It’s a good time to look at energy with completely new eyes
Martin Pacovský, the Chief Investment Officer of the newly established ARETE ENERGY TRANSITION fund focused on energy investments, was the first guest on the “Vysoké napětí (High Voltage)” podcast in June. He discussed the future of energy, the future of gas, the energy self-sufficiency of the Czech Republic, and the challenges of investing in the energy sector with Vladimír Piskáček and Michal Půr. Do you know how to invest in energy? According to Martin Pacovský, these investments will require working with data. In the future, we can expect a shift in energy sector towards “kind of” stock exchange trading, and those who have good analytical skills, understand data, and can predict consumption and production in the span of days will win. This also applies to investments in various renewable resources. Standalone investments in photovoltaics today do not have a positive return, and the energy sector and investments in this area operate differently than in the past. Owners of photovoltaic power plants without PPA (long-term power purchase agreements for renewable energy at a fixed or indexed price) optimize production based on weather predictions or capacity market forecasts. For instance, they deliberately do not produce or produce 20% less energy and sell this unproduced capacity on the deviation market. They arbitrage between different markets based on their demand and supply forecasts. It’s no longer enough to have a power plant connected to the grid and produce energy when the sun shines. One must have a mathematical model and analysis over their business model and know when, where, and to whom to sell the produced energy. In the show, you will also learn how Martin views the energy self-sufficiency of the Czech Republic and the future of gas. You can listen to the entire podcast here: https://youtu.be/rMf1NGvtRcw
We assess ESG trends in real estate to increase the market value of our properties
We have mapped ESG trends and reporting in real estate. We are one of the few in the Czech Republic to report our ESG activities under Article 8 of the European SFDR (Sustainable Finance Disclosure Regulation), which protects our investments from sudden regulatory changes and environmental risks. ESG appears among the top 5 factors that have had the greatest impact on the real estate industry over the past 20 years. This is according to a 2023 European survey, where ESG rise and focus appear just after low interest rates, the impact of the global financial crisis (2007/2008), urbanisation and the use of technology. At ARETE INDUSTRIAL, we have committed to environmental, social and governance goals as early as October 2023. Our commitments include, for example, ending the use of fossil fuels to generate electricity in all buildings and installing renewable energy sources. This environmental commitment not only increases the long-term market value of our properties, but also prevents losses due to regulatory changes. Among the regulatory changes we are evaluating is the revision of the Energy Performance of Buildings Directive (EPBD). This directive initially significantly dampens subsidies for fossil fuel boilers and subsequently phases out the use of boilers over the next 20 years. This is one of many measures that our comprehensive ESG Strategy is preparing us for. We are one of the few in the Czech Republic to report our ESG activities under Article 8 of the European SFDR. Together with PricewaterhouseCoopers (PwC) in Luxembourg, we have mapped the market in Central Europe and have not come across any other AIF or UCITS fund that has more extensive ESG reporting (under Article 9 of the SFDR) in the Czech Republic. As a “light green fund”, we therefore continue to support sustainability policies and monitor ESG trends, thanks to which our investment strategy is staying one step ahead. Frédéric Vonner, Sustainability and Sustainable Finance leader at PwC Luxembourg, explains the context and the outlook of ESG trends for ARETE: “Running an environmentally and socially sustainable business is increasingly recognized as critical for the real estate industry’s transformation. Driven primarily by the climate crisis, the industry’s move towards responsible capitalism over the next 20 years is expected to significantly influence real estate investment strategies, including Central Europe. Key trends include the imperative to refurbish or develop green and carbon-neutral buildings and the growing importance of social impact. Additionally, regulatory pressures and investor demands are accelerating ESG adoption, which is anticipated to significantly affect asset valuations and investment strategies in the region.”
What Will Be the Fuel of the Future?
Will it be nuclear, gas, hydrogen, renewables, or a completely new alternative? In a public debate held at the Úhlava Education Center in Klatovy, Czech Republic, prominent energy experts gathered to discuss the future of fuels and the energy industry. The discussion focused on several key topics, including renewable sources, nuclear energy, hydrogen, and the possibilities of replacing coal to achieve zero-emission energy by mid-century. The debate featured nuclear engineer and chairwoman of the State Office for Nuclear Safety, Dana Drábová, former chairman of Pražská plynárenská and current Chief Investment Officer of the ARETE ENERGY TRANSITION fund, Martin Pacovský, and advisor to the Minister of the Environment for energy, Martin Sedlák. The discussion centered on three main topics: the future of fuels, replacing coal, and building new energy sources. The conclusions of the debate can be summarized as follows. The efficiency of renewable energy sources will increase in the future as new technologies in batteries and solar panels develop. Advancements in energy storage can significantly change the way we use renewable sources today. Hydrogen could also be the fuel of the future, serving as a clean energy source that could replace fossil fuels in various sectors, including transportation and industry. Proper political steps and financial incentives can accelerate the development and deployment of clean technologies. Achieving the set climate change goals and an effective transition to zero-emission energy will also require global cooperation and technology sharing. If you’re interested in the direction of the energy sector and how these changes will affect our lives, watch the full debate here: https://youtu.be/6tvg7pjoTD4 A short excerpt can be found in the attached edited version of the debate.
