Moody's Affirms Hammerson Rating After Intu Properties Offer

LONDON (Alliance News) - Moody's Investors Service said Thursday it has affirmed the Baa1 long ...

Alliance News 7 December, 2017 | 5:45PM
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LONDON (Alliance News) - Moody's Investors Service said Thursday it has affirmed the Baa1 long term issuer rating and senior unsecured debt ratings of Hammerson PLC following its all-share offer to acquire Intu Properties PLC Wednesday, in a deal that values Intu at GBP3.4 billion.

The deal is subject to shareholder and antitrust approval, and is expected to close in the fourth quarter of next year.

Moody's said the outlook on the rating is stable, and the credit ratings agency said the rating affirmation reflected its view that "in the event of a successful merger, the transaction will be broadly neutral on Hammerson's credit profile especially in the short term."

Roberto Pozzi, a Moody's senior credit officer and lead analyst for Hammerson, said the company would "become the UK's leading landlord of flagship shopping centres, benefiting from greater scale, diversity and stronger market position."

"However, these positive factors will be offset by further weakening of its fixed charge coverage ratio and an increase in leverage. The latter we expect to reduce through asset disposals in light of the company's stated financial policy of maintaining a loan to value ratio below 40%," said Pozzi.

"Over time, negative pressure on the rating could result from failure to reduce leverage below 40% or improve the fixed charge coverage ratio to at least 2.5x especially if UK retail property market conditions deteriorated affecting the performance of the two companies. Whilst we see positively the focus on flagship shopping centres in the context of growing pressures on secondary retail locations due to the e-commerce penetration, we also note that there is execution risk on disposals," Pozzi said.

With a combined portfolio of around GBP21 billion the merged firm would become one of the three largest retail property firms in Europe, with rental income of GBP820 million annually.

But Moody's sees the quality of Intu's property portfolio as "mixed" and below that of Hammerson, with a few high quality and well maintained shopping centres and several smaller assets in need of investment.

"We note that Intu is guiding towards significant rent review uplift in 2017/18 and overall flat like-for-like rental growth, because of ongoing redevelopments. With a weighted average lease expiry of around 7 years, the portfolio is fairly defensive with upward only rent reviews of around 10% of rents each year. A GBP1.2 billion pipeline includes only around GBP300 million committed projects, or around 3% of total assets," Moody's said.

"Although the envisaged transaction would weaken Hammerson's debt metrics below the levels expected for the rating assigned, we acknowledge that such weakness would likely be temporary only and partly offset by an improved business profile," Moody said.

But, despite this the rating agency noted a "still uncertain outlook for the UK property sector as a result of changing dynamics in the retail sectors due to the e-commerce and the macro-economic uncertainty caused by the process that will see the UK leaving the European Union, and the risk of a drop in property valuations".

Shares in Hammerson closed up 1.4% at 508.25 pence Thursday, whilst shares in Intu closed up 1.4% at 229.35p.

By Hana Stewart-Smith;;

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar
Hammerson PLC 361.00 GBX 1.38 -
Intu Properties PLC 115.90 GBX 2.20 -
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