Good morning, everyone, and thank you all for joining this call. I am with Himanshu Raja, our CFO, and Josh Warren, our IR director. As you will have seen this morning, we have announced a transformation deal for Hammerson. I like to say it's a game changer. We announced this earlier on, and this is a GBP 1.5 billion enterprise value transaction, generating circa GBP 600 million of cash proceeds to Hammerson. Let me run through the highlights, starting from the left-hand side of this slide. As you know, Value Retail has been non-core for us for some time. Our interest in Value Retail is oversized. It's a highly complex structure. It's 42% of our portfolio. It's a non-controlling, illiquid and highly dilutive stake.
On average, it gives us only 1.7% cash yield, so this is a very low cash yield versus the cash we get in the company and what we can do with it. It has no synergies with our operating structure, and we've said it before, it is not consistent with our strategy of being an owner and operator of urban destinations. Now, let's look at the price. The sale price represents a 24x EBITDA multiple and an implied cash yield of 3.4%. This is well priced. It crystallizes a 10-year IRR of 13% for the company and generates GBP 600 million of cash proceeds on an enterprise value of GBP 1.5 billion. It's a clean exit, and it's an all cash deal, and it removes significant overhang on Hammerson's shares.
Moreover, it means that we can now seize opportunities in the current market conditions at higher yields and more in line with our strategy. Let's now look at the middle column, which talks to use of proceeds. They go to further strengthening the balance sheet, investing for growth and enhancing distributions. So based on December pro forma, pro forma numbers, the LTV immediately reduces to 23% post-closing and the net debt to EBITDA to 5.1 x. This cements our IG rating and gives us balance sheet flexibility. It creates GBP 350 million of capacity for deployment at higher yields, and we will return cash to shareholders of up to circa GBP 140 million. That's around 10% of pre-announcement market cap. The board also intends to increase the ordinary dividend payout ratio to 80%-85%.
To finish this slide, on the right-hand side, you see this creates the opportunity to accelerate strategic and financial delivery. Post disposal, it means Hammerson is a retail anchored specialist cities business, well positioned for growth and value creation. Our entire portfolio now comprises leading city center destinations. The company is primed to drive rental and earnings growth through reinvestment and continue to drive operating leverage from our lean and scalable platform. You will see at our interims on Thursday, the great momentum that we have. In time, I expect this company to be able to deliver a total accounting return of around 10%. Let's turn to slide three, which takes you through the transaction terms and rationale. Let me first remind you of our motivation to make this disposal.
You will have seen the headline price, which is a highly attractive EBITDA multiple of 24x and an exit cash yield of 3.4%. For 42% of the portfolio, the contribution to earnings and cash has been limited, as I mentioned before. We have had little or no control in a very complex and illiquid structure. In other words, significant capital is tied up and at risk. We are not paid to hold this, and we have higher yielding opportunities elsewhere. In part, important also in our consideration is the opportunity it unlocks for us, putting Hammerson on the front foot to build on our momentum. And talking about that momentum, let's take a step back. Since I jumped in about 3.5 years ago, this team has achieved a lot.
We've realigned the portfolio to our core city center destinations, completing GBP 950 million of disposals. The LTV has gone from 40% at full year 2020, to 34% end of 2023, to 23% pro forma for the closing of this transaction. And net debt to EBITDA went from 14.1x to 5.1x. At the same time, we've reset our platform, reducing our costs by 24%. With a further 10% cost reduction to come in 2024, this will be a 30% cost reduction over this time. We have a scalable and fit for future platform, which will give us operating leverage as we grow back. For example, we've invested in skills, in placemaking, urban regeneration, digital marketing, and data mining, which is now part of our DNA.
