I am often asked questions about why my company has chosen its current strategy, and I must say it’s something we are rather proud of at EPP, because we feel we have a three-pronged approach that has let us create strong returns. We also believe responsible corporations thrive in a totally transparent environment, so I am going to lay it out for all of you in a series of three articles:
• Why retail real estate
• Why Poland
• Why we operate the way we do.
First, let’s talk about retail.
Never Invest in a Business You Don’t Understand
It’s an old investment adage that has been attributed to the king of investing himself, Warren Buffett, that one should never invest in a business they don’t understand. This is one of the top reasons retail tends to be very attractive to many investors. While some monolithic corporations or new technology companies may appear to have strong returns, it can be difficult to discern how some of these companies are making their money. But retail is simple to everyone: someone has a product and they are peddling it to shoppers. It’s clear where the money is being made.
What is not always so clear is who the winners and losers in the vast retail industry are going to be. Consumers are both fickle and unpredictable so weeding through the myriad companies that are trading on any giving day can be an extremely daunting task. It’s also difficult because one doesn’t want to invest in just one retailer, that would certainly be a bit risky if not downright foolhardy. So, it is important to have a diverse mix within a retail portfolio.
Insulation from Economic Cycles
Generally speaking, the retail sector survives better than some others during times of economic downturn. Even when times are hard people need to buy food, they still buy clothes, kids still need shoes, in short, even when people’s spending power becomes more limited they do still have to spend. This is why in a diverse retail portfolio it’s important to include food or grocers as well as shops that tend to have more consistent spending in both good times and bad. There is seasonal volatility within the sector, so investors in straight retail stocks need to be prepared for the yearly ups and downs.
Reduced Risk Through Real Estate
If there were only some way to invest in the retail sector without seasonal volatility and the work of picking a broad base of retail stocks. Oh wait, there is. Retail REITs or companies that act as REITs, are essentially a derivative of the consumer market.
Retail real estate companies give investors a way into the pockets of millions of consumers without having to bet on individual retailers.
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What to Look for in a Retail Real Estate Investment
So as mentioned above, it’s important to have the right mix of diversity in a retail portfolio, so the same thing is involved when evaluating retail real estate. When looking at holdings, there should be an appropriate mix of grocers, shops, entertainment, representing the widest section of each of those markets as possible. It’s also critical to look at locations: are these shopping centres easily accessible to the public? Are there factors that will draw them to these particular retailers? And lastly, strong asset management. Retail properties can increase value through the right improvements and inputs, so it’s important to ensure that asset managers are carefully watching trends and updating properties appropriately.
At EPP, we strive to ensure all of these factors are evident in each of our properties, but we also decided to focus on what we consider to be one of the best markets for retail in the world: Poland. Wondering why? That’s covered in part two, the Polish difference.
Hadley Dean is the CEO of EPP, Poland’s largest owner of retail real estate.