Hammerson Plc (HMSO) Earnings Call Transcript & Summary

Thank you for joining us for Hammerson's 2026 Half Year Results. I'm Rob Wilkinson, CEO, and I'm joined by Himanshu Raja, our Chief Financial Officer. I'll begin with an overview of the half year and our progress against our 3 strategic priorities. Himanshu will then take you through the financials, and I'll come back briefly on the outlook before we take your questions. In February, I set out clear priorities for Hammerson, and we've made good progress on all fronts in the first half. First, we've driven operational outperformance across our destinations in occupancy, footfall and sales. Second, we've continued to maximize and crystallize the value of our strategic land. And third, we're increasing our scale through disciplined and accretive acquisitions, including, as announced this morning, a 50% interest in Manchester Arndale. And on the back of all that, we're raising our FY '26 earnings guidance to GBP 132 million, which will be up 27% year-on-year, and we're setting out new medium-term guidance. The headline numbers reflect that momentum. Net rental income was up 40% to GBP 112 million. EPRA earnings were up 33% to GBP 64 million, with earnings per share up 22% to 12.1p. We're declaring an interim dividend of 9.67p, up 22% year-on-year and representing an 80% payout of our EPRA earnings. The portfolio is valued at GBP 3.6 billion with NTA per share unchanged at GBP 3.94 and a total accounting return for the half of 2%, a robust and high-quality performance, which Himanshu will cover in more detail shortly. Let me take each of our 3 priorities in turn and show you what we have delivered, starting with how we drive outperformance across our destinations. Our first priority is to keep doing what we do best, targeted leasing and partnerships with the best brands to create the most compelling mix for visitors and occupiers. In the first half, we signed GBP 18.5 million of headline rent across 234 leases, 52% ahead of previous passing rent or 17%, excluding units with no previous rent and 9% ahead of ERV. Our destinations remain the entry point of choice for the best names, Zara Home at Dundrum, a first for Ireland, Garage and Harli + Harpa at Bullring, each a U.K. portfolio first for us. Our resulting occupancy is now at the highest level we've seen for 7 years. We have had a strong start to the second half with a further GBP 2.6 million exchanged, and we have a robust pipeline of over GBP 21 million (sic) [ GBP 20 million ] into the second half. This is the flywheel. Leases drive footfall, then sales, then occupancy and ultimately, rents. Our group footfall was up 3% with the strongest growth where we've recently repositioned the assets. Cabot Circus was up 13% after the recent openings of M&S, Sephora, Odeon Luxe and UNIQLO. Like-for-like sales were up 2% with an exceptional performance from France, up 4%. Our second priority is maximizing value from our strategic land. Year-to-date, including the partial sale of Dublin Central after period end, we've realized GBP 75 million of noncore disposals at a substantial premium to book value. And where we've recycled capital into densifying our estate like the Ironworks residential scheme at Dundrum, we've seen real success with the scheme now 80% leased. On the remaining GBP 290 million (sic) [ GBP 291 million ] of book value, we remain disciplined, drawing a clear line between integral sites like The Drum at Grand Central, which is now in design and procurement and where we're more likely to commit capital and develop ourselves and stand-alone sites where we advance planning to create value and then recycle capital. Our third priority is increasing our scale. We have a platform that is efficient and scalable, so additional income comes with minimal incremental cost, driving operating leverage. So as we look to scale, we will be disciplined in our approach. Our focus will remain on landmark retail-led destinations in our core markets, the U.K., Ireland and France and selectively wider European markets where the fundamentals, transparency and liquidity are right. Our criteria are also clear. We look for strong growing catchments, polarization to the very best and recognize that our occupiers focus on unified commerce combining online and physical. The quality of catchment ultimately matters more than scale alone. Above all, we look for assets where we can bring our integrated platform to bear, repositioning, asset management, brand mix optimization and developing integral plots to unlock value that others can't. The ideal opportunity is a strong destination in a strong catchment with clear room to add value and where our expertise makes the difference. That is precisely what Manchester Arndale exemplifies. Manchester Arndale is our first external acquisition in over a decade and is entirely consistent with our strategy, a high-quality scale asset, over 230 occupiers, 96% let and serving a catchment of 6.4 million, the largest outside London and rated A by Green Street. It sits at the heart of a thriving city region with 45 million visitors a year, now the highest footfall in our portfolio and a Greater Manchester economy worth over GBP 100 billion, and it offers compelling upside through further asset management and repositioning. Working alongside our new partners, we see 4 potential levers to drive value. First, to modernize the public realm, new entrances, sharper way finding, a refreshed food court. Second, to further elevate the brand mix, reconfiguring oversized legacy units into the smaller in-pitch space that leading brands want. Third, we will continue to attract new global brands with a premium lineup curated for New Cathedral Street. And lastly, driving rents and capturing reversion by extending the prime Zone A pitch and regearing key renewals. It's exactly the work our platform was built for. And the terms of the deal are attractive, a headline price of GBP 218 million for our 50% interest at a topped-up net initial yield of 7.8%, adding around GBP 17 million of topped-up net rental income. It's funded by the placing announced separately this morning, and it's immediately earnings accretive for minimal NTA dilution. So to the outlook. On the back of this strong half and the addition of Arndale, we're raising FY '26 EPRA earnings guidance to GBP 132 million, year-on-year growth of 27%. That's GBP 125 million from the underlying business, up from the previous guidance of GBP 120 million, plus a GBP 7 million in-year contribution from Arndale. We expect total NRI growth of 28% and like-for-like NRI growth of 4% to 5%. And we're issuing new medium-term guidance off our FY '25 base of EPRA EPS growth of 6% to 8% a year, dividend growth of 6% to 8% as well and a total accounting return of around 10%. Before I hand over to Himanshu, let me first thank him for his contribution to Hammerson over the last 5 years. He has been instrumental in the turnaround of the company and the platform for growth that we have today. Today is his last set of results as an executive as he moves to a portfolio career.

