Hammerson rental income slips as it prepares to exit retail parks

Hammerson posted its half-year report on Tuesday, reporting stability in valuations as well as earnings per share at 15.1p, and also announced a reshaped strategy to “elevate and accelerate” performance.

The FTSE 250 shopping centre owner said it would do that with a higher quality portfolio of winning destinations, enhanced by greater levels of operational excellence and capital efficiency.

For the half-year, Hammerson said group valuations were “stable”, with continued growth in its premium outlets and Ireland property offsetting a small yield-driven valuation decline in the UK.

Adjusted earnings per share were unchanged at 15.1p, with the board reporting “solid demand” for its retail space from retailers, as £13.6m of new leases were signed at 4% ahead of estimated recovery value and 5% ahead of previous passing rent.

It reported 97.2% occupancy and a small uplift in leasing volume at its UK shopping centres to £6.8m from £6.6m a year earlier, despite an “unusually turbulent” retail backdrop.

A total of 104 units across the portfolio were in administration or were subject to company voluntary arrangements (CVAs), with 87 of those units currently trading.

That had reduced first half net rental income by £2.1m, with the full-year impact anticipated to be £5.8m, or 1.5% of passing rent.

Hammerson achieved £300m of disposals so far this year, including four UK retail parks, in total 10% below December book value.

Construction began on extensions at Les 3 Fontaines, Cergy and Italie Deux, Paris with the company saying it was “on track” to deliver an attractive estimated yield on cost of around 6%.

Its value retail portfolio sales were up 6%, with Bicester Village trading well, and remerchandising and reconfigurations supporting retail sales growth of 6% at VIA Outlets.

The company’s loan-to-value ratio was marginally up at 37%, with the board also reporting “substantial” liquidity of £878m.

Looking at the books, Hammerson’s net rental income fell 3% year-on-year to £178.5m for the six months to 30 June, with adjusted profit rising 0.5% to £120m.

Its interim dividend would be 11.1p per share - an improvement of 3.7% on the same time last year.

On its strategy, Hammerson said its new focus would be solely on two winning retail segments with enhanced like-for-like net rental income growth prospects - flagship retail destinations, and premium outlets.

It said it would exit the retail parks sector over the medium term, with a disposal target of £1.1bn by the end of 2019 - £300m of which had already been achieved this year, with an increased overall 2018 target of £600m.

The board also confirmed the launch of its ‘New City Quarters’ concept, which was designed to maximise value from the “highly attractive” land surrounding its shopping centres.

It also wanted greater geographical diversification with non-UK retail exposure increasing by around 10%.

Hammerson also wanted to achieve a “step change” in its retailer line-up, by shrinking department store space by a quarter and high street fashion by a fifth, to be replaced by differentiated brands, aspirational fashion, leisure, events and lifestyle spaces.

It said it would devote more resource to meet increased consumer demand for experience-enhancing events and a “sophisticated” digital offer.

Hammerson wanted to deliver cost savings of at least £7m per annum through operational efficiencies and lower corporate costs associated with disposals, as well as board and other management changes.

On the capital front, the company confirmed it was commencing a share buyback of up to £300m, and was planning to deleverage with the intention to reduce its loan-to-value to the mid-30s level over the medium term.

Due to increased risks in the current market environment, the start on site of the development at Brent Cross was set to be deferred, the board said.

“Our reshaped strategy sees us taking decisive action to further reposition our portfolio,” said chief executive David Atkins.

“Through increasing the level of disposals, including exiting the retail parks sector, we will now focus solely on winning destinations of the highest quality - flagship retail destinations and premium outlets.

“These are the venues we believe will maintain relevance and outperform against the shifting retail backdrop.”

Atkins said Hammerson’s customer and retailer offer would be “amplified”, which would include a step change in its retailer line up.

“We will reduce the amount of floor space let to department stores and high street fashion as we actively focus on the latest consumer trends and take bolder steps to provide the best retail mix.

“Our results today demonstrate the resilience of our business,” Atkins added, saying that the board was taking “tough decisions” and had “absolute conviction” in its own ability to deliver.

“By reprioritising our capital deployment and repositioning our portfolio, we will accelerate future shareholder value and returns.”