THERE are two things you should know about Stephen Hester before you meet him, I am told. He is frighteningly young to be running the second-biggest quoted property company in Britain, and scarily bright. He is also not short of confidence. Well, he would have to be to replace Sir John Ritblat, doyen of the property world and former boss of British Land, without a day’s experience of the sector under his belt.
That was two years ago, and since then Hester has proved himself to the doubters, reshaping British Land, doubling its market value and preparing it for conversion to a real estate investment trust (Reit), effective from last week. In fact, you could say Hester’s job really started last Monday. New regime, new chairman, and no more Ritblat — Sir John, having stayed on as chairman to ease Hester in, has now left the building.
And next month that building — the company’s gorgeous Regency terrace base on London’s Regent’s Park — goes, too. Hester, a former investment banker, is selling it to a developer and moving British Land into a modern, open-plan block near Marble Arch, more fitting to its new image as a dynamic, state-of-the-art property business.
By then, according to one long-serving company adviser, Hester will have quietly pushed through more change in two years than the firm has seen in three decades. He has bought selectively — Pillar Property for £816m in 2005, giving him new management talent and pole position in out-of-town retail property — and has set out new priorities. And he has done it all without hurting anyone’s sensitivities.
“Actually, I’m not very anxious to highlight differences,” says Hester when we meet. “I just think you have different strategies for different times.”
So diplomatic — not how some of his Credit Suisse First Boston colleagues remember him, when Hester’s relentless ambition took him almost to the top of the bank. Nor those at Abbey National, where Hester did a brief stint as chief operating officer, ruthlessly restructuring the ailing business.
But Hester, who was once Ritblat’s banker, is a man of surprises. For a start, nobody had warned me he was so tall and so softly spoken. “Hello,” he almost whispers, towering above me. Bald and baby-faced, looking younger than his 46 years, he pads across his suite of rooms at British Land’s soon-to-be- vacated offices like a good- humoured bear.
Certainly few expected him to settle in so adroitly at what looked like a one-man business — Ritblat, chairman and chief executive, ran a “very benign dictatorship”, says one colleague. Now that Ritblat, appointed life president, and his two sons, Nicholas and James, are outside the company, a more conventional structure is emerging, as befits a business in the FTSE’s top 50.
“The key was being able to make significant changes without them being a rejection of the past. My relationship with John was important, as was his willingness to hand over, and my ability to get everyone’s trust. One of the great attractions of the job for me was the human cultural challenge, which was very different to the slash-and-burn restructuring I had to do at Abbey.”
Hester talks precisely, methodically, as if occasionally struggling to keep to simple English. His tag as a rigorous analyser has followed him around — eldest son of an academic, educated at a comprehensive school and Oxford, he is dry and shy and unclubbable to some, rather different to the charismatic Ritblat.
The flipside is he also hunts and shoots and aims to build one of England’s great gardens at his 350-acre estate in Oxfordshire — Hester has pictures of its pleached limes and formal beds dotted round his office. Twenty years in investment banking has clearly paid well. But getting him to tell you about it is a bit like extracting teeth.
How many full-time gardeners has he got? “I can’t remember,” he says, suddenly losing the good humour. Meaning he won’t tell me? “No, I won’t tell you.”
That, probably, is because he doesn’t want to tweak shareholders’ antennae. An important part of his job has been to reassure the investment community that British Land, second only to Land Securities in size, is nobody’s grand fiefdom. And so far, in a benign market, he has done it brilliantly.
And now come Reits, causing a shift in status that reduces property firms’ tax bills as long as they pay out most of their profits in dividends. It has been very successful in other countries, and is predicted to push more commercial property into publicly quoted hands — which is what the government wants.
“Only 15% of UK commercial real estate is owned by publicly quoted companies, the other 85% is owned by private companies, pension funds, trusts and foreign investors,” says Hester. “Billions of pounds in property recently have gone into illiquid, under-regulated offshore funds that won’t pay tax, and this is a way of bringing them back onshore.”
Abstruse as it seems to outsiders, it could prove a pivotal moment for many property companies. Hester predicts we will see more money going into commercial property, more property- company floats, more corporate acquisitions. But it will coincide with a tougher property market.
