When Hammerson exchanged contracts to sell a 50% stake in Highcross shopping centre for £236m at the start of October, shareholders would be forgiven for expecting the share price to rise.
The deal was agreed at a discount to book value of just 5% and, at the time, Hammerson’s shares were trading at a discount to NAV of about 45%, indicating that the share price painted an overly pessimistic view of the company’s true value. But their hopes were swiftly dashed. Hammerson’s shares barely moved and by the end of the year, they had slumped another 20%.
Clearly, investors felt the price achieved on the Highcross deal was an outlier and that retail property values had further to fall. So Hammerson’s decision to step up its disposal programme this year seems to be a good one. It says it is in talks to sell more than £900m of assets. If it succeeds in selling that amount – which is getting on for 10% of the portfolio – at anywhere close to book value in the coming months, it will be harder for the stock market to ignore.
But what should it sell? Unlike intu, which said last week that it didn’t feel that selling UK property was in shareholders’ interests at present and that it was instead exploring the sale of its Spanish assets, Hammerson is in talks to sell properties “across multiple territories and sectors”. It is also sticking to its plan to sell all its UK retail parks “over the medium term”.
Of the two, Hammerson’s approach is the better one in my view. It is the weak outlook for the UK retail market that is largely to blame for Hammerson’s battered share price. Only by selling some UK assets at decent prices does the company have a chance of mounting a recovery. If it were only able to sell its foreign properties or premium outlet investments, it would stoke fears that its UK assets aren’t worth what the accounts suggest they are – and leave the company even more exposed to the UK market.
Management has to be careful to balance the short-term need to cut debt and demonstrate the value of its portfolio with the long-term need to have a portfolio that has good future prospects.
The weak retail market has prompted both intu and Hammerson to emphasise the potential for non-retail development around their properties. As part of its new City Quarters strategy, Hammerson has identified 97 acres of land capable of delivering up to 6,600 homes, 1,200 hotel rooms and 2.1m sq ft of workspace.
It sounds impressive, but surely Hammerson’s management should have been exploring these opportunities anyway – and if they weren’t, why weren’t they?
For now, activist investor Elliott Advisors is publicly supportive of Hammerson’s strategy and management.
But the creation of an ‘investment and disposal committee’ made up of non-executive directors to oversee the disposal programme suggests Elliott is not wholly confident in the abilities of Hammerson’s executive team.
Elliott is sitting on significant paper losses, cushioned by the gains it has made shorting British Land and Landsec, and won’t wait forever to see results.
The pressure is on David Atkins and his senior team to successfully deliver the disposal programme and turn the fortunes of the business around. If they don’t succeed, Elliott will undoubtedly take a more aggressive approach – one that could force a far more drastic shake-up.
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