HAMMERSON PLC (HMSO) Q2 2026 Earnings Call Transcript

Thank you for joining us for Hammerson's 2026 half-year results. I'm Rob Wilkinson, CEO, and I'm joined by Himanshu Raja, our Chief Financial Officer. I'll begin with an overview of the half-year and our progress against our three strategic priorities. Himanshu will then take you through the financials, and I'll come back briefly on the outlook before we take your questions. In February, I set out clear priorities for Hammerson, and we've made good progress on all fronts in the first half. First, we've driven operational outperformance across our destinations in occupancy, footfall and sales. Second, we've continued to maximise and crystallise the value of our strategic land. And third, we're increasing our scale through disciplined and accretive acquisitions, including, as announced this morning, a 50% interest in Manchester Arndale. And on the back of all that, we're raising our FY26 earnings guidance to £132 million, which will be up 27% year-on-year and we're setting out new medium-term guidance. The headline numbers reflect that momentum. Net rental income was up 40% to 112 million. EPRA earnings were up 33% to 64 million with earnings per share up 22% to 12.1 pence. We're declaring an interim dividend of 9.67 pence up 22% year-on-year and representing an 80% payout of our EPRA earnings. The portfolio is valued at £3.6 billion, with NTA per share unchanged at £3.94 and a total accounting return for the half of 2%, a robust and high-quality performance, which Hemanshu will cover in more detail shortly. Let me take each of our three priorities in turn and show you what we have delivered, starting with how we drive outperformance across our destinations. Our first priority is to keep doing what we do best, targeted leasing and partnerships with the best brands to create the most compelling mix for visitors and occupiers. In the first half, we signed 18.5 million of headline rent across 234 leases, 52% ahead of previous passing rent or 17% excluding units with no previous rent, and 9% ahead of ERV. Our destinations remain the entry point of choice for the best names Zara Home at Dundrum, a first for Ireland Garage and Harley and Harper at Bullring Each a UK portfolio first for us Our resulting occupancy is now at the highest level we've seen for seven years We have had a strong start to the second half With a further 2.6 million exchanged And we have a robust pipeline of over 21 million into the second half This is the flywheel Leases drive footfall, then sales, then occupancy, and ultimately rents. Our group footfall was up 3%, with the strongest growth where we've recently repositioned the assets. Caput Circus was up 13% after the recent openings of M&S, Sephora, Odeon Luxe, and Uniqlo. Like-for-like sales were up 2%, with an exceptional performance from France up 4%. Our second priority is maximising value from our strategic land. Year-to-date, including the partial sale of Dublin Central after period end, we've realised 75 million of non-core disposals at a substantial premium to book value. And where we've recycled capital into densifying our estate, like the Ironworks residential scheme at Dundrum, we've seen real success with the scheme now 80% leased. On the remaining 290 million of book value, we remain disciplined, drawing a clear line between integral sites like the drum at Grand Central, which is now in design and procurement, and where we're more likely to commit capital and develop ourselves, and standalone sites where we advance planning to create value and then recycle capital. Our third priority is increasing our scale. We have a platform that is efficient and scalable, so additional income comes with minimal incremental cost, driving operating leverage. so as we look to scale we will be disciplined in our approach our focus will remain on landmark retail-led destinations in our core markets the uk ireland and france and selectively wider european markets where the fundamentals transparency and liquidity are right our criteria are also clear we look for strong growing catchments polarization to the very best and recognize that our occupiers focus on unified commerce combining online and physical. The quality of catchment ultimately matters more than scale alone. Above all, we look for assets where we can bring our integrated platform to bear, repositioning, asset management, brand mix optimization, and developing integral plots to unlock value that others can't. The ideal opportunity is a strong destination in a strong catchment with clear room to add value and where our expertise makes the difference. That is precisely what Manchester Armdale exemplifies. Manchester Armdale is our first external acquisition in over a decade and is entirely consistent with our strategy. A high-quality scale asset, over 230 occupiers, 96% let and serving a catchment of 6.4 million, the largest outside London and rated A by Green Street. It sits at the heart of a thriving city region, with 45 million visitors a year, now the highest footfall in our portfolio, and a greater Manchester economy worth over 100 billion. And it offers compelling upside through further asset management and repositioning. Working alongside our new partners, we see four potential levers to drive value. First, to modernise the public realm, new entrances, sharper wayfinding, a refreshed food court. Second, to further elevate the brand mix, reconfiguring oversized legacy units into the smaller in-pitch space that leading brands want. Third, we will continue to attract new global brands with a premium line-up curated for new Cathedral Street. And lastly, driving rents and capturing reversion by extending the prime zone A pitch and re-gearing key renewals. It's exactly the work our platform was built for. And the terms of the deal are attractive. A headline price of $218 million for our 50% interest at a topped-up net initial yield of 7.8%, adding around $17 million of topped-up net rental income. It's funded by the placing announced separately this morning, and it's immediately earnings accretive for minimal NTA dilution. And so to the outlook. On the back of this strong half and the addition of Arndale, we're raising FY26 EPRA earnings guidance to 132 million, year-on-year growth of 27%. That's $125 million from the underlying business, up from the previous guidance of $120 million, plus a $7 million in-year contribution from Arndale. We expect total NRI growth of 28% and like-for-like NRI growth of 4% to 5%. And we're issuing new medium-term guidance off our FY25 base of EPRA EPS growth of 6% to 8% a year, dividend growth of 6% to 8% as well, and a total accounting return of around 10%. Before I hand over to Himanshu, let me first thank him for his contribution to Hammerson over the last five years. He has been instrumental in the turnaround of the company and the platform for growth that we have today. Today is his last set of results as an executive as he moves to a portfolio career.