We've rebased rents, completing over GBP 155 million of leasing consistently ahead of ERV and previous passing. Our city center destinations remain in high occupier demand, and we've built enduring relationships with best-in-class occupiers. We continue to lease very well so far this year and have a strong pipeline ahead of us. Our flagship rent roll is therefore growing up 3% like for like over the last year, and over the last three years, notwithstanding the three very challenging years covered. So we've also invested, during that time, about GBP 100 million of CapEx already, including marquee repositioning projects in Bullring and Dundrum, where we've generated IRRs in excess of 20% and completely repositioned those assets. And in the process, we returned in 2023 to a cash dividend.
Overall, we now have a proven portfolio and a scalable platform positioned for accelerated growth and value creation at the right time in the cycle. Let's now look at that opportunity. On this slide, you can see we now have a portfolio that comprises a unique footprint in some of the U.K., Ireland, and France's fastest growing cities. Our destinations are focused on high growth, urban catchments with young, affluent, and growing populations. This includes the significant untapped potential of our 80 acres of land. Our portfolio generates over GBP 200 million of gross rental income. Our flagship occupancy is high, at around 96%, and our 1,500 occupiers create physical sales of GBP 3.6 billion from 180 million visitors a year. This additionally drives significant brand value for our occupiers.
At the bottom, you can see our current scale and the potential for growth in existing asset enhancement activities, JV consolidations, and other investments. Which now brings me to our approach to capital allocation. You will be familiar with this slide. We are disciplined and committed to a sustainable and resilient capital structure through the cycle. With this in mind, our waterfall is as follows: Further strengthening the balance sheet, investing for growth and value creation with a bias to organic investment and consolidation within the existing core portfolio, and enhancing returns to shareholders. Today's announcement also significantly increases our total cash capacity. Let's now go into this in a bit more detail. Starting from the left-hand side of this slide, we have around GBP 688 million of existing cash.
Add to this the GBP 600 million of proceeds from Value Retail, and that brings us to pro forma cash of GBP 1.3 billion. This cash capacity gives us a strong and flexible balance sheet. We already had enough cash to cover upcoming group debt maturities until 2026. This now extends that by another year until 2027. It's indeed more earnings accretive to hold the cash for now or invest in high yields, given the low cost of near-term maturities, which average 3.3%. We've then earmarked GBP 350 million for investment for growth and up to GBP 140 million to repurchase shares. The next slide shows the cash cover on our debt through 2027. We have GBP 1 billion of refinancing covered, basically.
This includes Dundrum, where we have credit approval and expect to sign in the coming days, a strong position from which to access debt markets. So I'm really excited about this and about the opportunities that now lie ahead of us. In the near term, we have compelling opportunities in JV consolidation and at attractive yields, alongside repurposing and enhancing existing assets at double digit returns. You will be familiar with what we achieved at Dundrum and Bullring. We are now underway with the repositioning of Oracle and Bristol. Investment in our existing assets gives us the clearest visibility and solid underwriting of attractive risk-adjusted returns. We are uniquely positioned to create this value and leverage our occupier relationships. In the medium term, we also have the opportunity to bring forward projects that are immediately adjacent to our assets.
One example of that is the residential opportunities in, within our estates, both near term at Reading and Birmingham, and near term in Dublin. Indeed, in totality, we have line of sight to over 3,000 residential units on those sites and in the medium term, and the potential for over 7,000 in the long term. These kinds of opportunities serve to densify the overall estates and create value beyond the sum of the parts. We will stay disciplined, selecting the best returns for shareholders and exploring alternative funding or liquidity where appropriate. So it just all goes to show the wealth of organic opportunities to scale back up Hammerson in the right way. Let me talk a bit about how I see our financial framework in the medium term. The combination of existing and new opportunities gives us confidence in our ability to drive growth and returns.
From the left-hand slide, on slide 10, on the existing portfolio, we will continue to grow rents and revenues from repurposing, reducing vacancy, improving the brand mix, and new sources of income. This is what creates the leasing tension we're seeing and the rental growth, with more to come. This rental growth drops to the bottom line due to the operating leverage from the platform. In time, this rental growth will be reflected in growth in ERVs and increased property returns because there is a lag. We have seen this already start to materialize in 2023. In terms of new opportunities shown in the second column, with our new capacity, we can then turbocharge that rental growth by consolidating some of our JVs, or expand our footprint in line with our strategy, both at higher yields and stronger returns.
