Some of the UK’s largest listed real estate companies have set out plans to radically reshape their portfolios as they prepare to grasp the potential and avoid the pitfalls of a post-pandemic market.
The moves, which include stepping up disposal drives, spinning off businesses and finding alternative uses for existing assets, underscore the raft of challenges and opportunities facing REITs and other property owners as the UK economy reopens after a year of lockdown.
At NewRiver REIT, chief executive Allan Lockhart said the company has used the past year to undertake “a very comprehensive strategic review, not only of our portfolio on an asset-by-asset basis, but also to think ahead around the wider marketplace”.
He added: “We have come out of the pandemic in good shape, we have got a clear plan and we believe it will deliver good shareholder value.”
That plan will involve selling non-core assets and reinvesting the money into more “resilient” retail, as well as “transforming” its regeneration assets. Most notably, the company has proposed spinning out its pub business through an initial public offering as a way of getting its loan-to-value ratio lower. A separate listing for Hawthorn, which owns 673 pubs around the country (including The Wheatsheaf in Hatfield Peveri, pictured), would see Mark Davies – Hawthorn’s chief executive as well as NewRiver’s chief financial officer – lead the standalone business. Will Hobman, NewRiver’s finance director for the past 18 months, would become CFO.
Lockhart told EG that there are opportunities for the group to grow both its retail and pubs business, but added: “We just can’t do both.” “We believe Hawthorn as an independent business will grow faster,” Lockhart said. “As a REIT there are some restrictions, particularly around operating businesses, that would limit our ability to grow Hawthorn. It will have a strong balance sheet as a separate business. We also expect to see consolidation in the pub sector, so there’ll be opportunities for the business to continue its growth trajectory. For those reasons, we feel it’s the right time to make the move.”
The company is pushing ahead with other disposals, telling shareholders it has completed £81m in sales over the past year, as well as exchanging on £12m and currently being under offer on a further £80m.
“Shrink to grow stronger”
At Jefferies, equity analyst Mike Prew described NewRiver’s plans as “shrinking to grow back stronger” and highlighted the potential for the company in alternative use strategies.
“The entire pub estate should be fully operational akin to summer 2020 from June,” wrote Prew, who has a buy recommendation on NewRiver’s stock. “Retail park yields reflect rents being rebased with the value in the car parks for alternative uses. To our REIT ‘buy’ theme of reflation, reoccupation and reopening we need to add regeneration with alternative land usage well bid for residential and liquidity seeping back into some shopping centres.”
British Land has also given further details of a shake-up to its portfolio. Last year the FTSE 100 REIT said it had identified retail assets it could turn into warehouses, offices or homes. It has now confirmed that plans are under way to develop more than 1m sq ft of urban logistics space at its Meadowhall shopping centre in Sheffield and retail park in Teesside, with planning applications expected to be lodged in the coming months.
The company has exchanged contracts on an £87m acquisition of Heritage House, a 200,000 sq ft warehouse in Enfield let to Waitrose and Crown Records Management. British Land said the site “offers significant redevelopment potential given the opportunity to increase density”, adding: “Leveraging our skills in site assembly, planning and delivering complex developments in London and our strong relationships with retailers, we are evaluating urban logistics development opportunities inside the M25, where we believe rental growth prospects are most compelling.”
British Land also told shareholders it will remain committed to some parts of the retail business, having acquired the A1 Retail Park in Biggleswade, Bedfordshire: “We are exploring further opportunities to acquire high-quality, well-located retail parks, but will remain disciplined in terms of our return requirements.”
Second time lucky?
Strategy updates from British Land and NewRiver followed confirmation from Hammerson at the start of the week that it is in talks with Brookfield to sell its own retail park portfolio, a deal expected to be valued at around £350m.
The talks mark the second attempt to sell the portfolio over the past 12 months. A fund managed by Orion agreed to buy the properties for some £400m last February but walked away from the deal a few months later.
Hammerson said a sale would form part of its strategy of making “asset disposals in liquid markets to further strengthen the balance sheet”. New chief executive Rita-Rose Gagné told EG last month “nothing is off the table” in terms of disposals, adding: “You don’t fall in love with your assets… if the price is right, all assets are on the table.”
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