Hammerson H1 2025 Pre Recorded Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2025

Key Takeaways

  • Positive Sentiment: Strong half-year performance with 11% gross rental income growth, 10% net rental income increase and the first portfolio valuation gain since H1 2017.
  • Positive Sentiment: Acquisition of Bullring and Grand Central adds around €49 million of annualized net rental income and is immediately 4% earnings accretive with minimal dilution.
  • Positive Sentiment: Upgraded 2025 guidance to ~17% total GRI growth (from 10%) and EPRA earnings of about €102 million, with further growth expected in 2026–27.
  • Neutral Sentiment: Maintain a strong balance sheet with pro forma LTV at ~37% and net debt/EBITDA around 7.9x, supporting an investment-grade credit rating.
  • Negative Sentiment: Funding the acquisition via a 10% share placing and suspension of the share buyback may result in shareholder dilution.
AI Generated. May Contain Errors.
Earnings Conference Call
Hammerson H1 2025 Pre Recorded
00:00 / 00:00

There are 2 speakers on the call.

Operator

Good morning, everyone, and welcome to our call this morning. I am with Himanshu Raja, our CFO and Josh Warren, our IR Director. We had a strong half year, and you will have seen our acquisition of Bullring and Grand Central funded in part by the proposed placing launched this morning. Turning first to key highlights. I'm really pleased with these results.

Operator

We are clearly seeing the growth flow through from consistent execution of our strategy, particularly the realignment of the portfolio, the investment in repositioning and the benefit of our recent JV buyouts at attractive yields. Our destinations are in the top 201% of retail venues where retail spend is concentrated. We attract the best occupiers. In turn, this drives greater footfall, higher sales and sale densities for our occupiers. We are ultimately growing rental income, values and earnings.

Operator

Gross rental income is up 11%. Net rental income is up 10%. Portfolio valuation is up 11%. Our first portfolio valuation gain since half year twenty seventeen. Earnings per share are flat, but following the acquisition of Bullring and Grand Central, we will have more than replaced the loss of contribution from the disposal of Value Retail last year.

Operator

And there is more to come. The 5% increase in reflects the Board's confidence in the continued strong earnings growth ahead. Demand for our space has never been stronger. We have grown like for like gross and net rental income, up 54%, respectively. It was particularly pleasing to see UK GRI up 9% and NRI up 8%.

Operator

This comes from dialing up our active asset management and leasing. We are shifting our leasing mindset from filling space to driving rents up. We call it lease up to rent up. Like for like leasing volume was up 13% and value up 3%. Using the insights from our proprietary data driven platform, we bring together the right brands and experiences.

Operator

That results in occupancy going up 1% to 95% year on year. This all translates to footfall and sales growth. We welcomed 79,000,000 visitors in the first half, 1,000,000 more than last year. This strengthened as the year progressed with Q2 up 3%. We are outperforming national averages.

Operator

Group like for like sales were up 1% with Q2 up two percent. Let's now turn to capital deployment. We have deployed capital at high yield and or ungeared double digit returns. Our in flight repositionings at the Oracle and Cabot Circus are replicating our success at Dundrum and Bullring. The acquisitions of West Quay and Brent Cross alone were at an average destination yield of 8.5%.

Operator

Boring and Grand Central is at a blended topped up yield of 7.7%, which will add another growing income stream on the short term. Together, this adds around €49,000,000 of annualized net rental income, which informs today's guidance upgrade. But we're not done. We have a clear capital allocation strategy to maximize further opportunities to unlock value. Immediately ahead, there are the next phases of redevelopments and repositionings.

Operator

The Iron Works enters lease up in the second half. We gained planning permission for Quaker's friars in Bristol. At Sergi in France, we have secured planning for the redevelopment, also already majority pre let to Primark in the first half. We see further recycling opportunities in our portfolio or selective monetization of our 70 acres of strategic land. In the first half, we realized €26,000,000 of proceeds from Leeds Eastgate land at a 23% premium to book, a case in point of that strategy.

Operator

On that note, let's talk about the consolidation of our position in Birmingham announced this morning. Bouldering is a top five U. K. Destination and has benefited from over €30,000,000 of landlord investment in recent years alongside €75,000,000 investment from trusted brand partners. This has driven the impressive operational and financial performance, growing footfall, up 5% for the first half and strengthening through the period, up 8% in Q2 and December in June.

Operator

Like for like sales are up 4% for the half and again strengthening to 5% in Q2. Total sales were up 6%. Like for like gross rental income was up 12% in the first half. Valuation was up 12% or EUR 33,000,000 since full year 2021, while yields have remained flat. Another half of strong leasing, with recent long term deals signed 25% ahead of previous passing and 22% over ERV.

