The Walnuts Centre is 152,000 sq. ft. and houses approximately 40 tenants. The centre was opened in 1970 and offers 26 covered and 17 uncovered units. The centre includes one of the town’s main car parks (525 spaces), which is included in the investment. Orpington is a well-established, high income commuter town forming the south-eastern edge of London located within the M25. It is an important centre for local convenience and discount shopping, and the second largest town in the borough of Bromley. Rail services connect Orpington to London City in 15 minutes.
The investment had institutional characteristics such as its location in a strong south-east catchment; had been under-managed for over 10 years and offered excellent asset management potential.
Kout Capital acquired the investment at an initial yield of 8.2%. In conjunction with Walnuts, an adjacent land parcel was acquired, which offered Kout Capital the opportunity to develop modern, retail and entertainment space.
During the investment period, intensive value-add initiatives were implemented to the Walnuts Centre which included the addition of a 7-screen movie theatre let to Odeon, a gym let to Pure Gym, food and beverage units let to Bella Italia and Deans Diner, and additional retail units let to B&M. Moreover, an existing and obsolete office building was extended and converted into a 63-room budget hotel let to Premier Inn. On the existing Walnuts scheme, focused asset management efforts extended existing leases, created a coffee shop in the central atrium, reorganised the units into more appropriate space, and refurbished the premises.
The value-add initiatives extended by the Kout Capital team through the support of its local partners resulted in turning around the investment from a purely secondary scheme into an institutional product, making the asset more attractive to large investment funds. This was achieved through an improvement in the quality of income, the length of leases, the reduction of vacancy, and the improvement of the overall shopping experience.
Through continuous monitoring of the investment market and an exclusive yet aggressive market strategy, the management team was able to secure the exit from this investment at a time considered by experts as the market peak for UK retail investments. The investment was sold to a UK-based institutional investment manager, representing an exit cap rate of 6.35% and a compression of 184 bps.
Kout Capital LLC was acting on this transaction as the investment manager and advisor for its clients. It was supported by Miller Development (JV Partner and Development Manager), Shepherd and Wedderburn (Solicitor), and Cushman & Wakefield and Kitchen La Frenais Morgan (Joint Agents). The investment was financed by HSBC.
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