Logistics Company Kuehne+Nagel Opened Cross-Dock in ARETE Park Zdice
We have completed a new hall within ARETE Park Zdice and handed it over to its tenant, the Czech branch of the global logistics service provider Kuehne+Nagel. The facility will provide space for a logistics center, specifically a cross-dock. The total leasable area of the park in Zdice has increased by more than 41%. At the end of May, the construction of the third hall in ARETE Park Zdice was completed. The hall will provide 7,233 m² of space for a logistics center to its tenant, the international logistics service provider Kuehne+Nagel, specializing in comprehensive supply chain solutions for various industries worldwide. The company has taken over the building and will start using it in June. This move responds to growing customer demand and increases the company’s capacity in the sought-after logistics location to offer even more efficient and faster shipment handling. “The opening of this cross-dock represents a significant milestone in our efforts to provide top-notch logistics services,” said Martin Froněk, Director of Ground Transport Division. “With this new infrastructure, we will be able to better meet the needs of our customers while contributing to a more sustainable way of doing business,” added Miroslav Pudil, CEO of Kuehne+Nagel in the Czech Republic. This is the third building within ARETE Park Zdice, with the first two buildings already occupied by two other tenants. The Zdice park provides premium spaces for light manufacturing, assembly, and logistics. The total leasable standing area of the park in Zdice increased by more than 41% to 24,808 m² after the opening of the new building. The share of warehouse and distribution space in this park is now 45%, with 55% allocated for manufacturing and production. The park’s location is situated close to the D5 highway between Exit 22 and Exit 28. This unique position, along with the nearby availability of workforce from the Beroun, Zdice, and Prague areas, represents a unique potential for the development of manufacturing and warehouse capacities. The specifications of the manufacturing and warehouse spaces meet the latest technological and ecological standards. There is a photovoltaic power plant on the roof of the third building, and BREEAM certification is in progress. Kuehne+Nagel is a highly creditworthy tenant with a successful history. Originally a forwarding company founded in 1890 by August Kuehne and Friedrich Nagel in Bremen, Germany, it has transformed into a global logistics company over the past 130 years, offering highly specialized solutions for large industrial sectors on a global level. The company is headquartered in Switzerland. Kuehne+Nagel employs over 81,000 logistics and supply chain experts, serving approximately 400,000 customers in nearly 1,300 offices worldwide. The company is a leader in maritime and air transport on a global scale, utilizing innovative and sustainable logistics solutions.
The bet on the real estate is partially bet on the economy
Check out the interview by Prague Finance Institute magazine with Robert Ides, Managing Partner & Cofounder of ARETE, where they discuss the current economic outlook and investment themes. Highlights include: · Equities trends in the USA and the IT sector. · Implications of higher interest rates on financial markets and the real economy. · The impact of the Green deal and net-zero emission targets on investment opportunities. · Outlook on the commercial real estate (CRE) sector globally, with a focus on Europe. · Comparison of CRE valuations in the Czech Republic and Germany. · Optimistic outlook on the private equity (PE) industry, including trends in perpetual funds and global expansion. · Major risks for the world economy and financial markets, including interest rate dynamics and geopolitics. · Asset classes expected to perform well in the next decade, such as equities in developed markets, private markets, and real assets. What was also said: “The bet on the real estate is partially bet on the economy – CRE is basically the box in which the economy operates.” Check out the whole interview below.
We’re heading out for acquisition hunting, such an opportunity comes once in a decade
Lubor Svoboda, co-founder of the investment group ARETE, summarizes in an interview for the magazine Týdeník Ekonom how the group’s business has been affected by COVID and the war in Ukraine, and reveals plans for the next few years. We are the only entity on the Czech real estate market that has twice closed an investment fund and settled all investors, moreover, during very challenging times and exceptionally successfully. The first sub-fund was closed in 2017 with a gross yield of 39% p.a., and the closing of the second sub-fund followed in 2021 with an average gross yield of 11% p.a. Third close-end fund, focused on European industrial real estate, was opened at the end of COVID and is currently in an extension phase to monetize on recent real estate repricing. And our longer-term plans? Within few years we would like to manage assets exceeding one billion euros, which will be divided into multiple strategies and spread across multiple countries. We are working on transforming from an investment group focused on the Czech Republic and Slovakia into a European group that will attract capital to this continent from around the world. With several new, institutional-grade strategies being shortly introduced, we’re extending presence to new capital markets in Europe and APAC. The current situation in the industrial real estate market is playing into our hands. The market is experiencing a significant investment and price slump. As acquisition seekers, we face little competition, currently holding cash and with low indebtedness as a group. Moreover, in the coming months, we anticipate further corrections in property prices, making acquisitions even more advantageous. Such a favorable combination of conditions arises once in a decade. You can find the full interview below. More information about the ARETE INDUSTRIAL fund, which focuses on income-generating industrial properties from the European region and is still open to qualified investors, can be found here.
