With property worth 100 million euros on its books, real estate investment firm (REIC) Intercontinental International (ICI) is gearing up for a promising 2019, its chief executive Marios Apostolinas tells greekguru.net.
In an interview, Apolostolinas says that he sees each part of the property sector, such as commercial or residental assets, following its own cycle amidst improving sentiment. He added that the way banks handle the 89 billion euros of bad loans sitting on their books - and the properties tied to these loans - will play a key role in shaping the market.
"2019 seems promising, with various prime commercial property buyers lined up. High transaction volume is expected. Whether there is going to be a spillover effect, across less prime assets, will largely depend on the NPEs’ management by the banks," said Apostolinas.
ICI has been leading the pack in Greece, snapping up mainly commercial real estate amidst a buying spree from REICs seeking bargain priced assets. Greece's economic crisis pushed property prices down by more than 40 percent though the market has started to turn with apartment prices edging higher in the last few quarters.
ICI focuses on commercial property, such as office space and retail stores - assets that have also seen prices rise due to improving economic conditions and Greece's tourism boom.
In 2016, when ICI listed its shares on the Athens Stock Exchange, the company spent 6.8 million euros on property. In 2017, it invested 15.1 million euros and this year 14.6 million euros. Apostolinas said that ICI has 4 million euros in cash to invest and that it can access more bank lending to pay for expansion plans, adding that a share capital hike is not planned for the immediate future.
"The new year’s plan is to increase the investment pace. The loan spreads have decreased, so within 2019 we’ll draw down and utilize new loan amounts of more than 15 million euros," he said.
In regards to upcoming changes to Greece's Golden Visa plan, the chief executive said that an expanded program would be good news for REICs. He added that offering investors a residency permit by buying shares or bonds in REICs, as reported in the press, could lead to a "win win stuation."
"In any case, a Visa system amendment could, under conditions and proper implementation, establish Greece as the number one Golden Visa destination globally. The final program details remain to be seen," he said.
With the year slowly coming to its end, how do you view 2019? Looking ahead, what are your
In terms of the rental market, we notice lower vacancy and higher rental levels. Concerning the
investment market, we observe improved psychology, increased absorption speed, and lower
investment yields. Apart from the REICs, some foreign family offices prove to be steady buyers.
The market improvement was recorded on our 2018 mid-year results. Our operating profit reached
5.5 million euros, versus 2.6 million euros in the first half of 2017. Our shareholders are happy with the property market performance and our high annual profits, from FFO and valuation gain. During the 2 years that we are public, we distributed a net of 6.25 million euros in dividends, quite considerable for a company with a market cap below 60 million euros. ICI stands among the top 12 dividend payers of the Athens Stock Exchange.
2019 seems promising, with various prime commercial property buyers lined up. High transaction
volume is expected. Whether there is going to be a spillover effect, across less prime assets, will
largely depend on the NPEs’ management by the banks.
ICI is convinced that each property sector and subsector will be following its own cycle. We aspire
to be a boutique investment firm focusing on cyclical strategies. We are actively analyzing trends
and seeking returns on the subsectors having - at a given timepoint - the best prospects for
delivering the highest possible earnings.
Sentiment in real estate is solid as the economy grows again. What do you see as being the
main challenge for REICs?
The momentum is positive but as the local market is shallow, there will be lack of “plain vanilla”,
existing, income producing, quality product at attractive yields. Investors have started purchasing
even old and vacant assets, assuming redevelopment and letting risk.
Creating added value is REICs’ main challenge. For example, matching possible tenants with empty space and converting buildings. It all comes down to skilled, experienced, motivated, and creative human resources.
Otherwise our industry’s entry yields, of investment grade product, will be declining dramatically.
The government is working on a plan to expand the criteria that will offer non EU investors
the Golden Visa. Investors will be offered more options to investing in real estate (such as
depositing money in a Greek bank) as a means of securing the visa. They will also be able to clinch the visa by
purchasing shares or bonds issued by REICs. How do you view these proposed changes?
Greece’s present program looks a bit poor in options. For instance, Ireland, Spain, and Portugal
offer various alternatives. Having said that, 8 new products, as suggested, for a Greek Visa seem
too many. This should be limited to 4 additional.
