In May 2013, I produced an excel spreadsheet model, to back a fund-raising proposal, based on the idea of the purchase, over time, of a portfolio of convenience food stores let to Tesco, Sainsbury and Co-op.
The investment thesis was, I admit, a bit boring. Investors could make an income return of c. 5% per annum and with mostly RPI linked leases a total return of 10% p.a. with some modest gearing. The proposal was backed by a detailed analysis of the C-Store market, rental levels, affordability, demographics, and alternative use values.
Despite three years of extensive marketing, I failed to secure a single investor, even though the idea seemed attractive to many. Perhaps it was my fault for not being persuasive enough, or for not promising returns that I knew were unrealistic, Or, perhaps investors were risk averse to new ideas and didn’t believe me (or in me).
I have continued to follow the market for C-stores right through to the present day and I think that in the past seven years I could (if equity had been available) have bought about £750 million of stores (at a rate of about ten a month every month), the stock has been available. Yields today remain broadly similar to 2013 and with the RPI increases in the leases, the cash yield could have been close to 6%.
During that same period, the major UK listed REITS have presided over a massive destruction in value. With dividend yields of 3% to 5% they have relied on developments to drive total returns and yet share prices have declined significantly. The share price of Landsec and British Land have almost halved, Hammerson is much worse, and Intu is down almost 100%.
There is no point in saying ‘I told you so’ the failure is mine and mine alone in getting the message across, but the proposition remains as good today as it was then. Covid-19 has demonstrated the resilience of food shopping, and local food shopping especially.
C-stores provide stable returns; stable asset prices and the kicker is that a large diverse portfolio could well be worth significantly more to a ‘pension fund’ investor because of the RPI linked returns.
SO, are there any investors out there willing to think again?
If so contact me at peter.clarke@receptconsulting.com