Images above: Retail analyst Richard Hyman; Westfield, Shepherd’s Bush
One of the UK’s largest landlords in the retail sector, Hammerson PLC, announced yesterday that their tenants have only paid around a third of the total rent due for the March quarter.
‘We have received a variety of requests for rent deferrals, monthly payments, and waivers, which we are reviewing on a case-by-case basis’ they said.
Hammerson also announced that it would not be paying the final dividend of 14.8 pence per share for the financial year ended 31 December 2019, presumably as they look to preserve cash. Their share price is now a third of what it was at the beginning of March, and many of their shareholders are pension funds, which is bad news.
They own shopping malls in the UK France and Ireland, including Brent Cross shopping centre, the Bullring & Grand Central, Birmingham and Bicester Village, Oxfordshire, which are occupied by well-known national chains. Bicester Village was particularly hit as many of the shoppers used to be tourists from China.
Before the Coronavirus crisis hit the UK, Hammerson sold a number of their retail parks to Orion Real Estate Fund for around £400m which was more than 20% less than their book value.
What are the prospects for Westfield?
It makes you wonder how Westfield is faring. Europe’s largest shopping centre, Westfield Shepherds Bush has had a big impact on Chiswick High Road and High Street Kensington. It cost £1.6bn to build when it opened in 2008, and was then significantly expanded in 2018.
The shopping mall in Shepherd’s Bush is substantially closed, except for grocery stores, including M&S Foodhall and Waitrose and pharmacies, including Boots. M&S Foodhalls and Waitrose at Westfield are offering reserved shopping times for the vulnerable and key workers. Waitrose is also protecting batches of hard to find and essential stock exclusively for NHS workers, and providing them with a priority checkout process.
Westfield was taken over by European company Unibail-Rodamco two years ago. The company published a statement on 18 March saying their liquidity position was strong, but as the lock down looks like being longer than we first thought, times could be testing for landlords as well as tenants.
‘In light of this evolving situation, URW has taken all precautionary measures needed to ensure its access to liquidity. The Group now has €10.2 Bn in cash on hand and undrawn credit lines, which provides it with the liquidity needed to cover all expected funding needs even under an extreme “stress test” scenario’.
It has also implemented a programme to actively reduce non-staff expenses and defer non-essential capital expenditure, but it said: ‘The duration and extent of the situation and its impact on the Group’s earnings remain uncertain’.
“We’re looking at a blank sheet”
Richard Hyman is a world-leading expert in the retail industry, having done research and dispensed advice to some very big companies over the past 40 years, including Tesco, John Lewis, Primark, M&S, Sainsbury’s and Debenhams. I asked him whether Westfield is likely to survive if the lockdown continues for six months.
“It’s very hard to predict low long this will continue” he told me, “but rental revenue will be fundamentally impacted, and this follows on from some extremely hard trading conditions. Before the Coronavirus there was Brexit and before that we’d been grappling with structural issues. We’ve had 15-10 years of relentless growth in online shopping and no diminution in the amount of floorspace, which has adversely affect trading economics”.
The landscape has changed fundamentally, he told me. The situation is unprecedented and when we come out of the Coronavirus emergency, we will be “looking at a blank sheet of paper. Almost anything you can think of that we’ve built up over years of experience has gone.”
Westfield – crème de la crème
“Generally speaking, Westfield is the best run, financially strongest operator of shopping malls in the UK. If Westfield doesn’t survive, then none of the others will” he said. “Westfield is the crème de la crème of shopping malls, so I think they will survive. They will just look rather bruised and battered. It will depend on consumer behaviour and their propensity to spend”.
That is the biggest uncertainty, what consumer spending will look like at the end of all this.
“If the Government lifts restrictions on a Wednesday, people are not going to go out shopping on the Thursday. Everyone will have debts. And when you print money on the scale our government has, it doesn’t take a genius to work out that money will have less value. Consumers’ money will go less far and there will be pressure on retailers to cut prices, but they too will have debts”.
When things return to normal, he said there will be a new ‘normal’.
“Conspicuous consumption will be uncool, but there will be pent up demand”.
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See also: No shopping except for basic necessities
See also: Businesses in limbo