Commercial Property

Dundrum owner Hammerson to cut dividend

Shopping centre company moves after sharp decline in net asset value per share

Dundrum is part owned and operated by Hammerson.

Tue Feb 25 2020 - 18:29

Hammerson, part owner of the Dundrum shopping centre and one of the UK's biggest shopping centre companies, will cut its 2020 dividend by almost half as it refocuses its business away from retail parks in a reflection of the dire state of the sector in the UK.

Chief executive David Atkins said the company had decided to cut the dividend “once but . . . in a significant way, rather than chipping away for the next few years” and that the move was part of the group’s plan to strengthen its balance sheet.

Value

Hammerson, which owns the Bullring in Birmingham and Brent Cross in London, suffered a sharp fall in net asset value per share – from 738p (882 cent) to 601p – last year.

It has been shifting its portfolio away from retail parks, which have suffered as fewer shoppers means tenants have struggled to pay rents.

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Last week it made the largest UK sale in the past decade in that sector when it sold its final seven sites for £400 million to Orion, the private equity firm. The retail portfolio’s total £455 million price tag was 22 per cent lower than its value in June last year, reflecting investors’ continuing negative sentiments towards the sector.

Overall, Hammerson has raised £975 million through disposals since last year, helping to reduce its debt by a third to £2.4 billion, ahead of its £3 billion target.

“There’s no point pretending retail isn’t tough at the moment,” said Mr Atkins, adding that the landowner would “go further” with future asset sales to strengthen its balance sheet, while expanding “quite markedly” into land and other developments over the next five years.

This sector, which includes the company’s “City Quarters” – homes, work and leisure spaces around existing retail sites – makes up 9 per cent of its business.

Like-for-like net rental income at Hammerson’s flagship UK outlets – large-destination shopping centres such as Westfield in London – dropped 6.7 per cent. However income at premium outlets, high-end sites such as Bicester Village, rose 10.8 per cent.

Mr Atkins said the figures reflected how traditional high-street stores such as New Look and Topshop continued to face challenges, while luxury and experiential sites such as cycling store Rapha and yoga studios were performing better.

Income

Overall the company suffered an 11 per cent drop in rental income last year, while its pretax loss more than tripled to £573.8 million.

Tom Musson, a real estate analyst at Liberum, said the dividend cut was “welcome” but that Hammerson still faced challenges as flagship and premium stores required higher investment to keep consumers engaged.

“What you do by selling your retail parks which generate a higher income yield, it results in a lower income yielding portfolio . . . Potentially down the line you’ve got higher capital expenditure requirements as you try to sustain footfall. You’ve got to keep spending to keep people coming,” he said.

Hammerson expected to pay a 14p dividend per share in 2020, 46 per cent lower than the 2019 dividend of 25.9p. Earnings per share in 2019 fell 8.5 per cent to an adjusted 28p.

Shares in the group rose 2.4 per cent on Tuesday to 227.5p, but remain fairly close to the record low of 202.9p in August. In February 2015, the shares hit a peak of about 707.5p, more than triple Tuesday’s level. – Copyright The Financial Times Limited 2020

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