“I don’t believe we’re about to see a market decline, but the period of sharp growth is over. Now we go into a period of steady but lower growth, so it will be more visible when you make mistakes.”
Others confirm that he has made a good start. “Stephen has massaged his way in,” says Sir David Michels, British Land’s senior independent director. Nick Thomlinson, the Knight Frank chairman, who is a British Land adviser, says Hester’s financial know-how is also essential in the post-Reits world. “He brings an intellectual rigour that is not necessarily always found in the property world.”
Both, however, suggest that the real test is yet to come. A “thought-out” approach to property is effective until conditions suddenly change. That’s when the gut feel of a veteran, able to sense the shift, can have benefits.
But Hester is a driven man. Fellow students at university, where he was president of the Tory Reform Group, remember his determination to get a First and to make money. Likewise at Credit Suisse, he started as chairman’s assistant, before becoming the bank’s youngest-ever managing director, later commuting to NewYork as finance director. His wife is a banker, too, and he seemed destined for the very top until a management reshuffle saw his prospects diminished.
“A new CEO got rid of all the rivals for his job and I was one of them,” he says bluntly. Hester’s only weakness, say friends, is a lack of intuition about people.
After amassing a small fortune in banking — he has houses in London’s Holland Park, Oxfordshire and Switzerland — he jumped to Abbey National, keen to climb the FTSE ladder. But he had not foreseen the depth of Abbey’s financial problems. There followed a “very intense turnround” before it was sold to Banco Santander.
By then, he had bumped into Ritblat at the Cipriani hotel in Venice — both were on family holidays. “At the end of the stay I was clear that the British Land job was the one I wanted to do.”
Hester has rationalised company strategy to focus on out-of-town retail (because supply is limited, demand is high) and new London office blocks (“because service industries based in London are producing white-collar employment growth faster than the GDP”). He has also led the company back into Europe, to leverage its out-of-town retail experience. And he has taken it out of areas he doesn’t fancy: industrial property, offices outside London, high-street shops.
So far, investors like it. “Stephen has clarified strategy, and the company is much more transparent,” says one major shareholder. He adds that Hester’s low profile is reassuring, too.
But benefiting from Reits will be key. Hester agrees: “If we can get ourselves well positioned, that’s exciting to be involved in, and to manage.”
Nicely understated. He laughs. Then he walks me down to the street in his shirtsleeves and waves me off, like a man keen to end on a friendly note, and to check that I’m going.
Vital statistics
Born: December 14, 1960
Marital status: married, two children
School: Easingwold Comprehensive, N. Yorks
University: Lady Margaret Hall, Oxford
First job: assistant to chairman at CSFB
Salary package: £600,000 plus bonus
Car: silver BMW X5
Homes: London, Banbury and Verbier
Favourite book: Thornhayes Nursery tree catalogue
Favourite music: Mungo Jerry, Status Quo
Favourite film: Notting Hill, starring Julia Roberts
Favourite gadget: Blackberry Pearl
Last holiday: safari in South Africa
Stephen Hester's working day
THE British Land chief executive wakes at his west London home at 6am, and takes a run round nearby Holland Park. Stephen Hester then drops his children at school and drives to his office, arriving by 8.30am.
“A third of my time is spent externally, a third managing people and the rest on operational decisions. About eight people report to me directly.
I have tried to broaden the management structure — we have created an executive committee that wasn’t there before.”
He entertains at Locanda Locatelli, near British Land’s new offices, and the River Café. He is home by 7pm if there are no functions to attend.
Downtime
“I ADORE skiing, and have a chalet in Verbier,” says Stephen Hester. “I’d also spend the summer there, if I wasn’t working.” He plays tennis, shoots and rides as well. “My wife is a master of foxhounds in Warwickshire — it’s very important to keep our marriage together that I do the same as she does!” His real passion, however, is his Oxfordshire garden, designed by landscape architect Tom Stewart-Smith, and his arboretum. He even has his own mechanised digger for landscaping projects. “My current favourite tree is the Australian Wollemi pine. I have five of the first ones ever to be brought into the UK.”
