Immofinanz Stays With Russia Even as Crisis Delays Spinoff Bonus

Immofinanz AG (IIA), the Austrian developer that split off its residential property unit last month to focus on east Europe, will keep investing in Russian malls even as concerns about Ukraine unrest weigh on its shares.

“You can make a strategy, or you can make tactics on a daily basis,” said Eduard Zehetner, Immofinanz’s chief executive officer, in an interview on May 28. “With real estate, which you can’t simply leave behind, you have to be more long term-oriented than in other business areas.”

Vienna-based Immofinanz in April completed a spinoff of Buwog AG (BWO), its Austrian and German residential property unit, to specialize in higher-yielding commercial real estate and appeal to more investors. At 26 percent, Russia now makes up the biggest part of its 7.4 billion-euro ($10.1 billion) portfolio.

Hopes that the new structure will lift Immofinanz’s share price and bring the company’s market capitalization closer to the value of its assets so far haven’t materialized. The stock has fallen almost 14 percent since Feb. 26, which Zehetner said was partly due to the Ukraine crisis.

Out of Immofinanz’s peers, including Austria’s CA Immobilien Anlagen AG “we are most exposed to Russia, so we are more volatile than others,” Zehetner said.

After finalizing a fifth shopping center in the greater Moscow area, the company is currently screening the market for new potential projects, Zehetner said.

At more than 40 euros per square meter, average rents for retail spaces are more than twice as high as in other east European capitals and relative to its 20 million inhabitants, the offering is still below average, he said.

Double-Digit Yields

Yields, a property’s rental income in relation to its value, stood at an average of 9 percent in Moscow’s retail sector in the first quarter of 2014, compared with 3.95 percent in Vienna and 3.9 percent in Paris, brokerage CBRE said in a report last month. While returns on shopping centers fell by six basis points from the fourth quarter in all of Europe, they remained stable in Moscow.

“We could make our life easier by stopping to invest in Russia or selling everything, but where would we go for double-digit yields?” Zehetner said. Immofinanz will invest a “three-digit million-euro figure” over the next years in Moscow, even as opportunities may be restricted the longer the political conflict with Ukraine lasts, he said.

Immofinanz will also invest in developing retail and logistics projects in Germany, Poland and Romania, Zehetner said. In Russia, it will focus on the area around Moscow as it deems entering new provinces “too risky.”

After writing off “millions of square meters” of Ukrainian properties in 2008 and 2009, Immofinanz won’t invest in the country “until the institutions are trustworthy,” Zehetner said. “If you can’t rely on being protected, the only way you can do business is with a private army,” he said.

To contact the reporter on this story: Alexander Weber in Vienna at aweber45@bloomberg.net

To contact the editors responsible for this story: Mariajose Vera at mvera1@bloomberg.net James M. Gomez, Pawel Kozlowski

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