REICO, the real estate division of Erste Group bank Česká spořitelna, is well-established as an investor in Czech and Slovak real estate. It recently announced plans to shift its focus abroad, to Poland and Hungary. It also made its biggest ever acquisition: Forum Nová Karolina in Ostrava. What is REICO’s investment strategy at the moment?
Tomáš Jandík, the CIO of REICO investiční společnost České spořitelny: It ‘s the same as it has been for the last three years: building a balanced portfolio across four asset classes (offices, retail, logistics and high street) and in key CEE markets which will generate a moderate return at a very low risk in terms of the underlying asset base.
Is Forum Nová Karolina likely to be your last large Czech purchase for some time?
Yes. We won’t be buying a larger asset anywhere in the CEE region in the foreseeable future. At EUR 209 mln, Forum Nová Karolina is the largest real estate deal Erste Bank Group has ever done and I don’t see many more assets in the Czech Republic that would be both larger and potentially available. More importantly, after a three-year acquisition spree we have spent the bulk of our excess cash, which is another reason why we will be focusing more on mid-sized deals to keep our excess cash as low as possible at any time.
Earlier this year REICO announced that it was planning to focus more on Poland and Hungary due to the lack of available product in your home market. Is this still the case?
Yes, our expansion to Poland has been driven largely by prime product availability, but our allocation there is now relatively high so we will have to pause for a while when it comes to Poland. We are also monitoring Hungary for diversification and yield purposes but are not actively chasing product on this market at the moment.
So if you are still planning to focus more on Poland and Hungary, will you be expanding your teams in these countries? Or maybe you are planning to take over local players?
Currently, we are focusing on the Czech Republic, Slovakia and Poland. We have a team of 16 people based in Prague and manage our investments from there, so we don’t plan to hire or acquire platforms abroad.
Where are you planning to invest? Not just in which countries, but which cities?
We tend to focus on markets we understand and have done long term research into. With office investment we focus on capital cities – with the exception of Brno, where we understand the market dynamics better. On the other hand, we are not looking at, say, regional offices in Poland. As for retail, dominant schemes in capital cities are usually held firmly by specialist retail groups, which is why we focus on dominant centres in the larger regional cities. With logistics our focus is on the important industrial and consumer hubs along the main motorways.
How much do you intend to invest – have you allocated specific sums to be invested in particular markets?
We have a stable strategic allocation determined for each country and asset class. As our fund grows, we are striving to achieve and maintain our relative strategic allocations with new acquisitions or disposals. Our Polish allocation was achieved within a year of it being approved. We are now focusing once again on our home markets of the Czech Republic and Slovakia, but we shall be back to Poland in the not too distant future. It all depends on the growth pace of our net asset value. Being the largest mutual fund in the Czech Republic (including stock and bond funds), we have been receiving relatively stable inflows of EUR 10–15 mln p.a. over the last three years.
You recently acquired Proximo II in Warsaw to add to your purchases of Proximo I and Galeria Słoneczna in Radom. How diversified is your portfolio likely to be? And are you focusing on particular asset classes and on building portfolios?
Yes, we are building a large balanced portfolio across markets and asset classes. Proximo I and Proximo II are now being treated by us as a single project and we are looking to achieve operational synergies between them. Galeria Słoneczna was our first dominant retail buy. Our Polish sub-portfolio will remain as it is for some time, but as the fund gradually grows we will keep expanding our presence in Poland.
What are your long term plans for the assets you already own and for those you are planning to buy?
Most of the assets in our portfolio are held long term, hence we take a long term view when it comes to asset management. The selection of any acquisition or disposal is driven by the need to rebalance the portfolio’s risk exposure. For acquisitions we usually draw up ten-year business plans but always with a flexible exit strategy that takes into account the market situation and portfolio rebalancing needs. Smaller and older properties are less likely to fit into our strategy than newly-built dominant assets.
How are these property acquisitions financed? Entirely through Erste Group and Česká spořitelna? Or do you also use external financing?
Actually, Erste Bank Group financing is quite difficult for us to obtain due to ‘thin capitalisation’ regulations [imposed to prevent over-leveraging – editor’s note], which is why we usually work with third party banks. We maintain a wide selection of financing business partners, ranging from large German banks to leading local institutions. There is usually very low leverage on an investment involving an intra-company loan.