HB Reavis deal to offload logistics portfolio to Macquarie held up by police probe

HB Reavis deal to offload logistics portfolio to Macquarie held up by police probe
Logistics Center Lovosice, which is at the centre of a police investigation.
By Nicholas Watson in Prague June 8, 2016

HB Reavis, the Central and Eastern European property developer, is close to selling a group of logistics centres in Czech Republic and Slovakia to investment bank Macquarie Group, but a criminal investigation into suspiciously high rents at one of them is stalling the deal, sources with knowledge of the talks say.

Though neither HB Reavis nor Macquarie would comment on what the latter called “market rumours or potential deals”, the developer confirmed in an emailed response to questions that it is exploring the possibility of divesting its logistics portfolio of four properties in the Czech Republic and Slovakia, which it says has attracted “reputable institutional bidders and we are in advanced negotiations with the selected counterparty”.

“As these talks have yet to be concluded, we unfortunately are not in a position to comment further. We will confirm the outcome of these talks in due course,” HB Reavis added.

Sources say that a hold-up in the completion of the deal with Macquarie centres on the Logistics Center Lovosice, in the Czech district of Usti nad Labem, where the Czech state-owned rail freight operator CD Cargo is the tenant. According to CD Cargo, a police investigation is still ongoing into what the company claims was a “disadvantageous” lease contract, resulting in significant losses for the company.

After commissioning a forensic audit, CD Cargo last year filed a criminal complaint against an unnamed defendant for breach of trust in drawing up the lease contract, which covers 42,000 square metres of space, much of it unused, for a period of 15 years at “unreasonably high rents”, ČD Cargo’s chairman, Ivan Bednarik, was quoted by local media as saying in June 2015. According to local media reports, ČD Cargo pays annually CZK90mn (€3.3mn) for leasing the underutilized warehouses, while revenue from the facility covers only about a third of this amount, meaning the state-owned company loses about CZK60mn a year.

HB Reavis told bne IntelliNews that it is not under investigation itself, “however we are cooperating fully with the police in this matter and have presented all requested documents. Unfortunately, since this is an ongoing investigation, we cannot provide you with any further details.”  

The Czech anti-corruption police refused to comment on an ongoing investigation.

HB Reavis’ Czech operations have had a bumpy ride over the past year. Just two years after taking over as CEO of HB Reavis Group CZ, Dr Olga Humlova quit suddenly in September over what the company describes as “differing views about the strategic vision for the company’s business in the Czech Republic”. However, sources say Humlova, a real estate lawyer, had concerns about certain practices and individuals at the company, which she had found difficult to resolve satisfactorily.

On March 16, Humlova filed a claim against HB Reavis Group CZ for €350,000 over what she claims is an amount due to her under the terms of her departure as CEO.