Redevco interview: The landlord view

Q Can you give us a bit of background on the current make-up of the Redevco UK portfolio in terms of size, number of assets and major holdings?

A We’re now 100% retail focussed and have a strong belief in sticking to our specialist area. We’ve worked hard to keep pace with the major structural changes in the retail sector and our criteria for investible locations has been continually challenged.

Essentially, we have been upgrading and; notably, our UK assets under management (AuM) has continued to grow by value and we are now at circa £750 million. We continue to own major stores in most key UK cities, as well as flagship assets such as Princes Square in Glasgow, two Oxford Street holdings and the Hannington’s Estate in Brighton.

Q You have an extensive pan-European portfolio. How has this evolved in recent years?

A After a period of restructuring what used to be one single portfolio, we currently manage multiple vehicles for various investor clients with about €7.5bn AuM. Over the years, we divested assets that we believed were not futureproof, did not reflect our retail only strategy and that were outside the core markets in Europe; we now manage half the number of assets that we used to have against the same total portfolio value.

The vehicles we now manage each come with varying mandates and different strategies and include two successful joint ventures that we both manage and co-invest in with Ares Management (NYSE:ARES) and Hermes Investment Management respectively. Weinvested over €1bn across our funds last year, so this certainly keeps us busy enough but we are also already looking to our next venture!

Q What are the major structural differences between the UK and European occupational markets?

A Huge! It’s not until you start really getting under the skin of assets in other jurisdictions that you realise how different each aspect is; be that the culture of the consumers, the retailers or the real estate market mechanics. The latter part is actually the easiest part.

For example, once you realise every lease in Belgium effectively has a statutory tenant break option every three years, it’s not something you forget in the underwriting.

But there is generally less transparency in the European real estate markets than we are used to here and underwriting has to be based on a higher percentage of the softer research-based inputs rather than the UK style transactional evidence. This means there is more scope to hit some fantastic returns, but also to get the stock selection wrong, which is why we rely heavily on our local expertise across our seven offices.

Q What are the advantages/disadvantages of being a UK retail landlord compared to Europe?

A There are pros and cons of every market. The UK is certainly much, much faster. We have a lot less red tape here and transactions happen relatively quickly. My counterparts in our other offices thought I was joking when we completed the Hannington’s deal in Brighton in 15 days!

Q What major differences do you see from a rental and capital growth perspective between your UK and European portfolios?

A We actually don’t look at these on a national basis, but more city to city. We have an excellent proprietary City List developed by our research and strategy team which identifies there to be around 200 cities across Europe which we consider to be investment grade for our various funds.

As a fully integrated Investment Manager we compare on this basis rather than countries. We bought the Nike Store in Glasgow earlier this year and while many investors were questioning investing in Scotland, we were looking to invest in Glasgow, and even more specifically, in Buchanan Street Glasgow which is arguably the best retailing high street outside of London, so we could get over these more macro level concerns.

Q Have you been able to leverage your relationship with UK retailers to enhance your European portfolio and vice versa?

A Yes – this is a key strength of our company and is true across the business, not just on the retailer relationships. We strongly believe in the scalability of a European-wide enterprise with strong local teams on the ground who know their markets thoroughly. Obviously, this holds true for leveraging the contacts each team has with local and international retailers.

Colleagues responsible for Leasing meet frequently to make sure we take advantage of every opportunity and attend international leasing events together.

Q Which of your current holdings are performing well?

A It goes without saying that central London has flown over recent years, but the Hannington’s Estate has also done really well since we bought it circa two years ago.

We’ve added more to it since and the building works for the new Hannington’s Lane are on site and progressing well towards completion next year.

Q Would it be fair to interpret your commitment to the UK as a vote of confidence in the UK high street?

A Yes very much so. In fact we are very deliberately focussed on the UK high street and we are still actively looking to deploy capital here going forwards.

Stock selection has become ever more important given the pace of macro level changes around us, but our niche expertise and focus on retail, combined with the wider European platform, allows us to really get under the skin of this sub-sector. This approach and deeper understanding is crucial to driving out-performance, so yes, we are certainly confident in this sector, so long as it's really well understood.