L Catterton, the private equity firm backed by French luxury fashion house LVMH Moet Hennessy Louis Vuitton SE, has agreed to buy Hammerson Plc’s stake in outlet mall landlord Value Retail in a deal representing an enterprise value of £1.5 billion ($1.9 billion).
The transaction includes interests in nine luxury retail properties outside major European cities including the Bicester shopping village, about 60 miles north west of London, according to a statement Monday. It will generate cash proceeds of £600 million for Hammerson, which has been on a multiyear drive to sell assets and cut debt as it grapples with plunging retail property rents and values.
Shares of Hammerson rose as much as 10.2% in London on Monday, their biggest intraday gain in more than eight months, on plans to buy back as much as £140 million in stock from the sale proceeds and to enhance dividend payouts to 80%-85% of adjusted earnings.
While Value Retail’s prized outlet malls that lure millions of international shoppers have been among properties most resilient to the rise of online shopping, Hammerson has long sought an exit of its minority stake in part because of its lack of control over the company.
“The disposal focuses our portfolio on prime urban real estate with a transformed capital structure and the capacity and capability to advance our strategy in higher yielding opportunities with stronger returns, whilst enhancing returns to shareholders,” Hammerson Chief Executive Officer Rita-Rose Gagne said.
The deal, which is at a 24% discount to gross asset value, will reduce Hammerson’s loan to value ratio to 23%. It also leaves the company’s portfolio focused on large malls and mixed use developments in city centers. The transaction is expected to complete in the second half of this year.
The proposed buyback amount of £140 million represents roughly 10% of its market capitalization.
L Catterton has become an increasingly active investor in prime retail properties as it looks to exert more control over the top locations for its brands.
“We have deep experience investing in luxury retail, and we are eager to leverage our operational expertise and global network of established relationships to partner with Value Retail and propel the business forward,” L Catterton global Co-Chief Executive Officer Michael Chu said.
Eastdil Secured, Morgan Stanley and Lazard advised Hammerson on the deal while JPMorgan Chase & Co. acted for L Catterton.