Hammerson is a real estate investment trust (often referred to as a REIT). This means it owns, operates, or finances income generating real estate. Hammerson owns and operates commercial properties throughout the UK and across Europe including in France and Ireland. The majority of its property assets are retail.
Hammerson nearly collapsed last year in the wake of the pandemic. The recent e-commerce boom, an issue for retail prior to the pandemic, as well as restrictions and retail closures that forced many firms to close, led it to the brink of collapse. Rent collection also became tougher during the pandemic period. Recent signs from larger REITs indicate commercial property demand is on the up and rent collection seems to be back to pre-pandemic levels.
Penny stocks are those that trade for less than £1. As I write, Hammerson shares are trading for 31p per share. A year ago, shares were trading for 21p, which is a return of 47%.
For and against
FOR: Hammerson recently reported positive performance in its latest trading update at the end of October. It reported that footfall throughout its retail portfolio was approximately 15%-20% lower than pre-pandemic levels. In the UK, however, it had surpassed pre-pandemic levels. Rent collection for FY 2020 was 94% and 2021 year-to-date stood close to 80%. I am buoyed by this and think the upward trajectory in performance, footfall, and rent collection could continue.
AGAINST: I understand past performance is not a guarantee of the future but I use it as a gauge. Hammerson does not have the best track record of performance, with consistent losses reported over the past few years. Losses are usually a red flag for me. It is not uncommon to see penny stocks record losses consistently.
FOR: A recent commercial property market survey indicates that the market as a whole is on the up. As a Foolish investor for the long term, I am not expecting huge returns overnight from my investments but should be patient to gain some returns in the longer term. Hammerson is in a good position to benefit from any upward trajectory in the market. It has a good footprint throughout several countries. Also, pent up demand to get out and shop after the pandemic and restrictions should boost footfall.
AGAINST: Hammerson faces some major competition and there are other REITs out there that possess a larger footprint and have more diversified property portfolios. Two that come to mind are British Land and Landsec. The retail-rich nature of Hammerson’s portfolio does not fill me with confidence. The threat of further restrictions, especially after another new variant of the virus has the world on alert, is not a good sign for retail outlets.
Better penny stock options
After carefully reviewing the options I would not add Hammerson shares to my portfolio right now. Its track record does not fill me with confidence and loss-making firms are ones I usually avoid. In addition to this, the future of retail due to the pandemic and e-commerce boom is too uncertain for my liking. I believe there are better penny stock options out there for me that will offer me more consistent and generous returns.
Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.