Thank you, Rob, and good morning, everyone. As Rob said, this has been a strong first half underpinned by a robust balance sheet. Let me take you through the numbers. Starting with the summary, net rental income was up 40% to £112 million, reflecting strong like-for-like growth of 5% and the benefits of last year's acquisitions. EPR earnings rose 33% to £64 million and earnings per share were up 22% to 12.1 pence. The interim dividend is also up 22% at 9.67 pence per share. The IFRS profit was £56 million. Our EPRA cost ratio fell almost 10 percentage points to 28.4%, clear evidence of the operating leverage in our platform, but I'll come back to the phasing of that shortly. On the balance sheet, the portfolio is valued at £3.6 billion, up 1%, with NTA per share unchanged at £3.94. Net debt to EBITDA improved from 9.5 to 8.1 times, and LTV was unchanged at 39%. This slide bridges the growth in EPR earnings from £48 million in H1 2025 to £64 million in this half, where you see the step up in like-for-like income growth and the benefits of the acquisitions we completed in 2025. The other NRI reflects the net effect of the progress on the development portfolio as we took vacant possession, disposals and some FX. The increase in the admin costs reflects the normal inflationary increase, some management transition costs and the reduced fees following our acquisition of JV partner stakes. and as expected the growth in nri is in part offset by higher net finance costs this simply reflects lower interest receivable of 12 million pounds as we recycle cash on balance sheet into jv acquisitions while interest payable was 2 million pounds higher principally reflecting our bond issue in early june the resulting 64 million pounds earnings is up 33 high quality earnings growth now to the usual nta walk nta per share was unchanged over the half at three pounds 94 with epra earnings and the dividend broadly offsetting one another and underlying valuations broadly flat. The net revaluation deficit of two pence reflects timing differences between the recognition of ERV and capital expenditure, while yields were flat. And after the final 2025 dividend, our total accounting return was 2.3% for the first half. On to net debt and credit metrics. Net debt was £1.4 billion, LTV 39%, and net debt to EBITDA 8.1 times, with liquidity of £1.1 billion. During the half, we refinanced our combined £613 million of revolving credit facilities on unchanged terms and extended the maturity to 2029. We were also in the bond markets, issuing a Euro 350 million bond, maturing in 2031. The issuance was five times covered at peak. Maintaining an investment-grade credit profile remains a key tenet of our strategy and continues to inform our capital allocation decisions. The funding of the Oracle, ILAC, and now Arndale, demonstrates this discipline balance sheet capacity where appropriate capital recycling where possible and equity where required to support growth while maintaining financial flexibility pro forma for the partial sale of dublin central in july and today's acquisition and associated placing ltv reduces to around 36 and net debt to EBITDA to around seven times. We will continue to be disciplined in our capital allocation, investing only where we see the opportunity to generate returns above our cost of capital. Which brings me to guidance. Rob has given you the headlines. We now expect FY26 EPR earnings of around $132 million, which represents a 27% increase year on year. That comprises an uplift in the underlying business from £120 million that we guided at the full year results to now around £125 million, plus £7 million in-year contribution from the acquisition of Arndale. Let me give you the building blocks. We expect total NRI growth of around 28%, including like-for-like growth of 4% to 5%. We continue to expect a full year gross to net of around 80%. On costs, we still guide to a reduction in the EPRO cost ratio of 300 to 400 basis points in each of 2026 and 2027. The first half ratio of 28.4% benefited from the resolution of some long-standing rates appeals that will not repeat in the second half. Nonetheless, we are well on track and with the operating leverage generated by Arndale, we expect a full-year ratio below 30%. Net finance costs are expected to be around £60 million. On capital expenditure, as 100% owners of seven of our ten flagship destinations, we are able to plan and execute with spend across the different asset management opportunities in the portfolio with speed. Our full year guidance therefore remains unchanged. £30 to £40 million on asset enhancement and leasing, around £30 million to complete our repositioning and a light touch spend of £10 to £15 million on development. And finally, our dividend policy is unchanged, a payout of 80% to 85% of full-year EPRA earnings. Before I hand back to Rob, allow me a brief personal word. This is my last set of results and my final presentation as an Executive Director of Hammerson. It's been a genuine privilege. When I look at the balance sheet we've built, the platform we've created, and the growth that lies ahead, I could not be more confident in the company's prospects, which is why I am participating in the placing today and will remain a shareholder. With that, back to Rob.

