Echo Polska Properties (EPP), the only real estate company listed on the JSE that invests solely in Poland — the largest economy in eastern Europe — has completed the first of three tranches of a watershed deal that will double the value of company’s assets.
EPP is now on track to become the largest owner of shopping centres in Poland.
EPP, which is also listed in Luxemborg, is aiming to own only retail assets, having sold many of its business properties. The company has a market capitalisation of R11.7bn.
The first tranche is valued at €358.7m and includes shopping centres M1 Czeladz, M1 Kraków, M1 Lódz and M1 Zabrze. The gross leasable area of the four centres is 194,400m², with an aggregate net operating income of €25.1m.
This forms the first of three tranches of EPP’s acquisition of the M1 portfolio announced in December. The M1 portfolio comprises 12 major shopping centres and retail parks with an aggregate transaction value of €692m. The portfolio was acquired from Chariot Top Group, a consortium in which JSE-listed Redefine Properties owns 25%. The remaining two tranches will be finalised over the next three years.
The second tranche portfolio comprises six properties with a gross lettable area of 184,000m² and has an aggregate value of €222.5m. Conditions for the tranche must be met by June 20 2019. The third tranche portfolio includes two properties with a gross lettable area of 68,100m² and an aggregate value of €110.9m. Conditions for this tranche must be met by June 20 2020.
The 12 properties are single-level and fully leased, grocery-anchored and are on large highway-fronting sites that total more that 195ha. The average rent-to-sales ratio is below 9%. The entire portfolio is subject to a master lease from Metro Group, which expires in April 2024.
Following the completion of the entire deal, EPP will become the owner of eight M1 regional shopping centres each with a gross lettable area ranging from 30,000m² to 55,000m², attracting more than 40-million annual visitors; and four retail power parks with gross lettable areas ranging from 20,000 m² to 35,000 m².
Tranche one was financed by way of debt, redeployment of the capital received on the sale of the offices previously announced, and the subscription by an entity managed by Oaktree Capital Management and LVS II Luxembourg II.
“The acquisition takes us a significant step closer to becoming one of the leading retail landlords in Poland. The deal also helps us provide further scale benefits for our tenants and further strengthens relationships with our financial partners,” said EPP’s CEO Hadley Dean. “The M1 portfolio has substantial expansion opportunities, which fits perfectly with our current strategy. This will help us not only to increase the net operating income, but also strengthen each property’s competitive position.”
Peter Clark, portfolio manager at Investec Asset Management said the deal fitted EPP’s strategy but came with attached costs. “The properties are in line with EPP’s strategy of positioning the portfolio in the retail sector, however, this will create an overhang of equity which will need to be raised for the next three years.”