Source - LSE Regulatory
RNS Number : 6274H
Hammerson PLC
05 August 2021
 

                                                                                              Thursday 5 August 2021 

 

 

 

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

HAMMERSON plc - UNAUDITED HALF-YEAR 2021 RESULTS

Update on strategy: focus on value creation potential and core urban estates

 

Rita-Rose Gagné, Chief Executive of Hammerson, said:

"We have continued to respond to the changing landscape during the first half of 2021, which again was impacted by Covid-19.  As we emerge from a unique moment in time, I see a pathway to create sustainable value as we transform the business to become more agile and able to anticipate and respond to this change.  We own flagship destinations around which we can curate and reshape entire neighbourhoods and city centre spaces for generations to come. 

"To realise this opportunity we are focused on continuing to de-lever the balance sheet through disposals of non-core assets, creating a leaner and more agile organisation, driving value in our destinations and accelerating our longer term developments."

 

Summary Financial and Operating Performance:

·    Like-for-like NRI flat YoY, adjusted NRI down 8%

·    Adjusted earnings up 14% to £20.1m (2020:£17.7m) benefitting from recovery in Value Retail and lower net finance costs

·    IFRS loss: £376m (2020: £1,088m loss) due to £361m Group portfolio deficit

·    Group portfolio value of £5.5bn, total capital return -6.4% (FY 2020 -20.9%)
 - Managed portfolio value of £3.6bn; capital return -9.0%
 - Value Retail portfolio £1.9bn; capital return -0.4%

·    EPRA net tangible assets (NTA) per share reduced 16%, or 13p, to 69p; of which 3p was due to enhanced scrip dividend

Strengthened balance sheet and capital structure

·    Net debt reduced by 16% to £1.9bn with ample liquidity of £1.5bn1 in undrawn committed facilities and cash 

·    £403m gross proceeds from disposals including exit of UK retail parks sector

·    Refinanced near term debt maturities with the issuance of €700m 1.75% sustainability-linked bond 
 - repaid €500m 2022, and 53% of €500m 2023 bonds, and £297m of private placement notes

·    No significant unsecured refinancing required until 2025

Encouraging re-opening and operational performance

·    Footfall across our cities is currently averaging 80% of 2019 level

·    Group rent collection for FY20 now at 90%, H1 2021 71% and Q3 at 65%

·    Flagship leasing: recovery in volume to £9.8m, up 123% on H1 2020; up 17% on H1 2019

·    Occupancy: Group occupancy of 93% (FY20 94%)

·    ERV: managed portfolio -4.1% on a like-for-like basis

Sustainability

·    Issued €700m sustainability-linked bond, the first in the European real estate sector

·    Connected Les Terrasses du Port to the Thassalia geothermal system to further reduce carbon emissions

·    Committed to Net Positive targets for carbon, water, resource use and socio-economic impacts by 2030

Board and leadership team changes

·    CFO, Himanshu Raja joined in April and Chief Development and Asset Re-positioning Officer, Harry Badham joined in June

·    Non-Executive Director changes: Mike Butterworth succeeds Pierre Bouchut, who stepped down from the Board in May, as Chair of Audit Committee and Habib Annous joined the Board in May

Dividend

·    The Board remains committed to meeting its UK REIT and French SIIC obligations. As previously announced, until December 2022, we expect to satisfy these by way of an enhanced scrip dividend alternative. The Board has declared a cash dividend of 0.2 pence per share. Subject to shareholder approval the Board intends to pay an enhanced scrip dividend alternative of
2 pence per share as a normal (non PID) dividend

 

Strategy update

The future of Hammerson is as an owner, operator, and developer of focused, prime, urban estates. Execution will be based on four key building blocks:

 

Delivering a sustainable capital structure:

·      A disciplined disposals programme, focusing the Group on a core portfolio of urban estates, reducing indebtedness and generating capital for redeployment into core assets and adjacent developments

·      The Board see maintaining an investment grade credit rating as an important element of our strategy

Creating an agile platform:

·      Transform the organisation to a flatter, more asset and customer-centric structure, with centralised core functions

·      Increased digitalisation and automation to improve efficiency

·      Build skill sets and consider strategic partnerships for a mixed-use future with a customer first culture  

·      Target net admin cost reduction of 15-20% by FY23

Reinvigorating our assets:

·      Maximise income through optimising use of space including the repurposing of department stores and redeveloping underutilised space to alternative uses where appropriate

·      Attracting new brands and services and curating new and engaging spaces

Accelerating our development pipeline

·      Disciplined recycling of capital to scale and accelerate development opportunities across a range of uses

 

Half-year 2021 results at a glance

Six months ended:

30 June
2021

30 June
2020

Change

Adjusted net rental income (Hammerson share) (2)

£87.2m

£94.4m

-8%

Like-for-like net rental income (3)

£67.7m

£67.6m

-

Adjusted profit (4)

£20.1m

£17.7m

+14%

Adjusted earnings per share (4)(6)

0.5p

1.0p

-50%

IFRS loss (including non-cash valuation changes) (5)

£(376)m

£(1,088)m

+65%

Basic loss per share (5)(6)

(9.2)p

(64.9)p

+86%

Interim dividend per share

0.2p (2.0p enhanced scrip)

n/a

n/a

As at:

30 June
2021

31 December
2020

 

Managed portfolio value (Hammerson share) (2)

£3,596m

£4,414m

-19%

Value Retail   -  portfolio value (Hammerson share)

-   net asset value (Hammerson share)

£1,902m

£1,130m

£1,924m

£1,154m

-1%

-2%

Equity shareholders' funds

£2,803m

£3,209m

-13%

EPRA net tangible asset (NTA) value per share (4)(6)

69p

82p

-16%

Gearing (7)

68%

70%

-3%

Loan to value - with Value Retail net asset value (7)

40%

40%

No change

Loan to value - fully proportionally consolidated (7)

47%

46%

+1p.p

 

 

(1)     Pro-forma liquidity following final €190 million repayment of €500m 2022 bonds and €2 million partial repayment of O'Parinor JV debt in July 2021.

(2)    Proportionally consolidated, excluding premium outlets. See page 9 of the Financial review for a description of the presentation of financial information.

(3)    Managed portfolio only. Calculated in accordance with EPRA guidance.  See Table 6 in the Additional disclosures for further details.

(4)    Calculations for adjusted and EPRA figures are shown in note 9 to the financial statements on pages 47 to 48

(5)    Attributable to equity shareholders, includes Group portfolio, including Premium outlets, non-cash revaluation losses of £361 million (30 June 2020: £940 million)

(6)    2020 comparative per share data has been restated following the share consolidation and rights issue in September 2020.

(7)    See tables 22 and 23 on pages 72 and 73 for supporting calculations for gearing and loan to value

 

Results presentation today:

Hammerson will hold a virtual presentation for analysts and investors to present its half year financial results for the six months ended 30 June 2021, followed by a Q&A session.

·      Date & time: Thursday 5 August at 09:30 am (BST)

·      Webcast link: https://kvgo.com/IJLO/Hammerson_2021_Half_Year_Results

·      Conference call: Quote Hammerson when prompted by the operator

 

France: +33 (0) 1 7037 7166
Ireland: +353 (0) 1 436 0959
Netherlands: +31 (0) 20 708 5073
South Africa: +27 (0) 11 589 8302
UK: +44 (0) 33 0551 0200
USA: +1 212 999 6659
The presentation and press release will be available on:

www.hammerson.com/investors/reports-results-presentations/2021-half-year-results on the morning of results.

Enquiries:

Rita-Rose Gagné, Chief Executive Officer

Tel: +44 (0)20 7887 1000

 

Himanshu Raja, Chief Financial Officer

Tel: +44 (0)20 7887 1000

 

 

 

 

Josh Warren, Head of Strategy and Investor Relations

Tel: +44 (0)20 7887 1109

josh.warren@hammerson.com

Catrin Sharp, Head of Corporate Communications

Tel: +44 (0)20 7887 1063

catrin.sharp@hammerson.com

John Waples, Dido Laurimore and Richard Gotla, FTI Consulting

Tel: +44 (0)20 3727 1000

 

 

Chief Executive Review

During the first six months, we have continued to respond to the changing Covid-19 landscape, whilst also making progress against the priorities I set out on 12 March; we continued to strengthen our balance sheet and capital structure, maintained our operational focus and progressed our strategic review.

Our strategy update recognises the unique position that Hammerson has in city locations where we see opportunities to leverage our experience and capabilities to create thriving mixed-use estates, serving customers and communities, whilst generating sustainable total returns for shareholders. 

Continuing Response to Covid-19

Managed portfolio

The first half of the year was impacted by further Covid-19 lockdowns, with restrictions easing during the Spring, ahead of wider lifting of restrictions in England on19 July. During this period, we have supported brands during what has been a challenging period across the UK, Ireland and France as trading was affected. Like-for-like net rental income was flat, with adjusted net rental income down 8%. As in previous lockdowns, to ensure the safety of customers as they returned to our destinations, we implemented a range of measures including Crowd Checker, which helps customers plan their visit by providing live updates on footfall in real-time on centre websites; one-way systems; fixed hand sanitiser stations; and clear signage to remind shoppers of the need to socially distance.

In the run up to restrictions lifting, the teams at our flagship destinations curated a range of innovative events and installations to enhance the customer experience and drive responsible footfall. These drew on the needs of the local catchment with themes which spanned the arts, sport and culture, whilst also being shareable and impactful for social media.

Footfall in all territories has yet to recover and is currently averaging at around 75% of 2019 levels. This follows an initial spike on reopening, with inner-city footfall still down on pre-pandemic levels ahead of a wider return to offices. Many retailers continue to report high sales and conversion rates as visitors shop with purpose. 

Categories across the Group which have performed strongly during the period include jewellery, footwear and homeware. The pandemic also created a noticeable lifestyle shift with a demand for outdoor entertainment and facilities, a trend we expect to continue in the long term.

Value Retail

The restrictions associated with Covid-19, particularly when Villages were forced to close, again had a significant adverse impact on Value Retail in the first half of 2021.  This is due to a greater proportion of revenue being directly linked to turnover.  In the first half of the year, we recorded a £2.0 million adjusted loss from our investment in Value Retail this compares to a £13.0 million loss for the same period in 2020. This improvement was driven by both higher income and operating cost savings.

This was due to the Villages being able to operate for longer periods and saw stronger footfall and sales from the domestic audience, and high rent collection rates. It was also lifted by an increasing contribution from new initiatives like Virtual Shopping. We continue to expect this sector to recover strongly, particularly as international travel returns.

Value Retail continue to enhance their visitor offer and have signed 167 contracts across the Villages so far this year, of which 65 were new brands including Jil Sander and Isabel Marant at Bicester.  At Fidenza Village, a fully refitted flagship boutique for Dolce and Gabbana opened in April 2021. La Roca Village, Barcelona opened an additional sales area in March featuring brands including Adidas, American Vintage, Boardriders, Bóboli, Brunello Cucinelli, and Etnia. La Roca Village as a whole is currently trading with 93% occupancy.

Virtual Shopping continues and has become part of business-as-usual for all brands and across all Villages with sales exceeding €105 million for the first half of the year. Virtual Shopping events have been the new key focus to encourage guests to shop virtually by appointment, building on guest acquisition and private clienteling. These have proven extremely successful and popular with brand involvement across all Villages.

Progress against our priorities

Balance Sheet

During 2021, we have made significant progress in strengthening our balance sheet through disposals and refinancing.  In April, we completed the disposal of seven retail parks to Brookfield for £330 million which concluded our exit from the UK retail parks sector. This followed the sale of three minority stakes earlier in the year, in Brent South Shopping Park, London, Espace Saint-Quentin, Paris and Nicetoile, Nice for a total of £73 million, thus simplifying our portfolio.  Gross proceeds from disposals were £403 million, at a discount to December 2020 book value of 6%.

We also issued a €700 million, 1.75% sustainability-linked bond maturing in 2027. This was the first issue of its type for the European real estate sector and links the coupon to the achievement of reductions in carbon emissions by 2026. Using the proceeds from this issue, along with the monies raised from disposals, the Group repaid £657 million (£163 million of which was in July) of bonds maturing in 2022 and 2023 and £297 million of private placement notes. We also refinanced a £415 million revolving credit facility ("RCF") which matured in April 2022 with two new RCFs totalling £200 million maturing in 2024 but with options, subject to lender consent, to extend annually thereafter at the end of the first and second years (a 3+1+1 facility).

Following this refinancing activity, further details of which are in the Financial Review on page 18, the Group has liquidity of £1,452 million (pro forma for refinancing completed in July) and no significant unsecured debt maturities until 2025, with the 2023 and 2024 maturities covered by available liquidity.

Both Fitch and Moody's re-affirmed the Group's IG credit ratings in the first half of the year. 

 

Operational focus

Leasing

We have seen an encouraging pick up in leasing in the first half of the year with brands focusing on the future of their physical estate that supports their online presence. Leasing volumes at our flagships totalled £9.8 million, 123% higher than the same period in 2020, and 17% higher than the first half of 2019, with a particularly good performance in France. 

While volumes have improved, there continues to be a marked difference in the underlying strength of the leasing demand across the Group with France and Ireland continuing to outperform the UK. This is demonstrated by the leasing metrics compared to ERV and previous passing rent as shown below, although volumes represent a relatively small proportion of the Group's existing contracted rent.

Flagships

UK

France

Ireland

Group

Leasing volume

£4.3m

£5.1m

£0.4m

£9.8m

Leasing volume YoY

+£1.6m

+£3.7m

+£0.1m

+£5.4m

Leasing volume as % of December 2020 ERV

4%

8%

1%

4%

Permanent leases (> three years)

 

 

 

 

Leasing vs previous passing rent

(26%)

0%

72%

(8%)

Leasing vs Dec-20 ERV1

(24%)

3%

16%

(6%)

1.    Calculated on a net effective rent basis

ERV has fallen by 29% in the UK, 4% in France and 14% in Ireland relative to their peak levels in December 2017 for UK and France, and December 2018 for Ireland.

We expect UK rents to stabilise when ERV levels are approximately 35% below their peak, with France and Ireland reporting lower reductions.

In order to ensure our destinations are able to both offer brands a superior omni-channel trading location with high footfall, we continue to focus on bringing a broader mix of occupiers to our destinations. 

F&B and leisure

Almost 40% of new leases in the UK were to food, beverage and leisure brands and it is encouraging to see how many new independent restaurants have approached us for space. A new restaurant brand to the portfolio is Wingstop, which by signing three leases with us at Bullring, Birmingham, Cabot Circus, Bristol and The Oracle, Reading has branched outside of London for the first time.  We also added two new regional brands at Silverburn, Glasgow, Heavenly Desserts and STL Kitchens. 

We are targeting new leisure experiences across the portfolio and following the success of Treetop Adventure Golf at Highcross, Leicester, they signed another long-term lease at Bullring, Birmingham to broaden the leisure offer at the destination. At Whitgift and Centrale, Croydon, Flip Out, which offers experiences including Synthetic Ice Skating, Mini Golf, and Laser Quest has provided a leisure anchor.

Digital brands

We also welcomed Kick Game, a destination brand for exclusive, collectable and rare sneakers who trialled a unit via our white boxing programme at Bullring, Birmingham to take its first store outside London. Its presence brought an additional 12% in footfall to this part of the centre. Following the trial, the brand has taken a lease, with their physical presence in a high footfall location demonstrating increases in brand engagement, strong conversion rates and low customer acquisition cost compared to online. 

We trialled six other digital brands specialising in wellness, lifestyle and beauty and they are all planning further investment in physical spaces across our flagships.

At Les Terrasses du Port, Marseille, our Co-Lab initiative is attracting and offering hands-on solutions to digitally native vertical brands (DNVBs) to explore the physical retail world. We also signed Le Colonel Moutarde which sells clothes and accessories predominantly made in Liberty fabric and crafted in Lille, North France.

Premium brands

We continue to see established premium brands continuing to invest in new locations. At Les Terrasses du Port, Marseille, Dyson has opened a 2,000ft2 store, the first for the brand in the city and the south of France. At Victoria Leeds, Boodles, the premium jewellery brand has taken 4,500ft2 of space which continues to be an attractive luxury destination for retailers. Other high-end brands signed in Leeds this year include fashion and accessories favourite, Kate Spade, and footwear specialist, Carvela.

Luxury fashion brand Tommy Hilfiger opened two new stores at Silverburn, Glasgow and Union Square, Aberdeen marking a return for the retailer in Scotland, demonstrating confidence in the market.

Healthcare

Services cannot be easily replicated virtually and we are actively broadening our offer to include healthcare and widen the customer experience at our destinations.  At Brent Cross, London we have signed a lease with Moorfields Eye Hospital to open a 15,000ft2 diagnostic hub in the former New Look unit. This will be Moorfields' first hub within a retail environment and the third diagnostics hub outside its main central London facility. We have also opened two Covid-19 vaccination centres at our venues to support the NHS's vaccine roll-out.

