Hammerson Plc (HMSO) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for joining us today for this half year results presentation and strategy update. There will be 3 main parts to the presentation today. First, I will give you an update on what we said we would do at the full year and what we have achieved in the first half. Next, our new CFO, Himanshu Raja, will take you through the numbers. And then I will come back to you to update you on the strategy and our priorities looking ahead. We'll do questions at the end. Before starting, I will make a few high-level comments without any slides. First, the backdrop. Our trading environment has remained tough, as you know. We've had long periods of restrictions. These have partly eased towards the end of first half. We've not been helped by the U.K. government's inexplicable stance towards landlords by extending the moratorium into 2022 nor by failing again to address the inequality of business rates. Secondly, on our priorities, we have remained focused on collection, leasing and asset management, which have shown some signs of recovery. Occupancy has also been resilient. Let me take a moment here to thank our teams for their relentless, tireless work supporting our customers and keeping assets safe during this trying period. Despite all of this, we've made great progress with disposals and refinancing in the last few months. There is more to do, but we are now able to do so from a stronger position and in markets where liquidity is returning. These priorities remain a short-term focus, along with our cost structure. Thirdly, our strategy. Mid- to long term, we do see a clear path to value creation for all stakeholders, just because of the quality and potential of the assets we own. We are repositioning the company, and this will take time. We are focused on total return against an uncertain backdrop. So let's start with what we said at the year-end. I said we would strengthen the balance sheet and tackle our debt maturities. We achieved GBP 403 million of disposals in the first half of the year and issued GBP 700 million sustainability-linked Eurobond at a competitive rate, the first of its kind in the sector. We also undertook a significant refi reducing net debt to GBP 1.9 billion from GBP 2.2 billion. And we now have no unsecured maturities until 2025 not covered by existing liquidity. On strategy, the headline there is that we need to simplify and focus to unlock the inherent value in our iconic destinations. We welcomed new leadership with strong experience in line with that strategy. Himanshu Raja, as CFO; and Harry Badham as Chief Development and Asset Repositioning Officer, who joined in April and June, respectively. On the operational side, rent collection continued to improve. We have now reached 90% for full year '20 and 71% for half year '21. Himanshu will cover this in more detail. Footfall has not returned to a pre-COVID level and is currently at 70% to 85% of 2019 levels, depending on geography. We remain very focused on this metric. As for leasing, values are encouraging, ahead of both half year '20 and half year '19, but the U.K. environment remains the toughest. We are increasingly leasing to target categories as we think about positioning our assets and driving back footfall. Brands continue to take up space in our assets, and they tell me, stores are critical for them. Now let me pass over to Himanshu on the financials.