Thank you, Rob, and good morning, everyone. As Rob said, this has been a strong first half underpinned by a robust balance sheet. Let me take you through the numbers. Starting with the summary. Net rental income was up 40% to GBP 112 million, reflecting strong like-for-like growth of 5% and the benefit of last year's acquisitions. EPRA earnings rose 33% to GBP 64 million, and earnings per share were up 22% to 12.1p. The interim dividend is also up 22% at 9.67p per share. The IFRS profit was GBP 56 million. Our EPRA cost ratio fell almost 10 percentage points to 28.4%, clear evidence of the operating leverage in our platform, but I'll come back to the phasing of that shortly. On the balance sheet, the portfolio is valued at GBP 3.6 billion, up 1% with NTA per share unchanged at GBP 3.94. Net debt to EBITDA improved from 9.5x to 8.1x and LTV was unchanged at 39%. This slide bridges the growth in EPRA earnings from GBP 48 million in H1 2025 to GBP 64 million in this half, where you see the step-up in like-for-like income growth and the benefit of the acquisitions we completed in 2025. The other NRI reflects the net effect of the progress on the development portfolio as we took vacant possession, disposals and some FX. The increase in the admin costs reflects the normal inflationary increase, some management transition costs and the reduced fees following our acquisition of JV partner stakes. And as expected, the growth in NRI is in part offset by higher net finance costs. This simply reflects lower interest receivable of GBP 12 million as we recycle cash on balance sheet into JV acquisitions, while interest payable was GBP 2 million higher, principally reflecting our bond issue in early June. The resulting GBP 64 million earnings is up 33%, high-quality earnings growth. Now to the usual NTA walk. NTA per share was unchanged over the half at GBP 3.94 with EPRA earnings and the dividend broadly offsetting one another and underlying valuations broadly flat. The net revaluation deficit of 2p reflects timing differences between the recognition of ERV and capital expenditure, while yields were flat. And after the final 2025 dividend, our total accounting return was 2.3% for the first half. On to net debt and credit metrics. Net debt was GBP 1.4 billion, LTV 39% and net debt to EBITDA 8.1x with liquidity of GBP 1.1 billion. During the half, we refinanced our combined GBP 613 million of revolving credit facilities on unchanged terms and extended the maturity to 2029. We were also in the bond market issuing a GBP 350 million bond maturing in 2031. The issuance was 5x covered at peak. Maintaining an investment-grade credit profile remains a key tenet of our strategy and continues to inform our capital allocation decisions. The funding of the Oracle, Ilac and now Arndale demonstrates this discipline, balance sheet capacity where appropriate, capital recycling where possible and equity where required to support growth while maintaining financial flexibility. Pro forma for the partial sale of Dublin Central in July and today's acquisition and associated placing, LTV reduces to around 36% and net debt to EBITDA to around 7x. We will continue to be disciplined in our capital allocation, investing only where we see the opportunity to generate returns above our cost of capital, which brings me to guidance. Rob has given you the headlines. We now expect FY '26 EPRA earnings of around GBP 132 million, which represents a 27% increase year-on-year. That comprises an uplift in the underlying business from GBP 120 million that we guided at the full year results to now around GBP 125 million, plus GBP 7 million in-year contribution from the acquisition of Arndale. Let me give you the building blocks. We expect total NRI growth of around 28%, including like-for-like growth of 4% to 5%. We continue to expect a full year gross to net of around 80%. On costs, we still guide to a reduction in the EPRA cost ratio of 300 to 400 basis points in each of 2026 and 2027. The first half ratio of 28.4% benefited from the resolution of some long-standing rates appeals that will not repeat in the second half. Nonetheless, we are well on track. And with the operating leverage generated by Arndale, we expect a full year ratio below 30%. Net finance costs are expected to be around GBP 60 million. On capital expenditure, as 100% owners of 7 of our 10 flagship destinations, we are able to plan and execute with spend across the different asset management opportunities in the portfolio with speed. Our full year guidance, therefore, remains unchanged, GBP 30 million to GBP 40 million on asset enhancements and leasing, around GBP 30 million to complete our repositioning and a light touch spend of GBP 10 million to GBP 15 million on development. And finally, our dividend policy is unchanged, a payout of 80% to 85% of full year EPRA earnings. Before I hand back to Rob, allow me a brief personal word. This is my last set of results and my final presentation as an Executive Director of Hammerson. It's been a genuine privilege. When I look at the balance sheet we've built, the platform we have created and the growth that lies ahead, I could not be more confident in the company's prospects, which is why I am participating in the placing today and will remain a shareholder. With that, back to Rob.

