Hammerson to take over intu

By Paul Norman - Wednesday, December 06, 2017 7:33

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Hammerson is to take over intu Properties in a move that will create a £21bn pan European retail and leisure property company, and kickstart a £2bn principally UK focused disposal programme aimed at rationalising the giant combined portfolio.

The Boards announced this morning that they have reached agreement on the terms of a recommended all-share offer by Hammerson to acquire the entire issued and to be issued share capital of Intu.

The deal values intu at about £3.4bn with the all -share offer representing a value of about 253.9p per Intu share, a premium of 27.6% to yesterday’s close.

Hammerson shareholders will own circa 55% of the issued share capital and intu shareholders 45%.

The group would have a combined market capitalisation of approximately £6.9bn which should increase shareholder liquidity and result in the Enlarged Group achieving higher indices weightings.

The market cap is just beneath the largest listed UK REIT Landsec's, which this morning was at £6.98bn, and just ahead of British Land's at £6.5bn. All of the companies' shares were trading significantly up on the news this morning.

The group has combined net debt of approximately £8.2bn and LTV of approximately 41% as at 30 June 2017, adjusted for subsequent property acquisitions and disposals.

The combined group has stakes in 13 of the 20 super regional shopping centres in the UK including the Bullring in Birmingham, Intu Trafford and Brent Cross in North London, giving it a clear advantage in tapping into retailer and leisure operator business plans.

The Boards of Hammerson and Intu "believe that there is a compelling strategic rationale for the acquisition, which will bring together their high-quality retail property portfolios and their combined expertise to create a leading European retail REIT with a strong income profile and superior growth prospects".

Both Boards believe that following the acquisition, the "enlarged group will be better placed to enhance its position in its geographic markets and across its retail formats, with a more efficient and adaptable platform allowing it to respond to fast changing consumer preferences and retail trends".

Hammerson said it has carried out a detailed preliminary assessment of the combined portfolio and has identified at least £2bn of disposals from across both portfolios and primarily within the UK which will be carried out over the short to medium term, "further enhancing the quality of the portfolio".

It said the disposal programme is broadly in line with Hammerson's historic run-rate and will reduce leverage, whilst the enlarged group will remain a sector leader in terms of size. The proceeds from disposals will provide financial flexibility to invest in higher return opportunities in Spain, Ireland and Premium Outlets, and the Enlarged Group's development pipeline.

Hammerson and Intu believe that the acquisition will:

● Create a £21bn pan-European portfolio of high-quality retail and leisure destinations, with enhanced exposure to high-growth markets and which will benefit from evolving consumer trends;

● Unlock growth and value creation opportunities for shareholders by bringing together Hammerson's and Intu's "leading assets, which have strong fundamentals, under a superior combined operating platform"; 

● Offer attractive growth prospects with exposure to two of Europe's fastest growing economies of Ireland and Spain and additional sources of capital to forge ahead with ambitions to expand the Premium Outlets platform;

● Provide the opportunity for significant rationalisation of the Enlarged Group's property portfolio through an anticipated disposal programme of at least £2bn. This will both strengthen its balance sheet and provide liquidity to reinvest in higher return opportunities;

● Allow the Enlarged Group to draw on its combined consumer know-how and apply both companies' expertise in events, customer service and digital to drive footfall, delivering "highly productive space for retailers and attractive destinations for consumers";

● Allow the Enlarged Group to benefit from the intu brand and Intu's online experience;

● Bring opportunities to deploy Hammerson's "strong track record in delivering successful developments across an enlarged pipeline"; and

● Provide opportunities to deliver synergy benefits through cost reductions and optimisation of the Enlarged Group's financing arrangements.

The Enlarged Group will be led by David Atkins, CEO, and Timon Drakesmith, CFO, will be called "Hammerson plc", and will "harness the talent in both companies to optimise the benefits for shareholders of the Enlarged Group".

David Tyler, the Chairman of Hammerson, will be the chairman of the Enlarged Group. John Whittaker, Deputy Chairman of Intu, will become Deputy Chairman of the Enlarged Group. John Strachan, Chairman of Intu, will join the Board of the Enlarged Group as Senior Independent Director. The Enlarged Group overall will have six directors nominated by Hammerson and four directors nominated by Intu.

