THE INVESTMENT COLUMN: Hammerson gets into shape

Hammerson gets into shape

First the bad news. Hammerson's share price is 23 per cent lower than two years ago and less than half the level at which it entered the 1990s. The property company's net assets, which ended 1992 at 384p per share, finished last year at 376p. The dividend, cut in half in 1992, nudged up yesterday but by a less than breathtaking 6.5 per cent.

The good news, however, is that the owner of the Brent Cross shopping centre looks in better shape now than at any point since Ron Spinney took over a hopelessly overextended, unfocused world-wide property investor in May 1993. Since then he has cleared out the dross, reduced debt and focused on a handful of markets where Hammerson sees growth.

That good news was just beginning to become evident in full-year figures reported yesterday, which showed a modest 5 per cent rise in rental income translated into a 22 per cent underlying rise in operating profits from pounds 52.7m to pounds 64.3m, a more meaningful figure than the reported number in our table which includes lumpy disposal profits.

Hammerson is now roughly in the shape Mr Spinney always envisaged. About half the assets are in the UK, with a quarter each in Europe and North America. By asset class, the split is about 60/40 in favour of retail over offices.

That balance makes sense with Hammerson's portfolio revealing a wealth of growth potential from the shop assets compared with probably years of stagnation from offices. The retail assets are currently being rented at about 7 per cent below market rates, suggesting good growth. Offices, by contrast, are on average pulling in 30 per cent more than Hammerson could achieve with replacement tenants. Fortunately, most leases still have a long stretch to run, so the income is safe.

In an era of subdued inflation, the challenge for property companies is to generate extra value for shareholders by reading cycles better than their peers, trading properties cleverly, buying the right stock and managing assets astutely.

Most property companies, grown complacent on years of rising prices, do not have a clue how to do those things. Hammerson does, as it has clearly shown with its shrewd purchase and development of 99 Bishopsgate, a bombed- out office block in the City on which the company has already made a handsome turn. With luck it will do the same with its most recent purchase, Birmingham's ugly Bull Ring centre.

Mr Spinney has laid a good set of foundations. All he needs now is for the green shoots of the property recovery to take hold. In the meantime, a 17 per cent discount to forecast net assets of 400p, at yesterday's share price of 342p, provides a solid floor.