I have not yet met the directors so for now I’ll provide some basic factual information. The team of directors which led the business in its journey from a mixed asset commercial property company to being purely a retail landlord at a time of halving in value of many retail square metres were ousted from the company in 2020. The new chair is Robert Noel and the new CEO is Rita-Rose Gagné. There is also a new CFO, Himanshu Raja, appointed last year.
The non-executive director side of the table has also been supplemented with Des de Beer (a billionaire) joining the Board as in June 2020 and Habib Annous in May 2021.
Rita-Rose Gagné, CEO
She has worked in property markets across the world and her expertise spans across various asset classes and mixed-use assets, including residential, retail, office and logistics. Prior to Hammerson, she held various executive roles at the global real estate company, Ivanhoé Cambridge, where she was responsible for a $7.6bn portfolio of property. Remuneration £2.1m. Maximum remuneration £3.1m. Shareholdings 306,748 plus uninvested scheme interests of 8.9m
Robert Noel, Chair
A property industry veteran of over 30 years. Formerly CEO at Land Securities Group plc from 2012 until March 2020. Noel was also Property Director at Great Portland Estates from 2002 to 2009. From 1992 to 2002 he was a Director of Nelson Bakewell, the property services group. Remuneration £304,000. Shareholding 0.9m.
Himanshu Raja, CFO
Appointed 2021. He has extensive experience in business transformation and debt and equity markets. He was most recently CFO at Countrywide from 2017 until 2021. Countrywide had huge debts and Raja played a role steering it through to its eventual acquisition by Connells. Prior to that he served as CFO at G4S plc where he was responsible for finance, treasury, tax, investor relations, M&A, IT and procurement. Previously, Himanshu was CFO of Misys and Logica, where he led the sale of the group to CGI in a £2.1bn transaction. Remuneration £0.65m. Maximum remuneration £1.7m. Shareholding 211,060 plus uninvested scheme interests of 0.94m.
Pierre Bouchut, NED
Appointed 2015. Formerly CEO of C......
First let me say that I’m not convinced that online shopping will take over the world and people will cease travelling to shopping centres. Online might take a bit more of retail spend, but there are real barriers for them. People like to try on clothes, touch and feel other items they might buy, compare prices and quality from a number of shops in an afternoon. And they like to intersperse shopping with chats over food/drink or leisure activities such as cinema and going up climbing walls.
Even those retailers that fully “get it” when it comes to online know that physical retail is often a critical part of omnichannel fulfilment and brand experience.
Fashion retailers used to take around one half of Hammerson’s (LSE:HMSO) space, but that has evolved so that now less than one-third of new lets are fashion. In the 1990s food and beverage was 5% of the tenant base; these days its more like 20%. And increasingly gyms and wellbeing service providers are occupying units.
While the death of Debenhams and Top Shop get the headlines less noticed is the steady growth of the likes of NEXT which often take the space vacated by lesser retailers albeit at lower rents, e.g. ex-Debenhams space in Reading and Croydon run by Hammerson has been taken by NEXT.
We must not be Polyannaish here though. Setting aside the luxury brand occupied space at Value Retail Villages, we are seeing overall a large reduction in demand from retailers and others for square metreage at Hammerson’s flagship malls. Because demand is down rents have been reduced along with better terms granted.
A solution being pursued is to reduce the supply of the number of units being offered to retailers. The directors of Hammerson refer to this as “densification”. I think this means they concentrate the retail shops in part of the mall; and then use the released space to collect rent from various service providers, or to build and sell property such as flats built in and on top of old stores.
Whereas it used to be the case that 95% would be retail, these days we’re looking at 50% being other things, such as:
In 2017 Hammerson (LSE:HMSO) made a profit. Then it went through four horrible years when positive income from rent was swamped by massive revaluation losses. But the first six months of 2022 showed only £10m of valuation losses after allowing for the £33m uplift at Value Retail (Hammerson’s share), and so the Group was able to report a small profit....
...For the first time since 2017 net assets increased in early 2022 to £2.87bn.
