INTERVIEW: Hammerson aims to exploit first-mover advantage in outlet centres

Hammerson is seeking to acquire 15 to 20 assets for its outlet centre joint venture Via Outlets.

It’s not difficult to understand why UK REIT and shopping centre specialist Hammerson is keen to expand its position in the premium outlet centre business. At the presentation of the company’s excellent 2014 earnings earlier this year, the company’s CEO David Atkins announced that its outlet business generated double-digit growth in retail sales and rents.

Hammerson is now seeking to expand the company’s new VIA Outlets venture into a €1 bn platform, Atkins told PropertyEU earlier this year. The new venture is expected to generate an IRR in excess of 10%, he added. ‘As the sector becomes more professional and outlet centres are known more broadly, there will be greater demand. That will exert downward pressure on yields. The ingredients are all there and we have a first mover advantage.’

Over the next two to three years the platform will expand with 15 to 20 assets, Atkins predicted. ‘We already have a good track record. In the past seven to eight months we have already bought six centres. Our research team has identified 200 outlet centres in Europe, the partnership views the top 50 as acquisition candidates.'

The UK REIT has a 47% stake in VIA Outlets, which was launched in July 2014 with global outlet specialist Value Retail, Dutch pension fund asset manager APG and European retail asset manager Meyer Bergman. APG also has a 47% stake with Value Retail and Meyer Bergman own the remainder.

Different exposure to Europe
Atkins claims the outlet centre business offers the company a different exposure to Europe. The sector is in need of further professionalization in terms of funding sources and governance, he noted. ‘The fragmented outlet centre industry offers clear synergies in terms of financing and operational management. With our partners in VIA Outlets we are aiming to improve the fabric of the centre, manage, refurbish and modernise it. It is key to offer the right brands in the right units so you may need to move tenants around.’

The catering and leisure offering of many outlet centres is often lacklustre, he added. ‘We would also aim to improve footfall by introducing a better range of brands.’

There is a clear and growing requirement for premium outlet space from retailers, he continued. ‘VIA Outlet’s newly acquired portfolio in major European cities has the potential to deliver strong returns through the combined expertise of this unique partnership.’

Since the creation of VIA Outlets, which initially acquired Batavia Stad in Amsterdam and Fashion Arena in Prague, the partnership has invested over €300 mln to create a portfolio of over 180,000 m2 of retail space and in excess of 500 stores.

Late last year, the joint venture acquired the Freeport portfolio from private equity investor, The Carlyle Group which added another three assets – Alcochete in Portugal, Kungsbacka in Sweden and Excalibur in the Czech Republic – to the portfolio. Together with its latest acquisition – Landquart in Zurich – the joint venture now has six outlet centres in total and the latest acquisition brings the blended initial yield of Hammerson’s centres to 8%.

This includes a total return of 12.8% last year from its outlet centre business which in turn is based on an 8.5% rise in income and a 4.3% increase in capital value.

Watershed year
2014 was a watershed year for the company, Atkins said: ‘Rental growth came back for our very prime assets. We’re now just at the beginning of the rental growth story.’

The launch of the award-winning Les Terrasses du Port in Marseille in 2014 also helped bolster the company’s performance, he conceded. ‘Les Terrasses has been a phenomenal success since its opening last year. This development proves again that when the economy is struggling you need to pick the right location. This is a thriving example, it was 98% pre-let before it opened.’

In the outlet centre business, Atkins sees opportunities to exploit brand relationships and merchandising on the back of the growth in global tourism. ‘Outlet centres are typically located fairly close to capital cities and tourist destinations. Sales have been increasing for many years and they continue to grow in line with global tourism trends. Outlet centres are also countercyclical as they offer products at a discount. This is a great platform for us with attractive yields of between 6 and 8%.’

Tourists are attracted to the open street village style of outlet centres, he continued, pointing to Batavia Stad in Lelystad, which is located about an hour outside Amsterdam. ‘The challenge is to manage the brand and the mainstream market for full price offerings.’ Tourism marketing is becoming increasingly sophisticated, he added. ‘This is a sector where we can make the most of our synergies. The key drivers are growth of the sector, access to product and progression of the market. Building brand awareness is the common denominator.’

Hammerson has had exposure to the outlet centre business since 1998 through its 38% stake in Value Retail. Value Retail ranks as one of the three largest operators in the European outlet centre market alongside McArthurglen and Neinver which together account for around 25% of the market. Hammerson claims Value Retail is positioned at the top level, with its shopping-tourism Villages serving the international luxury and fashion consumer. It has nine Villages across Europe.