A video of the EPP Interim Results 2021 is available below at:

https://epp.ppvlive.pl/live/interim2021

A video of the Pre-Close 2020 Presentation is available here:

https://presentations.corpcam.com/RegistrationPage.aspx?id=EPP30062020

By Jacek Bagiński

The Polish economy is in high gear. I’ve looked at the data from last year and forecasts for 2019. Overall 2018 was a period of very solid growth, marked by an increase in wages and consumption, combined with minimal unemployment.

Let’s look at the statistics.

The Polish Central Statistical Office published its report on average wages in the enterprise sector in December 2018. The annual growth trend has continued with monthly average wages surpassing the level of 5000 PLN gross, setting a new record.

According to the European Commission, in 2019 Poland is to remain a leader in terms of wage growth. While according to its estimates the average EU wage growth is roughly 0.8 percent, we may expect wages in Poland to increase by as much as 7 percent. The National Bank of Poland estimates wages will rise by 6.8 percent.

This data can be set alongside Poland’s low unemployment rate – by the end of November 2018 joblessness was at 3.8 percent, while forecasts are for it to drop to 2.9 percent in 2019. Lower numbers will only be seen in Germany and the Czech Republic.

According to the “Dziennik Gazeta Prawna” daily “in 2018 the expansion of the Polish economy was due to the size of Poles’ wallets. This dynamic growth, caused by the increase in household budgets, wasn’t only impacted by government social programmes like the Rodzina 500 plus child benefits scheme, but is also caused by higher wages and record low unemployment, which in turn improves job stability.”

According to the Polish statistical office initial forecast, Poland’s GDP growth in 2018 was 5.1 percent.

“That’s an A-grade economy”, according to analysts. In 2019 we may expect a slightly lower result, it will still be a net positive for the country.

Poles Continue to Go to Shopping Centers, Despite Trading Ban

Low unemployment numbers combined with high wages are the major drivers behind Poland’s consumption boom. The spending increases have also contributed to changing habits among Polish consumers. It is evident at EPP that shopping centres themselves have become destinations. We have the data to observe that Poles not only enjoy shopping, but they appreciate the entertainment and dining options available to them as well. Despite the Sunday trading ban, shopping centres are experiencing healthy footfall and sales levels. This consumer spending provides the fuel for Polish economic growth.

We’ve got a good year ahead of us. Personally, I believe that rising wages, record low unemployment and impressive economic growth will attract more investors to Poland, confirming its position as one of the leading investment destinations in Europe.

Jacek Bagiński is the CFO of EPP, the leading owner of shopping centres in Poland.

• Distributable earnings up 48% to €23.7 million in total terms and up 9% on per share basis to €2.98 per share
• Total investment properties value exceeded €2 billion
• Net asset value per share improved to €1.33 (December 2017: €1.32)

Warsaw, 26 June 2018 – JSE-listed EPP – the retail-focused Polish property play – announced first quarter results for the three months ended 31 March 2018 (“Q1”), showing distributable earnings increased 48% to €23.7 million and were up 9% on a per share basis to €2.98 compared to Q1 2017. During the quarter EPP successfully purchased the first tranche of the M1 portfolio comprised of four properties in sought-after regions, adding 194,000 sqm in GLA and taking total income producing assets to over €2 billion.

Net profit for Q1 totalled €21 million. Net asset value amounted to €966 million equating to NAV per share of €1.33. The net loan-to-value ratio at 31 March was 51% with an average cost of debt of 2.28%.
CEO Hadley Dean says – This growth is due to solid operations driven by active asset management and strong macroeconomic conditions in Poland. Our LTV remains a key focus area in the business and we are working to reduce it to our target levels.

Tenant sales remained steady with footfall across our portfolio up 2.2%. – These footfall increases were achieved despite the March introduction of the Sunday trading ban for two Sundays a month. We have seen footfall increase on Fridays, Saturdays and Mondays to compensate and to date the ban has not had a significant impact on performance – says Dean.

The new M1 properties – M1 Czeladź, M1 Kraków, M1 Łódź and M1 Zabrze – performed well and KPIs remain strong with further improvement expected following the opening of leading DIY retailer OBI in Kraków, Łódź and Zabrze in the next few months. – We are progressing well on the potential extension and development of these properties – says Dean.

In line with its strategy to maximise existing assets through extensions and refurbishments, EPP advanced several refurbishment projects during the quarter. These include architectural designs for the upgrade of the food court area in Pasaż Grunwaldzki as well as exploring extension possibilities at Twierdza Zamość. Dean says – With food as the new fashion, we are focused on further enhancing our food court areas across the portfolio to create engaging, ambient food hall concepts.

Construction of Galeria Młociny, EPP’s flagship Warsaw development, is ahead of schedule and on budget with pre-letting at 75%. In addition, the development is currently ahead of its budgeted rental income by more than €0.5 million per year. – We are particularly pleased with the interest from a number of new international entrants to the Polish market – says Dean. Galeria Młociny is scheduled to open in Spring 2019.

