Hammerson Ordinary 25p Shares (HMSO)

Company overview

Hammerson is a major UK property investment and development company. It not only operates in the United Kingdom (over 70% of the portfolio), but also owns significant developments in France. The portfolio is valued in the region of £5.1 billion, with developments divided between 28pc office accommodation, 52pc shopping centres and 20pc in retail park development.

HL Comment (8 November 2011)

London headquartered property development and investment company, Hammerson issued an interim management statement today, (8 Nov) for the period 1 July to 8 November. Britain's third-largest Real Estate Investment Trust highlighted that occupancy levels across its portfolio remained stable at 97.1% (30 June 2011: 97.2%) and that it had signed 81 new leases, representing 23,000 square metres, equating to £4.4 million of rental income per annum. Elsewhere, footfall and sales at its British shopping centre portfolio declined 1.9% and 3.8% respectively while in France footfall and sales fell 4.9 % and 6.5% respectively, the company said. Despite the weakening economic conditions, the group's regionally dominant shopping centres and conveniently located retail parks continue to attract successful retailers. Occupancy levels across the portfolio are stable and management remained confident in its ability to capitalise on prevailing retail trends.

Negative Points:

• The economic environment weakened during the quarter with consumer confidence at low ebb in both the UK and France.
• Should occupational demand weaken more than anticipated, it could result in a decline in rents and property values, with a rise in tenant defaults and vacant space negatively impacting cash flows.
• A reduction in investment market liquidity due to a lack of debt funding could lead to a fall in values, which would negatively impact loan to value (LTV) ratios. This could lead to covenant breaches and hinder the refinancing of debt.
• Group net debt stood at of £2.2 billion as at 30 September 2011 (30 June 2011: £2.2 billion).

Positive Points:

• The group said it remained confident in the long-term outlook for the London office market.
• In London, negotiations are progressing with CMS Cameron McKenna in respect of the pre-letting agreement for Principal Place, London EC2.
• At 99 Bishopsgate, London EC2, where Hammerson acquired the freehold in July, Deutsche Bank has now vacated the majority of its 13,500m2 office space, and the company will shortly begin refurbishment works which are due to complete by autumn 2012.
• Operational efficiency has been improved. A review of the firm's UK retail, legal and agency services resulted in the company bringing a greater part of the leasing process in house, broadly halving negotiation times.

Consensus:

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.