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ECHO POLSKA PROPERTIES N.V. - Condensed consolidated interim financial information for the period ended 30 June 2016

Release Date: 30/09/2016 14:30
Code(s): EPP     PDF:  
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Condensed consolidated interim financial information for the period ended 30 June 2016

Echo Polska Properties N.V.
(Incorporated in the Netherlands)
(Company number 64965945)
JSE share code: EPP
ISIN: NL0011983374
("EPP" or "the Company" or "the Group")

CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
FOR THE PERIOD ENDED 30 JUNE 2016

Consolidated statement of comprehensive income                                             
                                                                              Unaudited   
                                                                            period from   
                                                                    4 January 2016 till   
                                                                           30 June 2016   
                                                                                EUR'000   
Rental income and recoveries                                                     38 485   
Revenue                                                                          38 485   
Property operating expenses                                                    (12 253)   
Net property income                                                              26 232   
Other income                                                                      1 026   
Other expenses                                                                  (2 340)   
Administrative expenses                                                         (5 743)   
Net operating profit                                                             19 175   
Change in fair value of investment properties                                    13 428   
Profit from operations                                                           32 603   
Finance income                                                                    3 180   
Finance charges                                                                (10 260)   
Foreign exchange gains                                                            1 975   
Accelerated amortisation of debt fee                                            (5 990)   
Profit before taxation                                                           21 508   
Taxation                                                                         40 367   
Current income tax                                                                (642)   
Deferred tax                                                                     41 009   
Profit for the period                                                            61 875   
EPP shareholders                                                                 61 875   
Non-controlling interests                                                             -   
Other comprehensive loss                                                                  
Other comprehensive income to be reclassified to profit or loss in                        
subsequent periods                                                                        
Foreign currency translation reserve                                            (1 713)   
Total comprehensive income                                                       60 162   
EPP shareholders                                                                 60 162   
Non-controlling interests                                                             -   


* The Company started trading on 17 February 2016 upon contribution of the property portfolio as described in
Note 1 Introduction.

Consolidated statement of financial position                                   
                                                                              Unaudited   
                                                                     as at 30 June 2016   
                                                                                EUR'000   
ASSETS                                                                                    
Non-current assets                                                            1 216 449   
Investment property                                                           1 205 012   
Financial assets                                                                 10 763   
Other receivables                                                                   674   
Current assets                                                                   43 568   
Inventory                                                                           143   
Tax receivable                                                                      547   
Trade and other receivables                                                       5 936   
Financial assets                                                                 12 664   
Restricted cash                                                                   6 471   
Cash and cash equivalents                                                        17 807   
Total assets                                                                  1 260 017   
EQUITY AND LIABILITIES                                                                    
Equity                                                                          524 655   
Share capital                                                                   414 901   
Share premium                                                                    59 367   
Accumulated profit                                                               52 100   
Foreign currency translation reserve                                            (1 713)   
Non-current liabilities                                                         684 845   
Bank borrowings                                                                 672 679   
Other liabilities                                                                12 166   
Current liabilities                                                              50 517   
Bank borrowings                                                                  26 782   
Related  party financial liabilities                                              4 079   
Tax payables                                                                      2 573   
Trade payables                                                                    6 167   
Other liabilities                                                                 9 265   
Advances received                                                                 1 651   
Total equity and liabilities                                                  1 260 017   
Number of shares in issue                                                   414 901 280   
Net asset value per share (EUR)                                                    1.26   
Net tangible asset value per share (EUR)                                           1.26  

Condensed consolidated statement of cash flows                                 
                                                                              Unaudited   
                                                                            period from   
                                                                         4 January 2016   
                                                                      till 30 June 2016   
                                                                                EUR'000   
Cash generated from operations                                                   13 933   
Taxation paid                                                                     (907)   
Dividends paid to shareholders                                                  (9 775)   
Net cash inflow from operating activities                                         3 251   
Net cash inflow from investing activities                                        16 215   
Net cash outflow from financing activities                                      (1 659)   
Net increase in cash and cash equivalents                                        17 807   
Cash and cash equivalents at the beginning of the period                              -   
Cash and cash equivalents at the end of the period                               17 807   


