FCR Immobilien issues €30m bond for further grocery-led expansion

Yet another specialist for food-anchored retail real estate has actively shopping for assets, and that company is the listed, Munich-based FCR Immobilien AG. (We feature recent deals from competitors Greenman and x+bricks in this issue, and other competitors include Deutsche Konsum REIT and DEFAMA Deutsche Fachmarkt).

FCR has just bought a local supplier in Westeregeln, Saxony Anhalt, for an undisclosed price. The centrally-located property, which was built in 1996 and modernised in 2008, has a lettable area of over 1,300 sqm, on a 3,800 sqm piece of land. The long-term anchor tenant is NP, a brand of EDEKA-Minden-Hannover - the largest of the seven regional companies of the EDEKA Group in Germany.

FCR generates 96% of its rental income in Germany, and has properties across the whole country, with Lower Saxony and North Rhine-Westphalia making up 17% and 15% respectively. Saxony Anhalt represents 8% of the group’s assets. The focus is on secondary cities, buying value-added assets, disposing frequently, and using high leverage.

The company recently (in March) issued a €30m bond for further expansion. The five-year bond is paying a coupon of 4.25% annually, with quarterly payout. A feature of the bond is a special safety package, which includes a subordinated land charge and a dividend payout limit of 50% of consolidated net income or retained earnings.

Like its peers, FCR has come through the corona crisis a lot better than classical retail, given its focus on the grocery trade. FCR said it had agreed to rent deferrals and rent waivers with the affected tenants. For example, about half of the tenants had agreed to extend the lease for one year for each month of rent waivers. As a result, there have been no rent losses due to the pandemic so far.

In a recent online investor conference sponsored by the Börse München, FCR’s founder and CEO Falk Raudies commented on his firm’s latest deal, and its future strategy. "I am very satisfied with our 2020 balance sheet so far. Despite COVID-19, we have a good starting point for further profitable growth. Our investment processes are ongoing - as the transaction in Westeregeln shows - and our purchase and sales pipeline is well filled."

Raudies reiterated FCR’s future concentration on retail parks (“Fachmmarktzentren”), residential and logistics, with offices continuing to play a small role. He plans to sell off the group’s hotels, which although they could generate 7% to 8%, they now represent “a lot more work”, he said. Hotels bring in about 5.6% of the company’s net rental income.

FCR currently owns 76 properties with a lettable area of 326,000 sqm. The market value is just under €300m (end-2019) and the rental income was €19.5m.

The few non-German assets are in Spain and Italy, and Raudies said FCR was withdrawing from these markets due to the reluctance of the banks to finance in these countries. “We are not getting the LTV we need there”, he said, and the company now prefers to focus on Germany and Austria. Overall this year disposals, including some stores in Germany, will total about €10m.

In a recent media interview, Raudies gave his thoughts on the stability of the grocery-anchored retail real estate model and the role of e-commerce. “The absolute growth over the last year in stationary (i.e. bricks and mortar) trade was €8.4 billion, almost double the growth in online trade. Moreover, it can be seen that the growth rates in e-commerce have been declining slightly for two years and are now below +10%. And what’s even clearer: In the food segment the online share of sales is still a rather meagre 1.0%. It will be many years, if not decades, before Germans purchase any significant amount of food online. And even there I’d question projected future growth rates.

On financing, FCR had an equity ratio of 26%, or €99.9m against the EPRA NAV, a rise of 33% on the previous year (but at an 11% discount to peers). Along with its several bond emissions, FCR has financing costs of under 3%. EBITDA last year was €17.3m, a rise of 128% on the previous year.