The German special fund has received capital commitments of EUR 109 million from six German institutional investors at first closing. The first investment is a Danish supermarket portfolio of 38 urban properties with a total volume of c. EUR 140 million. The assets are let to the food discounter REMA 1000 Denmark on a 15-year fixed-term. The subsidiary of the Norwegian food trading group Reitan Handel has a market share in the Danish food retail market of 15.5%. The acquisition is part of a sale-and-lease-back transaction based on a yield of 5%.
As a core/core-plus fund, the European Food Retail Fund mainly aims to achieve a sustainable annual distribution yield of at least 5%. The forecast yield for the Danish seed portfolio exceeds this target. The fund target size is at least EUR 750 million with a maximum debt ratio of 50%.
While the main fund strategy is to acquire further supermarket portfolios with lot sizes usually starting at c. EUR 50 million, the fund may also acquire neighbourhood centres, mixed-use urban properties and specialist retail centres provided that they have a food retailer as an anchor tenant and at least 70% of the rental income comes from food/grocery and basic services tenants. At least 85% of the rental income at the portfolio level will come from supermarket/food tenants.
After this first transaction in Denmark, the geographical investment focus is on Benelux and France, but complemented by Southern Europe (Italy, Spain, Portugal), the UK and Ireland as well as Germany and Austria. The German allocation is a rather low maximum of 15% because the fund is primarily aimed at German institutional investors, who are often already invested in German-focused comparable products and are seeking diversification into other European countries.
The defensive food and discount retail segments show resilience to disruption, as highlighted in Savills IM’s Outlook 2021 report. Findings from the Outlook 2021 investor survey show that food retail is the only retail segment where investors want to increase rather than decrease their exposure. Long-term and inflation-linked leases, tenants with strong credit ratings, extensive immunity to recessions and a relatively low susceptibility to e-commerce trends make supermarkets and other food shops an attractive investment for investors focused on long-term secured and stable distributions.
The advisors to Savills Investment Management on the transaction were Bruun & Hjejle, KHR Architects, Savills and Capital Investment, who provided this opportunity.
Ian Jones, Director of Investment at Savills Investment Management: “We are delighted to have been able to work with REMA to close this major deal. We look forward to a long partnership with REMA to help maintain and develop their position as a leading supermarket operator in Denmark. This is the first transaction for our new flagship grocery fund, which will be investing in food retail across Europe. There is significant appetite for this sector among our investor base and we look forward to further significant transactions in 2021.”
Henrik Burkal, CEO REMA 1000 Denmark: “It has been an absolute pleasure to complete this transaction with the international investor Savills Investment Management and their advisor Capital Investment, which we see as a recognition of REMA 1000 as partner and shows that food retail is a very solid and resilient investment object.”