Shopping centre owner Hammerson PLC (LON:HMSO) said the collapse and restructuring of several UK retailers have had a “very limited” impact on profits.
The company – which rejected a £5bn approach from French shopping centre firm Klepierre in March, three months after embarking on its own bid for UK rival Intu – said in a first quarter trading update that it expects the effect of tenants entering administration and closing down stores will result in a £3.4mln reduction in net rental income in 2018. This is equivalent to 0.9% of NRI in 2017.
READ: Hammerson shares leap as Klepierre says property firm rejected its bid "in less than 24 hours"
Britain’s high street retailers have been under pressure from a shift towards online shopping and weaker consumer confidence.
In February, Toys R Us and Maplin entered into administration after struggling amid competition from internet giants such as Amazon and racking up debts.
Fashion retailer New Look announced in March that it plans to close 60 stores as part of a rescue deal to help it avoid going into administration.
“With high occupancy and continued good demand for our destination centres the impact of these retailers on the group's profitability,” Hammerson said.
Hammerson plans for Intu merger on hold
On its £3.4bn bid to buy Intu, the company said it does “not intend to finalise shareholder documents” in relation to the deal and added that Klépierre's position “remains unclear”.
Klepierre now has until April 16 to decide whether to make a firm offer.
“Today’s trading update from shopping mall landlord Hammerson reads like a defence against continuing takeover interest from French rival Klepierre," said AJ Bell investment director Russ Mould.
“Management have already rejected a £4.9bn bid from the company and Klepierre now has until 16 April to put up or shut up."
Hammerson's shrugs off challenging UK retail market
Hammerson, which owns Birmingham’s Bullring shopping centre and London’s Brent Cross, reported a 1.8% increase in net asset value per share to 790p at the end of the first quarter ended March 31.
The total portfolio was valued at £10.58bn at the end of March, compared to £10.56bn at the end of December as growth in Ireland and premium outlets offset declines at centres in France and in the UK.
The group signed £6.8mln of leases in the quarter across the UK, France and Ireland, up 58% on the same period a year ago despite a challenging UK retail market and headwinds affecting consumers and businesses.
At UK shopping centres, NYX, Levi's, Skechers, Charbonnel et Walker and Lovisa took space during the period. H&M’s Nordic brand Arket also opened a new store at Bullring.
"Whilst we recognise the difficult trading environment and challenges felt by many retail and restaurant formats in the UK, there continues to be good demand for space across our centres,” said chief executive David Atkins.
“The Easter trading weekend again demonstrated that not all retail is equal with our centres delivering positive footfall growth of 5% compared to average reported Easter footfall across all shops of -2.4%.”
Hammerson said it is on track to dispose of £500mln worth of properties this year and is in ongoing “active negotiations” for the sale of a number of assets. It has completed two retail park disposals at a book value of £92mln so far this year.
Premium outlets and Ireland remain key drivers for profit growth, says Numis
Numis left its rating at 'hold', saying Hammerson has delivered a "solid" first quarter operational performance, though challenges remain.
"Sectoral headwinds remain substantial and HMSO is not immune, with administrations likely to hit NRI by c.0.9% (£3.5m); whether this is combined with materially negative valuation movements for its UK malls (-0.6% in 1Q18) will depend on the pricing outcome of, in particular, Lend Lease’s 25% stake sale in Bluewater," the broker said.
"For now, the key drivers for HMSO profitability growth remain Premium Outlets and Ireland, both of which will be diluted significantly on the proposed combination with Intu.
"The shares may trade on 32% discount to first quarter net asset value of 790p but in the event Klépierre does not make a formal bid (which we see as unlikely; its informal approach was 615p split 50:50 cash and shares) HMSO shares are likely to trade down as the probability of a tie-up with Intu rises."
Shares rose 0.85 to 542p in morning trading.