EDITOR’S COMMENT Always the bridesmaid, never the bride. I wonder if that’s a phrase, albeit it an outdated one, going through Landsec boss Mark Allan’s brain at the moment.
Late last week, EG revealed the frontrunner for Nuveen’s stake in the Edinburgh St James shopping centre, a scheme that is arguably one of the best in the UK. Landsec was in the running and had been thought an obvious victor. But so far, that crown is set to go to Redical.
Landsec was considered the strongest buyer as, earlier this year, Allan firmly set out plans to invest in retail to ensure it had only the very best major shopping destinations in its portfolio.
In May, off the back of a solid set of financial results, Allan said the REIT would be committing some £600m of capital into retail – big retail – and had identified 20 assets that it believed met its investment criteria.
“Our focus for the rest of the year is now on acquisitions as we aim to recycle the proceeds of our hotels disposal into additional opportunities in major retail,” Allan told EG. “Alongside our two committed office developments in London, this is our key focus for investment at the moment and where we plan to apply most of our existing balance sheet capacity.”
Prior to that commitment, the REIT had already tried to buy a majority stake in the 1.7m sq ft Liverpool One from the Abu Dhabi Investment Authority for around £350m and had eyed rival British Land’s stake in the 1.4m sq ft Meadowhall in Sheffield. That was eventually bought by British Land’s jv partner Norges Bank Investment Management for £340m.
While ADIA is expected to bring its 69% stake in Liverpool One back to market and rumours have started circling about other interesting and large-scale assets that could be available to buy, surely Allan and team must be thinking of other routes to add scale in retail.
For years the market has expected a BLAND merger, a coming together of British Land and Landsec, but now for the first time in a long time, those two businesses are more different than they are the same. British Land shifting heavier into retail parks, for example, Landsec shifting out.
Surely Allan et al have now started to run a slide rule over Hammerson? While Hammerson may not have looked attractive in the past, chief executive Rita-Rose Gagné has tidied up the business. She has unravelled it from the chain around its neck that was Value Retail, she’s slimmed down the business, cut costs, disposed of non-core assets and brought the business back into balance. To use her own analogy, she’s cut the fat, set the company up with an exclusive gym membership and is now ready to build some muscle.
In July, Gagné told us that the business had scaled back, but was now scaling back up. “The notion was never to make the company smaller,” she said. “It was to make the company larger and stronger.”
That scaling back up included reinvesting some £350m from the sale of Value Retail into existing assets and buying out its jvs – it was also in the running for Edinburgh – but perhaps a better route to growth and packing a punch in retail could come through a merger with Landsec.
A combined business would own a hefty shopping centre portfolio, offer some interesting development opportunities and provide the ability to tone up the business further with some “synergistic” cost-cutting.
M&A is back in the listed sector and there’s demand from analysts for more. Consolidation in the sector is essential, they say. Shareholders need it and a sector filled with larger, more liquid firms is vital if REITs are to become more attractive to investors as interest rates recover and the current cycle moves back into a more positive phase.
The only problem is Hammersec or Landson doesn’t have quite the same ring as BLAND, does it?
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