2026-10-10 10:52

Penny as a Tenant: A Simple Covenant in a Discount Price War

Penny is the simplest REWE Group tenant to underwrite: in our experience PENNY Markt GmbH, wholly owned by the BBB-rated group, signs the leases, and no merchant stands in between. But Penny's German sales, from 2,122 company branches (end-2025), rose only 0.7% in 2025, to €9.9 billion, mainly through inflation. The open question is less the covenant than the renewal: will the store still meet Penny's standard when the lease ends?

Key takeaways
• Penny turned over €9.9 billion in Germany in 2025 from 2,122 stores; the REWE Group, Penny included, holds about 22% of German food retail (Bundeskartellamt, 2025 data).
• In our experience PENNY Markt GmbH signs the lease and runs the store; it is wholly owned by a group S&P rates BBB, stable (August 2026).
• Penny wants 500 to 1,000 m² of sales area, generally from 800 m² plus about 250 m² of ancillary space (2026). It looks for plots from 4,000 m², with at least 50 parking spaces where customers drive.
• Sales growth, not credit, is the open question: 0.7% in Germany in 2025, against 6.3% at PENNY International.

Penny is the REWE Group's discount arm, owned outright by the cooperative

PENNY Markt GmbH, Cologne, is wholly owned by the group of REWE-Zentralfinanz eG, the REWE Group's cooperative parent (Part 2); its managing directors include the group's finance chief. Penny ran 2,122 German stores at the end of 2025 and more than 2,130 by October 2026, with over 31,000 employees (2025). PENNY International ran 1,914 more in Italy, Austria, Romania, the Czech Republic and Hungary, and grew 6.3% to €8.6 billion in 2025.

Exhibit 1. Penny borrows its financial strength from the BBB-rated REWE Group

Item	Detail
Legal form and ownership	PENNY Markt GmbH, Cologne; wholly owned by the group of REWE-Zentralfinanz eG, a registered cooperative
Group revenue	REWE Group €100.4 bn total external revenue (2025), incl. travel, DIY and convenience wholesale
German revenue	Penny €9.9 bn (2025, +0.7%); REWE Group in Germany €69.1 bn (2025)
Stores	Germany 2,122 (end-2025), more than 2,130 (October 2026); abroad 1,914 in five countries (end-2025)
Market share	REWE group incl. Penny: about 22% (Bundeskartellamt, 2025 data); none for Penny alone
Credit rating	Group rating: S&P BBB, stable outlook (affirmed 12 August 2026)
Typical lease signatory	PENNY Markt GmbH (our experience); stores run as company branches, without merchant subleases
Formats	One discount format, 500–1,000 m²: city, mixed-use, retail park, stand-alone, existing buildings (2026)

PENNY Markt GmbH signs the lease — and trades in the store itself

Penny's expansion is run by PENNY Markt GmbH from Cologne and five regional offices (brochure, August 2026), and in our experience this company signs the lease. Penny has no merchant layer: the company that signs is the company that trades, and no sublease sits between landlord and operator.

The counterparty is therefore a wholly owned subsidiary, not the group itself. PENNY Markt GmbH published no accounts of its own for 2025, using the exemption for consolidated subsidiaries (§ 264(3) HGB). The parental undertaking this exemption requires covers obligations entered into up to the balance-sheet date, for the following financial year only: it is no substitute for a guarantee in the lease.

Penny also buys: its October 2026 brochure offers purchase, usufructuary lease (Pacht) or rent.

Penny wants 800 m² on 4,000 m² plots, or compact city sites

The REWE Group website and Penny's October 2026 brochure set out its criteria. Penny looks for towns of 3,000 inhabitants or more, or a catchment of at least 10,000. It targets city and district locations, shopping and retail-park centres, and dense urban neighbourhoods, on plots from 4,000 m², smaller in some cases.

Rental space should start at 800 m² of sales area plus about 250 m² of ancillary space, or at 500 m² in big-city centres, with ground-floor trading and good visibility. Where customers drive, Penny wants at least 50 usable parking spaces in front of the entrance. New buildings have been certified DGNB Gold for more than a decade.

The 800 m² mark matters. Above it a store is large-scale under planning law, and many older discounters were built just below it (Part 3). Such a store that cannot be extended falls short of Penny's standard; one that can, like Penny's extended store in Lünen, is a candidate for renewal. Penny's examples run from 523 m² in an existing building on Cologne's Hansaring to about 1,000 m² in a new timber store in Mücke.

Lease terms follow the REWE Group's practice

Penny publishes no lease terms; the following is our experience. New leases typically run for 15 years with extension options, and indexation applies above a threshold and often passes on only part of the change. Roof and structure stay with the landlord (Part 10), and the tenant may sublet or assign within the group. The group's accounts confirm partial indexation: rent may rise by a percentage of the index change. At the end of 2025, €13.0 billion of its €14.0 billion lease liabilities were index- or rate-linked.

Penny lists long-term tenancies among its strengths and is remodelling its network. A market-hall design, with shelf bays instead of cross-shelving, is being rolled out; a small-store concept serves stores whose size or layout does not suit it. We see such conversions agreed alongside renewals, often with a landlord contribution.

Slow growth, not credit, is the risk to price

Penny's German sales grew 0.7% in 2025, mainly through inflation according to the group's accounts, against 3.0% at REWE supermarkets. The group describes Penny as holding its ground in a discount price war. Group-wide impairments on leased stores with weak earnings doubled to €212.5 million in 2025. In our experience the stores most exposed at renewal are small, cannot be extended, or face a newer discounter nearby.

Group decisions shape the network too. In April 2026 REWE agreed to take over up to 40 tegut stores, some to be run by Penny; on 28 September 2026 the Bundeskartellamt was still reviewing the deal in depth.

Implications for investors

1. Underwrite the group, but document the link. PENNY Markt GmbH signs and trades, and the group behind it is rated BBB. If the parent's credit matters for the full term, ask for a guarantee in the lease.

2. Measure the store against Penny's own standard. Penny's benchmarks are 800 m² of sales area, a 4,000 m² plot and 50 parking spaces; a store below them needs room and permission to grow (Part 3).

3. Price the renewal, not only the remaining term. With German growth of 0.7% in 2025, Penny will weigh each store at expiry; extension potential, planning status and nearby competition decide whether it stays.

Before you buy a Penny store:
• Is PENNY Markt GmbH the tenant, and does a group guarantee stand behind the lease?
• What are the sales and ancillary areas, and may the store grow beyond 800 m² (Part 3)?
• How large is the plot, and how many parking spaces front the entrance?
• What threshold and share does the index clause set, and when does an increase take effect?
• When does the fixed term end, how many options remain, and has the store been converted to the current design?
• Which discounters trade in the catchment, and has any opened or enlarged recently?

Sources: REWE-Zentralfinanz eG, Group Management Report and Consolidated Financial Statements 2025; REWE Group press releases (22 April and 17 August 2026), website and expansion brochure (August 2026); PENNY expansion brochure (October 2026) and imprint; Bundeskartellamt, 28 September 2026; LEBENSMITTEL PRAXIS, 16 and 22 April 2026; BVerwG, 24 November 2005, 4 C 10.04; § 264(3) HGB; Gordon Real Estate Group experience.

Photo: Fikri Rasyid / Unsplash

This profile is general information and not investment advice. Company figures are as published by the company or reported in the trade press on the dates stated.

Ilya Gordon