 

Out of home advertising

Digital advertising continues to be a strong revenue stream and we signed a new contract with Clear Channel covering all Digital Six Sheet and XL screens across our UK flagships. Sony Pictures' Peter Rabbit 2 campaign was hugely successful being the first cinema release to return to malls after a long absence and the first to display the next available screenings at nearby cinemas in real time.

Tenant restructuring

The onset of the pandemic severely impacted the retail market and accelerated the collapse or restructuring of a number of high profile legacy brands and department stores. In the first half of 2021 there have been limited tenant failures across the Group, with ten brands undertaking a CVA or entering administration. In total this impacted 18 stores with a passing rent at December 2020 of £1.4 million.  

At 30 June 2021, 175 stores with a current passing rent of £7.5 million, or 3.3% of Group passing rent, were subject to a CVA or administration, of which 78% continued to trade.

Occupancy

In spite of the pandemic, occupancy has remained robust across the Group at 93% at 30 June 2021 compared with 94% at the beginning of the year. In total, the ERV of vacant space is £14.6 million and is a key area of focus to drive earnings and enliven the offer at our destinations.

Collections

We have continued to support brands during what has been a challenging period with national lockdowns imposed in the UK, Ireland and France affecting trading and rent collection. We were able to reach fair and reasonable agreements with the majority of brands incorporating a combination of rent deferrals, switching from quarterly to monthly payments, and providing rent waivers for lockdown periods during 2020 and 2021 totalling £41 million.

Rent collection rates have continued to improve. Across the Group, 90% of billable rents were collected for FY20, 71% for H1 2021 and 65% for Q321. Performance differs across the countries in which we operate as shown below:

 

UK

France

Ireland

Group

FY20

91%

93%

83%

90%

H121

79%

56%

65%

71%

Q321

67%

60%

67%

65%

While we expect rent collections to continue to improve as trading levels increase, the further extension to the UK Government's rent moratorium to March 2022 has led to some retail businesses openly ignoring their rental obligations when they have the means to pay. By continuing to extend the moratorium and also not addressing the inequity of business rates, the UK Government continues to undermine the attractiveness of the sector and its investment case. We do not anticipate granting concessions for future periods and all avenues to collect rents due are being actively pursued.

Sustainability Review

Whilst the operation of our assets in the first half of 2021 continued to be impacted by the pandemic, we remained focused on our strong ESG platform to deliver benefits to our stakeholders and are committed to our Net Positive targets. We completed two major projects in the first half of the year; the connection of Les Terrasses du Port to the Thassalia geothermal system in March, further reducing carbon emissions from this highly efficient asset, and the successful launch of our sustainability-linked bond in June. See further details on page 18 of the Financial review. 

Our 2021 environmental targets are set against a 2019 baseline as the most recent normal operating year.  As sites have gradually opened during the first half of 2021 there has been significant upward pressure on energy usage created by the requirement for additional air-changes and ventilation.  Lower footfall and fewer stores being open reduces mall temperatures, driving up demand for heating.  However, the fact that we are not operating to a business as usual pattern means our energy demand remains significantly lower than normal.  The table below sets out the significant reductions against our 2019 baseline.

EPRA like-for-like portfolio

 

Six months ended
30 June 2021

 

Six months ended
30 June 2019

 

Reduction

(%)

2021 target reduction(%)

Electricity Demand (MWh)

23,534

29,614

-21

-5

Natural Gas Demand (MWh)

8,187

9,783

-16

-2

Energy Demand (MWh)

33,710

40,505

-17

-8

Carbon Emissions (mtCO2e)1

6,442

9,101

-29

-17

Water Demand (m3)

108,180

183,232

-41

-7

 

 

 

 

 

 

 

1.       Metric tonnes

Our social impact work has delivered a strong programme of events and the use of available space for local community businesses and initiatives.  The Art Trail in Croydon, showcasing local artists and focusing on the artistic heritage of the area, has been particularly well received and is being replicated in other cities. 

Sustainability remains strongly embedded within our development work.  Our commitment and expertise in this area has supported the delivery of a state of the art proposal for Dublin Central, targeting net zero carbon, and has been reflected in the recognition of the recently completed Pembroke Square at Dundrum Town Centre, Dublin by the Royal Institute of Architects of Ireland (RIAI) in the Sustainability category.  As the expectations of investors, customers and society become increasingly focused on corporates' response to the climate emergency, our long-standing strategy and track record of delivery demonstrates our ability to meet this challenge.

 

Strategy Update

We have undertaken a comprehensive review of our organisation and the portfolio to define the future of Hammerson: an owner, operator, and developer of prime, urban estates. 

Execution will be based on four key building blocks:

·      Delivering a sustainable capital structure

·      Creating an agile platform

·      Reinvigorating our assets

·      Accelerating our development pipeline

 

Our focus will be on those assets located in cities with strong growth characteristics and demographics where we can have a strong sustainable footprint.  Equally, our review has identified a series of non-core assets which will form the basis of a disciplined programme of disposals.  

Our approach will focus on total returns for our shareholders with sustainability embedded across the business.

Delivering a sustainable capital structure

A core part of our strategy going forward will be delivery of a sustainable capital structure. We have made progress on the balance sheet in 2021 reducing our net debt by 16% to £1.9 billion through our continued disposals programme of non-core assets.

Central to our approach is maintaining an IG credit rating, which the Board sees as an important element of our strategy. This will require us to approach both earnings and leverage in a disciplined manner, with disposals phased and proceeds balanced between reducing debt and recycling into opportunities for value creation.

Creating an agile platform

Hammerson is recognised as a flagship retail specialist with trusted expertise.  At the same time, our current operating model is dated, fragmented and operates with high costs. Creating an agile platform is about a shift to a high performance culture and a leaner, flatter, more empowered organisation focused on speed to value. The operating model will be both customer and asset centric with increased automation and digitalisation of processes to drive efficiency. Cost discipline will also be key.

With the acceleration of the structural shifts in our markets, we must also build new capabilities for an urban mixed-use future, including examining strategic operational partnerships.

Through our transformation, we expect to see a 15-20% reduction in net administration costs.

Reinvigorating our assets

We have some of the best assets in prime urban cities. They sit at the heart of the communities we serve, and are supported by ambitious local authorities.  The profitability of the assets has however been affected by both Covid-19 and the lack of targeted investment over recent years to upgrade them.

In the near term, there are capital-light opportunities to reinvigorate the assets and grow revenue by filling void units, generating additional income streams and changing the tenancy mix to improve footfall. Examples would include innovative initiatives and partnerships for cultural, F&B and leisure experience offers, including food halls, event and destination spaces, health & wellbeing, boutique and roof top theatres, galleries and cinemas.

In the medium to long-term, there are more capital-intensive opportunities to repurpose part of our assets for alternative uses such as residential, hotel or workspace.  The biggest opportunity is in department store space where we currently have over 800,000ft2 of void space or short-term leases. This space has an average ERV of £3 per ft2 so there remains considerable upside. As we consider our entire estates as space to be monetised, our car parks also represent a future opportunity; underutilised today, and with changes in car use and travel patterns, our car parks present additional income potential for the future.

As we invest in our destinations and brands and continue to consolidate into prime retail space, we will attract new and successfully established occupiers to drive footfall.

Our aim is to deliver the right mix of uses to create vibrant places.

Accelerating our development pipeline

The continued reinvention of our assets will also leverage the ownership of our adjacent land bank of more than 100 acres to create large urban estates.  The review highlighted that our land bank has the potential to deliver over 6 million ft2 of residential space across the portfolio. This is alongside significant opportunities across other uses, notably workspace and hotels, which may also play a significant and complementary role.

We will seek to redeploy capital as well as explore alternative capital structures where appropriate to accelerate these developments and generate revenue by developing in phases. 

 

Dividend

The Board has declared a cash dividend of 0.2 pence share. Subject to shareholder approval, the Board intends to pay an enhanced scrip dividend alternative of 2 pence per share.  Both the cash dividend and the enhanced scrip dividend alternative will be paid as a non-Property Income Distribution ("non-PID") and treated as an ordinary UK company dividend.  

Timetable of events

Ex dividend date (SA)

27 October 2021

Ex-dividend date (UK & Ireland)

28 October 2021

Record date

29 October 2021

Interim dividend payable

7 December 2021

 

Shareholders will be provided with further details in relation to the interim cash dividend and enhanced scrip dividend alternative in due course. The dates above are subject to change and any changes made will be communicated as soon as practicably possible.

 

FINANCIAL REVIEW

Overview

Whilst the results for the six months ended 30 June 2021 continue to be impacted by the ongoing pandemic, this has been less severe than the initial shock of Covid-19 in the comparative period and adjusted earnings, at £20.1 million, are 14% higher than in the first six months of 2020. The re-opening of the majority of our destinations, albeit with some restrictions, has facilitated the agreement of rent concessions and collection of arrears. However, the Government restrictions on landlords' ability to enforce payment has contributed to trade receivables remaining significantly higher than pre-pandemic levels.  We continue to take a prudent approach to provisioning, with 67% of net trade receivables provided for across the Group.  Maximising income and increasing collection rates is a key priority for the second half of the year and good progress has already been made since the half year.

Values for the managed portfolio fell by 9% in the first half of the year, a slower decline than the prior year. The premium outlets sector has remained more resilient, and consequently the value of our investment in Value Retail has remained broadly flat year on year.

We have continued to focus on strengthening the balance sheet in 2021, with £396 million of cash generated from disposals of eight retail parks in the UK and our stakes in two French flagships.  Refinancing activity in the first half of the year included the issuance of a €700 million 1.75% sustainability-linked bond maturing in 2027, the buyback of €575 million bonds maturing in 2022 and 2023, the buyback of £297 million private placement notes, and the refinancing of a £415 million Revolving Credit Facility by way of a new £200 million facility. On 8 July 2021, the remaining €190 million of the 2022 2.0% bonds were redeemed.

Presentation of financial information

Our property portfolio comprises properties that are either wholly owned or co-owned with third parties.  Whilst the financial statements are prepared under IFRS, management reviews the results of the Group on a proportionally consolidated basis, accounting for our interests in joint ventures and associates on a line-by-line basis.  The only exception to this relates to our investments in premium outlets, Value Retail and VIA Outlets (up to the date of its disposal in October 2020).  As these are externally managed, independently financed and have differing operating metrics to the Group's managed portfolio, they are excluded from the proportional consolidation and instead recognised as an investment in associate and investment in joint venture respectively and not included in the Group's proportionally consolidated key metrics such as net debt or like-for-like net rental income growth. However, for a number of the Group's Alternative Performance Measures (APMs), for enhanced transparency, we do disclose metrics combining both the managed portfolio and premium outlets. These include property valuations and returns and certain credit metrics.

This approach results in us splitting our property interests between our 'managed portfolio', being those properties we proportionally consolidate, and those owned by Value Retail.

Following the sale of eight retail parks in the first half of 2021, the results of the retail parks segment for both the current and comparative periods have been removed from the line-by-line reporting and recognised as a single '(loss)/profit from discontinued operations' line in the financial statements. However, for the purposes of the Financial review, proportionally consolidated figures include the results from the UK retail parks up to the date of disposal in May 2021.  Further details are in note 7 to the financial statements.

Going concern

The Directors have performed a detailed going concern assessment, reviewing the current and projected financial position of the Group over the period to 31 December 2022.  This involved the preparation of a Base scenario and a Severe but plausible adverse scenario, the latter assuming a significant resurgence of Covid-19 and a re-imposition of restrictions, including a three month lockdown over the 2021/22 winter.

Excluding risks associated with debt held by Value Retail, the assessment showed the Group has sufficient liquidity to continue operating over the going concern period and the Directors have therefore prepared the interim financial statements on a going concern basis. 

With respect to Value Retail, the assessment showed that if Value Retail were unable to refinance, or find alternative sources of funding for, a £750 million secured loan (Group's share £376 million) maturing in December 2022 and the lenders enforced their security over the property then the Group would breach the gearing covenant in its unsecured borrowings in the Severe but plausible adverse scenario only at 31 December 2022.  While the Directors and Value Retail management are confident this loan can be successfully refinanced over the next 17 months, the Directors have concluded that this refinancing risk represents a material uncertainty that may cast doubt over the Group's ability to continue as a going concern.

Further details are provided in the going concern statement in note 1D of the interim financial statements on page 35.

Alternative Performance Measures (APMs)

The Group uses a number of APMs, being financial measures not specified under IFRS, to monitor the performance of the business. Many of these measures are based on the EPRA Best Practice Recommendations (BPR) reporting framework which aims to improve the transparency, comparability and relevance of the published results of listed European real estate companies. Details on the EPRA BPR can be found on their website www.epra.com and the Group's key EPRA metrics are shown in Table 1 within the Additional disclosures section on page 61.

We present the Group's results on both an IFRS and adjusted basis.  The adjusted basis enables us to monitor the underlying earnings as it excludes capital and non-recurring items such as revaluation movements, gains or losses on the disposal of properties, other one-off exceptional items or balances which skew the results such as the change in provision for amounts not yet recognised in the income statement, which results in the cost and corresponding income being recognised in different periods. We follow EPRA guidance to calculate adjusted figures, with any additional Company specific adjustments detailed in note 9B to the financial statements.

During the first six months of 2021, following the implementation of the strategic review, £3.3 million has been incurred in relation to business transformation costs, including redundancy costs and professional fees.  These have been recognised as 'exceptional' by virtue of their nature and size and therefore removed from the Group's adjusted earnings metrics, as management believes the costs distort the underlying recurring earnings of the Group.

INCOME STATEMENT

Summarised income statement

Six months ended 30 June 2021

Six months ended 30 June 2020

 

 

 

Proportionally consolidated1

£m

Adjustments3

£m

Adjusted
£m

 

Proportionally consolidated

£m 

Adjustments3

£m

Adjusted
£m

Net rental income

93.8

(6.6)

87.2

87.3 

7.1

94.4

Net administration expenses

(28.7)

3.3

(25.4)

(21.3)

-

(21.3)

(Loss)/Profit on sale of properties

(38.7)

38.7

-

16.0

(16.0)

-

Revaluation losses

(353.3)

353.3

-

(802.4)

802.4

-

Reversal of impairment on reclassification from assets held for sale

-

-

-

 

22.4

 

(22.4)

-

Other net gains/(losses)2

10.8

(10.8)

-

(0.1)

0.1

-

Share of results - Value Retail (VR)

(1.8)

(0.2)

(2.0)

(120.0)

107.0

(13.0)

Share of results - VIA Outlets (VIA)4

-

-

-

(20.9)

26.5

5.6

Impairment of investments in VR and VIA

-

-

-

(205.5)

205.5

-

Net finance costs

(56.6)

17.7

(38.9)

(43.3)

(4.1)

(47.4)

Tax charge

(1.0)

0.2

(0.8)

(0.6)

-

(0.6)

(Loss)/profit for the period

(375.5)

395.6

20.1

(1,088.4)

(1,106.1)

17.7

Basic/Adjusted (loss)/ earnings per share (pence)3

(9.2)

 

0.5

(64.9)

 

1.0

1. As detailed in note 2 to the financial statements

2. Comprises net exchange gains and losses recycled on disposal of foreign operations and changes in fair value of other investments

3. As detailed in note 9B to the financial statements

4. The Group sold its investment in VIA in October 2020

 

The Group's IFRS loss was £375.5 million, compared with a loss of £1,088.4 million in the prior period. The most significant year on year changes were: the net revaluation losses on the Group's managed property portfolio of £353.3 million, an improvement of £449.1 million on the comparative period; the recognition of an impairment of investments in Value Retail and VIA Outlets totalling £205.5 million during the prior period; and an improvement in the Group's share of results from Value Retail totalling £118.2 million, of which £98.7 million related to lower revaluation losses between the periods.

The Group's adjusted profit for the period in 2021 was £20.1 million, £2.4 million higher than in the first half of 2020. The table below bridges adjusted profit and adjusted EPS between the two periods, with the movements shown at constant exchange rates. Explanations of other movements are provided later in this Financial review.

 

Reconciliation of adjusted profit for the period

Movements at constant exchange rates

Adjusted profit 

 for the period 
£m 

Adjusted EPS 
 pence 

Adjusted profit - six months ended 30 June 20201

17.7 

1.0 

Rights issue dilution

-

(0.5)

Decrease in net rental income2

(7.1)

(0.2)

Increase in net administration expenses

(4.1)

(0.1)

Increase in premium outlets earnings

5.8

0.1

Decrease in net finance costs

8.3

0.2

Foreign exchange and other

(0.5)

-

Adjusted profit - six months ended 30 June 2021

20.1

0.5

1.   Comparative per share data has been adjusted for the impact of the share consolidation and rights issue in September 2020.

2.  Net of £(6.6) million (30 June 2020: +£7.1 million) adjustment relating to provision against amounts not yet recognised in the income statement.  This has been excluded from adjusted profit as management believe this distorts earnings by reflecting the income and corresponding cost in different periods. 

