UK-listed REIT Hammerson has unveiled plans to completely exit retail parks in the UK, increasing its disposals target by 20% to £600 mln (€673 mln) this year and slating an ambitious £1.1 bn of sales by the end of 2019.
In its earnings statement for the first six months of the year, the retail specialist said its new focus would be solely on 'two winning retail segments with enhanced like-for-like net rental income (NRI) growth prospects', namely flagship retail destinations and premium outlets.
'This is broad new strategy and has been clearly influenced by recent shareholder engagement,' commented analyst Goodbody, describing UK retail parks as 'the main drag on the portfolio'.
The company's share price was up 1% in early morning trading following the announcement.
Hammerson said it would create a new 'city quarters' concept to maximise value from the 'highly attractive' land surrounding its shopping centres, as well as targeting greater geographical diversification with non-UK retail exposure increasing by around 10%.
It also revealed it would postpone its major redevelopment of Brent Cross Shopping Centre in London, and trim management and operational costs by £7 mln per year, while shrinking pressured exposures to department stores and high street fashion.
Hammerson's six-month results revealed that earnings per share were flat at 15.1p, compared to the previous year, with NRI falling -3% mainly due to disposals.
However, capital value growth for premium outlets and Irish assets helped offset value declines in the UK, keeping EPRA net asset value (NAV) flat at 776p. Capital growth overall was -0.3%. UK shopping centre values fell by 1.5% and UK retail parks by 3.7%, while Ireland was up 1.9% and outlets 1.2%.
Hammerson's new geographical strategy would position the company as broadly 60% non-UK and 40% UK, according to Goodbody.
'There is value in this portfolio in the UK (the best destination retail) and growth in Europe (particularly Ireland and outlets), and as the market reacts to the shift in portfolio balance, Hammerson should see valuation multiples align closer to European peers,' the analyst said. 'Today’s announcement is a step in the right direction and confirms our investment thesis for Hammerson’s re-rating potential. We remain confident in our 615p valuation.'
Yesterday Hammerson announced the sale of its Imperial Retail Park in Bristol and Fife Central Retail Park for a total of £164 mln to Capreon, part of the Noé Group.
Goodbody said that both assets were dominant regional centres and produce solid incomes with low vacancy rates. The sale reflects a discount of 10% to December 2017’s book value and equates to a net initial yield of 7%.
The two deals announced on Monday brought Hammerson’s total disposals in 2018 to £300 mln.
Neither Klepierre, nor intu
The new strategy announcement comes after a difficult few months for Hammerson, whose share price fell sharply after a failed takeover bid from France's Klépierre earlier this year. The business also encountered shareholder rebellion over plans to buy out UK peer intu, triggering a U-turn.
US-owned activist investor Elliott Capital Advisors increased its stake in Hammerson to 5.3% earlier this month, placing the UK shopping centre developer under pressure ahead of the planned strategy update.
Hammerson turned down a second cash-and-shares bid from its French rival in April, saying it 'very significantly' undervalued the company with its 635 pence per share offer. In mid-March, Hammerson's share price fell to a low of 434 pence but it has since regained some ground and was trading this week at around 534 pence.
Days after rejecting the Klépierre bid, Hammerson bowed to pressure from shareholders to withdraw its takeover bid for UK peer intu. Inferior quality assets and an increased exposure to the worsening UK retail market were cited as key issues by analysts.
Meanwhile, France's Klépierre would be allowed to renew its takeover bid for Hammerson after 13 October, under M&A rules.