UK shopping centre operator Hammerson announced on Thursday that it has sold its 50% stake in VIA Outlets to Dutch pension fund APG for around £274 mln (€301 mln) and plans to raise £552 mln from a rights issue, to help it ride out the coronavirus crisis.
The owner of London’s Brent Cross shopping centre and the Bullring in Birmingham, which like other retail groups has been battered by the pandemic, said the measures are aimed at raising a total £825 mln (€912 mln) to bolster its financial position, reduce its debt burden and provide liquidity headroom.
Both transactions are subject to shareholder approval. The disposal of the VIA Outlets stake to APG, which holds the other 50% in the JV, is conditional on the rights issue proceeding, and is expected to complete in Q4 2020. Via Outlets was formed in 2014 and comprises 11 outlet centres across Europe.
The planned rights issue has the backing of Hammerson's two largest shareholders, APG and Lighthouse Capital, which hold around 20% and 14% of the current issued share capital of the company respectively.
News of the rights issue and VIA stake sale coincided with the release of Hammerson's H1 2020 earnings figures which reveal that first-half losses before tax widened to £1.09 bn from £319.2 mln in the prior-year period.
Rental income plunged 44% to £87.3 mln in the first half of the year, while adjusted profit dropped to £17.7 mln from £107.4 mln a year earlier. At end-July, 72% of H1 rent had been collected.
David Atkins, CEO of Hammerson, said: 'Today we have announced a series of transactions to recapitalise the business and reduce leverage by a quarter. This will help us to deal with these unprecedented conditions while enabling us to reposition Hammerson further. Looking forward, we will continue to dispose of assets and recycle capital from across the portfolio as we create a business focused on flagship destinations and mixed-use City Quarters over the medium term.
'The extraordinary disruption caused by Covid-19 on the retail property sector, the economy and society as a whole is reflected in these half year results, however, in recent weeks we have seen an encouraging increase in footfall as confidence begins to return amongst visitors to our flagship destinations.'
Hammerson also announced plans to introduce more flexible leases and rebase rents at 'more affordable levels' after struggling to collect rent from tenants during the pandemic as they faced a sharp fall in footfall and store closures.
'The pandemic has exacerbated structural shifts in retail, exerting further pressure on both property owners and brands, and provided further evidence that the UK’s historic leasing model has served its time. It is outdated, inflexible and needs to change,' Atkins said.
'We are introducing a new UK leasing approach – one that is simpler, reflects an omni-channel retail environment and rewards positive performance on both sides. It will deliver a sustainable, growing income stream and we are in initial discussions with retailers and anticipate introducing the first of the new leases later this year.'
Analyst comment
Analysts Goodbody said in a note that Hammerson's H1 results were 'presented as more of a strategic update than normal results'. The VIA Outlets disposal and planned rights issue are 'critical for strengthening the balance sheet, which has been hit by the perfect storm of decline in traditional retail and then Covid-19.' Goodbody suggests ' further headroom' may come from the disposal of Hammerson's retail parks business in the second half of the year.
It added: 'Hammerson's weak results were fully expected by the market, although the value declines were more severe that we had forecast, we see this as a positive given they are closer to a potential floor. The rights issue proposal will be a key test for the coming months, but the support of two of the largest shareholders is encouraging. We expect more disposals to be announced as Hammerson refocuses.'
