Higher rents support Hammerson profits despite softening UK retail conditions
Net rental income fell from £237.3 million to £231 million in the UK in 2017.
A rise in rents helped lift profits at shopping centre owner Hammerson, though the firm warned Brexit-related uncertainty was still weighing on the British retail market.
The group, which owns the Bullring in Birmingham, reported a 6.9% rise in net rental income for the year to December 31 to £370.4 million, up from £346.5 million a year earlier.
The figures boosted pre-tax profit, which grew more than 28% to £413.4 million.
Its Ireland division was one of the biggest drivers of growth in net rental income, having nearly tripled from £12.5 million in 2016 to £34.8 million last year as it made “good progress” on acquisitions, and benefited from strong local economic growth.
That is compared to the UK where net rental income fell from £237.3 million to £231 million over the period.
There is uncertainty over the UK's arrangements after it leaves the EU, therefore consumer spending growth is expected to remain muted Hammerson
“The consumer backdrop was softer than the previous year,” Hammerson said in regards to its UK performance, noting that higher inflation – linked to the collapse of the pound – put the squeeze on disposable income and knocked retail spending by around 3% last year.
Though inflation has eased slightly, the property firm said consumer confidence had “eroded” throughout the year.
“There is uncertainty over the UK’s arrangements after it leaves the EU, therefore consumer spending growth is expected to remain muted,” the company said.
“In combination with weaker sales, retailers are experiencing cost pressures from currency fluctuations, adjustments to business rates and higher minimum wages.”
Hammerson announced in December that it had reached a £3.4 billion deal to acquire rival Intu, which is set to increase the group’s exposure to the UK market.
But chief executive David Atkins assured the company was well equipped to deal with the state of the British market, where Hammerson said it was still seeing “strong levels” of leasing activity – though talks are taking slightly longer to conclude.
“Overall, we are in a strong position to respond to the current consumer conditions in the UK and our rigorous approach to the capital and asset management of our properties supports our confidence in generating future returns for our shareholders,” Mr Atkins said.
Liberum research led by David Brockton said Hammerson’s full-year results pointed to “another year of good earnings growth and positive capital gain, despite a challenging backdrop for retail”, but noted the impact of online shopping on the business.
“Growth in online retail continues to impede capital utilisation for the majority of bricks-and-mortar retail, but Hammerson does have a portfolio of largely defensive retail assets, which generate higher income return vs diversified peers, less cycle volatility and greater opportunity for efficiency gain.
“The prospective purchase of Intu adds further scope for both cost and revenue synergies (likely to be substantially ahead of current guidance), but equally unfortunately doubles the bet on the UK and dilutes exposure to its faster growing premium outlets and international income.”
Hammerson shares were subdued, down just 0.3% in morning trading.