Hammerson plc (“Hammerson”) has exchanged contracts for the sale of a 50% stake in Highcross shopping centre in Leicester for £236m. This represents a 5% discount to December 2017 book value allowing for capex associated with the proactive reconfiguration of the former House of Fraser store.
The deal creates a new £472m joint venture with an Asian investor introduced by M&G Real Estate. Hammerson will manage the centre for the new joint venture and the sale price represents a net initial yield of 5.5%.
Highcross is Leicester’s leading retail destination. The 110,000m² centre attracts 18 million visitors a year and is anchored by John Lewis & Partners, Debenhams and a Showcase Cinema de Lux.
The centre continues to experience strong demand from retailers, with luxury perfume brand Jo Malone London recently opening its first boutique in the city. Debenhams has invested £5 million in store improvements as well as introducing new brands to Leicester through concessions including Maisons du Monde, Murad and Kat Von D. As at 30 June, Highcross’ occupancy was 96.7% with an annual passing rent of £26.7m.
Hammerson has made a significant number of improvements and transformed the retail line-up as part of its strategy to reduce reliance on department stores and enhance the retail mix. In 2016, the House of Fraser space was proactively taken back to accommodate an upsized flagship Zara store, which has recently opened, alongside an upsized JD Sports and additional restaurant and leisure space.
The leisure offer has also been significantly improved, with St Peter’s Square now a dedicated dining quarter with enhanced public space. New indoor climbing operator Social Climbing has joined the centre and new concept Treetop Adventure Golf is also set to open early next year. Complementary recent openings include Runners Need and Cotswold Outdoor as consumers continue to focus on health and wellbeing.
Hammerson, which owns and manages flagship retail destinations and Premium Outlets, recently increased its disposal target for 2018 to £600 million as part of its reshaped strategy.
This transaction takes Hammerson’s total disposals in 2018 to over £530 million, including the sale of four retail parks earlier this year in line with its plans to exit the retail park sector over the medium term.
David Atkins, Chief Executive of Hammerson, commented: “We have now achieved close to 90% of our increased 2018 disposal target of £600m. This latest transaction is at a price that underpins the underlying strengths of our flagship destinations. It is clear there are institutional investors that continue to have the appetite to buy into top tier centres and see value in creating joint ventures with skilled operators.
“We are taking advantage of the current valuation disconnect with equity markets using proceeds to both buy back our own shares at a significant discount to NAV and reduce leverage, whilst also continuing to selectively invest in higher growth markets. We are single-mindedly focused on shareholder value and will continue to pursue further disposal options that would allow us to achieve prices that reflect the underlying value of the asset.”
John Duxbury, Head of Retail & Leisure, M&G Real Estate comments: “This is a significant investment into a high quality, strategically located, well-let regional asset, which provides a great place for people to shop, dine out and be entertained.
“The retail sector has its challenges, but prime assets in the right locations will be resilient to the changing retail landscape and continue to deliver attractive risk adjusted returns for our investors. With a strong line up of retail and leisure brands, we are confident that Highcross has an exciting future.”
The completion of the transaction is expected to take place later in the year subject to EU competition clearance and joint venture finance.