Rising earnings means rising dividends along, alongside the higher payout ratio announced today. The track record of the team here over the last years, and the performance of our assets, gives me confidence that the business will generate sustainable, attractive growth and returns in the medium term. On the right-hand side is the way I look at our medium-term financial framework. Knowing this business as I do, I expect us to be able to deliver a GRI growth of 4% to 6% range, with operating leverage driving earnings and dividends ahead of that, both annual growth of 6% to 8%, and a total accounting return of around 10%, assuming stable yields. We'll, of course, stay within our IG guide rails of 30% to 35% LTV, and net debt to EBITDA of 6x to 8x through the cycle.
For your models, for full year 2024, we are largely expecting cash interest to offset disposed earnings from Value Retail. Therefore, our earnings outlook is in line with market consensus. Importantly, for more immediate rewards, today, the board announces an on-market buyback program of up to circa GBP 140 million or 10% of pre-announcement market cap. Reflecting the growth prospects of the company, the board also today announces its intention to move to an enhanced payout ratio of 80% to 85% of adjusted earnings. This brings the company in line with U.K. REIT markets. Before I move to my close, a quick word on timetable and next steps. Under the current rules, this is a Class One transaction. However, with the amended U.K. listing rules coming into effect at the end of the month, a shareholder vote will not be required.
There will be a 1-for-10 share consolidation executed prior to the commencement of the share buyback. This will bring our number of shares back in line with peers, also reducing day-to-day price volatility. A circular convening a meeting on the buyback consolidation and proposed capital reduction to increase distributable reserves will be published in due course. There are no material conditions attached to the sale other than customary antitrust filings, so we expect the completion to occur in the second half. So in summary, you can see that this is transformational for Hammerson, and it unlocks significant opportunity. We now have the capacity and capability to accelerate our strategy in higher-yielding opportunities, while also enhancing returns to shareholders. The disposal focuses our portfolio on unique, prime, city center, urban real estate. Our capital structure is now set for growth.
After three years of relentless execution, we have a deep understanding of our assets and markets. This team here is uniquely positioned to drive value in our portfolio. We bring the expertise in city center destinations with the strong relationships we've built with our brand partners and with our communities.... I'm excited about the opportunity that gives, this gives us to build on our momentum and track record of the last three years. We're at a point in the cycle where we can now be on the front foot to capture the exceptional value creation opportunities I see in the near, medium, and long term, and that's exactly what this transaction will deliver. So you will be seeing us again on Thursday, or hearing from us, for our earnings call, but we are happy to open up to a quick Q&A session. Josh?
Thanks, everyone. I believe if we can turn to the phones first, is there anyone on the phones?
Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you are watching via the webcast, please click the Question tab and submit your question there. Our first question for today comes from Ventsi Iliev from Kepler. Your line's now open, please go ahead.
Hi, good morning. Thank you for taking my questions. First of all, congratulations on the disposal.
Thank you.
I have a question on the financial policy. Could you perhaps reveal a bit more on the rationale for net debt EBITDA to be in the 6 to 8 range, specifically, looking at projects? If you are willing to scale those up, then one could argue it should be closer to the lower end.
Yeah, but, I mean, it's, we agree with that, is what I can say.
Okay. And then maybe just on FFO creation, I haven't seen a specific figure that relates to the disposal and the impact of reinvestments. You target 6% to 8% FFO growth over the medium term, but I'm assuming that includes the impact from reinvestments. Can you please indicate a target in a steady state?
Well, to your first question, it does include the reinvestment. I guess that is the steady state for us.
Okay. And maybe last one. Of course, VR has been the non-core part of the portfolio.
Right.
Now that you have this signed, are you reconsidering any other parts of the portfolio?