Thank you, Himanshu. So let me close where I began. My priorities remain unchanged, continue to develop flagship outperformance, maximise the value of our strategic land and further increase our scale. Our confidence in delivering them is reflected in today's upgraded guidance and it points to a clear path to attractive, sustainable shareholder returns, EPR EPS growth of 6% to 8% a year, dividend growth of 6% to 8% as well, and a total accounting return of around 10%. We have real momentum, a platform built to scale, and the discipline to grow well. With that, thank you, and we look forward to taking your questions at the live session this morning.

Good morning. Thank you for attending today's Hammerson Half Year Result 2026 Q&A call with Rob Wilkinson and Himanshu Raja. My name is Gerry and I will be your moderator today. All lines will be muted during the call. If you would like to ask a question, press star 1 on your telephone keypad. I would now like to pass the conference over to them. Please go ahead.

Morning everyone, Rob Wilkinson here. Thank you for joining. obviously I'm very conscious it is very early in the day we've got a lot of reporting going on so we'll keep this nice and short as obviously we want to focus on your Q&A so without further ado please do come forward if you have questions happy to answer them obviously he meant you with me as well thank you as a reminder if you would like to ask a question please press star followed by one on your telephone keypad to remove your question press star followed by two.

Again, ask the question, press star once. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will now take our first question from Zachary Gauch from UBS. Please go ahead.

Hi Rob, hi Manchu. Thanks for taking the question. Yeah, just on Arndale, obviously this is an asset you had a look at last year um decided to not go ahead with it i think some of the concerns at the time were the timing of reversion the age of the asset um some of the capex that might have been required could you just sort of touch on what's changed in your thinking between then and now um and also on the ownership structure and management structure um how you see that sort of playing out because if i understand correctly it wouldn't um directly come with 100 control of the management morning zach thank you for the question um you're right um the asset was put on the market or the

