Retail outlets outperform in lean times

With retail outlets outperforming traditional retail amid the economic crisis, this niche sector has seen a flurry of investment activity over the past months. In early February, Neinver's Irus fund, which focuses on designer outlets, has bought Germany's largest outlet centre from a joint venture of Kenmore, RevCap and OCI for EUR 112.5 mln. Two days later Henderson Global Investors' retail outlet investment vehicle announced it had bought one of Italy's largest schemes in a deal worth EUR 125 mln.

'Retail consumption is falling across Europe and occupancy rates for both high street retail and shopping centres have plunged,' said Ben Alogo, Neinver's fund manager. He added: 'But although the retail sector as a whole is suffering, the outlet sector is performing better as a result of low pricing and better quality of stocks.'

Having completed acquisitions in Spain, Portugal, Italy and Poland, Neinver was looking to expand to other European countries when it was approached by Kenmore last summer to purchase the Zweibrücken designer outlet located on the border of France, Germany and Luxemburg. 'This is a niche sector, there are very few players active in the market and so it was easy for us to know the Irus fund and that they wanted to buy something in Germany,' commented Rob Brook, managing director of Kenmore.

In November 2005 the company partnered with RevCap, to buy the property from Lehman Brothers for EUR 50 mln, and has since invested a further EUR 31 mln to develop the second and third phase of the centre which completed in July last year. With a total of 24,000 m² of space, the centre is today Germany's largest retail outlet.

On completion of the third phase last summer, the company and its business partners decided to test the market to see whether they could get a good price for the property, Brook recalled. 'We wanted to sell because of the state of the world, let's say, because we expected the price to deteriorate further this year and we thought it would have been better to sound the market and see what we could get for it.'

As a result, Trading Places, the Belgian vehicle holding Zweibrücken, hired King Sturge to sell the centre in an off-market transaction. Brook: 'We have a short-term view on our investments, not a long-term one like Neinver, and we considered that Phase 4 was two years away as we needed to test the centre first before launching a new development phase.'

The company contacted a few parties but shortly after entered into exclusive negotiations with the Spanish company. 'They were the only one who made a 100% cash bid and that's what we wanted,' Brook said. The parties eventually agreed on a price of EUR 112.5 mln, reflecting a yield of about 7%. DTZ acted for Neinver.

Philip Marsden, King Sturge's head of corporate finance who advised Trading Places on the deal, pointed out that the transaction was not an easy one but it was easily dealt with. 'There were a number of parties involved with different interests so it was not an easy transaction,' he said.

Neinver, which owns 200,000 m² of retail outlet space across Europe, will be responsible of promoting the fourth phase of development, in addition to managing the entire complex. The Spanish company plans to add 32 new shops and bring the total surface area of the centre to 27,200 m². 'We see Germany as one of the leading market in Europe and our presence in Germany reinforces our pan-European strategy,' said Alogo.

Kenmore, which raises money from Middle Eastern investors to reinvest them in European property, will continue to focus on asset management this year, Brook said, while selling property when it can get 'appropriate value'. 'There are no acquisitions planned at the moment,' he said, 'we will continue to work on our existing assets and toward year-end we plan to raise capital from our investors.' He declined to reveal the amount of the capital raising.