Bloomberg News

Westfield Joins Hammerson in $1.6 Billion Croydon Project

January 18, 2013

Hammerson Plc (HMSO) and Westfield Group (WDC) formed a venture to rebuild part of the English town of Croydon in south London in a project valued at about 1 billion pounds ($1.6 billion), ending a tussle over the development.

Westfield, based in Sydney, bought half of the Centrale mall from London-based Hammerson as part of the agreement, according to a statement yesterday. The two companies will also purchase 25 percent of the Whitgift Centre after Hammerson acquires the mall from Royal London Asset Management Ltd.

Hammerson, Britain’s third-largest real estate company by market value, was appointed in April by the leasehold owners to manage and redevelop the Croydon center. Westfield, the world’s biggest mall operator by assets, had planned a development on the same site after signing a deal in November with the Whitgift Foundation, which owns the freehold.

The agreement “ends the battle for control and therefore reduces the risk of overpaying,” JPMorgan Chase & Co. analyst Harm Meijer said in a note to investors yesterday.

Hammerson and Westfield plan to redevelop and combine the Centrale mall and the Whitgift Centre, Croydon’s biggest retail outlets, and build retail, leisure and residential properties on a 200,000 square-meter (2.15 million square-foot) site, the groups said in the statement. Construction is expected to start in 2015.

Westfield shares rose 0.6 percent to A$10.99 at the close of trading in Sydney, bringing their gain in the past 12 months to 29 percent. The benchmark S&P/ASX 200 Index climbed 13 percent in the past year. Hammerson rose 1 percent in London trading yesterday to 487.7 pence, extending gains in the past 12 months to 32 percent.

Expanding Pipeline

For Westfield, “this continues the expansion of its development and construction pipeline,” Simon Scott, Sydney-based executive director for Australian equities at Moelis & Co., wrote in a note today. “We expect the momentum to be maintained as new projects begin at existing centers and other greenfield and/or brownfield sites are secured in Europe.”

Despite tough trading conditions in the short term, U.K. shopping center performance will see a “gradual recovery” in 2013 as demand revives for better quality properties, broker Knight Frank LLP said in a report.

U.K. consumer confidence fell in December from an 18-month high as optimism about the outlook for the economy dropped, according to London-based research group GfK NOP Ltd. Still, the labor market stayed resilient, with jobless claims unexpectedly falling by 3,000 in November from October. A wider measure of unemployment also dropped by the most in 11 years.

Westfield Design

Westfield will handle the Croydon project’s design and construction, while Hammerson continues to manage Centrale and any other acquisitions before the development of the Whitgift center, they said. A joint management company will be responsible for the development, leasing and asset management of the completed project.

Westfield, which is on a quest for higher returns from fewer assets held on its own balance sheet, in October agreed to sell its interest in the planned Bradford shopping center in Northern England while retaining the right to manage the development and mall on completion. The group, which also pulled back from its joint venture with AMP Capital Investors Ltd. in October, maintained its design and construction roles at the malls taken over by AMP.

Project Fees

“By selling out its interest and retaining the design and construction on these projects, it takes fees across the entire project rather than just at a smaller joint venture partner share,” Rob Stanton, Sydney-based real estate analyst at JP Morgan, wrote in a note upgrading the company to “neutral” on Jan. 11. “Westfield made strong moves in its development business in the fourth quarter, adding an unexpected A$2 billion to its pipeline.”

Westfield reported a 3.1 percent increase in funds from operations to A$751 million, or 32.8 cents a share, in the six months ended June 30 from the prior year, and said funds from operations would be 65 cents a security for the full year.

Hammerson in June agreed to sell most of its London office buildings to Brookfield Office Properties Inc. (BPO) for 518 million pounds in a bet that shopping malls will outperform other real estate. The group planned to build up its retail property base through extensions, developments and acquisitions, Chief Executive Officer David Atkins said in a statement in July.

Hammerson in October said it bought four U.K. retail complexes for 255 million pounds. It acquired the Victoria Quarter shopping arcades in Leeds for 136 million pounds in September.

To contact the reporters on this story: Andrew Blackman in Berlin at ablackman@bloomberg.net; Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net


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