interest we're acquiring was put on the market last summer um at an asking price of 237 million and and we participated in that process with others and got through to the second round and in the second round there was a timeline set out for the physical due diligence on the asset which is something that we were not prepared to to work towards and i think the same was felt by others So in effect, that process was terminated and the sale did not go forward. We on our side, though, have targeted this asset for some time. And so we stayed very much in contact with the vendors and we were therefore able to effectively agree a deal off market to acquire the interest, which is the purpose of obviously today's acquisition. So it was nothing to do with the asset at all. It was simply that the process was not one that we were comfortable participating in. And I think the others were feeling the same way. So we're very excited about now being able to do so, as I said, on a bilateral basis. In terms of the management, yes, it's a sort of joint ownership and joint management with M&G. And obviously, you know, they're a long-term investor like ourselves. We have had some discussions with them already around the business plan and strategy, and we're very much aligned with that. so we will be looking to work with them as our partners to you know continue to deliver value on the centre and very much I think aligned in that respect and you know so it's very comfortable with them as our partners alongside us.

Okay great and the yield that's reported does that include any assumptions on sort of capex backlog or sort of maintenance capex that might be required in the next few years?

Yeah there's no immediate urgent capex required The fabric of the building is in good condition. The capex that we're setting out in the business plan is predominantly accretive, so linked to leasing and improving the tenant mix within the scheme. There's a little bit of more defensive capex, but that's really kind of public realm stuff. So the entrances and the streetscape, we'd like to look to improve the wayfinding. And then the food court, I think at the upper end of the mall, definitely needs some investment. So it's kind of ordinary course of business capex that we would have across our portfolio as a whole.

Great. Thanks. The kind of key assumptions behind the medium term earnings and dividend growth targets you're setting, you know, kind of what kind of like for like net rental income, for example, you're assuming in terms of the growth rates there. Thank you.

Morning, James Imanshu here. Thanks for your question. Yeah, the upgrade guidance today really reflects, first of all, the benefit of a small number of kind of one offs in the first half. the settlement of long-standing rates rebates that's just over a couple of million but fundamentally the upgrade is driven by strong underlying performance in leasing and that driving increased occupancy into the second half as we do that of course your void costs become service charge income and we also see the benefit of all of the flurry of openings that we've had over the course of the year driving through to share of turnover rent so that is why it's not 64 first half times two but nonetheless an upgrade from the previously guide 120 million of earnings up to 125 and then when you add the seven on for today's acquisition of arndale then 132 million guidance up 27 percent year on year second part of your question was on medium term guidance the medium term guidance the first thing to highlight is it's now off the 2025 base our previous guidance was at the time of the value retail disposal and since then of course we've consolidated our jv so off that higher base we're still maintaining that six to eight percent both eps and dps kega and the tar of around 10 percent over the medium term which we consider to be you know five years the drives of that again it's the fundamental strength of the portfolio we see the opportunity for a similar four to five percent growth in 2027 on a like-for-like basis And you'll recall we have a number of repositions coming on stream in 27, like further repositioning at the Oracle, Quakers Exchange at Cabot Circus, and also the opening of our surge extension. They'll all be drivers. And beyond that, 28 and beyond, we see inflation, inflation plus growth coming through by continuing to kind of push rental tension. All of that kind of growth then translates into the reduction in our upper cost ratio as we get fundamental operational gearing. Take Arndale as an example this morning. We will not be adding any incremental resource as we onboard the co-management of Arndale this morning. So that operational gearing then drives through to the growth in earnings and then dividends to follow.

Thank you. Next, we will take a question from Tom Berry from Green Street. Please go ahead.

Morning, guys. Yeah, just a quick one on the UK like for like. And I figured I wondered if you could give a bit more colour on that split across assets. I know you said Westkey has dragged, but it's a fairly significant decline. So, yeah, just a bit more colour on the sort of asset breakdown would be great.

Two parts to that question. West Key simply reflects that this time last year, we'd had a surrender, which we saw the benefit of, that doesn't naturally repeat, and that affects the year-on-year comparison. But actually, overall, like for like in the UK, the strength was driven again by the repositioning. So we saw a really strong performance at the Bullring, strong performance at Cabot, and strong performance at Oracle. I recognise, Tom, that the various UK assets are at different stages of that, you know, repositioning journey. We're really encouraged now, four years on, for example, from the reposition of Bullring, that we're still continuing to drive, you know, rental tension there. In particular, the positioning of one of the kind of east upper miles there, which was a quieter end of the scheme. And again, the repositionings there with occupiers like New Balance coming in have seen that drive kind of real uplift. So even four years into a repositioning at somewhere like Boring, we're still able to drive that kind of rental growth. So across the board, depending on just where the asset is in its repositioning journey.

