Why are funds showing interest in garden centres?

Trend demonstrated by investment fund's £10.3m acquisition of Yarnton Nurseries.

Hugo Llewelyn: founder of Newcore Capital Management - image: © James Winspear
Hugo Llewelyn: founder of Newcore Capital Management - image: © James Winspear

Buying asset-backed alternative investments that beat internet retailing, rather than the usual offices or shopping centres, are why funds are showing more interest in the garden centre sector. This was shown this month by alternative real estate investment manager Newcore Capital Management, founded by Hugo Llewelyn, which has bought Yarnton Nurseries near Oxford for £10.3m.

"We are very much on the hunt for similar independent businesses in strong conurbations," says Llewelyn. He knows Dobbies managing director Nicholas Marshall because his father was Marshall's solicitor in Marshall's Country Gardens days. Marshall is long-term friends with Andrew Bracey, who formed Midlothian Capital Partners to join with Hattington Capital to buy Dobbies from Tesco for £217m in 2016. Marshall was in the running to buy Dobbies and Homebase with city backing and also ran Wyevale until private equity investor Terra Firma bought it in 2012.

Marshall says: "There is going to be significantly more interest in buying British assets because of Brexit and because the rest of the world is going through an unsettled phase. I can imagine funds being quite keen to put money into the UK and imagine the trend increasing as we get closer to Brexit, unless things change. If you look at France, people are taking their money out, not putting it in, and the same applies to the rest of Europe."

Terra Firma has owned Wyevale Garden Centres since buying it for £276m in 2012. Terra Firma chairman Guy Hands sold and leased back eight centres to Orchard Street Investment Management in January 2016. Altrincham, Gosforth, Nantwich, Leicester, Huntingdon, Braintree, Woking and Osterley all have 25-year leases on the centres. Orchard Street bought them on behalf of St James's Place Wealth Management.

In September 2015, BlackRock Real Estate bought a portfolio of eight garden centres in the BlackRock UK Long Lease Property Fund from LaSalle Investment Management for £112.5m, reflecting a net initial yield of 5.25 per cent. The "Ferndown Portfolio" has locations in Bicester, Cadbury, Endsleigh, Cardiff and Woodford. It comprises six sites let to Wyevale and two occupied by Notcutts (Woodford) and Squire's (Stanmore).

Llewelyn says the attraction of the garden centre sector to private equity is shown by Yarnton, a "garden and shopping village" on 12 acres bounded by housing and open countryside. Wyevale and Dobbies have fund investments and the backers have made the garden centres' offers more "sophisticated", he adds. Retail concessions at Yarnton number about 24, including Edinburgh Woollen Mill, Peacocks and The Works.

Newcore bought it from Nigel and Richard Wallbridge with a new £50m opportunistic fund, Newcore Strategic Situations III, which will invest in UK real estate assets it "considers to be central to the continuing needs of society and resilient to the internet's deflationary effect".

Llewelyn adds: "We have acquired not just the centre but the business that operates it, which is part of our strategy of buying asset-backed alternative assets. We believe that we can improve the income and performance of the centre through a targeted programme of capital expenditure."

He says concessions are queuing up to get into Yarnton to replace Brantano, now in administration. The retail space is "more interesting and dynamic than shopping centres" and he is looking for places that attract shoppers by having a destination appeal - including "coffee and cake" - rather than just shopping on the internet.

The centre will benefit from new housing in the area and increased investment, says Llewelyn, and he wants to see development on some of the site. "Our principle aim at the centre is to improve the existing business. There's a lot to do. Richard and Nigel (Wallbridge) were there 49 years and we've got a reasonable amount of capital to take it to the next stage. We can upgrade the car parking and the restaurant, and add soft play. It's 12 prime acres of Oxfordshire. We can re-organise the traffic flow and add more car parking or use some land for alternative use. But it's business as usual. We're an asset-backed investor that loves businesses that have long-standing underlying credibility."

Llewelyn explains that, as an alternative investor, assets such as garden centres, oil storage and care homes are appealing, as opposed to traditional investments such as offices or other retail, because they are "different" and because he liked the location and the opportunity to improve the business.

Newcore has also acquired a storage yard at Worcester Park near Sutton in Surrey that has planning consent for a garden centre. The four-acre site is hardstanding and an "opportunistic purchase by the fund in a nice area" that could be developed as a garden centre in the next two or three years.

Alkham Valley sold

Meanwhile, AMA has sold Alkham Valley Garden Centre in Dover, Kent, on behalf of the Cox Family to a private investment company. AMA's Darren Earnshaw says: "We are noticing further interest from outside the industry, to include investment companies."

Mike Gilbert, director at property consultancy Gilbert Evans, says funds are particularly interested in garden centres with alternative uses, especially for shortto medium-term residential development. "The investment sector generally likes alternative investments like garden centres but there is very limited stock available," he adds. "There is strong demand because they are seen as being a good investment and also as being green."

Quinton Edwards' Simon Quinton Smith says fund interest is generally in big groups, though outside Wyevale and Dobbies he doubts whether any are big enough for investors. Yarnton has a development opportunity for some housing on surplus land, he adds, and garden centres remain attractive to investors because of their underlying property value. "Garden centres sit on quite big acreages and some have alternative uses, which make them worth more than as a garden centre."

Consultant Neville Stein says: "It could be this investment company has recognised the power of garden retail. It remains buoyant no matter what is going on in the economy. It's a recession-resilient sector and a lot of sites are ripe for development too. If you're on the high street, there's not much else you can do with your property, but garden centres have got real opportunities for development."

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