INTERVIEW WITH FALKO ZSCHUNKE, BOARD MEMBER OF B-A-L GERMANY AG, AND ALEXANDER COENEN, MANAGING DIRECTOR OF CAPITAL LOUNGE GMBH, ON THE SUCCESSFUL STOCK MARKET LAUNCH OF B-A-L GERMANY AG
B-A-L Germany AG is a portfolio holder of residential real estate in Saxony. Since its stock exchange listing in Vienna in January of this year, the company has developed rapidly. Both operating sales and share capital will have doubled in the course of the year. Despite the good operating performance, the company's share price has been highly volatile in recent months. We will take a close look at this interesting figure and give you an insight into current developments from the viewpoint of the management.
We speak today with the Chairman of the Management Board, Mr. Falko Zschunke and with Mr. Alexander Coenen, Managing Director of Capital Lounge GmbH, the capital market Coach of B-A-L Germany AG.
Mr Coenen, what was your first impression of B-A-L Germany AG, what expectations did you have of the listing and how do you see the development of the company today?
I met Mr. Zschunke - and through him B-A-L Germany AG - in August 2018. A personal on-site visit to Meissen, including a visit to the offices and some of the properties in the portfolio, quickly made it clear to me that this was a very professional and determined company.
In the following month, together we looked at the stock exchanges that were eligible for listing and unanimously decided to go public in Vienna. The first meeting with the Listing Department of the Vienna Stock Exchange took place at the end of September. The presentation went smoothly and at the end we received a positive indication regarding the possible inclusion of the shares in trading.
Based on this motivating development, a capital increase of 500,000 preferred shares was resolved in October 2018, which thanks to our support was fully subscribed in November 2018. The company raised Eur600,000. As the capital increase was registered with the Dresden District Court on 19 December 2018, the official application for inclusion of the preference shares of B-A-L Germany AG could not take place until 10 January 2019 due to the Christmas period. The initial listing took place even earlier than expected, namely on 16 January 2019, in the "direct market" segment of the Vienna Stock Exchange. On the first trading day the reference price of Eur2.00 per share was already exceeded at Eur2.20 with executed trades.
Thanks to numerous discussions and presentations to investors, interest in the shares of B-A-L Germany AG rose noticeably from April 2019 and reached its initial peak in July 2019. As a consequence of the significantly enlarged investor base, the shares of B-A-L Germany AG were also included in trading on the Stuttgart Stock Exchange on 23 July 2019. To date, total revenues of Eur2.7 million have been traded in Vienna and Eur1.4 million in Stuttgart. This is extremely remarkable for an issuing firm of this size, and as a result professional investors from completely different leagues also became aware of B-A-L.
It was therefore not surprising that in July 2019 a capital increase of a further 300,000 preferred shares, this time at Eur1.80, was successfully subscribed. The shares were literally torn out of our hands and the capital increase was oversubscribed many times over. As a result, the company received a further Eur540,000 in cash and cash equivalents.
A further capital increase is currently underway. This time, 400,000 ordinary shares from authorized capital 2018 will be subscribed by a major international investor. As a result, the number of ordinary shares will increase to 1,200,000 upon completion of this capital increase, and B-A-L Germany AG will receive further liquid funds amounting to millions.
No wonder that the expansion of the real estate portfolio is progressing much faster than planned. We are proud to be able to support such an impressive client and to have contributed significantly to the current success.
Mr. Zschunke, you are surprising the stock market with your high growth rate in the current year. Could you tell us what will happen this autumn?
We will be holding our Annual General Meeting at the beginning of November, and we have an extensive agenda. Among other things, we want to make the leap into the official market by the turn of the year and thus achieve a significant appreciation of the value of the company for our shareholders. This will also enable us to reach institutional investors who are not yet permitted to buy our shares.
On the capital side, the next step is a significant capital increase for ordinary and preference shares. A new, very potent anchor shareholder has been acquired for our ordinary shares. His interest in the company is both a source of great satisfaction and a source of motivation. In the case of preference shares, we would like to take advantage of the consistently positive experience with our small shareholders and further expand the free float. After many discussions during the last capital increase, we are well aware of the high expectations. We are happy to meet this challenge and will of course deliver.