Thank you, Rita-Rose, and good morning. Just by way of introduction, I joined Hammerson just over 90 days ago. And it's been a busy old time with the refinancing in May, the strategy update and, of course, the half year. Our bond issue gave me an early opportunity to meet the finance team and really get into the detail behind the numbers with a fresh pair of eyes. I am blessed with a good team, but at the same time, there are opportunities to improve how we do things and opportunities for automation. I am satisfied that we are prudent in our approach, particularly on provisioning receivables and incentives. I have today sought to both simplify the presentation of the numbers and to ensure greater consistency in our disclosures. I'll seek to draw these out as I go through the presentation today. And just to reassure you, all the detail you are accustomed to seeing has been retained in the additional disclosures in the press release and the slides. So without further ado, let's get into the numbers. For the headline results, adjusted net rental income was down 8% to GBP 87.2 million, principally due to the disposal of retail parks and other movements. Like-for-like net rental income was flat at GBP 67.7 million. Premium outlets was a loss of GBP 2 million compared to GBP 7.4 million loss this time last year. But do remember, last year, we had a positive GBP 5.6 million contribution from VIA Outlets. Value Retail has bounced back more quickly as we'd expect since restrictions were eased. Coming to adjusted earnings. Adjusted earnings overall were up 14% to GBP 20.1 million, largely reflecting that improved performance in Value Retail as well as the positive net interest contribution in the period. The IFRS loss was GBP 375.5 million. Now turning to the balance sheet. You'll see that I've separated out our managed portfolio and debt from that held in value retail. They are different in nature and therefore, should be disclosed separately. Our managed portfolio was down 19% to GBP 3.6 billion. This was a function of both disposals and the revaluation deficit in the period of GBP 353 million. Net debt reduced by 16%, down from GBP 2.2 billion to GBP 1.9 billion. Let's turn to Value Retail. Our share of the investment in Value Retail declined 2%, and our share of the Value Retail net debt remained flat at GBP 690 million. And you remember, the Value Retail debt is, of course, nonrecourse to the group. The effect of the disposals, the negative capital returns, and the dilutive impact of the scrip dividend led to a 16% decline in net tangible assets per share from 82p to 69p. Let me now take you through the adjusted earnings walk from GBP 17.7 million to GBP 20.1 million in more detail. Disposals account for the largest negative element at GBP 7.8 million. The other NRI of GBP 5 million, related largely to the developments and the U.K. Other portfolio. We also saw cost increases through the pandemic in our D&O insurance costs, a modest increase in administration costs and a small impact from FX and tax. Like-for-like NRI was broadly flat, although there's a number of moving parts, which I've drawn out here. There were positive contributions from surrender premiums and releases of provisions from a better collection performance. These were offset by the year-on-year cost of tenant failure, of leasing, void costs and concessions. And finally, the variable income was naturally down due to the lower levels of activity in our centers, and more details on this metric by country is in the additional disclosures. The 2 big positive swing factors were an GBP 8.3 million benefit on net interest, and that arose from 3 things: one, the partial repayment of private placement notes; two, the full repayment of COVID-19 drawn facilities in late 2020; and three, from the benefit from in-the-money interest rate swaps. And finally, the big swing at the end is the improved performance in value retail of GBP 11.3 million. Let's look at that value retail performance in a bit more detail. And just to orientate you on this slide, in the blue box on the bottom left of the slide, the Premium Outlet segment in H1 2020 was a negative GBP 7.4 million. This encompassed the first half contribution from VIA Outlets of GBP 5.6 million, which naturally falls away post disposals. So keying off from the loss of GBP 13 million from Value Retail in 2020, GRI improved by GBP 4.8 million with stronger brand sales and footfall as villages were able to operate with fewer restrictions. Value Retail also successfully launched a wide range of initiatives aimed at the domestic market, which has gone some way to mitigate the absence of tax-free sales. And lastly, Value Retail showed good cost discipline and saved GBP 1.3 million of interest costs through financing at lower rates. We do anticipate a continued recovery in Value Retail, particularly as international travel returns. Turning now to the obligatory NTA per share walk. The 13p decline comprises 9p from the revaluation deficit, 3p from the issue of shares from the scrip, and 1p from the loss on disposals, which were at a 6% discount to book. Before turning to portfolio valuation net debt, let me cover off collections. Rent collections continue to improve. We have now collected 90% of billable rents for FY '20. H1 '21 now stands at 71%, and Q3 at 64%, benefiting from material improvement with the U.K. and France now standing respectively at 67% and 60%. This means year-to-date rent collections stand at 69%. I want to call out 3 things on collections. I expect all rent collections to continue to improve as remaining COVID restrictions are lifted. I do not anticipate granting concessions for future periods, and where occupiers are now trading normally, we expect them to pay. We are pursuing all avenues to collect rents due. In terms of provisioning, you'll see the details in the back. Provisions in the first half were GBP 77 million, a decrease of GBP 3 million, reflecting a provisioning rate of 67%. Provisions