Interview | Immobilien Zeitung No. 21/2021, 27th May 2021 / Questions: Ulrich Schüppler
Trei Real Estate plans to raise its debt-to-equity ratio, said CFO Matthias Schultz as he talked to the Immobilien Zeitung real estate trade paper. In addition, the company has plenty of equity capital from former Tengelmann properties it sold off. Together with the borrowed funds, it is to be invested mainly in residential real estate.
Immobilien Zeitung: Matthias Schultz, you are planning to increase the debt-to-equity ratio of Trei Real Estate. Could you fill us in on the background?
Matthias Schultz: Two years ago, our debt-to-equity ratio was below 20%, now we are up to about 31%. We’re aiming for a debt ratio of around 50% in order to be adequately funded for our development pipeline.
IZ: Where did all the equity capital originate?
Schultz: Trei Real Estate was spun off from the property administration unit of the Tengelmann group of companies in 2008. Historically, the real estate division had been subordinated to the retail business, whose job was to secure sites for the retail outlets. Although the group as a whole remains active in the retail sector with its chains Kik and Obi, the focus has shifted to venture capital investments as well as to the development and operation of real estate. The job of Trei in this context was to cleanse the large property stock of those assets that did not fit the new concept. After all, we see ourselves not as a family office that limits itself to asset management, but rather as an active developer who executes projects both for the proprietary portfolio and for the market.
IZ: Which means your business initially consisted of selling on a large scale?
Schultz: Precisely. Out of a former total of roughly 450 retail and logistics properties that were transferred to Trei Real Estate, less than 300 remain today. Aside from retail properties, we disposed of logistics assets in particular. This included, in addition to German assets, real estate in Austria, Hungary and Bulgaria, where we no longer own any stock.
IZ: But is logistics real estate not very much in demand at the moment?
Schultz: It always depends on the case at hand! The warehouses in our possession were so old that no online retailer wanted to rent them. The logistics asset class is extremely complex, and for us, it belongs in the special real estate category. It is not a business line in which we intend to expand our footprint.
IZ: So, which asset classes do you have in mind instead, and how large do you want your portfolio to become?
Schultz: We started to develop residential real estate in 2014, first in Germany, then in Poland and the Czech Republic, and eventually in the United States for roughly the past three years. This is the business we want to keep expanding. Our portfolio currently breaks down into about 75% retail real estate and 25% residential real estate. The ratio is supposed to approximate 60-to-40 in the medium term. At present, we hold c. 1.2 billion euros worth of assets in our portfolio, and again as much in our development pipeline. Three to four years from now, we want our portfolio to be worth between 1.8 billion euros and 2 billion euros.
IZ: Do you have retail property holdings outside Germany as well?
Schultz: We do, in a few selected markets. In Poland, the Czech Republic and Slovakia, we launched a series of retail parks under the Vendo Park brand. We may possibly add retail real estate in the United States.
IZ: What about the financing? Cross-border funding can be quite difficult.
Schultz: We always use partner banks in the destination country for our financing purposes; in Europe, these tend to be subsidiaries of European banks. One time, we actually financed a project in Poland from Germany, working with Deutsche Pfandbriefbank. But that was the exception, and I should add that Deutsche Pfandbriefbank maintains an office in Poland that facilitated the transaction. In the United States, we work with regional banks, and we are still looking for additional finance partners there. But all things considered, we are very happy with our network.
IZ: Mezzanine and debt funds are trending at the moment. Are they an option for you?
Schultz: No, they aren’t, because we have no need for any funding that would take the place of equity capital or that would be subordinated. It’s all classic senior debt for us.
IZ: What about bonds and promissory notes?
Schultz: Bonds require a rating, and there are reporting requirements you have to meet. Given our current cost structure, they are not an option for us. Promissory notes are something we will keep in mind, but they are currently not relevant. We keep our financing fairly conservative in general, which means that financing arrangements are always structured to match the respective lease agreement. We work with fixed interest rates, or else will take out corresponding interest hedging agreements. At the same time, we put a premium on sustainable business relationships. What matters more to us than squeezing yet another basis point out of our finance partner when closing a financing deal is mutual consensus.
IZ: Matthias Schultz, thank you for your time!