GlobeSt.com: Let's start with an overview of the UK investment climate, John.

Richards: We have seen very strong performance of the listed property companies, which mirrors the strong performance of the underlying real estate. But it's been amplified because they were among the biggest fallers in terms of stock price in the marketplace after the dot-com bubble. Not only has real estate strengthened in pricing substantially over the past three or four years, but we have also seen a correction in that mispricing of publicly quoted real estate businesses. A lot of those businesses were trading at very big discounts to their underlying net asset value--up to 40%. If you look at year-on-year performance of 25% total returns for the past two or three years, you'll see enormously strong performance.

GlobeSt.com: How does that translate for Hammerson?

Richards: The share price has gone from around eight pounds a couple of years ago to 13 pounds today. In terms of net asset value, the consensus of analysts as to where our half-year value will be around 13 pounds 50. That compares with 12.37 NAV at the end of December. That would be a 10% gain in the NAV in six months.

GlobeSt.com: At this point can anything derail the coming REIT regime?

Richards: It is a done-deal for January, although having said that, a significant part of the detailed mechanism is still in discussion between the industry and the government. But that is practical detail rather than principal.

GlobeSt.com: What do you make of the rumors that Land Securities or British Land might break into sector-specific models on achieving REIT status?

Richards: The commentators looking to define the impact of REITs in the UK are clearly looking at successful jurisdictions. The two most obvious are Australia and the US, and with some notable exceptions both of the markets have gravitated toward a sector-specific model. As a consequence, they're hypothesizing on why that might, should or will happen in the UK. Hammerson already operates in two sectors--prime CBD offices and shopping malls. In the US and arguably in Australia, the scale of the country and the relatively good supply of real estate mean that you can specialize and still have access to product and growth. In the UK, we're sitting on a small island, with rigorous land-use controls designed to keep a big part of the island green and pleasant. That means strong barriers to entry. It is quite difficult to build a business aggressively when the best assets are held by other people and the planning regime precludes you from building a competitive property. That being said, the jury is out on whether or not investor appetite will push us toward single-sector specialization, and if it did if it would be the route to higher returns.

GlobeSt.com: How do you compare the privatization trend in the States with the UK's affinity for REITs?

Richards: In the period I referred to at the start of the conversation, when the average company was trading between a 25% and 40% net asset discount, we saw financial buyers--and GE was one of the successful players--who made some extraordinarily good deals for themselves taking public companies private. Those managements that participated in the upside were well-rewarded for that. Today, looking at the yield, the easy win for a public-to-private has been arbitraged out. But private equity likes real estate for its secure income and capacity to carry debt, and if the market were to weaken in the UK, we could easily see renewed activity.

GlobeSt.com: But, in a year or so, given how the UK market tends to mimic that of the US . . .

Richards: The private-equity market has developed sophistication in the course of this real estate cycle and is ready to exploit an arbitrage with more funds to do so, more sophistication in its measurements and more players willing to participate. There is a real potential for mispricing in the public markets to be exploited by far-thinking, quick-moving private equity guys.

GlobeSt.com: Have values peaked?

Richards: That is the $64,000 question. We have seen an extraordinary yield shift in the UK and indeed in most European markets. First, as a generality, we are certainly nearer the top of the cycle than the trough.

GlobeSt.com: You are a player in Germany. What is the climate like there now?

Richards: Hammerson has a bigger presence in continental Europe than any other listed UK company. Some 25% of our holdings are in France and 1% in Germany. But it is common knowledge that that 1% is available for sale and its also common knowledge that I am the guy who increased our exposure in Germany. It wasn't the highlight of my career. We've been in the wrong place, which is Berlin, and the wrong space, which is retail. We have one mall in Berlin, but retail sales in Germany are extremely slow to recover, and the market remains cautious and relatively depressed.

The interesting thing about why German retail sales are slow is not because they are poor but rather they choose to do other things with their money. They're better than Brits at saving money. We tend to feel that if you're short of money you need another credit card. Germans tend to feel you should save.

GlobeSt.com: And German REITs?

Richards: I would predict a strong investor appetite for REITs, and the German government is looking at that very positively.

GlobeSt.com: Where will the European market be a year from now?

Richards: I don't think we'll see further yield compression, but I don't predict a crash. I see a positive outlook in office because demand is picking up, and the next two and a half years are set for office. Retail spending is more robust than many commentators believe and retail rents and occupancy will hold up. In terms of investor appetite, REITs will raise the profile of real estate over the next 12 months and the challenge for those of us who will become REITs on the first wave will be to demonstrate to investors why they should invest in real estate. It's a total-return business. There are some siren voices that claim that REITs are just about income. That is a misplaced, short-term view of the world. What investors are looking for is not income return per se but they are looking for income growth.