OREANDA-NEWS. Fitch Ratings has affirmed Hammerson Plc's (Hammerson) Long-term Issuer Default Rating (IDR) at 'BBB+, Short-term IDR at 'F2' and senior unsecured rating at 'A-'. The Outlook on the Long-term IDR is Stable.

Hammerson's prime UK and French retail portfolio continues to benefit from high occupancy and contracted rental income. Organic net rental income growth is likely to trend inflation while completion of new development projects should drive top line growth slightly higher in 2015.

The ratings reflect a conservative balance sheet and solid interest cover that benefit from a mainly fixed-rate average debt maturity profile that matches its average lease length profile. Rating headroom is solid; Fitch forecasts EBIT net interest cover above 2.0x and loan-to-value (LTV) around 40% in 2015 and 2016.

KEY RATING DRIVERS

Positive 2014
In 2014 Hammerson delivered its landmark development "Les Terrasses du Port", which improved the quality and scale of its French portfolio. It also helped - together with the growing importance of the luxury outlet segment - to further diversify its portfolio. The approximate GBP400m equity issue was also a key milestone that strengthened the company's balance sheet, along with around GBP150m of disposals in 2014, ahead of some acquisitions, and progress in its London developments (LTV down to 34% at FYE14).

Strong Financing Activity
Hammerson took advantage of 2014 being a record year for financing in Europe by raising more than GBP1bn through a mix of debt (bonds, private placement) and equity. It illustrates the recovery and improving sentiment for Hammerson's markets, both in terms of operations and investments.

Defensive Rental Income Characteristics
Occupancy remains stable and solid at around 98% with an average contracted lease length of 8.1 years as at FYE14 (6.3 years to break option). This is shorter than other UK peers due to the typical shorter lease lengths in France. Overall in a European peer context, it remains strong. Hammerson's prime shopping centres benefit from a diverse tenant base, with each tenant representing no more than 4% and the top 10 tenants representing around 20% of total passing rental income.

JVs & Equity Accounting
Hammerson had around 43% of its properties classified as JVs or associates at end-2014. Hammerson used the equity consolidation for its JVs for the first time in 2014 following IFRS11. JVs are largely free of debt, leaving Hammerson's share of rental income to be up-streamed as dividends. Fitch notes that what used to be proportionally consolidated cash flow are broadly in line with up-streamed distribution. JVs allow Hammerson to diversify their asset base and de-risk exposure to any large asset through involving third-party capital, typically from pension funds and sovereign wealth funds.

Lower Commitment, Higher Pipeline
Hammerson completed its main on-site development "Les Terrasses du Port" in 2014. It brought down the amount of on-site development and related committed capex to GBP252m (4% of the portfolio). Nonetheless the overall pipeline is more important than at the beginning of 2013 as Hammerson could start on-site works of some large developments in London and Croydon, potentially from 2016/2017.

Unsecured Debt Structure
Overall the debt structure remains straight-forward with all senior unsecured bonds raised at the parent level, with no meaningful prior ranking debt at the subsidiary level. Positively the majority of Hammerson's property assets remain unencumbered with an unencumbered assets cover around 2.8x at FYE14.