Condensed consolidated statement of changes in equity                       
                                                                              Unaudited   
                                                                            period from   
                                                                         4 January 2016   
                                                                      till 30 June 2016   
                                                                                EUR'000   
Opening balance                                                                      20   
Total comprehensive income for the period                                        60 162   
Issue of shares                                                                 474 248   
Dividend paid to shareholders                                                   (9 775)   
Total equity                                                                    524 655   
Condensed consolidated segmental information                                


                                                          Office    Retail       Total   
                                                         EUR'000   EUR'000     EUR'000   
Period from 4 January 2016 till 30 June 2016                                             
Rental income and recoveries                               8 369    30 116      38 485   
Property operating expenses                              (2 742)   (9 511)    (12 253)   
Net property income                                        5 627    20 605      26 232   
Investment property portfolio                            267 700   937 312   1 205 012   


Headline earnings and distributable income reconciliation                             
                                                                             Unaudited   
                                                                           period from   
                                                                   4 January 2016 till   
                                                                          30 June 2016   
                                                                               EUR'000   
Profit for the period attributable to EPP shareholders                          61 875   
Change in fair value of investment properties                                 (13 428)   
Headline earnings attributable to EPP shareholders                              48 447   
Amortised cost valuation                                                       (2 828)   
Prepaid rental income                                                            (106)   
Deferred tax on restructuring                                                 (41 009)   
Accelerated amortisation of debt fee                                             5 990   
Foreign exchange gains                                                         (1 975)   
Consolidation adjustment on acquisition (goodwill impairment)                      459   
Distributable income                                                             8 978   

 
Actual number of shares in issue*                                          414 901 280   
Weighted number of shares in issue*                                        193 842 583   
Basic and diluted earnings per share (EUR cents)**                                31.9   
Headline earnings and diluted headline earnings per share (EUR cents) ***         25.0   
Distributable income per share (EUR cents)                                         2.2   


* Before share split as described in Note 6 Other information.
** There are no dilutionary instruments in issue and therefore basic and diluted earnings are the same.
***There are no dilutionary instruments in issue and therefore headline earnings and diluted headline earnings
are the same.

Commentary

1.     Introduction
Echo Polska Properties N.V. (the "Company" or "EPP") is a real estate company that indirectly owns
a portfolio of prime retail and office assets throughout Poland, a dynamic Central and Eastern Europe
("CEE") economy with a very attractive real estate market.

EPP was incorporated as a private company with limited liability (besloten vennootschap met beperkte
aansprakelijkheid) under Dutch law on 4 January 2016 in accordance with the applicable laws of the
Netherlands and converted to a public company on 12 August 2016. The Company's official seat
(statutaire zetel) is in Amsterdam, the Netherlands, and its registered address is at Prins Bernhardplein
200, 1097 JB Amsterdam, the Netherlands. The Company is registered with the Dutch trade register
under number 64965945.

On 17 February 2016 the Company issued 211 970 402 new ordinary shares with a nominal value of
EUR 1 each acquired and paid up by Echo Investment S.A. ("Echo") by means of non-cash
contributions of:

- 1 510 investment certificates in Forum XXIX Fundusz Inwestycyjny Zamkniety ("Fund I", "FIZ")
, a closed-end investment fund under the laws of Poland, representing the entire capital of the Fund I,
with a fair market value of EUR 46.459 million;

- 7 023 investment certificates in Forum XXXIV Fundusz Inwestycyjny Zamkniety ("Fund II",
"FIZ"), a closed-end investment fund under the laws of Poland, representing the entire capital of the
Fund II, with a fair market value of EUR 165.511 million.

As a result of the investment certificates transfer agreements entered into between Echo and EPP on
17 February 2016, Echo transferred all investment certificates in the FIZs to EPP, thereby effectively
transferring ownership of the property portfolio to EPP.