 

Net rental income

Analysis of net rental income

 

Six months ended 

 30 June 2021 
£m 

Six months ended 

 30 June 2020 
£m
 

Change 

£m 

Like-for-like managed portfolio

67.7

67.6

0.1

Disposals

11.5

13.7

(2.2)

Developments and other

8.0

13.0

(5.0)

Foreign exchange

-

0.1

(0.1)

Adjusted net rental income (note 2)

87.2

94.4

(7.2)

Change in the impairment provision relating to items not yet recognised in the income statement

6.6

(7.1)

13.7

Net rental income (note 2)

93.8

87.3

6.5

Like-for-like NRI change:

 

Six months ended 

 30 June 2021 

 

UK

+2.3

 

France

+13.6

 

Ireland

-17.0

 

Group

+0.1

 

           

Like-for-like NRI increased by £0.1 million against the comparative six months. Increases in surrender premiums received year-on-year of £11.3 million and a reduction in bad debt charges of £6.2 million were largely offset by the net cost (after smoothing) of Covid-related rent concessions, lease expiries, tenant failure and additional void costs.

In the UK, like-for-like NRI increased by £1.0 million, up 2.3%, and in France, by £1.6 million, up 13.6%.  The Irish portfolio recognised a reduction in like-for-like income of £2.5 million, or 17%, principally due to the impact of rent concessions being granted and increased bad debt charges.

Disposals during 2020 and 2021 reduced NRI for the period by £2.2 million.  £1.1 million of the decline related to the disposal of Brent South Shopping Park in February 2021 and the portfolio of seven retail parks in May 2021, with a further £1.0 million reduction in NRI derived from the sale of the Group's investments in Nicetoile, Nice and Espace Saint-Quentin, Paris in April 2021.

NRI derived from developments and the UK other portfolio saw a £5.0 million decline, principally due to a reduction in rental income at Les 3 Fontaines, Cergy while the extension works are ongoing and higher bad debt charges at both Centrale and Whitgift, Croydon.

During the six months ended 30 June 2021, we recognised a £6.6 million credit for the partial unwinding of the December 2020 impairment provision against trade receivables for which the corresponding income was recognised in 2021. In the comparative period, this was a £7.1 million charge upon initial recognition of a deferred provision by the Group.  This year-on-year £13.7 million improvement has been excluded from adjusted profit in both periods as it results in a timing mismatch between the recognition of the provision in the current period and the recognition of the corresponding income in a future period.  

Further analysis of net rental income is provided in Tables 2 and 6 of the Additional disclosures on pages 62 and 64.

Administration expenses

Administration expense analysis

 

Six months ended
30 June 2021
£m

Six months ended
30 June 2020
£m

Employee costs - excluding variable costs

20.0

19.3

Variable employee costs

3.9

3.4

Other corporate costs

12.4

10.5

Administration costs

36.3

33.2

Property fee income

(7.2)

(7.7)

Employee and corporate costs

29.1

25.5

Management fees receivable

(3.7)

(4.2)

Adjusted net administration expenses

25.4

21.3

Business transformation costs

3.3

-

Net administration expenses

28.7

21.3

During the first half of 2021, net administration costs, excluding business transformation costs, increased by £4.1 million.

The increase principally related to corporate costs, most significantly in relation to increased Directors and Officers insurance premiums totalling £2.8 million and additional professional fees of £0.8 million.

Business transformation costs recognised in the first six months of 2021 related to consultancy costs (£2.3 million) and redundancy costs (£1.0 million).

 

Loss on sale of properties

During the first half of 2021, we raised net cash proceeds of £396 million, relating to the disposals of Brent South Shopping Park, Espace Saint-Quentin and Nicetoile, and the portfolio sale of seven retail parks. These disposals, at an aggregate discount to December book value of 6%, generated a loss on disposal of £39 million, principally in relation to the retail parks portfolio sale. 

 

Share of results of Value Retail

 

 

Six months ended
30 June 2021
£m

Six months ended
30 June 2020
£m

Adjusted loss

(2.0)

(13.0)

Adjustments:

 

 

Revaluation losses on properties

(7.9)

(106.6)

Other adjustments1

8.1

(0.4)

Total adjustments

0.2

(107.0)

Share of results - IFRS

(1.8)

(120.0)

1.     As detailed in note 9B to the financial statements.

 

The Group's investment in Value Retail reported an adjusted loss of £2.0 million, compared to a £13.0 million loss in the first half of 2020. The year-on-year improvement was primarily due to reductions in operating and administration costs, coupled with increased sales derived from the virtual platform which was launched in May 2020. Additionally, due to the differing contract structures, rental adjustments granted by Value Retail have been recognised for accounting purposes in the period to which they relate and not as lease modifications. Consequently, the impact of rental adjustments was more weighted to 2020 when the longest lockdown periods were suffered.

See note 12 to the financial statements for further details.

 

Finance costs 

 

 

Six months ended
30 June 2021
£m

Six months ended
30 June 2020
£m

Interest costs

48.7

56.2

Interest capitalised

(3.5)

(2.5)

Finance income

(6.3)

(6.3)

Adjusted net finance costs

38.9

47.4

Debt and loan facility cancellation costs

17.3

-

Change in fair value of derivatives

0.4

(4.1)

Net finance costs

56.6

43.3

Adjusted finance costs, which excludes items such as the change in fair value of derivatives, debt cancellation costs and early redemption fees totalled £38.9 million in 2021, a decrease of £8.5 million, or £8.3 million at constant exchange rates compared with 2020.

The decrease in the first half of 2021 was principally due to a £2.6 million reduction in interest paid following the early partial repayment of the private placement notes, a £1.5 million year-on-year saving on interest paid on the revolving credit facilities drawn to increased cash reserves through the pandemic in the first half of 2020, higher finance income of £1.6 million from interest rate swaps, and an increase of £1.0 million in capitalised interest relating to on-site developments at Les 3 Fontaines, Cergy and Italik.

Debt and loan facility cancellations costs totalling £17.3 million were incurred in the first half of the year primarily relating to the repayment of the bonds and private placement notes as detailed on page 18 of the Financial review.

Tax and Dividends

The Group's tax charge for the six months ended 30 June 2021 was £1.0 million, of which £0.2 million related to an exceptional tax charge recognised on the disposal of the retail parks portfolio.  This compares to £0.6 million for the comparative period. 

The tax charge remains low as the Group benefits from being a UK REIT and French SIIC.  Further details on these tax regimes are given in note 6 to the financial statements.

In order to satisfy the REIT conditions, the Company is required, on an annual basis, to pass certain business tests.  At 31 December 2020, there was a marginal breach of the interest cover test.  However, given the unprecedented impact of Covid-19 during the year, HMRC agreed that no charge would be assessed on the Company. At 30 June 2021, based on preliminary calculations, management does not expect a further breach to arise.

The Board has declared an interim cash dividend of 0.2 pence per share. Subject to shareholder approval, the Board intends to pay an enhanced scrip dividend alternative of 2 pence per share as an ordinary (non-PID) dividend.  The dividend timetable is detailed on page 8.

 

NET ASSETS

Summarised balance sheet

30 June 2021

31 December 2020

 

 

 

Equity shareholders' funds

£m

Adjustments1

£m

EPRA Net tangible assets
£m

 

 Equity shareholders' funds 

£m 

Adjustments1

£m

EPRA Net tangible assets
£m

Investment, development and trading properties

3,596

-

3,596

4,414 

-

4,414

Investment in Value Retail

1,130

108

1,238

1,154

117

1,271

Trade receivables (net)

76

-

76

90

-

90

Net debt

(1,879)

3

(1,876)

(2,234)

(14)

(2,248)

Other net liabilities

(120)

(14)

(134)

(215)

5

(210)

Net assets

2,803

97

2,900

3,209

108

3,317

EPRA NTA per share (pence)

 

 

69

 

 

82

1 Adjustments in accordance with EPRA best practice, principally in relation to deferred tax, as shown in note 9D to the financial statements on pages 50 and 51.

 

During the first six months of 2021, equity shareholders' funds reduced by £406 million, or 13%, to £2,803 million, principally due to the revaluation of the managed portfolio of £353 million. Net assets, calculated on an EPRA Net Tangible Assets (NTA) basis, were £2,900 million, or 69 pence per share, a reduction of 13 pence compared to the 2020 year end. The movement during the period is shown in the table below.

Movement in net assets

 

Equity 

   shareholders' funds 

£m 

 

Adjustments1
£m

EPRA
net tangible assets
£m

EPRA

NTA
pence

per share

31 December 2020 - EPRA NTA

3,209

108 

3,317

82

Scrip dividend - share dilution

-

-

-

(3)

Property revaluation - managed portfolio

(353)

-

(353)

(9)

Adjusted profit for the period - managed portfolio

22

-

22

 

Adjusted loss for the period - Value Retail

(2)

-

(2)

 

Loss on sale of properties

(39)

-

(39)

 

 

Change in deferred tax

6

(3)

3

Dividends

(12)

-

(12)

Foreign exchange and other movements

(28)

(8)

(36)

 

30 June 2021 - EPRA NTA

2,803

97

2,900

69

1.     Adjustments in accordance with EPRA best practice as shown in note 9D to the financial statements on pages 50 to 51.

 

Property portfolio analysis

At 30 June 2021, our managed portfolio was valued at £3,596 million, £818 million or 19% lower than at the beginning of the year.  The movement in the first six months of the year is shown in the table below.

Movement in managed portfolio value

 

Investment 

£m 

Development 

£m 

Total 

(excl.VR) 

£m 

Value at 1 January 2021

3,905

509

4,414

Revaluation losses on properties

(295)

(58)

(353)

Property additions

 

 

 

    Capital expenditure

11

25

36

    Tenant incentives

16

-

16

 

27

25

52

Capitalised interest

1

3

4

Disposals

(430)

-

(430)

Foreign exchange

(79)

(12)

(91)

Value at 30 June 2021

3,129

467

3,596

 

Property additions

During the first half of 2021, property additions totalled £52 million. Table 11 in the additional disclosures analyses the spend between the creation of additional area and creation of value through the enhancement of existing space.

Capital expenditure on the investment portfolio totalled £11 million and principally related to asset management initiatives and recladding works in Birmingham and Bristol, whilst capital expenditure on developments of £25 million principally related to the two on-site extension projects at Les 3 Fontaines, Cergy and Italik, Paris.

Disposals

Disposals reduced valuations by £430 million and related to the sale of Brent South Shopping Park in February 2021 for £22 million, Espace St Quentin and Nicetoile in April 2021 for £48 million and the disposal of substantially all of the Group's remaining UK retail parks for £330 million. As explained on page 12, these sales resulted in the recognition of a loss of £39 million.

Valuation change

The chart below analyses the sources of the underlying valuation change for the Group's property portfolio during the first six months of 2021.

Components of valuation change (£m)

http://www.rns-pdf.londonstockexchange.com/rns/6274H_1-2021-8-4.pdf

 

During the first half of 2021, we recognised a total net revaluation deficit of £353 million across the managed portfolio. No revaluation loss was reflected on the UK retail parks during the period due to the portfolio sale in May 2021.

At 30 June 2021, the material valuation uncertainty clause has been removed from all of the Group's valuations including Ireland, where it was still in place at 31 December 2020, as property markets are mostly functioning again, with transaction volumes and other relevant market evidence at sufficient levels upon which to base valuations.

UK flagship destinations recognised a revaluation deficit of £203 million, of which £102 million was attributable to outward yield shift which averaged 52 basis points across the portfolio. The remaining £101 million principally related to a reduction in income, reflecting lower ERVs, tenant failure and weak occupational demand.

The reduction in the value of the French portfolio was driven by yield expansion, averaging 10 basis points and a reduction in income.

The Irish portfolio realised a revaluation deficit totalling £49 million, principally relating to outward yield movement averaging 27 basis points.

A £58 million deficit was recognised on the development portfolio, the key components being a reduction in the valuation of the potential future development at Whitgift, Croydon and outward yield movement impacting the on-site scheme at Les 3 Fontaines, Cergy.

Further valuation, returns and yield analysis is included in Tables 9 and 10 in the Additional disclosures on pages 66 and 67.

 

ERV growth

Like-for-like ERV growth

 

 

 

UK 

 

 

France 

Ireland 

Flagship 

destinations 

UK 

 retail parks 

 

Managed 

portfolio 

30 June 2021

(6.8)

(0.3)

(1.1)

(4.1)

n/a

(4.1)

31 December 20201

(14.3)

(4.9)

(6.5)

(10.6)

(10.9)

(10.8)

30 June 2020

(6.7)

(3.7)

(3.4)

(5.4)

(4.0)

(5.5)

1. 31 December figures are for the full year

2. The 'UK other' portfolio is not shown above and reported a like-for-like ERV decline of -3.5% (30 June 2020: -13.1%)

Like-for-like ERV at the Group's managed portfolio declined by 4.1% in the six months to 30 June 2021.

UK flagships reported the most significant reduction in ERVs at 6.8%. This was largely due to weak occupational demand, retailers rightsizing units and an over-supply of retail space due to CVAs and administrations. 

In France and Ireland, rental levels were more stable with reductions of ERV of 0.3% and 1.1% respectively.

 

Property returns analysis

 

UK 

France 

Ireland 

Flagship 

destinations 

UK 

retail parks 

Developments 

Managed   portfolio 

Income return

3.0

1.8

1.9

2.3

2.6

0.4

2.2

Capital return

(13.4)

(4.2)

(6.6)

(8.9)

(8.8)

(10.5)

(9.0)

Total return

(10.7)

(2.5)

(4.8)

(6.7)

(6.4)

(10.1)

(7.1)

1. The UK other portfolio is not shown above and produced an income return of 1.9%, a capital return of -4.5% and a total return of -2.6%. 

 

During the first half of 2021, the Group's property portfolio generated a total negative return of 7.1%.  This comprised an income return of 2.2% and a negative capital return of 9.0%. The capital return is consistent with the underlying valuation performance explained in the 'Valuation change' section on page 14 and an analysis of the capital and total returns by business segment is included in Table 9 in the Additional disclosures on page 66.

Incorporating the income and capital returns from the Value Retail portfolio, detailed below, generates a total return for the Group of
-4.7% comprising +1.8% income return and -6.4% capital return.

We compare the performance of our properties against industry indices, principally an annual benchmark based on MSCI IPD All Retail indices for the UK and a bespoke MSCI IPD Europe Index, weighted on a 50:50 basis.  At the date of this announcement these indices are not yet available.

The UK MSCI quarterly All Retail index at 30 June 2021 reported a total return for UK shopping centres of -7.3%, 340 basis points higher than the UK flagships return of -10.7%.

 

Investment in Value Retail

 

 


30 June 2021
£m


31 December 2020
£m

Investment properties

1,902

1,924

Net debt

(690)

(689)

Other net liabilities

(82)

(81)

Net assets

1,130

1,154

EPRA net tangible assets adjustments:

 

 

    Deferred tax

95

99

    Other

13

18

 

108

117

Investment in Value Retail - EPRA NTA basis

1,238

1,271

 

The Group's total investment in Value Retail, on a net tangible asset basis, reduced by £33 million during the period. This principally comprised adverse foreign exchange movements of £21 million and revaluation losses of £8 million. The premium outlets sector remained more resilient than the Group's flagships, with the revaluation loss reflecting lower sales growth.  

During the first half of the year, the Value Retail property portfolio generated a total return of +0.7%, comprising an income return of +1.1% and a capital return of -0.4%.

 

Trade receivables

At 30 June 2021, gross trade receivables totalled £153 million compared to £170 million at 31 December 2020. The intermittent closures of the vast majority of non-essential retail across all regions in 2021 as a result of the pandemic, coupled with government restrictions on landlords' ability to enforce collection, has continued to impact collection rates and, consequently, the level of trade receivables remains high.

After taking account of tenant deposits, guarantees and VAT, a total provision of £77 million was recognised at 30 June 2021 compared to £80 million at the beginning of the year, equating to a 67% provision against net trade receivables (31 December 2020: 64%).

The table below analyses the total provision by region against the respective trade receivable balances.

Trade receivables and provisioning

 


30 June 2021
£m


31 December 2020
£m

 

Trade

receivables

£m

Trade receivables net of deposits
and VAT
£m

Total

provision

£m

Trade

receivables

£m

Trade receivables net of deposits
and VAT
£m

Total

provision

£m

UK

78

64

42

101

82

53

France

57

35

24

51

28

19

Ireland

18

16

11

18

15

8

Managed portfolio

153

115

77

170

125

80

 

FINANCING AND CASHFLOW

Our financing strategy is to borrow predominantly on an unsecured basis under the Group's standard financial covenants to maintain flexibility at a low operational cost. Secured borrowings are occasionally used, mainly in conjunction with joint venture partners. Value Retail also predominantly uses secured debt in its financing strategy, although this is independent of the rest of the Group.