Hammerson has received irrevocable undertakings or letters of intent from Intu Shareholders, including Peel and the Intu Directors, to vote in favour of the Scheme at the Court Meeting and the resolutions proposed at the Intu General Meeting in respect of 685,220,682 Intu Shares in aggregate, representing approximately 50.6 per cent. of Intu's issued share capital at close of business on 5 December 2017.

David Tyler, chairman of Hammerson, said: "This transaction will deliver real value for shareholders. The financial strength of the Enlarged Group and its strong leadership team will make it well-placed to take advantage of higher growth opportunities on a pan-European scale."

David Atkins, Chief Executive of Hammerson, said: "This marks an exciting milestone in the history of Hammerson. Bringing together the high-quality portfolios of both companies establishes Hammerson as a larger, leading European retail REIT, enhances shareholder returns and supports opportunities for long-term growth. The acquisition creates a leading pan-European platform of desirable retail and leisure destinations which are better positioned to serve the needs of our retailers, excite our customers and support our partners and communities. I hold Intu's high-quality centres in high regard and I look forward to working with a strengthened team to enhance the performance of our entire portfolio."

John Strachan, Chairman of Intu and proposed Senior Independent Director of the Enlarged Group, said: "A combination of both Intu and Hammerson will create a more resilient, diversified and stronger group that we believe will benefit all our stakeholders. Intu offers high-quality retail and leisure destinations in the UK and Spain, which when merged with Hammerson's own top-quality assets in the UK, in France and in Ireland, present a highly attractive proposition for retailers and shoppers in Europe's leading cities. I am proud of the financial and operational success that Intu's management team has delivered and pleased to see that the intu brand will continue."

Reaction

Reacting to the news Jonathan De Mello, Head of Retail Consultancy at Harper Dennis Hobbs, said: "Hammerson and Intu between them own some of the biggest and best shopping centres in the UK. Both are sophisticated players in the industry and have invested heavily in tech and in the case of Intu a pioneering transactional website. I see this merger as positive for the industry as it creates a bigger business and larger investment pool for the combined entity to finance large development projects, and reinvest in the best schemes in the combined portfolio, to ensure retailers trade from best in class physical space.

"In today’s omni channel world, retailers require fewer but better stores - the combined business would do well to focus on those schemes that retailers really want to trade in, and divest any that are more peripheral to those needs. Intu have recently invested in international shopping centres as well as new build schemes in the UK, and it is likely the combined business will do the same, given potential returns are potentially higher given how difficult it is to construct new shopping centres in the UK currently from a planning perspective."

Analysts at Peel Hunt said: "The key to this transaction, we believe, will be the benefit of earnings accretion, which will need to be weighed up against the potential for asset quality dilution for Hammerson shareholders."

It added that the transaction: "Reflects the desire by investors for income efficiency, with the benefits of scale and synergies hopefully boosting earnings and dividends in due course."

But it said it does little to "alleviate concerns about the valuation of UK prime retail assets, given the all-share nature of the transaction and the discounts to prevailing NAV involved".

It also runs the risk of "diluting Hammerson shareholders’ exposure to France (21% of Hammerson’s current portfolio), Ireland (8%), and Premium Outlets (19%), crudely trading exposure to these markets for an increased exposure to UK shopping centres".

Analysts at Liberum said that given Hammerson has received irrevocables and letters of intent relating to 50.6% of the issued share capital, it has secured a "good head start in securing the business, or preventing interlopers".

But it added: "Nevertheless, given the infrequency with which large retail portfolios of quality transact, it is entirely possible that an international third party could show interest."

It was positive on the potential for cost savings.

"The deal is expected to be accretive to earnings in the first full financial year. Pre-tax cost synergies of £25m pa are expected to be realised by the end of the second year of ownership equating to -5% of the combined PBT, through rationalisation of group and support functions, with one-off cash cost of -£40m. In addition, Hammerson management expects further savings through operational efficiencies and refinancing and has a good track record in delivering this."

pnorman@costar.co.uk

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