On 30 August 2016 EPP listed on Euro MTF market of the Luxembourg Stock Exchange ("LuxSE")
and on 13 September 2016 listed on the Johannesburg Stock Exchange ("JSE") in the Real Estate
Holdings and Development Sector. The Company has a dual primary listing on both LuxSE and the
Main Board of the JSE.

2.    Financial results

The net profit for the period ended 30 June 2016 amounted to EUR 61.875 million and distributable
income amounted to EUR 6.807 million.

The Board of Directors declared a clean out dividend of EUR 12.558 million for the period ended
31 August 2016. Further details of which are set out in the Company's pre-listing statement issued on
31 August 2016 and paragraph 9.4 below.

3.    Changes in fair values

The Group's investment property portfolio has been valued as at 30 June 2016, by independent
professionally qualified valuer, Savills Advisory Services Limited. The external valuation of the
portfolio resulted in a fair value adjustment of EUR 13.428 million.

Investment properties are measured at fair value and are categorised as level 2 investments. There
were no transfers between levels 1, 2 and 3 during the reporting period.

4.    Portfolio profile

EPP is a real estate company that owns a portfolio of 10 retail and six office assets located throughout
Poland, a dynamic CEE economy with a very attractive real estate market. The properties are high
quality, modern assets with solid property fundamentals. The majority of buildings are less than five
years old.

The property portfolio offers an attractive and secure yield ranging from 6 to 7% fully let, a long lease
expiration profile and a portfolio weighted average unexpired lease term of over five years.

The investment portfolio has a diversified tenant base of leading retailers with international brands
representing approximately 61% of income in the case of retail properties and a tenant base of
primarily blue chip companies in the case of office properties.

An analysis of the property portfolio in respect of geographic, sectoral, tenant, vacancy and lease
expiry profiles forecast for the 12 months to 31 December 2017 is provided in the tables below.

4.1   Geographic profile

                  
                        
                   By
                  GLA   By rental income      
                  (%)                (%)
Szczecin        22.04              23.85
Wroclaw         14.53              21.37
Kielce          19.24              21.35
Kalisz           7.45               6.60
Poznan           6.33               6.44
Warszwa          7.37               5.92
Jelenia Góra     7.00               5.06
Belchatow        7.33               5.02
Katowice         4.05               2.87
Lomza            3.38               3.22
Przemysl         1.29               0.53
Total            100%               100%

4.2   Sectoral profile
          
                   By
                  GLA    By rental income         
                  (%)                 (%)
Office          19.20               24.87
Retail          70.80               75.13
Total            100%                100%

4.3   Vacancy profile

The vacancy profile indicated below reflects the vacancy percentage in terms of current GLA by
sector.

                              Vacancy %   
                               based on   
                             total GLA*   
                                    (%)   
Office                              9.7   
Retail                              1.7   
Total                               4.0   


* Based on existing leases at 30 June 2016. The vacancy profile reflects a high vacancy rate in the office
portfolio, on account of new properties that have not been fully let. In particular, the Park Rozwoju office (being
the largest office property in the Property portfolio by GLA) is not fully let and has a vacancy rate of 25% (42%
Phase II).

5.     Prospects

EPP has a high quality portfolio of Polish commercial properties with attractive and secure yields,
tenanted by a diverse range of primarily blue-chip global clients. With the predominantly retail
portfolio located in one of the most dynamic and fastest growing economies in Europe, experienced
management and well reputed strategic partners, EPP represents a compelling investment.

Already the largest listed yielding Polish property company, EPP's goal is to become the leading retail
landlord in Poland while targeting sustainable double digit annual growth in dividends per share in the
short and medium term through a combination of organic and acquisitive growth.

Organic growth represents growth opportunities that are already built into the EPP portfolio and
include (i) filling of vacancies in newly developed properties; (ii) 22 000 sqm of retail extensions to
two of EPP's existing retail centres that are currently underway; (iii) the 25% stake in 10 "  ROFO"  
assets acquired by EPP (which entitles EPP to a 25% share in development proceeds as well as a first
right of offer to acquire such assets); (iv) EPP's 70% stake in one of the last and best sites for retail
development in Warsaw with a planned 110 000 sqm retail development.

