REG - Hammerson PLC - Final Results <Origin Href="QuoteRef">HMSO.L</Origin> - Part 2
16/02/2015 07:01
- Part 2: For the preceding part double click ID:nRSP9387Ea
437
Capital expenditure
Acquisitions 306 - 306
Developments - 165 165
Expenditure on existing portfolio 90 - 90
Tenant incentive amortisation 5 - 5
Capitalised interest 1 8 9
Disposals (126) - (126)
Foreign exchange (83) (27) (110)
Transfers 453 (453) -
Portfolio value at 31 December 2014 6,499 208 6,707
The chart below analyses the sources of valuation change for the Group's property portfolio. During 2014, investment yields
fell and increased valuations for UK shopping centres, retail parks and French retail properties. The yield movement for
retail parks and the French properties was weighted towards the second half of the year. The benefit of leasing and modest
rental value growth further boosted valuations, although this was principally at the UK and French shopping centres. In
total, yield improvements accounted for 83% of the total portfolio valuation increase during 2014.
Further valuation and yield analysis is included on page 58.
http://www.rns-pdf.londonstockexchange.com/rns/9387E_7-2015-2-13.pdf
Returns data for 2014
Return % Benchmark %
UK portfolio income return 5.1 UK IPD All Retail Universe income return 5.4
UK portfolio capital return 8.8 UK IPD All Retail Universe capital return 8.4
UK portfolio total return 14.3 UK IPD All Retail Universe total return 14.3
Group income return 5.1 Group weighted IPD All Retail Universe income return 5.1
Group capital return 8.0 Group weighted IPD All Retail Universe capital return 7.0
Group total return 13.6 Group weighted IPD All Retail Universe total return 12.5
Total shareholder return over one year 24.7 FTSE EPRA/NAREIT UK index over one year 21.3
Total shareholder return over three years p.a. 23.3 FTSE EPRA/NAREIT UK index over three years p.a. 24.9
Total shareholder return over five years p.a. 11.5 FTSE EPRA/NAREIT UK index over five years p.a. 13.5
Property returns
The table above compares the financial returns generated in 2014 with benchmark IPD indices. The above returns include
development properties and the Group's returns include those from the properties held by its premium outlet investments in
Value Retail and VIA Outlets. The Group weighted IPD All Retail Universe total return benchmark of 12.5% is weighted 70:30
between the UK and French indices. The All Retail Universe indices include returns from all types of retail property.
As the Annual IPD benchmarks for both countries are not available until after this announcement has been published, the IPD
benchmarks have been estimated and are subject to revision. The UK IPD data is based on the Quarterly All Retail Universe
to December 2014. As there is less data available for France, we have assumed that the French benchmark is equal to the
total return generated by our French portfolio of 8.3%.
The Group's total return was 13.6%, compared with an estimated weighted IPD benchmark of 12.5%. The total return for the UK
portfolio was 14.3% which was in-line with the IPD index, although income return was 30bp lower than the index which is
indicative of the prime nature of the Group's UK portfolio. The Group's investments in premium outlets properties produced
a total return of 19.9%.
An analysis of the capital and total returns by business segment is included on page 58.
Shareholders returns
For the year ended 31 December 2014, Hammerson's return on shareholders' equity was 16.3%. This compares to the Group's
estimated cost of equity of 8.0%. The income element of the return on equity tends to be relatively low given the prime
quality of the property portfolio. The capital element of the return was driven by the portfolio's strong valuation
performance during the year.
Hammerson's total shareholder return for 2014 was 24.7% which outperformed the FTSE EPRA/NAREIT UK index by 340bp. Over the
last five years, Hammerson's average annual total shareholder return has been 11.5% compared with 13.5% for the FTSE
EPRA/NAREIT UK index.
Financing
Our financing strategy is to generally borrow on an unsecured basis on the strength of the Group's covenant in order to
maintain operational flexibility. This strategy has ensured access to a wide range of debt capital markets at competitive
pricing. Borrowings are arranged to ensure an appropriate maturity profile and to maintain short-term liquidity.
Acquisitions may be financed initially using short-term funds before being refinanced for the longer term when market
conditions are appropriate. Short-term funding is raised principally through syndicated revolving credit facilities from a
range of banks and financial institutions with which we maintain strong working relationships. Long-term debt principally
comprises the Group's fixed rate unsecured bonds.
