Bridging the investment gap

Rory Mepham, CEO, Newbridge: Historically we have been buying smaller scale retail parks which, with plots in the EUR 5–15 mln range, don’t tend to generate much press. Now that we have bought a bigger portfolio we are hoping that this has gone some way towards changing the perception of us – we are certainly getting phone calls from new people. It was a deliberate decision not to do much marketing until we had actually done a few deals – so the time has come to raise our profile a bit.

You established Newbridge in 2015 and now UK-based Somerston Group is your main investor. Why did you get together with this company?

I managed to get the Somerston Group onside very quickly, and they became our investor. The Somerston Group are essentially a large family investment business, originally based in Newcastle and focused on the shipping industry. In the last 50 years the group have been diversifying their investment– into such areas as real estate, for example. The group had successfully built a retail presence in the Czech Republic in the past, while initiating the Olympia shopping centre development programme, the largest of which is in Brno. I’ve spent the majority of my career in other real estate sectors – office, warehouses and only to a smaller degree in retail. But with Newbridge the main opportunity I saw was with the retail park segment – buying new schemes. With Somerston’s experience in that sector and success in the UK and the Czech Republic, naturally there was a synergy between us. It wasn’t a long or complicated process getting together with them.

So what is the main focus of your business? Shopping centres or retail parks?

Our initial decision was to focus on retail parks and on opportunistic purchases. This is how we came upon this recent portfolio purchase, which didn’t actually involve retail parks, but where the locations and tenants are similar to those of our parks. These are all urban locations surrounded by densely populated residential areas. And the schemes are locally dominant – they are where the local residents do the majority of their weekly shopping. So that’s how the assets in this portfolio passed the initial test for whether we would invest in them. It wasn’t our core plan to buy shopping centres, but we saw the opportunity to buy centres with sales performance 45 pct above the average, that were performing at an excellent level – but that still had room for improvement through investment. And the anchor tenant Carrefour believed strongly in these locations. Carrefour developed the centres in the 1990s and ten years ago sold them to their previous owner, Aerium. By talking to Carrefour, we discovered that they were performing very well but would benefit from some additional investment. So as an investor we took the opportunity to work with the anchor tenant to draw up a business plan for improving the centres. For us it is of key importance to work in this way with the anchor tenant.

So how exactly do you plan to improve these centres?

The assets needed a certain amount of refreshment to maintain their appeal to the local population they service. The retail market is very competitive, so despite the centres being locally dominant they still need investing in to maintain their attractiveness. What is required is bringing them right into the 21st century in terms of design standards, rest areas, wi-fi, kids’ play areas, improving the food courts, adjusting the tenant mix if necessary, and finally exploring the expansion possibilities, if feasible. Our plans are fairly concrete, but we still have to sit down with all the stakeholders, such as the tenants and the customers, and discuss the plans more formally to make sure we have centres that perform at the optimal level.

Are you planning to hold onto these centres in the longer term? Is your strategy for them different than what you are planning for the retail parks?

We want to significantly increase the retail park portfolio in Poland and the CEE region over time and would be happy to increase our assets under management to in excess of EUR 200 mln under that strategy. Whilst we have a longer-term strategy in mind for our retail park portfolio, once we have completed our planned improvements I could certainly imagine us exploring exit opportunities for the recently acquired shopping centre portfolio. In terms of geography, we are concentrating on Poland, but it would be wrong to exclude other markets in the long term. We are not investing any time or work on that at the moment, but would look at opportunities if presented with something of interest.

How are you planning to expand?

To date Newbridge has exclusively worked on its own account with parent company Somerston, but we will also look at working with other external sources of capital when exploring other opportunities. At the moment we have more than EUR 150 mln of assets under management ownership in Poland. We now have the team and structure in place to increase our investments and the potential to collaborate with third parties. Our recent transactions have proven that we have got operating expertise that can be of value for both investors and for third parties. Currently we have a team of six people, but we need to expand this and so we will be hiring.