Hammerson shareholders will be breathing a sigh of relief this morning that the company abandoned its £3.4bn merger with intu.

Guy Montague-Jones

Index – Guy Montague-Jones

The 5.6% like-for-like valuation decline reported in intu’s half-year results this morning seems to validate their scepticism of the merits of the proposed tie-up. The slide in value is all the more painful for intu as the company’s high level of debt means it translates into a 12% decline in NAV. No wonder the shares are down 7% today.

However, Hammerson’s shares haven’t fared too well either this morning. They’re down about 3.5%. That suggests to me that the Hammerson’s shareholders aren’t too convinced by the 1.5% valuation decline the company reported for its UK centres in half-year results earlier this week.

It could be argued that the divergence is down to the fact that Intu’s centres aren’t as good as Hammerson’s and that investor demand is lower for lower quality schemes. But I’m not totally convinced by this.

Hermes’ sale of its 7.5% stake in the Bluewater shopping centre in Kent for less than the asking price and Lendlease’s failure to find a buyer for its 25% stake suggest that investor demand for the best shopping centres is pretty weak. This was reflected in the 11% writedown in the value of the centre in Landsec’s full-year results in May, but seemingly not in Hammerson’s results this week.

In today’s market, it is clearly no forgone conclusion that the best centres will deliver the best rental growth. When it comes to rents, intu is faring a tad better than Hammerson in the face of all the retailer CVAs and administrations this year. Intu’s like for like rental income increased by 1.3% in the first half of the year, whereas at Hammerson’s UK shopping centres suffered a like-for-like decline of 0.1% over the same period.

Faced with a crisis in the retail market and a weak shopping centre market with little transactional evidence to draw upon, it is hard to escape the conclusion that shopping centre valuations are notional at best.

Intu’s next move

So where does intu go from here? One thing it won’t be doing is taking a leaf out of Hammerson’s book by setting big disposal targets, according to intu’s chief financial officer Matthew Roberts. “It doesn’t help the sales process in terms of maximising proceeds,” he told me this morning.

Following announcement today that long standing chief executive David Fischel is to retire, Intu will almost certainly wait until his successor is found before reviewing its strategy. It won’t be job for the faint hearted.