PRESS RELEASE: Fitch Revises Hammerson's Outlook to Positive

21st Jun 2010 12:25

Fitch Ratings-London-21 June 2010: Fitch Ratings has today revised the rating Outlook on Hammerson Plc's Long-term Issuer Default Rating (IDR) to Positive from Stable. Fitch has simultaneously affirmed Hammerson's senior unsecured rating at 'BBB+' and Long-term IDR at 'BBB'. The company's Short-term IDR is affirmed at 'F3'. The affirmation of the major UK-based Real Estate Investment Trust's (REIT) ratings and Positive Outlook reflect the strong improvement in debt serviceability in FY09 (Fitch adjusted NIC of 1.7x at FY09 versus 1.4x at FY08), which Fitch believes will continue in FY10 and possibly beyond. This has been underpinned by resilient income streams from the prime shopping centre portfolio, and additional rental income being generated from completed projects such as the Cabot Circus shopping centre in Bristol. Hammerson has portfolios in the UK and France with a value of over GBP5.0bn at FY09. The improved interest serviceability is also explained by the significant de-leveraging achieved by the group in FY09 and resulting reduced interest costs. An equity issue of GBP584m and over GBP780m of asset disposals (including associated debt) in FY09 saw group leverage fall significantly to a loan-to-value (LTV) ratio of 43% at FY09 (56% at FY08). Net debt declined to GBP2,159m at FY09 from GBP3,373m at FY08. Hammerson's ratings could be upgraded if the improved interest serviceability showed EBIT NIC remained at least 1.5x over a sustainable term. Fitch's forecasts (based on reasonably conservative tenant defaults and non-renewal of lease expiry assumptions), anticipate EBIT net interest cover (NIC) of between 1.7x and 2.0x in 2010 to 2012, which would be commensurate with an Long-term IDR of 'BBB+'. The agency would also want to see good progress made with regard to the major re-financing of GBP1.1bn of debt facilities expiring in 2012/13 before upgrading the ratings. Hammerson's ratings are supported at their present level by a prime property portfolio spanning mainly prime retail in the UK and France, but also good quality office space in central London, a geographically diversified rental stream and long unexpired lease lengths which average nine years. The equity and disposals cash has put Hammerson in a stronger position to make property or corporate acquisitions. Hammerson has cautiously re-entered the market to purchase stock at attractive prices as property values have increased. It recently announced the purchase of Leadenhall Court in London for GBP65m on an attractive 11% yield, which will be partly funded by the proceeds from its recently announced disposal of 75% of L'Espace Saint Quentin shopping centre in France for EUR176m (GBP147m). The ratings are constrained by lower asset diversification due to the higher concentration on retail space (88% of FY09 value) compared with office space and significant lease expiries totalling GBP81m from FY10 to FY12, of which 53% is in France. However, Hammerson expects a high percentage of its French leases to be renewed. The company has also re-entered the development market with the purchase of the Terrace du Port shopping centre, office and leisure development site in Marseilles for GBP30m. The purchase raises Hammerson's total potential development programme to GBP346m, although only GBP45m is committed spend. In addition, Hammerson intends to enter joint ventures on its major developments and de-risk the group's potential exposure to these projects. This is in keeping with Hammerson's strategy of strongly focussing on the asset management of the underlying portfolio and a continued rigorous evaluation of its properties' performance. Hammerson had over GBP820m of available cash and committed undrawn debt facilities at FYE09. There is only limited development capex outstanding (see above). Hammerson is not facing any significant debt maturities in 2010 and 2011, with a total of just GBP63m maturing before end 2011. Its ratio of unsecured property to unsecured net debt has increased to 2.2x (1.9x at FY08), which underpins the senior unsecured rating. Fitch believes that the unsecured asset cover may increase slightly further at the announcement of the H109 interim results due to likely higher property values at that date. Fitch's 12 March 2010 special report, entitled "Rating EMEA REITs and Property Investment Companies", explains the credit factors used to analyse the European REIT and Property Investment Company (PIC) corporate sub-sectors. It follows the 11 March 2010 publication of another background report, entitled "Interpreting the New Sector Credit Factor Reports for Corporates". Both reports are available at www.fitchratings.com. The sector-specific credit factors should be read in conjunction with the master criteria "Corporate Rating Methodology", dated 24 November 2009, which is also available at www.fitchratings.com >> Fitch has made major improvements to its credit research on EMEA and AsiaPac corporates. To view these improvements, visit our 'Clear Thinking' web page at http://clearthinking.fitchratings.co.uk/Index.html Contacts: Jean-Pierre Husband, London, Tel: +44 (0) 20 7417 6304, Ewan Macaulay: +44 (0) 20 7682 7507. Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email: [email protected]; Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: [email protected]. Additional information is available on www.fitchratings.com. Related Research: Rating EMEA REITS and Property Investment Companies - Sector Credit Factorshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=503930Interpreting the New Sector Credit Factor Reports for Corporateshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=503794Corporate Rating Methodologyhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489018 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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. (END) Dow Jones Newswires June 21, 2010 07:25 ET (11:25 GMT)