The Group's borrowings are arranged to maintain short term liquidity and to ensure an appropriate maturity profile. Acquisitions may initially be financed using short term funds before being refinanced with longer term funding depending on the Group's financing position in terms of maturities, future commitments or disposals, and market conditions. Short term funding is principally through syndicated revolving credit facilities from a range of banks and financial institutions with which we maintain strong working relationships. Long term debt comprises the Group's fixed rate unsecured bonds and private placement notes. The Group also has secured borrowings in three of the Group's joint ventures and in Value Retail.

Derivative financial instruments are used to manage exposure to fluctuations in foreign currency exchange rates and interest rates, but are not employed for speculative purposes.

The Board regularly reviews the Group's financing strategy and approves financing guidelines against which it monitors the Group's financial structure.  In the first half of 2021, the Group's guideline loan to value and net debt:EBITDA metrics have been changed to reflect the strategy update and the focus on maintaining an investment grade rating.  They key financing metrics are detailed below.

 

Key financing metrics

Proportionally consolidated, excluding Value Retail unless stated

 

 

Group debt covenants

Guideline1

30 June

 2021

31 December 2020

Net debt (£m)2

n/a

n/a

1,879

2,234

Liquidity (£m)

n/a

n/a

1,617

1,748

Weighted average interest rate (%)

n/a

n/a

3.1

3.0

Weighted average maturity of debt (years)

n/a

n/a

4.2

3.5

FX hedging (%)

n/a

70-90%

93

73

Gearing (%)3

Maximum 150%/175%

Maximum 85%

68

70

Unencumbered asset ratio4 (times)

At least 1.5 times

At least 1.75 times

1.83

1.89

Interest cover (times)

At least 1.25 times

At least 2.0 times

2.08

1.81

Loan to value - with Value Retail net asset value (%)5

n/a

Maintain Investment Grade credit rating

40

40

Loan to value- fully proportionally consolidated (%)6

n/a

Maintain Investment Grade credit rating

47

46

Net debt:EBITDA (times)7

n/a

Maintain Investment Grade credit rating

15.1

14.1

Secured borrowings/equity shareholders' funds (%)

Maximum 50%

Maximum 50%

14

13

Debt fixed (%)

n/a

At least 50%

86

97

1. Guidelines should not be exceeded for an extended period of time. 

2. See Table 18 in the Additional disclosures.

3. Covenant within the Group's unsecured bank facilities, bonds and private placement notes. See Table 23 in the Additional disclosures.

4. Covenant within the Group's unsecured bank facilities and private placement notes. See Table 24 in the Additional disclosures for supporting calculation.

5. Loan excludes Value Retail net debt and value includes Value Retail net assets. See Table 22 in the Additional disclosures for supporting calculation.

6. Includes Value Retail net debt and property values. See Table 22 in the Additional disclosures for supporting calculation.

7. EBITDA calculated on a 12 month rolling basis at 30 June 2021. See Table 20 in the Additional disclosures for supporting calculation.

Cash flow and net debt

Movement in proportionally consolidated net debt (£m)

http://www.rns-pdf.londonstockexchange.com/rns/6274H_2-2021-8-4.pdf

 

The Group completed significant refinancing during 2021 which has strengthened the capital structure.

On a proportionally consolidated basis, in the first half of 2021 net debt decreased by £355 million to £1,879 million at 30 June 2021. This comprised loans of £2,407 million and the fair value of currency swaps of £59 million, less cash and deposits of £587 million.  Disposals during the period generated £396 million net cash proceeds.  Cash generated from operations comprised adjusted operating profit of £62 million less £14 million decrease in working capital.

The Group's liquidity at 30 June 2021, comprising cash and undrawn committed facilities, was £1,617 million, £131 million lower than at the beginning of the year, or £1,452 million on a proforma basis, incorporating the refinancing completed in July as detailed below. The Group's weighted average maturity of debt increased to 4.2 years (31 December 2020: 3.5 years).

On 3 June 2021 the Group issued a new €700 million sustainability-linked bond with a 1.75% coupon and a maturity in 2027.  The bond incentivises the reduction of carbon emissions. The coupon is linked to the achievement of two Sustainability Performance Targets: 60% reduction in Scope 1 and 2 and selected Scope 3 Greenhouse gas (GHG) emissions under the Group's direct control and 50% reduction in Scope 3 GHG emissions (which relate to space operated by brands within its destinations) both against the Group's 2019 (pre-Covid) baseline. If these targets are not met, an additional margin will be payable of 37.5 basis points per annum for the last year of the bond from June 2026 to the June 2027 maturity date for each of the two targets, 75 basis points in total, payable at the final interest payment date.

Together with existing liquidity, the proceeds of the new €700 million bonds were used in June to repay €310 million of the €500 million 2.0% bond maturing in 2022 and €265 million of the €500 million 1.75% bond due to mature in 2023 and £297 million of private placement notes. On 8 July 2021, the Group repaid the remaining €190 million of the €500 million 2.0% bonds.

On 18 June 2021, Hammerson refinanced its £415 million Revolving Credit Facility (RCF) maturing in April 2022 with two new RCFs totalling £200 million at an initial margin of 115 basis points and maturing in 2024 with an option to extend to 2026 at the Group's request. The existing £415 million facility maturing in 2022 was cancelled, resulting in a net decrease of £215 million of undrawn facilities. The decrease in liquidity will result in an interest cost saving of £0.5 million per year on an annualised basis in undrawn commitment fees.

On 6 July 2021, the Group refinanced the maturing loan secured against O'Parinor, following a €2 million partial repayment. The €52.5 million loan (Group's 25% share) now matures in July 2023.

Debt maturity profile at 30 June 2021 (£m)

Proportionally consolidated, excluding Value Retail

http://www.rns-pdf.londonstockexchange.com/rns/6274H_3-2021-8-4.pdf 

 

 

1. Refinanced on 6 July 2021.

2. Repaid on 8 July 2021.

3. Current maturity in 2024, but shown as 2026 as the facility can be extended at the Group's request, subject to lender consent.

 

Leverage

At 30 June 2021, the Group's gearing was 68% (31 December 2020: 70%) and loan to value ratio including Value Retail's net asset value was 40% (31 December 2020: 40%).

At 30 June 2021, the Group's share of net debt in Value Retail totalled £690 million (31 December 2020: £689 million). Proportionally consolidating this net debt with the Group's share of net debt and including property values held by Value Retail, the Group's fully proportionally consolidated loan to value is 47% (31 December 2020: 46%).   

 

Borrowings and covenants

The terms of the Group's unsecured borrowings contain a number of covenants which provide protection to the lenders as detailed in the table on page 17 and supporting calculations are in Tables 21, 23 and 24 in Additional disclosures. At 30 June 2021, the Group's financial ratios were fully compliant with these covenants. The valuation of the Group's managed portfolio at 30 June 2021 would have to fall by 18% to breach the unencumbered asset covenant of 150% in the private placement notes or by 28% to breach the Group's tightest gearing covenant. Net rental income would need to fall by 40% in order to breach the interest cover covenant in the Group's bank facilities and private placement notes.

In response to pressures exacerbated by Covid-19, on 30 June 2020, the Group agreed an amendment to one of the covenants on its private placement notes, which increased the headroom available on the unencumbered asset ratio covenant until 31 December 2021. The amendment relaxed this covenant to 125% for the 30 June 2020 test period and the next two test periods (December 2020 and June 2021) and 140% at a new test date of 31 October 2021. The amendment period expires on 31 December 2021 unless terminated early by the Company.

A further amendment agreed was that the Group would make an offer of prepayment at par (i.e. not including a make-whole amount) for 30% of any applicable proceeds from disposals or capital raisings in excess of £50 million. Following completion in the first half of the year of the disposal of the retail parks portfolio and our stakes in Brent South Shopping Park, Nicetoile and Espace Saint-Quentin, we prepaid at par a total of £297 million, comprising £65 million relating to an offer in accordance with this condition, a further £119 million following an additional voluntary offer and £113 million relating to the repayment of notes which matured in June 2021. Combined, these repayments will save approximately £7 million of interest cost on an annualised basis.

The covenants for secured debt facilities are generally tested quarterly and include specific covenants in relation to the secured assets, typically loan to value and interest cover. Where deemed necessary to address the adverse financial effect of Covid-19 due to lower collection rates or property valuations, short term covenant waivers or amendments have been obtained in relation to a number of these debt facilities to avoid covenant breach. At 30 June 2021, secured borrowings totalling £395 million (Group's share) in three of the Group's joint ventures benefited from short-term covenant waivers which expire at various dates over the period to February 2022, therefore these were in compliance with their borrowing conditions.

Credit ratings

Following the publication of the Group's 2020 results in the second quarter of the year, Moody's and Fitch re-affirmed Hammerson's senior unsecured investment grade credit rating as BBB+ and Baa3 respectively.

Managing foreign exchange exposure

The Group's exposure to foreign exchange translation differences on euro-denominated assets is managed through a combination of euro borrowings and derivatives. Following the conclusion of Brexit negotiations in December 2020, the Group increased the foreign exchange hedge position from a target of c.70% to c.90% in January 2021. At 30 June 2021, the value of euro-denominated liabilities as a proportion of the value of euro-denominated assets was 93%, compared with 73% at the beginning of the year.

Interest on euro debt also acts as a partial hedge against exchange differences arising on net income from overseas operations. Sterling strengthened against the euro during the first half of the year by 4% from £1:€1.117 to £:€1.165 which resulted in a small reduction to net debt and positive impact to the Group's credit ratios but also a small decrease to net asset value and earnings.

 

PRINCIPAL RISKS AND UNCERTAINTIES

Multiple risks affect our business and are often interrelated, so effective risk management is key to support the delivery of our strategy. The Board is responsible for determining the Group's risk appetite which reflects its combined attitude to market, financial, operational and reputational risks. While the responsibility for risk management ultimately rests with the Board, effective risk management can only occur if it is integrated throughout the business and embedded within the Group's culture and values. Details of the Group's risk management approach are explained on pages 35 to 36 of the 2020 Annual Report which is available on the Group's website www.hammerson.com. The Group's 10 principal risks are set out in detail on pages 37 to 41 of the 2020 Annual Report and this includes commentary on both the near-term and medium term change for each of the risks.   At the date of the Annual Report, 11 March 2021, five of these risks were deemed to exceed the Group's risk appetite being:

·    External risks:

Ø Macro-economic

Ø Retail market

Ø Property investment

Ø Catastrophic risk

·    Operational risks:

Ø Treasury

The adverse impact and challenges caused by the Covid-19 pandemic on the Group were a key factor when determining this heightened risk assessment. During the first half of 2021, the successful roll-out of government vaccination programmes in the countries in which the Group operates has allowed the trading restrictions in place at the time of the publication of the Annual Report to be lifted such that all the Group's assets have fully reopened. This has resulted in both the retail and property investment markets seeing increased levels of activity with year-on-year Group flagship leasing 123% higher in the first half of 2021. The Group also raised £396 million from disposals.  However, property valuations remain challenged for retail property, with the Group reporting a -6.4% capital return for the Group property portfolio including Value Retail in the first six months of the year.

These changes in 2021 have meant that residual risk assessment associated with the Group's four external principal risks shown above have improved in the first half of the year, albeit with Retail market, Property investment and Catastrophic risks continuing to exceed the Group's risk appetite. This is consistent with the outlook explained in the Annual Report and reflects the ongoing risks associated with the pandemic, particularly the emergence of future variants.

As explained on page 18 of the Financial Review, the Group's has completed significant refinancing during the first half of the year with the key transaction being the issuance of a €700 million 1.75% sustainability-linked bond maturing in 2027.  The refinancing activity, in conjunction with the monies raised from disposals, has strengthened the Group's balance sheet. Hence, the Treasury principal risk has materially improved in 2021 such that it no longer exceeds the Director's risk appetite and this assessment is expected to be retained for the second half of the year.

The Group's five other principal risks are summarised below:

·    External risks:

Ø Tax and regulation

Ø Climate

·    Operational risks:

Ø Property development

Ø People

Ø Partnerships

The Directors consider the latest risk assessment and outlook for these five risks in the second half of the year to be consistent with that presented in the 2020 Annual Report.

 

 

Independent review report to Hammerson plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed Hammerson plc's condensed consolidated interim financial statements (the "interim financial statements") in the Half-year Report of Hammerson plc for the 6 month period ended 30 June 2021 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting', International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union, the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority, and the Transparency (Directive 2004/109/ EC) Regulations 2007.

Emphasis of matter - Going concern

In forming our conclusion on the interim financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 1D to the interim financial statements concerning the Group's ability to continue as a going concern. Prior to considering the impact of secured debt, under both a base case and severe but plausible adverse scenario the Group is forecast to have sufficient liquidity and to be able to comply with the covenants within its unsecured borrowings during the period to 31 December 2022.

However the Group's associate, Value Retail, has three tranches of secured debt totalling £1,098 million due for refinancing within the period to 31 December 2022. While the Group has sufficient liquidity to fully repay the December 2021 and June 2022 tranches, it does not currently have sufficient liquidity to fully repay the December 2022 tranche of £750 million. While the Group is not legally obliged to inject further capital into Value Retail, if the £750 million loan maturing in December 2022 were not to be refinanced or repaid, and the lenders enforced their security over the property, the Group would breach its unsecured borrowing gearing covenant in the Severe but plausible adverse scenario at 31 December 2022. The mitigating actions available to the Group, namely refinancing of the secured debt and other asset disposals, are not confirmed as at this time nor are they within the Group's control. These conditions, along with the other matters explained in note 1D to the interim financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The interim financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

What we have reviewed

The interim financial statements comprise:

·    the Consolidated Balance Sheet as at 30 June 2021;

·    the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;

·    the Consolidated Cash Flow Statement for the period then ended;

·    the Consolidated Statement of Changes in Equity for the period then ended; and

·    the explanatory notes to the interim financial statements.

The interim financial statements included in the Half-year Report of Hammerson plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting', International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union, the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority, and the Transparency (Directive 2004/109/ EC) Regulations 2007.

 

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The Half-year Report, including the interim financial statements, is the responsibility of, and has been approved by the Directors. The Directors are responsible for preparing the Half-year Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and in accordance with the Transparency (Directive 2004/109/ EC) Regulations 2007.

Our responsibility is to express a conclusion on the interim financial statements in the Half-year Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and in accordance with the Transparency (Directive 2004/109/ EC) Regulations 2007 and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half-year Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

5 August 2021

 

statement OF DIRECTORS' RESPONSIBILITIES

The Directors' confirm that this condensed set of financial statements included in the Half-year Report have been prepared in accordance with UK adopted International Accounting Standard 34 ('IAS 34'), IAS 34 as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007 and that the Interim Management Report includes a fair review of the information required by the Disclosure Guidance and Transparency Rules ('DTR') 4.2.7R and DTR 4.2.8R, namely:

The interim financial statements comprise:

·    An indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·    Material related-party transactions that have taken place in the first six months of the financial year and any material changes in the related-party transactions described in the Company's last Annual Report.

 

A list of the current Directors is maintained on the Hammerson plc website: www.hammerson.com. The maintenance and integrity of the Hammerson plc website is the responsibility of the Directors. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that might have occurred to the interim financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

Signed on behalf of the Board on 5 August 2021

 

 

 

 

 

Rita-Rose Gagné

Himanshu Raja

Director

Director

 

 

Consolidated income statement

 

Notes

 Six months

ended

30 June

2021

Unaudited

£m

 

 

Six months

ended

30 June

20201

Unaudited

£m

 

 

Year ended

31 December

20201

Audited

£m

 

 

 

 

 

 

 

Revenue

4

65.3

 

74.8

 

145.8

Operating profit before other net losses and share of results of joint ventures and associates2,3

2

1.6

 

8.6

 

13.5

 

 

 

 

 

 

 

Loss on sale of properties

2

(5.1)

 

(0.7)

 

(3.5)

Loss on sale of joint venture and associate

2

(1.1)

 

-

 

-

Net exchange gain/(loss) previously recognised in equity, recycled on disposal of foreign operations

2

11.0

 

(0.1)

 

5.2

Revaluation losses on properties

2

(140.2)

 

(274.6)

 

(442.7)

Impairment recognised on reclassification to assets held for sale

2

-

 

(101.6)

 

-

Impairment relating to assets held for sale: VIA Outlets

1B

-

 

-

 

(103.8)

Other losses

2

(0.2)

 

-

 

(0.4)

Other net losses

2

(135.6)

 

(377.0)

 

(545.2)

 

 

 

 

 

 

 

Share of results of joint ventures

11A

(160.6)

 

(499.5)

 

(880.2)

Impairment of investment in joint ventures

 

-

 

(9.6)

 

(9.6)

Share of results of associates

12A

(5.6)

 

(127.7)

 

(148.3)

Impairment of investment in associates

 

-

 

(94.3)

 

(94.3)

Operating loss

2

(300.2)

 

(1,099.5)

 

(1,664.1)

 

 

 

 

 

 

 

Finance costs

 

(57.9)

 

(49.1)

 

(95.5)

Change in fair value of derivatives

 

(2.2)

 

6.5

 

13.7

Finance income

 

6.3

 

6.3

 

9.6

Net finance costs

5

(53.8)

 

(36.3)

 

(72.2)

Loss before tax

 

(354.0)

 

(1,135.8)

 

(1,736.3)

 

 

 

 

 

 

 

Tax charge

6

(0.8)

 

(0.6)

 

(0.5)

 

 

 

 

 

 

 

Loss from continuing operations

 

(354.8)

 

(1,136.4)

 

(1,736.8)

(Loss)/Profit from discontinued operations

7

(20.7)

 

48.0

 

1.9

Loss for the period

 

(375.5)

 

(1,088.4)

 

(1,734.9)

Attributable to:

 

 

 

 

 

 

Equity shareholders

 

(375.5)

 

(1,088.4)

 

(1,734.8)

Non-controlling interests

 

-

 

-

 

(0.1)

Loss for the period

 

(375.5)

 

(1,088.4)

 

(1,734.9)

 

 

 

 

 

 

 

Basic and diluted (loss)/earnings per share

 

 

 

 

 

 

Continuing operations

9B

(8.7)p

 

(67.8)p

 

(77.0)p

Discontinued operations

9B

(0.5)p

 

2.9p

 

0.1p

Total

 

(9.2)p

 

(64.9)p

 

(76.9)p

1.  The results reported for the year ended 31 December 2020 and the six months ended 30 June 2020 have been reclassified to represent discontinued operations in line with the requirements of IFRS 5 'Non-current assets held for sale and discontinued operations'. Refer to note 7 for further details.