Yes, yes, you're right about Value Retail. As you know, we have, we had a remaining program of disposals of non-core assets of GBP 500 million, which we completed in H1. So when you look at all the disposals that have been done over the last 2, 3 years, these are the non-core asset disposals that we've completed, basically. So when we land on the current portfolio, which are all, you know, prime Grade A properties, for the time being, given these assets are some of them are in repositioning, some of them are in asset enhancement, and very good contributors to the stream of cash flow to the company, for the time being. We...
This is the rebased portfolio, call it like that, of prime quality portfolio, and we will see in time. But obviously, you know, opportunities come, and we're always open to that. But at the moment, I'm quite happy with the quality of the portfolio of these you know, as I said, key city center assets that are doing quite well.
Okay, thank you very much. That's it from my side.
Thank you. Our next question comes from Marc Mozi from Bank of America. The line's now open. Please go ahead.
Yes, thank you very much for taking my questions. Can you give us a little bit more color on your guidance for your medium terms, medium-term financial metrics? Number one, the CAGR, on what sort of period are we talking about here? Is that 3 years, 5 years, 8 years, 10 years? And, number two, what is the starting point? Is it 2024? Is it 2025? And I have a follow-up question then on the reinvestment yields and so on.
Yes. For the, you know, the period I'm, what I'm stating is a medium-term financial framework. So, and that, as we said, includes the reinvestment in the assets and, and the, the, the, you know, the, the reinvestment of the, the cash proceeds we're receiving. So, you know, when all this flows into, back into the portfolio, I'd say medium term is anywhere between, you know, three, 3 years approx, and, and it's a financial, financial framework, so, so the next 3 to 5 years to, to grow the portfolio at, at those levels.
The starting point?
The starting point is 2024.
Brilliant. And in terms of reinvestment, what sort of amount of CapEx are you targeting as overall over the period? And what sort of internal rate of return or yield on cost, because you've got plenty of development, you're targeting, if you can help us on that? Thank you.
We're not giving, you know, we're not giving. We'll talk a bit, frankly, we'll talk a bit more about our CapEx in our earnings call. So, you know, we'll rebase all this and give you more specific information around that. There's no CapEx guidance per se. We're recycling 350. You've seen, in terms of the returns, you've seen how we manage those returns at a very high double digit in the 20% and plus IRRs from our repositionings. We're basically repositioning space that is ultimately costing the company money, basically big, large, you know, department stores that are that, and you've heard of, you've seen that in the news, for example, the M&S deals or et cetera.
So just doubling, tripling, the revenues on that space and just repositioning the assets. So that's what we're talking about when we're talking about the CapEx, the repositioning, and that's, again, doubling over 20%+ IRRs, very accretive to the asset overall.
Thank you very much. That's it for me. Thank you.
Thank you. Our next question comes from Robert Jones of BNP Paribas. Your line's now open. Please go ahead.
Hi, Rita-Rose and team.
Hi.
I've got three questions, but they are linked, so I'll try and put them all together. The first one is on the buyback 140. When I look at your trading volumes, and the GBP 140 million in context of that, and obviously, I appreciate you're not gonna be buying back a high percentage of the ADV. Is the limiting factor on the 140 size, the liquidity in the stock? You know, in an ideal world, some investors might have liked the GBP 140 million to be larger, but maybe the limiting factor is it's gonna take, you know, 9 to 12 months to buy back that kind of volume if you were, you know, 25% of the ADV. The second question is linked to that.
The benefit of having GBP 140 million versus, say, I don't know, GBP 300 million buyback or whatever, is that it gives you greater firepower for JV reinvestment. Your GBP 350 million that you're guiding towards for that reinvestment, when I look at your largest assets, you know, and the percentage that you don't own, you know, something like Bullring, you might need GBP 250 million to buy out the non-owned stake. Something like, I don't know, Cabot Circus, talking north of 100. You know, Brent Cross obviously way, you know, more than 200. So that GBP 350 million, I guess it gives you some firepower, but you need to be, I guess, quite targeted around JV reinvestment.