Thank you, Himanshu. So let me close where I began. My priorities remain unchanged, continue to develop flagship outperformance, maximize the value of our strategic land and further increase our scale. Our confidence in delivering them is reflected in today's upgraded guidance, and it points to a clear path to attractive sustainable shareholder returns, EPRA EPS growth of 6% to 8% a year, dividend growth of 6% to 8% as well and a total accounting return of around 10%. We have real momentum, a platform built to scale and the discipline to grow well. With that, thank you, and we look forward to taking your questions at the live session this morning.

Good morning. Thank you for attending today's Hammerson Half Year Results 2026 Q&A Call with Rob Wilkinson and Himanshu Raja. My name is Sherry, and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to them. Please go ahead.

Good morning, everyone. Rob Wilkinson here. Thank you for joining. Obviously, I'm very conscious it is very early in the day. We've got a lot of reporting going on, so we'll keep this nice and short as obviously, we want to focus on your Q&A. So without further ado, please do come forward if you have questions. Happy to answer them. Obviously, Himanshu with me as well.

[Operator Instructions] We will now take our first question from Zachary Gauge from UBS.

Just on Arndale. Obviously, this is an asset you had a look at last year, decided to not go ahead with it. I think some of the concerns at the time were the timing of reversion, the age of the asset, some of the CapEx that might have been required. Could you just sort of touch on what's changed in your thinking between then and now? And also on the ownership structure and management structure, how you see that sort of playing out? If I understand correctly, it wouldn't directly come with 100% control of the management.

Thank you for the question. You're right. The asset was put on the market or the interest we're acquiring was put on the market last summer at an asking price of GBP 237 million, and we participated in that process with others and got through to the second round. And in the second round, there was a timeline set out for the physical due diligence on the asset, which is something that we were not prepared to work towards. And I think the same was felt by others. So in effect, that process was terminated and the sale did not go forward. We, on our side, though, have targeted this asset for some time. And so we stayed very much in contact with the vendors, and we were, therefore, able to effectively agree a deal offmarket to acquire the interest, which is the purpose of obviously today's acquisition. So it was nothing to do with the asset at all. It was simply that the process was not one that we were comfortable participating in. And I think the others were feeling the same way. So we're very excited about now being able to do so, as I said, on a bilateral basis. In terms of the management, yes, it's a sort of joint ownership and joint management with M&G. And obviously, they're a long-term investor like ourselves. We have had some discussions with them already around the business plan and strategy, and we're very much aligned with that. So we will be looking to work with them as our partners to continue to deliver value on the center and very much, I think, aligned in that respect. And so very comfortable with them as our partners alongside us.

