Pimco deal proves there is retail life north of Harrods

Hull's Prospect Shopping Centre
Hull's Prospect Shopping Centre
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SOME property investors in London might avoid putting their money into everyday shopping centres in the North of England.

But not New River Retail, a listed real estate investment trust which has joined up with the world’s biggest bond investor to buy a clutch of secondary UK shopping centres, including two in Yorkshire.

The joint venture with a subsidiary fund of Pimco acquired five centres from Zurich Assurance for £85m.

They include Prospect Shopping Centre in Hull and Promenades in Bridlington.

Allan Lockhart, property director at New River Retail, told the Yorkshire Post: “There are a lot of people in London who think that everything north of Harrods is dead. But we just don’t take that view at all. We look at everything on its merits.”

New River has a portfolio worth around £400m across the UK. It manages 23 shopping centres, including The Packhorse in Huddersfield and Bramley Shopping Centre near Leeds.

Tenants include Sainsbury’s, Tesco, Co-op, Boots, Wilkinsons and Poundland. The trust’s vacancy rates are on a par with Land Securities at around 4.5-5 per cent, said Mr Lockhart.

Mr Lockhart said: “The centres that we have spread around the country are all performing very well. It’s about the retail offer. That’s the key thing.”

He said that the five centres are value orientated with retailers selling food, health and beauty.

“As a business we are trying to focus on this sub-sector within retail because they are more non-discretionary spend, which is performing better,” he added.

The shopping centres have a net initial yield of 9.7 per cent. Yield represents the annual rent as a percentage of the overall value.

Pimco’s Bravo Fund, which is short for Bank Recapitalisation and Value Opportunity, has invested 90 per cent of the equity in the joint venture.

It is the fund’s first foray into Europe’s secondary property market.

Mr Lockhart said: “They support our view of buying assets at attractive prices. We can acquire shopping centres at attractive prices in a historical context.

“They are keen on income returns. These are just under a 10 per cent yield, which is an attractive income return.

“They very much back our view on focusing on non-discretionary retail.

“In challenging times, people still need to buy food and clothing and health and beauty products.”

Pimco has $1.92 trillion in assets under management plus $1.5 trillion in third party client assets. Managing director Bill Gross co-founded the firm in California in 1971. He is one of the most influential investors in the world.

New River will manage the shopping centres. Mr Lockhart said: “We are looking forward to getting stuck in. We are not going to change things fundamentally. Our job is to provide the range of retailers and services that our shoppers want. If we can achieve that our centres will become more successful, generate more footfall and hopefully increase dwell time. That will be good for retailers, good for jobs and good for the local economy.”

New River is introducing free wi-fi at 14 of its centres in a bid to bring in younger consumers. It focuses on marketing, events and promotions to try to create attractive destinations.

Mr Lockhart is keen to develop strong relationships with local authorities to help coordinate town centre management. New River worked with fashion students from Huddersfield University to develop live events at The Packhorse shopping centre.

Venture could blaze a trail

ANALYSTS said the joint venture between New River Retail and Pimco could set a blueprint for new capital to come into the secondary shopping centre market.

Falling sales have forced values of shopping centres outside the best UK locations down by as much as 40 per cent since the financial crisis, according to property consultants Colliers International.

“We know this type of equity is probably sitting on the sidelines waiting to come in and it needed a partner who knew the market,” said Jefferies.

Pimco’s Bravo Fund was set up in 2010 to buy commercial and residential mortgage loans from distressed banks as part of a wider move into other investments beyond bonds.