It's been full steam ahead for Greenman OPEN, the Germany-focused food retail investment fund, as its latest deals bring the fund's assets under management past the €1bn mark.
The Irish owned Greenman has long been a pioneer in the grocery-anchored retail segment in Germany, a segment which has been one of the few clear winners over the last two years of the COVID pandemic, along with German residential and logistics.
Which is not to say that it's all plain sailing. Numerous global investors have been re-deploying capital from other sectors to get a piece of the food retail sector, which has proved remarkably resilient. And the more so, when compared to non-food retail sub-markets, who have largely had only a tale of woe to tell as Germany's shopping centres and downtown high streets face seemingly permanent disruption.
REFIRE sat down to talk recently with Greenman's ebullient founder and CEO, Johnnie Wilkinson, about the robustness of the food retail sector and the changes ahead that will keep investors warm on the sector, despite - or because of - multiple developing innovations that are impacting on the retail landscape.
We have followed the development of Greenman for many years in Germany, and have admired the company's ability to hire creative and motivated staff, identify profitable locations, and develop almost unrivalled knowledge of a complex and highly competitive sector.
The German retail landscape is littered with the corpses of foreign companies who came in to teach local German retailers how to do things better on their own turf - WalMart and Hudson's Bay Company, to name just two recently chastened power-houses - and were either run out of town or were finally relieved to hand over the reins to local partners, and depart with their tails between their legs.
Greenman's business isn't retailing itself - it's the business of owning and managing the assets that the world's most competitive supermarket and discount grocery chains occupy to so successfully move their wares rapidly through the system and on to the consumer.
At the heart of Greenman's business is the relationship between itself as owner of the asset, and the tenant who's heavily invested in making that store a long-term feature of its customers' lives - and who will sign up for an extension of that 15.year contract before its current lease arrangements will run out. Finding maybe unglamorous, but tight and secure assets for its investors is what Greenman is about. It's a very specialised business.
The company's investments to date are all in Germany, and all in retail centres anchored by top German supermarket chains. This proved hugely beneficial when dealing with the fallout of COVID lockdowns in 2020, when Greenman's rent collection levels initially dipped to 86% but recovered rapidly within a matter of weeks, and are back now at over 98%.
Greenman's single-minded focus on learning about everything that could effect and improve that relationship with its German clients is the reason that existing and new investors in its funds are willing to support it, along with the growing range of German banks who've become familiar with the company and its business strategy.
These include BayernLB, who recently agreed a new seven-year loan agreement with Greenman for a new centre in Sonneberg in Thuringia, with an average 8-year WALT among its main tenants. A new €17m arrangement was signed last November with MünchenerHyp for Berlin's Hansa-Centre, while in October Greenman struck a five-year 'forward-fixing' loan for an asset in Wittenberge, northern Germany, which is anchored by leading retailer REWE on a WALT of 13.3 years. Other lending partners include Wüstenrot Bausparkasse, with whom Greenman agreed a new debt facility for a mixed-use food retail and residential asset in the town of Tüttlingen in Baden Württemberg.
The business of finding and financing retail parks is the company's bread-and-butter, and it can still do this consistently. Just recently it bought a further three centres for €90m, bringing its assets under management in Germany to over €1bn. The three centres - a 33,000 sqm centre in Sonnenberg on the Thuringia/Bavaria border with EDEKA as anchor tenant; a new turnkey centre in Höhr-Grenzhausen in Westerwald near Koblenz with anchor tenants Aldi and Lidl; and a brand-new supermarket in Markneukirchen near the Czech border, anchored by EDEKA.
The latter two deals are part of developer framework agreements with local developers Schoofs and Schröder respectively, which involve a number of ongoing projects.
For its OPEN fund, a regulated fund set up in 2014, which includes the three latest acquisitions, Greenman limits its borrowings to 50%, investing between €5 million and €70m on each property.
Wilkinson was happy to discuss wider organisational issues relevant to setting Greenman up on a sound structural basis to handle coming challenges in his industry - in particular the company's ESG strategy of becoming carbon neutral by 2040.
