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EPP distributable earnings lifted 54% by strong operational recovery


Johannesburg Stock Exchange listed EPP (JSE: EPP), Poland’s biggest retail landlord, delivered a solid performance for the first six months of 2021 in line with expectations. Both EPP’s distributable earnings and distributable earnings per share increased by 54% to €33.2 million- and 3.66-euro cents, respectively, compared to H1 2020. EPP’s net asset value per share increased by 3% to €1.12. A swift operational recovery following lockdowns and the progress made in Poland’s COVID-19 vaccination programme, low infection rates, a resilient economy, and high employment levels all support EPP’s robust performance and bode well for the future.

Robust rebound at EPP’s shopping centres

A quick recovery after lockdowns and growing customer support are evident in EPP’s retail metrics. All its retail tenants are now allowed to operate with mandatory safeguards such as mask-wearing and social distancing. Since reopening after Poland’s fourth lockdown ended at the beginning of May, EPP shopping centres’ good operational performance resulted in net property income of €59.2 million for the half-year – 12% higher than for the same period in 2020.

The Polish retail sector has been significantly affected by the pandemic and legislation relating to rental obligations during lockdowns. That is why we are so pleased with the quick bounce back in both footfall and turnovers. Once restrictions were lifted, customers started returning swiftly to our shopping centres, with brick-and-mortar remaining the most attractive purchasing channel for Poles by far,” said Tomasz Trzósło, CEO of EPP.

The prompt return of customers to shopping centres is reflected in higher than pre-pandemic turnover levels. In the months without trading limitations (February and May to July), tenants’ sales exceeded those in the corresponding months of 2019 by 4% on average. At the same time, footfalls at EPP’s shopping centres were steadily growing. In August, shopper numbers in 2021 reached 84% of 2019 levels, confirming the optimistic consumer sentiment. These figures indicate that shopping nowadays is more purposeful, and customers are spending more each time they go to the shops.

After lifting restrictions and reopening stores, the e-commerce penetration level in Poland dropped from 9.8% during the lockdown in January to 7.4% in July 2021 when shopping centres were fully trading. This again proves that Poles are very attached to in-store shopping.

At the same time, the demand for retail space has remained steady, demonstrating the attractiveness of the company’s assets and retailers’ confidence in the brick-and-mortar channel. EPP has signed 204 leases for nearly 70,000 sqm of space during the pandemic, keeping its retail occupancy stable at 95.4%. The company’s portfolio welcomed many new brands, including Apple reseller iSpot and Xiaomi Store.

Resilient Polish economy

The quick rebound evident at EPP’s assets can also be attributed to the strong macro-environment in Poland. The company benefits from operating in one of the most resilient economies in Europe. The local market is rapidly returning to pre-pandemic economic growth levels. It is expected to see even greater improvement in the future – with forecasted GDP growth of 4.9% in 2021 and 5.6% in 2022. Low unemployment and increasing wages are further stimulating consumer spending, driving Poland’s outperformance of average EU retail sales growth.

Stable pandemic situation in Poland

The current pandemic situation in Poland is under control as the vaccination programme is proceeding with vaccines on hand, and the situation in hospitals is stable. According to the European Centre for Disease Prevention and Control, the country’s new COVID-19 case infection rate is the lowest in the European Union. In Poland, 51% of the population had been fully vaccinated against COVID-19 by 12 September. The roll-out of the vaccination programme is expected to accelerate as Poles are returning to work and school after their summer breaks. At this stage, the Polish government does not expect full lockdowns to become necessary and is determined to avoid them in the future. Together, these factors support EPP’s optimistic operating outlook for the coming months.

EPP response to COVID-19 pandemic

To further boost the vaccination programme, the Polish authorities have launched a campaign to promote vaccinations. EPP has actively supported this initiative by launching vaccination points at its shopping centres, where around 20,000 shoppers have already been inoculated. So far, these points can be found in six EPP malls, with others set to follow their lead. EPP is constantly promoting safe and responsible behaviour while shopping, too. It was this Polish retail landlord that initiated the action of putting face masks on mannequins in storefronts. This idea has gained traction and is currently being implemented across the entire Polish retail industry under the patronage of the Minister of Health.

Strategic focus areas

EPP continues to deliver its strategic objectives. The company made significant progress in creating and implementing the environmental, social and governance (ESG) strategy and aims to publish its first ESG report in early 2022. As a socially engaged business, EPP strives to be a leader in this field. Its activities related to environmental and social issues have always been a strong focus.

At the same time, aligned with its strategic business objectives and investor expectations, EPP aims to reduce leverage in the business by disposing of a selected group of assets – by sales to new long-term-oriented partners in joint ventures or outright sales of non-core projects. EPP can meet all its financial obligations and has adequate liquidity for the period ahead. The company’s net loan-to-value (LTV) ratio of 55.8% is well within debt covenant levels set by credit providers of 67%.

There is liquidity in the Polish real estate market, but stability without disruptions to trading is expected to further support EPP in advancing this strategy. Given the significant operational improvements and our established track record, we believe that we can deliver our initiatives to reduce LTV in the next 6 to 12 months. We are focused on progressing with our strategic objectives and remain confident that we will be able to deliver full-year results in line with our guidance,” added Tomasz Trzósło.