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 approves financing guidelines against which it monitors the Group's financial structure. These guidelines,
together with the relevant metrics, including the Group's share of joint ventures but excluding balances held in our
premium outlet investments are summarised in the table on page 14 which illustrates the Group's robust financial
condition.
Key financing metric Guideline 31 December 2014 31 December 2013
Net debt (£m) - note 20B 2,265 2,252
Gearing (%) Maximum 85% for an extended period 46 56
Loan to value (%) Up to 40% 34 38
Liquidity (£m) 648 716
Weighted average cost of finance (%) 4.7 4.8
Interest cover (times) At least 2.0 2.8 2.8
Net debt/EBITDA (times) Less than 10.0 8.0 8.2
FX hedging (%) 80%-90% 88 79
Fixed debt (%) 79 70
During the first half of the year, we received the funds from the $443 million US private placement signed in November
2013. The fixed rate senior notes mature in seven, ten and twelve years and are denominated in US Dollar, British Pound
Sterling and Euro, with the US Dollar portion swapped to fixed rate Euro. The weighted average coupon is fixed at 3.6% and
the proceeds have been used to repay existing floating rate debt and increase the proportion of fixed rate debt.
In July 2014, we issued a new eight year E500 million bond at a coupon of 2.0%. The proceeds were partly used in December
2014 to redeem the outstanding E480 million 4.875% coupon bond, originally maturing in June 2015. This refinancing will
result in a saving of 2.875%, or E14 million, per annum and is in line with the Group's objectives to manage down the cost
of debt and extend the debt maturity profile. At 31 December 2014, the average maturity of the Group's debt was 6.5 years.
The maturity profile of the Group's borrowings is shown in the chart below.
http://www.rns-pdf.londonstockexchange.com/rns/9387E_8-2015-2-13.pdf
Funds raised through the bond issue and, the share placing in September, were used in the short term to repay floating rate
debt on the revolving credit facilities at low floating rates of interest. The timing of this has led to the weighted
average cost of finance rising from 4.6% at the half year to 4.7% for the full year. However, following the E480 million
bond redemption in December, the running cost of debt fell to below 4.3%. We believe that the sterling and euro bond
markets will continue to be available in the medium term to refinance existing bonds as they mature and we will access
these markets as appropriate. In addition, bank lending markets have continued to improve during 2014, with falling
margins, and we expect to be able to take advantage of this situation with upcoming refinancings of unsecured credit
facilities.
Our policy for interest rate hedging is to fix the rate of at least 50% of debt, although we may increase this at higher
gearing levels. At 31 December 2014, 79% of debt was fixed, compared with 70% at the beginning of the year. We expect
interest rates to increase in the medium to long term and our fixed/floating profile will partly mitigate that risk.
Exposure to exchange translation differences on euro-denominated assets is managed through a combination of euro borrowings
and derivatives. At 31 December 2014, 88% of euro-denominated assets were hedged by euro-denominated debt, compared to 79%
at the beginning of the year. The purpose of this increase was to offset the impact of increased euro-denominated rental
income following the opening of Les Terrasses du Port in May. Interest on euro debt acts as a hedge against exchange
differences arising on rental income from our French business. On average during 2014, approximately 82% of our French
income was hedged in this way. However, falling euro interest rates have led to higher euro-denominated earnings and the
hedge of euro income is forecast to fall to approximately two-thirds during 2015.
The Group's unsecured bank facilities and the US private placement senior notes contain financial covenants, requiring that
the Group's gearing, defined as the ratio of net debt to shareholders' equity, should not exceed 150% and that interest
cover, defined as net rental income divided by net interest payable, should not be less than 1.25 times. The same gearing
covenant applies to three of the Company's unsecured bonds, whilst the remaining bonds, contain a covenant that gearing
should not exceed 175% and have no covenant for interest cover. The calculation of these ratios includes the Group's share
of joint ventures. Hammerson's financial ratios are comfortably within these covenants. Fitch and Moody's rate Hammerson's
unsecured credit as A- and Baa2 (positive outlook) respectively. Moody's upgraded their outlook from stable to positive in
June 2014.
