Should I Buy Hammerson?

LONDON -- I'm window-shopping for shares again, and there are plenty of goodies for sale. Should I pop Hammerson (LSE: HMSO  ) into my basket?

REIT on
When companies say they're going through a "transformational" period, it usually means they're in trouble. That's not the case with real-estate investment trust Hammerson. It recently posted healthy full-year results for 2012, with a 2.1% rise in net like-for-like rental income to 258.8 million pounds for its portfolio of shopping centers, retail parks, and designer outlets. It remains confident of future growth, with a 4% rise in leases signed. Should I buy it?

These results are a little hard to evaluate because of Hammerson's transformational decision to sell its portfolio of offices to focus exclusively on retail. It has disposed of 627 million pounds of office assets at a 7% premium to net asset value, which is impressive, given that other companies doing the same have suffered writedowns. It has also invested 541 million pounds into a spread of retail venues and now owns 22 prime shopping centers -- including Brent Cross in London and the Bull Ring in Birmingham -- plus a spread of well-located outlets in France. I'm a little concerned about the company piling into retail, given straggly consumer confidence, dwindling disposable incomes, and falling footfall. Neither the U.K. nor France is a bastion of consumer confidence right now.

London, Paris, Croydon
Another worry is the rise of online shopping. Retail parks may have triumphed over the high street, but could they succumb in turn to the Web? Hammerson doesn't think so, and it has a strong investment program targeting retail destinations in Leeds, Marseille, Beauvais, and Croydon. With so many high-street names going into administration, I thought it might struggle with occupancy rates, but that hasn't been the case so far. Occupancy was a mighty 97.7% in 2012, beating its target of 97%.

The financial crisis hit the property sector particularly hard, as you can see from Hammerson's five-year performance figures. The trust is still down nearly 50% since then, while the FTSE 100 now shows a modest 4% gain. But it is up a healthy 35% over three years and 24% over the last 12 months, against 20% and 11%, respectively, for the index as a whole. Forecast earnings-per-share growth looks strong for 2013 at 21%, but it dips to 9% next year. So is Hammerson retail therapy for your portfolio?

The REIT stuff
To qualify as a REIT, companies must distribute at least 90% of their taxable income to shareholders every year. Hammerson gives a pleasant yield of 3.4% following a recent 7.5% hike to 17.7 pence a share, just beating the FTSE 100 average of 3.2%. It looks in strong shape, with net operating expenses falling 7% in 2012 and finance costs down 11% year on year. Broker Exane BNP Paribas expects it to outperform, with a target price of 5.70 pounds -- more than 6% above the current market price of 535 pence. Jefferies International has it as a hold, with a 5.39 pound target price. Hammerson is tempting, especially for income seekers, but it isn't a must-have stock.

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