2018 Full-Year Results
2018 Full-Year Results
25.02.2019
25 February 2019
HAMMERSON plc – RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018
2018 Highlights
– £570m of disposals realised at an average disposal price of 7% below December 2017 book value
– Further progress on reducing net debt, down £179m from 30 June 2018 to £3.4bn. Net debt target of £3.0bn for 2019 to maintain balance sheet strength
– 2018 Group leasing volumes in line with 2017 performance with UK flagship destinations achieving record levels (+7.5%). Group leasing secured at 5% ahead of previous passing rent
– Impacted by a weaker investment market, UK property values fell during the second half of 2018 by -9.3%, the overall portfolio produced a 12 month capital return of -4.3%
– Group LfL NRI growth of 0.3%, with declines at UK flagship destinations (-1.3%) and retail parks (-4.3%) following CVAs and tenant failure. France flagship destinations -0.9%
– Strong performance from premium outlets and Ireland with LfL NRI up 5.2% and 1.6% respectively, with exceptional brand sales growth of 8% across premium outlets
– Final 2018 dividend maintained at 14.8p per share. Total dividend for the year up 1.6%
– City Quarters platform to create vibrant mixed-use neighbourhoods in thriving locations in the UK and Ireland surrounding our flagship destinations. 97 acres of land holdings capable of delivering up to 6,600 residential units, 1,200 hotel rooms and 200,000m² of workspace
2019 Strategic Disposals Programme
– A portfolio-wide review to accelerate transactions has identified additional disposal opportunities
– 2019 disposal target in excess of £500m
– We are open-minded about the upper limit of the disposal programme and are in active discussions on transactions with a total value of over £900m
– These potential transactions are in the form of portfolio sales, joint ventures and individual asset disposals from multiple sectors and territories. This includes a limited number of retail parks, which we remain committed to exiting over the medium term. Disposals are subject to market conditions and achieving attractive terms
– Assuming the disposal programme is successful, Hammerson’s net debt would be below £3bn by the end of the year
– Given the importance of the Company’s disposal programme, the Board has decided to establish an Investment and Disposal Committee to provide additional oversight and focus in this area
– The Committee will be chaired by Andrew Formica. It will have three other members: Pierre Bouchut and two other Non-Executive Directors that the Board plans to appoint in 2019. These new appointments reflect the Board’s wish to ensure a broad balance of skills and experience to enable it to fulfil its role and to ensure orderly succession planning for Directors
David Atkins, Chief Executive of Hammerson, said:
“2018 was a tough year particularly in the UK. Tenant failures, the structural shift in retail and a more considered consumer created a difficult operating environment, putting pressure on property values. Outside of the UK our destinations performed better with a strong contribution from premium outlets.
“We believe that a successful deleveraging programme will best position Hammerson for the current environment and beyond. Disposals will also enable us to prove the inherent value of this business – which we believe is not recognised in the current equity market.
“Having successfully achieved £570m of disposals in 2018, we are aiming to dispose of at least £500m in 2019. We remain committed to exiting retail parks over the medium term and are in active portfolio-wide discussions on transactions of over £900m, which would add further strength to our balance sheet.
“Over the longer term we will generate opportunities to create additional value through City Quarters, which will see us transform many of our city venues beyond pure retail into successful, thriving neighbourhoods. The job of creating flagship spaces is never done, but through expert management, innovation and investment we are confident in the future of Hammerson and in maximising value creation for shareholders.”
Full Year 2018 results at a glance
| 12 months ended: | 31 Dec | 31 Dec | Change |
| Net rental income (1) | £347.5m | £370.4m | – 6.2% |
| Adjusted profit (2) | £240.3m | £246.3m | – 2.4% |
| Adjusted earnings per share (2) | 30.6p | 31.1p | -1.6% |
| IFRS (loss)/profit (3) | £(268.1)m | £388.4m | |
| Basic (loss)/earnings per share (3) | (34.1)p | 49.0p | |
| Final dividend per share | 14.8p | 14.8p | |
| As at: | 31 Dec | 31 Dec | |
| Portfolio value (4) | £9,938m | £10,560m | – 5.9% |
| Equity shareholders’ funds | £5,433m | £6,024m | – 9.8% |
| EPRA net asset value per share (2) | £7.38 | £7.76 | -4.9% |
| Gearing (5) | 63% | 58% | +5p.p. |
| Loan to value – headline (5) | 38% | 36% | +2p.p. |
Proportionally consolidated, excluding premium outlets. See page 20 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 44 and 45.