for tenant incentives reduced GBP 13 million to GBP 55 million, a rate of 24%. Slide 10 shows the breakdown of the group capital returns. A lot of detail here, so let me orientate you. Firstly, consistent with the earlier slide, I've drawn a distinction between the managed portfolio and our investment in Value Retail. On the left-hand side of the chart, I've shown the capital returns for H1, splitting out the effect of changes in yield, income and other factors such as disposals. And on the right-hand side, I've shown the peak to date movements on capital returns, ERV and yields. So first, let's walk through the managed portfolio of GBP 3.6 billion. Capital returns in the first half to 30th of June 2021 were minus 9%. U.K. flagships were the weakest performer at minus 13.4%, split roughly equally between income and yield impact. France is more resilient at negative 4.2%, again, roughly equally split between income and yield. And while Ireland was a negative 6.6%, this was almost entirely related to yield expansion. In aggregate, flagships exhibited a negative capital return of 8.9% and bringing the land bank and the now disposed retail parks portfolio, the overall return was a negative 9%. Value Retail was more resilient at minus 0.4%, entirely relating to rental value. Now let's turn to the right-hand side of the chart, where you can see the capital returns from peak to June 2021. U.K. flagships are down 60%, with ERVs down 29%. France is down 25% capital values with ERVs down 4% and Ireland capital values are down 28% with ERVs down 14%. On yields, we have seen some liquidity returning to the sector, particularly in the U.K. And there is an emerging consensus that yields are beginning to bottom out. And in future downward movements in capital value, we expect, therefore, principally to come from ERV. And with respect to ERVs, we've previously been on record to say a peak to trough would be at around 35% in the U.K. and we stand by that guidance. We are not calling the bottom yet. You'll also see on the far right-hand side of this chart that we have a mix of assets in the portfolio with differing yields that inform our core and noncore strategic direction that Rita-Rose will cover in a few moments. Let's now turn to net debt. Our net debt declined by 16% from GBP 2.234 billion to GBP 1.879 billion. And going left to right, the largest contributor was, of course, the net proceeds from disposals of GBP 396 million achieved in the first half. Cash generated from operations added GBP 48 million, a positive performance benefiting from the improved collections. We have more we can do here in terms of improvements in both collections processes and in automation. Exchange and other net outflows improved net debt by GBP 77 million. The dividend outflows of GBP 13 million largely relates to withholding tax on the scrip element of the 2020 interim dividend. Our interest bill totaled GBP 103 million and cash CapEx was GBP 50 million. Turning now to the debt maturity profile and liquidity. We've made significant progress in strengthening our capital structure and balance sheet. This chart shows the pro forma debt maturity profile, reflecting further refinancing actions that were completed since the balance sheet date. Our new GBP 700 million Eurobond was at a coupon of 1.75%, almost 2x covered. For that and the proceeds from disposals, we used to repay the 2022 GBP 500 million Eurobond in full, 53% of the 2023, GBP 500 million Eurobond and GBP 297 million of private placement notes. In addition, we refinanced the GBP 415 million 2022 RCF with new facilities totaling GBP 200 million on a 3 plus 1 plus 1 basis, supported by our Tier 1 relationship banks. I would expect to refinance the 2023 and 2024 RCFs roughly 12 months ahead of maturity. So in summary, the effect of our refinancing has been to extend our average maturity from 3.5 years to 4.2 years with no significant unsecured maturities until 2025. The 2023 and 2024 unsecured maturities are more than covered by our available liquidity. Our weighted average coupon remained around 3%, largely due to repayment of drawings on RCFs, which at floating rates had our lowest interest costs. Liquidity is at GBP 1.5 billion pro forma. The resulting credit metrics for the half are covered on the next slide, beginning with gearing. Our balance sheet metrics have strengthened with gearing at 68% against the tightest of our gearing covenants of 150%. The unencumbered asset ratio was 1.83x against the December '21 covenant of 1.5x on our remaining GBP 217 million USPP debt. Our interest cover has improved back above 2x, in line with our internal guidance. And we have no other covenants on group debt. You will see that we've moved our internal guidance on LTV and our net debt-to-EBITDA to refer to the importance of the IG rating. Rita-Rose will come back to this in a moment also. Let me close by giving you some guidance on modeling assumptions, beginning with ERVs. We see the U.K. market settling at around 35% below peak. Meanwhile, we anticipate France and Ireland to be more stable. On rental collections, you should assume at least 80% for FY '21. In terms of net admin costs, assume the same run rate in H2 before savings of 15% to 20% by FY '23. Value Retail H2 earnings, we expect these to exceed H2 last year, but assume no cash distribution for this year. Financing costs, our refi saves an annualized GBP 10 million. And you can anticipate more to come here with further reductions to debt as we continue to delever the balance sheet. On CapEx, we continue to be very disciplined, and we are today reducing our CapEx guidance from the GBP 115 million previously guided to GBP 100 million for FY '21. And finally on the dividend. Assume a further GBP 210 million of scrip, which discharges our SIIC obligations from the sale of Italie Deux. This should be phased roughly GBP 70 million at each payment date by the end of 2022. With that, let me hand back to Rita-Rose to cover our strategy update.