Operator

And we expect more going forward. Grand Central performs strongly as part of the overall estate, also benefiting from spillover demand from Volring. F and B is a particular feature due to its location above Birmingham New Street Station with some of the highest sales density in our portfolio. Together, both assets attract around 50,000,000 visitors per year. In terms of the transaction, the pricing of €319,000,000 will be funded by balance sheet, suspension of the share buyback program and the proposed 10% placing.

Operator

The transaction will be immediately 4% earnings accretive for a minimal and T A dilution. This transaction isn't just about Bowling and Grand Central, but it's about cementing our dominant position at the heart of The UK's second city. On this slide, you see a picture of our wider Birmingham estate, which really represents everything about who we are. Centered with a top five retail anchored destination with a growing income stream, a mixed use estate that dominates a city center connected with exceptional transport links, including The UK's busiest regional station an affluent growing young and highly educated immediate catchment of 4,500,000, supplemented by adjacent opportunities and strategic development land. The estate has a rich steam seam of opportunity.

Operator

Looking to the bottom left side of this slide, Edgbaston Street car park is an opportunity to create enhanced public realm and more than 700 homes. Above that, around 50% of the space at Grand Central is the vacant former John Lewis Partners store. Strip out was completed in 2023. Planning is in place for an office led mixed use redevelopment with a GDV potential around EUR 100,000,000. To the right is Martinaud Galleries, a mixed use regeneration site.

Operator

It represents the gateway to the city next to the forthcoming HS2 station. The site has outlined planning consent for around 1,100 homes and up to 1,300,000 square feet of commercial space. There is high optionality for delivery, funding, monetization or further densification. Let's now turn to our upgraded guidance. We are today raising our guidance for 2025 as a result of the growth in like for like GRI, NRI and acquisitions.

Operator

Including today's acquisition of Boeing and Grand Central, total GRI growth this year will be around 17%, up from our previous guidance of 10%. We now expect EPRA earnings of around €102,000,000 Looking further ahead, this gives a clear direction for 2026 and 2027. We expect to grow GRI and NRI in each of those years in line with our medium term financial framework. In 2026, we'd expect a further circa 15% GRI growth. And for 2027, we will see Surgi Trois delivered and drive further growth again.

Operator

So in summary, we've delivered really strong results. On the right hand side of the chart, you see our portfolio and platform. We are The UK's largest listed pure play owner and manager of city center destinations in The UK, France and Ireland. We have high visibility of long term income streams and multiple paths to value creation. We are driving growth in rents, values, earnings and dividends.

Operator

Our outlook is very positive indeed. I'll come back and talk about how we are driving growth through our unique portfolio positioning and platform in a moment. But first, as usual, over to Himanshu for some granularity on the numbers.

Speaker 1

Thank you, Richarose, and a good morning from me also. Turning to the financial summary. We've already covered the growth in GRI and NRI. This translated to a gross to net of 79%. We always said it would get back into the 80s, and you can expect to see that in the full year as we complete our repositioning.

Speaker 1

The resulting EPRA earnings were GBP 48,000,000, with earnings per share at 9.9p, and this was in line with last year, benefiting from the share buyback. IFRS profit was GBP 79,000,000. Our portfolio valuation is now GBP 3,000,000,000 and reflects our first revaluation gain since HY 2017. The total property return was 4%, and it was pleasing to see our leasing beginning to translate into ERV growth and also driving an income return of 3%. The capital return was 1%.

Speaker 1

Our credit metrics remained strong with net debt to EBITDA at 7.8 times, reflecting the successful deployment of capital into high yielding assets. LTV at June 30 is at 35%. On a pro form a basis for the acquisition of Bullring Grand Central, net debt to EBITDA moves only marginally to 7.9x, reflecting the exceptional income producing nature of Bullring. Pro form a LTV stands at 37%, both commensurate with a strong IG credit rating. And closing on NTA.

Speaker 1

NTA, the June 30, is GBP $0.03 $8.01 per share. On to the EPRA earnings walk. Going from left to right, the June 24 EPRA earnings were GBP 50,000,000. You can then see the loss of contribution from disposals, 12,000,000 from value retail and don't forget the GBP 3,000,000 from Union Square. The acquisition of West Quay and Brent Cross has GBP 9,000,000 and like for like NRI, another GBP 3,000,000.

