Shares in REIT Hammerson plc (LON: HMSO) are trading over 4% higher today following the news of a £1.01 billion purchase of Dundrum. It is Ireland’s leading shopping centre and Hammerson states in today’s update that the acquisition will provide it with significant market share and ownership of the largest retail property asset in Ireland.
Dundrum is a shopping and leisure destination and Hammerson has acquired it with JV partner Allianz Real Estate. The portfolio acquisition equates to an initial yield of 4% and a reversionary yield of 4.6%. The costs of the acquisition have been funded by a recent debt issuance, with Hammerson’s credit metrics set to be strengthened by the ongoing disposal programme.
Hammerson expects the deal to make a positive contribution to the current year’s EPS and intends to make changes as necessary in order to bring a fresh approach to the assets and drive improved returns. In this vein it is in-line with Hammerson’s strategy of investing in high-growth European retail markets and enhancing income growth prospects.
Undoubtedly, the current time is a challenging one for REITS such as Hammerson, British Land Company PLC (LON: BLND) and Land Securities Group plc (LON: LAND). Their share prices have fallen heavily over the last month, with Hammerson being down 11%, British Land down 21% and Land Securities falling by 13%.
However, in the case of Hammerson, it has a P/E of 17.8 and in my view that remains rich relative to the risks which it faces. Even though it is forecast to return positive growth in EPS over the next two years, a difficult outlook for commercial property in the UK and Europe could cause disappointing share price performance in my opinion.
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The author does not own shares in Hammerson, British Land or Land Securities at the time of writing.