Attributable to equity shareholders, includes portfolio non-cash revaluation losses of £392m (2017: £247m gain).
Proportionally consolidated, including premium outlets. See page 20 of the Financial Review for a description of the presentation of financial information.
See Table 18 on page 68 for supporting calculations for gearing and loan to value.
Results presentation today
The results presentation is being held today at 9.00a.m GMT at JP Morgan Cazenove, Great Hall, 60 Victoria Embankment, EC4Y 0JP. The results presentation will also be broadcast via a webcast and a conference call. Please see the webcast link and dial-in details below:
| Title: | Hammerson 2018 Full-year results presentation | Webcast link: | |
| Dial-in details: | |||
| London | +44 (0) 2071 928000 | ||
| Paris | +33 (0) 176700794 | ||
| New York | +16315107495 | ||
| Amsterdam | +31 (0) 207143545 | ||
| Johannesburg | +27 105007996 | ||
| Dublin | +353 (0) 14319615 | ||
| Confirmation Code: | 7363469 |
A playback of the webcast will be available at www.hammerson.com
Financial calendar
| Ex-dividend date (SA) | 19 March 2019 |
| Ex-dividend date (UK) | 21 March 2019 |
| Record date (UK and SA) | 22 March 2019 |
| Final dividend payable (UK and SA) | 2 May 2019 |
Enquiries
| David Atkins, Chief Executive | Tel: +44 (0)20 7887 1000 |
| Timon Drakesmith, Chief Financial Officer | |
| Richard Shaw, Director of Finance | Tel: +44 (0)20 7887 1820 |
| Catrin Sharp, Head of Corporate Communications | Tel: +44 (0)20 7887 1063 |
| John Waples and Dido Laurimore, FTI Consulting | Tel: +44 (0)20 3727 1000 |
The person responsible for making this Announcement is Sarah Booth, General Counsel and Company Secretary.
| Contents
|
| Index to key data Unless otherwise stated, figures have been prepared on a proportionally consolidated basis, excluding premium outlets | Page | ||
| Income and operational – Year ended: | 31 December | 31 December | |
| Occupancy | 97.2% | 98.3% | 6 |
| Like-for-like NRI growth | -1.3% | 1.7% | 5 |
| Adjusted earnings per share | 30.6p | 31.1p | 5 |
| Leasing activity | £27.7m | £33.3m | 6 |
| Leasing v ERV | +6% | +8% | 6 |
| Like-for-like ERV growth | -0.9% | +0.9% | 19 |
| Retail sales growth – UK flagship destinations | -2.9% | -2.7% | 7 |
| Footfall growth – UK flagship destinations | -1.8% | +0.4% | 7 |
| Retail sales growth – France flagship destinations | +2.2% | +0.1% | 9 |
| Footfall growth – France flagship destinations | +2.5% | +1.6% | 9 |
| Cost ratio | 21.9% | 21.6% | 22 |
| Final dividend per share | 14.8p | 14.8p | 23 |
| Capital and financing – As at: | 31 December | 31 December | |
| Property portfolio value (including premium outlets) | £9.9bn | £10.6bn | 17 |
| Total property return (including premium outlets) | 0.0% | 6.8% | 5 |
| Capital return (including premium outlets) | -4.3% | 2.2% | 19 |
| Net debt | £3.4bn | £3.5bn | 25 |
| Gearing | 63% | 58% | 25 |
| Loan to value – headline | 38% | 36% | 25 |
| Liquidity | £729m | £958m | 25 |
| Weighted average interest rate | 2.7% | 2.9% | 25 |
| Interest cover | 3.4 times | 3.4 times | 25 |
| Net debt/EBITDA | 9.5 times | 9.3 times | 25 |
| Fixed rate debt | 74% | 78% | 25 |
| Portfolio currency hedge | 79% | 78% | 25 |
| Equity shareholders’ funds | £5.4bn | £6.0bn | 24 |
| EPRA net asset value per share | £7.38 | £7.76 | 24 |
Who we are
At Hammerson, 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. We own and operate high-quality flagship destinations and premium outlets in selected European countries.
Market themes
The retail property market is affected by a number of structural trends which influence and guide our strategy.