2. Included within 'Operating profit before other net losses and share of results of joint ventures and associates' is a provision charge against trade receivables totalling £3.4 million (31 December 2020: £18.9 million; 30 June 2020: £10.5 million), comprising £4.7 million (31 December 2020: £16.4 million; 30 June 2020: £9.3 million) in relation to income recognised in the period (included in other property outgoings in note 2) and a reversal of provision of £1.3 million (31 December 2020: charge of £2.5 million; 30 June 2020: charge of £1.2 million) relating to amounts not yet recognised in the consolidated income statement (separately identified in note 2).  

3.  Included within 'Operating profit before other net losses and share of results of joint ventures and associates' is a £0.6 million provision for impairment of lease incentives (year ended 31 December 2020: £6.2 million, six months ended 30 June 2020: £2.6 million).

 

Consolidated statement of COMPREHENSIVE income

 

 

 Six months

ended

30 June

2021

Unaudited

£m

 

Six months

ended

30 June

2020

Unaudited

£m

 

Year ended

31 December

2020

Audited

£m

Items recycled through the consolidated income statement on disposal of foreign operations

 

 

 

 

 

Exchange (gain)/loss previously recognised in the translation reserve

(55.2)

 

0.7

 

(26.0)

Exchange loss/(gain) previously recognised in the net investment hedge reserve

44.2

 

(0.6)

 

20.8

Net exchange (gain)/loss relating to equity shareholders1

(11.0)

 

0.1

 

(5.2)

 

 

 

 

 

 

Items that may subsequently be recycled through the consolidated income statement

 

 

 

 

 

Foreign exchange translation differences

(91.9)

 

210.1

 

171.1

Gain/(Loss) on net investment hedge

72.8

 

(127.9)

 

(109.2)

Net (loss)/gain on cash flow hedge

(1.9)

 

10.4

 

4.8

Share of other comprehensive gain/(loss) of associates

0.3

 

-

 

(1.0)

 

(20.7)

 

92.6

 

65.7

Items that may not subsequently be recycled through the consolidated income statement

 

 

 

 

 

Net actuarial gains/(losses) on pension schemes

11.6

 

(15.3)

 

(12.8)

Total other comprehensive (loss)/income2

(20.1)

 

77.4

 

47.7

 

 

 

 

 

 

Loss for the period from continuing operations

(354.8)

 

(1,136.4)

 

(1,736.8)

(Loss)/Profit for the period from discontinued operations

(20.7)

 

48.0

 

1.9

Loss for the period

(375.5)

 

(1,088.4)

 

(1,734.9)

Total comprehensive loss for the period

(395.6)

 

(1,011.0)

 

(1,687.2)

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

Equity shareholders

(395.6)

 

(1,011.0)

 

(1,687.1)

Non-controlling interests

-

 

-

 

(0.1)

Total comprehensive loss for the period

(395.6)

 

(1,011.0)

 

(1,687.2)

1. Relates to the sale of the Group's 25% interest in Espace Saint-Quentin and 10% interest in Nicetoile in 2021, and the sale of substantially all of the Group's investment in VIA Outlets in 2020.

2. All items within total other comprehensive (loss)/income relate to continuing operations.

 

Consolidated balance sheet

 

Notes

30 June

2021

Unaudited

£m

 

30 June

2020

Unaudited

£m

 

31 December

2020

Audited

£m

Non-current assets

 

 

 

 

 

 

Investment and development properties

10

1,610.5

 

2,354.4

 

2,152.8

Interests in leasehold properties

 

33.9

 

39.4

 

38.6

Right-of-use assets

 

4.8

 

8.5

 

6.7

Plant and equipment

 

1.9

 

2.8

 

2.3

Investment in joint ventures

11C

1,580.8

 

2,222.5

 

1,813.6

Investment in associates

12C

1,240.7

 

1,330.5

 

1,298.4

Other investments

7D

9.5

 

-

 

9.7

Derivative financial instruments

13B

24.7

 

20.5

 

6.6

Restricted monetary assets

 

21.4

 

-

 

21.4

Receivables

 

2.8

 

3.6

 

3.4

 

 

4,531.0

 

5,982.2

 

5,353.5

Current assets

 

 

 

 

 

 

Receivables

 

103.8

 

131.9

 

105.9

Trading properties

10

29.4

 

-

 

-

Derivative financial instruments

13B

0.8

 

23.0

 

9.1

Restricted monetary assets

 

21.5

 

25.6

 

28.3

Cash and deposits

 

475.1

 

417.6

 

409.5

 

 

630.6

 

598.1

 

552.8

Assets held for sale

 

-

 

269.1

 

-

 

 

630.6

 

867.2

 

552.8

Total assets

 

5,161.6

 

6,849.4

 

5,906.3

Current liabilities

 

 

 

 

 

 

Loans

13A

-

 

(153.9)

 

(115.0)

Payables

 

(169.1)

 

(198.4)

 

(205.0)

Tax

 

(1.1)

 

(0.8)

 

(1.3)

Derivative financial instruments

13B

-

 

(2.4)

 

(2.3)

 

 

(170.2)

 

(355.5)

 

(323.6)

Non-current liabilities

 

 

 

 

 

 

Loans

13A

(2,013.2)

 

(2,892.0)

 

(2,143.7)

Deferred tax

 

(0.4)

 

(0.4)

 

(0.4)

Derivative financial instruments

13B

(65.9)

 

(73.1)

 

(84.7)

Obligations under head leases

 

(37.3)

 

(42.4)

 

(41.8)

Payables

 

(72.1)

 

(118.3)

 

(103.2)

 

 

(2,188.9)

 

(3,126.2)

 

(2,373.8)

Total liabilities

 

(2,359.1)

 

(3,481.7)

 

(2,697.4)

Net assets

 

2,802.5

 

3,367.7

 

3,208.9

Equity

 

 

 

 

 

 

Share capital

 

210.2

 

191.6

 

202.9

Share premium

 

1,604.3

 

1,266.0

 

1,611.9

Translation reserve

 

518.9

 

731.7

 

666.0

Net investment hedge reserve

 

(402.2)

 

(559.3)

 

(519.2)

Cash flow hedge reserve

 

1.5

 

9.0

 

3.4

Merger reserve

 

374.1

 

374.1

 

374.1

Other reserves

 

206.2

 

22.7

 

207.1

Retained earnings

 

289.8

 

1,332.0

 

663.0

Investment in own shares

 

(0.4)

 

(0.3)

 

(0.4)

Equity shareholders' funds

 

2,802.4

 

3,367.5

 

3,208.8

Non-controlling interests

 

0.1

 

0.2

 

0.1

Total equity

 

2,802.5

 

3,367.7

 

3,208.9

EPRA net tangible assets value per share (pence)*

9D

69 

 

92

 

82

*Restated as a result of the rights issue in 2020. See note 9D for more information.

 

The Half-year Report was approved by the Board on 5 August 2021.

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2021

 

 

 

 

 

 

Net

Cash

 

 

 

 

 

 

 

 

 

 

 

investment

flow

 

 

 

Investment

Equity

Non-

 

 

Share

Share

Translation

hedge

hedge

 Merger

Other

Retained

in own

shareholders'

controlling

Total

 

capital

premium

reserve

reserve

reserve

reserve

reserves1

earnings

shares2

funds

interests

equity

Unaudited

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at
1 January 2021

202.9

1,611.9

666.0

(519.2)

3.4

374.1

207.1

663.0

(0.4)

3,208.8

0.1

3,208.9

Share-based employee remuneration

-

-

-

-

-

-

1.6

-

-

1.6

-

1.6 

Cost of shares awarded to employees

-

-

-

-

-

-

(0.4)

-

0.4

-

-

-

Transfer on award of own shares to employees

-

-

-

-

-

-

(2.1)

2.1

-

-

-

-

Purchase of own shares

-

-

-

-

-

-

-

-

(0.4)

(0.4)

-

(0.4)

Dividends (note 8)

-

-

-

-

-

-

-

(62.7)

-

(62.7)

-

(62.7)

Scrip dividend related share issue (note 8)

7.3

(7.3)

-

-

-

-

-

51.0

-

51.0

-

51.0

Scrip dividend related share issue costs

-

(0.3)

-

-

-

-

-

-

-

(0.3)

-

(0.3)

Exchange (gain)/loss previously recognised in equity recycled on disposal of foreign operations

-

-

(55.2)

44.2

-

-

-

-

-

(11.0)

-

(11.0)

Foreign exchange translation differences

-

-

(91.9)

-

-

-

-

-

-

(91.9)

-

(91.9)

Gain on net investment hedge

-

-

-

72.8

-

-

-

-

-

72.8

-

72.8

Loss on cash flow hedge

-

-

-

-

(3.8)

-

-

-

-

(3.8)

-

(3.8)

Loss on cash flow hedge recycled to net finance costs

-

-

-

-

1.9

-

-

-

-

1.9

-

1.9

Share of other comprehensive gain of associates (note 12E)

-

-

-

-

-

-

-

0.3

-

0.3

-

0.3

Net actuarial gains on pension schemes

-

-

-

-

-

-

-

11.6

-

11.6

-

11.6

Loss for the period3

-

-

-

-

-

-

-

(375.5)

-

(375.5)

-

(375.5)

Total comprehensive (loss)/income for the period

-

-

(147.1)

117.0

(1.9)

-

-

(363.6)

-

(395.6)

-

(395.6)

Balance at
30 June 2021

210.2

1,604.3

518.9

(402.2)

1.5

374.1

206.2

289.8

(0.4)

2,802.4

0.1

2,802.5

1.   Other reserves at 30 June 2021 comprise a capital redemption reserve of £198.2 million and share-based employee remuneration reserves of £8.0 million. Capital redemption reserves comprise £14.3 million relating to share buybacks and £183.9 million resulting from the cancellation of the Company's shares as part of the reorganisation of share capital in 2020.

2.  Investment in own shares is stated at cost.

3.  Relates to continuing and discontinued operations.

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2020

 

 

 

 

 

 

Net

Cash

 

 

 

 

 

 

 

 

 

 

 

investment

flow

 

 

 

Investment

Equity

Non-

 

 

Share

Share

Translation

hedge

hedge

 Merger

Other

Retained

 in own

shareholders'

controlling

Total

 

capital

premium

reserve

reserve

reserve

reserve

reserves1

earnings

shares2

funds

interests

equity

Unaudited

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at
1 January 2020

191.6

1,266.0

520.9

(430.8)

(1.4)

374.1

25.6

2,433.2

(2.2)

4,377.0

0.2

4,377.2

Share-based employee remuneration

-

-

-

-

-

-

1.4

-

-

1.4

-

1.4 

Cost of shares awarded to employees

-

-

-

-

-

-

(1.9)

-

1.9

-

-

-

Transfer on award of own shares to employees

-

-

-

-

-

-

(2.4)

2.4

-

-

-

-

Proceeds on award of own shares to employees

-

-

-

-

-

-

-

0.1

-

0.1

-

0.1

Exchange loss/(gain) previously recognised in equity recycled on disposal of foreign operations

-

-

0.7

(0.6)

-

-

-

-

-

0.1

-

0.1

Foreign exchange translation differences

-

-

210.1

-

-

-

-

-

-

210.1

-

210.1

Loss on net investment hedge

-

-

-

(127.9)

-

-

-

-

-

(127.9)

-

(127.9)

Gain on cash flow hedge

-

-

-

-

38.5

-

-

-

-

38.5

-

38.5

Gain on cash flow hedge recycled to net finance costs

-

-

-

-

(28.1)

-

-

-

-

(28.1)

-

(28.1)

Net actuarial losses on pension schemes

-

-

-

-

-

-

-

(15.3)

-

(15.3)

-

(15.3)

Loss for the period3

-

-

-

-

-

-

-

(1,088.4)

-

(1,088.4)

-

(1,088.4)

Total comprehensive income/(loss) for the period

-

-

210.8

(128.5)

10.4

-

-

(1,103.7)

-

(1,011.0)

-

(1,011.0)

Balance at
30 June 2020

191.6

1,266.0

731.7

(559.3)

9.0

374.1

22.7

1,332.0

(0.3)

3,367.5

0.2

3,367.7

1.   Other reserves at 30 June 2020 comprise a capital redemption reserve of £14.3 million relating to share buybacks and £8.4 million relating to share-based employee remuneration.

2.  Investment in own shares is stated at cost.

3.  Relates to continuing and discontinued operations.

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUIty

Year ended 31 December 2020

 

 

 

 

 

Net

Cash

 

 

 

 

 

 

 

 

 

 

 

investment

flow

 

 

 

Investment

Equity

Non-

 

 

Share

Share

Translation

hedge

hedge

Merger

Other

Retained

in own

shareholders'

controlling

Total

 

capital

premium

reserve

reserve

reserve

reserve

reserves3

earnings

Shares4

funds

interests

equity

Audited

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at
1 January 2020

191.6

1,266.0

520.9

(430.8)

(1.4)

374.1

25.6

2,433.2

(2.2)

4,377.0

0.2

4,377.2

Capital reorganisation1

(183.9)

-

-

-

-

-

183.9

-

-

-

-

-

Rights issue1

183.9

372.7

-

-

-

-

-

-

-

556.6

-

556.6

Rights issue expenses2

-

(26.8)

-

-

-

-

-

-

-

(26.8)

-

(26.8)

Share-based employee remuneration

-

-

-

-

-

-

2.2

-

-

2.2

-

2.2

Cost of shares awarded to employees

-

-

-

-

-

-

(2.0)

-

2.0

-

-

-

Transfer on award of own shares to employees

-

-

-

-

-

-

(2.6)

2.6

-

-

-

-

Proceeds on award of own shares to employees

-

-

-

-

-

-

-

 0.2

-

 0.2

-

0.2

Purchase of own shares

-

-

-

-

-

-

-

-

(0.2)

(0.2)

-

(0.2)

Dividends (note 8)

-

-

-

-

-

-

-

(71.5)

-

(71.5)

-

(71.5)

Scrip dividend related share issue (note 8)

11.3

-

-

-

-

-

-

47.1

-

58.4

-

58.4

Exchange (gain)/loss previously recognised in equity recycled on disposal of foreign operations

-

-

(26.0)

20.8

-

-

-

-

-

(5.2)

-

(5.2)

Foreign exchange translation differences

-

-

171.1

-

-

-

-

-

-

171.1

-

171.1

Loss on net investment hedge

-

-

-

(109.2)

-

-

-

-

-

(109.2)

-

(109.2)

Loss on cash flow hedge

-

-

-

-

(3.4)

-

-

-

-

(3.4)

-

(3.4)

Loss on cash flow hedge recycled to net finance costs

-

-

-

-

8.2

-

-

-

-

8.2

-

8.2

Share of other comprehensive loss of associates (note 12E)

-

-

-

-

-

-

-

(1.0)

-

(1.0)

-

(1.0)

Net actuarial losses on pension schemes

-

-

-

-

-

-

-

(12.8)

-

(12.8)

-

(12.8)

Loss for the year5

-

-

-

-

-

-

-

(1,734.8)

-

(1,734.8)

(0.1)

(1,734.9)

Total comprehensive income/(loss) for the year

-

-

145.1

(88.4)

4.8

-

-

(1,748.6)

-

(1,687.1)

(0.1)

(1,687.2)

Balance at
31 December 2020

202.9

1,611.9

666.0

(519.2)

3.4

374.1

207.1

663.0

(0.4)

3,208.8

0.1

3,208.9

1.   During 2020, the Company completed a capital reorganisation and rights issue.

2.  Only costs directly related to the rights issue have been recognised in the share premium account. A further £0.3 million of indirect costs were recognised in the consolidated income statement in 2020.

