Interim Results - Part 1
Hammerson PLC
29 August 2001
PART 1
Hammerson Half Year Results
Hammerson plc announces unaudited results for the six months to 30 June 2001.
Financial:
2001 2000 Change
Net rental income £81.2m £69.3m +17.2%
Profit before taxation £39.2m £47.5m -17.5%
Adjusted profit before taxation(1) £36.3m £38.1m -4.7%
Earnings per share 12.3p 14.8p -16.9%
Adjusted earnings per share(1) 11.3p 11.5p -1.7%
Dividend per share 4.58p 4.4p +4.1%
30 June 2001 31 Dec 2000
Shareholders' funds £1,993m £1,937m +2.9%
Diluted net asset value per 685p 667p +2.7%
share(2)
Notes:
(1) Excluding exceptional profits on the sale of investment properties
(2) Diluted net asset value per share assumes the exercise of conversion
rights relating
to the convertible bonds and of options relating to shares
Operational:
* Profit before tax was £39.2 million, some £8.3 million lower than in
the first half of 2000, principally reflecting a reduction in exceptional
profits on property disposals.
* Total of £49 million spent on seven current developments, bringing
value of developments at 30 June 2001 to £370 million. Further development
opportunities secured in London and Paris.
* Four properties sold, including Senator House, London and 40 rue de
Courcelles, Paris, raising £208 million, a surplus of £3 million above
December 2000 values.
* Portfolio reversionary by 21%, providing good potential for future
income increases.
* euro500 million raised through unsecured bond issue, providing funds
for future acquisitions and developments.
The Chairman, Ronald Spinney, said today:
'Hammerson has made good progress in the first half of 2001. The
group has a strong balance sheet, substantial financial resources and an
experienced and committed team to secure new opportunities, drive the
performance of the existing portfolio and deliver value from the development
programme.
The short term outlook in the occupational and investment markets
has recently become somewhat uncertain. Nevertheless, the medium term outlook
remains encouraging for the markets in which Hammerson operates, with prime
office space and high quality shopping centres likely to continue to attract
premium rents and valuations.
Looking ahead, the reversionary nature of Hammerson's portfolio,
coupled with an increasing income from recent and current developments, will
result in good income growth in 2002 and 2003.'
For further information:
John Richards Tel: 020 7887 1000
Chief Executive Fax: 020 7887 1010
Simon Melliss
Group Finance Director
Christopher Smith
Director of Corporate Affairs
CHAIRMAN'S STATEMENT
Results and Dividend
Net rental income for the six months to 30 June 2001 was £81 million compared
with £69 million for the corresponding period in 2000. On a like-for-like
basis the increase was 6.2% reflecting additional income in respect of rent
reviews and the renewal and replacement of expiring leases. Developments
completed during 2000 contributed £7 million to net rental income in the
first half of 2001.
Interest charged to the profit and loss account increased by £13 million to
£36 million. Of the increase, £10 million relates to recently completed
developments where interest is no longer being capitalised.
Profit before tax was £39.2 million, some £8.3 million lower than in the
first half of 2000, principally reflecting a £6.5 million reduction in
exceptional profits on property disposals. Adjusted profit before tax, which
excludes exceptional profits, decreased by £1.8 million to £36.3 million.
Adjusted earnings per share at 11.3 pence were 0.2 pence lower than in the
first half of 2000, the effect of the lower profit being partly offset by the
reduced number of shares in issue, following last year's purchases by
Hammerson of its own shares.
The directors have declared an interim dividend of 4.58 pence per share
payable on 1 November 2001, an increase of 4.1%.
Balance Sheet and Cash Flow
Net assets increased by £56 million to £1,993 million in the six months to 30
June 2001. The principal components were retained profits of £22 million and
valuation surpluses of £45 million, partially offset by exchange translation
movements of £11 million. Diluted net asset value per share increased by 18
pence, or 2.7%, to 685 pence.
The group's operating cash flow totalled £65 million in the first six months
of 2001. Financing costs amounted to £55 million whilst dividends paid were
£27 million. Capital expenditure was £126 million, more than offset by £208
million realised from four property disposals. As a result, there was a net
cash inflow into the business of £65 million.
In June, Hammerson raised euro500 million through an issue of 6.25% unsecured
bonds maturing in 2008. The issue attracted interest from a wide range of
European investors and was significantly oversubscribed. The group had
unutilised committed bank facilities and cash of £638 million at 30 June
2001. Gearing was 60%, compared with 67% at year end 2000.
Strategy
Hammerson's strategy is to focus on a limited number of well established
European real estate markets, reducing its dependency on a single market and
providing the group with the opportunity to benefit from different cycles. At
the same time, the group's policy of investing in and developing prime
properties means that the quality of the group's income stream is high and
should be resistant to an extended economic downturn.
