Retail landlord Hammerson is set to raise more than £800 million as it sells its 50% stake in European shopping centre owner VIA Outlets and asks shareholders to chip in.
The company said that the moves will help it pay down a massive debt bill, reducing it to around £2.2 billion.
It means a major retreat from parts of the European market, where VIA is a big player.
The business owns 11 premium outlets in nine European countries, with 1,130 stores in total, giving it the third largest portfolio by area on the continent.
Hammerson said it had hashed out a deal to sell VIA to its partner APG, a Dutch pension fund for £274 million.
Bosses also plan to ask investors to help them out by buying another £552 million of new shares in the company.
It will plough the cash into paying down debt, and investing in a transformation of the business.
Chief executive David Atkins pronounced the end of the way shops are rented in the UK, saying it was in dire need of change.
“The pandemic has exacerbated structural shifts in retail, exerting further pressure on both property owners and brands, and provided further evidence that the UK’s historic leasing model has served its time,” he said.
“It is outdated, inflexible and needs to change.”
It was a sentiment echoed by managing director Mark Bourgeois.
“Shopping is fundamentally changing,” he told the PA news agency, as he set out the company’s plans of how to change with it.
The plan mixes new ideas with old ones taken from the continent.
At the moment, much of the UK high street is governed by a framework that was put in place in 1954 where tenants sign long leases, with rents reviewed every five years.
Then at the end of the leases, prices would be renegotiated based on the cost per square foot of another shop close by, even if that was comparing a clothes shop with a stationer.
Now Hammerson hopes to move away from that model, Mr Bourgeois said. Rents will be more tailored to the tenant, and take into account how the store is performing.
The company’s hand has somewhat been forced by events. Facing possible bankruptcy many retailers turn to company voluntary agreements (CVAs) to strongarm their landlords into accepting lower rents.
Now Mr Bourgeois is promising more “flexible leases” and to set rent at a more affordable level.
“What you’re seeing in the UK is a big disconnect between the amount that occupiers are paying to landlords and what they can truly afford to pay on a sustainable basis,” he said.
“We’re looking for a new lease that recognises that,” he added.
Now, when leases are to be renewed, Hammerson wants to look at its tenants’ margins and footfall to charge a rent the company can afford.
The plan is also to include online sales in rent negotiations. Opening a store in a district often increases the online orders for the same brand, as people try on clothes in store, or window shop, but buy online later.
And finally, rather than being negotiated every five years, rents will go up based on an index, meaning this is more predictable than in the past.
Hammerson, which owns the Bullring in Birmingham, said that it had managed to collect 34% of the rent that is due for the third quarter of the year.
It saw a strong recovery in both France and Ireland, where footfall at its flagships and retail parks was only down 18% last month compared to July 2019.
But its UK portfolio relies more heavily on sites in the centre of cities which rely heavily on officer workers and public transport links.
As both these have been disrupted, with many people working from home and shoppers keen to avoid busses and trains, the UK has been more subdued, down 51% in July compared to the same period last year.
Adjusted profit dropped by 84% in the first half of the year to £17.7m on net rental income of £87.3 million, down by 44%.