Hammerson has posted its best earnings performance for four years, and while it may not yet be ready for expansion mode, chief executive Rita-Rose Gagné says “metrics are moving in the right direction”.
The REIT made £50.3m profit in the six months ending June, while net assets increased for the first time since 2017, rising by £55m to £2.8bn. The last time it generated profit at the half-year mark was in 2018, when it made £55.7m.
Gagné told EG the landlord is “really getting a grip” on its operations and that the broader operational environment has strengthened on the back of stabilising values and solid leasing activity. She highlighted a leasing deal signed this week with JD Sports, which has agreed to take 24,000 sq ft in an upsizing at Birmingham’s Bullring shopping centre.
“We are leasing broadly in line with ERV, in some cases over and above ERV, more often than last year,” said Gagné. “The trends are getting better and we are above passing rent.”
Growing confidence
In terms of Hammerson’s leasing pipeline, Gagné indicated increased demand for leisure such as competitive socialising, as well as health and wellbeing, adding that the jewellery and outdoor sports sectors remain strong.
She said: “We’re not immune to anything – we have our eyes wide open. But the activity is there… having a strong operational grip on our business, and having a resilient business, gives me confidence for H2.”
Moves to cut costs last year have bolstered earnings, with gross administration costs down by 20% year-on-year – 18 months ahead of target for its 2023 financial year. Following a redundancy programme last year, headcount has reduced to 371 from 426. Hammerson said it is still “exploring further opportunities” to improve efficiencies, including more integrated automated systems.
“It’s about the overall business realigning to its reality, but also being fit for the future – rejigging everything to make sure we are really responding to the market quickly,” says Gagné.
A balance will need to be struck with efforts to make its portfolio greener, too. Hammerson expects to spend between £35m and £50m on EPC B upgrades over the next eight years. Gagné said detailed asset-level plans are being developed.
More work to do
Hammerson has earmarked some £300m of properties for disposal by the end of 2023. The landlord offloaded £194m of properties in the six months ending June, including the Silverburn centre in Glasgow and Victoria centre in Leeds. Consequently, net debt reduced by 6% to £1.7bn. Group debt maturities are covered by cash holdings until 2025.
“We still have some improvements to do on our leverage and we have our landbank, which is a huge value-add opportunity – there is a lot of optionality in terms of what we can do with that,” Gagné said.
That said, Hammerson is not expected to reach a “shovel-ready” point on its development pipeline until the end of 2023. Rather, Gagné said the focus is on design and planning consents. As such, rising build costs are not as much of a concern as this point.
Although a wider market downturn is on the cards – driven by the cost-of-living crisis, economic and political turmoil – Gagné is confident Hammerson will withstand the challenges ahead.
“Everything and everyone will be impacted,” says Gagné. “We expect uncertainty and volatility, for sure. Stronger brands are adapting with all sorts of strategies and services. I don’t have that crystal ball, but we feel solid to tackle that bad period.”
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