You didn’t come from a real estate background, so 2023 can’t have been the easiest introduction. How did you find navigating it?
Last year was tough for investment companies because when you have high interest rates and high inflation, investors have low-risk options that offer 24-hour liquidity and 6 – 6.5%. Investors ask themselves if they really want to take a calculated risk for just 2.5% to 4% extra in an inflationary environment.
Today, we see a strong wind of change with rates going down, probably rapidly. We’re having lots of interactions with our investors and new potential ones. They’re asking what we can do together because they realize that standard savings accounts will be delivering lower yields.
Did those conversations start towards the end of last year or is that a 2024 thing?
They began at the end of 2023. Until then, everybody on the investor side sensed that something would be happening but no one wanted to make the first move. Since the holidays in mid-January though, it’s been very active.
Rates are coming down, but it won’t be like the previous low interest rates we had for a decade. How do you look at real estate in relation to the private equity portion of RSBC’s portfolio?
For me personally, real estate is less attractive than private equity. For one thing, there are a lot more interesting opportunities right now in PE than in real estate and the returns are also higher.
On the other hand, the type of real estate we invest in is more predictable. You can actually prepare a business plan for the next fiscal year, since you have long-term tenants, indexation, and long-term contracts with your suppliers. This allows you to simulate relatively precisely how the P&L and financial results will turn out. Also, in many cases you have bank financing for real estate, which is relatively predictable. In any case, we met our predicted business results in the real estate division for 2023.
With investors waiting for others to move, the market was quite slow last year. What was your approach?
We didn’t make a single real estate transaction in 2023. It’s not that we didn’t want to. After taking over, I reviewed the private equity and real estate portfolio with the team to decide what we thought was strategic. What do we want to keep and why? We were ready to sell certain buildings but we also wanted to buy. The team probably evaluated 15 investment opportunities last year, but we didn’t complete a single one. The gap between the expectations of buyers and sellers was just too big. Now I’m curious. We have two projects we’d like to sell. One is on our own books, one is in the fund, so we’re waiting now to receive proposals.
What sectors were you looking at on the buy side?
We choose our properties first of all based on the location. The second criteria is the tenants you have. The type of property is of third importance for us. We’re predominantly interested in retail parks at the moment.
How about rental residential?
We’re looking into it. If we decide to go into it, we’d have to gain the expertise for that right now and we’d need to decide what the critical mass is needed to make it work. You don’t want to have a one-off in your portfolio and then just wait to see what happens. If you decide to go this way, how do you make it scalable to get synergies?
How has RSBC changed since you arrived?
The first thing is the company culture. I’m not the type of person who just comes in and changes everything. You need to absorb what’s happening, ask lots of questions about how and why things are done. So, the first three months was mostly about learning and observing and maybe picking out the low-hanging fruit.
I’ve been working in an American corporate culture for nearly a quarter century which was very open, transparent, with lots of communication about why we’re doing what we do. Immediately, we started all-hands meetings and informal roundtables with the leadership teams. Today if you ask the employees what the priorities are for the quarter and for the year, they know. If you ask them what the biggest issue the company faces, they know.
Another change is portfolio revision. Historically, RSBC from my perspective took an opportunistic approach. They saw an interesting opportunity, an interesting company, looked at the return, and decided whether to acquire it. I’m interested in more strategic portfolio management especially since resources are limited and money costs money. I’m a big believer that focus brings the best results. So, last year we decided what the pillars of the portfolio were, and which entities we no longer wanted in the portfolio. About ten months after I joined, we exited three businesses. Not because they were bad companies, but when we looked at the portfolio, we asked ourselves how each of them bring value to the other businesses in RSBC. Where do we have economies of scale? Do we have expertise in this sector? Are there synergies with the other activities?
Finally, the big change is a performance driven environment: process discipline, organization, etc. If I look at the financial results, EBITDA increased significantly, not only in absolute values but percentage wise. Our total profitability improved 8 points.
Also in ThePrime
Michal Sotak (Cushman & Wakefield): Euro adoption would help ‘massively’
