Hammerson, the UK retail-focused real estate investment trust, has announced a return to cash dividend payments for the first time since 2019 as it said a more agile and focused business has made it increasingly confident for the future.
The group, which under relatively new chief executive Rita-Rose Gagné has been pursuing a major disposals programme and cost-cutting drive while focusing squarely on its city centre destinations, posted adjusted earnings up 15% to £56 million (half year 2022: £48 million) in half-year results to end of June.
Speaking to CoStar News, Gagné said: "The return to an all-cash dividend and our confidence in the future is the most significant takeaway. There has been continued progress on our strategy and the repositioning of the portfolio is feeding into the numbers.
"The occupiers and customer figures are resilient as we have city centre locations sitting on major transport hubs and large affluent catchments. We are adapting to changing lifestyle patterns as are our occupiers to offer a better product."
Net debt was down 24% to £1,318 million after it completed £215 million of disposals in the first half, bringing the total since the start of the full year 2022 to £410 million. Hammerson said it was on track to complete its previously proposed £500 million of disposals by the end of full year 2023.
The portfolio is now valued at £4.7 billion, from £5.1 billion at full-year 2022, which the REIT described as "broadly stable" with the reduction principally due to disposals. It posted a pretax loss of £1 million for the period against a half-year 2022 profit of £50 million.
Gagné said the value falls seen across retail were clearly stabilising for "the quality assets we have".
"The market is also coming back in terms of liquidity and we are seeing this terms of the discussions we are having on different assets," she added.
EPRA net tangible assets per share are at 52p, from 53p at full year 2022. The disposals mean the headline loan to value is now at 33% from 39% at the end of its 2022 full year results.
The REIT said it was now able to return to dividend payments with an interim cash dividend per share of 0.72p per share and a new dividend policy has been announced. It described this as a new "sustainable" dividend policy of 60% to 70% of annual adjusted earnings with dividends paid semi-annually.
The business has been focused on simplifying its portfolio with the period seeing the exit from minority stakes in Italie Deux in France, its standalone development assets in Croydon, with its sale to Unibail-Rodamco-Westfield first revealed by CoStar News, and other non-core land generating £215 million. Another feature has been being restrained in investing in assets with secured debt where these were non-core, with £125 million of secured borrowing "derecognised" in the period following exits from Highcross in Leicester and O’Parinor. It says it is bringing a sharper focus to investment opportunities in the core portfolio.
Hammerson said it has "ample liquidity" in cash and undrawn committed facilities of £1.2 billion.
It pointed to strong operational performance with footfall and like-for-like sales up 4% year-on-year. Like-for-like sales were up 3% in the UK, 7% in France, and 2% in Ireland. There were 134 leasing deals concluded in the period representing £18.3 million of headline rent.
Occupancy at its flagship centres is up 1% year-on-year to 95% and it said it had a further £15 million of leasing deals in solicitors’ hands.
Gagné said in a statement with the results that it was a strong first half and the business could look to the future with confidence.
"Our core portfolio continues to attract the best occupiers which, combined with our emphasis on commercialisation and placemaking, is creating exceptional destinations for customers. At the same time, we continue to transform our operating model and platform, bringing more integrated and efficient ways of working while reducing costs."
She said the strategy is driven by the repositioning of its city centre destinations from "traditional retail-anchored footprints to a broader mix of uses". She added that Hammerson is a more "agile, market facing, asset-centric" business.
In terms of its core portfolio of flagship city centre destinations Hammerson is focused on a "capital light approach" working up plans for repurposing and expansion.
Of the department store space the group had at full year 2019, roughly a third has been repurposed or is in planning, a third has been sold, and its sees potential future opportunities for the remainder.
In terms of projects at existing assets, at Ironworks in Dundrum, Ireland, which is a 122-unit residential development, structural steelwork has begun, with agreement reached for the long lease of the 15 affordable apartments. In France, it is considering options for an add-on development, Cergy 3, following the opening of Les 3 Fontaines extension in March last year.
It expects initial planning consents to be finalised imminently at Dublin Central and there are ongoing discussions with potential end users, while its planning application at Dundrum Phase II remains in progress.
At Martineau Galleries, part of its wider Birmingham Estate, it is working with Birmingham City Council and the West Midlands Combined Authority on phasing, grant funding and the programme for delivery. At Brent Cross, its is engaged with key stakeholders to consider a future masterplan.
At Eastgate, Leeds, master planning and a development agreement with the city council is ongoing, while at The Goodsyard, Bishopsgate, it is progressing with detailed design and feasibility, the procurement of initial demolition and preparation works, and engagement with Network Rail.
Speaking to CoStar News about the projects Gagné said: "We have been working intensively on Brent Cross, firstly on changing and evolving the occupier mix and enlivening the assets, offering a broader mix of activity and landscaping. It is always evolving. We view opportunities in a bucket, which are firstly redevelopment and repositioning of assets, for instance with the redevelopment of House of Fraser as a Penneys in Dundrum. Another category is complementary sites and here we are progressing site enabling works and preparedness works and talking with stakeholders about site readiness and optionality. The third category is out standalone sites – at Goodsyard and in Leeds."
Analysts at Morgan Stanley said the results did not contain major surprises but compared favourably with peers on the European Continent, who lag it in terms of its balance sheet restructuring.
"Hammerson is leasing well, during the half on average 8% above estimated rental values. This is contributing to a stabilisation in market rents and portfolio valuation, both of which were broadly flat during the half. Disposals are improving leverage metrics in a material way, which meant Hammerson has indeed reinstated a cash dividend as it had guided to earlier this year. This confirms a more confident outlook and provides a significant contrast with continental stocks in the sector, several of which are starting the balance sheet restructuring process through a reduction in cash dividends."
Analysts at Goodbody said a "sizable outperformance" on revaluations made the company an interesting stock to follow.
"Hammerson ... showed a beat on our net asset value expectations by 4% as capital values proved more resilient than forecast in a period of rising base rates, and a welcome return to a cash dividend which positions HMSO as an increasingly interesting income play going forward. Considering [Hammerson] now trades at a discount of 50% to its last published book value, the stock continues to look at odds with the wider sector [discount of minus 36%] given the recent resilience of retail values."