Exane downgrades Hammerson on balance sheet constraints

It noted the company has delivered the leading funds from operations/share growth amongst its peers since becoming a retail specialist REIT.

However, Exane argued that this was no longer sustainable due to a balance sheet which is now stretched relative to self-imposed loan-to-value and net debt/EBITDA limits.

“We see FFO growth slowing rapidly post- 2016 as disposals are used to fund long-dated development projects,” it said.

The bank said an estimated 2016 funds from operations yield of 5.2%, growing at 4% compound annual growth rate is no stand-out in terms of income attractiveness.

“Below average total returns also provide little reason for a re-rating on NAV grounds. As such, we struggle to make the case for owning Hammerson over Klepierre at this point in the cycle and downgrade to neutral.”

Exane pointed out that since the inception of Hammerson’s retail-specialist strategy, the stock has underperformed UK REIT peers in periods of UK outperformance and underperformed retail peers Unibail Rodamco and Klepierre when the UK shows relative weakness.

At 0900 GMT, Hammerson shares were down 1.9% to 555.50p.