3.  Other reserves at 31 December 2020 comprise a capital redemption reserve of £198.2 million and share based employee remuneration reserve of £8.9 million. Capital redemption reserves comprise £14.3 million relating to share buybacks and £183.9 million resulting from the cancellation of the Company's shares as part of the reorganisation of share capital in 2020.

4.  Investment in own shares is stated at cost.

5.  Relates to continuing and discontinued operations.

 

Consolidated cash flow statement

 

Notes

 Six months

ended

30 June

2021

Unaudited

£m

Six months

ended

30 June

2020

Unaudited

£m

Year ended

31 December

2020

Audited

£m

Operating activities

 

 

 

 

Operating profit before other net losses and share of results of joint ventures and associates

 

 

 

 

- continuing operations

2

1.6

8.6

13.5

- discontinued operations

7B

11.8

9.6

17.7

 

 

13.4

18.2

31.2

Decrease/(Increase) in receivables

 

8.8

(48.8)

(44.9)

Decrease/(Increase) in restricted monetary assets

 

5.6

(1.1)

(25.2)

(Decrease)/Increase in payables1

 

(12.0)

3.5

(17.5)

Adjustment for non-cash items2

 

0.6

24.0

41.4

Cash generated/(utilised) from operations

 

16.4

(4.2)

(15.0)

Interest received

 

7.4

9.4

19.6

Interest paid

 

(71.8)

(58.2)

(101.8)

Bond redemption premium

 

(13.9)

-

-

Purchase of interest rate swap

 

(20.8)

-

-

Tax paid

 

(0.6)

(0.6)

(0.8)

Distributions and other receivables from joint ventures

 

8.3

10.7

15.6

Cash flows from operating activities

 

(75.0)

(42.9)

(82.4)

 

 

 

 

 

Investing activities

 

 

 

 

Property acquisitions

 

-

-

 (0.2)

Developments and major refurbishments

 

(27.2)

(17.7)

 (49.6)

Other capital expenditure

 

(13.9)

(11.9)

(18.5)

Sale of properties

 

326.8

54.0

56.4

Sale of investments in joint ventures

 

48.4 

-

272.0

Sale of investments in associates

 

21.2 

-

-

Advances to joint ventures

 

(4.7)

(9.5)

(13.1)

Distributions received from associates

 

1.2

6.0

6.1

Cash flows from investing activities

 

351.8

20.9

253.1

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds from rights issue

 

-

-

556.6

Rights issue expenses

 

(2.2)

-

(24.9)

Proceeds from award of own shares

 

-

0.1

0.2

Purchase of own shares

 

(0.4)

-

(0.2)

Proceeds from new borrowings

 

593.5

436.0

75.0

Repayment of borrowings

 

(787.5)

(16.0)

(385.8)

Net (decrease)/increase in borrowings

 

(194.0)

420.0

(310.8)

Equity dividends paid

8

(13.2)

(12.2)

(13.4)

Cash flows from financing activities

 

(209.8)

407.9

207.5

 

 

 

 

 

Net increase in cash and deposits

 

67.0

385.9

378.2

Opening cash and deposits

 

409.5

29.8

29.8

Exchange translation movement

 

(1.4)

1.9

1.5

Closing cash and deposits3

 

475.1

417.6

409.5

1. £8.1 million, (year ended 31 December 2020: £24.4 million, six months ended 30 June 2020: £4.5 million) of the decrease in payables related to employer contributions and net benefits paid relating to the pension scheme.

2. The adjustment for non-cash items includes £1.7 million due to increased provisioning against trade receivables and impairment provisions recognised against capitalised lease incentives (year ended 31 December 2020: £34.7 million, six months ended 30 June 2020: £18.1 million)

3. An analysis of the movement in net debt is provided in note 15 on page 60.

 

Notes to the INTERIM FINANCIAL STATEMENTS

 

1. FINANCIAL INFORMATION

 

A. BASIS OF PREPARATION

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. Hammerson plc transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.

 

This condensed consolidated interim financial report for the half-year reporting period ended 30 June 2021 has been prepared in accordance with the International Accounting Standards 34, 'Interim Financial Reporting' as issued by the EU, as adopted by the European Union, UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority as well as SAICA Financial Reporting Guides as issued by the Accounting Practices Committee.


The interim report does not include all of the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2020, which has been prepared in accordance with both International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, (IFRS as adopted by the European Union as at 31 December 2020), as well as the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and any public announcements made by Hammerson plc during the interim reporting period.

 

The same accounting policies and methods of computation are followed in the condensed set of financial statements as were applied in Hammerson's latest annual audited financial statements, with the exception of new accounting policies required for trading properties and exceptional costs as detailed below:

 

Trading properties

Investment properties held for future sale are transferred to trading properties at the fair value at the date of transfer and subsequently measured at the lower of cost and net realisable value.

 

Exceptional costs

Items are classified as exceptional by virtue of their size, nature or incidence, where their inclusion would otherwise distort the underlying recurring earnings of the Group. Examples include, but are not limited to, business transformation costs, early redemption costs of financial instruments and tax charges specific to disposals. Exceptional costs which have been excluded from the Group's adjusted earnings in relation to administration expenses, finance costs and taxation have been separately identified within the "capital and other" column within note 2 to the financial statements.

 

B. SIGNIFICANT JUDGEMENTS

The preparation of the financial statements requires the Directors to exercise judgement in applying the Group's accounting policies.  Detailed below are the areas where significant judgements were made, requiring assumptions about future events.

Accounting for assets held for sale and discontinued operations - retail parks

Year ended 31 December 2020

For properties identified for disposal at the balance sheet date, the Directors must assess whether the property should be classified as 'held for sale' and excluded from investment and development properties. This judgement is based on criteria outlined in IFRS 5 which states that: assets should be available for sale in their present condition; management must be committed to a plan to sell; an active programme must be in place to locate a buyer; they must be being actively marketed at a reasonable price; significant changes to the plan are unlikely and that completion of the sale is expected within a year.

 

Prior to 31 December 2019, the retail parks portfolio had not been reclassified to 'held for sale' as, despite the strategic intention to sell, the properties were not being actively marketed and it was not sufficiently certain that completion would be reached within the prescribed 12-month period.

 

At 31 December 2019, management completed an assessment on whether the retail parks portfolio should be classified as 'held for sale' and concluded that the retail parks did meet the IFRS 5 criteria for 'held for sale' at the balance sheet date as a portfolio of retail parks was being actively marketed at a reasonable price with an expectation of transacting within a year. Consequently, all assets and liabilities associated with the retail parks were reclassified to assets held for sale at 31 December 2019. On transfer to 'assets held for sale', the retail parks property portfolio was re-measured at the lower of the carrying amount and fair value less costs to sell, in accordance with IFRS 5, resulting in a £92 million impairment loss being recognised in 2019, predominantly a reflection of the portfolio discount. Contracts were subsequently exchanged for the disposal of a portfolio of seven properties to Orion European Real Estate Fund V ("Orion") in February 2020.

 

In April 2020, Orion notified the Group that it no longer intended to complete on the portfolio sale, despite unconditional contracts having been exchanged. Hammerson subsequently terminated the SPA in May 2020, retaining the £21 million non-refundable deposit held by solicitors on exchange, which was recognised within "profit/(loss) on sale of properties" in 2020 as detailed in note 2.

 

Consequently, in May 2020, the Directors concluded that whilst the Group remained committed to the plan to dispose of the retail parks portfolio, this no longer met the criteria of 'held for sale' as defined by IFRS 5 as the properties were not being actively marketed and, given the significant downturn in investment markets, it was not anticipated that completion would be reached within the prescribed 12-month period. Therefore, the UK retail parks portfolio was reclassified from assets held for sale in May 2020, and £22 million of the aforementioned £92 million impairment was reversed, reflecting the reversal of the portfolio discount applied at 31 December 2019, resulting in a net revaluation deficit from the formal valuation at 31 December 2019 of £70 million.

 

Six months ended 30 June 2021

On 5 February 2021, the Group sold its 41% interest in Brent South Shopping Park for gross proceeds of £22 million. On 19 May 2021, the Group completed the sale of a further seven retail parks for gross proceeds of £330 million. As this formed substantially all of an identifiable segment of the business, the results from 'UK retail parks' for the current and comparative periods have been disclosed separately from the rest of the business as discontinued operations. Refer to note 7 for details. At 31 December 2020, these properties did not meet the criteria for reclassification to assets held for sale as discussions had not commenced, they were not being actively marketed, and completion within 12 months of the balance sheet date was not highly probable. Consequently, these properties were neither reclassified to assets held for sale nor separately identified as discontinued operations.

 

Residual properties previously included within the UK retail parks portfolio have been reclassified to the "UK other" segment of the business at their value of £5.9 million as at 30 June 2021 and do not form part of discontinued operations.  The residual properties formed a very small proportion of the total UK retail parks segment and consequently their retention does not impact the conclusion reached regarding the aforementioned disposals constituting substantially all of the business segment.

 

Accounting for assets held for sale - investment in VIA Outlets

 

Year ended 31 December 2020

In June 2020, the Group entered into negotiations for the sale of substantially all of its investment in VIA Outlets (VIA), subject to retention of a 7.3% stake in VIA Outlets Zweibrücken B.V.. At 30 June 2020, management completed their assessment and concluded that the proportion of investment in VIA identified for disposal met the IFRS 5 criteria for 'held for sale' at 30 June 2020 as the investment was being actively marketed at a reasonable price with an expectation of transacting within a year. This was further evidenced by the exchange of contracts for the sale of the investment on 6 August 2020. Consequently, the proportion of the investment in joint venture to be sold was reclassified to assets held for sale at 30 June 2020 at its carrying value of £376 million and re-measured at the lower of the carrying amount and fair value less costs of disposal, in accordance with IFRS 5. The fair value was based upon the transaction price, which is in turn linked to the net asset value of VIA, and resulted in a £104 million impairment loss being recognised in the year ended 31 December 2020. No further impairment loss was recognised in the second half of 2020.

 

Following reclassification to assets held for sale, equity accounting ceased and consequently, the Group's share of results from VIA Outlets from 1 July 2020 to 31 October 2020 were included within the movement in impairment, as these drove the underlying net asset value of the investment and therefore the transaction price and fair value.

 

The residual investment in VIA Outlets Zweibrücken B.V., which is to be retained for the foreseeable future, was reclassified from investments in joint ventures to other investments when the sale of the majority stake in VIA completed on 31 October 2020, as the Group no longer exercised joint control or significant influence over the investment. The transfer to other investments was recognised at its fair value on 31 October 2020 of £9.8 million, based on the Group's retained 7.3% share of the underlying net assets of VIA Outlets Zweibrücken B.V., and subsequent changes in fair value have been recognised through the profit and loss account, resulting in a £0.2 million reduction in fair value of other investments being recognised in 2021 (31 December 2020: £0.1 million reduction) as detailed in note 2.

 

C. SIGNIFICANT ESTIMATES

Property valuations

The valuation of the Group's properties, which are carried in the balance sheet at fair value, totalling £5.5 billion, on a proportionally consolidated basis, including Value Retail, is the most material area of estimation due to its inherent subjectivity, reliance on assumptions and sensitivity to market fluctuations. The outbreak of Covid-19 in March 2020 has impacted many aspects of the global economy, with some real estate markets, particularly the retail sector, having experienced lower levels of transaction activity and liquidity. During the six months ended 30 June 2021, lockdowns and travel restrictions have continued to be implemented by most countries to varying degrees resulting in restrictions to trading hours and capacity impacting footfall, with full or partial closures during periods of lockdown. However, at 30 June 2021, property markets are mostly functioning again, with transaction volumes and other relevant evidence at levels where an adequate quantum of market evidence exists upon which to base estimates.

Key areas of judgement highlighted in the valuation reports included estimation of market rents based on limited data points, the consideration of appropriate levels of void costs and rent-free periods, the impact of non-payment of rent as a consequence of Covid-19 and the basis of yield assumptions given the lack of relevant transactions of scale. However, the key unobservable inputs into valuation as defined by IFRS13 continue to be yields (nominal equivalent yield) and market rental income.

 

At 30 June 2021, the material valuation uncertainty clause has been removed from all of the Group's valuations including Ireland, where it was still in place at 31 December 2020.  This has been replaced with a market conditions explanatory note, in accordance with RICS guidance, outlining the ongoing impact Covid-19 continues to have on global real estate markets.

 

The valuation of the portfolio has been split between Cushman and Wakefield (C&W), CBRE Limited (CBRE) and Jones Lang LaSalle Limited (JLL). A sensitivity analysis has been prepared, illustrating the impact on valuations of changes in yields and market rental income of 100 basis points and 10% respectively, as detailed in the table below.

 

 

 

 

 

Impact on valuation of 100 bp change in nominal equivalent yield

Impact on valuation of 10% change in estimated rental value (ERV)

Key unobservable inputs sensitivity analysis - 30 June 2021

Investment properties valuation
£m

 

 

 

Decrease

£m

Increase

£m

Increase

£m

Decrease

£m

UK flagships

1,320

195

(150)

132

(132)

France flagships

1,023

256

(171)

102

(102)

Ireland flagships

679

159

(108)

68

(68)

UK other

107

13

(11)

11

(11)

Value Retail

1,902

314

(218)

49

(49) 

Total Group (excluding developments)

5,031

937

(658)

362

(362)

 

Impairment of non-financial assets

Most of the Group's non-financial assets are investment and development properties and are already carried at their fair value under IAS 40. Investments in joint ventures and associates fall within the scope of IAS 28 and are therefore only assessed for impairment where indicators of impairment exist as a result of one or more events that occurred after the initial recognition of the original investment. 

Six months ended 30 June 2020 and year ended 31 December 2020

Within the Group's investments in premium outlets, notional goodwill had arisen historically as the acquisition price exceeded the fair value of the net assets acquired, principally associated with deferred tax liabilities. As a consequence of recognising notional goodwill, the carrying value of the investment in premium outlets historically exceeded the Group's share of the underlying net assets. At 30 June 2020, given the recent uncertainty and challenging investment markets following the pandemic, management no longer believed it was appropriate to maintain a carrying value in excess of the underlying net assets of the investee. The future cash flows of both investments are captured by the property valuations. Consequently, the investments in VIA Outlets and Value Retail were impaired by £9.6 million and £94.3 million respectively in the six months ended 30 June 2020, equivalent to the notional goodwill.

Six months ended 30 June 2021

Management have concluded that the ongoing impact of Covid-19 is evidence of potential impairment and accordingly, an impairment review of non-financial assets has again been undertaken, assessing whether the carrying value of these investments exceeded the higher of fair value less cost of disposal and the value in use. 

Joint ventures and associates are accounted for under the equity method, which in this case, equates to Hammerson's share of the entity's Net Asset Value (NAV).  NAV is based on the fair value of the assets and liabilities. As the Group's investment in these joint ventures and associates already equals the Group's share of the underlying net assets of the relevant investee, all of which the principal asset, investment property, is already carried at fair value, these investments are already held at their recoverable amount in accordance with IAS 36, being the higher of the value in use and fair value less cost of disposal.

At 30 June 2021, management has also reassessed the carrying value of its investment in Value Retail by reference to the value in use and concluded that the carrying amount is recoverable.

 

Impairment of trade receivables and tenant incentives

The estimation of expected credit losses requires a degree of estimation about future events and is therefore inherently subjective.

The Group has applied the simplified approach under IFRS 9 and adopted a provisioning matrix to determine the Expected Credit Loss (ECL), grouping receivables dependent on the risk level, taking into account historic default rates, future expectations, credit ratings and ageing and applying an appropriate provision percentage after taking account of VAT, rent deposits and personal or corporate guarantees held. Where information is available to suggest that a higher level of provisioning is required, provision is made against 100% of the trade receivable or tenant incentive.

Intermittent closures throughout 2020 and 2021 of the vast majority of non-essential retail across all regions as a result of the global pandemic, coupled with government restrictions in the UK and France on landlords' ability to enforce rent collection, has continued to impact rent collection rates and consequently trade receivables remain higher than pre-pandemic levels at £153.1 million at 30 June 2021 (31 December 2020: £170.3 million) on a proportionally consolidated basis, although the easing of Covid-19 related restrictions has supported the conclusion of tenant negotiations resulting in the settlement of some historic arrears, particularly in the UK.