Looking ahead EPP will focus on integrating the recent acquisitions, exploring asset management opportunities in the portfolio and continue recycling office assets. The Polish economy is expected to continue performing strongly with current property fundamentals remaining favourable. Full year guidance remains at €11.6-11.8 cents per share.

EPP today announced the acquisition of 12 major shopping centres and retail parks (M1 portfolio) in three tranches over the next three years. The acquisition from a consortium (owned 25% by Redefine Properties), totals €692 million and forms part of a larger 28 property portfolio that has been acquired by the consortium. Upon completion of the transaction in mid-2020, EPP’s portfolio will comprise at least 27 modern shopping centers comprising almost 1 million square metres GLA.

The M1 portfolio comprises 12 dominant retail properties with a total of 446,500 m² GLA and over 620 stores situated in densely populated catchments which are complementary to EPP’s existing assets:
• Eight M1 regional shopping centres with GLA ranging from 30,000 m² to 55,000 m² which attract more than 40 million annual visitors, and
• Four retail power parks with GLA ranging from 20,000 m² to 35,000 m².

All the properties are single level and fully leased, grocery anchored and are situated on large motorway fronting sites which total over 195 hectares. All of the centres are anchored by Auchan Hypermarkets as well as a variety of international and domestic brands such as MediaMarkt and fashion retailers, TK Maxx, H&M and C&A. The average rental rate across the portfolio is a low €9.10 per m² per month and the average rent to sales ratio is below 9%. The entire portfolio is subject to a master lease from Metro AG which expires in April 2024.

–  This deal is based on a ‘up to 30 minute drive time’ measurement, which will treble our portfolio catchment to 34% of Poland’s total population, increasing to 39% after Młociny in Warsaw is opened,” says Dean. The transaction will also boost EPP’s annual portfolio footfall 61% from 76 million to 122 million. “These stats speak to EPP becoming a derivative of Poland’s burgeoning consumer market.

Dean said that EPP as well as the consortium are happy to enjoy the benefits of the income from Metro AG’s head lease until 2024. Auchan acquired from Metro the ‘Real’ supermarket business in Poland in 2014 and the 28 properties that will now be owned by the consortium and EPP represent approximately 35% of the number of stores that Auchan have in Poland. The properties being acquired by EPP have significant extension opportunities and also have asset management initiatives as the line shops are on average paying below market rentals. The entire portfolio was secured at a yield of 7,1%. The transaction will be closed in 3 tranches:

• Tranche 1 (January 2018)€358.7 million GAV comprising M1 Czeladź, M1 Kraków, M1 Łódź and M1 Zabrze totalling collectively 194,400 m² GLA and NOI of €25.1 million.
• Tranche 2 (June 2019)€222.5 million GAV comprising M1 Bytom, M1 Czestochowa, M1 Radom, PP Kielce, PP Olsztyn and PP Opole collectively 184,000 m² GLA and NOI of €16.3 million
• Tranche 3 (June 2020) €110.9 million GAV comprising M1 Poznan and PP Tychy collectively 68,100 m² and NOI of €7.6 million.

Tranche 1 is being financed by way of 62% debt and the redeployment of some of the capital to be received on the sale of the offices previously announced, as well as the subscription by funds managed by Oaktree and LVS II Luxembourg II S.à r.l for €112.5 million of EPP shares at €1.27 per share. As a result there will be no need for EPP to raise capital from the market. This direct investment in EPP by LVS II Luxembourg II S.à r.l and funds managed by Oaktree reflects their confidence in our platform. Redefine’s holding in EPP will reduce to +/- 35% but Redefine have undertaken to invest a further €40 million for future acquisitions in order to restore their holding to circa 40%.

On completion of the first tranche the return on equity pre-tax and transaction cost will be 13,5%. In the short term the acquisition results in a small increase in EPP’s LTV from 51% to 54% but this is being addressed and the company is committed in the medium term to reducing the LTV to below 50%.
Hadley Dean concludes – This acquisition fits perfectly with our strategy. The M1 portfolio has substantial expansion opportunities which we will develop over time and which will serve to further grow the NOI and strengthen each property’s competitive position.

EPP’s advisor in the deal was Dentons law office.

JSE listed Polish property group Echo Polska Properties NV (EPP) raised approximately R2.2 billion in an accelerated bookbuilding through the placing of 118 918 918 new shares at a price of R 18.50 per share. Capital will be used to previously announced acquisitions and for further M&A opportunities in retail segment within Poland.

– This is a huge success given that only 6 months ago we raised an additional eur100 million and it confirms investors’ confidence in EPPs assets, management team and Poland – said Hadley Dean, CEO EPP.

Following the new share issue scheduled for 13 April, 2017, EPP’s share capital will amount to 704 970 210 shares.

South African company Java Capital was the book runner of the issue.