Why did Mint decide to go for the GRESB rating?
There had been a lot of talk about the importance of complying with ESG environmental standards, so we started to develop our knowledge about the topic. We approached Steffen Walvius at JLL and had some discussions with him, but the important thing was speaking with our international partners and banks. International investors all told us that ESG is coming and warned it was important to be ready. Assets that meet or are aligned with ESG standards will be more liquid and attractive to international capital and eventually to Czech capital. Tenants will want even more sustainable properties, more efficient properties. We also see that banks have been offering better conditions to properties which are ESG compliant. That makes it clear we can’t fall behind on this.
But GRESB is different from getting a BREEAM or LEED certificate on you building, isn’t it?
GRESB doesn’t focus just on a single asset and the portfolio as such, but on the whole company. You’re benchmarked with your peer group or with similar investors. We’re proud to have been put into the same peer group as giants in the real estate industry like Patrizia, Blackrock or Tristan Capital Partners, even if we don’t compare with them in in size. But the point is that it shows you what you’re doing well and where you need to improve. We weren’t as experienced in ESG, so this was the perfect way for us to analyze our current position and then to set our goals for next year’s assessment.
Were you satisfied with the results? Was it fair?
I think it was fair. We scored really well in overall data collection, energy consumption and waste. That was satisfying because our property management team is very experienced and takes care about each of the properties. We scored lower in the social and governance part, like corporate administrative issues. We want to work on that in the future.
How are you handling the radically different situation with rising interest rates? How much is it impacting on you and your portfolio’s performance?
Our portfolio is in a strong position because we have prolonged most of the financing agreements. So, effectively the vast majority of the loans expire beyond the 18-month horizon. We had some Czech denominated loans, but we managed to convert them into Euro loans. Our only Czech koruna loan is a development loan which has a fixed-rate locked in. We are in a strong position.
Regarding our strategy, we are far more cautious. The financing is much more expensive, and the banks are more cautious. To get the LTV you want is quite difficult in today’s world, even if you have a term sheet. Until you have the approval from the from the bank, you’re not sure what you’re what you’re going to get.
That’s something we have to consider when making an approach. Together with the slowdown and with inflation, we are of the opinion that unless yields move up, transactions don’t make sense. Especially since we aren’t looking to buy at the sharper end of the scale. We’ll look at everything, but our pricing expectations are totally different than earlier this year because there’s risk now.
What about the expectations of vendors? Have they shifted?
Definitely not as far. My opinion is that the gap between the price expectations of purchasers and vendors will converge somewhere in the first half of next year, though it might take until the summer. We’re still a long way apart — at least 100 bps, if not more. Unless the gap gets smaller, there will be very little activity I think for the next 12, maybe even 18 months.
Do vendors understand that prices have moved from where they were at the beginning of the year?
Yes, they know there’s been movement. And I understand it’s been fast. But if you get a margin of 2 to 2.5% and the swap is another 2.7% to 3%, then your all-in financing is around 5.5%. It makes no sense to buy for anything less than 5.5%. Even that’s not so attractive, at least for us. Though I don’t think we’re the only ones.
What will eventually drive the two sides together? What will push vendors closer to what you see as attractive prices?
I think it will be the maturity of their financing, whether it’s bank loans or bond financing. You reach a point when you need to sell, or else refinance, but in that case, it will be at a much higher interest rate. That might not make sense for a particular project, so you’ll be in a hurry to sell to repay the debt and to get some equity back. But it’s also just a matter of time. Time solves things. No one wants to be inactive for too long. It’s boring for the market, for the funds and the transaction managers. The sides will come together. It just depends on who has the stronger position.
Jaroslav Mida is Investment Director at Mint Investments and has been with the company since 2014
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