Hammerson Plc, the U.K.'s largest retail-focused real estate investment trust by market capitalization, faces difficult choices over the sale of assets in the coming months as it aims to raise £400 million from disposals by the end of 2017, according to stock analysts.

The company, which plans to use the proceeds from the sales to decrease leverage and fund future developments, is exposed to falling demand for U.K. shopping centers and uncertainty over pricing, as a drop in transactions limits guidance. Hammerson secured £80 million of its 2017 disposal target with the sale in May of Westwood and Westwood Gateway Retail Parks to BMO Real Estate Partners, a price the company described in a statement announcing the sale as "slightly below" the December 2016 book value.

This followed a 2016 disposal program that saw three of Hammerson's assets sold at prices it described as "moderately below book value." Manor Walks Shopping and Leisure and Westmorland Retail Park, both in Cramlington, Northumberland, and Thurrock Shopping Park in Essex, sold for £78 million, £36 million and £93 million, respectively, each at discounts in the "mid to late single digits," according to Numis Securities, which spoke to Hammerson after the transactions were announced to clarify the extent of the discounts.

"When they sold at such wide discounts, [the market] immediately knew that the rest of their portfolio of retail parks was going to get written down in the region of 7 to 10%, and it got written down by over 9%," Robert Duncan, who covers Hammerson as director of research at Numis Securities, told S&P Global Market Intelligence. "They've got to be very selective with what they sell. There's not that much liquidity in the retail sector; there's more in retail parks than [shopping centers], but they've said themselves, demand is definitely weak."

Total transaction value for U.K. shopping centers fell by 36% to £358.3 million from the first quarter of 2016 to the first quarter of 2017, according to a report by Cushman & Wakefield. Seven assets transacted in the period, with Frogmore and Galliard's purchase of the Stratford Centre for £141.5 million representing 40% of the quarterly total.

David Prescott, equity analyst at Barclays, said in an interview: "It's hard to say where pricing is compared to book [value] on some of these [assets]. There hasn't been a lot of big shopping center transactions to give a great deal of guidance to investors."

"[Barclays has] real problems long-term with the U.K. shopping center space. We think that it's going to quickly turn to negative rental growth and it's going to stay negative for many years to come," he added.

Hammerson's retail parks are more likely targets for disposal, Duncan said, as the ownership structure involved in several of its shopping center assets limits the number of potential buyers. Hammerson does not fully own many of the shopping centers it operates, instead holding a management stake in assets such as Brent Cross in London, Cabot Circus in Bristol and Grand Central in Birmingham. Meanwhile, demand for U.K. retail warehouses and parks rose by 148% year over year to £605.3 million in the first quarter, according to a Cushman & Wakefield report. Of the 16 U.K. retail warehouse and park assets and portfolios that transacted during this period, Tristan Capital Partners' purchase of the Project Keirin portfolio for £245 million made up almost 40% of the total, the report found.

"I don't think the market is as deep for shopping centers with a management stake as it is for shopping center stakes that are passive," Duncan said. "There is much more demand for passive stakes because [the asset is] basically going to go to an international investor who doesn't want to have a day-to-day interaction, they simply want to sit back and collect the coupon."

Hammerson's diversification of its portfolio in recent years, which has seen it acquire assets across Europe, makes the disposal of U.K. assets "more likely," Prescott said, although "a decent bid" for non-U.K. properties would likely be considered, he added.

However, in the current U.K. market, Hammerson may have to consider selling a prime asset if it wants its disposals to realize full book value, said Duncan. "[This] means by implication the quality of [its] portfolio reduces. So [is it] selling the crown jewels to be left with tin?" he said.

A failure to sell at or above book value wouldn't be overly damaging for Hammerson, Barclays' Prescott said, as it would further confirm suspicions that many U.K. real estate assets are overvalued. "If you look at where the [U.K. real estate] stocks are trading compared to [net asset values], people don't believe those book values anyway," he said.