Hammerson/Intu: under the hammer
Portfolio sale puts the former in less precarious position than rival mall owner — but only just
Too late for the January sales, but property group Hammerson finally found a buyer for its remaining British retail parks on Friday. Touted as the largest UK portfolio sale in the past decade, the landlord is selling nine locations. Largest perhaps, but the £455m price tag is still a hefty 22 per cent below last June’s book value. That decline mirrors the dire state of British retailing as tenants struggle to pay rents rendered excessively high by the dwindling bands of shoppers.
The proceeds go towards paying down Hammerson’s net debt, which stood at £3bn last June. It officially ends the group’s retail parks’ divestment programme that began in 2018. These were among the sector’s worst-performing assets, but the prospects for Hammerson’s remaining shopping centres are not much brighter. Expect the worst from full-year results due next week.
Still, in property the important thing is to be one-up on the neighbours, and Hammerson’s lower property leverage puts it in a less precarious position than rival mall owner Intu. The owner of Gateshead shopping centre had a loan-to-value (LTV) ratio of 58 per cent last June — versus 40 per cent at Hammerson — and is seeking emergency funding. Gateshead breached covenants in January.
Hammerson’s latest disposal might boost its LTV 3 to 4 percentage points, think Numis analysts. Where that ratio now lies depends on the, still unknown, extent of writedowns to the rest of the portfolio.
A covenant breach, triggered by gearing of 150 per cent, is still distant for Hammerson. Its debt-to-equity ratio was 61 per cent last year. That justifies a somewhat higher valuation than for sickly Intu, with Hammerson’s shares trading at 35 per cent of net asset value compared with Intu’s one-tenth. A yield of 11 per cent, though, suggests Hammerson’s dividend is at risk. Those looking for a bargain should focus on its stores, not its shares.