Thanks, Himanshu. I'll now talk about how I see the future of Hammerson and then walk you through our levers to value and value proposition. Hammerson is a retail specialist with an eye for customers and experience. It has opportunities to add alternative uses to its portfolio and align to mixed-use portfolio of prime properties in time. I see our future as an owner, an operator and a developer of prime urban estates. This will entail a disciplined program of disposals and potential reinvestment into our core assets and development sites. The chart in the middle shows the indicative mixed uses in that core portfolio. In the long term, an increase in alternative uses around a prime retail and amenity offering. To get there, we are retooling the business. Firstly, I see a sustainable capital structure as key to our strategy. We have already made progress there. Secondly, we are transforming the business to be leaner with faster decisions and lower costs. Thirdly, we are reinvigorating the core assets to maximize cash flow and footfall. Fundamentally, we seek the position and closely align the assets to connect all communities they serve with a diverse and vibrant offering. This slide gives you a quick summary of the main options we considered and the choices taken. Starting from scratch today, you would not bill Hammerson as it is. While we have a strong existing asset footprint, maintaining the status quo is not an option. We need to reach that sustainable capital structure and generate capital for reinvestment. We will maintain a retail amenity core but evolve the mix. We have development opportunities both on the existing sites and in the adjacent land bank we own. The most appealing and scalable is residential, but other sectors will be appropriate for specific assets. There is plenty of opportunity within our core portfolio, and so we will not enter into new territories. With the right platform, we are focused on cities, not geographies. Lastly, we will remain an owner, an operator and a developer. You will all be familiar with the demographic and consumer trends on this slide. Translated into retail, they are accelerating the long-term channel shift to online. This is, in turn, driving the evolution of the store model and the polarization to convenience and prime. Our strategy responds to this. I do believe that prime retail is an important part of the future of our assets, but a reduction in space is required, particularly in the U.K. Not all assets will be impacted the same. Studies show city centers will be impacted less. Physical retail is still essential to sales, about 70% in the U.K. and about 85% in France and Ireland. That said, I believe European online penetration will narrow the gap over time. In the U.K., our May and June sales were only 6% down on 2019, our French June sales were down 14% on 2019 despite varying levels of restrictions still in place. Physical is also important to profitability, particularly giving eroding margins and increasing online fulfillment and acquisition costs for our tenants. From my discussion with leading occupiers, physical contact with the customers remains essential for brand relevancy. We are the physical brand enable and facilitate that and we have the amenities for the communities surrounding our estates. In turn, the type of measures analyzed is evolving. We can now track footfall into different asset zones and even to individual units. This generates new data, more comparable to marketing and brand awareness KPIs, increasingly assessed alongside traditional measures. This enables us to better target our offer and prove the value of our space. Against that backdrop, these 3 charts show the status of Hammerson today. The first 2 charts show this is a quality portfolio with prime and iconic locations. The left-hand side shows the independent rankings of Green Street. The middle chart shows all but one of our locations are in high-growth cities with GDP, population and workforce growing faster than national EU averages. A high proportion are, however, in JVs. We are actively working on simplification. On the right-hand side, you can see we are overexposed to the most challenged segments of fashion and department store, together accounting for 55% of ERV and 53% of our space. Overall, my initial diagnostic still largely stands. We will capitalize on the competitive advantage of the quality and location of our core assets with clear valuation upside from repositioning. Here are the 4 levers we will pull to drive value. First, disposals of noncore to maintain our IG credit rating and deliver a sustainable capital structure. Secondly, we are creating a more efficient and proactive platform. We talk internally about speed to value and being opportunity ready. Taking these 2 together means simplifying and consolidating our platform and portfolio, focusing on the core assets. Thirdly, reinvigorating our assets mean generating incremental cash flow, optimizing use of space and repurposing and redeveloping underperforming and underutilized space. Lastly, accelerate the longer-term development pipeline as we seek to [ truce ] between reducing debt and recycling capital for future value creation. It may mean investing ahead of disposals for consolidation, repurposing or development, but we are confident our noncore assets will have value for others at the right time. As for disposals, we are not a forced seller. We have ample liquidity today and no immediate substantial capital commitments. So this will be a disciplined program over time. I'm not going to give you a list of what we will sell and hold for obvious reasons, but let me define 3 buckets to give you an idea. The near-term disposals are the assets with minority stakes for lack of control or those that have run their course for Hammerson in terms of life cycle and/or are better in the hands of others. Assets to optimize before selling are those that have value creation opportunities from asset management before disposals or it is just not the right time to sell in the market or because we don't need that capital today. The core assets are those in the best prime city center catchments