27 Oct MEREP 3 Q&A
In this Q&A, our Managing Partners, Sylvie Geuten-Carpentier and Axel Despriet, outline the latest fund from Mitiska REIM…
What’s the name of the new fund and when was it first opened to investors?
Sylvie: The new fund is called Mitiska European Real Estate Partners 3 – shortened to MEREP 3 – and it was opened to investors in April this year. We’re delighted with the support it has received from both existing and new investors, securing a strong first closing of €138 million in only 3 months and giving the fund over €270 million in immediate investment capacity. Our plan is to substantially increase the fundraising with further closings in the next 12-18 months.
What’s the focus and investment strategy of MEREP 3?
Axel: MEREP 3 is the third flagship fund from Mitiska REIM and continues our focus on the accelerating opportunity we see in convenience real estate across Europe. The fund will target grocery-anchored retail parks, last-mile urban logistics and multi-let light industrial opportunities located on urban infill locations. Across the markets in which we operate, we’re seeing increasing demand for these urban infill sites that offer accessible locations, affordable buildings, flexible design and sustainable solutions, and this demand is driven by socio-economic megatrends and is coming from a growing range of end users.
Sylvie: The fund’s investment strategy is to unlock opportunities and drive sustainable value creation through investment in standing assets with light to heavy value-add opportunities – this ranges from tenant restructuring, refurbishment and extension, through to full repurposing or retrofitting. The fund will also execute de-risked development projects, with a focus throughout on skilled active asset management. We are very excited by the opportunity in convenience real estate and the value that can be created by taking a holistic approach to investing in grocery-anchored retail parks, last-mile urban logistics and multi-let light industrial projects.
What’s the target return and holding period?
Axel: MEREP 3’s target net IRR is 12-15% and a distribution yield of 3%, which builds on the strong track record and excellent performance Mitiska REIM has delivered on the preceding funds – these are on track to realize 12-15% net IRR with attractive annual distributions to investors. The fund’s targeted holding period will typically be between 3 to 5 years, depending on the time required to execute the value creation plan.
Sylvie: What’s also important to note is the resilience of the returns Mitiska REIM has delivered during challenging periods over the past decade – this is down to our investment approach. We index rents to provide a hedge against inflation and we only make moderate use of leverage so that returns are not reliant on bank financing costs. We also invest and actively manage new investment opportunities on the margin between target yield and market yield, whereby we select investments where we see potential to actively create value and increase target yield while taking into account risk factors.
Axel: We are proud of our track record of delivery on the previous funds, which are successfully realizing exits, generating ongoing operating cash flow and liquidity to investors and lifting the distribution-to-paid-in ratio substantially. These strong results have proven the robustness and resilience of convenience real estate throughout COVID-19, the global financial crisis and other challenges.
How will you source opportunities?
Axel: Over the past 10 years, we have established a pan-European network of more than 20 local operating partnerships, a model that gives us local presence in markets, increased sourcing of investment opportunities, often already partially de-risked, and on-the-ground teams for asset management and development. These local operating partners have an excellent track record and typically co-invest alongside the fund, creating an incentive aligned towards value creation.
Sylvie: When you combine this local on-the-ground expertise with Mitiska REIM’s experienced international team of over 35 professionals, this gives us a powerful resource which has already started to identify, analyze and secure an attractive pipeline of investment opportunities targeting value-add returns.
What type of investment situations are you looking for?
Axel: We see a clear window of opportunity for MEREP 3 and its investment strategy in convenience real estate in four focus areas. Firstly, contrarian opportunities in resilient retail, with a focus on retail parks which have continued to thrive both before and after the pandemic on the back of their long-standing formula for success, based on convenience, essential shopping and value for money. As a specialist investor with expertise in value-add initiatives to reposition assets, we see an opportunity to purchase resilient retail assets at a discount to market value.
The second focus area is repurposing and retrofitting opportunities. There are many historic assets, such as large hypermarkets and cash & carry locations, which no longer meet current consumer or tenant demand, or future sustainability requirements. We see significant value that can be created by futureproofing and repurposing these sites into convenience real estate.
Sylvie: Our third area of opportunity presents itself in the growing need for urban logistics, driven by the growth of e-commerce. Retailers and logistics operators are both looking for last-mile solutions, but the supply is restrained due to lack of available land, permits and other factors, creating an opportunity of undersupply with low vacancy and increasing rents.
The fourth focus area is bolt-on opportunities in multi-let light industrial. Demand here is high due to the growing number of SMEs as well as larger companies looking for local hubs, service or distribution centers. This asset type is highly complementary to retail parks and urban logistics, and our development and design expertise in mixed-use projects gives us more flexibility in sourcing and developing sites, thus optimizing the financial returns from potential urban infill locations.
Axel: At Mitiska REIM, we’ve built an agile investment platform where we can identify windows of opportunity and benefit from them. So, while the investment situations outlined above reflect the current market, we are convinced that other attractive situations will present themselves on which we will be able to capitalize.
How important is sustainability to the fund’s investment approach?
Sylvie: Sustainability is vitally important. As a responsible fund advisor, we recognize the importance of ESG factors and their role as a key driver in creating long-term value and in making our business and managed assets ‘future-proof’.
Axel: As a company, we have an ESG framework in place and our progress is published in our annual Sustainability Report. In line with our 2035 net zero carbon ambition, MEREP 3 will seek to deliver future-proof sustainable assets, aiming for “Very Good” to “Excellent” BREEAM ratings at the asset level, with the fund set up as an SFDR article 8 fund with a GRESB rating.
Who is the investor base?
Sylvie: We have a solid and loyal existing investor base which have invested in MEREP 3, along with a diverse range of new institutional investors which include pension funds, insurance companies and family offices. To attract €138 million of capital at first closing despite market uncertainty and cloudy macroeconomic conditions is a testament to the solid track record of the preceding funds, the strength of our team and the clear focus of our convenience real estate strategy. We look forward to welcoming additional investors to the fund and substantially increasing fundraising over the coming months.
Past performance is no guarantee of future results. Investment in MEREP 3 is open to professional investors only. MEREP 3 is a private AIF under the Belgian 2014 AICB Law. Mitiska REIM is an alternative investment fund manager under the “light regime” provided by the Belgian 2014 AICB Law. Mitiska REIM acts in its capacity as fund manager of MEREP 3 and fund advisor of FRI and FRI 2.