Retail landlord Hammerson (HMSO) has made two major acquisitions in the past fortnight. Last week the real-estate investment trust paid £136m for the Victoria Quarter in Leeds, which consists of two listed arcades with a mixture of up- and mid-market shops. Then, on Monday it bought a 25 per cent stake in the Whitgift Centre in Croydon for £65m.
One reason for the rush of deals in an otherwise thin market is that Hammerson has cash to spare. Back in February the company announced a plan to sell its London offices, and by June it had found a buyer – the Canadian office landlord Brookfield (BPO). Chief executive David Atkins pledged to reinvest the £518m raised in three retail sectors – pan-regional malls, retail parks and “premium designer outlets”.
All three bases may soon be covered. The two latest deals tie into major mall projects, and in July Hammerson agreed to up its stake in Value Retail – the company that owns Bicester Village – by £100m. The group is also in talks to buy the £285m Junction Fund of retail parks managed and part-owned by Capital & Regional (CAL).
There have been some grumbles that Hammerson has overpaid in its rush to reinvest. Value Retail was by far its best-performing asset in the first half, so the increased stake came at a price. The £136m it paid for the Victoria Quarter reflects a rental yield of 5.25 per cent – precisely the exit yield at which it sold its City offices. The acquisition in Croydon was even lower-yielding. “Perhaps it’s easier to sell London offices into the deepest and most liquid market in the world than replace the earnings. This doesn’t seem to be a good start,” said Jefferies analyst Mike Prew.
In Hammerson’s defence, valuations of major shopping centres have been holding up better than other types of retail property, reflecting their enduring appeal to big sovereign wealth funds. Moreover, both purchases were not standalone investments as much as tactical moves within wider development projects. Rival mall developer Westfield (WDC) has plans to develop the Whitgift Centre, which Hammerson has now blocked. The Victoria Quarter is adjacent to the Eastgate Quarter in Leeds, for which the group announced sweeping plans in July.
Meanwhile, the industry is still anxiously waiting for news about Meadowhall. London & Stamford (LSP) put its 50 per cent stake in the mega-mall up for sale in January, prompting British Land (BLND) to offer half its 50 per cent stake too. But so far they have failed to clinch a deal with the buyer, widely rumoured to be the Norwegian sovereign wealth fund.
