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Hammerson CEO dismisses concerns around planned sale of £2B worth of property

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Hammerson CEO dismisses concerns around planned sale of £2B worth of property

U.K.-based retail landlord Hammerson Plc is unlikely to have to sell its assets at a discount as it aims to raise £2 billion from property disposals following its £3.4 billion deal to buy Intu Properties Plc, CEO David Atkins said during a full-year earnings call.

Demand is falling for certain types of retail property in the U.K., with the sector's investment volumes down 26% between the first and third quarters of 2017, compared to the same period a year earlier, according to CBRE data. Secondary assets in less attractive locations have been particularly affected as U.K. retail struggles with the growth of e-commerce, rising inflation due to a weaker pound, and slow wage growth inhibiting consumer spending.

Hammerson's portfolio consists almost entirely of prime assets, said Atkins, so the risk of disposals at discounted prices is slim. "This is not a disposal of secondary assets by any stretch of the imagination. We are selling what the market will see as good prime assets on the whole, so we think there is demand. You might imagine we're already having conversations and we're confident of selling that £2 billion around book value."

The valuation of much of Hammerson's portfolio has been difficult to gauge for some time as there have been a limited number of large shopping center transactions that could provide a benchmark. Plans by Australian developer Lendlease Corp. Ltd. and Singaporean sovereign wealth fund GIC to sell their combined 42.5% interest in Bluewater Shopping Centre in Kent, U.K., should give the market the information it requires to value similar assets. Hermes Investment Management Ltd.'s recently confirmed £155 million sale of its share of Bluewater to Royal London Mutual Insurance Society Ltd. represents a value 8% lower than the figure Landsec reports for its one-third stake, The Financial Times reported.

According to Atkins, Bluewater is a poor benchmark to value other shopping centers by, noting that the stakes available in the asset have all been passive, as opposed to active management stakes. Bluewater's ownership structure is a tiered leasehold, Atkins said, which is "not to everyone's liking." Also, one of the investors selling its stake was "a motivated seller, to be polite."

"So I think there are good reasons why the pricing might be below net asset value," Atkins said. "I don't believe at the moment that that deal on Bluewater, if it happened, would lead an erosion of value on our own portfolio."

Since 2015, Hammerson has sold £2 billion worth of property at an average disposal run rate of £660 million per year, said CFO Timon Drakesmith. The disposal program would include both Hammerson and Intu properties, he said, with Hammerson expecting to raise £500 million from the sale of its own properties in 2018. The company has already sold more than £90 million, he added.

Hammerson intends to use "internal resources" to fund development capital expenditure of £1.3 billion in the next three years, with an average annual run rate of £440 million, Drakesmith said. The company plans to begin a £1.4 billion redevelopment of Brent Cross shopping center later in 2018, while work on the £1.4 billion Westfield Shopping Centre in Croydon, a joint venture between Hammerson and Westfield Corp., is expected to begin in 2019.

If Hammerson's confidence in its disposal program is misplaced, work on these projects could be postponed, Atkins said.

"It would be very easy to defer those development starts if those discussions we have ongoing with investors [about purchasing Hammerson assets] come to nothing and I'm wrong. But I don't believe I will be based on the conversations we're having at the moment," he said.

Hammerson's full-year 2017 profit before tax totaled £413.4 million, a gain of 28.1% from £322.8 million in the previous year. The company's earnings per share weighed in at 48.9 pence per share, a gain of 21.9% from 40.10 pence per share in 2016.