Hammerson’s decision to hire a US investment bank to sell its out-of-town retail portfolio has left property agents feeling alienated by a long-time client.
The FTSE 250 property group has appointed Morgan Stanley to sell up to 10 retail parks, collectively priced at less than £400m, as revealed by EG. Market sources estimated a blended yield of around 8%.
Morgan Stanley, which Hammerson named as its joint corporate broker alongside JP Morgan Cazenove in February, has been approaching a select group of investors in recent weeks.
One senior executive at a landlord tells EG that the agent community is “not reacting well” to the appointment.
Indeed, there is a sense of betrayal among some of the top retail agents. One says he thinks it is “disrespectful” that Hammerson has not hired any agents, some of which “have worked for them for years”.
Another senior agent says: “I don’t see how a merchant bank could sell a portfolio when they know next to nothing about the properties involved.”
While he acknowledges that the likes of Morgan Stanley can bring the all-important skill of finding investors in the market for a large portfolio, he points out that “there is a lot of detail required, too”.
“Agents can tell you how well a B&Q trades at a park, or what you could do with a Sports Direct. It strikes me as an odd one,” he says of the decision to appoint Morgan Stanley.
Suite of services
For John Knowles, head of national capital markets at Colliers International, it likely reflects a “defensive move” aimed at shareholders that “shows that you have hired what you perceive to be best-in-financial-class, rather than hiring a property agent”.
“Morgan Stanley would probably say they have a much better global strategic view,” says Knowles. “The property market would say they might have a global strategic view, but they have less understanding of real estate, and what you need right now is people who know bricks and mortar.”
However, other property owners point out that investment banks are able to provide advice on more complicated financing aspects of deals, if needed.
“Given that a wider portfolio is being sold, there perhaps might be a corporate structuring element there,” says Sam Salloway, portfolio manager at Avignon Capital. “Investors buying in may also inherit a certain amount of debt, which the typical property agent would not be able to advise on.
“An investment bank won’t be able to provide the specific, on-the-ground expertise that an agent can, or the decades of experience they might have in this. But when there are slightly more complicated corporate structuring elements to a deal, you would probably want to bring in an investment bank. It can provide a wider suite of services.”
The appointment raises the question of whether the rise of the “real estate bankers” highlights a new trajectory for property advisers, as demand grows for advice on increasingly sophisticated structures. JLL’s acquisition of capital markets firm HFF earlier this year springs to mind; the likes of Eastdil Secured, which is set to expand after sealing a management buyout, are also often mandated on sale and financing aspects.
Exit plans
Either way, the appointment of an investment bank could widen the pool of potential investors and speed up the pace of the hunt.
Hammerson has previously outlined a £1.1bn disposal target for the “medium term”, with associated cost savings calculated for the end of 2019. The REIT first stated its aim to exit retail parks in July last year, as part of a strategy to use disposal proceeds to pay down its debt.
It has so far logged £577m of disposals in this calendar year, exceeding its minimum disposal target of £500m for the financial year. The landlord has sold seven retail parks since February 2018, bringing in around £400m.
The shopping centre owner had also planned to make a further £2m of savings relating to its retail parks team by the end of the year, lining up a potential exit from the sector.
Although it might seem strange that a sale process was launched in the run-up to the General Election – and mere weeks before Christmas – an exit now, at this rough pricing, would go a long way to helping Hammerson meet its goal.
“At the end of the day, you have to respect Hammerson’s own internal decision-making process,” says Avignon’s Salloway. “If Hammerson thinks it is better [for its own business to sell via] Morgan Stanley, it is probably justified.”
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