Commercial property values have fallen 26 per cent in a year and , bringing highly leveraged property companies precariously close to expensive - or even ruinous - breaches of banking covenants. For the quoted sector, injecting more equity through asset sales, a rights issue or, increasingly, both is looking like the only route to survival.
"We still expect many other property companies to follow Hammerson's example, potentially resulting in a scramble for capital and some company defaults," says Morgan Stanley real estate analyst Harm Meijer. He predicts that the six biggest UK Reits collectively need to raise £4.2bn to reduce their loan-to-value ratios to a comfort zone of 50 per cent. Raising funds may help boards and bankers sleep more easily, but shareholders are stuck between a rock and a hard place - stump up and stick it out, or reject your rights and suffer dilution.
Hammerson's seven-for-five issue will be used exclusively to pay down debt, reducing gearing to 81 per cent. As its , the company was dangerously close to breaching gearing covenants of 150 per cent.
The issue price of 150p is a 65 per cent discount to Hammerson's trading price, though short positions being closed off has artificially inflated its shares. This compares to a 14 per cent discount for recent £29m opportunistic raise, and a 69 per cent discount for £87m rescue rights issue.
"Those further down the queue risk even weaker pricing," warns Nomura real estate analyst Mike Prew, who this week downgraded Reit net asset value estimates and target prices by an average 14 per cent.
At the time of going to press, was expected to announce a rights issue of £500m-£600m at Thursday's third-quarter results, and is tipped to mount a £300m rights issue with its full-year results later this month.