Structural shift to online: There has been a steady progression of online penetration in the UK, which is now 18%, and this trend is expected to continue, although it will vary across different retail categories. This is also the case in Ireland and France, although it is starting from a lower base. As a direct consequence, we have seen increasing store closures over the same timeframe, and retailers are working to update their business models to meet this challenge. With the growth in online shopping and the increasing scale of the largest players in the market, it is more important than ever for brands to stand out from the crowded and expensive first page of Google’s shop window. The very best physical stores in prime locations are proving more and more important for consumer brands seeking to stand out and deliver a true omnichannel offer.
Elevating experience: The role of experience is now a crucial factor in consumer behaviour. It might be a large-scale event that everyone is talking about or a beautifully instagrammable meal with friends and family. The most popular reason for consumers to visit a flagship destination is for a ‘big day out’. It needs to be genuinely new and exciting; when people are offered the chance to experience something fantastic, they will leap at the opportunity.
Luxury sales outperform: Sales of personal luxury goods are outperforming, and the luxury, off-price sector in particular has strong growth rates, with off-price stores sales forecast to grow by over 6% a year on average between now and 2025 (Source: 2018 Bain luxury goods study). Off-price channels are particularly popular with premium brands as they offer high profitability and access to new customers.
Thriving cities: While household finances are under pressure, a number of cities in the UK, Ireland, and across continental Europe are thriving like never before, and many are also significant tourist destinations. By 2030, 78% of the European population is expected to live in cities. Often driven by a well-educated workforce and strong transport links, these cities are growing fast and setting themselves up for sustained success.
Our strategy
Our strategy has been led and informed by these themes, as well as the 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: Reducing debt
Optimised portfolio: Exiting retail parks; pursuing portfolio-wide disposals
- Operational excellence:Managing structural shift in retail
Differentiated by our product experience framework and Positive Places strategy
We create desirable spaces where people and brands want to be, by developing iconic destinations which at their core have the very best brands and experiences. Our product experience framework is embedded across the entire business, and ensures we put the customer at the heart of everything we do; delivering a journey that is truly frictionless and supported. The four principles of our framework are:
Iconic destinations
Retail specialism
Experience-led
- Customer first
The Group’s Positive Places strategy ensures we create destinations that deliver net positive impacts economically, socially and environmentally. In 2017, Hammerson launched its most ambitious target to date and 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 targets in 2018.
Governance
As previously disclosed, the Company has appointed Carol Welch as a Non-Executive Director, effective 1 March 2019. The Company also intends to appoint two further independent Non-Executive Directors during the course of 2019. This recruitment reflects the Board’s wish to ensure a broad balance of skills and experience to enable it to fulfil its role and to ensure orderly succession planning for Directors.
Given the importance of the Company’s disposal programme, the Board has decided to establish an Investment and Disposal Committee to provide additional oversight and focus in this area. The Committee will be chaired by Andrew Formica. It will have three other members: Pierre Bouchut and the two other Non-Executive Directors that the Board plans to appoint in 2019.
The Company has appointed Morgan Stanley & Co. International plc as Joint Corporate Broker. J.P. Morgan Cazenove will continue to act as Joint Corporate Broker to the Company.
Agreement with Elliott Advisors
The Board has been in discussions with key shareholders about the execution of its strategy and governance changes. As part of those discussions, the Company has entered into a relationship agreement with Elliott Advisors. Elliott has confirmed its support for the Company’s accelerated disposal programme and the Company’s decision to expand the Board and establish a Board Investment and Disposals Committee.
This agreement contains certain other voting and governance terms, including a commitment that Elliott will vote in favour of the ordinary course resolutions recommended by the Board at the upcoming general meeting of the Company. Elliott has also agreed not to increase its voting interests and economic interests in the Company above 10% and 15% respectively. This agreement will remain in force for a maximum of 12 months, subject to certain conditions.
Key performance indicators
Monitoring our performance
We monitor Key Performance Indicators, or KPIs, to measure our achievements against our strategic priorities. The KPIs comprise financial and operational measures and each links to the three pillars of our strategy as shown on page 4.
