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That, of course, remains to be seen. The success of the Directors will be measured by their ability to complete the current proposed disposal programme successfully. In the present very difficult market for commercial property, that does, of course, represent quite a challenge.
Hammerson represents a good long term investment - prices have been “marked down” today to permit those wishing to invest in the longer term to buy at a favourable price. Based on the current rate of payment of dividends, the return is about 6%, however, this year, only 90% of the profits are being paid out as dividends, so this has the effect of enhancing the value of the shares. The price is likely to settle at about 24p now for quite a long time.
There has been a rather muted response to the announcement of the restoration of dividend payments. It does not really alter the overall position of the company. When the dividend is paid, the company will be worth that much less. However, the disposals seem to be progressing according to plan, so payment of a dividend should not affect the overall viability of the company.
The Board is acting on its underperformance, by retaining all earnings, for the time being. This improves the cash position of the company and increases its value by the amount of the cash retained but also because a sounder financial position makes the company less liable to fail.
Yes, as you say, Hammerson has sufficient liquidity to meet its debt repayments for the next two years. It does need to sell more of its assets within those two years, so as to sure to have funds set aside to repay further debt maturing in 2025 to 2026. By the time the main debt matures in 2027, market conditions might, very well, have improved.
I thought that, at 23.8p this morning, it might be worth taking a small position, as the market seems to value Hammerson, at the moment, at about one-half of its net asset value per share. At a guess, the current net asset value is probably about 48p, so anything under 24p is realistic.
I don’t think that the larger shareholders, who now control Hammerson, are particularly interested in short term share price fluctuations. If the share price falls, it simply represents and opportunity to increase their holdings in the company on advantageous terms. In the long term, if Hammerson can continue to realise sufficient from its disposals program to stave off its creditors, it will represent a very sound capital investment. The larger shareholders see it as a long term investment, rather than as a vehicle to make short term gains speculating on the share price.
It is true that, in the modern high interest climate, the shareholders in Hammerson would be best served if sufficient of the portfolio were to be sold to pay down most of the debt. Then, with a streamlined administration servicing a smaller number of remaining prime properties, the company would be very well placed.
In economic terms, the company is in a far sounder position, given the head winds currently facing the economy, by retaining the dividend for the time being. The survival of the company depends upon having sufficient cash in the bank to stave off attacks by hostile creditors. The more cash the company has in the bank, the sounder its position and, in principle, the higher the value of the share price, since, if the company had paid a dividend, it would have been less valuable to the extent of the dividend paid out. The current fall in the share price is simply that all share prices are currently falling, because of the difficulties faced by some major banks, in particular Credit Suisse.
Hammerson held Hillcross in a separate company with its Japanese investment partner. Clearly, both owners considered that trying to keep the company afloat would simply be a case of “good money after bad” and so they have decided to let it go under. Hammerson will be buffered by limited liability of the separate investment company and will not become liable for the debts of the Hillcross company.
In 2018, Hammerson sold a 50% share of Highcross to a Japanese investor at £236 million. In 2021 Hammerson wrote down the value of its 50% share in Highcross to nil. Hillcross ceased to be profitable as a result of the pandemic. As a result of the value of Hillcross already having been written down to nil, it is not mentioned in the current statement of Hammerson’s position. If Hammerson had not managed to sell a 50% share in Hillcross in 2018 then it would now be worse of by £236 million. So, the news of Hillcross’s insolvency is not at all unexpected and is already fully factored into Hammerson’s accounts.
A share price of 37p was never realistic. Retaining profits rather than paying a dividend is more likely to increase market confidence in the company. As long as it has cash reserves available to meet its debts as they fall due, it is not possible for lenders to move in to put the company into insolvency. The future really depends upon achieving the £300 million in disposals which are planned for this year. A realistic share price at a net asset value per share of 52p is about 25.5p. With the risks involved, Hammerson has tended to trade at a share price representing about half the book value of its net assets.
Share in most REITs have fallen heavily today. The main reason for the fall in the share price of Hammerson is that the market had not really priced in the effect of successive scrip dividends. While the net asset value per share has fallen, this is mainly as a result of the scrip dividend issues diluting the value of the assets per share. For anyone who has received all of the scrip dividends, his holding would have increased so that there is very little real fall in the net asset value per share held. However, for some reason, the market only priced in this dilution in the share value after the figures were formally set out in the Accounts.
Not entirely. The shares in all REITs have fallen today - whether from concerns about the turn of the war in the Ukraine, or a knock on effect from the fall in the price of Hammerson shares, it is not easy to say. However, Hammerson has, recently, tended to trade at about half its net asset value per share, so the price should stabilise at about 25.5p.
I agree - it is not, necessarily, an adverse event. Whether retail property is sold in a forced sale by a Receiver, or by an attempt to negotiate a sale in a very depressed market, the result is likely to be much the same. For Hammerson, the reduction in net debt must be a first priority.
All very true, of course. However, Hammerson has a strategy of selling property for the purpose of reducing its net overall debt. It might have suited it to let the Highcross consortium go under, since there will now be a forced sale of the retail centre and, once the process of receivership has been completed, while Hammerson will, of course, have lost an asset, it will also have lost a liability (that is to say, its share of the debt). So, with retail property being something of a liability at the moment and reduction of debt being a net gain, the news is not all bad.