The organic growth opportunities already built into the EPP portfolio are in addition to the potential
for increasing retail rentals through a combination of the current high levels of retail sales growth in
Poland (at 6.5% year on year in June 2016) and the active asset management of EPP's portfolio of
regional shopping centres by a strongly incentivised, dedicated and proven executive management
team who intend on leveraging EPP's platform with retail tenants to achieve higher rentals - a strategy
that will be further enhanced by the development of the Warsaw retail development site.

In addition to organic growth, EPP's executive management team has access to numerous earnings
accretive acquisitive opportunities, including through its strategic relationships with Echo Investment
S.A., a recognised market leader in Polish commercial and residential property development and
investment, and Griffin Real Estate, a leading investor operating in the CEE real estate market. These
relationships provide the Company with a significant advantage in the identification and sourcing of
high quality real estate assets.

EPP's acquisition strategy will be focused on acquiring retail assets in strategic locations, allowing the
Company to further leverage its portfolio and platform with retail tenants. In the office sector, EPP
may selectively acquire high quality, well located office assets in major Polish cities, let to strong
international and domestic tenants where the management team believes there is scope for further
value uplift. EPP will proactively trade office assets to ensure that its portfolio remains balanced and
competitive in the long term while aiming to maintain a weighted average unexpired lease term in
excess of four years. EPP will also closely monitor the logistics and fulfilment centre sectors for
acquisition opportunities that meet its strategic criteria.

In addition to the opportunities for growth in distributions per share, the Company believes that there
are significant opportunities for growth in underlying net asset value per EPP share. The Warsaw retail
development, the ROFO assets and the extensions to certain existing retail assets all represent the
potential for (in some cases substantial) enhancements in underlying net asset value of EPP, given the
costs at which they are being acquired and/or developed, relative to the anticipated valuation yields.
Given the strength and growth of the Polish economy (as well as the potential upgrading of Poland by
FTSE from advanced emerging to developed market status in the near future) the Company also
believes that there is the potential for further compression in Polish commercial property yields, which
would in turn result in an increase in the value of the EPP portfolio.

This forecast information has not been reviewed or reported on by EPP's independent external
auditors.

6.    Other information

On 1 June 2016, the Company issued 202 910 878 new ordinary shares with a nominal value of
EUR1 each, of which 194 987 826 shares were acquired and paid up by Redefine Properties Limited
("Redefine") and 7 923 052 shares were acquired and paid up by Echo by means of cash contributions
of:

- EUR 260.736 million made by Redefine; and
- EUR 7.923 million made by Echo.

On 1 June 2016, the Company issued a preferred dividend distribution for the amount of EUR 9.775
million to Echo in relation to the completed extension of Outlet II project, financed by the cash
contributions from Redefine and Echo described above.

On 1 August 2016, the ordinary share capital was subdivided into 514 509 131 issued ordinary shares
from 414 901 280 issued ordinary shares. The subdivision was effected in order to achieve a net asset
value per ordinary share of exactly EUR 1. On 12 August 2016, pursuant to the conversion of EPP
from a B.V. to an N.V. company, the authorised share capital was created to comprise 2 572 645 659
ordinary shares and one preference share. In addition, pursuant to the said conversion, the issued share
capital was amended in such a way that one ordinary share was converted to one preference share.

7.    External auditors

The appointment of Ernst & Young Inc. and Ernst & Young Accountants LLP as the Group's external
auditor for the financial year ending 31 December 2016 was confirmed by the shareholders on 
19 August 2016.

8.    Basis of preparation

The condensed consolidated interim financial information for the period ended 30 June 2016 has been
prepared in compliance with International Financial Reporting Standards (IFRS), the presentation and
disclosure requirements of IAS 34, Interim Financial Reporting, the SAICA Financial Reporting
Guide as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as
issued by The Financial Reporting Standards Council, the Dutch Civil Code, the JSE Listings
Requirements and the LuxSE rules and regulations.