On a proportionally consolidated basis, after taking account of tenant deposits, guarantees and VAT, a total provision of £77.4 million was recognised at 30 June 2021, compared to £79.8 million at 31 December 2020, equivalent to a 67% provision (31 December 2020: 64%) against receivables, net of VAT and rent deposits.

The table below analyses the total provision by region against the respective trade receivable balances, and splits the provision between amounts recognised before 30 June 2021 and those for which the corresponding credit to the income statement has yet to be recognised. On a proportionally consolidated basis, a 10 percentage point increase in the loss allowance rate to 77% would reduce earnings by £11.5 million, or £10.6 million on an adjusted basis.

 

30 June 2021

 

 

 

31 December 2020

 

 

 

Trade receivables

Trade receivables net of deposits and VAT

Loss allowance provision for amounts recognised in the income statement 

Loss allowance provision for amounts not yet recognised in the income statement

Total loss allowance  provision

Total loss allowance  provision (net)

Trade receivables

Total loss allowance 

 provision

 

 

 

Total loss allowance provision (net)

 

 

£m

£m

£m

£m

£m 

%

£m

£m

%

UK

77.5

64.1

36.5

5.6

42.1 

66

101.4

53.1

65

France

57.1

34.9

24.4

-

24.4 

70

51.3

18.9

66

Ireland

18.5

15.9

10.8

0.1

10.9 

69

17.6

7.8

53

Managed portfolio

153.1

114.9

71.7

5.7

77.4 

67

170.3

79.8

64

Less Share of Property interests

(77.9)

 

(59.3)

(37.0)

(3.8)

(40.8)

 

69

(87.5)

(44.0)

 

65

Reported Group

75.2

55.6

34.7

1.9

36.6 

66

82.8

35.8

62

 

The ECL approach has also been applied to tenant incentives, by grouping unamortised incentives dependent on the risk level, taking into account historic default rates, future expectations, credit ratings and the anticipated impact of Covid-19, and applying an appropriate provision percentage. Unamortised lease incentives at 30 June 2021 totalled £54.8 million on a proportionally consolidated basis (31 December 2020: £68.0 million), against which a provision of £13.2 million (31 December 2020: £14.8 million), has been recognised. The table below analyses the provision across the regions between the proportionally consolidated portfolio and Reported Group. Provisioning rates against unamortised tenant incentives are lower than those against trade receivables as the credit risk of tenants not paying rent for future periods, and hence unamortised tenant incentives not being recovered, is lower than the credit risk on trade receivables currently overdue as a result of the pandemic. A 10 percentage point increase in the impairment provision rate would increase the total impairment charge by £5.5 million on a proportionally consolidated basis.

 

 

30 June 2021

31 December 2020

 

 

 

 

Unamortised tenant incentives

Total
 provision

Total
 provision

Unamortised tenant incentives

Total
 provision

Total provision

 

 

£m

£m

%

£m

£m

%

UK1

39.0 

10.3

26

56.6

12.8

23

France

9.9 

1.2

12

8.2

1.1

13

Ireland

5.9 

1.7

29

3.2

0.9

28

Managed portfolio

54.8 

13.2

24

68.0

14.8

22

Less Share of Property interests

(30.7)

(6.2)

20

(23.7)

(5.3)

22

Reported Group

24.1

7.0

29

44.3

9.5

21

 

1. The sale of eight retail parks in 2021 reduced unamortised tenant incentives by £24.2 million

 

D. GOING CONCERN

Introduction

The Directors have considered the adoption of the going concern basis of preparation for the interim financial statements in the context of the Group's risk environment, and in particular the market disruption and challenges associated with the Covid-19 pandemic. 

To support the assessment the Directors have performed a detailed review of the current and projected financial position of the Group for the period to 31 December 2022.  This period was chosen as it represents the first six monthly covenant test date for the Group's unsecured borrowing facilities falling due after the minimum 12 months going concern assessment period. 

The review involved preparing two forecast cases: a 'Base' scenario and a 'Severe but plausible adverse' scenario. The scenarios assessed the Group's cash flow and liquidity position and included projections for the financial covenants within the Group's borrowing facilities, including those held within joint ventures and associates.

Financing overview

The Group predominantly borrows on an unsecured basis, although a number of joint ventures and associates have secured debt facilities. These secured facilities are non-recourse and a covenant breach or acceleration of any of these facilities would not cause a cross-default under any of the Group's unsecured borrowings or any of the secured facilities of other joint ventures or associates. At 30 June 2021, the Group had substantial liquidity of £1,617 million and was in compliance with all applicable borrowing conditions. Further details on the Group's financing strategy, position and covenants are explained on page 17 of the Financial Review.

At 30 June 2021, three of the Group's joint ventures had secured borrowings totalling £886 million (Group's share: £395 million) and Value Retail had secured borrowings totalling £2,055 million (Group's share £763 million). £2,215 million (Group's share £947 million) of the secured borrowings benefited from interest cover waivers or amendments, and £349 million (Group's share £127 million) of these borrowings were subject to short-term loan-to-value waivers. These covenant waivers or amendments expire at various dates over the period to February 2022. 

During the first half of 2021 (unless otherwise stated), the Group completed a number of key transactions which have improved the strength of the capital structure and going concern outlook as follows:

·    raised £396 million of net proceeds from disposals

·    issued €700 million 1.75% sustainability-linked bonds maturing in June 2027

·    purchased by way of tender €310 million of the €500 million 2.0% bonds maturing in July 2022 and €264 million of the €500 million 1.75% bonds maturing in March 2023

·    cancelled and replaced a £415 million revolving credit facility maturing in April 2022 with two new facilities totalling £200 million, maturing in June 2024, with options, subject to lender consent, to extend for a further two years

·    repaid £297 million of private placement notes at par, which reduced the remaining private placement borrowings to
£217 million at 30 June 2021

·    on 6 July, refinanced the €55 million (Group's 25% share) bank loan secured against O'Parinor which was due to mature in July 2021 with a new €53 million loan maturing in July 2023

·    on 8 July, redeemed the outstanding €190 million of the 2022 €500 million 2.0% bonds

 

Following these actions, the only borrowings which mature over the going concern period to 31 December 2022 are held by Value Retail and are summarised in the table below:

Maturity

Loan @ 100%

Group's share

 

£m

£m

December 2021

56

14

June 2022

292

77

December 2022

750

376

 

1,098

467

Note: figures reflect gross borrowings, excluding unamortised borrowing fees

Scenario assumptions

During 2021, the disruption caused by the Covid-19 pandemic has begun to ease and trading conditions are improving. This has been driven by the successful roll-out of vaccination programmes which has allowed the relaxation of Covid-19 restrictions across the Group's operations with all destinations now fully open. The Base scenario assumes this positive trajectory continues with a slow but sustained economic and retail market recovery over the going concern period with improving collections and leasing demand and stores remaining open for trade. In addition, capital markets are expected to remain weak in the near-term with valuations forecast to decline in the second half of the year, before stabilising in 2022.

However, the reopening of the economy and the emergence of new variants of the Covid-19 virus create downside risks which may result in a significant increase in hospital admissions or fatalities which would likely see governments re-impose containment measures, such as social distancing or trading restrictions on certain types of commercial activity. This outcome would be expected to lead to a deterioration in occupational and investment markets.  

This downside risk backdrop has formed the basis of the Severe but plausible adverse scenario which assumes a significant resurgence of the virus in late 2021 resulting in the imposition of a three month lockdown, including the closure of non-essential stores, over the winter months from December 2021 to February 2022 affecting all of the Group's operations. Under this scenario, NRI is forecast to be almost 50% lower, on a like-for-like basis, in 2022 than in 2019 due to:

·      significant expected credit loss provisions associated with lower rent collections;

·      rent concessions to mitigate the impact of temporary store closures;

·      reduced income from car parks and commercialisation; and

·      an allowance for the costs associated with tenant failure.

The assumed lockdowns would also reduce the Group's share of earnings from Value Retail where income is more heavily turnover-based such that the Group's share of adjusted earnings from Value Retail in 2022 in the Severe but plausible adverse scenario are forecast to be approximately 50% lower than in 2019. 

The impact on investment markets in the Severe but plausible adverse scenario is assumed to result in significant property valuation reductions and the forecast includes materially lower valuations than in the Base scenario, such that in the Severe but plausible adverse scenario the capital return over the period from 1 July 2021 to 31 December 2022 is -20%. This reflects forecast reductions for flagship values of approximately -25% and Value Retail Village values by approximately -10%.

Scenario outcomes

Outcomes excluding secured debt risks

Excluding the risks associated with the Group's secured debt facilities, under both the Base and Severe but plausible adverse scenarios the Group retains significant liquidity in excess of £1 billion over the going concern period. 

In the Base scenario, the Group remains compliant with all its unsecured borrowing covenants, although due to forecast valuation reductions headroom over future value declines under the unencumbered asset ratio covenant in the private placement notes falls to less than 10% after 31 December 2021.

In the Severe but plausible adverse scenario, the more adverse valuation reductions in this forecast result in a breach of the unencumbered asset ratio covenant from 31 December 2021 onwards. In this situation, the covenant breach can be mitigated as the Group is forecast to have sufficient liquidity to exercise its rights to redeem the notes ahead of their maturities for their outstanding value plus a make-whole amount. Factoring this into the Severe but plausible adverse scenario, the Group remains in compliance with the other unsecured borrowing covenants over the going concern period.

Outcomes including secured debt risks

i.       Joint venture secured debt

From a going concern perspective, any future covenant issues in relation to the £886 million (Group's share £395 million) secured loans held by three of the Group's joint ventures can be mitigated through either repaying the loans using the Group's forecast liquidity or allowing the lenders to enforce their security interests over the properties. These outcomes would not significantly impact the Group's forecast unsecured borrowing covenants.

ii.          Value Retail secured debt

For Value Retail, factoring in facilities which benefit from short-term interest cover covenant relief which expire in February 2022, all loans are forecast to be compliant with their covenants over the going concern period in both the Base and Severe but plausible adverse scenarios.

However, as explained above, Value Retail has £1,098 million (Group's share £467 million) of loans maturing over the period to 31 December 2022 where the current loan-to-value is below 40%. For going concern purposes the Group has the ability to manage its liquidity and gearing levels to remain in compliance with the unsecured borrowing covenants by either funding Value Retail to fully repay the loans maturing in December 2021 and June 2022 or allowing the lenders to enforce their security over the properties. The June 2022 loan could only be repaid if the Group had not previously fully repaid the £536 million loan secured against Dundrum, Dublin.

However, the Group is unable to fully repay the £750 million (Group's share £376 million) secured loan maturing in December 2022. In the event that this loan could not be refinanced over the next 17 months, the lenders could enforce their security over the property and the Group may lose the value of its net investment in the property. While the Directors and Value Retail management believe this outcome to be highly unlikely it would result in a breach of the Group's unsecured 150% gearing covenant in the Severe but plausible adverse scenario at the 31 December 2022 test date.

Mitigating actions

To avoid the issues associated with the maturing loans held by Value Retail, refinancing discussions with the lenders will be undertaken by Value Retail, and the Directors and Value Retail management expect that these will be satisfactorily concluded on acceptable commercial terms in advance of the maturity of the loans. If these discussions were to be unsuccessful, alternative sources of funding could be sought, including requesting support from the investors in Value Retail, of which the Group is the second largest, to jointly fund the maturing loans and hence prevent the lenders enforcing their security on the assets. 

From a broader going concern perspective, the Group's financial position can be further solidified through future disposals. Even in challenging markets, the Group has raised disposal proceeds of £1.3 billion over the last 24 months and the diversity of the Group's portfolio, in terms of location and sector, provides access to a range of investment markets. The precise impact of disposals on the Group's going concern projections would be dependent on the timing of a sale, the level of proceeds relative to book value, the ownership structure and whether any debt is secured against the properties sold.

Conclusion

Having undertaken the assessment described above, given the significant liquidity forecast over the going concern period prior to considering the Value Retail refinancing risk addressed below, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence and meet its liabilities as they fall due for at least the next 12 months. Therefore, the interim financial statements have been prepared on the going concern basis.

With respect to Value Retail, the Directors, are confident that the maturing loans can be successfully refinanced. Nonetheless, if the
£750 million loan maturing in December 2022 were not to be refinanced or repaid, and the lenders enforced their security over the property, the Group would breach its unsecured borrowing gearing covenant in the Severe but plausible adverse scenario at 31 December 2022. Hence this refinancing risk represents a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern.

No adjustments have been made to the interim financial statements that would result if the Group were unable to continue as a going concern.

 

E. OTHER FINANCIAL INFORMATION

Accounting Standards

The following new accounting amendment became effective on 1 January 2021 but had no material impact:

 

- Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

The following Standards have been issued but not endorsed by either the European or the UK Endorsement Board, are not yet effective and have not been adopted for the interim financial statements:

- Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and Classification of Liabilities as Current or Non-current - Deferral of Effective Date (issued on 23 January 2020 and 15 July 2020 respectively)

- Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets, Annual Improvements 2018-2020

- Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021)

- Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021)

Other relevant information

Transactions with joint ventures including distributions, interest and management fees are eliminated on a proportionate basis. The Group's financial performance is not materially impacted by seasonality. There have been no material related party transactions in the period. There have been no changes in estimates of amounts reported in prior periods which have a material impact on the current half-year period.

Transition from LIBOR

The Group currently makes reference to LIBOR in a number of areas across the business. These include treasury and leasing transactions. With effect from 31 December 2021 LIBOR will be replaced by SONIA (Sterling Overnight Index Average). The Group has assessed the impact of this change on the business and concluded there will be no material impact.

Capital commitments

Capital commitments for the Reported Group were £39 million at 30 June 2021 (31 December 2020: £57 million). The Group's share of capital commitments arising within joint ventures at 30 June 2021 was £39 million (31 December 2020: £39 million). There have been no material changes in contingent liabilities since 31 December 2020. Details of the Group's principal risks and uncertainties are set out on page 20.

Exchange rates

The principal exchange rates used to translate foreign currency denominated amounts are:

Consolidated balance sheet: £1 = €1.165 (30 June 2020: £1 = €1.101; 31 December 2020: £1 = €1.117)

Consolidated income statement quarterly average rates:

 

 

2021

2020

Quarter 1

£1 = €1.145

£1 = €1.161

Quarter 2

£1 = €1.160

£1 = €1.127

Quarter 3

n/a

£1 = €1.105

Quarter 4

n/a

£1 = €1.108

 

2. LOSS FOR THE PERIOD

As stated in the Financial review on page 9 and in note 3, management reviews the performance of the Group's property portfolio on a proportionally consolidated basis. Management does not proportionally consolidate the Group's premium outlet investments in Value Retail and VIA Outlets (up to the date of its disposal in October 2020), and reviews the performance of these investments separately from the rest of the proportionally consolidated portfolio.

 

The following tables have been prepared on a basis consistent with how management reviews the performance of the business and show the Group's (loss)/profit for the period on a proportionally consolidated basis in column D, by aggregating the Reported Group results (shown in column A) with those from its Share of Property interests (shown in column B), the latter being reallocated to the relevant financial statement lines.

 

The Group's share of results arising from its interests in premium outlets has not been proportionally consolidated and hence these have not been reallocated to the relevant financial statement lines, but is shown within 'Share of results of joint ventures' and 'Share of results of associates' in column D.

 

The Group's proportionally consolidated (loss)/profit for the period in column D is then allocated between 'Adjusted' and 'Capital and other' for the purposes of calculating figures in accordance with EPRA best practice.   Company specific adjustments which differ from EPRA guidelines are detailed in note 9B.

 

As detailed in notes 1B and 7, the UK retail parks operations are presented as discontinued for the six months ended 30 June 2021 and the comparative periods have been re-presented, as the IFRS 5 criteria were met during the first six months of 2021. These have been reallocated to the relevant financial statement lines in Column C.

 

Notes to tables

A.    Reported Group results as shown in the consolidated income statement on page 24.

B.    Share of Property interests reflect the Group's share of results of Property joint ventures as shown in note 11A and Nicetoile and Italie Deux as included within note 12A.

C.    Discontinued operations including properties wholly owned and held by joint ventures (see note 7).

D.    Aggregated results on a proportionally consolidated basis showing Reported Group together with Share of Property interests.

E.  Aggregated results on a proportionally consolidated basis allocated between 'Adjusted' and 'Capital and other' for the purposes of calculating adjusted earnings per share as shown in note 9B.

F.     Included in gross rental income on a proportionally consolidated basis in column D is £2.1 million (30 June 2020: £1.3 million; 31 December 2020: £3.8 million) of contingent rents  calculated by reference to tenants' turnover.

G.    Relates to the impairment of trade receivables relating to the period after 1 July 2021 where the corresponding deferred income balance is classified as an other payable <1yr.

H.    Net administration costs include £3.3 million relating to business transformation costs, which have been classified as 'Capital and other' for the purposes of calculating adjusted earnings per share as detailed in note 1A.

