Income from Hammerson’s flagship UK properties plunges amid Brexit fears
Ten of the landlord’s retailers launched company voluntary arrangements or went into administration in the interim period
Hammerson, the JSE-listed owner of malls in the UK and Europe is focusing on selling down assets to decrease its debt burden while it faces a storm of uncertainty around Brexit and a changing retail landscape.
The London-based landlord announced on Monday that it had met 90% of its £500m (about R8.7bn) disposals target for 2019, following the sale of a mall in Paris.
Hammerson, which listed on the JSE in 2016 and counts Coronation Fund Managers as a major investor, has seen the value of its properties and share price come under pressure since the Brexit referendum of June 23 in that year.
But it has made progress in decreasing its debt levels, announcing on Monday that it sold its 75% stake in the Parisian shopping destination Italie Deux and the Italik extension at the mall for a total of £423m. This meant it had disposed of £426m worth of assets so far in 2019, having sold a small retail park for £3m a few months ago.
Hammerson has £3.1bn debt and a gearing level of 61%, which is considered high by fund managers, who generally prefer companies to have a loan-to-value of between 30% and 40%.
CEO David Atkins said the sale was a “huge event for Hammerson” in one of the toughest years in its history. He said it was very unlikely that the company would make new acquisitions in the rest of 2019.
On financial results for the six months to June, he said net income from Hammerson’s flagship retail properties in the UK had fallen sharply by 6.8% on a like-for-like basis in the reporting period.
“Tenant restructuring, in the form of CVAs (company voluntary arrangements and administrations), has been the largest single factor reducing income,” he said. CVAs refers to a procedure where a company can settle debts by paying only a portion of the amount it owes to creditors, including landlords.
But the group’s financial director Timon Drakesmith said that since half of Hammerson’s assets were in Europe, the company had a buffer against challenges in the UK.
A number of JSE-listed companies, including local groups Famous Brands, Brait and Rebosis Property Fund, have been forced to write down the value of their UK operations partly because of uncertainty around how and if Brexit will proceed. Much commercial UK property has been devalued, which has weakened the balance sheets of Hammerson and its peers, including Intu Properties and RDI Reit.
Online shopping has also caused some bricks and mortar stores to lose business.
But Drakesmith said Hammerson had recently signed up more tenants which were less affected by online retail than fashion brands were, for example.
“The UK retail landscape is undoubtedly challenging and the high street is changing, but we are evolving and positioning our malls for a better future. We are leasing to categories which are less affected, tenants like Nespresso, grocers and service providers,” said Drakesmith. /With Nick Hedley