This means thinking non-stop about how all Greenman OPEN's assets are fit for the future shape of the grocery retail sector. "We are committed to going beyond the minimum required to incorporate ESG criteria, new technology and innovation in improving how our physical assets will support the grocery retail model of the future," he told REFIRE.
"What do investors like about our assets? Of course, they're primarily attracted by the long leases, resilience during the pandemic and the enduring relevance of well-placed grocery assets in the future grocery supply chain, but this is only scratching the surface. We believe that during 2022 investors will start to realise the full potential of these highly versatile assets", said Wilkinson.
"At Greenman, we've made a commitment to diversify our income by 2025 - that's only three years away - so that 5% of our income will come from non-rent related services," he added.
Hence the restructuring of the whole Greenman business to put each of five pillars of growth on a firm foundation - Real Estate, Financial Services, Energy, Technical and Agribusiness.
Wilkinson is particularly excited about prospects in the latter division, with a goal to promote sustainable agricultural activities with the emphasis on a local and traceable food supply.
In a significant move, Greenman subsidiary Potager Farm has entered a partnership with indoor agricultural technology specialist IGS Intelligent Growth Solutions to build its first vertical farm in one of Greenman OPEN's Berlin retail parks.
The vertical farm project benefits from compliance with the EU's strategy to create a sustainable food system known as "Farm to Fork". Essentially, vertical farming is the process of growing herbs, leafy greens and micro veg indoors in a tower structure, usually in urban areas. It often uses advanced farming techniques, growing crops without soil whilst maximising growth in a confined space.
IGS will build the two nine-meter high greenhouse towers to grow fresh produce and supply both local consumers and other retail centres managed by Greenman OPEN. The products grown will initially be leafy greens, herbs such as basil, chives and parsley, and certain fruits and vegetables, more suitable to the vertical farming concept than root crops. The greenhouses are expected to be operational in the first quarter of 2023.
Wilkinson's enthusiasm for the vertical farm project is infectious, and he waxes lyrical about the numerous benefits - locally-grown produce, significant reduction in food miles, low carbon footprint, no pesticides or diseases, plants cultivatable out of season, and immediate proximity to a tenant supermarket outlet, as well as having interface with local consumers, nearby supermarkets, retailers and restaurants.
Water usage in the vertical farms is minimal and efficient, using a closed-loop water cycle for irrigation, with supply which could even be tapped from water collection from the neighbouring retail outlet's roof.
Even the relatively high electricity consumption of a vertical farm can be compensated for by tapping into the solar panels placed on the retail outlet's roof - a whole separate business venture being developed by Greenman's technical division as part of its carbon emissions reduction drive, and being operated for Greenman OPEN's assets as its own profit centre.
This is pioneering stuff within the German retail sector, both for Greenman OPEN and for IGS. The initial investment of over €2m is just the start, says Wilkinson, who acknowledges that there is much that is still unknown as to how the venture will develop.
But there will be lots of learning too - including how to address problems faced earlier by some German food retailers, who found that similar approaches in the past ate into too much of their limited retail selling space. Access to surrounding car-parks - or even locating vertical farms at a distance to the actual store - could point to solutions, depending on how the venture works in practice, says Wilkinson.
Potager Farm will be headed by veteran vertical farming expert Mario Gatineau, who comes with a team from Infarm, one of the largest vertical farming businesses in the world.
Greenman has a growing affinity with technology businesses, which, in addition to its rollout of solar technology to help power the retail outlets in its many retail parks, or Fachmarktzentren as they're known in Germany, also include issues of food delivery. We've reported in REFIRE in the past how Greenman made an early-stage investment in Irish drone delivery business Manna. That company is trialling a drone delivery service for food and pharmaceuticals within a three minute window, and further trials in Germany are imminent.
Wilkinson is clearly looking hard at the environment where food retail in Germany is headed, and while nothing is certain, certain trends are crystallising and he’s determined to put Greenman at the centre of those. Already 0.5% of all grocery transactions in Germany take place in a Greenman OPEN-owned store.
"While bricks and mortar will continue to be a vital component of food retail, new and emerging technologies will be complementing these sites and how shoppers experience them. Greenman's specialised knowledge of how food retail really works in Germany puts us in a strong position to see where it's headed and to invest in technologies that will shape the future of food retail," he says.