with supportive local authorities. They have income growth potential and significant opportunities for repositioning. Overall, there is a chance to grow some of these assets to a value of around GBP 1 billion each, some with a meaningful proportion of mixed use. And, in sum, there is the potential to consolidate ownership, which would be earnings accretive with the opportunity for capital growth. To be clear, we will remain alert to opportunities to realize value in the market for either individual assets or portfolio deals. Let me also address Value Retail here, a resilient performer in a category we anticipate to recover well and return to growth. We learned much from our partnership. We have high-quality co-investors in the form of APG and SBG. We won't destroy value, but remain open to liquidity at the right time. Turning to the organization. I am working towards a more empowered communities here as we progress on disposals and organizational change. There are significant value creation opportunities from reinvigorating the assets. On the left-hand side of the slide, there are some examples of ways to generate incremental income. The greater opportunity lies in optimizing our use of all space and minimizing void. To get there, we need to maintain leasing momentum and lease to the right categories and, where appropriate, repurpose underutilized space. We are looking for footfall drivers and are open-minded when it comes to leasing structures. The best prospects are in department stores, underutilized car parts and underperforming MSU space. There are capital light and more capital-intensive options. As an example, we currently have 800,000 square feet of U.K. department store space void or in temporary leases. This is, on average, ERV GBP 3 per square foot and has a capital value of GBP 9 per square foot. So there is considerable upside just there. It's also important to give you a glimpse of recent leasing activity in line with the above. Prime brands remain important for footfall and vibrancy. Dyson has opened in Terrasses du Port, Boodles in Leeds and Tommy Hilfiger in both Scottish assets. F&B, grocery, leisure and services are new anchors. This week, M&S took the former dividend space in Bullring, its food hall, the first grocery-led offer for the center. Donnybrook Fair a high-end food emporium, restaurant and bar signed for Dundrum. Windstop has opened in 3 U.K. assets. Tree Top Adventure Golf in Bullring and Flip-out in Croydon. Services cannot easily be replicated online. So in Brent Cross, Moorfields Eye Hospital is opening a diagnostic center in a former new looking MSU unit. We also have a role in bringing in digitally native brands through our white boxing program in the U.K. and Co-Lab in Marseille, most recently kicked game into Bullring. These trials have shown the power of physical brand engagement, conversion rates and low customer acquisition costs. All are looking at more space across the portfolio. Our job is to convert these new concepts to permanent deals and then to create a virtuous cycle to find and trial the next big innovative brands. So now turning to the mid- to long term. On this slide, you can see the full development opportunity pipeline. It includes some nearer term and in-asset projects. There is a little bit of [ addition ] also there is interest from third-party capital and operators for us to consider. Let me try and bring this all to life for you by way of an example of what could be on one single slide. One site, the Birmingham Estate, which comprises Bullring, Grand Central and Martineau Galleries. In Bullring, I just mentioned the new flagship M&S store in former dividends, which Grand Central and Lady Woodhouse. Around 300,000 square feet of floor space, in total 50,000 square feet of ground floor amenity space in there. These 2 buildings sit a stride one of U.K.'s busiest train stations and are well suited to a range of uses. Looking at the longer term, Martineau Gallery is a collection of tertiary assets to date, but it is ready for regeneration and adjacent to the site of the new HS2 Kirson Street station. You can see the range of uses earmarked on the previous slide. There is also the possibility of flexing existing master plans as well as the potential for modular build out. This is a prime example of what we are continuing to work on in our strategy and we could be on site as early as 2023. So now taking it back up to the portfolio level. The pie chart on the left-hand side shows the existing mix of users today in the identified core portfolio after targeted disposals. The middle pie chart shows indicatively what this could evolve to be in the medium term through some repurposing, remixing and nearer-term development. And the right-hand side, shown at the beginning of the presentation, gives you an idea of where we are going in the longer term, which is a measured expansion into alternative use around a best-in-class retail amenity offering. The portfolio would, therefore, temporarily scale back with a stronger focus and cash flow before going back with modern product. For sure, this needs to be scaled in time and disciplined. We continue our strategic review to refine that detail. In summary, Hammerson has a clear direction of travel from the strongholds we have in our cities. We have made good progress in the first half despite the continuing challenging backdrop. This drives a similar execution focus on the near term, further disposals creating an agile platform with reduced cost and operational focus. Looking ahead, navigating through the still uncertain environment, the mid- to long-term agenda is: one, reaching that sustainable capital structure; two, as we execute on this, focusing on the core and simplifying the portfolio; three, maximizing existing and incremental cash streams, including focusing on leasing and remixing to fill void and repurpose; four, over time, appropriately recycling capital to value creation opportunities, including development; and five, we will seek ways of accelerating the long-term scale developments, which will allow us to create [indiscernible] of the future. And with that, over to your questions.

