As the UK’s retail sector continues to suffer, shopping centre owners Hammerson and intu top a list of the most shorted real estate stocks in London, suggesting some institutional investors see more pain ahead for the companies.
Short-selling is a strategy in which investors make a bet on the value of a company’s shares falling. They borrow shares and sell them, anticipating that their value will fall and that they can then buy them back and make a profit before they are due to be returned.
About 6.8% of Hammerson’s issued share capital, or £118m, was being shorted as of 18 February, according to analysis carried out for EG by research firm Edison Group.
That makes the FTSE 250 company the most shorted real estate stock analysed by Edison. In second place, intu has 5.6% of its issued share capital shorted, equal to £9m.
Both companies have seen sharp share price falls as problems for the UK retail sector have mounted. Hammerson’s share price has fallen by about 40% over the past year. At intu, the drop has been more than 80% over the same period.
According to Edison’s analysis, investors currently shorting Hammerson include Texan hedge fund Maverick Capital, which is shorting around £43m, and New York’s Bloom Tree Partners, with £23m. The UK’s Odey Asset Management is shorting £6m of intu stock, Edison’s analysts said.
No bargain
Hammerson made its first appearance in Edison’s monthly Short Monitor analysis in January, in seventh place on Edison’s top 20 ranking across all sectors. A spokesman for Hammerson did not comment on the short positions in the company, but said the percentage of stock shorted was lower than in other industries. The top stock in Edison’s January ranking was Cineworld, at which more than 10% of shares were shorted.
Peter Papadakos, head of European research at Green Street Advisors, a real estate research firm, said even Hammerson’s current share price “is no bargain”.
Papadakos added: “Negative investment sentiment is one thing, but a sustainable turnaround in Hammerson’s share price – which will drive the bears to exit their positions by covering their shorts – will only come about once underlying operating/tenant fundamentals bottom out – not there yet – combined with acknowledgment of further significant writedowns of UK retail REITs’ reported valuations.”
Intu, which declined to comment on the short positions, is expected to unveil a new funding initiative alongside its full-year results, due on 5 March. Papadakos said a “giant recap… seems the only forward”.
“The likelihood that intu initiates an equity recapitalisation is now a moot point,” he said. “The question – which we have no reasonable answer to – is whether it will be enough to draw a line under any financial distress concerns that prospective investors have.”
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