2019 HALF-YEAR RESULTS
HAMMERSON plc – UNAUDITED 2019 HALF-YEAR RESULTS
90% OF 2019 DISPOSAL TARGET MET WITH MAJOR FRENCH SALE
Disposal Programme and Portfolio Optimisation
- Disposal update:Total disposals of £456 million; 90% of £500 million target for 2019 achieved
- Contracts exchanged for sale of 75% of Italie Deux and Italik extension for £423 million, representing a net initial yield of 4.1%
- Progressing additional transactions on asset sales across the portfolio
- Committed to the sale of UK retail parks over the medium term; disposals of £33m in H1 2019
- Debt reduction:Pro forma net debt reduced to £3.1bn, gearing 61%, headline LTV 37%
- City Quarters:Planning application submitted for Martineau Galleries, Birmingham, the first major City Quarters scheme; revised mixed-use application submitted for The Goodsyard, Shoreditch, London
Key Financials
- EPS & dividend:Adjusted EPS of 14.0p (-7.3%) impacted by the on-going disposal programme; interim dividend of 11.1p unchanged
- Lfl NRI:Group -0.1%; UK flagship destinations -6.8% impacted by CVAs and administrations; premium outlets +11.1%
- NAVPS & portfolio valuations:H1 NAVPS of £6.85 (-7.2%); Low transaction volumes and a weak UK retail market impacted portfolio valuations. The Group produced a capital return of -4.4%; UK flagships -9.1%; Premium outlets +4.5%; French flagships -3.9%; Ireland flagships -3.2% and retail parks -10.9%
Operational Update
- Repurposing of space:92% of new UK flagship leases signed to non-fashion and F&B brands
- Occupancy:High level of Group occupancy maintained at 96.7%. UK flagship occupancy 96.4%; Ireland 99.5%; France 97.0% and retail parks 96.7%
- Tenant restructuring:UK flagship LFL NRI impact -1.8% in H1 2019 (H1 2018 -0.9%)
- 45 units across UK flagships affected by tenant restructuring in H1 2019, 84% still trading and annualised rent loss of £1.5m
- Over the past 18 months, 49% of UK & Ireland stores impacted by CVAs have been
Category A (no reduction to rent), compared to 37% for the wider market
- LeasingTotal UK flagship rent from new leasing -1% vs previous passing rent: high street fashion -25%; consumer brands, aspirational fashion and F&B +27%
- Footfall:Positive footfall growth across all territories with outperformance of the national footfall index for both UK and French flagships
- UK flagship footfall +0.5%; French flagships +0.5%; and Ireland flagships +0.6%
- Premium outlets: Sustained exceptional performance with premium outlets now accounting for 27% of the Group’s property portfolio
- Continued uplift in brand sales: Value Retail +11% and VIA Outlets +10% vs H1 2018
- Accelerated footfall growth: Value Retail +7% and VIA Outlets +8% against H1 2018
- Net Positive:Further progress towards 2030 target: Energy usage fell by14% following investment in energy efficient technology, delivering a 13% reduction in carbon emissions across the portfolio
David Atkins, Chief Executive of Hammerson, said: “The UK retail landscape is undoubtedly challenging and traditional high street fashion is under pressure. However, our focus on shifting our line-up towards categories with greater customer appeal and rental growth potential has resulted in over 90% of new leasing to leading consumer and F&B brands. We’ve seen a stronger performance in Ireland and France, alongside continued exceptional results from premium outlets which demonstrates the benefits of our diversified portfolio.
“Our absolute priority remains to reduce debt. We stated our intention to achieve over £500m of disposals in 2019 and even in this tough environment where deals are taking longer to transact, we are now most of the way there. We will continue to pursue additional sales throughout 2019 and into 2020 to further strengthen our balance sheet.”