[Operator Instructions] And our first question comes from the line of Christopher Fremantle from Morgan Stanley.

I had one short question and one perhaps slightly more detailed question. The first short question is just on the strategy update. I think it's been reported that McKinsey have been helping you with that strategy update. I wonder if you can just clarify exactly the scope of the work that they've done for you there, whether it was more focused on the cost side or sort of bigger piece of strategy work. If you could just give us a little detail there. And then the more detailed question was on Value Retail, where obviously the valuation has moved relatively little so far versus pre-COVID levels. But just can you comment on the refinancing risk in value retail, which I think your auditors have talked about in their report on Page 21 of your release. And just how you assess that refinancing risk within that associate, I mean how you assess the likelihood that Hammerson might need to inject more equity there to retain your stake in the business or what your other -- what other actions you think will solve that refinancing task, please?

Thank you, Chris. Good morning, everybody. So Chris, on your first question regarding Mackenzie's involvement, just so everybody understands that. That was a very particular short, quick assignment that we gave them. A piece of work on the operations and the cost of the business. You'll understand that coming in -- jumping into the business in the middle of the pandemic and with the more pressing things that have -- it's in line with what we're guiding the market towards some cost efficiencies of 15% to 20% net administration costs in 2023. So that was the object of that. And your second question on Value Retail. I think I will let Himanshu give a bit more detail, but you'll understand it's potentially less significant than we can think. But Himanshu, do you want to give a bit of...

The group has strengthened its balance sheet. So it's good to see the [indiscernible] matter there removed. But you know the climate we're living where orders stress test this stuff to extremist and in Value Retail. The key points are, look, Value Retail's LTV is at around 40%. It just happens that they've got, in the ordinary course, refinancings that fall within our going concern period. And those refinancings are on some of their best assets like Vista. And all of this debt is nonrecourse to the group. So it's nothing more than technical qualification from the auditors.

The next question comes from the line of Colm Lauder from Goodbody.

Thank you for running through the detail on the strategy update. It's very helpful. A couple of questions here. One, just on an operational side, addressing rent collection and a second on the strategy update. But I might start with the rent collection piece first. Obviously, it looks like you've made good progress, particularly on FY '20 in terms of collection of rental arrears, quoting a figure of 90%. I was curious to understand in terms of breaking that figure down, is that accounting for deferrals as well agreed with tenants? I know the reference is towards billable rent collections. So I'm wondering, were these on an adjustable bill-to-bill basis or these were as invoiced in FY '20? And that's my first question. The second question, again, brings us back to the strategy update. And I think to what Rita was discussing as well in terms of debt on Value Retail. And obviously, you, Rita-Rose, you've mentioned several times the new business in terms of new strategy will focus on cities, not geographies as you say and you're a city center-focused business. So can we read into that, that this would be potential or disposals of the out-of-town centers like Silverburn and Glasgow? And obviously, how does that feed into the Value Retail strategy equally given that they are mostly out of time? And that's all for me.

