The Times - UK (2020-08-07)

36 2GM Friday August 7 2020 | the times

Business

Hammerson has launched an emer-
gency rights issue and proposed a dis-
counted sale of its interest in a designer
outlets business as the shopping centre
owner battles to avoid the fate of its
rival Intu Properties.
The owner of the Bullring in Birming-
ham wants to raise £800 million to
reduce its £3 billion debt pile. If it is
unsuccessful, the company has warned
that it could breach its debt covenants
next June, which may cast “significant
doubt” on its ability to continue.
The company is seeking to cut its
debts as Covid-19 accelerates a decline
in rental income and valuations of
retail property. Intu, owner of the
Trafford Centre in Manchester, went
into administration in June.
Hammerson was established in 1942
by Lewis Hammerson, first developing
residential property then expanding
into commercial property in 1948. It
became a public company in 1954.
It has launched a £552 million rights
issue, offering 3.7 billion new shares at
15p a share. The price represents a 41.4
per cent discount to the theoretical
ex-rights price of 25.59p. APG and
Lighthouse Capital, Hammerson’s two
biggest shareholders with a combined
34 per cent stake, have agreed to vote in
favour of the issue, which has been fully
underwritten.
The landlord has also agreed to sell
its 50 per cent stake in Via Outlets, a
designer outlet business that owns sites
in Europe, to APG, the Dutch pension
fund that owns the other half.
The £274 million sale price repre-
sents an 18.7 per cent discount to the
gross asset value of Hammerson’s inter-
est at the end of June. Hammerson will
retain a 7.3 per cent stake in the busi-
ness. The disposal is contingent on
Hammerson completing the rights
issue successfully. Both transactions
are subject to shareholder approval.
Hammerson expects to secure net
proceeds of £794 million from the cash
call and Via Outlets sale to reduce its
debt from £3 billion to £2.2 billion and
its loan-to-value ratio from 51 per cent
to 41.7 per cent. It announced the trans-
actions alongside a first-half loss of £1.1
billion. The value of its portfolio has re-
duced by 8 per cent to £7.7 billion since
the end of last year. The company’s net
asset value fell 21 per cent to 458p as
earnings per share tumbled by 84 per
cent to 2.3p. The shares were down 8½p,
or 15.3 per cent, at 47½p yesterday.
Hammerson announced the launch
of a new leasing approach in the UK,
including rebasing rents by between 10
per cent and 15 per cent to make them
more affordable and introducing more
flexible leases.
Some analysts were not convinced.
James Carswell, of Peel Hunt, said:
“Further declines in rents and values
could see the loan-to-value ratio creep-
ing back up towards 50 per cent, and
while further disposals are planned, the
market remains very tough right now.”

An activist investor who wants Barclays
to shrink its investment division has
renewed his attack on the bank.
In a letter to shareholders in his
Sherborne Investors fund, Edward
Bramson said that Barclays should re-
duce its investment banking business to
boost long-term profit margins.
He said the bank should follow the
lead of Deutsche Bank, which is paring
its investment operation. Mr Bramson
said the pandemic had “significantly

Bramson back on the offensive with new attack on Barclays

distorted the first-half results of all the

banks”, according to the letter, which

was first reported by Bloomberg.

“Investors continually show they just

do not care very much about the trad-

ing business,” wrote Mr Bramson, 69,

adding: “If Barclays sincerely intends to

prioritise shareholder value, this is

something that, like [Deutsche], it will

need to understand.”

The activist’s call comes just days after

Barclays unveiled strong results at its in-

vestment arm, which was boosted by

clients buying and selling assets as they

reshaped their portfolios for the crisis.

Last week the bank revealed that reve-

nues from its fixed-income, currencies

and commodities division climbed 83

per cent to £3.3 billion in the first half,

while income from its equities business

rose 26 per cent to £1.2 billion.

Sherborne, which has recently raised

its stake from 5.8 per cent to 5.9 per cent,

has been targeting Barclays for two

years. It told shareholders it wanted the

lender to reduce assets at its corporate

lending and investment arms by 24 per

cent, the first time it has set such a pre-

cise target. Shares in Barclays fell 1½p,

or 1.4 per cent, to 105¾p and are down

43 per cent since the start of the year.