Half-year 2019 results at a glance
| Six months ended: | 30 June | 30 June | Change |
| Net rental income (1) | £156.6m | £178.5m | -12.3% |
| Adjusted profit (2) | £107.4m | £120.0m | -10.5% |
| Adjusted earnings per share (2) | 14.0p | 15.1p | -7.3% |
| IFRS (loss)/profit (including non-cash valuation changes) (3) | £(319.8)m | £55.7m | |
| Basic (loss)/earnings per share (3) | (41.8)p | 7.0p | |
| Interim dividend per share | 11.1p | 11.1p | |
| As at: | 30 June | 31 December | |
| Portfolio value (4) | £9,542m | £9,938m | -4.0% |
| Equity shareholders’ funds | £4,994m | £5,433m | -8.1% |
| EPRA net asset value per share (2) | £6.85 | £7.38 | -7.2% |
| Gearing (5) | 69% | 63% | +6p.p. |
| Loan to value – headline (5) | 40% | 38% | +2p.p. |
| Loan to value – fully proportionally consolidated (5) | 46% | 43% | +3p.p. |
- Proportionally consolidated basis, excluding premium outlets. See page 18 of the Financial review for a description of the presentation of financial information.
- Calculations for adjusted and EPRA figures are shown in note 8 to the financial statements on pages 43 and 46.
- Attributable to equity shareholders, includes portfolio non-cash revaluation losses of £423 million, including premium outlets (30 June 2018: £40 million).
- Proportionally consolidated, including premium outlets. See page 18 of the Financial Review for a description of the presentation of financial information.
- See Table 18 on page 64 for supporting calculations for gearing and loan to value.
Results presentation today:
The results presentation is being held today at 9.00 a.m. at FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD. A live webcast of Hammerson’s results presentation will be broadcast today at 9.00 a.m. via the Company’s website, www.hammerson.com. At the end of the presentation you will be able to participate in a question and answer session by dialling: +44 (0) 207 192 8000 (UK), +353 (0) 14319615 (Ireland) +27 10500 7996 (South Africa), +33 (0) 17670 07 94 (France), +31 (0) 207143545 (Netherlands) and +16315107495 (USA). Please quote confirmation code 3878546. A playback of the webcast will be available at www.hammerson.com.
Financial calendar:
| Ex-dividend date (SA) | 28 August 2019 |
| Ex-dividend date (UK) | 29 August 2019 |
| Record date (UK and SA) | 30 August 2019 |
| Interim dividend payable (UK and SA) | 7 October 2019 |
Enquiries:
| David Atkins, Chief Executive Officer | Tel: +44 (0)20 7887 1000 | |
| Timon Drakesmith, Chief Financial Officer and MD, premium outlets | Tel: +44 (0)20 7887 1000 | |
| Richard Shaw, Director of Finance | Tel: +44 (0)20 7887 1820
| |
| Josh Warren, Head of Investor Relations | Tel: +44 (0)20 7887 1109
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| Catrin Sharp, Head of Corporate Communications | Tel: +44 (0)20 7887 1063
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| John Waples, Dido Laurimore, FTI Consulting | Tel: +44 (0)20 3727 1000
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| CONTENTS
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| INDEX TO KEY DATA Unless otherwise stated, figures have been prepared on a proportionally consolidated basis, excluding premium outlets | Page | ||
| Income and operational – Six months ended: | 30 June 2019 | 30 June 2018 | |
| Occupancy | 96.7% | 96.6% | 56 |
| Like-for-like NRI growth | -4.4% | -0.4% | 19 |
| Like-for-like NRI growth (including premium outlets) | -0.1% | 1.6% | 19 |
| Adjusted earnings per share | 14.0p | 15.1p | 18 |
| Leasing activity | £9.2m | £13.6m | – |
| Leasing v ERV | 0% | +4% | – |
| Leasing vs previous passing rent | -1% | +5% | 1 |
| Like-for-like ERV growth | -2.3% | +0.2% | 17 |
| Footfall growth – UK flagships | 0.5% | -1.6% | 5 |
| Retail sales growth – UK flagships | -2.0% | -2.5% | 5 |
| Footfall growth – France flagships | 0.5% | 2.3% | 8 |
