Hammerson Abandons Intu Takeover

British retail property giant Hammerson has withdrawn from a £3.4bn deal to take over fellow UK shopping centre operator Intu, citing “current market dynamics in the UK.”

The deal was initially announced last December, with Hammerson seeking to widen its national brick-and-mortar retail property reach so as to compete with online retailers.

However, the health of the UK retail market has weakened considerably in the five months since the deal was struck, leading Hammerson investors to fight against risky expenditure on further sites.

Intu accepted Hammerson’s decision and has agreed not to enforce Hammerson’s duties to proceed with the scheme of arrangement.

A spokesperson for Intu said:

“In light of the Hammerson board’s decision to change its recommendation and to advise its own shareholders to vote against the Intu transaction, Intu believes that there is now no realistic prospect that this condition will be satisfied.”

“Heightened level of risk” associated with the UK retail property sector

The proposed merger was forged to position Hammerson as the largest UK and second largest European retail property group.

In a statement this April however, Hammerson reflected that: “The equity market now perceives a heightened level of risk associated with the UK retail property sector as a whole.”

CEO David Atkins added: “It is clear that the heightened risks to the Intu Acquisition now outweigh the longer-term benefits.”

The firm noted that:

“Over the last five months, the financial strength of retailers and other tenants in the UK has softened and a number of retailers have entered into administrations or CVAs, while consumer confidence has also remained subdued.”

Retail property groups face increasing competition from online

It has been a challenging first quarter for the UK retail property sector, with several major store-heavy retailers including Maplin, Carpetright and House of Fraser considering CVAs – or Company Voluntary Arrangements – in order to structure financial insolvency.

January – March 2018 saw a year-on-year increase in UK shopping centre deals (11, compared to 8 in 2017) constituting a £337m investment in UK shopping centres in the first quarter, but investment volumes nevertheless decreased by 9% compared to the same period last year.

And whilst department store profits grew by 0.8% in the first quarter of 2018 compared to the last quarter of 2017, department stores also reported the strongest increase in online sales of all retailing, underlining the continuing threat of online retail to brick-and-mortar stores.

Poor weather in February further incentivised consumers to buy online rather than in store.

The Economist Intelligence Unit predicted in December that 2018 would see the UK become the world’s third slowest-growing retail market, comprising one of just three, alongside Egypt and Venezuela, to see negative growth.

The average retail growth forecast across the globe is 2.5%, while the UK is projected to see a decline of 0.4%, due to currency devaluation and economic uncertainty amidst Brexit.

Finance advisers Deloitte similarly predict that such effects will be felt in the retail property sector: “2018 could see a further acceleration in store closures as retailers finally get to grips with transforming their real estate portfolios, to be fit for a market where online continues to outperform the rest of the market. The store still has a key role to play, but there will be fewer of them.”

Intu reports an increase in lease signings and rental income

Nonetheless, Hammerson’s announcement comes at the same time as Intu has reported improved rental, occupancy and footfall growth at its shopping centres for the first quarter of the year.

From January-March, the group enjoyed a 1.5% higher footfall at its sites compared to the same period in 2017. In addition, Intu reports that occupancy rates were up 0.3% (from 95.8 – 96.1%) for the first quarter, with 60 new long-term leases signed with retailers since January.

Furthermore, CEO David Fichel stated that Intu’s lettings to retailers were “at increased rents” and that footfall at the group’s sites has been “consistently outperforming the ShopperTrak national retail benchmark over the last five years.”

Net rental income for Intu grew 0.5% in 2017, although this was significantly less healthy than preceding years’ recorded annual rent figures, which rose by 3.6% in 2016 and 1.8% in 2015.

In light of these statistics, the company remains positive about its future beyond the breakdown of the Hammerson deal, affirming: “The board of Intu is entirely confident of Intu’s standalone commercial future and prospects”.

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