Wrap Text
Operational, trading and financial update
EPP N.V.
(Incorporated in The Netherlands)
(Company number 64965945)
JSE share code: EPP
ISIN: NL0011983374
LEI Code: 7245003P7O9N5BN8C098
(“EPP” or “the company”)
OPERATIONAL, TRADING AND FINANCIAL UPDATE
COVID-19 update
Up to the end of December 2021, Poland had been recovering after the latest COVID-19 wave caused by the Delta variant.
Since the beginning of January 2022, the number of new daily infections has, however, been increasing, although this
increase is anticipated to be temporary, primarily resulting from community socialising over the December 2021 festive
season. As of 11 January 2022, the 7-day case notification rate was at 329 cases per one million people, one of the lowest
in the European Union (“EU”) and significantly below the EU’s average of 1,825 cases per one million people. Importantly
however, and in line with other EU countries, the Omicron variant is soon expected to result in a materially higher number
of infections. Significantly, the government announced the possibility of doubling the number of COVID-19 hospital beds
to prepare for such a scenario. Currently, 41% of COVID-19 beds and 36% of respirators are available. The relatively stable
healthcare position has resulted in no lockdowns being imposed on the retail industry during the last months of 2021 and
early January 2022.
Enhanced sanitary restrictions aimed at mitigating against new infections and allowing the national economy to avoid
lockdowns were introduced in October 2021. Current limitations, which are in force until 31 January 2022 include reducing
the number of customers in public places such as shopping centres, cinemas and restaurants, closing discos and night-clubs
and obligatory COVID-19 testing for travellers arriving from outside the Schengen area. Vaccinated, recovered and persons
who tested negative for COVID-19, are excluded from the capacity limitations in public places. Schools were closed and
replaced with at home education for three weeks over the December holiday period.
The roll-out of Poland’s vaccination programme has continued in recent months. Currently, the COVID-19 third dose
booster shots are being administered and children aged 5-11 are also allowed to be vaccinated. As of 11 January 2022, 58%
of the Polish population is fully vaccinated. To support the vaccination programme, EPP arranged vaccination points in 11
of its retail properties, facilitating the vaccination of approximately 56,000 shoppers. Vaccinating in shopping centres,
which does not usually require prior registration, is gaining popularity across Poland and the number of customers making
use of these facilities is growing.
Macroeconomic update
The Polish economy has quickly returned to pre-pandemic growth levels and continues to show a positive outlook. Oxford
Economics anticipates GDP growth to be 5.1% in 2021, 4.5% in 2022 and 4.0% in 2023, which places Poland in the top
number of the Central Eastern European (“CEE”) states and continues to make it one of the fastest developing countries in
the EU. Poland is often listed among the world’s most digital, innovative and entrepreneurial economies, and this is expected
to continue. According to the Digital Poland Foundation’s “Invest in Digital Poland 2021” report, Poland was the third most
popular capital investment country in Europe in 2020 and, according to “The fDi report 2021”, the first in CEE.
Poland has one of the lowest unemployment rates in the EU at 3.5% in 2021. Demand for labour is expected to continue
with unemployment rates expected to drop to 2.9% and 2.4% in 2022 and 2023, respectively. Rising employment levels
will place upward pressure on average monthly salaries which are forecast to increase by approximately 8% over the next
two years.
At the same time, the country is facing the global challenge of rising inflation, fuelled especially by rapidly rising energy
prices. To ease this growing trend, the Monetary Policy Council of Poland has raised the reference interest rate from 0.1%
(historically the lowest level) to 2.25%, with the most recent interest rate increase of 50 bps taking place on 4 January 2022.
The Polish government has also launched the “inflation shield” programme, designed to protect families and households
from the effect of rising prices. It includes, inter alia, the temporary abolition of excise duty on electricity, the reduction of
the VAT rate on electricity and natural gas, decreasing the price of fuel by reducing excise duties, and providing financial
support for families based on their income.
Operational update
100% of EPP’s GLA has been continuously operational since 26 June 2021, with sanitary requirements such as limitation
on customer numbers, wearing of face masks, disinfection and maintaining social distance in place. Current regulations in
force until 31 January 2022, allow for 1 person per 15 m² in shops and gyms, and for 30% of full occupancy in cinemas and
restaurants.