| Retail sales growth – France flagships | 1.3% | 2.9% | 8 |
| Cost ratio | 23.7% | 19.9% | 20 |
| Interim dividend per share | 11.1p | 11.1p | 21 |
| Capital and financing – As at: | 30 June 2019 | 31 December 2018 | |
| Property portfolio value (including premium outlets) | £9.5bn | £9.9bn | 15 |
| Total property return (including premium outlets) | -2.3% | 0.0% | 17 |
| Capital return (including premium outlets) | -4.4% | -4.3% | 17 |
| Net debt | £3.4bn | £3.4bn | 23 |
| Gearing | 69% | 63% | 23 |
| Loan to value – headline | 40% | 38% | 23 |
| Loan to value – fully proportionally consolidated | 46% | 43% | 23 |
| Liquidity | £736m | £729m | 23 |
| Weighted average interest rate | 2.5% | 2.7% | 23 |
| Interest cover | 3.4 times | 3.4 times | 23 |
| Net debt/EBITDA | 10.2 times | 9.5 times | 23 |
| Fixed rate debt | 73% | 74% | 23 |
| Portfolio currency hedge | 80% | 79% | 23 |
| Equity shareholders’ funds | £5.0bn | £5.4bn | 22 |
| EPRA net asset value per share | £6.85 | £7.38 | 22 |
CORPORATE OVERVIEW
Who we are
At Hammerson, we own and operate high-quality flagship destinations and premium outlets in selected European countries.
We create vibrant, continually evolving spaces, in and around thriving cities, where people and brands want to be. We seek to deliver value for all our stakeholders and to create a positive and sustainable impact for generations to come.
Our strategy
The retail property market is affected by a number of key themes which influence and guide our strategy, drive our priorities and impact our performance. These trends include: the structural shift to online, the importance of elevating experience, the sales outperformance of personal luxury goods and thriving cities. Further details on these market themes are provided on pages 10 and 11 of our 2018 Annual Report.
Our strategy has been led and informed by these market themes, as well as broader market conditions and our near term priorities. There are three elements to our strategy, which together will enable the business to drive returns for shareholders and deliver for customers and brands:
- Capital efficiency: Reduce debt
- Optimised portfolio:Exit retail parks and pursue portfolio-wide disposals. Establishing City Quarters
- Operational excellence:Manage the structural shift in retail
The Group’s Positive Places strategy ensures we create destinations that deliver net positive impacts economically, socially and environmentally. In 2017, Hammerson launched a global first for the property sector: to be Net Positive for carbon, resource use, water, waste and socio-economic impacts by 2030 and we have made strong progress towards these ambitious targets in 2019. Further details are included in the Sustainability review on page 14.
Our markets in 2019
Our end markets are influenced by a range of consumer and economic trends.
UK: With the global backdrop softening and continued Brexit uncertainty, GDP growth is expected to weaken to 1.3% in 2019 and 1.6% in 2020. However, a pick-up in wage growth and easing of inflationary pressures have seen household spending rise over the last six months and spending is expected to grow by 1.8% in 2019 and 1.7% in 2020. The projections assume that the UK signs a withdrawal agreement with the EU. Consumer confidence remains subdued as parliament struggles to decide on the country’s future relationship with the EU. Non-food retail continues to face price deflation alongside the impact of sterling weakness and increasing operating costs.
France: Internal uncertainty from the ‘Gilets Jaunes’ protests, the National Debate and European elections are fading as the year progresses. GDP growth is forecast at 1.4% in 2019 and 1.5% in 2020. Household spending is forecast to grow by 1.3% in 2019 and the same in 2020 benefiting from lower unemployment, rising wages, low inflation and new fiscal measures for households following the National Debate.
