Patrizia sells two major food retail portfolios as prices surge

German asset and property manager GPEP GmbH has bought a portfolio of 51 food discount stores, supermarkets, specialist stores, hypermarkets and retail parks on behalf of an institutional investor, The seller was Patrizia AG, likewise acting for a number of its institutional investors. The deal is the largest retail deal in Germany so far this year.

The portfolio, codenamed Power Bowl, comprises 51 properties let on medium to long-term leases. The total of 148 rental units with a lettable area of around 144,370 sqm generate rental income of over €15 million per year. Almost 90% of the space is let to food retailers. The occupancy rate is around 98% with an average remaining WALT of eight years.

According to GPEP managing director Herwart Reip, "This latest transaction puts us back among the most active players in the food retail segment. It demonstrates the unchanged appeal of this risk-resistant asset class for institutional investors looking for investments with an appropriate risk/return profile."

Co-founder and fellow managing director Marcel Fuhr added, "The diversified portfolio with predominantly very good micro-locations and good competitive locations as well as the long lease terms of 8 years on average fulfills the security needs of our investors."

The price, while not officially disclosed, is believed by close observers to be at a multiple of 21 times annual rent, which would put it at close to €300m. this would also indicate quite a price surge since a previous major sale of 68 supermarket assets by Patrizia to GPEP at the end of 2019, where the rent multiple was closer to 17. 

A number of new cash-rich investors looking to invest in grocery-anchored retail are thought to be helping push up offered prices, and they're prepared to pay a premium for portfolios, both for the stable cash flows, and the convenience of not having to scrupulously examine every single individual asset themselves. Individual transactions for new-build non-discount food retail outlets, such as Edeka or REWE, are being valued at a 22-24 times multiple, sometimes even more.

Leading German food retailer Edeka operates 23 of the stores within the Power Bowl portfolio, making up reportedly about 52% of the rental income. Other major tenants include REWE, Lidl and Aldi. The stores are dispersed across 11 federal state, mainly in small and medium sized towns across western Germany.

The Frankfurt-based GPEP specialises in the asset and propery management of specialists stores and retail parks across Germany, mostly properties that are anchored by food retail groups. With a team now of about 70, the company handles the whole acquisition and transaction management for institutional investors and family offices, and then takes on the fund, asset management, and property management of the assets for its clients. It currently manages a portfolio of 350 assets valued at €1.2bn.

Reports suggest that Patrizia is on the verge of making another major disposal of its grocery-anchored retail assets. This time, a portfolio codenamed Touchdown, consisting of a dozen larger-sized retail parks in western Germany, is currently being bid for with several bidders in a structured process. Here again, the price is though to be well over the 20-times multiple, and could put the value of the package at close to €400m. Trade journal Immobilien Zeitung cites unconfirmed reports that the Munich-based Meag, property subsidiary of insurance giants Munich Re and Ergo, is the likely new buyer.

Throughout the corona pandemic, the market for grocery stores and grocery-anchored retail parks has proven to be among the most robust asset classes. According to the latest half-year report on the sector from broker group Robert C. Spies, sales in the food retail sector across Germany rose by 11.6% in 2020 to €212bn, pumped up by the increase in the necessary "eating at home". The major beneficiaries were supermarkets and hypermarkets (turnover up 16.7%), followed by discounters (+8.8%), drugstores (+4.3%) and hypermarkets (+4.1%). The share of e-food rose in parallel by 77% to €2.8 billion.

The entire sector is seeing major change, driven by the demand for fast, safe and convenient shopping. Discounters are the most expansive in the market, pushing into vacated city centre spaces at lower rents. Full-range and discounters alike are trying to generate new locations or revitalise existing properties through individual mixed-use concepts. With rents in high-street locations under strong pressure, rents in city-centre locations and retail parks are moving sideways, said Uwe Trocha, at Robert C. Spies.

While the number of retail property transactions has been falling, the prices being paid in the deals that ARE being done HAVE risen noticeably, confirms another report by brokers CBRE. Peak yields in the grocery-anchored sector were 3.9% at the end of June, compared to 5.2% at the same time last year - effectively pushing up the price of a long-term leased asset by six years' annual rent.

Overall, the retail property segment amounted to about €2.7bn in Germany in the first half, spread over 104 transactions, compared to €6.5bn across 135 transactions last year, according to brokers Colliers. The share of retail property deals in the whole market for commercial transactions was 12%, compared to 48% for offices and logistics and industrial properties making up 19%.

CBRE, which measures things differently, put the transaction volume for 1H21 at €3.5bn across 264 transactions, while Savills sees €3.28bn of transactions, calling it the "weakest first-half since 2009".