Thank you.

Thank you. Next, we will take a question from Veronique Miltens from Kempen. Please go ahead.

Hey, good morning, all. Thank you for taking my question and congratulations on the transaction. Maybe briefly getting back to that medium term target, because just so I understand it clearly, because at the full year, I think you actually upped it. And I appreciate the base is different, although 25 was not per se the year with the highest growth yet. That's more to come in the coming year. So is maybe also the forward looking period extended or why is it now six to eight to eight instead of eight to ten?

It simply reflects the role forward of another year and then off the higher base, Veronica. Remember when we guided at the time of the value retail, we gave an underlying baseline of around 85 million of underlying earnings, excluding the impact of value retail. So it's a simple role forward of a year. And then we always look to five years on our medium term guidance.

Okay, thank you. And then perhaps on the balance sheet, through this acquisition, you over-equitize, so you reduce your LTV. Is it to create more firepower for you, or is it also to maybe take a more conservative stance on the balance sheet at the moment and for a longer period to reduce your leverage metrics?

It's Rob here. It's a little bit of both in reality, Veronique, because it clearly does bring the credit metrics down. That said, we've been very clear, you know, Himanshu and I have been very comfortable where they were previously, that's not the concern. This just gives us the ability to bring them down, but it also gives us some optionality on funding going forward. If a transaction were to become available and the execution required quick sort of timing, then it gives us some flexibility to acquire further, gives us around 200 million sterling or so of additional capacity to keep us within, again, credit metrics would be very comfortable. So it's a little bit of both in a way.

Okay, that's good. Thank you. Thank you so much. Next question is from Ranava Boydapu from Barclays. Please go ahead.

Good morning. Thank you for taking my questions. Firstly, obviously, the results are pretty good and the income growth has been pretty strong, but the capital return is still, you know, mildly negative.

Is that just a factor of yield or is there anything else going on there? sure it's rob again here thank you for the question um yeah valuations at half year were flat um and i think reflective of two things really obviously the uh the situation in the middle east which i think has created an element of uncertainty until perhaps more recently which i'll come back to um so the sort of yields uh were kept flat to the half year um and at the beginning of the year i anticipated there might be some compression but then i think the middle least has changed that perspective. We don't see decompression, but they have flatlined the yields to the first half. That said, I think two things. One, I've just mentioned that we have seen a renewed level of activity within our market in the last six to eight weeks, and it's my anticipation that that could lead to some yield compression in the second half of this year. So I think we could see some uplift coming through. And the other aspect is ervs where we continue as i've mentioned a bit earlier in terms of our spreads to see uh you know significant um spread above erv at nine percent to this first half and so we expect that to kind of flow through into the valuations as well in due course um so yeah flat to half year but anticipation of some uplift in the second half thank you and my second question is regarding your debt maturity profile obviously you have the euro bond coming to you next year and i believe you have sort of pre-funded it earlier as well but obviously if you have opportunities coming through you would you know cash is fungible effectively do you have any plans to maybe come to market

issue in either sterling or in euros in the near future thanks for your question uh you know the The Eurobun matures next June, as you've rightly identified, we've pre-funded part of that, so the remaining needs to be funded and it will be in the market at the appropriate time. You'll note that the June issuance we got away at 3.875, had we been a month earlier or a month later, that probably would have begun with a 4. As you know, we have an EMTM program in place, which allows us to respond to the market with agility. So we'll just try and pick the right timing for that.

Okay, thank you very much.

Thank you so much. There are no questions waiting at this time. I will pass the conference back over to Rob for any closing remarks.

Thank you all again for attending. Again, we're delighted to present the strong results we have and of course the acquisition of 50% of Arndale and the equity raising associated with that. So again, thank you for all your support and look forward to continuing to work together. Thank you.

Thank you.

Thank you so much.