Shopping centre landlord Hammerson has met more than 90% of its £500m disposal target for 2019, after striking a deal to sell a £423m stake in Parisian mall Italie Deux.
The deal brings its debt level down to £3.1bn on a pro-forma basis, and headline loan-to-value down to 37%. But there is still a long way to go: during the six months to 30 June, the landlord has continued to see declines in EPRA NAV per share, portfolio value and rental income.
EG speaks to David Atkins, chief executive of Hammerson (pictured), and Mark Bourgeois, managing director of UK and Ireland, about the REIT’s latest trading update as well as their take on the wider market.
It seems that more firms are placing their bets on buying retail. Do you think we are starting to see the bottom of the market cycle?
DA: There is no doubt the UK market is still very thin, and deals are taking a very long time. But that would be a dangerous statement to make – it is still a bit too early to tell.
During 2019, 25% of leasing has been on a temporary basis, compared with 14% last year. Will Hammerson continue to increase these types of lettings?
DA: It represents around 5% of our entire leasing, in terms of our overall portfolio. Quite a [lot of the increase] is down to lease renewals, where one or two major tenants want to increase the amount of space they occupy – we put them on a temporary lease until we can satisfy that requirement.
So I don’t think it is a material shift in the market, albeit there is an increase and it will remain for a while. It shows the proactive way in which we are leasing our space. But it is not necessarily a future feature of the market.
With the likes of Primark, Schuh and Ann Summers requesting 30% rent cuts in light of other insolvencies, what further impact do you expect such discussions will have on rent roll and how do you plan on mitigating it?
DA: We do not have a Primark in our UK business. We [are having] one or two conversations with other retailers where they may be looking at the sizes of their stores and rent levels.
I think we have grown-up conversations – equally, they have to recognise their contractual obligations. CVAs in the past 18 months have only represented 1.6% of our rent roll.
Landlords are increasingly negotiating for equity options in exchange for a CVA vote. Broadly speaking, are they taking more of a stand against CVAs now?
MB: We have had interesting conversations with Monsoon and Arcadia on those elements. It is important to note that it is not equity as such, but more an option on a capital event for that business [in] future. It has enabled us to firm up those negotiations – the state of these negotiations now are far more collaborative and engaged than they probably were 12 or 18 months ago, when they were very unfavourable for landlords.
In that respect, we welcome the equity elements of these deals. But holding equity in retail is not our core business. We are focused on making sure our conversations with anyone approaching a CVA is a fair one, based on their future business plan and working with them to ensure they can continue in a sustainable way.
Has there been any pressure from shareholders to seek other options for the wider business, in light of recent performance?
DA: We have great support from our shareholders. Our top 20 shareholders now own 75% of our shares, where a year ago, it was 65%. So they have been buying shares and we have had several positive conversations already today. I think they recognise we are doing all the right things in a difficult market.
It is not easy – the operating numbers are not great, but they are better in Europe, and fantastic in our premium outlets business. We believe the strategy we are taking will have a positive effect on share prices over time, but time will tell.
Premium outlets are the second-largest part of our business – like-for-like rental income is up 11%, and values grew by 4.5%, so it continues to generate really positive numbers. And we look forward to planning permissions for our first City Quarters schemes [in Dundrum, Martineau Galleries in Birmingham and The Goodsyard] and to realise value in some form on those.
It is tough here in the UK, but there are positive things to look at as well.
Many industry figures observe there is a significant lack of debt in the market when it comes to retail investment deals. Is this something you are seeing, from a broader market standpoint?
DA: You have to look at who the buyers are. I think opportunistic and private equity buyers are finding it harder to raise debt because they are shorter term in nature, and they don’t always have a great track record at standing by their obligations, if an asset breaches its covenants.
A longer-term buyer, with a credible track record for a good asset, is still able to raise debt.
Earlier this year we extended our credit facility – we actually added a bank to it – but the majority of our debt is through the unsecured debt markets, listed bond markets, and those still remain healthy.
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