Hammerson increases debt by €500m for Birmingham mall purchase

Hammerson has financed its purchase of a Birmingham shopping mall with a €500 million increase to its existing revolving credit facility.

The retail specialist has funded the £350 million acquisition of the Grand Central shopping scheme in Birmingham with an increase to the €1 billion revolving credit facility which it sourced from five banks last September to fund the purchase of an Irish loan portfolio.

Hammerson announced this morning that it has exchanged contracts with Birmingham City Council for the £335 million purchase of the 430,000 square foot Grand Central, which forms part of the regeneration of the city’s New Street Station. Hammerson’s £10 million purchase of an adjacent vacant office building, as well as costs, put the firm’s outlay at £350 million.

Hammerson said that it is in “advanced discussions” with an existing joint venture partner to enter into a 50/50 JV to own Grand Central.

Last September, Hammerson sourced a €1 billion revolving credit facility from five lenders to finance its share of the purchase of NAMA’s €1.85 billion Project Jewel loan portfolio. Project Jewel, which Hammerson bought alongside Allianz, contained loans backing Ireland’s Dundrum Town Centre shopping mall as well as stakes in two other Dublin shopping centres.

The facility was provided by BNP Paribas, Lloyds, JP Morgan, HSBC and Deutsche Bank. The loan reflected an 81 percent loan-to-value on Hammerson’s €1.23 billion share of the Project Jewel purchase.

In today’s announcement, Hammerson said it will fund the Grand Central purchase with an expanded acquisition credit facility of £1.1 billion, of which £734 million matures in March 2017 and £367 million matures in September 2017.

Hammerson’s gearing will increase to 39 percent after the Grand Central acquisition, based on estimated values as at 31 December 2015 and disposals. Following the recent sale of the Villebon 2 retail park in France, Hammerson has realised total proceeds of over £360 million in the last year, and has completed the first £200 million tranche of disposals to fund its acquisition of Project Jewel.

The company said that it plans a further £300 million of disposals during the course of 2016. Following those sales, plus the proposed 50 percent joint venture on Grand Central and conversion of the Project Jewel loans to underlying properties, the firm forecasts LTV reducing to 37 percent.

Mike Prew, equity analyst with Jeffries, this morning wrote: “[Hammerson’s] gearing is, we think, going the wrong way at this stage of the cycle and suspicion of an impending equity raise is likely to cap any recovery in the stock price. The shares at 557p are trading on a 13 percent discount to the 638p Dec 15 NAV with the FY15 results due 15 Feb.”

Grand Central opened in September 2015 and is anchored by a 250,000 square foot John Lewis department store. The scheme was developed by Network Rail and the city council as part of the £750 million regeneration of Birmingham’s New Street railway station.

The scheme is 96 percent let, with topped-up annual net rental income of £13.9 million. The current weighted average unexpired lease term to break is 10.4 years. The purchase represents a net initial yield of 4 percent and the expected five-year IRR is 7-8 percent.

“The acquisition of Grand Central, a highly-prized trophy asset in the UK’s second city, is fully aligned with Hammerson’s strategy of owning top-performing retail destinations in prime locations, as demonstrated by our recent transactions in Ireland and growing exposure to European premium outlets,” said David Atkins, CEO of Hammerson.