Hammerson plc: Interim Management Statement, period from 1 July 2012 to 8 November 2012

Hammerson press release, 9 November 2012, starting with er, bullet points:

• Hammerson now exclusively retail focused, having sold £627 million of office property and reinvested £551 million in attractive retail assets since February
• Announced today the disposal of our final office property, Stockley House, London SW1, for £42 million, 10% above book value
• Robust operational results with occupancy of 97.3% at 30 September 2012 and leasing in the period 5% above ERV ['estimated (current) rental value'] reflecting continued strong demand for prime retail property
• Tenants’ sales increased by 3.2% in the UK, 0.3% in France
• Strong development progress: Les Terrasses du Port, Marseille, now 80% pre let. Leases signed with John Lewis for Eastgate Quarters, Leeds, and Debenhams for Elliott’s Field, Rugby
• Substantial financial resources with approximately £850 million of liquidity available for further investment.

David Atkins, Hammerson Chief Executive, said:

“I’m delighted to have completed the transition to a retail focused company just nine months after announcing our revised strategy. We sold over £600 million of office properties above book value, and have redeployed £551 million of proceeds into prime retail locations in our chosen specialist sectors. In addition, we are making excellent progress with our developments [apart from Brent Cross's 'living bridge', etc., and revised BXC planning assessments, in the dysfunctional London Borough of Barnet? And any more BX development using tax havens?] and our strong operational performance demonstrates that high quality properties in winning retail locations are continuing to deliver positive results.”

Operations

Overall occupancy in the portfolio remains high at 97.3% (30 June 2012: 97.5%). This is ahead of both our target of 97%, and the equivalent figure of 97.1% at 30 September 2011.

We signed 134 new leases in the period representing 41,000m2, and worth £7.6 million of rental income per annum. In the UK we signed long-term leases 2% above December 2011 ERV. In France, long-term leases were signed at levels 7% above ERV, to give a group figure of 5%. Key lettings in the period include:

• Ugg at Bullring, Birmingham
• Armani Exchange and Jamie’s Italian at Monument Mall, Newcastle
• Wilkinson at Manor Walks, Cramlington
• Kiko and Levi’s at Bercy 2, Paris
• Esprit and Promovacances at O’Parinor, Paris
• Adidas and Armand Thierry at Italie 2, Paris

UK tenants’ sales increased by 3.2% in our UK shopping centre portfolio, notwithstanding a small decline in footfall of 1.1% compared to Q3 2011. Over the quarter sales were particularly strong in August and September with Bullring, Highcross and Union Square performing well. In France, tenants’ sales increased by 0.3% across the portfolio in line with a slight increase in footfall.

There were 73 units in administration at 30 September 2012, broadly unchanged since the half year, of which 50 were still trading. Units in administration represent 1.7% of group rents, however recent tenant administrations may impact occupancy over the remainder of the year.

Portfolio - Investment

In the period we completed the first tranche of the disposal of office properties to Brookfield and sold our interest in 10 Gresham Street, London EC2.

We announce today the sale of Stockley House, London SW1, which completes our office disposal programme and finalises the reorientation of the Company to a specialist retail REIT. The property, which was valued at £38 million at 30 June 2012, was sold to a private investor for £42 million.

Overall the office properties were sold for £627 million at a 7% premium to December 2011 book values.

We have invested £551 million into successful retail venues offering growth potential across our defined areas of: prime regional shopping centres offering experience; UK retail parks offering convenience; and designer outlet villages offering luxury and value.

In July we announced the acquisition of further interests in Value Retail holding companies for a total of £72 million and increased our shareholder loan to the company from €28 million to €58 million. In September, we acquired Victoria Quarter in Leeds for £136 million.

In September we also exchanged contracts to acquire a 25% share of the leasehold interest in Whitgift, Croydon for £65 million. We have undertaken a detailed public consultation programme and recently presented the emerging scheme to Croydon’s Strategic Planning Committee. We expect to submit our outline planning application next month.

In October we purchased The Junction Fund for £255 million. The fund consists of four retail parks located in strong catchments, as well as 34,000m2 of consented development opportunities and 17 ha (46 acres) of additional development land. Since completing the transaction we have achieved practical completion of the conversion of the former UCI unit at Thurrock, which will accommodate the first out-of-town Nike store in the UK.

Portfolio - Development

Our major retail and leisure development at Les Terrasses du Port, Marseille, is now 80% pre-let. During the period, pre-letting agreements were exchanged with Intimissimi, G-Star, Kusmi Tea and Calezdonia. Construction is on schedule and on budget, with the project expected to open in spring 2014.

The pre-letting of our proposed Le Jeu de Paume retail development at Beauvais is progressing well. We have secured H&M as the main fashion anchor at the scheme, where 34% of the income is now exchanged or in solicitors’ hands. It is anticipated that construction will commence next year.

At Queensgate shopping centre in Peterborough, we reached practical completion of the 5,000m2 Primark store. Primark is fitting out the unit which remains on schedule to open in time for Christmas trading. In addition, Topshop / Topman and Office have opened for trade in the period, further enhancing the retail mix and vitality of this asset.

We are making good progress with extensions and redevelopments across the portfolio. We have exchanged contracts with Debenhams for a 5,575m2 store that will anchor the redevelopment of Elliott’s Field, Rugby, where we intend to submit a planning application early next year. In Cramlington, the 13,500m2 extension of Manor Walks shopping centre is progressing well on site and we anticipate the scheme opening on schedule in spring 2013. At the neighbouring Westmorland Retail Park, where we have secured planning approval for the 3,700m2 extension and secured a pre-let to Marks & Spencer, construction is due to start early next year.

Financing

In September we issued a seven year €500 million 2.75% unsecured bond due in 2019. Borrowings were £2.1 billion at 30 September 2012 and cash balances were £395 million, to give net debt of £1.7 billion (30 June 2012: £1.9 billion).

At 31 October 2012, proforma for the completion of the Junction Fund and Victoria Quarter acquisitions and the sales of Stockley House and Gresham Street, net debt was £2.0 billion reflecting loan-to-value and gearing ratios of 35% of 51% respectively. Proforma cash and unutilised facilities were £850 million.

The Group’s nearest short-term debt maturity is £100 million nominal of floating rate reset bonds that were issued in July 2008. These bonds have put options at par from February 2013 in favour of the lender and a call option at fair value in favour of Hammerson. It is estimated that the fair value of these instruments was £141 million at 30 September 2012. We are currently evaluating options for this bond, including whether to exercise the Hammerson call option to reduce the Group’s future interest costs.

Outlook

We remain cautious about the overall economic outlook in the UK and Europe. However, we have a portfolio of modern, well-located retail properties which offer consumers leisure, catering and multi-channel capabilities. These assets continue to attract both domestic and international retailers, which gives us confidence in our ability to grow underlying rental income.

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Financial information

The financial information contained in this statement is based on unaudited management accounts for the three months ended 30 September 2012. The exchange rate used in preparing this statement is £1 = €1.255.

Forward-looking statements

This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or implied by these statements. 

Many of these risks and uncertainties relate to factors that are beyond Hammerson’s ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as the Company’s ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. Hammerson does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. Information contained in this document relating to the Company should not be relied upon as a guide to future performance.