Debt, or potential debt, now consists of:
A €700m eurobond illustrates Hammerson’s low interest rates. If the company meets green targets it pays a 1.75% coupon until maturity in 2027. But that coupon is linked to the achievement of two Sustainability Performance Targets: 60% reduction in Scope 1 and 2 and selected Scope 3 Greenhouse gas emissions under the Group’s direct control and 50% reduction in Scope 3 emissions (which relate to space operated by brands within its destinations) both against the Group’s 2019 baseline. If these targets are not met, an additional margin will be payable of 0.375% per annum for the last year of the bond from June 2026 to the June 2027 maturity date for each of the two targets, 0.75% in total. Thus, even if it fails to meet targets it only pays only 2.5%.
The weighted average interest rate for all its debt was 2.7% at 30 June 2022 and the stated debt strategy is to borrow predominantly at fixed rate (87% is currently fixed) but to do so without giving specific security, thus permitting flexibility regarding its property assets, it can rent or sell them with few restrictions.
Interest cover was 2.92 times for the six months to 30 June 2022. The debt covenant rule is that cover must be above 1.25 so Hammerson are doing well on that score (The definition of interest cover is gross rental income less rents payable and property outgoings, divided by net cost of finance before exceptional finance costs, capitalised interest and change in fair value of derivatives)
Moody’s and Fitch’s senior unsecured investment grade credit ratings were re-affirmed as Baa3 and BBB+, respectively. Importantly, it is rated as “Investment grade” rather than high yield.
The trends are encouraging: net finance costs were down 25% in the half year to 30 June 2022 compared with the same period a year before. This was due to the early repayment of debt with the proceeds from disposals and refinancing and higher interest received from cash deposits
True loan to value ratio
Value Retail, in whic
In this newsletter I estimate Hammerson's Net Current Asset Value, NCAV, and look in more detail at the largest component of that value, its property. Of course, I'm assumimg that it is okay in the context of a property company to treat real estate as a current asset.
Hammerson's share price has fallen to 22p giving a market capitalisation of £1.01bn.....
....Investments in Associates – valued at £1.33bn
The two associates still within the Group are Value Retail PLC and a 25% interest in Italie Deux, Paris where Hammerson is the asset manager. Value Retail has nine “Villages” near major European cities. They are shown separately in the table below....
Hammerson considered selling its stake in Value Retail in 2019, but decided to raise cash by parting with other assets instead. The rumoured price being asked was £1.9bn – almost double Hammerson’s MCap today, and more than its net debt.
Value Retail coped well with the Covid-19 period: “The restrictions imposed in the early part of 2021 saw the temporary closure of all but one of the Villages and impacted income in the first half of the year due to prevalence of turnover rents. However, during this period, brands continued to take space in the Villages with 120 leases signed, demonstrating the continued popularity of the premium outlets sector…Overall, Value Retail signed 288 new leases in 2021, and occupancy remained strong at 96%. Domestic customers continued to remain loyal to the Villages with footfall of 26.9 million which was 23% above 2020 levels and 30% down on 2019 footfall. Brand sales saw recovery with €2.3 billion, 32% above 2020 levels…At 31 December 2021, the Group’s interest in Value Retail’s property portfolio was just under £1.9 billion and the net assets were £1.1 billion. The variance is principally due to the amount of secured debt within the Villages, with the average LTV across the Villages being 41%.” (2021 Report)
In early 2022 footfall almost reached 2019 levels and spend per visit was 7% above 2019 levels: “Occupier demand for space remains high, with 178 leases signed, occupancy at 94% and collection rates at 100%. Income was further underpinned by inflation-linked clauses in the base rents for the majority of Villages. Overall, this resulted in a year-on-year increase in gross rental income of £32m at our share, which combined with good operational and financial cost discipline led to adjusted earnings of £14m, compared with a loss of £2m for the first half of 2021.” (Interim Report 2022)
Rental levels for Value Retail are phenomenal, averaging £1,700 m2 (range £700 to £4,100) compared with Hammerson’s UK JVs flagships, e.g. Bullring, averaging £328 (range £177 - £587); French JV flagships average £427 (range £362 - £551) and Ireland JV flagships average £436 (range £342 - £492)
Those properties owned outright by Hammerson (part of “Investment Properties” in the balance sheet).....
Hammerson (LSE:HMSO), the shopping centre owner, has been rejected by the stock market. In the last five years its shares have fallen over 90% as it wrote-off £3.4bn from its balance sheet when its shopping centres struggled, and as investors rejected anything that looked even remotely like the bust Intu.
