RREEF hits 20%-plus return from Italian deal

RREEF was today celebrating the full exit of a 2005 deal that has made opportunistic returns for investors in its 2003 vehicle, Real Estate Global Opportunities Fund 1B.

The asset management arm of Deutsche Bank along with partners in the deal, has sold Italian department store group La Rinascente to Central Retail Corporation Ltd, one of Thailand’s largest retail groups, it said.

The original investment was made in 2005 in a joint venture with Italian private equity firm, Investitori, Prelios, formerly known as Pirelli Real Estate, and the wealthy Italian Borletti family.

Transaction details have been kept under wraps, however RREEF said the enterprise value of the chain was €260 million and that it had made investors in DB Real Estate Global Opportunities Fund 1B a return of more than 20 percent net of tax and fees. The fund itself is on course to meet its overall target returns, it added. 

The Rinascente investment is seen as an example of a successful private equity real estate turnaround deal. RREEF and its partners went about restructuring the department store group into a higher-end offering having bought both the properties and the operational company.

In fact, Rinascente was made up of two different brands when it was bought six years ago. Upim, the medium-to-low market chain, with 135 directly operated stores and over 200 franchised stores, was sold to Gruppo Coin backed by PAI Partners in December 2009. However, the upper-market Rinascente was retained longer. As part of its revamp, it drafted in the former chief executive of Selfridges, Vittorio Radice, to run the chain. Stores have been improved or the real estate sold off in order to boost returns. For example, four months ago, the real estate component of the 52,000 square meter flagship asset, Milan Duomo, was sold separately for €472 million to Fondo Ippocrate – First Atlantic SGR SpA.

Following the implementation of the business plan, turnover at the Milan flagship store was almost doubled. In addition, RREEF and its partners acquired new stores for La Rinascente in Palermo, which opened in February 2010, and in Rome, which is currently under development.

Chris Papachristophorou, global head of Real Estate Opportunistic Investments, said in order to maximise value in the original investment it made sense to own both the real estate and the business. “People perceived that at the time we were taking a risk by buying the operational company as opposed to just owning the real estate, but we would argue against that. By controlling the business you can to some extent control the value of the real estate.”

The new Thai owner, Central Retail Corporation, which started out as the owner of one small outlet in Bangkok in 1927, is on a mergers and acquisition drive to speed up expansion. Italy is the second country it has expanded to after China where it has two department stores. In a statement on 31 May, chief executive Tos Chirathivat, said Central Retail Corporation would become “a world-class leader in the retail business” with another brand added to its portfolio of Central, Zen and Robinson.

Chirathivat said: “Rinascente is the no.1 luxury department store in Italy and well-known among tourists since the flagship store of Rinascente is located beside Milan Cathedral or the Duomo di Milano, the no.1 Milan tourist attraction. After the acquisition, we have a plan to promote Rinascente as a ‘World Class Lifestyle Brand’ and to locally expand more flagship stores in several tourist cities such as Rome, Venice, Florence including other important cities such as Napoli and Bologna.”