I.      Relates to the disposal of the Group's interests in Espace Saint-Quentin and Nicetoile.

J.     Adjusted finance costs presented on a proportionally consolidated basis are shown in Table 17 on page 71.

K.    Re-presented for discontinued operations, see note 7 for further details.

 

 

 

Six months ended 30 June 2021

 

 

 

 

 

 

Proportionally consolidated

 

 

 

 

 

 

 

 

 

 

Reported Group

Share of Property interests

Discontinued operations (see note 7B)

Proportionally consolidated

Adjusted

Capital and other

 

Notes

£m

£m

£m

£m

£m

£m

Notes (see page 38)

 

A

B

C

D

E

E

Gross rental incomeF

3A, 4

41.6

70.1

10.7

122.4

122.4

-

Ground and equity rents payable

 

(0.6)

(0.1)

(0.1)

(0.8)

(0.8)

-

Gross rental income, after rents payable

 

41.0

70.0

10.6

121.6

121.6

-

- Service charge income

 

12.8

12.1

1.3

26.2

26.2

-

- Service charge expenses

 

(14.4)

(13.9)

(1.8)

(30.1)

(30.1)

-

- Net service charge expenses

 

(1.6)

(1.8)

(0.5)

(3.9)

(3.9)

-

- Inclusive lease costs recovered through rent

 

(1.7)

(2.2)

-

(3.9)

(3.9)

-

- Other property outgoings

 

(9.1)

(18.1)

0.6

(26.6)

(26.6)

-

Property outgoings

 

(12.4)

(22.1)

0.1

(34.4)

(34.4)

-

Change in the provision for amounts not yet recognised in the income statementG

 

1.3

3.9

1.4

6.6

-

6.6

 

 

 

 

 

 

 

 

Net rental income

3A

29.9

51.8

12.1

93.8

87.2

6.6

 

 

 

 

 

 

 

 

Administration costsH

 

(39.2)

(0.3)

(0.1)

(39.6)

(36.3)

(3.3)

Property fee income

 

7.2

-

-

7.2

7.2

-

Employee and corporate costs

 

(32.0)

(0.3)

(0.1)

(32.4)

(29.1)

(3.3)

Joint venture and associate management fees

 

3.7

-

-

3.7

3.7

-

Net administration expenses

 

(28.3)

(0.3)

(0.1)

(28.7)

(25.4)

(3.3)

Operating profit/(loss) before other net losses and share of results of joint ventures and associates

 

1.6

51.5

12.0

65.1

61.8

3.3

Loss on sale of properties

 

(5.1)

(1.1) 

(32.5)

(38.7)

-

(38.7)

Loss on sale of joint venture and associateI

 

(1.1)

1.1

-

-

-

-

Net exchange gains previously recognised in equity, recycled on disposal of foreign operationsI

 

11.0

-

-

11.0

-

11.0

Revaluation losses on properties

3B

(140.2)

(213.1)

-

(353.3)

-

(353.3)

Change in fair value of other investments

7D

(0.2)

-

-

(0.2)

-

(0.2)

Other net losses

 

(135.6)

(213.1)

(32.5)

(381.2)

-

(381.2)

 

 

 

 

 

 

 

 

Share of results of joint ventures

11A, 11B

(160.6)

160.6

-

-

-

-

Share of results of associates

12A, 12B

(5.6)

3.8

-

(1.8)

(2.0)

0.2

Operating (loss)/profit

 

(300.2)

2.8

(20.5)

(317.9)

59.8

(377.7)

 

 

 

 

 

 

 

 

Net finance costsJ

5

(53.8)

(2.8)

-

(56.6)

(38.9)

(17.7)

(Loss)/Profit before tax

 

(354.0)

-

(20.5)

(374.5)

20.9

(395.4)

Tax charge

6

(0.8)

-

(0.2)

(1.0)

(0.8)

(0.2)

(Loss)/Profit for the period from continuing operations

 

(354.8)

-

(20.7)

(375.5)

20.1

(395.6)

(Loss)/Profit for the period from discontinued operations

7B

(20.7)

-

20.7

-

-

-

(Loss)/Profit for the period attributable to equity shareholders

 

(375.5)

-

-

(375.5)

20.1

(395.6)

Attributable to:

 

 

 

 

 

 

 

Continuing operations

9B

(354.8)

-

-

(354.8)

9.5

(364.3)

Discontinued operations

9B

(20.7)

-

-

(20.7)

10.6

(31.3)

 

9B

(375.5)

-

-

(375.5)

20.1

(395.6)

                 

 

 

 

Six months ended 30 June 2020K

 

 

 

 

 

 

Proportionally consolidated

 

 

 

 

 

 

 

 

 

 

Reported Group

Share of Property interests

Discontinued operations (see note 7B)

Proportionally consolidated

Adjusted

Capital and other

 

Notes

£m

£m

£m

£m

£m

£m

Notes (see page 38)

 

A

B

C

D

E

E

Gross rental incomeF

3A, 4

49.2

77.9

17.2

144.3

144.3

-

Ground and equity rents payable

 

(0.5)

(0.7)

(0.1)

(1.3)

(1.3)

-

Gross rental income, after rents payable

 

48.7

77.2

17.1

143.0

143.0

-

- Service charge income

 

13.7

16.5

2.1

32.3

32.3

-

- Service charge expenses

 

(14.8)

(18.8)

(2.2)

(35.8)

(35.8)

-

- Net service charge expenses

 

(1.1)

(2.3)

(0.1)

(3.5)

(3.5)

-

- Inclusive lease costs recovered through rent

 

(1.6)

(1.7)

(0.1)

(3.4)

(3.4)

-

- Other property outgoings*

 

(15.8)

(21.1)

(4.8)

(41.7)

(41.7)

-

Property outgoings

 

(18.5)

(25.1)

(5.0)

(48.6)

(48.6)

-

Change in the provision for amounts not yet recognised in the income statement

  

(1.2)

(4.7)

(1.2)

(7.1)

-

(7.1)

 

 

 

 

 

 

 

 

Net rental income

3A

29.0

47.4

10.9

87.3

94.4

(7.1)

 

 

 

 

 

 

 

 

Administration costs

 

(32.3)

(0.2)

(0.7)

(33.2)

(33.2)

-

Property fee income

 

7.7

-

-

7.7

7.7

-

Employee and corporate costs

 

(24.6)

(0.2)

(0.7)

(25.5)

(25.5)

-

Joint venture and associate management fees

 

4.2

-

-

4.2

4.2

-

Net administration expenses

 

(20.4)

(0.2)

(0.7)

(21.3)

(21.3)

-

Operating profit/(loss) before other net losses and share of results of joint ventures and associates

 

8.6

47.2

10.2

66.0

73.1

(7.1)

(Loss)/Profit on sale of properties

 

(0.7)

16.7

16.0

-

16.0

Net exchange loss previously recognised in equity, recycled on disposal of foreign operations

 

(0.1)

-

-

(0.1)

-

(0.1)

Revaluation losses on properties

3B

(274.6)

(526.5)

(1.3)

(802.4)

-

(802.4)

Impairment recognised on reclassification to assets held for sale

 

(101.6)

-

-

(101.6)

-

(101.6)

Reversal of impairment on reclassification from assets held for sale

 

-

-

22.4

22.4

-

22.4

Other net (losses)/gains

 

(377.0)

(526.5)

37.8

(865.7)

-

(865.7)

 

 

 

 

 

 

 

 

Share of results of joint ventures

11A, 11B

(499.5)

478.6

-

(20.9)

5.6

(26.5)

Impairment of investment in joint ventures

 

(9.6)

-

-

(9.6)

(9.6)

Share of results of associates

12A, 12B

(127.7)

7.7

-

(120.0)

(13.0)

(107.0)

Impairment of investment in associates

 

(94.3)

-

-

(94.3)

(94.3)

Operating (loss)/profit

 

(1,099.5)

7.0

48.0

(1,044.5)

65.7

(1,110.2)

 

 

 

 

 

 

 

 

Net finance costsJ

5

(36.3)

(7.0)

-

(43.3)

(47.4)

4.1

(Loss)/Profit before tax

 

(1,135.8)

-

48.0

(1,087.8)

18.3

(1,106.1)

Tax charge

6

(0.6)

-

-

(0.6)

(0.6)

(Loss)/Profit for the period from continuing operations

 

(1,136.4)

-

48.0

(1,088.4)

17.7

(1,106.1)

Profit/(Loss) for the period from discontinued operations

7B

48.0

-

(48.0)

-

-

-

(Loss)/Profit for the period attributable to equity shareholders

 

(1,088.4)

-

-

(1,088.4)

17.7

(1,106.1)

Attributable to:

 

 

 

 

 

 

 

Continuing operations

9B

(1,136.4)

-

-

(1,136.4)

6.3

(1,142.7)

Discontinued operations

9B

48.0

-

-

48.0

11.4

36.6

 

9B

(1,088.4)

-

-

(1,088.4)

17.7

(1,106.1)

* £8.9 million, (comprising £5.3 million for the Reported Group and £3.6 million for Share of Property interests), previously presented as 'Change in the provision for impairment of unamortised tenant incentives' has been reclassified to other property outgoings. This is consistent with the presentation adopted for the year ended 31 December 2020 and current period ended 30 June 2021.

 

 

 

Year ended 31 December 2020K

 

 

 

 

 

 

Proportionally consolidated

 

 

Reported Group

Share of Property interests

Discontinued operations (see note 7B)

Proportionally consolidated

Adjusted

Capital and other

 

Notes

£m

£m

£m

£m

£m

£m

Notes (see page 38)

 

A

B

C

D

E

E

Gross rental incomeF

3A, 4

98.1

153.7

35.1

286.9

286.9

-

Ground and equity rents payable

 

(1.0)

(1.0)

(0.3)

(2.3)

(2.3)

-

Gross rental income , after rents payable

 

97.1

152.7

34.8

284.6

284.6

-

- Service charge income

 

24.0

28.4

3.9

56.3

56.3

-

- Service charge expenses

 

(27.5)

(34.0)

(4.4)

(65.9)

(65.9)

-

- Net service charge expenses

 

(3.5)

(5.6)

(0.5)

(9.6)

(9.6)

-

- Inclusive lease costs recovered through rent

 

(2.8)

(3.4)

(0.2)

(6.4)

(6.4)

-

- Other property outgoings

 

(32.2)

(54.2)

(12.6)

(99.0)

(99.0)

-

Property outgoings

 

(38.5)

(63.2)

(13.3)

(115.0)

(115.0)

-

Change in the provision for amounts not yet recognised in the income statement

 

(2.5)

(8.0)

(1.5)

(12.0)

-

(12.0)

 

 

 

 

 

 

 

 

Net rental income

3A

56.1

81.5

20.0

157.6

169.6

(12.0)

 

 

 

 

 

 

 

 

Administration costs

 

(66.3)

(0.4)

(1.1)

(67.8)

(67.8)

-

Property fee income

 

15.2

-

-

15.2

15.2

-

Employee and corporate costs

 

(51.1)

(0.4)

(1.1)

(52.6)

(52.6)

-

Joint venture and associate management fees

 

8.5

-

-

8.5

8.5

-

Net administration expenses

 

(42.6)

(0.4)

(1.1)

(44.1)

(44.1)

-

Operating profit/(loss) before other net losses and share of results of joint ventures and associates

 

13.5

81.1

18.9

113.5

125.5

(12.0)

(Loss)/Profit on sale of properties

 

(3.5)

-

15.1

11.6

-

11.6

Net exchange gain previously recognised in equity, recycled on disposal of foreign operations

 

5.2

-

-

5.2

-

5.2

Revaluation losses on properties

3B

(442.7)

(941.6)

(54.5)

(1,438.8)

-

(1,438.8)

Impairment recognised on reclassification to assets held for sale

 

(103.8)

-

-

(103.8)

8.1

(111.9)

Reversal of impairment on reclassification from assets held for sale

 

-

-

22.4

22.4

-

22.4

Indirect costs of rights issue

 

(0.3)

-

-

(0.3)

-

(0.3)

Change in fair value of other investments

7D

(0.1)

-

-

(0.1)

-

(0.1)

Other net (losses)/gains

 

(545.2)

(941.6)

(17.0)

(1,503.8)

8.1

(1,511.9)

 

 

 

 

 

 

 

 

Share of results of joint ventures

11A, 11B

(880.2)

859.5

-

(20.7)

5.9

(26.6)

Impairment of investment in joint ventures

 

(9.6)

-

-

(9.6)

-

(9.6)

Share of results of associates

12A, 12B

(148.3)

12.5

-

(135.8)

(7.1)

(128.7)

Impairment of investment in associates

 

(94.3)

-

-

(94.3)

-

(94.3)

Operating (loss)/profit

 

(1,664.1)

11.5

1.9

(1,650.7)

132.4

(1,783.1)

 

 

 

 

 

 

 

 

Net finance costs

5

(72.2)

(11.4)

-

(83.6)

(95.4)

11.8

(Loss)/Profit before tax

 

(1,736.3)

0.1

1.9

(1,734.3)

37.0

(1,771.3)

Tax charge

6

(0.5)

(0.1)

-

(0.6)

(0.6)

-

(Loss)/Profit for the year

9B

(1,736.8)

-

1.9

(1,734.9)

36.4

(1,771.3)

Non-controlling interests

 

0.1

-

-

0.1

0.1

-

(Loss)/Profit for the year from continuing operations

 

(1,736.7)

-

1.9

(1,734.8)

36.5

(1,771.3)

(Loss)/Profit for the year from discontinued operations

7B

1.9

-

(1.9)

-

-

-

(Loss)/Profit for the year attributable to equity shareholders

 

(1,734.8)

-

-

(1,734.8)

36.5

(1,771.3)

Attributable to:

 

 

 

 

 

 

 

Continuing operations

9B

(1,736.7)

-

-

(1,736.7)

16.1

(1,752.8)

Discontinued operations

9B

1.9

-

-

1.9

20.4

(18.5)

 

9B

(1,734.8)

-

-

(1,734.8)

36.5

(1,771.3)

 

3. SEGMENTAL ANALYSIS

The factors used to determine the Group's reportable segments are the sectors in which it operates and geographic locations as these demonstrate different characteristics and risks. These are generally managed by separate teams and are the basis on which performance is assessed and resources allocated. As stated in the Financial review on page 9, the Group has property interests in a number of sectors and management reviews the performance of the Group's property interests in flagship destinations, retail parks (to date of disposal), other UK properties and developments on a proportionally consolidated basis to reflect the Group's different ownership shares. Management does not proportionally consolidate the Group's premium outlet investments in Value Retail (VR), nor VIA Outlets (up to its disposal in October 2020) as these are externally managed by experienced outlet operators, independently financed and have operating metrics which differ from the Group's other sectors. We review the performance of our premium outlets investments separately from the proportionally consolidated portfolio. The key financial metrics for these investments are: income growth; earnings contribution; property valuations and returns; and capital growth. However, for a number of the Group's APM's we aggregate these investments for enhanced disclosure. These include LTV ratios, property valuations and returns.

As detailed in notes 1B and 7, following the sale of substantially all of the remainder of the UK retail parks segment, the results from the retail parks have been re-presented as discontinued operations.  Sundry residual properties with a total value of £5.9 million have been reclassified at 30 June 2021 from UK retail parks to UK other, although the income statement activity for these properties remained in UK retail parks until 30 June 2021.

The segmental analysis has been prepared on the same basis that management uses to review the business, rather than on a statutory basis. Property interests represent the Group's non wholly-owned properties which management proportionally consolidates when reviewing the performance of the business. For reconciliation purposes the Reported Group figures, being properties either wholly-owned or held within joint operations, are shown in the following tables.

The Group's primary income measures for its property income are Gross rental income and Net rental income. Total assets are not monitored by segment and resource allocation is based on the distribution of property assets between segments.

A.    Income and profit by segment

 

Year ended

 

 

Six months ended

Six months ended

31 December 2020*

 

 

30 June 2021

30 June 2020*

Gross rental income

Net

rental income

 

 

Gross

rental income

Net

rental

 income

Gross rental income

Net

rental income

£m

£m

 

 

£m

£m

£m

£m

 

 

Flagship destinations

 

 

 

 

128.0

53.7

UK

56.9

46.6

65.4

35.2

63.1

47.8

France

27.6

19.1

31.3

20.5

37.7

26.4

Ireland

17.5

12.5

19.1

14.9

228.8

127.9

 

102.0

78.2

115.8

70.6

35.4

19.8

UK retail parks

10.7

11.7

17.3

10.9

9.7

3.8

UK other

4.3

2.2

4.9

2.5

273.9

151.5

Investment portfolio

117.0

92.1

138.0

84.0

13.0

6.1

Developments

5.4

1.7

6.3

3.3

286.9

157.6

Managed portfolio

122.4

93.8

144.3

87.3

(153.7)

(81.5)

Less Share of Property interests - continuing operations

(70.1)

(51.8)

(77.9)