Hammerson pins future on mega malls as it boosts asset sales

London

UK retail landlord Hammerson is pinning its hopes on luxury-outlet stores and mega malls as it tries to convince investors it was right to rebuff a takeover approach by Klepierre.

The company will sell £1.1 billion (S$1.97 billion) of surplus assets as it seeks to cut its debt levels at a time when UK retail is being buffeted by internet shopping and growing costs.

Hammerson plans to delay a planned extension of a London mall, cut costs and diversify its portfolio away from Britain. It will also buy back £300 million of shares.

"These are turbulent times in UK retail and the wider economy," Hammerson's chief executive officer David Atkins said in an interview. "We felt that now is not the time to press the start button" on new development in Britain.

Hammerson's revamped strategy is an attempt to reassure investors that turning away French rival Klepierre three months ago wasn't a tactical error.

Retail landlords are under pressure from e-commerce, which now accounts for nearly one-fifth of UK sales and has helped spur a slew of store closures and bankruptcies this year.

To diversify, the mall owner will change the mix of retailers in its properties, with fewer department stores and generic retailers and more fashion, leisure, events and lifestyle spaces, it said in a statement on Tuesday.

It also plans to sell its remaining retail parks, a type of development common in the UK that typically includes large out-of-town stores clustered around a parking lot.

The London-based company now expects to sell £600 million of real estate this year, a 20 per cent increase on an earlier target.

If it can sell assets for close to their current valuations, it would show that the gap between the firm's market worth and the value of its properties is not justified.

Hammerson's latest net asset value per share was 776 pence as of the end of June.

Overall, Hammerson is down 3 per cent since the beginning of January.

"Retail parks have been struggling" and "in the context of the ongoing physical retail problems, it makes sense to focus," Bloomberg Intelligence analyst Sue Munden said.

The company already announced the sale of two properties on Monday for £164 million, a 10 per cent discount to their December valuations, bringing its total sales this year to more than £300 million.

Hammerson also owns malls in Ireland and France, which unlike the UK aren't facing economic pressures due to Brexit.

The value of Hammerson's £10.6 billion portfolio was flat in the six months through June, with growth in the luxury outlets business and the Irish operation offsetting writedowns for its UK properties.

Before news broke of Klepierre's bid in March, Hammerson's shares had slumped about 20 per cent since the start of the year as Britain's worsening retail environment led to concerns it could damp demand for space in malls.

Klepierre abandoned its courtship of the UK company in April, and cannot now make another approach until October.

Within days, Hammerson ended its own pursuit of another company, Intu Properties, after a growing number of shareholders opposed the deal.

Hammerson also said: It's targeting cost savings of at least £7 million a year and will cut the number of executive directors from four to two.

The company plans to redeem 500 million euros (S$796 million) of bonds due in 2019. BLOOMBERG