Premium outlets
As explained at the beginning of this section, we do not proportionally consolidate our two premium outlet interests, Value
Retail and VIA Outlets. These are financed independently from the rest of the Group's financing arrangements. Both VR and
VIA utilise a combination of secured borrowings and partner loans to fund their structures. At 31 December 2014,
Hammerson's share of VR's and VIA's net debt was £275 million and £31 million respectively. If the Group's share of net
debt, properties and other net assets of the two premium outlet investments were included within the Group's financing
metrics, the Group's proforma gearing would increase from 46% to 52%, whilst the loan to value ratio would reduce from 34%
to 33%.
Equity issue
Hammerson raised gross proceeds of £399 million in September 2014 through a successful share placing. 71.3 million shares
were issued at £5.60 each, representing a 4% discount to the prevailing share price. The proceeds were used to finance the
£180 million acquisition of a 40% stake in Highcross, Leicester and our 47% investment in VIA Outlets. The remaining
proceeds will fund the Group's development expenditure.
FINANCIAL REVIEW
Presentation of financial information
The Group's financial statements are prepared under IFRS and for 2014 the Group has adopted IFRS 11 Joint Arrangements. The
new standard requires that the Group's joint arrangements, which were previously proportionally consolidated, are
classified as joint ventures and are equity accounted. This presentation is consistent with the treatment of the Group's
investment in Value Retail, which is classified as an associate.
The income statement on page 25 and the balance sheet on page 27 include single lines showing the Group's share of post-tax
profit and the net investment in joint ventures and associates respectively. The Group's profit for the year and equity
shareholders' funds are unaffected by the presentational changes associated with the new accounting standard. Further
details of the impact of adopting this accounting policy are given in note 1 to the accounts on page 32.
Adjusted profit is a key measure of the Group's financial performance as it reflects the underlying earnings of the Group.
Details of adjustments in calculating adjusted earnings are given in note 8A to the accounts on page 39.
As explained in the Business Review on page 10, management continues to monitor the performance of the business principally
on a proportionally consolidated basis, except for its interests in premium outlets through its investments in Value Retail
and VIA Outlets where the Group has less day-to-day involvement in operational activities. The commentary in this Financial
Review is consistent with this approach.
The table below highlights the presentational impact of the adoption of IFRS 11 on the Group's proportionally consolidated
adjusted profit.
Adjusted profit analysis
Year ended Year ended
31 December 2014 31 December 2013
Notes to the Accounts Reported Share of Property joint Proportionally consolidated £m Reported Group Share of Property joint Proportionally consolidated £m
Group ventures £m ventures
£m £m £m
Gross rental income, after rents payable 2 205.9 136.3 342.2 175.5 143.8 319.3
Property outgoings 2 (17.8) (18.8) (36.6) (15.3) (21.2) (36.5)
Net rental income 2 188.1 117.5 305.6 160.2 122.6 282.8
Administration expenses 2 (42.6) (0.9) (43.5) (41.1) (1.0) (42.1)
Net finance costs 2 (97.4) (2.7) (100.1) (88.6) (1.9) (90.5)
Share of results of joint ventures1 10B 114.8 (113.9) 0.9 121.1 (121.1) -
Share of results of associate 11A 16.0 - 16.0 13.4 - 13.4
Profit from discontinued operations 6 - - - 3.9 1.4 5.3
Adjusted profit before tax 2 178.9 - 178.9 168.9 - 168.9
Tax charge 2 (0.9) - (0.9) (0.8) - (0.8)
Non-controlling interests 2 (3.7) - (3.7) (3.6) - (3.6)
Adjusted profit for the year 2,8A 174.3 - 174.3 164.5 - 164.5
Adjusted EPS, pence 8A 23.9p 23.9p 23.1p 23.1p
Total dividend per share, pence 7 20.4p 20.4p 19.1p 19.1p
Notes
1 The £0.9 million shown as "Share of results from joint ventures" for the year ended 31 December 2014 represents the share
of adjusted profit from the GroupRecent news on Hammerson
See all newsREG - Hammerson PLC - Transaction in Own Shares
AnnouncementREG - Hammerson PLC - Transaction in Own Shares
AnnouncementREG - Hammerson PLC - Transaction in Own Shares
AnnouncementREG - Hammerson PLC - Total Voting Rights
AnnouncementREG - Hammerson PLC - Transaction in Own Shares
Announcement