The second half of 2021 confirmed that the change in consumer behaviour resulting from the pandemic, which resulted in
higher conversion rates, is a stable trend. From July to December 2021, when no lockdowns were in place, footfall stabilised
at approximately 83% of 2019 levels, while turnover ranged between 92% and 109% of pre-pandemic levels, depending on
the month. The turnover levels for the retail categories taking up the most space in shopping centres such as fashion and
accessories, household goods and appliances and electronics, have frequently exceeded 2019 turnover levels. These figures
indicate more purposeful shopping, resulting in a larger basket size per visit. The relatively high level of footfall also
confirms that, despite the ongoing pandemic, with the sanitary measures in place customers feel safer when visiting
shopping centres. From July to December 2021, when no lockdowns were in place, the e-commerce penetration rate in
Poland decreased from above 10% and stabilised at approximately 8%, further evidencing that shopping centres remained
the necessary and complementary place for Poles to shop, when allowed to operate without limitation.
The occupancy rate within EPP’s retail portfolio is at a stable 95.8% and the retail WALT by GLA was approximately 5.21
years as at 30 September 2021. Retail rental collection rates have been steadily improving during 2021, reaching 95% in
November 2021. Retailers’ demand has been fluctuating over the last two years. Lease agreements signed by the EPP team
for around 112,000 m² GLA in the last 6 months (of which 11,000 m² relates to new leases), is an encouraging sign. In
recent months, EPP has welcomed a number of new tenants including Netto supermarkets, Action discounts, IKEA,
Tescoma and Homla with household products, RTV/AGD store by Media Expert, an Orange showroom, kaes. sport store,
Empik bookstore, Pandora luxury jewellery store, Foot Locker footwear, fashion stores by HalfPrice, Giacomo Conti,
Greenpoint, Monnari and OCHNIK, and fast foods and restaurants such as Olimp, Ha Long, Cesare Ristorante and Tel
Aviv Street Food.
Retail outlook and prospects
EPP continues to benefit from operating in Poland’s resilient and quickly developing economy – one of the largest among
EU members and leading in CEE. The outlook and prospects for retail in Poland are cautiously optimistic, with caution
related to the ongoing pandemic. In 2021, 2022 and 2023, retail sales growth is expected to reach 7.4%, 5.5% and 3.6%,
respectively, exceeding the EU average. Despite an anticipation of an improved income environment, it should however be
noted that retail landlords are expected to suffer the consequences of significant electricity and cleaning / waste disposal
costs, which cannot be recovered from tenants, driven principally by higher carbon emission taxes levied by the EU and the
Polish government’s resolution to increase the minimum wage by 34% respectively.
The Polish government has implemented COVID-19 related legislation that, in the case of lockdowns, provides rental relief
to shopping centre tenants at the expense of landlords. The existing Coronavirus Act of 2020 amended in mid-2021 requires
landlords to relieve tenants of 80% of their rental obligations during lockdowns, and of 50% of their lease liabilities for
three months after each lockdown. EPP hopes that there will be no lockdowns in Poland during 2022, but the Omicron wave
in Europe does pose a risk in this regard.
Importantly, however, the positive sentiment of Polish shoppers is expected to continue. Currently observed higher
conversion rates, with turnover recovering faster than footfall, were previously anticipated, and in the longer term, as the
epidemic situation stabilises, the number of customers is ultimately expected to return to pre-pandemic levels. At the same
time, the growing importance of mixed-use spaces and omni-channel solutions for customers, including a similar shopping
experience regardless of the shopping channel and personalisation of shopping, will force adjustments in the current retail
infrastructure and determine the direction of the development in the years ahead. EPP aims to stay ahead of such changes,
adjusting the company’s operating model as necessary.
In line with adapting to market trends, EPP is proud to be a socially and environmentally responsible business, with
properties gradually being modernised in order to reduce their environmental impact by limiting pollution and the usage of
water and energy. EPP expects to issue its first ESG (Environmental, Social and Governance) report in early 2022.
The investment market in the Polish retail segment unfortunately remains passive, with very little registered transaction
activity and a further period of stabilisation likely being required. Investors remain cautious, primarily due to the uncertainty
caused by the new COVID-19 variants and legislation regulating rental obligations in shopping centres. In Poland, investors
are focused mainly on retail parks, convenience centres and single-anchored grocer or DIY properties. EPP expects that it
may take a further two to three years before investment demand for shopping centres returns to pre-pandemic levels.
