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Fitch Affirms Hammerson at 'BBB+'; Outlook Stable
June 8, 2015 / 3:08 PM / 2 years ago

Fitch Affirms Hammerson at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) PARIS/LONDON, June 08 (Fitch) Fitch Ratings has affirmed Hammerson Plc's (Hammerson) Long-term Issuer Default Rating (IDR) at 'BBB+, Short-term IDR at 'F2' and senior unsecured rating at 'A-'. The Outlook on the Long-term IDR is Stable. Hammerson's prime UK and French retail portfolio continues to benefit from high occupancy and contracted rental income. Organic net rental income growth is likely to trend inflation while completion of new development projects should drive top line growth slightly higher in 2015. The ratings reflect a conservative balance sheet and solid interest cover that benefit from a mainly fixed-rate average debt maturity profile that matches its average lease length profile. Rating headroom is solid; Fitch forecasts EBIT net interest cover above 2.0x and loan-to-value (LTV) around 40% in 2015 and 2016. KEY RATING DRIVERS Positive 2014 In 2014 Hammerson delivered its landmark development "Les Terrasses du Port", which improved the quality and scale of its French portfolio. It also helped - together with the growing importance of the luxury outlet segment - to further diversify its portfolio. The approximate GBP400m equity issue was also a key milestone that strengthened the company's balance sheet, along with around GBP150m of disposals in 2014, ahead of some acquisitions, and progress in its London developments (LTV down to 34% at FYE14). Strong Financing Activity Hammerson took advantage of 2014 being a record year for financing in Europe by raising more than GBP1bn through a mix of debt (bonds, private placement) and equity. It illustrates the recovery and improving sentiment for Hammerson's markets, both in terms of operations and investments. Defensive Rental Income Characteristics Occupancy remains stable and solid at around 98% with an average contracted lease length of 8.1 years as at FYE14 (6.3 years to break option). This is shorter than other UK peers due to the typical shorter lease lengths in France. Overall in a European peer context, it remains strong. Hammerson's prime shopping centres benefit from a diverse tenant base, with each tenant representing no more than 4% and the top 10 tenants representing around 20% of total passing rental income. JVs & Equity Accounting Hammerson had around 43% of its properties classified as JVs or associates at end-2014. Hammerson used the equity consolidation for its JVs for the first time in 2014 following IFRS11. JVs are largely free of debt, leaving Hammerson's share of rental income to be up-streamed as dividends. Fitch notes that what used to be proportionally consolidated cash flow are broadly in line with up-streamed distribution. JVs allow Hammerson to diversify their asset base and de-risk exposure to any large asset through involving third-party capital, typically from pension funds and sovereign wealth funds. Lower Commitment, Higher Pipeline Hammerson completed its main on-site development "Les Terrasses du Port" in 2014. It brought down the amount of on-site development and related committed capex to GBP252m (4% of the portfolio). Nonetheless the overall pipeline is more important than at the beginning of 2013 as Hammerson could start on-site works of some large developments in London and Croydon, potentially from 2016/2017. Unsecured Debt Structure Overall the debt structure remains straight-forward with all senior unsecured bonds raised at the parent level, with no meaningful prior ranking debt at the subsidiary level. Positively the majority of Hammerson's property assets remain unencumbered with an unencumbered assets cover around 2.8x at FYE14. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Hammerson include: - Some moderate rental income growth (Marseille consolidated for 12 months, some small like-for-like growth) - Occupancy ratio to remain solid - Leverage to progressively increase to around 40% LTV - A small decrease in average interest rates RATING SENSITIVITIES Positive: Future developments that could lead to positive rating actions include: - Leverage to be below LTV 40% on a sustained basis (FY14: 34%) - Confirmation in Fitch's rating case forecasts of EBIT NIC above 2.5x on a sustained basis (FY14: 2.1x) - Asset cover to remain above 2.5x in four-year forecasts (FY14: 2.8x) Negative: Future developments that could lead to negative rating action include: - Significant rise in tenant defaults and lease arrears, leading to a material fall in total rents - Leverage above 45% LTV on a sustained basis - EBIT NIC below 1.75x over a two year period. LIQUIDITY Hammerson recently announced it refinanced its previous GBP505m credit facility with a new five-year GBP415m revolving credit facility. Taking into account this transaction Hammerson would have had GBP558m of available liquidity at FYE14, which covers more than its committed capex and maturing debt for the next 12 months. Contact: Principal Analyst Jean-Baptiste Bouillaguet Associate Director +44 20 3530 1606 Supervisory Analyst Frederic Gits Managing Director +33 144 299 184 Fitch France S.A.S. 60 Rue de Monceau, 75008 Paris Committee Chairperson Raymond Hill Senior Director +44 203 530 1079 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 28 May 2014) here Additional Disclosures Solicitation Status here <a href="https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context =2&detail=31">Endorsement Policy ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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