Expansion in the Netherlands

03/07/2017

Retail Estates is expanding its investments into the Netherlands through the purchase of 5 retail parks. These retail parks are intended for high-volume retail trade and are mainly leased to retail chains active in home furnishing. There are 51 retail spaces in total. Since Retail Estates foresees the same “hands-on” approach that is behind its success in Belgium, work is currently being done on the launch of a Dutch headquarters. In order to stay in touch with the market and close to the tenants, commercial activities will be directed by a Dutch property management team.

Consumer spending has continued to increase over the last three years in the Netherlands. The low unemployment rate and the strong economic growth of the Dutch economy follow years of “draconian” austerity measures that brought government finances and social security in balance, but also sent retailers to unprecedented lows in the period 2008-2013. Today, according to the most recent quarterly report of public service CBS, consumer confidence is at its highest point in the last 10 years. In particular, the residential real estate market is reaping the benefits, causing purchases in home furnishing goods to peak. Investments in the out-of-town shopping market are recovering strongly as a result of the better prospects announced by retailers. For its 17 million inhabitants, the Netherlands counts around 200 out-of-town locations where high-volume retail is allowed. A strict urban planning framework limits the number of retail parks, but also the type of trade that may be exploited. For example, in contrast to Belgium, trade in foodstuffs, clothing and shoes was prohibited, but the fragmentation of shops along major roads was also prevented in time and guided into well-accessible retail parks. The entry of international institutional investors into the acquisition of this type of real estate is at an early stage.

The investment is spread over the following locations:

  1. Apeldoorn (Province of Gelderland: city with 160,000 inhabitants)
    The Rietveld retail park has 12 retail areas with a retail space of approximately 23,250m². The main tenants include retail chains such as Beter Bed, Kvik, Bruynzeel Kitchens and Swiss Sense.
  2. Middelburg (Province of Zeeland: city with 48,000 inhabitants)
    Retail Estates acquired 12 retail spaces (retail park de Mortiere) with retail area of 19,730m² in a retail park of approximately 40,000m² that also contains a number of “big-box” shops. The retail spaces acquired by Retail Estates house only retail chains including Kwantum, Leen Bakker, Swiss Sense, BCC, Beter Bed, Bruynzeel Kitchens and Perry Sport.
  3. Veenendaal (Province of Utrecht: city with 64,000 inhabitants)
    An 18,452m² retail park in the form of a “home decoration and interior design mall”, featuring dozens of store concepts including Trendhopper, Vtwonen, Auping, Xooon and others.
  4. Roosendaal (Province of North Brabant: city with 77,000 inhabitants)
    The Oostplein retail park has 10 retail spaces with a retail area of 10,233m². They have been leased to retail chains such as Roobol, Kwantum, Jysk, Carpetright and Better Bed. In the coming years this retail park will undergo a facelift and partial restructuring.
  5. Alphen aan den Rijn (Province of South-Holland: city with 73,000 inhabitants)
    The Euromarkt retail park has 13 retail spaces with a total retail area of 10,123m². The main tenants are Gamma, Aldi and Roobol. In contrast to other retail parks, it is located in the urban agglomeration (‘edge-of-town’type).

The total investment in the purchase of these 5 retail parks amounts to EUR 75.61 million, including transfer taxes and notarial fees. Net rental income amounts to EUR 5.85 million. Net rent is calculated by deducting the Dutch equivalent of property tax and polder taxes to obtain a figure comparable to Belgian rent. The initial return on these net rents relative to the total investment is 7.74 percent (gross initial return 7.98 percent). The fair value of this investment amounts to EUR 70.66 million and corresponds to the estimate of real estate expert CBRE Netherlands. In the Netherlands, fair value corresponds to the costs-to-buyer valuation (investment excluding transfer tax of 6 percent and 1 percent notarial fees). The occupancy rate of these 5 retail parks is 98.18 percent.

In addition, in the margins of this transaction, 7 retail spaces were acquired in the retail park Meubelplein in Leiderdorp with a retail area of 5,898m² including a vacant 2,668m² shop and two precarious rentals that concerns 1,409m² of retail space. The net rental income from these retail outlets is now only EUR 0.17 million. After reletting, these non-strategic properties will be sold. The investment in this purchase amounts to EUR 2.10 million, including transfer taxes and notarial fees. According to real estate expert CBRE Netherlands, fair value amounts to EUR 1.96 million (cost-to-buyer valuation excluding transfer taxes). The difference between this valuation and the purchase price excluding transfer taxes is EUR 0.37 million, which is attributable to differences in valuing the vacancies.

The purchase of the above-mentioned real estate was structured via a newly established subsidiary Retail Estates Nederland BV. The financing of this transaction was handled via the drawdown of bank loans and EUR 13 million through the issue of new shares. These shares were issued by the board of directors on 29 June 2017 in the context of the authorised capital at an issue price of EUR 65. They will share in profit from the start of the 2017-2018 financial year, which began on 1 April 2017, but not in the profit for the financial year ended 31 March 2017. The listing was applied for with effect on 27 July 2017, the date of detachment of the dividend for the 2016-2017 financial year. This issue increases the number of shares of Retail Estates to 9,382,612. The issue price of EUR 65 is EUR 11.13 above NAV IFRS, excluding dividend as of 31 March 2017, which was EUR 53.87. The transaction results in an increase in the debt ratio to 51.77 percent.

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