Hammerson's bid to buy intu will create a group significantly more exposed to the UK, while planned disposals may require comprehensive discounting, Irish brokerage firm Goodbody has said.
'We liked the growing non-UK exposure of HMSO (Hammerson), particularly given the broad uncertainty in the UK property market,' said Goodbody in a briefing note.
While Hammerson is currently exposed 50/50 to the UK/Europe, intu's 90% UK weighting will create a pro forma exposure of 70% for the new group, Goodbody said. Although disposals are planned, the broker said that it would be unlikely to take the group's UK exposure under 66/67% in the short term. Longer term, plans to reinvest sales proceeds in Ireland, Spain and the Premium Outlets platform may see the UK share of assets reduce further over time.
According to Goodbody, the pre-announced disposal of around £2 bn of predominantly UK-focused assets may require significant discounting in the current market. 'Intu hold significantly lower-grade shopping centres which we imagine will make up the bulk of these disposals, however investment volumes in the UK are at their weakest since 2009 with limited investor appetite. Recent transactions like the Bluewater part-sale do not instil confidence,' the briefing note said.
The merger will also mean a high LTV for the group of around 41%, higher than Hammerson's current 35%, due to the impact of intu's 45% LTV. Goodbody suggested that disposals could improve this, however.
The combined Gross Asset Value (GAV) of the Hammerson/intu deal is £21 bn (€28 bn), with the adjusted GAV of both parties representing a roughly 50/50 split. Goodbody concluded its appraisal of the new group saying that 'the addition of lower grade assets from intu dilutes the quality offering'.
