Hammerson chief executive David Atkins says the landlord is in talks with major logistics and delivery companies on converting underused spaces at its flagship shopping centres, as it continues to diversify away from retail.
Atkins tells EG that potential locations, largely at back-of-house and service yards that currently have nil value at existing flagship centres, could manifest as large sorting offices for inbound online goods, to be delivered to last-mile locations during daylight hours.
The landlord is “confident” it will roll out an initiative later this year, to provide new revenue streams.
Both the retail market and property investment were identified as “very high” risks in Hammerson’s latest market update for the year ending December 2019, with values expected to fall further.
“There is no doubt 2020 will be another challenging year, and a year of transition,” says Atkins. “All we can do is focus on what we are doing… and react to the markets as we see them evolve.”
To mitigate these risks, Hammerson is aiming to reducing its net debt – which stands at £2.4bn on a pro forma basis – as well as repurposing its assets and broadening their mix away from traditional high street retail.
The landlord will also “depart in the near term from its recent practice of linking dividends closely to earnings”; instead, cutting to a level from which it can grow. It plans to reduce its final full-year dividend for 2020 to 14p per share, marking a 46% cut on 2019.
Cash will be used in the first instance to pay down debt instead, and then to invest in the business.
Growth will depend on: the scale and yield of future disposals; a “realistic view” on rental income trajectories; balance sheet strength; capital requirements for investing into the business, including the City Quarters strategy; and the health of the broader capital markets and real estate sector.
Ongoing disposals
Hammerson has not set out any fresh disposal targets for 2020, but will continue its efforts to offload more properties over the next 12 months. “With LTV coming back down to around 35%, and other debt metrics reducing, we probably have more discretion in terms of disposals,” says Atkins.
“We will continue to sell from all parts of our portfolio, but we don’t feel it’s appropriate or necessary to give defined targets. We want to reduce debt in our business, which will create a more resilient position for us and give us capacity to invest in our business going forward.”
While Atkins declines to comment on ADIA’s plans to sell its stake in The Oracle in Reading, which is understood to be up for sale for more than £200m, he says: “We are focused on improving that asset; the repurposing of the House of Fraser store is well under way, and [a disposal] is something we will continue to evaluate with our partners in due course.”
Croydon and Brent Cross
With little sign of progress on development proposals at both Brent Cross and Croydon, the market could be forgiven for thinking that the landlord might aim to include these in its disposal programme.
Unibail-Rodamco-Westfield, Hammerson’s joint venture partner on plans for a mega-mall in Croydon, recently cut the project from its formal pipeline.
However, Atkins reaffirms that Hammerson is working “as quickly as it can” with its partners to draw up feasible new proposals for the site.
“We talk to Unibail and the council all the time,” says Atkins. “We have made it clear that we are re-evaluating and redesigning the scheme. That work is continuing – it is very far-reaching, and will lead to a lower quantum of retail in the new scheme and an increase in other mixed uses, such as residential and workspaces.
“We are very much aligned with our partners and working as quickly as we can, but we want to get the scheme right – make sure we provide a scheme that works for Croydon, and is sustainable. We would rather [work through] our plans carefully than rush them, so we are not giving a guide to when the review will complete, but it continues apace. We and Unibail are very aligned on that.”
A similar initiative is under way at Brent Cross, where works have been long delayed. The landlord says it is in “active discussions” with local stakeholders to support ongoing third-party regeneration, such as the new Brent Cross West Thameslink station and the mixed-use regeneration to the south of Brent Cross.
Coronavirus impact
The emerging threat of the coronavirus outbreak has for now had a limited impact on the REIT. Atkins points to an increase in footfall and sales at its premium outlets in the year to date, compared with the same period last year.
He says: “It is something we are looking at very carefully, as all businesses are. There are a lot of scenarios that could play out. But overseas visitors to our outlets – in particular Chinese visitors – represent around 9% of sales.
“It is an important segment, but not the largest by any means. Domestic and European are still the overwhelming majority of visitors to our outlet centres. At Via, Chinese visitors account for less than 1%.”
Climate risk
Elsewhere, climate change has been identified as a low risk for the business, after it took early action on setting carbon reduction targets.
Atkins says: “There is no doubt 2019 was the year climate change really came to the fore as one of the key challenges for this generation. But Hammerson has been onto this for 10 years – we were the first property company globally to set out such an ambitious net-positive target by 2030.
“We have our first milestone of achieving net positive status for the spaces we run – ie, the malls and car parks, as opposed to the retailer spaces – by the end of this year, and are well on our way to that target.
“We are not in any way being complacent but, because of the decisive action we took a decade ago, we are in an exceptionally good place.”
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