Financial update
The financial information set out below, including the information on which the trading statement is based, has not been
reviewed or audited by EPP’s auditors. EPP expects to report its results for the year ended 31 December 2021 on or about
10 March 2022.
- Debt and liquidity
EPP expects to report the following balances at 31 December 2021:
- bank borrowings of c. €1.43 billion (30 June 2021: €1.44 billion);
- cash of between €85 million and €90 million (30 June 2021: €92 million); and
- LTV of c. 56% (30 June 2021: 55.6%).
Details of EPP’s bank borrowings and repayment profile are set out in Annexure 12 of the circular issued to
shareholders on 17 December 2021, in respect of the delisting and related transactions (the “circular”). EPP
continues to face significant loan maturities, with €879 million maturing by 31 December 2022. The company is
engaging with its lenders on the terms of extension or repayment of the loans due in 2022. Loan maturities by 31
December 2022 include an unsecured corporate facility of €250 million which matures on 31 October 2022, in respect
of which the relevant debt provider has informed EPP that it requires the full €250 million to be repaid by 31 October
2022.
- Update on property valuations
EPP’s property valuers are in the process of finalising their valuations in respect of the EPP portfolio for the year
ended 31 December 2021. EPP expects that the valuations will be materially unchanged from the valuations as at 30
June 2021, as set out in Annexure 11 of the circular.
- Net asset value per share
EPP expects to report the following balances at 31 December 2021:
- net asset value per share of approximately €1.02 (30 June 2021: €1.02); and
- net asset value per share excluding deferred tax of approximately €1.12 (30 June 2021: €1.12).
- Trading statement
Shareholders are advised that EPP expects distributable earnings per share for the year ended 31 December 2021, to
be at least 7.50 euro cents per share, higher than the previously provided guidance of between 7 and 7.25 euro cents
per share, mainly attributable to lower taxes as a result of the suspension of GAV tax on investment property due to
the continued COVID-19 pandemic, as well as better than expected operating results.
Until and upon the loans due in 2022 being extended, refinanced or repaid, with special attention on the corporate
credit facility of €250 million due for repayment in October 2022, EPP will continue with its strategy to retain cash
that would ordinarily be distributed to shareholders. Accordingly, the Board of EPP does not expect to recommend
paying a dividend for 2021.
Availability of FAQ document
Shareholders are advised that the company will make available on its website at https://www.epp-
poland.com/s,129,shareholder-circulars.html an FAQ document to address matters raised by market participants and
facilitate engagement with shareholders ahead of the extraordinary general meeting of EPP shareholders to be held at 12:00
(CET) on Friday, 21 January 2022.
In the interests of correcting an inaccurate statement contained in a widely disseminated analyst note to the effect that the
Redefine offer was being made at a value below the fairness range as advised by Deloitte &Touche in its independent expert
report (which report is set out in Annexure 1 of the circular) by reason of the independent expert’s fair value range not
having taken into account that Redefine paid a dividend of 60.1 cents per Redefine share during December 2021 (“RDF
December 2021 dividend”), the independent expert has confirmed that, in opining on the fairness of the Redefine offer, its
fair value range of between 2.50 and 2.70 Redefine shares per EPP share did in fact take into account the timing and amount
of the Redefine December 2021 dividend and that EPP shareholders who accept the Redefine offer would not participate
in the Redefine December 2021 dividend. This issue is dealt with more fully in the FAQ document.
12 January 2022
JSE sponsor
Java Capital
Luxembourg Stock Exchange Listing Agent
Harneys Luxembourg
For more information:
Curwin Rittles, Investor Relations, EPP
Mobile: +48 885 982 310
Curwin.rittles@epp-poland.com
Java Capital, JSE Sponsor
Phone: +27 (0)78 456 9999
Harneys Luxembourg, Luxembourg Stock Exchange Listing Agent
Phone: +352 27 86 71 02
Singular Systems IR
Michèle Mackey
+27 (0)10 003 0700/+27 (0)82 497 9827
michele@singular.co.za
Date: 12-01-2022 04:00:00
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