Hammerson is continuing to monitor each of its markets rigorously, reviewing
the existing and projected performance of each of its properties against
clear benchmarks and recycling its capital where appropriate to generate
higher returns. The company is therefore well placed to respond to current
market conditions.
Operating Environment
In the UK, retail sales in the first six months of 2001 grew at their fastest
level since the late eighties. Despite this, the competitive pressures in the
retail market, to which I have referred in the past, remained in evidence,
with a continuing trend for an increasing share of trade to be captured by
retail locations which dominate their catchments. Prime shopping centres saw
modest, but continued, rental growth. Investment activity was limited,
although no prime shopping centres have been marketed in the last 12 months.
Central London office occupational markets remained buoyant in the first six
months of 2001 with all three sub-markets, the City, West End and Docklands
showing healthy take-up of space against a backdrop of limited supply. There
was good investment demand for well let central London office properties.
In France, consumers remained confident and retailer demand for space was
good. Rents continued to advance but more modestly than in 2000. There was
strong investment demand for shopping centres but, with few transactions,
yields were little changed on those at the end of last year.
In the central Paris office market, occupier demand remained strong, although
the second quarter of the year saw lower activity. Reflecting the shortage of
prime modern office space and a limited development pipeline, there was
further growth in rental levels. Turnover in the investment market remained
healthy but, with the expectation of more modest rental growth in the future,
prime office yields have showed a marginal increase.
In Germany, the recovery in the retail sector faltered, reflecting the
slowdown in the economy. However, demand for prime retail space was
maintained and continuing investment interest has supported shopping centre
values at their year end 2000 levels.
Since 30 June, there have been increasing signs of slowdown in the major
western economies and this is having an effect on occupiers' requirements for
space and dampening the potential for rental growth in the short term. In the
UK, investors are showing greater caution and becoming more selective.
Nevertheless, returns from property investment have been good over the last
five years and, at a time of greater economic uncertainty, property has
inherent characteristics, including a high level of contracted income and
growth potential through reversions, which make it an attractive investment.
It is important to note that, in Hammerson's principal markets, availability
of high quality space and future committed supply are modest, so that good
rental growth can be expected in the medium term.
Portfolio
At 30 June 2001, the group's property portfolio had a value of £3,267
million, including development properties valued at £370 million, the latter
showing a surplus over cost of £102 million. There was an underlying increase
in the value of the group's properties of 1.4% in the first six months of the
year.
The overall vacancy rate in the group's portfolio at 30 June was 3%, the
average unexpired lease term was 11 years and only 5% of income was in
respect of leases expiring in the next 18 months. The portfolio was 21%
reversionary overall.
In the UK, which accounts for 69% of the total portfolio, there was an
underlying valuation increase in the first half of the year of 0.9% overall.
There was a decline of 2.1% in the value of the shopping centres which was
more than offset by a 4.5% improvement in the value of the office properties.
A further surplus of £21 million was included in respect of 280 Bishopsgate,
London EC2, bringing the total surplus to date for this development to £84
million.
The group's French properties, which represent 23% of the total portfolio,
showed an underlying valuation increase of 3.4%. The retail portfolio rose by
4.8% and offices by 0.4%. Although the value of the group's office
developments in Paris hardly changed, the projects are at an early stage and,
as the developments progress, significant valuation surpluses should be
achieved. In Germany, which accounts for 8% of the group's portfolio, the
underlying values remained unchanged.
Since 30 June, Hammerson has invested £4 million in a 14% stake in
Stonemartin plc, which operates serviced offices under the brand name of the
Institute of Directors. This investment provides Hammerson with an
opportunity to participate in a sector where there are synergies with the
group's existing office activities.
Asset Management
Hammerson has initiated major improvements and expansion programmes at
several of its shopping centres, including, Italie 2, Paris; Place des
Halles, Strasbourg; Markisches Zentrum, Berlin; and Luisen Center, Darmstadt.
The total cost of these works will amount to £54 million, of which £26
million had been spent at 30 June 2001.
At Brent Cross, the reconfiguration of the former C&A space and the taking
back of other units has enabled the modernisation of the retail offer at the
centre and created substantial stores for Next, H&M and Benetton. Further
restructuring at the centre is planned, offering additional scope to increase
the income. We are continuing to pursue our ambitions for an expansion of the
centre in the medium term.
At 99 Bishopsgate, London EC2, an existing tenant, Deutsche Bank, has taken
10,000 metres squared of additional space. A number of rent reviews are due in
the second half of 2001, and for those leases subject to review, current rents
passing of £9 million compare with an estimated rental value of £14 million.
