CEE region Hungary exit - the right decision

Why was the decision taken in 2023 to downgrade the Hungarian market to non-core?

We are an active owner and are constantly evaluating our portfolio and outlook on market fundamentals. Political stability, rule of law, and open markets are definitely something we consider when looking at the macro exposure of markets we operate in, though also a country’s overall productivity, innovation, consumer markets, access to energy, finance, and overall fiscal health.

It is in line with our corporate strategy to sell buildings that do not fit into our portfolio in terms of asset class, location, building quality, age or value creation potential. Since 2018, we have exited seven countries, and in 2023, reclassified Hungary as a non-core market. In particular, in the case of Hungary, we believe we have made the right decision. Sometimes it is better to divest and reinvest elsewhere where there is higher potential.

Why is it taking so long to sell off your Hungarian portfolio, and does the latest sale truly represent an opportunity to speed up this process? When do you expect to be able to exit the market?

Over the past three years, we have sold four office properties totalling around EUR 150 mln in gross proceeds, despite Budapest being one of the most illiquid transaction markets across all of Europe. Total office transaction volume in Budapest was only around EUR 600 mln, meaning that our sales accounted for around a quarter of all office deals done in Budapest over the past three years. We see the ability to have closed these disposals at attractive prices in such an illiquid market with limited investor activity as a complete success. These disposals allow us to free up capital that we can reallocate across our business to a higher and better use. We are committed to exiting the remaining of our portfolio in Budapest, though given that our exposure there accounts for only around 5% of our total group assets, we are prioritising maximising cash flow and sales proceeds rather than focusing on distressed fast sales. We are confident, given the high quality of our remaining portfolio in Budapest, that we will be able to attract interested investors to achieve an ultimate exit, while in the meantime earning cash flow due to the continued occupancy.

Which markets does CA Immo now regard as core?

We have a large presence in Berlin and Munich, which accounts for around 54% of the total portfolio by value, and where Berlin accounts for 100% of our organic development pipeline. We are currently constructing three projects in Berlin with a total investment volume of around EUR 515 mln, all projects are 100% pre-leased. In these markets, we see large size, deep occupational demand, and investment liquidity sufficient to allow us to continue to scale with an active capital rotation program.

We have been a proud owner of our exposure in Austria and CEE, and have recently invested significant amounts in redevelopment and repositioning some of our largest assets in Warsaw and Prague, where we have been able to achieve results that proved out our thesis that there remains deep occupational demand for prime A-class office with high specification and sustainability features. As our investment cycles in Warsaw and Prague have reached, or are nearing, completion, we have also taken the initiative to explore opportunistic sales in these markets as well. For example, we recently started exclusive negotiations regarding the potential sale of our Prague portfolio. Overall, our sales and capital rotation activities are progressing well, but the outcome of these processes is still uncertain. If things do not develop in line with our objectives, we are happy to continue to own.