Member Info for JGFFourie

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.

The fact that Highcross has been placed in receivership has had an adverse effect, not only on the share price of Hammerson, but also on the share prices of other REITs having an exposure to retail shopping centres. It is bad news for the sector - it means that Hammerson did not consider that Highcross was worth saving. However, it is not all bad news in economic terms. The centre will be sold, at a knockdown price, of course, however, Hammerson’s share of the debt will be largely repaid. So, while it will lose an asset, it will also lose a liability. There might, possibly, also be a lucrative management contract available, since the Receiver will not wish to assume direct responsibility for managing Highcross. Nevertheless, the fact that so large a shopping centre has been permitted to go into receivership does cast a long shadow over all retail shopping centres. It is unlikely, however, that the share price of Hammerson will go into free fall - it will probably settle at about half the current net asset value per share, that is, about 25.5p.

Yes, the price is still holding up. I bought some today at 54.8p. The price seems to be reasonable stable at about 55p, which gives a return of over 6%.

You are right - in the long term, this will represent a good, sound investment, providing a return, at the current share price, of about 6%. I bought some today at 55p.They seem to have over reacted to the share going “ex div” today.

More of a bargain, of course, if you had waited until now, when you could have paid 56p.

Indeed - the share price is even higher today, now than it was before the share went ex-dividend - a real gain of 10% overnight. There is no apparent explanation for this sudden rise in the share price, except that it was probably grossly undervalued before the 10% effective rise.

I wonder why, since the shares went “ex dividend” today, the price has remained the same? Presumably, anyone who buys a share today at 18.5p will only have an ex dividend share worth 90% of the value of a share held yesterday (since he will not receive the 2p scrip dividend), even though the price yesterday was also about 18.5p. No doubt someone will explain why this is the case.

Hammerson is making a distribution of 2p per share to comply with the requirement that a REIT must distribute all of its taxable income. This means that, at a share price of 17.5p, the company is returning 11.4%. That doesn’t sound too bad, so I bought in at 17.5p and will wait to see if the share prices rises, in, perhaps, three years time, to 35p, which would represent a more usual return of 5.7% The company has sufficient cash in hand to meet all of its debt repayments until 2025. There is no risk of it breaching its covenants. It plans further disposals to further enhance its solvency ratios. It seems to represent a good long term investment.

Scrip dividends are, more or less, neutral, since the net income which would otherwise have been distributed, reducing the cash held by the company, is retained, increasing the value of the company, with the issue of the scrip dividends then restoring the position. However, there are positive factors arising from the retention of the company’s net annual income, since it strengthens the balance sheet, thereby making the company a less risky investment.

The movement seems to be in a contrary direction, just at the moment.

There are two competing forces at work. On the one hand, rising inflation and the recession will have an undoubted impact on the retail economy putting rental income at risk. However, rising inflation also causes investors to look for safe, inflation proof, investments and property has always been seen as the soundest inflation proof investment. So, it is difficult to say in which direction the share price will be pulled by these two competing and opposing forces.

That is all quite correct. The company is issuing these shares in order to comply with the requirements associated with being a Real Estate Investment Trust. Issuing the shares constitutes a “distribution” of the net income received by the Trust so enables the Trust to continue to enjoy the status of being tax exempt. If every shareholder takes up the issue then the net effect will be neutral in accounting terms. However, the effect on the share price will be positive, because the company has retained, rather than distributed, its net profits and this has the effect of reducing its debt to equity ratio. This reduces the level of risk in terms of breaching the covenants under its loan agreements. So, the distribution of income by way of a rights issue is all positive, as far as shareholders are concerned