Hammerson Bets Big on Retail

LONDON -- Specializing in retail properties looks like a dangerous gamble in the current economic climate, yet it seems to be working for Hammerson (LSE: HMSO.L  ) . The property company revealed a 5.5% increase to its interim dividend this morning, despite a small slip in net rental income.

Hammerson now has 97% of its 5 billion pound investment portfolio in retail properties across the U.K. and France, following last month's announcement that it was selling most of its London office assets for 518 million pounds.

Among its major new developments, department store Printemps has been signed as an anchor tenant at a site in Marseilles. In Leeds, John Lewis is heading the first phase on a new development that will begin construction in 2014.

Existing properties seem to be performing well, too. We still hear many headlines bemoaning empty high streets, but Hammerson's occupancy rate is currently 97.5%, ahead of its 97% target rate. The group is targeting what it calls "dominant" shopping centers and retail parks, such as Brent Cross in London and Birmingham's Bullring, with an emphasis on customer convenience and experience.

Gearing shrank from 52% to 50%, and will fall to 36% when the London office sale is completed, meaning Hammerson should have plenty of firepower to expand its property portfolio should the right deal come along.

The bad news for investors is that a lot of good news is in the share price already, with the shares up 30% so far this year.

At 463 pence, Hammerson trades on a 13% discount to its net asset value of 535 pence per share, and the shares yield 3.7%. Although some other property companies are trading at wider discounts right now, and also offer a better income, Hammerson is trading on pretty similar ratios to its larger rival, British Land (LSE: BLND.L  ) .

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Stuart does not own any of the shares mentioned above. The Motley Fool has a disclosure policy.
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