Property firm Hammerson (LSE: HMSO) reported widening losses today and said it will cut its dividend for 2020 by 46%. The FTSE 250-listed shopping centres owner, including Birmingham’s Bullring and Bristol’s Cabot Circus, posted a pre-tax loss of £781.2m for the year ended 31 December, widening from £268.5m in 2018.
However, a bad year was expected and the shares are modestly higher in today’s trading at 225p. The market capitalisation is £1.7bn and the stock looks distinctly cheap on several of valuation measures. Could it be worth buying, alongside fellow property firms Intu and NewRiver?
Challenging conditions
Hammerson’s profit woes were largely down to non-cash property revaluation losses of £828m. However, net rental income was also down, falling 11.2% to £308.5m, from £347.5m.
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Reflecting challenging conditions on the high street, the company saw 33 of its UK retailer partners enter administration or undertake company voluntary arrangements (CVAs). This affected 94 units across its portfolio, up from 55 in 2018.
Meanwhile, management has been selling off property at discount prices to try and bolster its balance sheet. At the start of the year, net debt was £3.4bn. After £542m of disposals, it ended the year at £2.8bn. And with a further £433m of disposals to date in 2020, it’s now £2.4bn.
Cheap as chips
As I mentioned, the stock looks distinctly cheap on several valuation measures. The current share price of 225p is at a discount of 63% to net asset value (NAV) per share of 601p. Put another way, buyers today are paying 37p for every £1 of Hammerson’s assets.
The price-to-earnings (P/E) ratio of 8, on underlying earnings per share (EPS) of 28p, is also cheap. Meanwhile, despite the board’s intention to slash the 2020 dividend to 14p (from 2019’s 25.9p), the forward yield is pretty juicy at 6.2%.
Tempted?
Some investors may be tempted by Hammerson’s valuation. Personally, I’m not. I can only see further property revaluation losses and falling rental income ahead. And I think debt remains a big concern.
Finally, I took an extremely dim view of the company’s management two years ago. This was because it planned to acquire fellow retail property firm Intu. I thought the idea was bonkers and management ultimately dropped it under pressure from shareholders. I rated the stock a ‘sell’ at the time and maintain my view today.
Alternatives
Could the aforementioned Intu be worth buying into? If Hammerson’s 63% discount to NAV and P/E of 8 are cheap, I don’t know what I should call Intu’s. At its current share price of 14.25p, it’s trading at a 94% discount to NAV and at a P/E of 1.2.
However, the company had eye-watering net debt of £4.7bn last reported on 30 June. Put this against its market capitalisation of just £198m and need for a huge equity raise, and you can see Intu is in a desperate situation. Personally, I’d sell this stock too.
Is there any retail property stock I’d be happy to buy today? Yes, NewRiver. It’s discount to NAV may not be the highest, at 24%, and its 21.6p dividend (11.6% yield at the current 186p share price) may or may not be sustainable. However, as I explained in an article last year, I think its property portfolio is strongly positioned for resilience and growth.
