Our retailing correspondent, MT WALLETTE, on how the plunging share price for half of the so-called ‘Croydon Partnership’ could see the redevelopment of the town centre postponed … permanently
The stock market is becoming increasingly nervous about the valuation of one of the major players in the long-promised regeneration of Croydon town centre, to the extent that there is a growing fear that one half of the “Croydon Partnership” could be forced to pull the plug on the £1.4billion project.
Much of the focus on the redevelopment of the increasingly dilapidated Whitgift Centre has so far been on developer Westfield and their plans for the supermall, which was first revealed in 2012 but is now running at least six years late on its original 2017 completion date.
However, it is the falling share price of Hammerson, the mall operators who own Centrale and who are the other half of the Croydon Partnership, where the biggest worries for the future of the “Hammersfield” project now lie.
This ought to be of growing concern to Jo “We’re Not Stupid” Negrini, the council chief executive, and council leader Tony Newman, who between them have invested so much council time, and money, on the wet dream that is Hammersfield, but who now risk the Town Hall being left with nothing to show for the extravagant scheme.
Having spent years talking up the value of their projects and properties, such as Brent Cross and the Bullring in Birmingham city centre, there has developed a gap between the paper value and what the market says Hammerson’s assets are truly worth. This has become something of a problem.
The critical state of Britain’s retailing sector – on which Hammerson depends for its rents – has spooked real estate investors, and the company’s stock market valuation has fallen far below the value of the assets on their books.
Hammerson are now having to buy back millions of pounds’ worth of their own shares to try to prop up the company’s value, “frittering away cash they can’t afford”, according to analysis in Property Week.
Last month, Farrer’s, the Queen’s solicitors, was hurriedly sending out legal warnings on behalf of another of their clients, Hammerson, to deny reports that the company’s £2million per year chief executive, David Atkins, might be ousted because of the firm’s struggles on the stock market, where its shares were down 39 per cent in 2018, knocking £1.6billion off its value.
Hammerson has recently halved its guidance on the expected dividend growth – the amount that its shareholders can expect to make on their stocks held in the company – to between 3 and 5 per cent for this year.
This morning it is being reported that one of the company’s biggest investors, John Whittaker, has decided to cut his losses and dumped a chunk of his Hammerson shares on the stock market.
Billionaire Whittaker’s investment vehicle, Peel Holdings, cut its stake in Hammerson from 4.6 per cent to just under 4 per cent. Whittaker is the deputy chairman of Hammerson’s rivals Intu Properties — which unsuccessfully tried to merge with Hammerson last year. Market analysts reckon Whittaker may have lost about £70million on the value of his Hammerson shares, from the price he bought them at two years ago.
And a large part of the cause of Hammerson’s and Whittaker’s financial woes is the continuing decline of the High Street, as retailing increasingly shifts online.
As The Times reports this morning, “Whittaker’s troubles have been exacerbated by the High Street crisis. Bricks-and-mortar retail chains are desperate to extricate themselves from long, inflexible leases as sales shift online and other costs — such as business rates and wages — keep on rising. The pressure has pushed the likes of House of Fraser and HMV into administration, while Debenhams is said to be the latest chain planning to use a company voluntary arrangement to shut stores.”
House of Fraser, HMV and Debenhams all have or have had stores in Hammerson’s Centrale mall in Croydon.
Last month, one shopping centre, The Postings in Kirkcaldy, Fife, was put up for sale by its owners. The reserve price was just £1.
If assets previously worth millions are being discounted so massively, what incentive is there for the companies who own them to build any more?
There is a complete overhaul of property valuations going on, ordered in December by the Royal Institution for Chartered Surveyors, or RICS.
Valuers have been instructed by RICS to be “aware of the potential for significant changes in value” in retail properties — and to use the widest possible range of evidence to take account of the seismic shifts in shopping habits.
More than one-third of stock market-listed retailers issued a profit warning last year. Marks and Spencer – which is supposed to be one of the “anchor stores” in Croydon’s new Westfield centre, if it is ever built – is halfway through a programme to close more than 100 stores.
In December 2018 and January 2019, more than 20 struggling retailers instructed the accountants Deloitte to assess whether they are eligible for CVAs, a company voluntary arrangement, which would allow them to shut shops and reduce their rents.
Among those considering CVAs is for his businesses Croydon-born billionaire tax avoider “Sir” Philip Green, whose Arcadia Group – Top Shop, Burton, Dorothy Perkins – is buckling under the strain of its rent bill and a slump in sales. And that was before the latest round of allegations about his conduct towards staff and colleagues emerged at the weekend.
CVAs are poison to shopping mall landlords, such as Hammerson, who get hit hard in the corporate wallet by the loss of rental income.
“The RICS instruction,” The Times reported last month, “could spur steeper declines in asset values for Hammerson.”
The newspaper quoted Mike Prew, an analyst at Jefferies, an investment bank.
“The estate agents have been red-carded,” Prew said.
“Scalpels are being wielded on portfolio valuations and we will see the consequences of the surgery in February, at Hammerson and Intu in particular.”
It emerged last month that the start of demolition on the Whitgift Centre had been postponed from September this year. It could be that later this month that we will learn from Hammerson whether that postponement will be permanent.
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Put on your seat belts Negrini and Newman. The vehicle has just departed the cliff edge.
I fear that Michael Caine will require some assistance to pull this one back.