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961.2p -6.4  -0.7%

Last Trade - 21/02/20

Large Cap
Market Cap £7.13bn
Enterprise Value £10.93bn
Revenue £748.0m
Position in Universe 128th / 1838

Fitch Ratings: UK REITs Braced for Further Retail Property Value Declines

Mon 25th February, 2019 4:27pm
(The following statement was released by the rating agency) Fitch Ratings-London-February 25: UK real estate investment trusts (REITs) are not immune to retail's structural changes and are likely to post retail property valuation declines in forthcoming results for 2018, Fitch Ratings says. Some rated REITs have prepared themselves by lowering their loan-to-value (LTV) ratios and selling non-core assets, including retail assets. REITs' ratings are unlikely to change as rental-derived metrics are robust and consistent with rating levels. Deepening online penetration, the higher cost base of bricks-and-mortar outlets, and retailers' overcapacity, as exposed by the weak Brexit-related consumer sentiment, have increased pressure on traditional retailers. Despite the high quality of UK retail assets owned by the large rated REITs - shopping centres and retail parks - we expect all of them to post valuation declines in their year-end results to end-2018 or March 2019, following on from tentative decreases in 1H18 retail valuations. The affected rated REITs include British Land (A-/Stable), Hammerson (BBB+/Stable) and Land Securities (secured debt instruments 'AAsf'). Today, Hammerson published year-end value declines in its UK shopping centres (-10.6%) and UK retail parks (-13.2%). Fitch calculates that, with a one-year 15% or a more prolonged cumulative 25% valuation decline in UK retail values, the main UK REITs will not reach LTV thresholds higher than 65% - a level that triggers bondholders' covenants. Rental-derived metrics are expected to remain healthy given long-dated income profiles matched by long-dated debt and interest rate hedging, so the ratings are unlikely to be affected.