Hammerson’s shares have tumbled all the way to 23p, giving a market capitalisation of 4.6bn shares x £0.23 = £1.06bn. Following the revaluation downgrades and £2bn of property disposals over the last four and half years total shareholders’ funds, also called net asset value, is £2.87bn. This has been calculated after deducting the net debt figure of £1.7bn.
I estimate net current asset value, NCAV, to be very similar to NAV at £2.8bn or 61p per share. That compares very well with the price Mr Market is currently willing to pay.
Whether the gap between 61p and 23p provides a sufficient margin of safety is largely determined by the likelihood of
(a) Hammerson being able to continue servicing its debts, and
(b) the value of its malls and designer outlets not halving again.
You might have guessed already that I think they will be just fine on both counts - probably. More detail will follow, but I’ll throw in some statistics now. Over 85% of the debt is fixed rate and the average interest rate is 2.7%, with 3.6 years to run. It is rated BBB+.
Already the balance sheet value of prime sites such as the Bullring Birmingham, Cabot Circus in Bristol and Brent Cross have been more than halved by professional valuers. I find it difficult to believe that the shopping centres are so doomed that buildings and land in such great locations are going to become worth a great deal less.
And the valuers seem to agree that there might be ....
I have not yet met the directors and so I’m unable to comment on character. But I can provide some factual information at this stage. The current CEO and Chair have been in place since 2018. A CFO joined at that time too, but handed over to Jo Hartley in 2022. Since 2018 significant gaps opened up between statutory reported earnings and the managers’ “underlying” figure, which is a worrying indication of executives falling into the temptation of boosting their bonuses by some “clever” manoeuvres.
Graham Stapleton, CEO
Appointed CEO 2018 coming directly from Dixons Carphone where he was CEO of Dixons Carphone plc’s software business, Honeybee. Prior to that he was CEO of Dixons Carphone’s Connected World Services Division from 2015 to 2017 and CEO of Carphone Warehouse UK & Ireland from 2013 to 2015. Holds 235,726 shares, many received from his bonus plan.
Keith Williams, Chair
Appointed Chair 2018. An accountant by training he is also Chair of Royal Mail. Formerly Deputy Chair of John Lewis, NED of Aviva, and CEO and then Executive Chair of British Airways. Holds 150,000 shares.
Jo Hartley, CFO
Joined in 2022 to replace Loraine Woodhouse. She came from Virgin Active, where she was CFO since 2015. Began career at Deloitte, before moving to Tesco in 1999.
Helen Jones, NED
Joined 2014. Also currently NED of Fuller, Smith & Turner and Virgin Wines UK Premier Foods and a Director of Hamsard 3145 Limited. Previously, she was a member of the Supervisory Board Vapiano S.E. and Ben & Jerry’s. Prior to that CEO of Zizzi and was also responsible for successfully launching the Ben & Jerry’s brand in the UK and Europe. Holds only 8,000 shares.
Jill Caseberry, NED
Joined in 2019. Also NED Bellway and C&C Group and Employee Voice Director and Bakkavor Group and St Austell Brewery. Past roles: NED of Northgate. Executive career at Mars, PepsiCo and Premier Foods. She also founded a soft drink company and established a sales and marketing consultancy. Holds only 3,125 shares
Tom Singer, NED
Joined 2020. Also NED of Mediclinic International. Past roles: NED DP Eurasia and Liberty Living. Previously. CFO of InterContinental Hotels Group plc, FD of BUPA, CFO and COO of William Hill and Finance Director of Moss Bros. Holds only 30,000 shares.
Executive team – length of service with Halfords
The executive team are mixed in terms of length of experience at Halfords, but, encouragingly the top two have been there 19 years and 8 years respectively.
Examining return on net tangible assets provides some insight into the ability of managers to generate high rates of return on the money shareholders entrust to them. Any annual return greater than 12% is going to be impressive at a time when equity investors are content with annual returns of under 10% (indeed 8% might be a more normal expectation in an environment of risk-free interest rates of 4% and an equity risk premium of 4%).
As well as helping to judge managerial efficiency and providing a clue on market pricing power the return on net tangible asset figures can allow us to make an estimation of likely future returns given the tangible asset base, given a few assumptions. From that we can estimate, in approximate terms, intrinsic value......
....An average RONTA over five years of 13% is good (above average) but not exceptional.
On a £494m net tangible asset (April 2022) the rate of return of 13% produces £64m after deduction of tax per year.
The present value of such a perpetuity .....
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