Mr Bramson has little tangible to

show for his noisy campaign. He failed to

gain a seat on the board last year and this

spring he withdrew his bid to unseat Jes

Staley, the Barclays chief executive,

because of the pandemic. The activist

had previously said he would oppose Mr

Staley’s reappointment because of his

past professional links with the financier

Jeffrey Epstein.

Mr Staley, 63, has led Barclays since

December 2015. He was fined £642,000

by the City regulator two years ago for

trying to unmask a whistleblower and a

year earlier attracted scrutiny for sup-

porting his brother-in-law in a dispute

with KKR, the US private equity firm

that is a large customer of Barclays.

In February it emerged that regula-

tors in Britain were scrutinising his past

dealings with Epstein. Mr Staley said he

“deeply” regretted that professional

association, which continued after

Epstein was convicted of sex crimes

against minors in 2008.

Simon Duke

Wolf is kept from door, but there’s no easy way out

Analysis

H

ammerson has

launched a

survival plan for

the Covid-19 crisis

but even if it succeeds, the

landlord will not be in the

clear (Louisa Clarence-

Smith writes).

A £552 million rights

issue and the disposal of its

interest in a European

outlets business would see it

through the worst of the

loss of rental income and

value destruction triggered

by the pandemic. David

Atkins, the outgoing chief

executive, believes the

company will secure

shareholder support. “We

wouldn’t have announced

the transaction today if we

were nervous about the

result,” he told analysts.

The question is: where

does the business go from

there? The good news is

Hammerson doesn’t have

the complicated debt

structure that choked its

rival Intu Properties. The

majority of its debt is

unsecured at group level so

lenders can’t take control of

individual assets and create

a cash trap.

The bad news is that by

selling the best bits of the

business to reduce debt,

Hammerson becomes an

increasingly illiquid

business that will struggle

to make the required

investments in its portfolio.

“They’ve kept the wolf

from the door and put a

padlock on, but the

problem with that is you

can’t go out and create

value,” Robbie Duncan,

analyst at Numis Securities,

said. “They just seem to be

shrinking themselves to a

shadow of their former

size.”

Mr Atkins, who has been

chief executive for more

than a decade and is due to

leave by next spring, has

questions to answer. He is

right that the conditions

caused by the pandemic are

“unprecedented”. However,

he is also responsible for

leaving the company in a

position where it has too

much leverage in an illiquid

market that was a recipe for

trouble, with or without

Covid-19. It now has to

dispose of its best assets at a

significant discount because

the company is seen as a

forced seller and there

remains significant

uncertainty around

valuations. Once he has

completed his mission, he

will leave his yet to be

appointed successor with

limited options.

The launch of a new

leasing structure shows

a belated recognition

of the structural forces

sweeping through the

retail sector as the

high street is forced to

reinvent itself in the

era of online shopping.

However, Hammerson’s

bosses seem to think the

retail property market is

going through a cyclical

downturn. They predict a

“trough” in capital values in

December 2021, followed by

a stabilisation. Rents at

Hammerson’s UK centres

will be rebased by between

10 per cent and 15 per cent

but Mr Atkins claims that

the impact on valuations

will be “very modest if not

non-existent” because “in

many cases valuers have

already written down

estimated rental values by

that sort of level”.

Investors only have

to compare

Hammerson’s half-

year results with

those of its

warehouse-owning

peer Segro to

recognise

that the

problems

are

pre-

dominantly structural.

Segro this week reported a

£220.9 million profit as like-

for-like net rental income

rose by 2 per cent;

Hammerson booked a

£1.1 billion loss while its

rental income fell by 27 per

cent on a like-for-like basis.

Where the bottom ends

for rents and retail property

valuations isn’t clear. “If

this new structure becomes

the norm, one would expect

a further structural fall in

the value of retail leases —

both individual leases and

aggregate portfolios will

have a lower rental level

and ‘increased flexibility’,

which probably means a

shift of negotiating power

from landlord to the

tenant,” Rob Murphy,

managing director of

Edison Group, the

consultancy, said.

If Hammerson pulls off

the transactions, it should

survive the crisis, but to

suggest its problems end

there is wishful thinking.

David Atkins is

confident his

survival plan

will work

Hammerson launches survival rights issue

Louisa Clarence-Smith

Hammerson has agreed to sell its 50 per cent stake in Via Outlets, which owns the Freeport Fashion Outlet in Lisbon, to APG, the pension fund that owns the other half

VIA OUTLETS

Share price

Source: Refinitiv

800p

600

400

200

0

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