NEPI Rockcastle is the leading investor and developer of commercial properties in Central and Eastern Europe. The group has an exceptional portfolio of properties with a key position in Romania, Poland, Slovakia, Croatia, Bulgaria, Hungary, the Czech Republic, Serbia and Lithuania, and is further developing through an expansion program in other markets in Central and Eastern Europe. The group has an investment portfolio of EUR 5.8 billion.
You've been with NEPI Rockcastle for fourteen years now - what are some of the main ambitions you have for the company?
In 2007, NEPI consisted of three employees, myself included, and eight years later, the board proposed me for CEO given the accumulated experience. In 2017 we merged with Rockcastle and, as a result, entered the Polish market, thus consolidating our credit rating and expanding our footprint throughout the region, because we wanted a varied portfolio to help mitigate risks. We currently have a strong presence in nine countries, Romania taking up the biggest share of the pie with 20 shopping centres and 7 strip malls in the most important cities across Romania. Our main asset is not made of bricks and mortar, but the final customer - pre-pandemic there were over 300 million people transiting our malls.
The pandemic clearly had a toll on this figure and on your operations overall, how bad was the hit?
In broad strokes, we registered a decrease in earnings of around 30% since people were wary of traveling or going shopping. During the pandemic besides tourism and live entertainment, one of the most affected industries was retail. We always followed a conservative strategy and employed a long-term mindset, so when the pandemic started, we focused on safety (disinfection, Covid compliant certifications) and social distancing - in order to keep the malls safe. We needed to learn how to do more with less - both marketing and services wise.
From our perspective, retail real estate continues to prove itself a strong, well-positioned, well-equipped, and long-term credible business.
In which way are you currently strategizing portfolio diversification and how does the office segment sale fit into it?
The pandemic acted like a catalyst and simply sped up the already existing trends where the final client was prone to shifting more and more to online shopping. There were changes regarding the credit market, so we needed an adaptive strategy to help us keep the retail ecosystem as balanced as possible. We have a varied portfolio from a geographical standpoint, so our decision to exit the offices sector first agreed on at the end of 2019, is probably the largest transaction with revenue generating commercial real estate assets in Romania, was made in order to reinvest that revenue in the residential market and continue enhancing our assets.
The disposal was successfully concluded on August 27 in accordance with the terms of the new agreement, NEPI said in a press release. The total transaction value amounts to €307 million.
What was the opportunity that prompted you to invest in the residential sector in Romania? What is keeping you here in general?
It was a simple matter of supply and demand. The real estate market in Romania is a growing, rich in opportunities environment, so deciding to invest in the residential sector came as a natural process, moreover since we were keen to offer a high quality, desirable product. We intend to expand this type of investments in other countries where NEPI Rockcastle is present, such as Croatia, Hungary, or Poland.
Romania has a great risk-reward balance, and this is the main and most solid opportunity we built upon. The country has an enormous economic potential that is continually growing in a safe European context, the legislative system functions well and the return is over the CEE medium range. We prefer to do business in more than one country because we can mix and match all the opportunities and obtain an almost bullet proof recipe for success.
How easy is it for companies like NEPI Rockcastle to access financing on the regional market?
As a smart guy once said: everything is relative. Many years ago, all our financing was via bank secured financing, but as the business grew, it became difficult to attract enough money from CEE banks, so we were forced to access depth capital markets. The pandemic had a negative impact on financing because banks think e-commerce will cannibalize the retail sector and render it unable to pay loans. The result is a vicious cycle where credits became more expensive, and we turned wary to access them. All in all, we adjusted on the go.
What does the future hold in store for NEPI Rockcastle in the next two-three years?
Our main objective for this year is to remain relevant to the final customer by offering convenience, safety, diversity, and entertainment, while also keeping our strong position on the retail market. We will continue to deliver on our committed developments and seek new investment opportunities. NEPI Rockcastle is in a strong financial position and remains a leader in the CEE in terms of retail and development.
We expect that 2021 will be a better year. The pandemic in CEE countries has recently started to abate and the ongoing vaccination program will accelerate over the next few months. Our Group is well-positioned to benefit from improving economic conditions and return to a steady and sustainable growth path. Still, the shopping environment is changing. Some effects of the pandemic will be short lived, but some longer-term trends were accelerated.
