Hammerson has announced its annual results for the year ended 31 December 2016. The company describes the period as being one of, “robust operational performance across all parts of the portfolio”. During the period, net rental income increased by 8.8% to £346.5m and adjusted net profit increased by 9.9% to £230.7m (IFRS profit fell by 56.4% to £317.3m but this includes non-cash revaluation gains of £125m which was lower than the equivalent gains during 2015 of £542m). Adjusted earnings per share have increased by 8.6% to 29.2p and the final dividend has been increased by 8.6% to 13.9p.
During the year, the company grew and enhanced its the portfolio, adding new retail space in what it describes as faster-growth markets including Dublin, Leeds and Birmingham, and extending its presence in the European outlets market. To fund these growth opportunities, the company refinanced over £1.2bn of debt and executed its planned disposal programme, generating £635m.
The strength of the results we are reporting today is a clear reflection of the success of the specialist retail strategy we set out five years ago. Looking ahead, despite some UK retail headwinds and geopolitical uncertainty, I am confident that we have a resilient and adaptable business with multiple opportunities to drive similar levels of growth and therefore continue to deliver sector-leading income-focused returns.”
In terms of asset management, the company has signed leases for 142,000m2 of new space, with over 40 new brands, signed at average 5% ahead of ERV. Group like-for-like net rental income is up 2.2% (3.2% including premium outlets), which the company says demonstrates retailer demand for prime destinations. Premium outlets saw sales growth of 8% and like for like net rental income up 7.6%. the company says that it has experienced continued strong demand for retail park space driving high occupancy with like-for-like net rental income up 2.4%.
The company provided a total return of 5.7%, which it says beat the IPD benchmark’s return (reportedly 3.4%). During the period, the company transferred Irish loans and secured ownership of Dundrum and Ilac Centre. The company also added what it sees as a strategic asset with the acquisition of Grand Central, Birmingham and says that it has significantly increased investment in premium outlets.
The company opened two new development schemes during the period. These were Victoria Gate in Leeds, a 56,300 square metre retail destination and Westquay, Southampton. The company says that it continues to make progress on a pipeline of large-scale London development projects.
In terms of its balance sheet, the company raised over £1.2bn of new debt which reduced the weighted average cost of debt to 3.1%.
Hammerson says that 2016 was a busy year for its UK shopping centres portfolio with the Grand Central acquisition, the opening of two new centres and what it describes as another set of strong operating results from its existing portfolio. Hammerson says that it has also seen good performance in the second half of the year, with retailers keen to take space in its prime centres. Net rental income totalled £148.4 million in 2016, and on a like-for-like basis increased by 2.4%, compared with a 2.1% increase in 2015. The growth in 2016 is driven by rent review settlements, income from new lettings and increased car park income. Four of our centres achieved annual like-for-like NRI growth of more than 5% with the best performing centres being Bullring and Union Square, which benefited from recent lettings and rent review uplifts.
Hammerson says that the retail parks occupational market remains strong, with healthy retailer demand for space at the best locations. It says that the investment market has been disappointing during 2016, but that its modern retail parks portfolio is well placed to outperform in 2017. Net rental income totalled £79.6 million and on a like-for-like basis increased by 2.4% in 2016, compared to 2.6% in 2015. The growth in 2016 being due to an increase in surrender premiums received associated with pro-active tenant rotation at parks including Ravenhead Retail Park, St Helens and Imperial Retail Park, Bristol. The portfolio also suffered from a small number of administrations, including Brantano, in the first half of the year.
Looking at Hammerson’s French portfolio, the company says that, during, 2016 it has continued to attract new tenants, enhanced the tenant mix across the portfolio and delivered strong net rental income growth. Hammerson says that the investment market has also strengthened for prime retail destinations which has led to an increase in the portfolio’s value. Net rental income totalled £89.3 million in 2016 and on a like-for-like basis increased by 2.2%, compared to 2.5% in 2015. Les Terrasses du Port, Marseille was the strongest performing centre, with increased gross rental income and reduced year-on-year operating costs, as the centre begins to mature following its opening in 2014. As with our UK shopping centres, we have been focusing on increasing non-rental income and in 2016 this revenue stream increased to £5.4 million, compared to £4.7 million in 2015.
For Hammerson’s now Irish portfolio, it says that it has secured the vast majority of the Dublin property assets during 2016 and have already completed a number of the asset management initiatives that it anticipated at the time of the loan acquisition. Hammerson says that Dundrum Town Centre is Ireland’s pre-eminent shopping and leisure destination and offers significant income growth opportunities. Net rental income totalled £14.0 million in 2016, with £1.5 million generated from Dublin Central development site and the remainder from Dundrum. Hammerson says that, as ownership of the property portfolio was secured during the year, the net rental income only relates to the second half of 2016, prior to which the Group received interest income from the loan portfolio. During 2016, 10 rent reviews were settled, of which half were after the property ownership was transferred. These settlements were with tenants including Aldo, Boots, BT2, Clarks, Coast and Dune. In total these reviews delivered annual rental uplifts of 8%. In January 2017, Hammerson settled a further 21 reviews achieving rent uplifts of 7% on £5.4 million (Hammerson’s share) of passing rent. Hammerson says that non-rental income from car parks and the sale of advertising and merchandising opportunities is a significant source of income growth and has generated £2.3 million since it secured ownership of the properties. In August, the car park tariffs at Dundrum were increased by €1; however Hammerson says that these remain at a sizeable discount to parking in the city centre. The tariff change has resulted in a significant increase in car park revenue.
Hammerson experienced a robust operational performance during 2016 : HMSO