WOOD & Company real estate funds were established nearly six years ago. In this relatively short amount of time, they have proven their qualities: the talent to acquire attractive properties and manage them, and the subsequent ability to deliver above-standard yields to investors. This would not have been possible without a professional and passionate team of real estate experts, headed by Jiří Hrbáček. An interview with Jiří will let you look inside WOOD & Company Real Estate.
When did WOOD & Company begin to develop its real estate business?
WOOD & Company has been operating on the market for over 30 years. However, the group did not enter the real estate investment business until the first half of 2016, when the WOOD & Company Real Estate division was established. Today, our real estate portfolio in Prague and Bratislava has a market value of more than EUR 1 billion and provides tenants with almost 310,000 square metres of leasable space.
What do you consider the real estate division’s most significant success so far?
Perhaps the greatest accomplishment is that we have consistently delivered above-average capital appreciation to our investors while ensuring active and responsible management of the buildings and assets in our funds. Of course, I must mention the acquisition of Aupark, Bratislava’s premium shopping centre, which we concluded in the spring of 2021. This is the largest real estate transaction in Slovak history and has contributed to us becoming the second-largest owner of offices and shopping centres by leasable area in Bratislava and Prague.
What criteria do you use to choose assets for your real estate sub-funds?
Our long-term aim is to deliver above-average returns to our funds’ investors. This is why we focus on assets that are capable of generating stable cash flows over time. It is important that office buildings and shopping centres are in desirable locations, with good access to public transport. We seek buildings in major cities with proven track records and a good, stable tenant mix. Commercial real estate is not the type of investment where you put your money in and watch it appreciate. You need to apply active, careful, professional, and long-term care of the assets and their tenants. This is why active asset management is critical for success. A thorough market analysis and selection of high-quality assets have resulted in the stability of our portfolio, allowing us to deliver positive results to our investors, despite the difficulties we have all endured in the past two years.
Jiří Hrbáček, Source: WOOD & Company
Speaking of positive results, please be more precise. How did your real estate fund perform last year?
Over the past year, our investors have earned a return of 11.66% in the case of the WOOD & Company Office Sub-Fund, specialising in office buildings. The average annual return of this Sub-Fund for the past three years has reached 10.97% p.a., with the annualised return from inception at 12.04% p.a. Investors in the WOOD & Company Retail Sub-Fund focusing on shopping centres have earned 7.4% over the past 12 months, with the average annual return for three years at 10.11% p.a. and the annualised return since inception at 15.13% p.a. As can be seen, the pandemic had a greater impact on the retail segment relative to the office sector. Both the Retail Sub-Fund and the Office Sub-Fund are now available for trading on the Prague Stock Exchange. The return of WOOD & Company AUP Bratislava, which was established last year and whose only asset is the Aupark Shopping Centre in Bratislava, amounts to 5.63%. With respect to the AUP Sub-Fund, we are talking about returns for around seven months.
How has the last COVID-19 year affected the real estate business?
The pandemic was a trying period in every element of life. The first wave, when everything was new to us and we were only learning to live with the pandemic, was very difficult. Last year, we knew, at least, what to expect in shopping centres and office buildings. We had processes in place, we were able to adjust to the different waves, and clients also learned to be flexible in their approaches to business. To summarise, we were better prepared last year.
Is real estate still a safe and appealing investment?
Commercial real estate has demonstrated that it is a very resilient asset against global fluctuations and crises, as well as an anti-inflationary asset for investors in the long run. At a time when equity markets were losing up to dozens of percent of their value, real estate funds not only protected the value of investments, but also delivered stable returns that were almost on a par with past periods. This was also true of our funds. We can see that commercial properties are a safe haven, especially in a period of crisis and uncertainty, such as we are experiencing right now.
What are your next plans? You have announced that you are looking at other markets, Warsaw specifically. How far into this are you, and why Poland, of all places?
We are very active in terms of further acquisitions. In March 2021, we purchased an office building in Bratislava; a month later, we finalised the acquisition of Aupark Shopping Centre in Bratislava. At the end of February 2022, we signed a contract for the acquisition of our first office building in Warsaw and we would like to expand our portfolio by acquiring more office buildings in Warsaw. We are in the process of acquiring an office building in Prague and we are in negotiations concerning the purchase of certain shopping centres. I cannot be more specific at the moment.
Recently, the topics of sustainable development and corporate social responsibility have increasingly come to the fore in business. How do you deal with these issues in your real estate division?
We want to behave in a considerate, responsible and sustainable manner, in locations that are home to us, our families and our business partners. Real estate is a long-term investment. By definition, a long-term sustainable approach to investing is not just a choice, but a necessity. As managers of other people’s money, we have a responsibility to manage the funds reasonably and conservatively, and come up with new ideas to improve returns. We continually evaluate and put into practice modern technologies that monitor building operations, and ensure that media and energy are used as efficiently and economically as possible. Gradually, we make the roofs of our buildings greener and we use them to install photovoltaic panels. Where appropriate, we are taking advantage of co-generation units. We emphasise good air circulation, increasing the number of openable windows in certain office buildings, investing in good air handling and heat recovery, all with significantly improved energy efficiency. I am convinced that, at WOOD & Company Real Estate, we have been taking a responsible, but practical, stance to ESG. We do not want to fill out tonnes of pretty-looking formal forms, or present unrealistic plans to become a zero-carbon and green company quickly. We alter buildings systematically and only when it makes sense. That’s our way.