For the business, this means first of all completing the integration of the units just acquired and letting them at the earliest opportunity. The properties already under negotiation will be acquired and, if possible, short handover periods agreed. In addition, in the fourth quarter we plan to acquire a further 30 units with approximately 2,000 m^2 of living space. This would mean that our current medium-term target of 5,000 m^2 will have already been reached one year early. We would like to complete all these measures in 2019 in order to book all associated costs this year. From 2020, the proceeds of these measures can then pay off for our shareholders in the form of a respectable return.
We also have a third item at the top of our agenda. After lengthy negotiations, we have now found a partner on the debt side. All previous and ongoing acquisitions will be examined for their eligibility as collateral. The debt capital will lead to a considerable increase in the return on capital and will benefit our shareholders as early as next year.
Mr. Zschunke, so far B-A-L has only invested in Saxony. Are there any other interesting locations?
Currently we are actually focused only on Saxony. The immense supply there will keep us busy for some time to come. We are also increasingly receiving offers from sellers and brokers who have become aware of us through the capital market. A nice development!
In response to your question, we have also looked at locations in Lower Saxony (Celle), Upper Franconia (Coburg) and Lusatia (Spremberg) on the basis of available offers. However, at present such an expansion makes no sense for us. There are no synergies with the existing business and too much capacity would be tied up by the long distances. Nevertheless, this overview of the neighboring regions has paid off. It is clear that our business model can also be transferred to other federal states and that expansion can be rapidly implemented as purchasing power grows.
Mr. Zschunke, assuming that someone put 10 million euros at your disposal, what could we then expect from B-A-L Germany AG?
This no longer has to be a dream. Following last year's strong growth, our medium-term target is eight-digit market capitalization. We are committed to taking the necessary steps to achieve this. If the funds were already available today, we could immediately invest one third in existing properties. In addition, we could examine and negotiate existing major offers and open up a large number of additional investment opportunities through intensive acquisition. I can assure you that the amount you mentioned would be invested in the same standard of quality by the end of next year.
Mr. Zschunke, in July there was a research release with a sell rating and a target price of Eur1.88. How do you see the latest share price development and what do you advise new investors to do with the capital increase?
The price of our preferred shares is currently very volatile. From our point of view, this is due to the low volume of outstanding shares. We assume that this effect will diminish as the company continues to grow. The current level offers an attractive opportunity for investors who did not participate in the capital increase, or did not participate to the desired extent.
These developments currently have little impact on our day-to-day business. We are convinced of the intrinsic value of our portfolio and ensure the best possible return through professional management. We would like to use our intensive reporting system to interest all our shareholders in the company and our business model. We provide a comprehensive overview of important properties and upcoming transactions. Every shareholder should feel like a co-owner and will receive more information than if he had bought the property himself. We present our decisions in a comprehensible manner and aim to be the most transparent real estate company on the market.
My advice to our shareholders: Stay loyal to us in the long term and enjoy the future development. You can follow the development of our portfolio live on our website. If you are undecided or lack information, please contact us. I am available to answer your questions by telephone and e-mail.
Mr. Coenen, what are the next steps that B-A-L Germany AG will implement on the stock exchange with your support?
Due to the rapid operational development and the enormous interest of both private and institutional investors, we are preparing a major leap forward: an upgrade from the over-the-counter market to the official market. There is an opportunity to transfer the shares from the "direct market" segment of the Vienna Stock Exchange to the "standard market" segment and thus, of course, to fulfill all additional disclosure and transparency obligations. With the professional work of the B-A-L management and with the help of our know-how, this should not be a problem. It would simply be an appropriate response to the new circumstances. I am sure that I will be able to report further "good news" in this context.
This interview was conducted by Arno Ruesch, chief editor of the financial information service "Financial Fortune" (Börse Inside Verlag).