Hammerson reported strong financial and operational progress lifted by the "transformational" £1.5 billion sale of its stake in the Value Retail outlet centres business, and at its remaining centres by a "summer of sport".
The REIT, which has been overhauling its business by repurposing its assets into a core portfolio of city centre mixed-use destinations while completing a major disposal programme, said positive footfall growth continues across its estate, with "activations" anchored by the "summer of sport" helping to drive visitors to its city-centre destinations.
Three of Hammerson’s destinations have been selected as part of nine nationwide Official Team GB and Paralympics GB Fanzones – Bullring in Birmingham, Cabot Circus in Bristol, and Westquay in Southampton. Its centres have also hosted gatherings to view the Wimbledon tennis tournament and the European Championships in football.
The REIT said after three years of "intensive turnaround, we have entered a new phase with the capacity and capability to invest to accelerate growth".
It said improvements in its "top line" performance had enabled a 5% hike in the interim dividend to 0.756p pence per share.
Speaking to CoStar News, chief executive Rita-Rose Gagné said: "You always a take a bit of a step back and reflect on results. The last three years has been a turnaround and we had a very specific list of things to do, and some were tough things to do. I feel today that this has been done but at the same time there is a lot more to be done when you look at the portfolio. I am so very pleased to turn the page on the disposal of Value Retail firstly.
"And then the high point in the results is the returns show a sustained growth across the underlying operational portfolio that is driven by the key core programme of the portfolio under our ownership. There is 24% higher value on the leasing side and a high level of demand from the best occupiers. For instance Sephora signing in Bullring and Marks & Spencer in Cabot. We are really seeing growth at the top end and that has given us top line growth.
"And you are also seeing a strong balance sheet. That distinguishes Hammerson today from other operators. It is really important in the market as we are in at an inflexion point where inflation is going and there is less volatility in the political landscape in the UK and so I think 2024 will be a good year. Remember our assets are sitting in the middle of cities that have a surrounding loyal catchment area - we are not subject to international volume."
In half-year results to end of June, the REIT posted adjusted earnings of £50 million, down from £56 million in the same period last year, reflecting the impact of disposals it said. Adjusted earnings per share were 1p (half year 23: 1.1p).
On Monday, Hammerson confirmed the disposal of its non-controlling interest in Value Retail, which it says ensures a clean exit from a complex structure at an attractive price, generating £600 million in cash proceeds.
It says the proceeds will be used for a mix of an immediate significant deleveraging, as well as reinvestment into higher yielding assets and a return of up to £140 million to shareholders via a share buyback, representing 10% of the market capitalisation.
On 22 July Hammerson, said it is proposing to simplify its share capital through a 1 for 10 share consolidation, and to increase distributable reserves by reducing the company's share premium account.
Hammerson said the focus of its reinvestment will be on joint venture consolidation and "repurposing asset enhancement initiatives". It is clear that Hammerson is planning to buy out some investor partners in its shopping centres.
Reviewing its three-year overhaul of the business, Hammerson said it has fixed the balance sheet, focused on a core portfolio of city centre destinations, overhauled its ways of working, partially by digitising and automating business and reducing costs. Rents are increasing off a new base. Its focus is on the completion of the repurposing of obsolete and underutilised space, further asset repositioning and enhancement, the potential to consolidate joint venture partners, capital light investment to unlock optionality and value on its 80 acres of strategic land. It is also focused on the continued rotation of occupiers to "strong, best-in-class brands most desired by the visitors in each of our unique catchments".
Hammerson posted a pretax loss for the period of £517 million, against a £1 million loss in the same period last year, predominantly reflecting the impairment of the investment in Value Retail from a carrying value of £1.1 billion.
The managed group portfolio is valued at £2.6 billion, down from £2.776 billion in December 2023 and broadly flat excluding disposals, with revaluation gains in the UK and France due to estimated rental value growth. There was a revaluation loss in Ireland due to yield expansion.
Net tangible assets per share were 38p (full year 2023: 51p).
The headline loan to value is reported as 39%, but on a pro forma basis to reflect the subsequent disposal of the group’s interest in Value Retail the loan to value falls to 25%.
Hammerson reported leasing value up 24% year-on-year to £23 million, or £13 million a share, from 140 deals. Occupancy is 94% while it undertakes "proactive repositioning" of its sites.
The footfall is up 1% year-on-year.
Hammerson added that there had been a continued "cost reduction outperformance" with gross administration cost down 16% year-on-year. This will deliver in excess of 30% cost reduction since full year 2020 by the time of the full year 2024 results, it says.
The Board intends to increase the policy payout ratio from its current policy of 60-70% to 80-85% following the completion of the sale of Value Retail.
Gagné said: "In terms of the Value Retail disposal impact on the dividend, the earnings meant we were already out of the current range of 60 to 70% at 76%, and now with the sale we are going to 80 to 85% which brings us in line with the market.
"Looking forward at our sites we are focused on enabling sites and we will decide when to press on with major development opportunities. We have a gross development value in the pipeline of £5 [billion] to £6 billion and 6,000 to 7,000 build to rent homes potential. It is a big opportunity. Watch out for Cabot and Oracle in Reading where we are doing repositionings. Bullring and Dundrum are continuing to fly high.
"The valuations have been flat – that is stable – and now as the environment evolves there are nice upsides there. On the ERV we have had gains on that side and valuers are recognising the proof points we can give them on rents and that is flowing through. There has been positive reversion for the first time since 2018."
Panmure Liberum Real Estate, in its analysts' note, said Hammerson had delivered an "expected set of results following the announcement of the disposal of Value Retail" with "resilient property valuations in the core portfolio".
"Market yields remain unchanged in UK prime shopping centres and France with outward yield movements in Ireland."
It added: "We think management have taken the correct steps to simplify the group structure and investment case, bring the company assets back under the control of management and allow for a combination of deleveraging, re-deployment of capital into higher yielding shopping centre assets and provide capital to drive development initiatives. We expect strong earnings momentum to stem from investment of the proceeds from Value Retail into higher yielding shopping centre assets."