Okay. Thank you. I'll ask Himanshu to address the collections point and I'll come back on the strategy.

Yes. Look, on the -- as we called out in the slide, the collections number at 90% is after the waivers and concessions that we've granted. As you know, we work really proactively with our occupiers through COVID, supported them where it made sense to do so. And therefore, it's the remaining collections number that the 90% represents. As I look to my first 90 days and we look at the climate, as I referenced in my presentation, we're not in the business of granting concessions as we go forward. And I expect us to be able to collect the rents for occupiers who are trading fully. Rita-Rose, second question?

Okay. Thanks, Himanshu. So talking about the -- because your question, you talked about Value Retail, but in general, the disposals. I just want to bring you back quickly to the last months, because what we did with the balance sheet is very much in relation also to how we're thinking about disposals. As you know, we did in the first months, realize some disposals that were -- that we felt were assets that were -- that had some liquidity, that were not strategic on the long term for Hammerson. So they're French assets, minority positions and the retail parts. And then we were able to go to the market to raise -- to issue the bond Himanshu was talking to us about. Now that changed the landscape a bit for us, and we totally are staying focused on the balance sheet. We still need to do more. But with regards to the disposal plan, what that did and does is that we're, at the moment, not forced or pressed or distressed to sell. So we have a program of disposals in time, and we -- the market is starting. We're starting to see some -- having some conversations on some liquidity on assets. So the reason why I'm not giving any detail around what those properties are or the size of the program, et cetera, it's just that we've given so much care to the fact of not being for seller, that if I would want to give you guys more detail, I would just be returning back to my for seller status. So I think in the documentation, in the presentation, I did seek to give you as much detail as I can in terms of how we're seeing our assets. So I think you have enough indices in there to go back in our documents and sort of broadly understand what that program is. In terms of Value Retail, I -- also was recovering, and I think they will recover well. We would like to see the recovery that comes from the international travel. So we would like to see a bit more recovery in our portfolio and potentially explore the liquidity options at the best or at the right time. So that is how we're seeing that.

The next question comes from the line of Rob Jones from Exane.

A couple from my side. One was on Slide 39 in the presentation in appendices, where it looks at leasing analysis by type. Obviously, at the front half of the presentation, you talk about leasing versus previous passing rent and ERVs and they were down 24%, respectively. I was surprised to see that the nonprincipal leasing, which still represents a reasonable proportion of your leasing during the period in the U.K. at least, to be more than 75% down on previous passing rent in ERV. To what extent is that a reflection of a relatively small sample size, and we shouldn't see that type of value replicated in the periods going forwards? Or is it more part of the strategy that you've executed in the first half of managing the vacancy rate to a level so you haven't got a large void cost, but instead, you've obviously taken a bit of pain on the income side from a parcel rent perspective, but obviously, it's beneficial for both.

Yes. Few good comments in there. On the leasing activity, obviously, in our documentation, you can see that there is a pickup in terms of the volume and in terms of the profile of the type of demand we're getting and a bit of a different mix, and there are some principle, some temporary. There is -- it's still not a huge volume on the portfolio, and there is variations with regards to -- these percentages are not straight lines. So some are over ERV, some under, but we definitely and openly have a strategy at this point in time to lease up our vacant space. And there are very interesting concepts coming at us at the moment that are experiential, leisure, et cetera. And we are taking the opportunity to get those in our premises.

Okay. Understood. That's very clear. Secondly, from my side on cash. Obviously, cash, at the end of the period, I think is [ 5 9 7 ] million. That's roughly 1/3 of your market cap. On the positive side, it really demonstrates obviously the near-term refi and ability to fund refinancing requirements if required and kind of the strength of the balance sheet is obviously is reflected in both that cash and enable liquidity figure. The downside, obviously, of having a lot of cash on the balance sheet, because it represents cash drag from an earnings perspective, albeit over the last 6 months, your best performing part of your portfolio in terms of NTA impact was cash, because the rest of the portfolio fell. But I just wonder, going forward, given that the majority of the dividend is going to remain scrip, given that the CapEx this year, I think is only GBP 100 million and maybe next year a broadly similar figure, what happens to that excess cash? Or does it just sit on the balance sheet until the scheme that you've identified in terms of that medium-term opportunity comes to the near term and then you use those proceeds to deploy in that way?

