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Hammerson: Intu buyout won't leave us bogged down in UK


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Hammerson: Intu buyout won't leave us bogged down in UK

Hammerson Plc's £3.4 billion deal to take over rival U.K. retail landlord Intu Properties Plc will not leave the company overexposed to the country's struggling retail market, Chief Executive David Atkins said in a conference call presenting the merger to investors.

Atkins noted plans to dispose of around £2 billion worth of assets "predominantly in the U.K." from both companies' portfolios following the deal, which is expected to create the second-largest listed retail landlord in Europe.

In recent years, Hammerson has made significant investments in European markets such as France and Ireland, which has reduced the value weighting of U.K. properties in its portfolio to around 60%, according to Atkins. The purchase of Intu will see that figure rise to 75%, but the disposal program will seek to return it to current levels, he said.

Responding to an analyst's assertion that Hammerson had "worked very hard to diversify away from the U.K. or reduce exposure in the last five or six years," Atkins said: "Our strategy was to invest in the very best assets and growing catchment. By doing this transaction, that is exactly what we're doing: acquiring a very high-quality portfolio of retail properties. So I'm very comfortable with the rebalancing that that makes."

Atkins acknowledged that the U.K. was "fairly challenging from a retail consumer point of view at the moment," but said that Hammerson was somewhat insulated from the difficulties due to the "increased polarization towards the very best centers, particularly in the U.K."

He highlighted the performance of both Hammerson and Intu, evidenced by their recent earnings releases, noting that the former company let more space in the first six months of the year than it had ever done before. "I recognize the challenges, but actually I think by investing in the very best assets, with the polarizing market that we are experiencing, we can provide very significant returns for shareholders," he said.

Hammerson said the planned disposal program will also aim to address the companies' combined gearing ratio, which is estimated to be 41%. As of June, Intu's loan-to-value ratio was 47%, compared to Hammerson's 40% as of its 2017 first-half earnings release.

Disposals will have to take place before Hammerson proceeds with the companies' combined development pipeline, meaning that the landlord will be looking to off-load assets as quickly as possible, according to CFO Timon Drakesmith.

"If you imagine over a three-year period, we won't be tardy in terms of executing the disposal program," he said. "We will be getting on with it. Both [Hammerson and Intu] could dispose of assets prior to completion [of the merger] and therefore I think we're going to have a strong start on that £2 billion-plus program, which means that the leverage ratios are going to be very much under control and in a comfortable place before we commit to major projects."

Drakesmith said Hammerson's track record of generating around 7% to 8% growth in earnings per share and dividend per share was promising for the prospects of the merger. Hammerson aims to maintain this by growing net rental income, maintaining the profitability of its outlet platform and exploiting opportunities for extensions and refinancing, he added.

This article was amended at 11.46am on 12.08.17. to clarify that Hammerson and Intu's combined leverage will be 41% and not 41% "after asset sales."