Hammerson has posted declines in net rental income and EPRA NAV per share, as the weak retail market continues to take its toll on landlords.
Alongside this, the REIT has exchanged contracts to shed a £423m stake in its Paris shopping centre, Italie Deux, to AXA Investment Managers – Real Assets. The proceeds will be used to reduce the landlord’s debt.
Half-year performance
Rental income from its UK flagships fell by 6.8% in the six months to 30 June, compared with the previous year. However, its premium outlets business counterbalanced this with 11.1% rental growth.
Including premium outlets, like-for-like net rental income across the group dipped slightly by 0.1%.
Hammerson’s total net rental income dropped by 12.3% to £156.6m during the period.
In the first six months of the year, 10 of the landlord’s retailers undertook a CVA or went into administration, affecting 45 units and £8m in passing rent.
Hammerson said this resulted in a £1.1m reduction in passing rent. Since the beginning of 2018, 100 units have been affected by CVAs or administrations, of which 74% are currently trading.
During 2019, 25% of leasing was on a “temporary” basis, compared with 14% during the previous year. These were 26% below previous passing rent and 55% below estimated rental value in December 2018.
Hammerson’s EPRA net asset value per share was down by 7.2% to £6.85, while the value of its portfolio fell by 4% to £9.5bn. It made an overall loss of £319.8m, compared with profit of £55.7m last year.
Headline loan-to-value stood at 40%, with gearing at 69%. However, LTV will reduce to 37% and gearing to 61% on on a pro-forma basis, on the back of the Italie Deux stake sale.
The REIT has meanwhile said it is reviewing plans for its major schemes at Brent Cross and Croydon, and that it does “not expect to commit to any new major expenditure in the near-term”.
The group generated a capital return of -4.4%. UK flagships made a -9.1% capital return, while retail parks made -10.9%, offsetting a 4.5% return produced by the premium outlets business.
Capital returns in France tallied -3.9%, with Ireland posting -3.2%.
Chief executive David Atkins said: “We have 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.”
A £423m disposal
Hammerson has also exchanged contracts with AXA IM Real Assets to sell a 75% stake in its Paris shopping centre Italie Deux for £423m, at an 8.5% discount to December 2018 book value.
The disposal reflects a 4.1% net initial yield. The transaction also includes the forward-sale of 75% of a 6,400 sq m (68,889 sq ft) extension, which Hammerson will complete as part of the deal.
The Italik extension, due to open in September 2020, is projected to cost £18m to complete as at 30 June.
The latest transaction takes Hammerson’s total disposals in 2019 to £456m and more than 90% of its £500m target for the year. This follows the sale of £33m of retail park assets in the first half of the financial year.
The Italie Deux element of the transaction is expected complete in autumn 2019, while the Italik extension aspect of the deal will complete 18 months after works finish.
The proceeds will be used to reduce debt and build further balance sheet strength. Following the deal, Hammerson’s net debt will stand at £3.1bn on a pro forma basis. It currently tallies £3.4bn.
John O’Driscoll, European head of transactions at AXA IM – Real Assets, said: “While we have seen a build-up of increasingly negative sentiment toward the retail sector where all assets, regardless of their operational performance and other compelling fundamentals, are viewed similarly, we believe that shopping centres with characteristics such as these will maintain their relevant position in the retail universe over the long term.”
To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette
