THE scale of devastation wrought by the pandemic on Europe's stores and malls is becoming painfully clearer.
Hammerson Plc, which owns once-prized shopping centres across the UK, France and Ireland, slashed the value of its properties by almost £2 billion (S$3.7 billion) last year, according to a statement last Friday. The company, once a pillar of the UK's real estate sector, said the plunge was triggered by the greatest fall in rental income it's ever seen.
The landlord's 41 per cent collapse in rent shaved nearly a quarter off its portfolio's value, with the company's biggest UK malls including the Bullring in Birmingham and Brent Cross in London falling more than twice as much as its French and Irish properties. The plunge in values forced Hammerson to a £1.7 billion loss, its worst in history.
The pandemic has sped up the descent of an industry that was already in crisis before the world's economies shut down. Across Europe, retailers have been forced to open and close repeatedly, enduring months of little or no revenue that's putting an ever greater strain on balance sheets. In the UK, the crisis has often proved fatal for the department stores and fashion retailers that line the nation's high streets and anchor its biggest malls.
Every day seems to bring worse news. UK stalwart John Lewis Partnership Plc posted its first-ever annual loss last Thursday and outlined plans to close even more department stores. That's on top of eight already earmarked to shutter, including its flagship store at the Grand Central mall in Birmingham that's jointly owned by Hammerson. Rivals Arcadia Group Ltd and Debenhams Plc, whose stores anchored dozens of other UK malls, have collapsed entirely.
Investors aren't betting on a near-term recovery, with Hammerson's shares trading at a near 60 per cent discount to the book value of the company's assets. While almost all publicly-traded landlords in Europe have seen their discounts widen since the pandemic hit, mall owners have suffered the worst by far.
The property slump slightly lifted the firm's loan to value ratio to 46 per cent. The threat posed by falling values and rising debts was captured last year by rival Intu Properties Plc, which collapsed under a mountain of liabilities that it couldn't shrink fast enough.
"Our immediate focus in 2021 is leading Hammerson through Covid-19 to safety," chief executive officer Rita-Rose Gagne said in Friday's statement. "This means further disposals to strengthen the balance sheet, managing refinancing, and sharpening our operations to maximise income."
The company sold its stake in a outlet mall business last year and completed an emergency share sale that together helped bolster its balance sheet. It reported a further three disposals on Friday; stakes in two French malls and a retail park in London, raising a combined £73 million.
That shows there are still some buyers willing to invest in brick and mortar stores at the right price, with the prospect of restrictions being lifted getting nearer. The news even helped lift Hammerson's shares as much as 8.8 per cent on Friday - though they're still about 76 per cent lower than where they started last year.
"If this pandemic has highlighted anything, it is how much we all crave human contact as inherently social beings," Ms Gagne said. "As a business, Hammerson provides the places and social infrastructure where people want and need to be." BLOOMBERG