Hammerson has set out plans to raise around £825m in gross proceeds through a rights issue and a sale of its stake in VIA Outlets, in a bid to fortify its balance sheet.
The REIT has flagged the possibility that it could even go bust if its plans for the equity raise do not go ahead. However, its directors emphasised their confidence that this is a “severe but plausible” downside scenario that will not materialise.
Hammerson has proposed a rights issue of £551.7m, with shares issued at a 94.6% discount to yesterday’s 280p closing price, as well as the £274m sale of its 50% stake in VIA Outlets to a fund managed by joint venture partner APG.
The £274m price tag on its VIA Outlets sale represents an 18.7% discount to gross asset value at the end of June. Hammerson also plans to retain an indirect 7.3% stake in the business.
Net proceeds totalling some £794m from these transactions would be used to reduce its net debt to £2.2bn, from £3bn.
“Irrevocable” undertakings have been secured from its two largest shareholders, APG and Lighthouse Capital, to vote in favour of the rights issue. APG holds 20% of the business, while Lighthouse has a 14% stake.
But the landlord warned that if shareholders do not vote in favour of the proposed transactions and the successful completion of the equity raise, and if it cannot take alternative mitigating actions, it will breach its covenants at 30 June 2021.
As such, these conditions signalled the existence of a “material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern”.
Shareholders will vote on the proposals on 1 September.
NRI decline
Net rental income fell by 44% to £87.3m during the first half of the year, excluding premium outlets. This was driven by Covid-19 forced closures, provisions for reduced collections, and government intervention on rental payment and continued administrations.
Income in its premium outlets business dropped by 50.8%. Income at its UK flagships declined by 30.5%, and was down 30% in France. In Ireland, income fell by 16.9%.
The value of its portfolio, excluding premium outlets, decreased by 8% to £7.7bn.
Net tangible asset value per share declined by 21% to 458p.
Total liquidity stood at £1.2bn in June. Loan to value grew to 51% on a fully proportionally consolidated basis, from 45% in the previous year. Pro forma LTV was 42%.
The REIT has collected 34% of Q3 rent due, as well as 72% of H1 2020 rent.
New approach to leasing
As rental income declines, the landlord has unveiled plans to revamp its leasing structure, including: more flexible leases, rebased rents at more affordable levels, indexation replacing the existing rent-review system, and an omnichannel top-up element.
David Atkins, outgoing chief executive of Hammerson, said: “The extraordinary disruption caused by Covid-19 in 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 among visitors to our flagship destinations.
“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.”
He added that the REIT’s new leasing approach is “simpler, reflects an omnichannel 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,” said Atkins.
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