A little over a year ago, new Hammerson chief executive Rita-Rose Gagné inherited a company suffering its biggest ever falls in rental income and portfolio values, with its fortunes worsened by the pandemic. Today, after her first full year in the post, she says the rewards of her new strategy are starting to show, but that the hard work will continue.
Gagné, who was appointed as chief executive in 2020, described it as “a year of progress”. After disposing of £623m of properties and a €700m bond issuance last year, adjusted earnings grew by 122% to £81m in the year ending December 2021 . The annual loss shrank to £429.1m from £1.7bn the previous year. Net rental income improved by 21.7%.
“We have done a huge amount of work internally on our processes and discipline,” Gagné told EG. “There has been a lot of progress this year in rebuilding and de-risking the company.”
Looking ahead, Hammerson’s main focuses will involve reducing vacancies and void costs, repurposing its spaces and unlocking value from the development opportunities in its portfolio to create prime urban estates.
A £2.6bn GDV pipeline
In particular, Hammerson highlighted the “tangible progress” made on the four large-scale, mixed-use projects in its near-term pipeline – Dublin Central, the Goodsyard in E1, and Birmingham’s Martineau Galleries and Grand Central.
Those schemes are estimated to total around £2.6bn in GDV. Hammerson aims to spend around £73m in capital expenditure on the quartet in the next financial year.
The medium-term pipeline of projects, still in feasibility and masterplanning stages, includes the 22-acre Croydon site that Hammerson owns alongside Unibail-Rodamco-Westfield. Gagné said the partnership is still working with the council and occupiers to replan the “right size” and “proper project of the future” for the location.
Rethinking its office space
In the meantime, Hammerson will also continue to tighten up its internal operations and cost efficiencies. This includes looking at options for rightsizing its office space this year.
Gagné said the landlord, which is headquartered in King’s Cross, N1, is in the very early stages of considering the possibilities, which could include relocating or subletting. “It is something we plan to look at in the next few months,” she said. Advisers have not yet been appointed.
Headcount was reduced by 18% during the year, while governance structures were slashed to three management committees, from around 30. Hammerson is aiming to deliver 15-20% savings in admin costs by its 2023 financial year. “We are still in a period of change and adapting, as we resize the portfolio,” said Gagné.
Stabilising retail yields
As for the broader market, Gagné is upbeat on the outlook for retail real estate, adding that pricing seems to be close to the bottom. While Hammerson saw its overall portfolio value fall by 7.9% to £5.4bn, the company highlighted that valuation falls slowed significantly during H2.
“Yields have seemed to stabilise and ERV declines have slowed,” she said. “We are now able to transact at ERV levels, and we are seeing demand come back.
“I am not sure we have hit the bottom, per se, but we don’t seem to be far from it.”
Gagné said the landlord is also monitoring the impact that the Russian invasion of Ukraine could have on the business and on commercial property.
“We are engaged in many discussions with experts to try to understand how it could unfold, but it is very difficult to establish – it’s very fast-moving,” she said. “In the UK, at the moment the risk does not seem direct, but it is something we are following closely.”
Targeting £500m disposals
Hammerson has outlined plans to sell around £500m of assets over the course of 2022-23. The debt pile has reduced by about a fifth to £1.8bn, although ongoing valuation declines meant that its headline loan-to-value ratio shrank by only 1% to 39%. Post year-end disposals include the £120m sale of its Victoria Leeds assets, further reducing pro forma LTV to 37%.
The REIT’s share price movements were broadly static at 34.8p in the hours following its trading update.
“It has been a year of a lot of internal and external work, moving along our agenda and executing our strategy,” said Gagné.
“Obviously there is more that needs to be done, and we are still operating in a changing market, but I feel quite good about where we’re at.”
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