Bullring co-owner to dispose of offices as profits plummet
BULLRING co-owner Hammerson has said it plans to dispose of its office interests and concentrate on its retail portfolio – the strategy includes plans to invest £27m in a retail park in Warwickshire.
Announcing a major drop in full year pre-tax profit from £620.2m in 2010 to £346.3m for 2011, the group said: “Following a full review of strategy, Hammerson will now focus as a specialist retail REIT operating in the UK and France. Our standing office investments will be sold over the medium term in order to maximise value, with capital redeployed to retail assets, increasing our focus and scale.”
Hammerson said the main reason for the big fall in was the result of a portfolio valuation gain in 2011 of £186.3m which was significantly lower than the gain of £447.1m in 2010.
Adjusted pre-tax profit in 2011 was £141.6m, down £2.9m or 2% on the £144.5m for 2010. The net impact of acquisitions and disposals was to increase adjusted pre-tax profit by £2.1m, however, the company said the benefits from completed and current developments (£5m) and rental income growth (£6.2m) had been offset by higher administration expenses, restructuring charges and interest and other costs.
Net rental income was £296m compared with £284.7m in 2010. The net rental income gained from acquisitions and developments more than offset that lost from disposals.
In 2011, the group continued its policy of disposing of mature properties and reinvesting in new assets. This resulted in eight acquisitions, principally adding to the UK retail portfolio, for a total of £374m.
One of these was Elliott’s Field Retail Park Rugby, which was purchased for £40m. The 12,700m2 open A1 consented park comprises nine units in four terraces and a standalone restaurant. Passing rents at year-end were £2.1m.
Tenants are predominantly bulky goods retailers and include Comet, Halfords, Homebase and Wickes. Hammerson said there was scope to increase rental income by creating additional space and capitalising on strong demand from fashion and catering tenants. The £27m scheme could begin in 2013 with completion the following year.
It also acquired the 3,400m2 Wickes unit at Folkestone and the 5,800m2 Cathedral Lanes site in Coventry. These were purchased for £10m and together have passing rents of £1.1m. Both are said the offer income potential. As part of the portfolio transaction, the group was also contracted to find a purchaser for Three Spires centre in Lichfield, which was sold in June.
It said: “Our regionally dominant shopping centres and convenient retail parks continue to generate demand from successful retailers. We will increase our focus and scale in our chosen retail markets to capitalise further on structural changes in consumer behaviour.”
In outlook, the group said the tough market was having a major influence on its property markets. It said it believed occupier and investment demand for retail space would be concentrated on modern, well-maintained properties in the best locations and warned properties without these attributes might experience rental and capital value declines in 2012.
The group currently has 40 retail units let to tenants in administration, and of these 20 have continued to trade. For the group as a whole, income from tenants in administration no longer trading represented just 0.2% of passing rents by year-end.
Three of the group’s top five office tenants have a low risk indicator and of the others, one of which has its rent guaranteed by its parent company, were rated as ‘two’. In the UK office portfolio at the end of 2011, the average risk score was 1.4 and 92% of passing rents was provided by tenants with a risk rating of one or two.