So maybe some bit of color in terms of the types of assets you'd be looking to grow your stakes in, rather than just all of your U.K. portfolio. And then the final one is, you rightly have sold, a exposure where you were overweight, and it was you're diluted, or at least the return on capital it delivered you was materially lower than your cost of capital. In a way, potentially one could argue that France now sits in that category. It's obviously your largest, country by GAV. The yield of 5% is lower than your cost of capital. What about selling France and then utilizing those proceeds to also reinvest into further U.K., non-owned JV exposure? Thanks.
Okay. Thanks, Rob, for your three questions. First question is, I believe, is sort of the Ultimately, I agree with you. You mentioned-
Why not do a bigger buyback? Yeah.
Yeah, it's. There is going to be some time, but you have to think about the buyback and the GBP 350 million of investment and the dividend, et cetera, and the deleveraging of the balance sheet, which in itself creates capacity. Think about that as an overall package that we will work, you know, to our targets in which we will be working, in the next, you know, in the next years. So it's really, it's really a carefully crafted package, and obviously, yes, because of the volumes in the share buy, it will take a bit of time, but we think it's a very attractive proposition, you know, as it stands.
And then the question of the JVs, yeah, you're right. In terms of... If you look at the overall amount of the JVs in our portfolio, and Himanshu correct me, but it's over GBP 1 billion. Not all JVs are. Some of these JVs are solid, they're larger pieces of real estate, and not all JVs are necessarily for immediate buybacks. I would say to you that when we look at the opportunity, on which, you know, we've been working, you would have maybe GBP 500 million of ultimately realistic JVs relative to parties that would be agreeable to an exit of the JVs, because they basically have, you know, non-controlling stakes.
So the capacity we have is GBP 350, plus obviously some capacity on balance sheet, where we can, you know, if there is additional opportunity, we would be able to take it. But I would say to you that that tells you that, yes, we have to be targeted, and yes, there is competition for our capital, and people, you know, have to line up and, you know, that's gonna help us to achieve our goals on that side of things. In the third question about France, as you know, we now own tw00% assets in France that are, you know, grade-A rated. And we have also realigned the operational model over there.
So, you know, they are managed now in a very, very efficient way, cost-wise and ways of managing. And we are currently, particularly on Italie Deux, doing asset enhancement, and also on Les Terrasses du Port, we are finishing the turn of the leases. It's the 10th year anniversary of that asset. So those are our two assets that are going well at the moment, strong contributors, as I said earlier, into our cash flows as we continue to do the next phase of the strategy. And for the time being, you know, again, we're creating additional value on these assets. So that's what I would say on your questions, Rob. Thanks.
Great. Thank you very much. Thank you.
Thank you. Our next question comes from Ben Richford of Bernstein. Your line's now open. Please go ahead.
Good morning.
Hi, Ben.
Just a question on the scale of the business, post this disposal. So firstly, congratulations for coming to the end of a long restructuring process and rebalancing the balance sheet on the front foot.
Yeah.
When I look at the business now, I think, you know, the scale is maybe not as big as it could be, especially versus bigger shopping center owners, as we look through the EPRA cost ratio. Perhaps you can firstly indicate where that ratio can stabilize, and just thinking about that scale, whether this isn't the end of the journey and the company should combine with another portfolio.
Thanks, Ben. So on the scale of the business, you're totally right by saying that this is not a, this is it. It's a passage towards making sure in our environment and in the sector in which we are, that we own top quality. I think for all sorts of reasons in this sector, there's been oversupply, and now it's very important to concentrate on quality and make sure that your product is fit for future. So having a big pot of a portfolio and spreading out on all sorts of things, for me, is not the best strategy at this point in time. Focus is really important and value creation.
You know, there's this expression that says, "Diamonds, diamonds come in two small boxes." That, that's, you know, at the moment, we're polishing that diamond and continue to grow back. So definitely, that is the case. It is a scalable platform, so the operating leverage at the moment, yes, it's the cost ratio needs continuous work. And we've done a lot, and you'll see again on Thursday, you know, where we continue to do progress on cost, but perfectly aware that per se spot at the moment, there is, the cost is still high.