Speaker 1

NRI from the development portfolio was GBP 2,000,000 lower as we pursue vacant possession strategies and a little bit for the sale of leased land. Inflationary cost growth was exactly in line with my guidance at the year end, which together with the loss of fee income adds around £1,000,000 of net cost. Finally, better net finance costs, principally higher interest receivable on cash deposits, adds GBP 4,000,000, bringing you home to GBP 48,000,000 of EPRA earnings in the period. Next, the NTA walk, again going from left to right. Starting at GBP $3.70 per share, EPRA earnings added GBP $0.01 0 per share, revaluation, $0.05 per share and the profit on the sale of Leeds and the share buyback add GBP $0.01 each.

Speaker 1

FX and other were a benefit of 2p in this half. And to close, the outflow of the 2024 final dividend was 8p, resulting in NPA per share of $3.81 pence at June 30. Let's now turn to the valuation movement in more detail. This chart shows the like for like valuation movement on our GBP 3,000,000,000 portfolio. Strong leasing and rental growth was again recognized in valuations, while yields were broadly flat.

Speaker 1

In the second column, you see the growth in like for like values, with UK like for like up 1%, Ireland up 2%. Both The UK and Ireland were driven by ERV growth of 13%, respectively. France values were flat with ERV growth of 1%. Overall, the portfolio value was up 11% to GBP 3,000,000,000, also reflecting the acquisition of Brent Cross. Of course, with today's acquisition of Ballroom and Grand Central, this would increase to around GBP 3,300,000,000.0.

Speaker 1

And by way of reminder, on the far right hand side of the chart, as has been the case for nearly five years, the yield spreads to five year swaps continue to be at all time highs. Moving now to debt maturity and credit metrics. We have a strong and flexible balance sheet at this point in the cycle. We remain cash covered for the upcoming $20.25 sterling bond. Looking further ahead, I would expect to refinance the $20.27 Eurobond in the ordinary course around twelve months ahead, something for you to consider for your models in FY 2026 and beyond.

Speaker 1

On the right hand side, you can see the pro form a balance sheet position post the acquisition of Boring Grand Central, still a strong position in line with an IG credit rating and over a billion pounds of liquidity. As Rita Rose mentioned, we have optionality of capital sourcing either from further recycling of the portfolio or looking to our strategic level starting to come into reach. On to my last slide. On the left hand side, you can see the consistent cash dividend per share growth delivered since we emerged from COVID. The further 5% increase to 7.94p signals the Board's confidence in the strong growth to come.

Speaker 1

Let me now just put a bit more color on the upgraded guidance from today. Full year GRI guidance is now growth of around 17%. We have previously guided that, that would be around 10%. The 17% comprises full year like for like growth of around 3%, so a second half of around 2%, which reflects the outperformance in timing from a very strong first half. EPRA earnings guidance is around 102,000,000, and this comprises an uplift from our previous guidance of GBP 95,000,000 to around GBP 97,000,000 from the stronger like for like performance and around GBP 5,000,000 from acquisitions.

Speaker 1

Remember, you only get four point five months benefit from the acquisition of Bullring and Grand Central with the full year effect to come in 2026. And on CapEx, we continue to be disciplined on both the timing and deployment of capital. We now expect full year CapEx to be around GBP 60,000,000, mostly relating to repositioning and therefore this is growth capital. Of course, you can pick up the detail on the full year guidance with Josh or I off slide. With that, now back to Rita Rose.

Operator

Thanks, Himanshu. For those of you who are not familiar with our unique portfolio and platform, all 10 destinations are in the top 20 of retail venues in their geographies. All are in the top 1% of where retail spend is concentrated. These destinations play into the structural trends driving how brands are evolving their physical estates, shown on the top right. Dense city locations remain at the heart of economic and social activity.

Operator

Physical space is the essential link in the supply chain in a unified commerce model. Adversarial onlineoff line models are simply redundant. And now the well established flight to quality trend, fewer higher performing spaces in only the best locations. And on the right hand side, you'll see the attributes of our destinations, exactly like what we have in Birmingham. Our destinations are simply irreplaceable and with no new supply, while demand is growing.

Operator

We have invested significantly in our business model and platform in recent year, including accelerating our investment into first to market AI analytics. This allows us to better understand our customer and occupier behavior. It gives us a differentiated capability in curating the right mix and strengthens our negotiating hand. Overall, we now have a future fit and scalable platform, which will drive operating leverage as we continue to increase AUM and income. It is such insights that have informed our active asset management and leasing strategies over the last four years.

Operator

What I mean by active asset management, you'll be familiar with the success of our investments to reposition Dundrum and Bullring. The key message is we continue to reap the benefits. In this half, we've seen further progress on our repositionings at the Oracle and Cabot Circus. At the Oracle, the repositioning in isolation will deliver an outturn IRR in excess of 20%. TK Maxx and Hollywood Bowl are now open.