Okay. Great. And the yield that reported yield, does that include any assumptions on sort of CapEx backlog or sort of maintenance CapEx that might be required in the next few years?

Yes. There's no immediate urgent CapEx required. The fabric of the building is in good condition. The CapEx that we're setting out in the business plan is predominantly accretive, so linked to leasing and improving the tenant mix within the scheme. There's a little bit of more defensive CapEx, but that's really kind of public realm stuff. So the entrances and the streetscape, we'd like to look to improve the wayfinding. And then the food court, I think at the upper end of the mall definitely needs some investment. So it's kind of ordinary course of business CapEx that we would have across our portfolio as a whole.

The kind of key assumptions behind the medium-term earnings and dividend growth targets you're setting and kind of what kind of like-for-like net rental income, for example, you're assuming in terms of the growth rates there?

James, Himanshu here. Thanks for your question. Yes, the upgrade guidance today reflects, first of all, the benefit of a small number of kind of one-offs in the first half, the settlement of long-standing rate rebates. That's just over a couple of million. But fundamentally, the upgrade is driven by strong underlying performance in leasing and that driving increased occupancy into the second half. As we do that, of course, void costs become service charge income. And we also see the benefit of all of the flurry of openings that we've had over the course of the year driving through to share of turnover rent. So that is why it's not GBP 64 million first half times 2, but nonetheless an upgrade from the previously guided GBP 120 million of earnings up to GBP 125 million. And then when you add the GBP 7 million on for today's acquisition of Arndale, then GBP 132 million guidance, up 27% year-on-year. Second part of your question was on medium-term guidance. The medium-term guidance, the first thing to highlight is it's now off the 2025 base. Our previous guidance was at the time of the Value Retail disposal. And since then, of course, we've consolidated our JV. So off that higher base, we're still maintaining that 6% to 8%, both EPS and DPS CAGR and the TAR of around 10% over the medium term, which we consider to be 5 years. The drivers of that, again, it's the fundamental strength of the portfolio. We see the opportunity for a similar 4% to 5% growth in 2027 on a like-for-like basis. And you'll recall, we have a number of repositions coming on stream in '27, like further repositioning at the Oracle, Quakers, Exchange at Cabot Circus and also the opening of our Cergy extension. They will all be drivers. And beyond that '28 and beyond, we see inflation, inflation plus growth coming through by continuing to kind of push rental tension. All of that kind of growth then translates into the reduction in our EPRA cost ratio as we get fundamental operational gearing. Take Arndale as an example this morning, we will not be adding any incremental resource as we onboard the co-management of Arndale this morning. So that operational gearing then drives through to the growth in earnings and then dividends to follow.

Next, we will take a question from Tom Berry from Green Street.

Just a quick one on the U.K. like-for-like NRI figure. I wondered if you could give a bit more color on that split across assets. I know you said Westquay has dragged, but it's a fairly significant decline. So yes, just a bit more color on the sort of asset breakdown would be great.

Two parts to that question. Westquay reflects that this time last year, we had a surrender, which we saw the benefit of that doesn't naturally repeat and that affects the year-on-year comparison. But actually, overall like-for-like in the U.K., the strength was driven again by the repositioning. So we saw really strong performance at the Bullring, strong performance at Cabot and strong performance at Oracle. Recognize Tom, that the various U.K. assets are at different stages of that repositioning journey. We're really encouraged now 4 years on, for example, from the reposition of Bullring that we're still continuing to drive rental tension there, in particular, the positioning of one of the kind of East upper malls there, which was a quiet end of the scheme. And again, the repositioning there with occupiers like New Balance coming in have seen that drive kind of real uplift. So even 4 years into a repositioning at somewhere like Bullring, we're still able to drive that kind of rental growth. So across the board, depending on just where the asset is in its repositioning journey.