Hammerson Ireland Finance DAC — Moody’s changes Hammerson’s outlook to stable from negative; affirms Baa3 ratings

Rating Action: Moody’s changes Hammerson’s outlook to stable from negative; affirms Baa3 ratingsGlobal Credit Research – 04 Feb 2022London, 04 February 2022 — Moody’s Investors Service (Moody’s) has today affirmed the Baa3 issuer rating and the Baa3 senior unsecured ratings of Hammerson Plc (Hammerson). At the same time, the rating agency has affirmed the Baa3 backed senior unsecured rating of Hammerson Ireland Finance DAC. The outlook of both entities has been changed to stable from negative.A full list of affected ratings is provided towards the end of this press release.RATINGS RATIONALEMoody’s changed Hammerson’s outlook to stable because (1) the recovery in operating performance (including footfall and retail sales that are now close to their pre pandemic levels) will support improved credit metrics in the next 12 to 18 months (2) recovering investment markets for retail assets make further large value drops in asset values far less likely (and reduce the risk of decreased capacity under the company’s covenants) and will support the company’s ongoing asset disposal plans that will aid further deleveraging (3) the progress company has made in managing its balance sheet including accessing debt markets and refinancing its upcoming debt maturities.Hammerson’s Baa3 rating affirmation is supported by (1) the prime quality of its flagship destination portfolio in the UK, with good tenant diversification and long lease maturities; (2) its good geographical diversification across multiple countries and various retail property formats; and (3) its significant financial flexibility from well-staggered debt maturities, with no material refinancing needs not covered by existing cash until 2025, moderate development activities and substantial drawing capacity under long-dated committed revolving credit facilities. These credit strengths are offset by (1) weak interest cover and (2) a difficult operating environment, especially in the UK, which has seen demand for physical space fall, particularly at lower-quality locations. Moody’s views the relatively complex group structure and Hammerson’s significant reliance on joint ventures as moderately credit negative on balance.ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONSMoody’s regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. A resurgence of the pandemic that leads to widespread and prolonged social restrictions will negatively impact Hammerson’s business.Governance risks taken into consideration in Hammerson’s credit profile include the company’s financial policy of maintaining leverage levels compatible with an investment grade rating.OUTLOOKThe stable outlook reflects Moody’s expectation of continued improvement in the operating environment helping the company to (1) increase and stabilise its rental income and maintain good rent collection (2) avoid any large drops in asset values.KEY CREDIT METRICSFor the 12 months ending 30 June 2021, Moody’s-adjusted Net debt/EBITDA was 13.9x and this ratio is expected to be around 10x for FY2021 and reduce to around the 9x level for FY2022. Moody’s-adjusted fixed charge coverage remains weak and is expected to be around the 2x level for FY 2021 and improve above the 2.5x level from 2022 onwards.As of 30 June 2021, Hammerson’s leverage was 44.1% based on Moody’s-adjusted gross debt/total assets based on the equity consolidation of its stake in Value Retail (VR) premium outlets, which increases to 48.8% when including Hammerson’s share of VR’s non-recourse debt. Moody’s expects low single digit percentage value declines in Hammerson’s portfolio for H2 2021 when it reports updated valuations for year-end 2021, and similar declines in each of the next two years but leverage to remain stable or trend lower because of capital spend additions to the portfolio and potential debt reduction from proceeds of asset disposals.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSPositive rating pressure could develop if the company posts sustainable and consistently strong operating performance including positive rental growth and stable asset values. Other factors that could lead to an upgrade include:» Moody’s-adjusted fixed-charge coverage above 3x» Moody’s-adjusted net debt/EBITDA sustained below 8xNegative rating pressure could develop if Moody’s expects a high level of retailer distress to translate into sustained weakened credit quality. Other factors that could lead to a downgrade include:» If Moody’s-adjusted net debt/EBITDA does not stabilise around the 10x level during 2022, or Moody’s-adjusted gross debt/total assets deteriorates significantly from its 30 June 2021 level» Weak operating performance, including unsustainably high occupancy costs for retailers or a persistent, widespread and structural inability to sustain or improve like-for-like (LFL) net rental income (NRI), footfall and overall retail sales across the company’s portfolio» Moody’s-adjusted fixed-charge coverage sustained below 2.5x for a prolonged period» If the company does not maintain sufficient capacity under its financial covenants, or does not address upcoming debt maturities well ahead of their due dateLIQUIDITYAs of 30 June 2021, the company had GBP1.4 billion of liquidity comprising GBP0.4 billion of cash and GBP1 billion of undrawn committed facilities. Moody’s expects the company to have a similar amount of liquidity as of year-end 2021.The company reported that as of 30 June 2021, gearing was 68%, comfortably within the maximum covenant level of 150% (a 28% valuation decline headroom) while the unencumbered asset ratio was 1.83 compared to the covenant level of 1.5x (a 18% valuation decline headroom). The interest cover stood at 2.08x well above the minimum level of 1.25x (a 40% net rental income decline capacity).METHODOLOGYThe principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms Methodology published in July 2021 and available at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1272320. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.LIST OF AFFECTED RATINGSAffirmations:..Issuer: Hammerson Ireland Finance DAC….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed at Baa3..Issuer: Hammerson Plc….LT Issuer Rating, Affirmed at Baa3….Senior Unsecured Regular Bond/Debenture, Affirmed at Baa3Outlook Actions:..Issuer: Hammerson Ireland Finance DAC….Outlook, Changed To Stable From Negative..Issuer: Hammerson Plc….Outlook, Changed To Stable From NegativePROFILEAs at 30 June 2021, Hammerson’s portfolio of high-quality venues had a value of GBP5.5 billion and included 21 flagship destinations in thriving cities and investments in premium outlet villages through its partnership with Value Retail. Key venues include Bullring, Birmingham, Dundrum Town Centre, Dublin, and Les Terrasses du Port, Marseille, and investments in premium outlets at Bicester Village, Oxfordshire, La Vallée, Paris, and Las Rozas, Madrid.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Ramzi Kattan Vice President – Senior Analyst Corporate Finance Group Moody’s Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Richard Etheridge Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody’s Investors Service Ltd. 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