Ireland: Despite uncertainty over what form Brexit will take, the Irish economy has seen its jobless rate fall to the lowest level since 2005 and the economy is expected to grow by 2.7% in 2019 and 2.3% in 2020, again based on the assumption that the UK signs a withdrawal agreement with the EU. Consumer spending also remains strong and is forecast to grow by 2.3% in 2019 and 2.8% in 2020.
Premium outlets: Off-price is the second fastest growing channel for luxury sales, after online, and is forecast to continue to grow by 6% pa to 2025. Long haul tourism is a key driver for sales growth in our premium outlets, with tax free sales representing 19% of total sales at Value Retail and VIA Outlets and growing by 14% in the five months ending May 2019.
Investment markets: Investment volumes in European retail property investment markets have reduced in 2019, with very few prime shopping centre transactions and prospective buyers are becoming more selective and transactions taking longer to negotiate. The UK market continued to suffer with values declining at a similar rate to that in the second half of 2018. Despite the stronger operational environments, retail property values have also been marked down in France and Ireland, albeit to a lesser extent to the UK. Investment markets in premium outlets have also seen low transaction volumes, although strong trading at successful outlets with a strong brand offer is supporting values.
OPERATING REVIEW
This Operating review provides an overview of the performance of our portfolio sectors in the first half of 2019. Consistent with internal reporting as described in the Financial review on page 18, the operational metrics in this section are presented on a proportionally consolidated basis reflecting the Group’s ownership share. Further portfolio analysis is provided in the Additional disclosures section on pages 55 to 59.
FLAGSHIP DESTINATIONS
UK FLAGSHIPS
We own 11 flagship destinations in the UK all of which are within, or close to, thriving city centres. Our portfolio has 834,000m2 of lettable area with more than 1,000 tenants providing a wide mix of retail, F&B and leisure brands. Our prime centres include Bullring in Birmingham, Cabot Circus in Bristol, Union Square in Aberdeen and Westquay in Southampton and have attracted more than 180 million visitors over the last 12 months.
Operational summary
| Key metrics | Like-for-like | Occupancy % | Leasing activity £m | Leasing vs ERV % |
Retail sales growth % |
Footfall % |
| 30 June 2019 | (6.8) | 96.4 | 4.4 | -4 | (2.0) | 0.5 |
| 31 December 20181 | (1.3) | 97.6 | 14.4 | +5 | (2.9) | (1.8) |
| 30 June 2018 | (0.1) | 97.2 | 6.8 | +5 | (2.5) | (1.6) |
1 31 December figures are for the full year
Net rental income
Market conditions in UK retail continue to be challenging and net rental income, on a like-for-like basis, decreased by 6.8% in the first six months of the year. Tenant restructuring, in the form of CVAs and administrations, has been the largest single factor reducing income. CVAs enable struggling retailers to restructure their debt and costs to enable them to continue trading by applying to court and seeking approval from creditors. Landlords are usually the most compromised creditor group as cost reduction plans invariably include rent cuts and store closures determined by unit profitability.
During the first six months of the year, 10 of our retailers undertook a CVA or went into administration affecting 45 units and £8.0 million of passing rent, resulting in a £1.1 million reduction in passing rent. In total, since the beginning of 2018, 100 units have been impacted by CVAs or administrations, of which 74% are currently trading. The annualised rent reduction at 30 June 2019 was £5.5 million, equivalent to 1.6% of the Group’s passing rent. Whilst tenant restructuring can reduce income and occupancy, it also provides opportunities to introduce new brands and improve the tenant mix at our destinations as landlords receive a break option where rents are reduced under a CVA.
