Hammerson (LSE:HSMO) recently released its 2020 full-year results and reported its biggest loss since its incorporation in 1940. But the Hammerson share price increased by 20% on the news!
If you’re confused by this, you’re not the only one. Let’s take a look at what happened, why the share price went up on bad results, and whether I should be adding the stock to my portfolio.
A rising share price after a record loss
Hammerson is a real estate investment trust. This means the business buys properties, rents them out, and then returns 90% of its earnings to shareholders via a dividend. In the case of Hammerson, the properties that it invests in are shopping centres.
With the lockdown restrictions preventing non-essential stores from opening, many shopping centres and malls were predominantly deserted last year. And due to the reduced footfall, store owners struggled to keep up with lease payments.
Consequently, Hammerson’s rent collection dropped to 76%, new leases fell by 35%, and the overall occupancy level dropped from 97.2% to 94.3%. Combining all these factors led to the company reporting a £1.7bn loss for 2020.
Needless to say, those are pretty terrible results. So why did the Hammerson share price increase by 20%?
Reasons to be optimistic
The UK government recently unveiled its plans to ease lockdown restrictions. Under the proposed roadmap, non-essential stores will be able to re-open their doors as of April 12. This is fantastic news for Hammerson, store owners and the economy in general.
What’s more, economists at Deutsche Bank have estimated that more than £160bn of excess savings currently sit in bank accounts. This excess has built up from the simple fact that the usual consumer spending destinations have all been closed for months. An estimated 5%-10% of these savings are expected to be spent shortly after restrictions are lifted, leading to a significant increase in the UK’s GDP.
The pandemic has definitely created chaos for Hammerson’s business as well as its share price. However, it has successfully kept up with its expenses and even raised £800m in 2020 by rights issues and selling some of its properties. Another encouraging sign is that the management team has announced its intention to re-establish the stock’s dividend and pay a special dividend as well. If approved by shareholders at the annual general meeting in May, the combined dividend payments will be equal to 2.2p per share, which at today’s price of 38p, is a yield of 5.7%.
Hammerson share price: time to buy?
The worst does seem to have passed for Hammerson. At least that’s what I think. But it still has challenges ahead. For example, many retailers are in danger of going under post-pandemic and Hammerson may continue to see its occupancy levels drop.
However, assuming that everything goes smoothly and tenants are once again able to meet their rental fees, I believe the Hammerson share price will recover in 2021.
Having said that, I’m not particularly interested in adding the stock to my portfolio. Shopping centres have seen a slow decline in footfall even before the pandemic hit. As e-commerce becomes more prominent and delivery infrastructures more developed, I believe this downward trend will continue over the long-term. And with it, the Hammerson share price.
