The Hammerson Property Investment and Development Corporation plc

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The Hammerson Property Investment and Development Corporation plc

100 Park Lane
London W1Y 4AR
United Kingdom
(071) 629 9494
Fax: (071) 629 0498

Public Company
Incorporated: 1931 as Associated Cooperative Investment
Trust Ltd. Employees: 375
Sales: £109.60 million (US$211.54 million)
Stock Exchanges: London Toronto Sydney Frankfurt

The Hammerson Property Investment and Development Corporation plc, Britain’s third-largest property company, has substantial property holdings both in the United Kingdom and overseas. Rapid growth from modest beginnings during World War II has taken the company into the North American, European, and Australasian property markets, which together account for more than 60% of the firm’s activities, while it continues to be active in the United Kingdom.

While the legal entity that became Hammerson, Associated Cooperative Investment Trust Ltd. dates back to the 1930s, the real origins of the company were the property investment activities of its founder, Lewis Hammerson, during World War II. Hammerson began his career not as a property developer but as a clothing manufacturer, working in the family firm, Amalgamated Weatherware, in North London. This business was sold with the onset of World War II and after being discharged from the army on medical grounds, Hammerson used the £15,000 which was his share of the proceeds of the clothing firm to begin property trading, in 1942, under the name of L.W. Hammerson & Company.

Hammerson had the foresight to realize that by 1942 property prices had hit rock bottom and would appreciate substantially during the postwar recovery period.

Hammerson started at a disadvantage compared to most other property tycoons of the period. In addition to having little capital, he lacked both experience and contacts in the property world. This lack of capital may have been the factor which led to initial investment in housing, rather than commercial property. He bought houses which were converted into flats or modernized and then sold, each deal tying up his limited capital for only a short time.

After the end of the war, the scope for property dealing increased and by 1948 Hammerson’s business had grown sufficiently for him to move into commercial property. In that year he made his first major purchase, an office block on Queen Street, in the city of London, for £100,000. This was financed largely by bank credit; the Labour government’s cheap money policy had resulted in interest rates being kept low during the late 1940s and property value appreciation generally outpaced interest costs.

Rather than letting the building as quickly as possible, Hammerson held out for a single prestigious tenant whose occupancy would add to its value. When such a tenant was eventually found, Hammerson moved his office from Piccadilly to Park Lane and prepared for a major expansion of activities. By 1953 he was ready to float a public company. He bought up the shares of Associated City Investment Trust, a small investment trust company, and changed its name to the Hammerson Property and Investment Trust. His property activities were then transferred to the company.

Hammerson made some long-term decisions which eventually repaid his patience handsomely. One of these concerned the purchase of a number of properties on the Marylebone Road in London, which eventually formed the site of one of his most successful early developments, Castrol House, later renamed Marathon House. In 1957 he made another highly successful deal, the purchase of the Duke of Bedford Estate for £1 million, making use of finance provided by Standard Life. By 1986 the site, then comprising 235,000 square feet of offices and 40 shops in Holborn, London, was worth £80 million. Standard Life also benefited from the deal, retaining a 35% stake in the property.

In 1958, only five years after floating his company, Lew Hammerson died suddenly at the early age of 42. Sydney Mason, then only 38, became chairman. Mason had started his career working for Harold Samuel and had been persuaded by Hammerson to become his partner in 1949. Mason possessed one of the key skills of the property developer, the art of negotiation.

Mason wished to establish Hammerson as a shopping-mall developer; a notable early success in this field was the redevelopment of the Bradford city center. Bradford City Council had been trying unsuccessfully to attract a developer to the site for several years when in 1959 Hammerson agreed to take on the project. The scheme involved the investment of £1.4 million in an area of Bradford that had not traditionally been a shopping center. Few developers at that time were interested in provincial shopping mall schemes, so Hammerson was able to negotiate the contract on very favorable terms. The shopping mall proved highly profitable, and the company made a return of 16% on its investment. Hammerson soon became one of the “Big Six” provincial shopping mall developers, along with Ravenseft, Arndale, Laing, Murrayfield, and Town & City.

Hammerson also turned its attention to foreign markets during this period. In the late 1950s the company was offered a site in Melbourne, Australia, by Fred Maynard of Ravenseft. Initial success led to a large number of other Australian development projects, including the 750,000-square-foot Warringah Mall, located eight miles from Sydney, the first phase of which was completed in 1963. Hammerson extended its domestic strategy of forging links with insurance companies to fund its development activities to its Australian schemes; the main partners in these Australian operations being Australian Mutual Provident, Royal London Mutual, and Standard Life.

By 1960 the company was also looking at prospects in the New Zealand market. The first New Zealand project was introduced to Hammerson by the British chartered surveyor Jones Lang Wootton. In the 1960s Hammerson also entered the U.S. market. However, while it fared better than many other U.K. developers who established themselves there, U.S. developments were among the least profitable for the company.

Hammerson’s development program expanded rapidly during the early 1960s. This expansion was aided by insurance company funding links. In 1961 a deal was struck with Royal London Mutual, £1 million of funds being provided in return for a 10% stake in the capital and a seat on the Hammerson board. Three years later another deal was made, with Standard Life, which raised £15 million. Strong institutional backing was a factor that continued to act in Hammerson’s favor throughout the 1960s and early 1970s.

Hammerson continued to pursue London office development deals. One of its most notable schemes in this period was Woolgate House, a 300,000-square-foot office located on the area occupied by London’s old Wool Exchange, a prime City site. Work started on November 4, 1964, a date which marked a turning point in the history of the U.K. property development industry with the announcement of the “Brown Ban” on new London office construction, named after George Brown, the minister responsible for issuing the government statement. The ban came into effect at midnight and the night of November 4, 1964 became known as the “night of the long pens,” as developers engaged in a flurry of activity, signing as many contracts with builders as was possible before the deadline fell. Hammerson secured the safety of its Woolgate House project by signing a contract before the day ended, to show that development had commenced.