On a like-for-like NRI basis, in the first half of 2019, these restructurings have accounted for over a quarter of the reduction, or
£1.3 million, which includes the impact of tenant incentive write-offs, reduced rent and vacancy costs. The next most significant adverse factor affecting like-for-like income was the cost of vacancy which increased by £1.0 million and is consistent with lower occupancy and leasing volumes. Income also suffered because of reduced year-on-year commercialisation revenue, particularly from digital advertising, and additional marketing expenditure to drive footfall and support our ‘super events’ programme.
Despite the challenging trading conditions, collection rates remain high with 98% of rent collected within seven days of the June 2019 quarter day.
Occupancy and leasing
Occupancy levels across the portfolio stood at 96.4% at 30 June 2019, 80bp lower than the prior year comparative.
Leasing volumes have been lower in 2019 with 55 leases signed representing 26,300m2 of space and £4.4 million of income. This performance is consistent with the more subdued retail market and also reflects the record volumes achieved in 2018 when we signed
93 leases representing rent of £6.8 million. In the first half of 2019 we also settled 23 rent reviews on leases with a total passing rent of
£3.2 million, securing an uplift of 5%.
For principal leases, which accounted for 70% of total leasing, the average rent secured was 4% below December 2018 ERVs and
8% below the previous passing rent. The average lease term was nine years with an incentive package of just three months, four months less than in 2018. These statistics demonstrate how individual leases vary as 61% of leases were secured at or above December 2018 ERVs. The portfolio averaged 4% below December 2018 ERVs, albeit skewed by two lettings, both to aspirational brands designed to drive footfall and further occupancy.
During 2019, 25% of leasing has been on a temporary basis, compared with 14% in 2018. Temporary leases act to enhance the tenant offer across our portfolio, trial new concepts and brands, generate short-term income and mitigate void costs including business rates and service charge, although rents tend to be at levels significantly below ERV and previous passing rent. In the first half of the year, on average, these leases were 26% below previous passing rent and 55% below the December 2018 ERV, contributing to the weak like-for-like NRI performance during 2019.
Our leasing strategy continues to focus on reducing the amount of floor space occupied by challenged retail categories, including department stores and high street fashion, and replace them with exciting new aspirational fashion, leisure and F&B brands. Whilst this will broaden our offer and enhance the visitor experience, the speed of execution is hindered by existing lease structures. Nonetheless, during 2019, 85% of all new lettings, by income, have been to non-fashion operators, particularly independent F&B operators.
Key leasing deals during 2019 included:
- At Grand Central, @pizza, an Edinburgh-based pizza brand, opened its second restaurant. In May, Kitty Café, an F&B operator where customers can interact with 30 rescue cats, replaced Handmade Burger which closed following its administration.
- At Highcross, renowned television chef Cyrus Todiwala is to open his first restaurant outside of London. Tandem, which will be located in a Grade II listed building, will celebrate authentic Indian cuisine and cocktail mixology.
- At Silverburn, Stack & Still, operators of the UK’s largest urban pancake and licensed bar venue, opened their second store. The restaurant is located in the Winter Garden area of the scheme in a dual level unit with capacity for 185 customers.
- At Victoria Gate in Leeds, Prestons is due to open a Rolex boutique in late summer whilst Aspinal of London relocates to Victoria Quarter.
- In July, LEGO Group signed to open two stores, their only UK openings in 2019, at Bullring and Westquay. These will be the first LEGO stores in our UK portfolio and are due to open in time for the Christmas shopping season. LEGO is an internationally recognised brand with strong consumer appeal and both stores will provide a variety of interactive play and events experience.
- We also introduced a number of exclusive brands with temporary pop-up stores for Rapha, the premium UK cycling brand at Victoria Leeds; Seekd, the sustainable jewellery and accessories brand at Brent Cross and Selfie Factory, which recently opened at Cabot Circus.
We continue to progress with plans to reconfigure the House of Fraser anchor stores in The Oracle and Cabot Circus and are in pre-letting discussions with a wide range of operators to provide an enlivened daytime and evening offer at both venues.
Footfall, sales and occupancy