Property firm Hammerson caught the market on the hop with its decision to sell off all its office developments to focus on its retail assets, but with the employment situation looking bleak the market was quick to applaud the decision.
The stock was the best performing blue-chip in early trading on Friday despite a slump in pre-tax profits to £346.3m in 2011 from £620.2m in 2010, as investors bought into management's change of strategy.
"Hammerson has created a retail business delivering out-performance from prime assets in winning locations. We now intend to sell our standing office investments over the medium term to maximise returns, redeploying capital into the retail sector to exploit our expertise and build on our existing scale. This will create efficiencies that lead to further cost savings and income growth from our portfolio," said David Atkins, the real estate investment trust's Chief Executive.
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Retail assets already comprise almost nine-tenths of Hammerson's portfolio, so the change of direction is not so drastic as might at first be thought, and Hammerson is clearly confident it can generate superior returns by bulking up on the retail side.
"We have a small number of London office development projects and strategic mixed-use sites that offer superior returns, where we will continue to allocate capital to increase the overall value of the projects. Where appropriate, we will introduce funding or JV [joint venture] capital to de-risk projects and reduce our overall commitment," revealed Chairman John Nelson.
As for 2011's performance, that was a bit of a mixed bag. As mentioned, profits took a tumble but the reduction was principally 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 profit before tax, which strips out exceptional items such as profits on property sales and the revaluation of property assets, eased to £141.6m from £144.5m the year before.
Net rental income for 2011 was £296.0m compared with £284.7m in the prior year. The net rental income gained from acquisitions and developments more than offset that lost from disposals. Lettings and rent reviews in the UK retail portfolio in France also contributed to a 2.5% increase in like-for-like net rental income.
Adjusted net asset value per share on a European Public Real Estate Association (EPRA)-sanctioned basis was up 7.1%, or 35p, to £5.30 compared with £4.95 at the end of 2010.
The increases were principally the result of the uplift in the values of the property portfolio and other investments, and retained profit.
Adjusted earnings per share dipped 3.0% to 19.3p from 19.9p in 2010.
A final dividend of 9.3p has been proposed, an increase of 5.7% on the 2010 final dividend. Together with the interim dividend of 7.3p per share, the 2011 total dividend is therefore 16.6p, up 4.1% compared with the total dividend for 2010 of 15.95p. Future dividends are anticipated to grow at a rate higher than recent historic levels, the group said.
At 31 December 2011 net debt was £2.0bn (30 June 2011: £2.2bn). Loan-to-value and gearing ratios at that time were 34% and 52% respectively, and cash and committed unused bank facilities totalled more than £700m.
Global macro economic uncertainty and fiscal tightening will continue to have a major influence on Hammerson's property markets, in the view of the group's chairman, John Nelson.
"We believe that occupier and investment demand for retail space will be concentrated on modern, well-maintained properties in the very best locations, such as those owned by Hammerson. Properties without these attributes may experience rental and capital value declines in 2012," Nelson suggested.
"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," Nelson pledged.
At 9:48am the shares were up 10.5p at 396.2p.
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