Despite that, the expansion can result in a “win-win” situation, for Visa pursuers and REICs. From
the perspective of the foreigners, it offers a “safety net”. Right now, inexperienced individuals are
buying arbitrarily, in a not highly regulated environment, following advice from people that on
many occasions met randomly. They are encountering bureaucracy. They are not benefiting from
the transparency, tax, and other advantages that REICs offer. They tend to over-pay and incur high
broker fees and transaction costs. They are facing property management difficulties, often without
enjoying annual yields.
REICs are the solution to these problems. For REICs, an expanded program
is positive news. It creates a new pool of potential shareholders and bondholders. It could also
support stock market pricing. The scheme might exclude REICs with investments in other
jurisdictions, but ICI will not be affected, it has no exposure overseas.
Regarding the “competition” fear, most Greek Visas are currently issued for residential assets,
which makes it unlikely that the new program will impact negatively on the commercial market.
Note that residential is not REICs’ core business. Additionally, the expanded program is not
entirely addressed to an overlapping audience. By opening up to people that are more familiar and
comfortable with securities instead of direct property, it is not necessarily competitive to the
property acquisition Visa scheme, as alternative investors types are attracted.
Specifically for the deposits, which you mentioned, although I personally don’t like this option, I
understand that since other EU Countries are marketing a similar choice we cannot easily avoid it.
On the bright side, it may enhance banking stability, which is positive for the property market. I
disagree though on the suggested levels.
The deposit threshold should be in the region of 1 million euros, whereas the REIC stock or bond minimum participation should be closer to the 250,000 euros property threshold, instead of 400,000 euros. REICs offer liquidity but they, bottom line, concern property.
In any case, a Visa system amendment could, under conditions and proper implementation,
establish Greece as the number one Golden Visa destination globally. The final program details
remain to be seen.
Any plans for ICI to raise fresh capital soon? After a buying spree, ICI hasn't announced
any new deals in the last few months. Any reason for this? What are your goals in terms of
the portfolio that you want to manage?
A share capital increase is a decision of our anchor investor and our BoD. It depends on multiple
factors, such as the stock market conditions. It is not part of our immediate plans. However, it is a
long-term option. Depending on how the Golden Visa scheme evolves, in relation with REICs, ICI
may eventually take advantage the new regulations.
Regarding deal execution, we followed an even capital allocation over time since our summer 2016
listing. During the 2nd half of 2016 we invested 6.8 million euros. In 2017 and 2018 we invested 15.1 million euros and 14.6 million euros accordingly. In this way, the full equity deployment until summer 2018, as promised to the investors during our summer 2016 private placement and described in our listing prospectus, was completed in a timely manner.
The deployment concerned both the equity raised from our placement and the previously uninvested equity. Once fully invested, we discussed internally the leverage increase option, but the financing cost was - up until very recently - high in comparison with the entry property yields. Spreads did not make sense.
For your question on our portfolio, profitability and not size is our main concern. Our primary goal
is to remain the top dividend REIC. A property portfolio of 100 million euros is in place. Prior to any
expansion one needs to perform a cost-benefit analysis. As things stand, we’ve kept low operating
costs. We’ve already realized economies of scale and we register remarkable profit margins. To
my opinion, the next step is a 150 million euro property platform.
How much money does ICI have to invest? Any plans to invest in properties abroad?
Our cash position is 4 million euros, which is the result of recently accumulated rental income and the sale
of 2 small assets. The new year’s plan is to increase investment pace. The loan spreads have
decreased, so within 2019 we’ll draw down and utilize new loan amounts of more than 15 million euros.
Investing out of Greece is not our priority. Our size is too small for such an endeavor, perhaps it
makes sense for significantly larger REICs. In our case, it would create confusion regarding our
product mix. Shareholders investing in us, desire participation in local underlying properties; if
they wanted to target, indicatively, Spanish assets they would be pursuing Spanish REITs.
Moreover, we wish to exploitate the Greek market timing. We are already established here, and it
would look irrational not to focus on our market, while international players are opting for Greek
exposure. Furthermore, tax-wise there are more efficient structures to invest in other countries than
through a Greek REIC. Finally, expanding abroad creates increased organizational complexity and