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Activist Investors In Real Estate Sure Have Changed A Lot

Elliott's Paul Singer

The kind of activist investor targeting listed U.K. real estate companies has changed massively in the past 15 years.

This week the New Yorker ran a huge profile of Paul Singer, the founder of hedge fund Elliott Management, which has built up a 5.3% stake in shopping centre REIT Hammerson.

The stories of Singer and Elliott’s tenacity are remarkable. He battled the Argentinian government for 15 years to try to get it to repay in full government bonds Elliott had bought at a discount, at one point trying to take possession of an Argentinian warship as collateral for the defaulted debt. He bought into the debt of the Democratic Republic of Congo and tried to get it to repay its defaulted debt, in spite of accusations from human rights groups that the move was further impoverishing the country’s citizens. (Elliott argued the corruption of the country’s leaders was the real issue.)

In the profile, the chief executive of a medical company that pushed back against demands for him to resign and sell the company accused Elliott of hiring private investigators to provide dirt about him to tabloid newspapers, an accusation the company denied.

Although there have been no public utterances from Elliott about what it wants from Hammerson, or from Hammerson about whether it has engaged with the fund, things have changed since it became a shareholder in April. At that point Hammerson had just rejected a £5B takeover bid from French rival Klépierre, and pulled out of a £3.4B takeover of Intu.

Last month Hammerson unveiled a revamped strategy that included selling assets like retail parks and focusing on more successful divisions like outlet malls.

Hammerson's Victoria Gate, Leeds

Scroll back to the last time an activist investor tried to shake up a major U.K. listed company and things turned out very differently.

From 2002 to late 2003, British activist investor Laxey Partners tried to impose its will on British Land, then run by Sir John Ritblat. The investor called for Ritblat, who at that point was both chairman and chief executive, to step down, and for the company to be broken up and sold. British Land did neither, with the board rejecting Laxey’s proposals, and the company eventually sold its 9% stake at roughly the same price for which it was bought.

Laxey’s foray into activist real estate investing was patchy at best. In 2008 it raised £116M in an initial public offering of the Terra Catalyst fund, with the aim of buying big stakes in listed companies, taking seats on the boards and influencing the strategy, and selling the shares at a profit.

But in 2012 the fund said it would be winding up a year early because its own performance had been adversely affected by the downturn in European property. At that point its shares were worth 37p, 63% lower than the price at which they floated. Some shareholders took their money off the table, some stayed in, and today the company is still listed, having bought Italian listed real estate firm Spazio. The price of its shares today — 35p.

Elliott seems to have had more success in influencing Hammerson’s strategy, though it remains to be seen if it can do the one thing that really matters — make its share price go up.

Elliott has built up its stake in Hammerson across three transactions, and paid about £224M, according to Bisnow estimates using public data about the transactions. That stake today is worth about £210M given the current share price — shares in the company have dropped about 7% since the strategy change was announced.

Under takeover rules Klépierre can come back with a new bid for Hammerson in September, if it wants to. Its previous offer was 635p a share, a price that would give Elliott a 20% return in a short period of time. For all Elliott and Singer’s persistence, in this instance it may be relying on a bidder coming back in for Hammerson to make a profit.