Hammerson taps investors for £584m

Hammerson has asked shareholders for £584m to pay debt and help prevent a possible breach of banking covenants.

The issue, which was larger than expected, is part of a sector-wide attempt to recapitalise balance sheets, with British Land on Monday confirming the half sale of its Meadowhall shopping centre for £588m, a net initial yield of 6.75 per cent.

In December, the FT reported that it had entered talks to sell the centre to London & Stamford, backed by Abu Dhabi sovereign wealth.

The Hammerson issue – seven new shares for every five held – is priced at 150p, 62 per cent below the 397p closing share price on Friday. After the rights issue, its gearing would fall to 81 per cent, against the nearest covenant of 150 per cent.

The value of Hammerson’s properties would need to fall 25 per cent more – or about 55 per cent peak-to-trough – to threaten its covenants. The rights issue will have to be approved by shareholders at a general meeting on February 25. It is underwritten by Citi and Deutsche Bank. Lazard is Hammerson’s financial adviser.

John Richards, chief executive, said the rights issue has bought the company “a lot of time”, adding that it would have been unwise to rely on sales to reduce Hammerson’s debt.

Mr Richards said negotiations about disposals, such as its Bishops Square office development in the City of London, would continue but from a stronger position.

British Land is considering a similar sized issue at its results on Thursday. Others looking at raising new equity include Liberty International, Land Securities, Segro and Brixton.

Property companies have suffered more than most as their high debts are linked to the value of their property assets, which have fallen sharply over the past 18 months. JPMorgan estimated that major property stocks need more than £4bn to bring loan-to-value covenants into the comfort zone.

Shares closed up 38p, or 10 per cent, at 435p.

The property group accompanied the cash call with full year figures for 2008 showing a one-third fall in its net asset value to £10.36 a share.

The fall caused a pre-tax loss of £1.61bn, and, excluding revaluations, underlying profits fell 3.1 per cent to £113.7m. Mr Richards said a rise of 3.7 per cent in rental income showed that Hammerson’s portfolio was sound. Occupancy rates fell from 98.2 per cent to 95.4 per cent in 2008. An unchanged final dividend of 15.3p will give a total of 27.9p, up 2.2 per cent.