But as we scale back, certainly we have the opportunity to reinject in the company, you know, what we will replace Value Retail, basically, and even more, eventually, we have more organic opportunities. So that operating leverage will continue to flow through, into the numbers. That's how I see things. Now, we did a lot of work on the cost, so you know, so you shouldn't necessarily stick on that number at the moment, because we've done a lot of work in the last two or three years, obviously realigning the platform, a lot of reduction of headcount, but also technology, you know, tools. So we're now seeing. We've changed the operating model.
We've consolidated suppliers, so we're now seeing additional, additional flow through in the operational costs. So I'm quite, you know, comfortable we're getting at the right place, but also conscious that we'll scale back, and we need to make sure we have the proper platform to create maximum value.
Great. Thank you very much. Just a follow-up question. On slide nine, you've got a GDV of GBP 5 billion to GBP 6 billion for the medium to long-term pipeline. Obviously, that's beyond the capital resources of the company, and I just wondered to what extent you expect to retain those opportunities, or is it best to sell them on? Thank you.
These are opportunities, as we've mentioned in the last two, three years, we are doing site enabling, planning, et cetera, creating maximum value on pre-development work, essentially, to make sure that we will have all the possible options at any point in time, be it liquidity or, you know, going ahead on some of those with other capital, with partners or whatever. So it's about keeping the optionality. At the moment, there is nothing apart from the Ireland works that we're finalizing in Ireland that really is up and coming, up and growing, or committed to at the moment. But the rest, we're not at that time yet. So we are still in enabling works.
So for me, we will take the time to focus on reinvesting the capital, growing the company, and in time, these opportunities will come, and we will, as I said, either maximize by liquidity, and I think that's what we say in the slides, or we'll have other opportunities that will present to us, because a lot of those are extremely attractive and strategic land, and they are around the estates. Well, some of them are on the estates, but others around the estates, and a huge potential to just, you know, densify and continue to develop the attractiveness of our estates.
For the time being, we're minded to continue to do the maximum we can to unlock value, whatever that is, in time on those sites.
Great. Thanks very much, and congratulations again on a transformative transaction. Well done.
Thank you very much. So we'll take a-
Thank you.
Yeah.
Our next question
Go ahead. Thank you.
Oh, apologies. Our next question comes from Othman El Iraki from Fidelity International. Your line is now open. Please go ahead.
Yes, thank you very much for taking my question, and congrats, congratulations from me as well on the disposal. So more of a kind of you know fixed income you know question, but you know when you mention net debt reduction, are you considering you know tendering some of the bonds, especially the one that are you know trading below par to help you know a bit more deleveraging, or you know happy to stay with the cash on the balance sheet, but and investing in the higher yielding assets? Thank you.
Thank you for your question. I think, I'll have my esteemed CFO jump in on that one. He's, Himanshu?
Hi. Yeah, good morning. As you know, we have retained large cash balance on balance sheet, you know, and with the expected proceeds here, we'll have over GBP 1 billion of debt maturities covered. The reason we hold it is that the weighted average interest rate that we pay is around 3.3% on a December pro forma, and I can earn in excess of 4.5% on the cash. So, we're in a good place from which to access your capital markets at the right time from here, and, you know, make the appropriate announcements at the appropriate time. You wouldn't expect me to comment on tendering of bonds and such like today.
Okay. Okay, thank you very much.
Thank you.
Okay, we have no further questions on the phone, and no questions online, which we have not already covered, so I'll just hand back to Rita-Rose to sum up.
Thank you, everybody, for being there this morning. Again, we are very pleased, excited. This is a game changer and a transformation for us. As I said at the beginning, you, you know, we will be online again, on Thursday, so, happy to, to talk to you again, and don't hesitate to call us up, Josh and Himanshu, and, we'll, we'll give you the time to, to digest all this, but, again, appreciate your interest this morning and your questions. Thank you.