Hammerson Plc (HMSO)’s 518 million-pound ($814 million) sale of most of its London office buildings makes acquisitions easier and accelerates its transformation into a specialist retail-property investor, according to one of the U.K. company’s largest shareholders.
“It puts them in a reasonably comfortable position to look for further growth,” said Nicolas Scherf, an analyst at Cohen & Steers Inc., which manages funds owning more than 6.4 percent of Hammerson. “They need to look at everything that exceeds their cost of capital -- it doesn’t have to be a big deal.”
The asset sale to Brookfield Office Properties Inc. (BPO) of New York gives Hammerson about 1 billion pounds of cash or credit lines, the company said when it announced the deal on June 19. Chief Executive Officer David Atkins plans to deploy the capital beyond existing projects, he said in an interview after the sale.
On Feb. 24, Atkins said he would make the company a retail specialist over two to three years. Once the Brookfield deal is completed, malls, retail parks and other shopping assets will make up 97 percent of Hammerson’s portfolio.
Hammerson has been the best performer in the 11-member FTSE 350 Real Estate Investment Trust Index since Atkins announced the change in strategy. The shares have appreciated by 11 percent, compared with 5.4 percent gain for the index.
“We have huge firepower,” said Atkins, 46. Diminished bank lending and a lackluster economic outlook “will give rise to interesting opportunities that we are in a good position to exploit with our liquidity.”
Hammerson is in talks to increase its stake in Value Retail Plc, a closely held operator of designer outlets including Bicester Village near Oxford. The company’s investments in Value Retail and some out-of-town shopping villages across Europe were valued at 214 million pounds at the end of 2011.
Atkins may buy French retail properties to bolster its presence there, said Robert Duncan, a Jefferies Group Inc. analyst. He has buy rating on the shares.
France accounted for 27 percent of the company’s 4.93 billion pounds of retail-related property at the end of 2011. The rest is in the U.K., including stakes in London’s Brent Cross mall and Birmingham’s Bullring.
Brookfield plans to pay Hammerson 329 million pounds in September and the rest in June 2013. That will lower the U.K. company’s debt to 26 percent of the value of its real estate at the end of 2011, Hammerson said.
“It was an excellent exit and in the next 12 months having gearing at that level may not be a bad thing,” said Marcus Phayre-Mudge, lead manager for TR Property Investment Trust (TRY), which owns 5.2 percent of Hammerson.
“I would be fairly disappointed if they went and racked up another operating platform elsewhere in Europe or in a submarket where they don’t already have a presence,” he said. “They have plenty of stuff to get on with in the U.K. and France.”
Atkins has earmarked about 320 million pounds to refurbish or extend a dozen of its existing shopping centers in France and the U.K. Hammerson has a 200 million-pound additional commitment during the next two years to build Les Terrasses du Port mall in Marseilles, France, and it has three other major developments that will start as early as 2013.
Atkins said the investments in improving and enlarging existing centers will generate an 8 percent income return for shareholders.
“That’s a better return than shareholders would achieve for a special dividend or a share buyback and provides a longer-run return,” he said.
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