Czechs and balances

Tomáš Jandík, CFA, MRICS, chief investment officer of Prague-based fund manager REICO: REICO is the largest and oldest Czech open-ended property fund manager. The company was founded in 2006 in Prague as a 100 pct subsidiary of Česká spořitelna, the largest Czech retail bank and a member of Erste Group Bank AG. REICO manages the ČS nemovitostní fond (CŠNF) with a current NAV in excess of EUR 0.5 bln invested by more than 50,000 unit holders. To date, there are eleven properties in the fund located in the Czech Republic and Slovakia. The most recent acquisitions of REICO were the Park One and City Tower office buildings in Bratislava and Prague respectively.

Recently, you announced your plans to invest in Poland and Hungary. Why have you decided to look outside the Czech Republic for investment at this time?

The CŠNF fund has enjoyed high inflows over the past two years: it doubled its NAV in 2015 and grew by around 60 pct in 2016 in terms of new inflows. I see two key reasons for investing the equity abroad. The first is diversification – app. 80 pct of our assets are located in Czech Republic and the rest – app. 20 pct – are in Slovakia; while we want CŠNF to remain a predominantly Czech fund, there is plenty of room for diversifying its risk exposure across geographies and asset classes. Secondly, it gives us a wider set of prime investment opportunities – to stay invested and stick to a core investment strategy. This is easier than if we are only looking at just one or two of the smaller sub-markets.

Why are Poland and Hungary particularly attractive to you? Are there any other countries in this region you are also looking at?

With both countries, we can benefit from geographic proximity and capitalise on our CE relationships. Poland is attractive mainly for its product availability and market liquidity, Hungary is interesting mainly because of its property market fundamentals and its liquidity is also improving significantly. Both countries have risks, of course, such as political risks. We are not looking outside the four CE countries in 2017, although this may change in 2018. Take Germany, for instance. This has become a very competitive and fully priced market, but I believe that the size and fundamentals of the four CE countries is just right for REICO at the moment.

How advanced are your plans for investing in these countries?

We are in due diligence on one asset and screening closely several other prime office, retail and logistics opportunities. CŠNF has a strategy in place for expansion into Poland and Hungary.

How much do you intend to invest?

REICO can operate on many different sizes, from EUR 20 mln to EUR 200 mln and can work on multiple deals consecutively.

And in what kind of properties? Will these be of a similar profile to your existing portfolio? You mentioned high-street retail in a press release – why are you looking at this asset class in particular?

We are generally interested in prime properties within all asset classes: offices, retail and industrial. High street assets provide good capital value preservation potential whilst logistics assets improve portfolio yield. We take a holistic approach to portfolio and risk management and the only common denominator for our new investments is that they should be prime properties.

Do you intend to hold on to such properties in the long-term?

Yes, we are a long term holder and will sell mainly when an asset loses its strategic fit. Given the open-ended nature of our CŠNF fund, disposals could be also triggered by the necessity to cover redemptions.

Will you be opening offices in Poland and Hungary?

Not in the foreseeable future; we will continue to manage our investments from Prague.