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SIMON BROWN: I’m chatting now with Mihail Vasilescu. He is CEO of MAS, the new incoming CEO. Mihail, I appreciate the early morning time. I want to come to strategy. I want to come to disposals and the like.
But first, let’s take a big look at Eastern Europe. It has certainly been a space where South African investors and Reits have been operational, going back 20-odd years. You’re in Poland. I think [you have] just one in Poland. Romania, Bulgaria – mostly commercial and residential and still a strong region, a strong growth prospect. Lowish interest rates and an attractive investment space.
MIHAIL VASILESCU: Good morning, Simon, and thank you for having me this morning on your podcast. I hope it’s a lovely morning in South Africa, as it is in Bucharest.
Yes, indeed. property investment in Eastern Europe has worked well for those investors who knew what they were doing. I like the adage that ‘real estate is a place where you start off with a large fortune and you end up with a small fortune’.
I think the opposite holds true for Eastern Europe over the past two decades – again for those investors who knew what they were doing.
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Just take retail as an area of focus, which is the sector where we have specialised in primarily. Romania, for instance, has been growing at the rate of 10% per year for over two decades. In Bulgaria it’s 9% and in Poland around 6%. That’s in Euro terms – and that is household consumption per capita.
That’s I think unparalleled growth. It does mean that today Romania is the second-largest market in CE [Central Eastern Europe]. In terms of overall size it surpasses countries such as Portugal, Denmark or Greece.
And of course, in this process over this year this has resulted in a lot of demand for modern retail space, which in turn fuelled very good opportunities for developments and investments in general.
SIMON BROWN: I want to pick up on that because, if I’m thinking back, I remember Nepi Rockcastle – this was in 2008, when they were listing. They were actually in my studios in South Africa.
They came in and we chatted. And at the point I thought the story was sort of the Berlin Wall coming down, the freeing up of these countries, and that this would have a shorter-term boom.
But this boom is now 20 years old – 30 years old, if we take it back down into the ’90s, which is probably a fair response and truthfully continues onwards. This wasn’t a one-off. This is a region that continues to have good underlying economic growth.
MIHAIL VASILESCU: Correct. And of course, the European Union had a lot of contribution there. So Romania’s accession in 2007, and the accession by the other countries at different points in time, contributed a lot to this growth story.
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Will this race hold in the future? I think that there is a tapering off. Surely, if you look at the same metric, if you look at the household consumption per capita in Romania, it is still let’s say roughly half of the levels you find in France – or Italy for that matter. So there is still a lot of road to travel in terms of convergence to Western European levels.
But we are seeing that the growth rates are gradually reducing. And we’re seeing it also in terms of new opportunities that we can identify.
So if I look back 10 years, when we started Prime Kapital and set up the joint venture with MAS, there was a very large pipeline that we identified and executed over the years.
I can’t say that the same still holds true. The opportunities are fewer and further apart, so to speak. Of course, this had its say in the changing strategy that we announced in the recent tense.
But actually it was initially announced back in October when, after the PTI’s successful voluntary bid in the board constitution, the board stepped down and looked at the opportunities available to MAS.
It decided that MAS should diversify away from its current sectoral and geographic focus to a broader investment platform that is, say, sector agnostic, geography agnostic, because we think that that puts the company in a better position to identify the next big thing – or big things – and deliver on its objective to maximise returns over the long run.
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SIMON BROWN: I take your point. There was that sense, I think on 10th October, which talked around a strategic and a dividend policy update. Then you churned the line. But it has been coming.
You’ve been doing a bunch of transactions. You sold a property to Hyprop. I think the aggregate net proceeds were just over €200 million.
The key point is you say you’re not necessarily going to be geographically constrained to Central Eastern Europe, but also perhaps not necessarily in the real estate investment space either. Your background is financial services – perhaps [it will be] completely in other sectors where you find opportunity.
MIHAIL VASILESCU: Absolutely. That is definitely the intention, as I said. We’re looking for the next big thing or big things that exhibit similar fundamentals to what retail did over the last 20 years, in order to reap the benefits from those investments.
And of course, this means that MAS needs to broaden its team to attract adequate talent for this endeavour. It also means that there will be elements of cash back over discrete moments in time, and they will take their toll over the short term in terms of returns.
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There may be an impact also at the shareholding level. Minority shareholding varies and this may not align fully with some shareholders. But we do believe that it is in the company’s best interest to broaden its horizon and search for new opportunities. We have had a very good story. It’s time to identify new stories now.
SIMON BROWN: Yes, 100%, I take your point. Is there a sense of timeline, or is this a case of you really just are out there looking and you don’t know how long it’s going to take? Or have you maybe something you already have an eye on?
MIHAIL VASILESCU: Well, it’s more of the latter. We’re scanning for opportunities, but these things take time and they don’t happen overnight. We’re not really at the point where we can announce something concrete; we will do so in due course.
SIMON BROWN: Fair enough. We will keep our eye on the Sens channel, see what comes through.
We’ll leave it there. MAS CEO Mihail Vasilescu, appreciate the early morning time.