Shopping centre owner Hammerson announced its first profit in five years on Thursday, in the clearest signal yet that mall valuations have reached their floor.
The company reported pre-tax profits of £51mn for the first six months of the year, after a near-£400mn loss for the same period in 2021.
Shares in the company jumped almost 10 per cent to 24 pence when the market opened on Thursday.
The results mark the first time since 2017 that the company’s earnings have exceeded the losses from falling shopping centre values. In those five years, Hammerson’s share price has fallen more than 90 per cent.
There was further evidence that mall valuations have plateaued on Thursday, with shopping centre giant Unibail-Rodamco-Westfield announcing that the value of its centres was flat over the first six months of the year.
The bottoming out of values and Hammerson’s sale of £194mn worth of assets helped the company reduce its net debt to £1.7bn and rein in its closely watched loan-to-value ratio to 45 per cent from 47 per cent last year.
Another £300mn-worth of assets are earmarked for sale in the next year and the business has cut costs by 20 per cent, according to Hammerson chief executive Rita-Rose Gagné.
Since her appointment in September 2020, Gagné has overseen a redundancy programme and a review of Hammerson’s procurement processes. The company is also weighing whether to downsize from its headquarters in King’s Cross.
The cuts were “now starting to show in the earnings”, said Gagné.
Colm Lauder, analyst at Goodbody, said the company now faced a challenge to expand the business. “Either rents go up, driven by consumer spending, or yields go down. We won’t have [yields going down] because rates are up. So how do you grow rent roll with consumer spend down?”
Tenants in the company’s centres, which include the Bullring in Birmingham and Dundrum in Dublin, paid roughly 90 per cent of their rent in the year to date, up from just 67 per cent last year when coronavirus forced store closures.
Rent that went unpaid during the pandemic had largely been recouped, said Gagné. “The Covid stuff for us now is very minor, it’s not material.”
That is a boost for Hammerson but shopping centre owners remain highly exposed to rising inflation, which is feeding a cost of living crisis and is expected to clip discretionary spending.
The rising cost of living was “the big unknown” facing the sector, warned Lauder.
But Gagné said that shoppers were still spending, particularly on food and drink, jewellery, fashion and wellbeing.
The pandemic had changed spending habits. “What is considered discretionary and non-discretionary is changing . . . People will splurge on things that previously they didn’t,” she added.