Retail recovery shrinks Hammerson losses

A fragile recovery of in-store shopping in 2021 helped stem the decline of retail property values at Hammerson (HMSO), narrowing its pre-tax loss to £408mn for the year.

The owner of the Birmingham Bullring shopping centre has seen its shares plummet by over 80 per cent in the last three years, as the coronavirus pandemic accelerated the move toward online shopping and forced ‘non-essential’ shops to close. 

The retail landlord only collected three-quarters of its rents in 2020 because of the government moratorium, as well as the rent adjustments, deferrals, and waivers the landlord arranged with its occupants. Collection rates have since improved, back up at 90 per cent for the 12 months to the end of 31 December, and at 83 per cent year-to-date in 2022. 

Higher footfall and sales, particularly at its premium outlets including Bicester Village, helped to slow the race to the bottom in rental values over the year. Estimated rental values fell by 4.1 per cent in the first half of the year, but only another 2.7 per cent in the second half. 

A drastic overhaul of Hammerson’s property portfolio, which continued with £623mn of disposals in 2021 including the sale of the remainder of its UK retail park portfolio to Canadian property group Brookfield, led to £45mn lower gross rental income of £242mn.

“We are already seeing the tangible results from our strategy with strong occupier leasing demand, reduced vacancies, improved collections, a lower cost base and clear path to value creation from our land bank,” said chief executive Rita-Rose Gagné.

Hammerson’s portfolio is now worth almost 15 per cent (almost £1bn) less than at the end of the previous year, half of which came from disposals and the other half from write-downs.

Liberum noted “signs of capital value stabilisation” but kept its ‘sell’ recommendation on the basis that there is “still a long way to go to rebuild the business”. Negative property revaluations and high loan-to-value ratios of 45 per cent have damaged Hammerson’s balance sheet, but fixing this will be tough without selling the “crown jewel”, the £1.1bn value retail portfolio of premium outlets, said the broker.

We agree. Although there are encouraging signs of an in-store retail revival and improving rent collections, the trend toward online shopping has gone from strength to strength over the last two years, and poses a real threat to long-term retail property values. Sell.

Last IC View: Sell at 36.8p, 5 August 2021