Hammerson, one of the most international of the U.K.’s property companies, ventured into the Canadian market in the late 1960s, and into Europe, in partnership with the Dutch company Boz. European projects included developments in Paris, Amsterdam, and Brussels. The partnership was terminated in 1979, when Hammerson sold its interest in the venture, following the takeover of Boz by Nationale Nederlanden.

During the late 1960s and early 1970s Hammerson undertook a considerable development program. The company’s chairman, Sydney Mason, had recognized long ago that increasing competition in the development market would lead to declining profit margins on some development projects. In 1960 he had stated, in a speech to shareholders, that rising competition was leading Hammerson to plan complex projects, involving the careful piecing together of sites which could not immediately be obtained in their entirety. The year 1972 saw the completion of such a site, which had taken 12 years to assemble, and the firm was able to begin its huge Brent Cross shopping development.

Brent Cross was Hammerson’s most important development during the early 1970s, with a floor area of one million sq. ft. Although in 1970, when planning permission was granted, Hammerson believed that development costs would be about £10 million, the inflationary conditions of the 1970s resulted in an actual cost, upon completion in 1976, of £33 million. However, with an annual rent roll of £2.5 million in 1977, the project was clearly a success. Development funding was provided by Standard Life Assurance, which also provided long-term finance upon completion. The group’s funding arrangements were one of its key strengths during the 1970s; since the early 1960s very close links had been maintained with two of Britain’s leading insurance companies, Standard Life Assurance and Royal London Mutual Insurance, both of which had substantial shareholdings in Hammerson. Both these companies provided development funds for the company.

With both the Brent Cross shopping mall and Woolgate House, development entailed the acquisition of a number of sites from different owners. Had the owners known what Hammerson had planned, the prices of the later sites to be acquired would have been much higher. Hammerson therefore acquired all the necessary sites before the market became aware of its intentions. As a result, land was acquired at a bargain price, but it often took a long time to put a consolidated site together.

Hammerson weathered the storm of the 1974 property crash better than most property companies. It had exercised considerable caution during the boom years of the early 1970s, being unwilling to pay what it considered to be unrealistic prices for properties. As a result fewer of its developments proved to be uneconomical in the light of the very different market conditions of the mid-1970s than was the case for many of its competitors. The company undertook little development in the United Kingdom until the end of the decade. Sydney Mason believed that the depressed state of the economy, combined with high interest rates and unstable rents and building costs, made development too hazardous. Rather than taking on new developments, the company took the safer course of concentrating on the modernization and refurbishment of existing property holdings as a source of increased income.

Hammerson adopted a cautious accounting policy throughout the 1970s, stating properties at cost less the amortization of short leaseholds, rather than at current market value. Capital appreciation had never been stressed as a source of income by the company to the same extent as most other property companies. Developments had therefore been organized so as to maximize long-term rental income. Eventually the company yielded to the prevailing trend and introduced the first valuation of its assets in 1983, swelling asset values, as shown in its annual report, but making it more vulnerable to takeover bids, as the true value of the company could be more easily ascertained.

Since Hammerson’s entry into the Canadian market in 1968, its operations there had expanded rapidly. By 1985 most of net rents earned from Canada accounted for 29% of the group’s total net rents, notable developments including Bow Valley Square in Calgary and 40 University Avenue, Toronto. The company also expanded its Canadian activities by takeover, acquiring the Mascan Corporation with its large holdings of Canadian developments for £47 million in 1984. The year 1985 saw another Canadian acquisition, the purchase and part resale of the Rank Organisation’s Canadian property company.

By 1985, many of Hammerson’s assets were located overseas. Canadian properties alone accounted for 36% of its portfolio, properties in the United Kingdom amounting to only 33%, while Australasia accounted for 20% and the United States 10%. Large commitments in the Australian and Canadian markets led to problems for the company in the mid-1980s as its asset value was reduced by currency fluctuations; in 1985 the Canadian dollar fell by 51 %, the Australian dollar by 31 % and the U.S. dollar by 24%. However, an appreciation in the company’s asset value in the absence of these currency fluctuations reduced their impact.

Since the split with Boz in 1979, Hammerson had steered clear of the European continent, undertaking only a few small schemes. However, it relaunched European operations in September 1985, buying a portfolio of French properties from the ICI pension fund, for which it paid £31 million in shares. Increased activity in Europe was matched by a reduction in Australian operations. During the 1980s, Hammerson became less enthusiastic about the Australian market. Government restrictions on foreign investment created problems, as did the fact that a series of mergers had resulted in 85% of Australia’s retail companies being ultimately controlled by one company. The latter therefore had considerable bargaining power when dealing with developers.

During January 1989, Hammerson successfully resisted a takeover bid by the Dutch property investment company Ro-damco. It had the help of Standard Life, which increased its holdings of Hammerson’s shares substantially during the course of the takeover battle.

Principal Subsidiaries

Hammerson U.K. Properties Ltd.; Hammerson (Amethyst) Properties Ltd.; Hammerson (Newchat) Properties Ltd.; Hammerson Group Management Ltd.; D.O.B. Estate Ltd. (65.22%); Hammerson International Holdings Ltd.; Hammerson Canada Inc.; Hammerson Missis-sauga Inc. (Canada); Hammerson Property Pty Ltd. (Australia); Hammerson Property (NZ) Ltd. (New Zealand); Hammerson Holdings (USA) Inc.; Hammerson SA (France); Hammerson GmbH (Germany); Hammerson España SA; Hammerson BV (Netherlands).