Operator

Hollywood Bowl has had its most successful opening ever in terms of sales and footfall. The final letting to complete the repurposing of the former House of Fraser unit was exchanged in June with Zara. These and other new openings, including Cozy Club, have delivered a notable step up in operational performance for the Oracle with footfall up 4% year on year and in Q2, 10% up in July as occupancy has improved from 94% to 98%. Importantly, like for like net rental income was also up 6% in the first half with further growth to come. Turning to Cabot Circus.

Operator

M and S was handed over and will open in Q4, while we will shortly hand over to a new cinema operator with an opening in early twenty twenty six. We have since signed two further leases with leading global brands together at over 100% ahead of Criteus passing rent and 70% ahead of ARV on a net effective basis. The extensive works at Cabot Circus are also flowing through into financials with 24% like for like net rental income growth in the first half. Now let's look at some overall highlights in the first half. Like for like leasing volumes were up 13% to 152 deals with leasing value up 3% to €23,000,000 Principal leases were concluded 45% ahead of previous passing and 13% ahead of ERV.

Operator

This boosted like for like passing rent by 2.4% to €200,000,000 on the flagship portfolio and provided important evidence to the valuers with like for like ERV growth of 1.2%. It was pleasing to see the strong leasing performance in Ireland reflected in ERV growth of 3%. And by the way, just last week, we signed Normale into the former over rented River Island unit in ILAAC, another first for the Irish portfolio. We expect to see a pickup in like for like net rental income in Ireland in the second half. The increased footfall in sales for our occupiers are now well established trends over the last five years for our portfolio.

Operator

Let's look at that. Our footfall is growing and consistently outperforming national indices. Strong sales densities growth, particularly visible with new concepts, which outperformed all by around 40%. Demand is at an all time high with like for like leasing values continuing to grow and consistently positive leasing trends since full year 2021. These trends are also reflected in the financials, and let's look at that.

Operator

On the like for like portfolio, passing rent has grown 13% over the last four years. ERVs are up 6%, more opportunity there. And gross rental income has grown 8% per year. Importantly, all of our strategic and operational focus has been rewarded by the market in returns to shareholders as shown by strong total shareholder returns on the right hand side. Our growth is therefore robust and sustainable.

Operator

These trends are not created by accident. They come from the realignment of the portfolio and the platform. We have been disciplined in our approach to capital allocation to drive growth and enhanced returns to shareholders. There are a variety of options to recycle capital, including the monetization of strategic land as we achieve key planning goals, asset rotation, and we remain committed to maintaining a strong and sustainable balance sheet through the cycle. By way of reminder, on the right hand side is the medium term financial framework we announced last July.

Operator

With today's upgraded guidance, we are on track to deliver that. Our track record is established. We've achieved €985,000,000 of sales since full year 2020 at an average discount to book of 2%. Value Retail was exited for €595,000,000 at a 24 times EBITDA multiple and a 3.4% exit cash yield rapidly recycled into assets at 8.5% yield as shown on the right hand side. This is driving growth in rental incomes and earnings.

Operator

This will only be enhanced by the further acquisition of Boeing and Grand Central. Let's take a step back to look at the additional broad opportunity set on the entire portfolio before I conclude. We have a significant opportunity to generate optionality and unlock value. We've covered the left hand side on our extensive recent progress. It's worth highlighting that the Ironworks, our resi project in Dundrum, will commence lease up in the second half and become Dundrum's largest occupier in due course.

Operator

Looking to the medium and longer term on the right hand side, there is around EUR 5,200,000,000.0 of potential GDV from both projects on existing asset and stand alone opportunities. We are progressing planning consents and land assembly to create value and continue to analyze potential alternatives for delivery across all projects. This could include developing ourselves as is the case with the ironworks at Dunjom or potential site sales where it makes sense and have liquidity at attractive terms. This is, in fact, what's been done in Croydon in 2023 and leads Eastgate this year. Now putting all this together to summarize it.

Operator

We are executing a strategy that is driving value creation. We are allocating capital in a disciplined manner. Today, we have a high quality portfolio of landmark destinations. There are multiple paths for us to drive further growth through active asset management, targeting leasing, repositioning and asset enhancement. And we have significant opportunities to unlock value and recycle capital, either from progressing developments or further asset rotation.

Operator

Our data driven platform is lean and scalable. I have a great team, and we have a strong culture of cost control, which will drive operating gearing. All of this gives us confidence in our upgraded guidance for 2025 and beyond to grow and grow again. Thank you, and we look forward to joining you for the short Q and A session later.

Powered by Quartr