Cross in London.
The results
I can’t say that I’m surprised by Hammerson’s 2020 full year results. What did I expect when Covid-19 temporarily closed shops? On top of that, the retail sector has seen a number of casualties that have had to close down permanently. I reckon it has been a case of survival of the fittest.
Of course, this was going to have a knock-on effect on Hammerson’s revenue and profitability. Not only did rental income take a nosedive but property valuations tumbled. Hammerson suffered a 49% drop in net rental income to £158m for 2020. It also generated a catastrophic £1.7bn loss for the financial year.
Strategy
I reckon investors knew things were bad, but this huge loss highlights the severity of the situation. But all is not lost with Hammerson shares… there’s a silver lining!
Management know things are bad, so the focus is now to improve what the company already has. This means shoring up the balance sheet. Hammerson has raised money through a rights issue and it’s selling properties.
In the short term it should have sufficiently liquidity to weather the coronavirus storm. It can use the funds to also pay down its debt, thereby improving its financial position. In fact, net debt for 2020 reduced by over £600m to £2.2bn. It will also refinance its existing liabilities.
Hammerson is undertaking a strategic review of its property portfolio. It recognises that it’s too retail-focused and that decisions need to be made on the future of the business.
In its full year results, the company announced it will pay a final 0.2p cash dividend with an enhanced scrip dividend alternative of 2.0p per share. However, the fact that it’s paying investors with some stock highlights that it can’t fully afford to pay in cash. Again, it reinforces that things are bad.
My view
The stock has been hit hard by the pandemic but I think this is a buying opportunity. I reckon Hammerson is taking the right steps, but it won’t be smooth sailing.
The focus is not on growing the portfolio but restructuring the business for the long term. I think Hammerson’s properties are located in some great locations.
But I reckon it could convert some of its retail portfolio into a residential home. By becoming a residential landlord, it would mean that it’s diversifying its assets. But this is me just speculating. I guess I will have to wait and see what the company announces after the review.
I think the worst could be over for the landlord. So, as a long-term investor, I’d buy Hammerson shares despite the huge 2020 loss.
