Retail asset values appear to be on the way “back up” following a tricky few years during the worst of the COVID pandemic and significant repricing, Hammerson chief executive Rita-Rose Gagné said.
Speaking to CoStar News on the morning of the release of its full year results for 2022, in which its portfolio shrunk by 5% to £5.1 billion because of revaluation deficit and disposals, Gagné said values had likely reached their low point.
She said: “Obviously we don’t have a crystal ball, but when you look at what has happened in terms of the valuations particularly in the UK and ultimately everywhere, we’ve had downsized revaluations of up to 55% in the UK and 30% on the continent, so that’s significant.
“I think that when you at where we are, [at] our yield, there’s a very healthy spread with the risk-free rate and we feel comfortable that we’re at the bottom. Obviously, there is always some sentiment out there, but I don’t see any reason why there would be further important movements there.”
Gagné, who highlighted that the group was now leasing at 2% above estimated rental value, said she was confident about the group’s properties, which include a number of Grade A assets, and that values would come back up. “Again, there’s no crystal ball, but the numbers tell us that we have probably reached the very low point."
The UK retail-focused REIT concluded 317 leasing deals during 2022, which was 2% more than in 2021, excluding disposals, and represented £45 million of headline rent. This, she said, marked its strongest leasing performance since 2018, while a continuing flight to quality by tenants had contributed to its gross rental income increasing by 8% year-on-year.
Hammerson's accounts for the year ended 31 December 2022 also included a 60% uplift to its adjusted earnings, which rose to £105 million from £66 million in 2021, while the group’s like-for-like net rental value also increased by 29%. It also reduced its gross administration costs by 17%.
Gagné said: "Despite [an] uncertain and volatile backdrop, we have been disciplined in the execution against [our] objectives, focusing on what we can control. Our operational and financial performance is proof positive that our strategy is working."
Part of its 2021 strategy to turn around the business included a disciplined disposals plan that would focus the group on a core portfolio of urban estates, reducing indebtedness and generating capital for redeployment into core assets.
The report showed that Hammerson completed £195 million of disposals in 2022, including the sale of its Leeds Victoria Gate and Victoria Quarter shopping centres in Leeds for £120 million and its 50% share of Silverburn in Glasgow for £70 million. Hammerson said it remained committed to disposing of a total of £500 million of assets across 2022 and 2023.
Gagné told CoStar News she was "optimistic" about the chances of reaching that target, saying: “In terms our of assets, some are not necessarily aligned in our own strategy but will be very attractive for other buyers.
“We are not forced sellers at the moment, but we want to continue to refocus the portfolio. From what I’m seeing and the interest shown in our properties, they are attractive and we’re confident we will achieve this target.”
The REIT's CEO was unable to name specific assets but said that the group was continuing to carry out the strategy focused on its city centre assets.
Hammerson again said it would grow income through the repositioning of its assets, with opportunities to repurpose department stores for both retail, experience and multi-use, such as residential or offices.
One of its assets already scheduled for repurposing is the former John Lewis store at Birmingham’s Grand Central shopping centre, where Hammerson will develop 200,000 square feet of offices, capable of housing 2,000 workers. Its chief development and asset repositioning officer Harry Badham told CoStar earlier this year that the destination’s “connectivity” above Birmingham New Street Station was the main driver behind the reposition.
Gagné explained the group’s development opportunities fell into three buckets with the first being "integral" developments, which sit within its assets. The second, she said, are "complimentary" and focus on developing around existing assets, such as residential opportunities. She labelled the third category as "standalone", with Bishopsgate Goodsyard in London, a mixed-use urban quarter development, an example.
“In terms of what we’re looking at for those city centre assets, there are different uses for different spaces in our portfolio. We do have some demand for spaces that can vary from life science space, as well as the new generation of office, which is more flexible and residential.
“There is a huge potential in our development opportunities for residential around the estates and that is a big, undersupplied segment.”
One area where the REIT has already begun looking into how it can accelerate development on its property is its Cabot Circus shopping centre in Bristol, where it has engaged with the city council to explore “potential uses and phasing” of developments on its land holdings. The area has been identified for potential residential, student office and life science uses.
Its accounts also showed footfall improved 11% points from January to December 2022, ending the year at 90% of 2019 levels, before the pandemic, while sales remained ahead of 2019 levels.
The report added: "We do not yet know the full impact of the cost of living crisis, a period of higher inflation and interest rates, and continued supply chain disruption."