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Case Study

Opportunistic Portfolio

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Opportunistic portfolio with five properties, which is performing very well thanks to a great purchase opportunity and an active asset management style – despite the fact that one of the properties acquired was a distressed property at the time and another one unexpectedly turned out to be problematic post-purchase. According to a market valuation, the portfolio gained 26.5 per cent in value over a three-year period.
100%
100%
100%
100%
100%
100%
110,84%
126,95%
97,09%
165,81%
128,96%
121,60%
122,82%
139,83%
98,03%
165,81%
133,18%
128,34%
127,10%
149,59%
73,47%
142,58%
143,49%
126,49%
PURCHASE 12/2015
VALUE 12/2016
VALUE 12/2017
VALUE 12/2018
= Property A
= Property B
= Property C
= Property D
= Property E
= cumulative

STARTING POINT

12/2015 purchase of an opportunistic portfolio from insolvency administrator, including one retail centre (a DIY superstore)
and four retail parks located across Germany.
Holding period: 10 years
Total rental space: 26,000 m2
Lease terms: Short to medium
Vacancy rate: 7 percent
Two thirds of space leased to food retailers, the other spaces are operated by a DIY superstore, chemist's shops, animal and pet food retailers, furniture stores and clothing stores
Purchase price (12/2015)
less than 20 million euros
Market valuation (12/2016)
more than 20 million euros, which equates to a 21.6 per cent increase on the purchase price paid at the end of 2015


STRATEGY

portfolio optimisation through

restructuring of the properties
long-term lease renewals
a reduction of vacancies
long-term holding of properties in the portfolio, with anchor tenants from the food retailing (supermarket) sector


IMPLEMENTATION

Active asset management

Whenever a tenant moves to larger premises, new letting of the relevant space is arranged at the same time.
Index adjustments
Immediate re-letting when the premises are vacated
Extension of food stores and chemist's retail space by adding a new building
Alteration of the premises occupied by a supermarket, involving a lease extension to 15 years
Moderate rent increase for DIY superstore and lease renewal for a further five years, following a significant contractually agreed rent reduction
Current search for new tenant with a complementary range of products or services, such as a fitness centre, DIY superstore or bed and mattress store, to reduce vacancies. In preparing a new retail concept, the municipality has simultaneously imposed a freeze on development for the site. As a consequence, space can no longer be leased to food retailers or chemist's shops


INTERIM RESULT

2015 - 2018

Favourable purchase opportunity
as at 12/2016, the market value was already 21.6 per cent above the purchase value as at 12/2015.
Active asset management of known distressed property
after a significant contractually agreed rent reduction for the DIY superstore, moderate rent increase and lease renewal achieved in 2017. By the end of 2018, the market value had dropped by 14 per cent on the previous year but is still 42.6 per cent above the purchase price paid at the end of 2015.
Active asset management of unforeseen distressed property: the freeze on development, first for food retailers and then also for chemist's shops, produced a temporary vacancy rate of almost 30 per cent in one retail park during 2018.
Active asset management of standard properties
the market valuation for the years 2016 to 2018 showed that four properties had risen by 27 to 50 per cent in value, compared to their purchase price. Portfolio exception was the market value of the property that is subject to a freeze on development, temporarily dropped by 27 per cent.
According to market valuation, an increase in value by 26.5 per cent across the entire portfolio, from time of purchase at the end of 2015 to the end of 2018, was achieved.
Current vacancy rate of about 8.5 per cent
7 per cent of which is the result of an unexpected freeze on development.

CUMULATIVE VALUE DEVELOPMENT

FROM THE DATE OF PURCHASE UNTIL 2018

Purchase
100,00%
Value 12/2016
121,60%
Value 12/2017
128,34%
Value 12/2018
126,49%

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