Should I take that one? Yes. Good point in terms of drag on the balance sheet. But look, it underlies our approach in terms of balance sheet. We want to remain conservative on the balance sheet. I've got near-term maturities that, that cash covers whilst I go through the refinancing of the 23 and 24 RCFs. And together, those 2 RCFs represent in the order of GBP 850 million to refi. So it's the conservative approach to capital structure that you see reflected in the sustainable capital structure and IG rating. Clearly over time, as the balance sheet strengthens and improves, the strategy is also to begin to recycle that capital from that cash.

And then finally from me, in relation to the IG rating, do you have some of the agencies specific kind of KPIs that you need to [ herd ] rate, if you will, that you need to do better than to maintain that rating? Or is it more a fluid discussion in process?

Well, you'll know cost is what IG gives us. And you'd have seen that in the bond issuance in my first 90 days to have got away a GBP 700 million Eurobond to extend our maturities as we did at a 1.75% coupon, 2x covered. It was a good achievement and we want to move forward on that same basis. So it's a balancing act, I would say, as we go through the cycle. LTV may increase before it decreases if we see opportunities for consolidation, but all referenced around the importance of access to capital markets and in IG.

The next question comes from the line of Rob Virdee from Green Street.

Just a question on the strategy. So I appreciate you're not going to give specifics on what you're going to dispose and the broad detail you're giving is fine. But could you give us some color on the quantitative metrics you've used to assess and how you've come up with these conclusions? So quantitatively, how do you decide which assets you're going to dispose? Do you have internal rates of return, hurdles that you have? That's #1.

Okay. So I'll start with that point. So when we look at the disposal program, it's not just a question of quantity, also it's strategic, and we are refocusing the portfolio, simplifying it and really making sure that we're maximizing what we hold and not too scattered around. So we looked at actually at the assets qualitatively. In terms of -- so it's -- yes, we are talking about recycling capital into the property. So we are thinking about, obviously, timing and phasing the program so we can timely recycle the capital. Just bear in mind that the capital doesn't necessarily have to be invested all in some time. So there's scaling of that also. And in some cases, in some, for example, developments or even repurposing, there will be some situations where we may have operating partners or partners with us. So it's -- that's the reasoning or that is really the first reason under our choice of disposals, is really about the quality, the strategy. And at the end of the day, it is -- we are mentioning that we are -- we will want to focus on total return. And that applies to both the portfolio and the individual assets in terms of the returns.

Okay. And then just secondly, you said that the retail park disposal was a bit of a landmark moment for you and you changed your approach post that. And it was a pragmatic disposal, but it wasn't the book value. Now I'm wondering how do you now think about disposals? Are you anchoring to book value? And then just as part of that, have you had any active approaches to you for any part of your portfolio? Are we there yet?

Yes. In terms of the retail park portfolio, it was closed or not far to book. So I think what we seek to do is to get the best possible pricing and we have our own assessment also of the value of the price and there are also strategic reasoning behind sales. So in terms of how we look at our program going forward, at the moment, we've solidified the platform. And we're not, as I said, we're not a distressed seller, we're not a forced seller. And the reason why we accomplished that is specifically to be able to realize our sales in the best way possible, the best values possible, and give us the time to do that as the markets recover. So that's how we're thinking about our sales. Your second question was about?

Have you had any approaches yet for any...

Oh, the approach is on the portfolio, sorry. Yes, actually, there are some conversations at the moment on several assets, and you are -- some inquiries also coming up. So that's why I was saying in the presentation, there is a sort of a pickup at this moment. The capital markets have been basically closed. There's been a big wall of capital that is waiting out there. So you can see that coming up. And see investors look -- starting to think about retail a bit differently, considering the profile of the yields and also the trends that are playing out. So that's what I could say to you. It's still very -- we're still at the, I guess, the beginning of that pickup, but there is activity there in our discussions.

The next question comes from the line of Paul May from Barclays.

Three quick questions, if we could, one at a time. What's the current cost structure in France? Just wondering, I think you previously alluded to maybe exiting the French business. if you were to dispose those assets/that business, does that affect the 15% to 20% reduction that you're targeting?