Hammerson is readying a £600m cash call to help it through the next few months, as the UK’s largest shopping centre owner scrambles to plug a hole left by unpaid rent and avoid the fate of its collapsed rival Intu.
The shopping centre operator, which owns the Bullring in Birmingham, Brent Cross in London and Victoria Gate in Leeds, confirmed on Monday that it was considering raising new equity via a rights issue. According to a person familiar with the process, the company was hoping to raise as much as £600m, more than its £490m market capitalisation based on Friday’s closing price.
Hammerson is aiming to further bolster its balance sheet with the sale of its 50 per cent stake in its European shopping outlet business, VIA Outlets, to its partner in the venture, the Dutch pension fund asset manager APG. VIA was valued at more than €1bn when Hammerson reached a 50 per cent stake in September last year, but was estimated by one analyst to be worth closer to £400m now.
The coronavirus crisis has hit the retail sector particularly hard, keeping consumers away from high streets and shopping malls and forcing a reckoning for retail property owners.
Retail landlords in the UK missed out on close to £800m in income in the second quarter as a result of the crisis, and are set to take a similar hit in the third quarter, with only 50 per cent of rent received, according to Remit Consulting. Hammerson’s largest rival, Intu, entered administration in June, after its rent take plummeted and it failed to secure extra leeway from its lenders.
The mall operator is expected to reveal a considerable writedown on the value of its assets when it reports half-year results on Thursday. Analysts have forecast that the value of Hammerson’s £8.3bn shopping centre portfolio will fall between 15 per cent and 20 per cent, potentially wiping out up to £1.65bn.
Getting cash into the business was necessary, but would come at a cost, said Robbie Duncan, an analyst at Numis. “They’re going to sell VIA . . . but they are not going to get a good price — why would APG pay a good price? Trading conditions [for retailers] are awful and it’s a turnover-linked business,” he said.
Hammerson shares, which were already down almost 80 per cent this year, fell 10 per cent, from to 57 pence, after Monday’s announcement, which confirmed a report from Sky News over the weekend.
The closure of non-essential retail between March and May, and the slow pace with which shoppers have returned, meant Hammerson collected just 16 per cent of the rent for the upcoming third quarter on its due date in late June.
That has since increased to more than 30 per cent, according to Hammerson.
The FSE 250 company has already tapped £300m from its revolving credit facility and £75m from the Bank of England’s Covid Corporate Financing Facility. It has approval to tap a further £225m from the scheme if needed.
But according to another analyst covering the stock, who asked not to be named, a cash injection might not be a panacea given the grim outlook for the retail sector. “The question shareholders and the market will be asking is: ‘is this enough money to stabilise the business as a one-off, or is it just a band aid over a gaping wound?’” he said.