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Hammerson drives another nail into the coffin of retail parks

The disposal target by the end of 2019 is now £1.1bn, with £300mln already delivered year to date. "While this may be sensible, there is a risk that this saturates the market at an inopportune moment," Liberum said
Fashion chain
Hammerson will reduce the amount of floor space let to department stores and high street fashion

Property company Hammerson PLC (LON:HMSO) has announced plans to pull out of the retail parks sector over the medium-term.

The company said its focus in future would be on flagship retail destinations and premium outlets.

READ: Hammerson calls off Intu takeover, citing tough retail market and shareholder pressure

The exit from the retail parks sector will involve disposals and on this theme, the company said it has increased its disposal target for 2018 to £600mln, of which £300mln has already been achieved, while next year it is looking to raise £500mln.

The money raised so far this year from disposals will fund a £300mln share buy-back programme while future disposals will see a reduction of the loan-to-value (LTV) percentage towards the group’s target of the mid-thirties over the medium-term; at the end of June, the LTV had risen a tad to 37%.

Net rental income in the first half of 2018 fell 3.0% to £178.5mln from £184.0mln the year before and was down 0.4% on a like-for-like basis.

The half-year period saw a 97.2% occupancy rate and an increase in leasing volume from the group’s UK shopping centres to £6.8mln from £6.6mln the year before, despite “an unusually turbulent retail backdrop”.

Profit before tax slumped to £55.7mln from £289.7mln the year before but the adjusted profit rose £120.0mln from £119.4mln.

The interim dividend was increased to 11.1p from 10.7p and the board has indicated that henceforth it will be looking to grow the dividend by 3-5% a year.

“Our reshaped strategy sees us taking decisive action to further reposition our portfolio,” said David Atkins, the chief executive officer of Hammerson.

"Our customer and retailer offer will be amplified, and this includes a step change in our retailer line up. We will reduce the amount of floor space let to department stores and high street fashion as we actively focus on the latest consumer trends and take bolder steps to provide the best retail mix,” he added.

"Our results today demonstrate the resilience of our business. We are taking tough decisions and have absolute conviction in our ability to deliver. By reprioritising our capital deployment and repositioning our portfolio, we will accelerate future shareholder value and returns," Atkins predicted.

As well as reshaping its property portfolio the company is reshaping its board of directors, reducing the number of executive directors from four to two.

Personnel changes

Peter Cole, the chief investment officer, has confirmed his intention to retire in April 2019 and will step down from the board at the end of this year.

Also stepping down from the board at the end of the year will be Jean-Philippe Mouton although he will retain his role as managing director of the company’s French business and will continue to be responsible for the group’s marketing.

Numis Securities said the half-year results statement was more about the strategy update than the numbers, and although it welcomed several of the proposed changes, it was not entirely convinced management has “done enough to placate some of the stronger voices in the market”.

“Management appears to have tried to pull out all the stops, but it is difficult to see how they can reverse near-term challenges to performance, in particular given the downward pressure disposals will have on earnings and the foreshortened dividend guidance of 3-5% pa, with growth in earnings only expected from FY20,” Numis said.

“It’s a start, but HMSO [Hammerson] now enters a period of heightened execution risk. The shares may trade on -32% vs NAV [net asset value] but asset valuations have yet to move down materially (other than its UK retail parks, which are down c.15% over the last 2.5yrs) and consequently, with likely downward pressure on NAV and EPS [earnings per share] over the next year or two we see limited reason to invest in the shares despite the likely positive performance we’d expect this morning as the market digests the changes to strategy,” the broker said.

Liberum Capital Markets said the new strategy is consistent with the objectives set out in the aftermath of the aborted bid for Intu and that the measures appear “largely sensible” but they also highlight the constraints the property company faces in its end-markets and with its gearing; as such, the measures “may not warrant a material appraisal of the business”.

“Unfortunately, first half figures also highlight the pressures on Retail, with NAV flat at 776p – 2% below our forecast - and earnings disappointingly flat. Nevertheless, Klépierre’s overtures continue to provide some offsetting valuation floor,” Liberum said, as it reiterated its ‘hold’ rating and 570p target price.

Numis is also sitting on the fence and has a price target of 590p.

Hammerson’s shares edged up 0.6% to 529.2p in early trading.

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