The offices at Harbour Exchange, London E14, have seen considerable activity
during the first six months. Passing rent is now 60% higher than when the
property was acquired in 1999, since when nearly 75% of the space has been
let, reviewed, or surrendered and relet.
Current Developments
Hammerson has been successful in creating high quality buildings and
generating good returns from its phased programme of major developments. At
present the group is carrying out seven major developments at an estimated
total cost to the group of £486 million and further projects are in the
course of evaluation and planning.
The group's 23,200 metres squared office tower building at 280 Bishopsgate,
London EC2 is nearing completion and will be handed over to the tenant, The
Royal Bank of Scotland Group, in October for fitting out. From next spring, the
annual net rental income from the property will amount to £14.7 million, a yield
on cost of over 14%.
At 1 London Wall, London EC2, the group, together with its 50:50 joint
venture partner, Kajima, started construction of a 19,300 metres squared
office building early in the year. Completion is scheduled for July 2003 and
Hammerson's share of the total cost is estimated to be £47 million.
In June, Hammerson announced that it had entered into a 50:50 joint venture
with Grosvenor to create a new 5,800 metres squared office and retail scheme
at 9/13 Grosvenor Street, London W1, one of Mayfair's most prestigious business
locations. The two year development period has recently started.
In Birmingham, continuing good progress is being made by The Birmingham
Alliance, in which Hammerson has a one third interest, on this major project
to regenerate the retailing core of the city. The first phase, the
modernisation and expansion of the 16,700 metres squared Martineau Place, is
nearing completion and some units are already open. Construction work is now
well underway at the second phase, the 110,000 metres squared new Bull Ring,
with completion scheduled for autumn 2003.
At the Liberty Centre, Romford, the group has recently commenced a major £54
million refurbishment and improvement project to capitalise on this strong
retail destination. The works involve roofing over the open air malls, the
remodelling of existing space and the creation of 5,000 metres squared of new
accommodation and an 800 space car park. Completion is scheduled for spring
2003. Letting is progressing well with only five units still available.
In Paris, works are progressing on the two adjacent office developments at 53
quai d'Orsay and 148 rue de l'Universite with completion scheduled for autumn
next year. Formal marketing to prospective occupiers of the buildings will
start shortly.
Development Pipeline
Hammerson has continued to secure future development opportunities which will
be advanced in the light of market conditions and the progress and phasing of
current developments.
In Bristol, Hammerson agreed terms to acquire a 25% interest in a potential
major, retail led, project to redevelop the Broadmead area of the city. With
its partners, Hammerson is advancing planning and other matters with the
intention of starting the development in 2004.
Contracts were exchanged to acquire the remaining one third interest in
Spitalfields Development Group ('SDG'). SDG's principal assets are long
leasehold interests in two adjacent development sites, 1 and 10 Bishop's
Square, London E1. SDG's interests have been combined with those of The
Corporation of London, which owns the freehold, in a conditional joint
venture which gives SDG an effective 32% interest in the two proposed
developments amounting to over 63,000 metres squared.
At 9 place Vendome, Paris 1er, a revised planning application has been
submitted for a 30,000 metres squared office and retail scheme to be carried
out as a 50:50 joint venture with AXA and it is anticipated that a building
permit will be granted in October, enabling a start on site next year.
Hammerson exchanged contracts in April to acquire a 50% interest in SCI Opera
Capucines for £13 million. The company owns a mixed use building of
approximately 11,000 metres squared in a prime Paris location in the second
arrondissement. Together with its partner MAAF Assurances, Hammerson is
progressing a development, to commence in about three years' time.
Since 30 June, Hammerson has exchanged contracts to acquire a block of
buildings, including 14 boulevard Haussmann in central Paris, for £106
million. The block will be redeveloped to create 31,100 metres squared of high
quality office accommodation in a prime business location at an estimated total
development cost of £175 million. Work on site will commence this year with
completion scheduled for autumn 2003.
Conclusion
Hammerson has made good progress in the first half of 2001. The group has a
strong balance sheet, substantial financial resources and an experienced and
committed team to secure new opportunities, drive the performance of the
existing portfolio and deliver value from the development programme.
The short term outlook in the occupational and investment markets has
recently become somewhat uncertain. Nevertheless, the medium term outlook
remains encouraging for the markets in which Hammerson operates, with prime
office space and high quality shopping centres likely to continue to attract
premium rents and valuations.
Looking ahead, the reversionary nature of Hammerson's portfolio, coupled with
an increasing income from recent and current developments, will result in
good income growth in 2002 and 2003.
Ronald Spinney
Chairman
29 August 2001
MORE TO FOLLOW
Latest directors dealings
- 13 hours ago Johnson Matthey
- 14 hours ago Galliford Try
- 14 hours ago Galliford Try
- 14 hours ago Centrica
- 15 hours ago Smith & Nephew