This month Finance Monthly benefits from the insight of the Deputy CEO and CFO of one of the biggest residential property companies in Austria and Germany – BUWOG Group – Andreas Segal. He is a graduate of the advanced management programme at Harvard Business School, has training in banking and an intermediate diploma in business administration and concluded his legal training with the second state examination. Most recently, Segal was the CFO at Deutsche Wohnen AG and deputy supervisory board chairman of GSW Immobilien AG. Before he accepted the position at Deutsche Wohnen AG, he was employed as co-CEO and CFO at GSW Immobilien AG. Between 2003 and 2006 Mr Segal was a member of management at ProMarkt Handels GmbH in Berlin and managing director of Wegert Holding GmbH, a private asset management firm. Additional stages of his career path included activities in the international capital market business at Commerzbank where he worked as a lawyer specialising in corporate finance and tax law.
Since the beginning of 2016 you’ve been Deputy CEO and CFO of BUWOG Group. What’s your assessment after seven months?
The climate in which I arrived at BUWOG Group was already a very positive one, and I was welcomed by an extremely professional team in both countries. In Austria, the company has a long history; it was previously state-run and has operated in development for 65 years. In Germany, BUWOG has been a residential developer in Berlin since 2012 and now is already one of Berlin’s biggest project developers. When BUWOG listed on the stock exchanges in Vienna, Frankfurt and Warsaw in 2014, a large real estate portfolio of socio-demographically interesting locations in northern Germany was acquired, and today BUWOG already owns more properties in Germany than in Austria. What I found particularly appealing at BUWOG was the combination of standing investments and its own developmental strength. This had a strong influence on my decision to begin at BUWOG as Deputy CEO and CFO, and I’ve not been disappointed by this aspect at all – on the contrary, in Vienna, Berlin and just recently in Hamburg, BUWOG has had a significant volume of high-quality new construction projects in the pipeline, enabling a very high level of organic growth. This is our USP in the listed company segment, and it has been very well received on the capital market.
You mention the capital market – can you describe how your initial activities as Deputy CEO and CFO have been received there so far?
BUWOG Group is still relatively new on the stock exchange and the listing came along with a lot of challenges for the management, the employees and the organisation of the group. So far the performance of the BUWOG share has been fantastic since the listing of the company, but it is still lacking behind the valuation of the comparable companies of the peer group of our sector. One of our challenges, and one of my tasks in the last seven months was to bring in more attention of the investors and analysts to BUWOG and to try to enhance the dialogue with the shareholder community.
Since the beginning of the year we have redesigned and focused the strategy and equity story of BUWOG and are in the progress of improving the transparency.
We had have over 300 meetings and discussions with investors and analysts in cities such as London, Frankfurt, Amsterdam, New York, Chicago, Denver and Boston, and I believe that in the first seven months we have increased the international interest in BUWOG and therefore established the basis for future growth. We hope that we will be able to get more coverage of analysts in the future. With the two secondary placements of Immofinanz and Sapinda Group in the last months, BUWOG has significantly expanded its investor base and liquidity of the stock. We can now say that the shareholder base of BUWOG is consisting to a large degree out of professional international asset managers and investors.
What do you say to those who see too big of a risk in property development?
Naturally Development has per se a larger risk than being only a landlord. This has to be reflected in a higher FFO yield, depending on how large the development part in relation to the other activities of the whole group is.
We see the risk in our property development business as relatively low. This has on one hand to do with the fact that we are operating in three hotspot markets – Berlin, Vienna and Hamburg – with very attractive socio-demographical underlying fundamentals. We believe that these locations and the timing in the lifecycle of the real estate sector should give us some very interesting and profitable development years lying ahead. In addition, we have a long track record with our development activities and we are not only focused on one or two larger projects but we have a higher number of development projects.
If you analyse the historical failure of development companies, you will quite often find that there are two major reasons: either a lack of funding and financial resources or a product which was not any more demanded by the market. For us, both topics are less relevant. We have the access to funding by the equity and the debt capital markets and we have, because of our residential platform, very good contacts to and support by the German and Austrian mortgage banks. The exit risks of not selling condominiums anymore is significantly reduced for us because we can take over the residential apartments to our own platform. At the moment we are thinking anyway of increasing the number of units being developed by us, which we will incorporate in our portfolio because of the attractiveness of it.
What motivates you most about working within the residential sector?
I have a passion for real estate. On top of it, I love the capital markets. The combination of both is absolutely great.
Several times, I’ve had the opportunity to make something different, but I believe that the long-term cycle of the residential real estate sector is not finished yet. Therefore, I believe my personal journey in this fascinating market segment, which started 10 years ago, is not over yet and we all will be able to create further value for the company and the shareholders.
In your opinion, what might the future of financial directors look like in the upcoming years?
After the financial crisis the role model of a CFO has changed significantly. We have moved away from a CFO who is accounting and controlling-focussed, which is nevertheless an important part, to a manager, who is responsible for the sustainability and long-term strategic positioning of the company. CEOs and CFOs have to be a close team with a lot of overlapping topics to develop the future of a company. A good example for this is the capital structure of a group which ties in directly into the equity story and future strategic growth opportunities.
Therefore our sector and the existing board members of the companies have to ensure that we develop adequate managers for the future.
What are the next challenges for you and BUWOG Group?
We have a lot to do. BUWOG is quite young in the capital markets and we have to make the company more professional and efficient. I think we have a very good team on board and a lot of promising young and also established people to reach these goals in the next two years.
This company is undergoing a transition.
We have topics on our agenda like optimising the portfolio, implementing new IT infrastructure, executing successfully the development pipeline or enhancing the capital structure. Strategically, we would like to grow the company by acquiring residential assets in Germany and by making our development business in Germany and Austria long-term sustainable. We believe that this will give us a chance to get a better valuation and to create an interesting risk-return capital markets product.
The role of CFO is well positioned to drive cultural change within a company. What are your plans in this regard?
BUWOG Group’s corporate culture is highly appealing and stands for a healthy mix of tradition, innovation, responsibility and sustainability.
Our goal is to enhance this corporate culture by establishing the highest professional and ethical standards. In addition, we have to ensure that people and culture are fit for the capital markets environment. I strongly believe that one has to give more responsibility to the second and third management level. The employees are the backbone and the future of the company.