Aggressive investment group x+bricks is about to nearly double its holding of German supermarkets by buying a further 34 megastores from the old Metro hypermarkets previously operated under the now-defunct REAL brand. The value of the deal is put at more than €1bn, and will bring x+bricks' number of German stores to 240, bringing the company's holdings to more than €2bn.
The actual seller is the Russian SCP Group, who bought the whole REAL chain from Metro in February last year. The Frankfurt-based x+bricks has been advising SCP on the repositioning of the REAL assets as part of the breaking-up of the group, while SCP is itself a major shareholder in x+bricks. As part of all this repositioning, many of the SCP ex-REAL stores are now being operated by big German players like Kaufland, Globus and Edeka.
The latest x+bricks acquisition of the 34 assets sees it adding a further 425,000 of gross lettable space, mainly located in western Germany. The portfolio has an outstanding long-term WALT of about 16 years with anchor tenants Kaufland, Globus and Edeka, which after integration by x+bricks into its holdings will result in an overall portfolio WALT of 10.5 years.
According to Sascha Wilhelm, CEO of x+bricks, "This unique opportunity highlights our growth ambition in the market, and underlines our position as one of the leading platforms for grocery-anchored real estate in Germany, as well as one of the major forces for consolidation in our sector.
"With this landmark agreement, we will not only be able to double the value of our overall portfolio within the space of one year, but also achieve the next important milestone on our way to becoming the leading platform for grocery-anchored properties in Germany."
Speaking to news agency Reuters, Wilhelm said: "We want to build on our position and plan to grow well beyond this acquisition", while referring to the fragmented nature of the grocery sector.
The deal with SCP still has to be financed, but Wilhelm expressed optimisim that this was unlikely to present a problem, with many German mortgage financing banks keen to partner up with the much-in-demand grocery-anchored retail sector, one of the acknowledged winners during the COVID pandemic. Wilhelm is aiming to raise about €500m, or half the portfolio value, with the rest coming from equity providers, including existing shareholders, private equity groups and the capital markets.
The huge sale of the REAL chain with all its properties last year to SCP has not just attracted the attention of German retailers eager to expand their own reach, but also that of developers who see a lot of mixed-use potential in the assets and the land on which they sit. SCP describes some of these assets on its website as "non-core", as against the more likely "core" properties it is looking to sell to the expanding retailers.
Many of the oversized REAL properties were once positioned on the edges of bigger German towns when they were built 50 years ago. Some became Wertkauf stores, then Wal-Mart when the American group had wishful aspirations to expand in Germany. Then they became REAL stores, and the cities and their housing estates had now grown to surround them.
Developers such as FOM Invest from Heidelberg have bought a number of the REAL sites, and plan to build housing on them. On others, it plans DIY stores and other mixed-used industrial buildings. It sees itself primarily as a "Fund concept with a high degree of land-optimising potential", by its own definition, and as a creator of real estate products for big institutional investors. Listed group Instone Real Estate, for example, bought a REAL site in Maintal-Dörnigheim near Frankfurt am Main, and is understood to be preparing a mixed development of 90 apartments, medical practices and shops, once the REAL stored finally closes this coming September.
The trade publication Lebensmittelzeitung reports that the sales agreement between Metro and SCP envisages that SCP and x+bricks have until 30th June 2022 to divide up the REAL store network. At that point, the supply contract that Metro and SCP concluded when REAL was sold expires. If the Real stores do not have a new operator by then or have been closed, then either the contract with Metro will be extended: or SCP will look for another supplier; or REAL will be wound up and the remaining stores closed. Within the trade, the last option is seen as the most realistic, REFIRE understands.
Given the somewhat opaque interdependency between x+bricks and the Russian SCP Group, it's not entirely clear where x+bricks' role as service provider ends and it's role as partner with SCP begins, although CEO Wilhem has stressed frequently that the two companies are fully separate entities. In any event it looks as if the two are under a certain time pressure to sell off the old REAL assets to big retail investors, or for x+bricks to buy more for themselves, or to find other investors who could think up another use for the old hypermarkets.
