The Swedish Ingka Group, which owns the IKEA chain of furniture and household goods stores and Mega shopping centers, has begun looking for buyers for its real estate in Russia. This was told to RBC by a source in the retail market, two sources in investment companies and a source in the real estate market.
Ingka is the largest owner of retail real estate in Russia, the total area of shopping centers owned by the company, according to INFOLine-Analytics, is 2.3 million square meters. m, rental area – 1.8 million square meters. m. The group is looking for a buyer for the entire portfolio of its real estate, RBC interlocutors say. According to them, negotiations are underway with at least two potential buyers (their names are not disclosed), but they are in the initial stage. But, as RBC’s source in the real estate market notes, the final corporate decision on the sale of these assets has not yet been made.
In response to a request from RBC, the press service of Ingka Centers (a division of the Ingka Group that manages shopping centers) said that they did not comment on market rumors. They also added that Mega continues to operate, and the company is focused on “ensuring the security of operations and the quality of customer service.” At the same time, IKEA flagship stores in these shopping centers were closed almost a year ago – in early March 2022.
How much can these assets be worth?
Ingka’s real estate portfolio in Russia includes 14 Mega shopping centers (in Moscow, Moscow region, Leningrad region, Omsk, Ufa, Rostov, Samara, Adygea, Kazan, Yekaterinburg, Novosibirsk and Nizhny Novgorod), hypermarkets with IKEA stores, as well as sites where construction of new shopping centers was planned but not yet started. Rental income from Ingka Centers in Russia, according to Forbes, amounted to $350 million in 2021.
The fair value of Ingka Group’s real estate portfolio in Russia is at least $5 billion, says Mikhail Burmistrov, General Director of INFOLine-Analytics. But, given the discounts that will be required, the price in the event of a sale could be between $2.5-3 billion, he admits. Without taking into account discounts, based on the company’s income, the valuation of the entire complex of facilities could be $10 billion or more, Nikolai Kazansky, managing partner of Nikoliers, believes.
The sale of all assets owned by foreign companies included in the list of so-called unfriendly countries (that is, those that have imposed sanctions on Russia) has been coordinated by a special commission under the government since last year. The condition for the approval of transactions is a discount – at least 50% of the market value of assets. In addition, from the end of December, the condition for the approval of transactions was the transfer of 10% of the transaction amount to the Russian budget or an installment payment for assets for one or two years.
What is the peculiarity of shopping centers “Mega”
The head of the retail department of the consulting company CORE.XP, Marina Malakhatko, notes that retail real estate in Russia was a profitable business for Ingka Group, its shopping centers did not suffer much even after the COVID-19 pandemic. “But the start of a special military operation brought fundamental changes to the company’s business, it is too risky for a European company to remain in the Russian market, given the imposition of new sanctions,” she says.
The company’s business was also affected by the fact that in Megas the share of stores of closed international brands reached a record 50%, Malakhatko notes. But thanks to the fact that these networks, even after the closure, continued to pay rent all last year, this did not deal a strong blow to revenue, she adds. In addition, due to the suspension of IKEA stores in the spring of 2022, traffic in shopping centers has seriously fallen.
Despite the departure of international retail chains, Megas remain a high-quality and interesting asset that may be of interest to both core players in the commercial real estate market and large holdings, for which this asset will be non-core, Malakhatko is sure. This is a unique trading network for Russia and Europe as a whole, and its real value is likely to be lower than the market value, so there will be applicants, Kazansky agrees.
But the company is unlikely to be able to sell the entire portfolio of assets, Malakhatko believes: “Because of its size, such a deal is on the verge of fantasy. The best option would be to divide the portfolio and offer individual shopping centers in the regions to different investors.”
How Ingka reduces business in Russia
IKEA, from which the Ingka Group grew, was founded in 1943 in Sweden by Ingvar Kampard, and is now headquartered in the Netherlands. The first IKEA hypermarket in Russia opened in 2000, and in 2002 the first Mega shopping center in Russia opened its doors.
In March 2022, in response to the outbreak of Russian hostilities in Ukraine, the group suspended the operation of IKEA stores, and in August finally stopped selling its goods. She decided to sell her factories in Russia, which produced lumber and furniture fronts for IKEA. The government commission for the approval of transactions with foreigners in February 2023 approved this transaction. At the same time, last summer, Deputy Minister of Industry and Trade Viktor Yevtukhov said that IKEA would not sell retail real estate. “IKEA sells only factories and does not sell the stores themselves, because they have plans to resume activities in Russia when it becomes possible to bring products from factories in other countries and fully replenish the collections,” he told reporters on the sidelines of the St. Petersburg International Economic Forum. On Thursday, February 16, the ministry did not comment on the sale of real estate and redirected questions to the company.
In the report for fiscal year 2022 (from September 2021 to August 2022), the group indicated that it had begun the process of downsizing in Russia, including staff reductions. However, no plans to sell Mega shopping centers were reported, they continued to work. The report says that Megas remain open so that “many people in Russia have access to their daily needs and essentials, such as food, groceries and pharmacies.”
Ingka Group’s total revenue for fiscal year 2022 increased by 5.7% to €42 billion. Operating income was €2 billion, while net income decreased from €1.6 billion to €0.3 billion. The report indicates that this mainly due to operations in the financial market, but net income was also affected by the reduction in operations in Russia.