We’re reducing the carbon footprint of the ARETE fleet
The investment group ARETE has joined The Clean AdvantageTM program and has now received the Clean Advantage® 2023 certificate. This certificate confirms that our group has reduced the carbon footprint of its fleet by compensating for up to 14,771.80 kilograms of CO2. What does this mean? The Clean AdvantageTM program is operated by CCS CZ, a leading provider of fleet solutions in the field of fuel cards and telematics for businesses of all sizes across industries. Membership in this program involves CCS calculating the carbon dioxide emissions of our vehicles for every liter of fuel pumped into our fleet vehicles and investing on our behalf in projects aimed at reducing CO2 emissions in the atmosphere. These are industrially certified carbon offset projects at the local, European, and global levels, selected according to World Resources Institute (WRI) criteria. Offsetting CO2 emissions does not mean that our rides themselves are more sustainable, but rather that we are investing in environmental protection projects. We believe that this is one way we can contribute to a more sustainable future. This certificate demonstrates that environmental respect at ARETE is not just a hollow phrase. ARETE INDUSTRIAL is a “light green” product under Article 8 of the SFDR Regulation and is committed to promoting a policy of sustainability. We are one of the first real estate investment funds in the Czech Republic to implement an ESG strategy according to this European regulation. Reducing the carbon footprint of our business is one of the pillars of this strategy. We advocate for a sustainable and environmentally friendly approach to the construction and operation of buildings and continuously seek further opportunities to minimize the environmental impact of our business.
The time is right to reassess portfolios
Lubor Svoboda, co-founder of the ARETE investment group, explains in an interview for Euro magazine why the time is right to reassess portfolios. The financial market has shown an imbalance over the past year. The “old rules” no longer apply, investors are trying to find a safe haven for their capital, while eliminating the losses suffered during the covid crisis. This pressure on demand is causing prices to rise rapidly and US stock markets in particular have experienced meteoric growth over the past year. However, this high growth in share prices has also been accompanied by a significant increase in the P/E ratio, which indicates the ratio of share price to earnings and also the potential return on investment in a given share title. With share prices at their highs while real assets (and commercial real estate among them) have become significantly cheaper, an investment opportunity is opening up. This opportunity is particularly attractive to investors who want to invest for the long term and are looking for long-term stability. When investing in real estate, it is of course important to keep an eye on macroeconomic trends, regulation and the political environment, but also on asset-specific factors. Investors should focus primarily on the long-term performance and stability of the issuer, as well as the value of the LTV, which shows the proportion of equity and external financing and the risk arising from over-indebtedness. “A current view of equities suggests they are highly priced, while real assets appear relatively more affordable, and in some distressed situations, undervalued. One can infer that the time is gradually right to reassess portfolios and buy real assets such as commercial real estate.” The full interview is attached. For more information on the ARETE INDUSTRIAL fund, which focuses exclusively on income-generating industrial real estate in the CEE region and is still open to qualified investors, follow here.
The Era of Interesting Investment Opportunities Approaches
Lubor Svoboda, co-founder of the real estate and investment group ARETE, was a guest on the Ekonomika Plus program of the Slovak television station TA3 on Tuesday, April 23rd. The discussion with the host Lenka Buchláková focused on long-term investments in today’s environment. The current macroeconomic situation brings forth intriguing investment opportunities, particularly in real estate. What will you hear in the interview? The key attributes of a good investment strategy, including the relationship between returns, liquidity, and risk. The ideal ratio of investment instruments for risk diversification, considering stocks, bonds, private equity, and qualified investor funds. The target audience for real estate funds. The impact of interest rates set by the ECB and ČNB on investments in commercial real estate. Expectations regarding the future movement of stock prices. How this year’s super-election year might shake up our investment strategies. Also mentioned in the program: “Given that commercial real estate in Western Europe has already seen significant price reductions, the moment when the value of money further decreases will be the right time to purchase properties. At that point, we can anticipate future appreciation.” You can watch the whole interview in the TA3 archive.
We Have Already Planted A Green Area Larger Than The 17 Football Fields
The ARETE INDUSTRIAL fund is one of the first “light green” real estate investment funds in the Czech Republic. The fund has implemented an ESG strategy according to Article 8 of the European Commission’s SFDR regulation, under which we have committed to, among other things, planting trees around the industrial and logistics parks in the fund’s portfolio. This time, colleagues from ARETE’s development team went to Zdice, where construction work on a new warehouse of over 7,000 m2 is nearing completion. During a sunny spring day, they planted young trees of several native species. The area is now decorated with wild pear trees, wild apple trees, crab apple trees and rowan trees. They will not only contribute to the beautification of the surroundings and the restoration of the original natural environment, but also to the reduction of the overall carbon footprint of the park. Specifically, as part of ARETE Group’s comprehensive ESG strategy, we have committed to planting one tree for every 500 m2 of new leasehold space developed. At first glance, this may not seem like a large number of trees. However, when you consider that the ARETE INDUSTRIAL fund currently has over 200,000 m2 of leasable space and space under construction, that’s quite a nice tree planting. Since the fund opened, we have already planted a green area of more than 126,000 m2, which is equivalent to the size of more than 17 football fields.