Financial KPIs
| Adjusted EPS growth -1.6% http://www.rns-pdf.londonstockexchange.com/rns/9379Q_1-2019-2-24.pdf | Adjusted earnings per share (EPS) is the Group’s primary profit measure and reflects underlying profit divided by the average number of shares in issue and is calculated in line with EPRA guidelines as explained on page 20. Performance In 2018, adjusted EPS decreased by 0.5 pence, or 1.6%, to 30.6p. This was principally due to a reduction in NRI associated with disposals in 2017 and 2018 and the impact of tenant failure. |
| Net debt*1 £3,406m http://www.rns-pdf.londonstockexchange.com/rns/9379Q_2-2019-2-24.pdf | Net debt is the measure by which we monitor the indebtedness of our business and comprises borrowings less cash and deposits. Performance During 2018, the Group’s net debt has reduced by £95 million to £3,406 million. The reduction is principally due to net disposal proceeds received of £553 million and net cash inflow from operations of £203 million, partially offset by capital expenditure of £218 million and share buybacks of We plan to dispose of in excess of £500 million of properties from across our portfolio in 2019 to strengthen the Group’s financial position. |
| Total property return 0.0% http://www.rns-pdf.londonstockexchange.com/rns/9379Q_3-2019-2-24.pdf | Total property return (TPR) is the metric we use to measure the income and capital growth of our property portfolio. It is calculated on a monthly time-weighted basis consistent with MSCI’s methodology. We judge our success in generating superior property returns by comparing our performance with a weighted MSCI All Retail benchmark. Performance During 2018, the Group’s properties produced a total return of 0.0%. The Group’s investment and development portfolios produced total returns of -2.8% and 6.2% respectively. Premium outlets produced the highest return of 7.4%. At the date of this report, our MSCI benchmark is unavailable. |
| Like-for-like NRI growth* -1.3% http://www.rns-pdf.londonstockexchange.com/rns/9379Q_4-2019-2-24.pdf | Net rental income (NRI) is the Group’s primary revenue measure. Like-for-like NRI growth is key to growing earnings and dividends. Growth is achieved through the implementation of our Product Experience Framework which helps us enliven and enhance our properties. Performance Like-for-like NRI declined by 1.3% in 2018. Income at our UK and French flagships declined by 1.3% and 0.9% respectively, whilst NRI at our UK retail parks fell by 4.3%. Irish properties produced growth of 1.6%. Tenant failure reduced NRI by £7.1 million in 2018. Excluding this impact, like-for-like NRI would have grown by 0.4%. Proportionally consolidating the premium outlets growth of 5.2% would result in Group like-for-like NRI growth of 0.3%. |
* Proportionally consolidated, excluding premium outlets. See the Financial Review on page 20 for further explanation.
- In 2018, net debt has replaced the cost ratio as a KPI, reflecting the Group’s increased focus on capital efficiency.
Operational KPIs
| Occupancy* 97.2% http://www.rns-pdf.londonstockexchange.com/rns/9379Q_5-2019-2-24.pdf | Keeping our properties occupied ensures we generate rental income and enlivens our destinations. The occupancy ratio measures the amount of space which is currently let. The ratio is calculated in line with EPRA guidance using the estimated rental value (ERV) of occupied space. Performance Occupancy remains above our 97.0% target, with 97.2% of the portfolio occupied at the end of 2018. Occupancy fell during the year, impacted by tenant failures during 2018. It was also impacted following the completion of two retail park developments which are not yet fully let and overall occupancy at UK retail parks decreased from 99.4% to 96.9%. |
| Leasing activity* £27.7m http://www.rns-pdf.londonstockexchange.com/rns/9379Q_6-2019-2-24.pdf | Our leasing strategy is designed to improve brand mix towards winning brands and categories, and differentiate our destinations. This KPI shows the amount of income secured across the investment portfolio including new lettings and lease renewals. Performance 2018 leasing levels were 17% or £5.6 million below those experienced in 2017, but nonetheless demonstrated a strong performance in a challenging market. £3.9 million of the reduction was due to lower leasing at UK retail parks. In total there were 423 lettings comprising 156,600m2 of space. For principal leases, the rent was 6% higher than December 2017 ERVs and 5% higher than the previous passing rent. |
| Global emissions intensity ratio 122mtCO2e/£m http://www.rns-pdf.londonstockexchange.com/rns/9379Q_7-2019-2-24.pdf | Reducing carbon emissions is a key sustainability target. This ratio measures the amount of CO2e emissions from our properties and facilities, including corporate offices. The denominator is adjusted profit before tax for the same period. This ratio demonstrates our progress in decoupling business growth from increasing carbon emissions. Performance The ratio has reduced by 19% to 122mtCO |