Maciej Drozd, EPP's Chief Financial Officer was responsible for supervising the preparation of these
condensed consolidated interim financial statements, which have not been reviewed or audited by
EPP's independent external auditors.

9.    Subsequent events

9.1   Changes to the Board

As of 30 June 2016 the composition of the Company's Board of Directors was as follows:

Intertrust (Netherlands) B.V. (Director A)
Marc Wainer (Director B)
Andrew Joseph König (Director B)
Dionne Traci Hirschowitz (Director B)
Hadley Dean (Director B)
Maciej Dyjas (Director C)

On 8 August 2016 the general meeting resolved that, subject to and effective upon the conversion of
the Company into a public entity, to accept the resignation of Intertrust (Netherlands) B.V., as 
Director A of the Board.

On 8 August 2016 the general meeting resolved that, subject to and effective upon the conversion of
the Company into a public entity, that the designation of each of (i) M Wainer, (ii) A.J. König, and
(iii) D.T. Hirschowitz - each Director B of the Board - was changed to that of non-executive director.

On 8 August 2016 the general meeting resolved that, subject to and effective upon the conversion of
the Company into a public entity, to appoint Maciej Adam Drozd as executive director of the Board.

On 8 August 2016 the general meeting resolved that, subject to and effective upon the conversion of
the Company into a public entity, to appoint the following individuals as non-executive directors of
the Board:

Robert Weisz;
Marek Marian Belka;
Nebil Senman;
Andrea Philippa Steer; and
Peter Joost Rudolf Driessen.

9.2   Share issue

On 12 August 2016, the Company issued 500 000 new ordinary shares with a nominal value of
EUR 0.81 each acquired and paid up by Hadley James Tyzack Dean by means of a cash contribution
for the amount of EUR 0.5 million.

9.3   Private placement

On 31 August 2016 EPP undertook a private placement on the JSE, which closed on 
6 September 2016. 71 522 161 ordinary shares (the "  private placement shares"  ) were issued at an issue
price of EUR 1.45 (equivalent of R23.5322) and allotted to investors on 13 September 2016 pursuant
to the private placement.

Immediately prior to the private placement and listing on the JSE the authorised share capital of the
Company comprised 2 572 645 659 ordinary shares of EUR 0.81 each and 1 preference share of 
EUR 0.81 and the issued share capital of the Company comprised 514 529 131 ordinary shares of EUR 0.81
each and 1 preference share of EUR 0.81 (not listed on any stock exchange).

Immediately post the private placement and listing on the JSE the authorised ordinary share capital of
the Company comprises 2 572 645 659 ordinary shares of EUR 0.81 each and 1 preference share of
EUR 0.81 and the issued share capital of the Company comprises 586 051 292 ordinary shares of
EUR 0.81 each (all of which are listed on the LuxSE and the JSE) and 1 preference share of EUR 0.81
(not listed on any stock exchange).

9.4   Clean-out dividend

Shareholders are referred to EPP's Pre-Listing Statement published on 31 August 2016, wherein the
Company announced that, on 11 August 2016 the general meeting of shareholders resolved to
distribute, as an interim distribution, to shareholders of the Company reflected in the original
shareholders register of the Company as at 11 August 2016 ("qualifying shareholders"), an amount of
the Company's cash available and deriving from the profits from operations attributable to the
shareholders for the period ending on 31 August 2016 (the "specified period") (the "clean-out
dividend"), in order to enable such qualifying shareholders to receive their share of the accrued
distributable income prior to the private placement. Shareholders who acquired shares after 11 August
2016, which would include all shareholders who acquired ordinary shares in the Company on the JSE
and the LuxSE on 13 September 2016, will not participate in the clean-out distribution. On 
28 September 2016 the Board of Directors declared a clean-out dividend of EUR 12.558 million which
will be paid to the qualifying shareholders on or about 30 September 2016.

Following the JSE listing, EPP intends distributing 100% of its distributable income to shareholders. If
declared by the Directors, the Company's first dividend will be for the period from 1 September 2016
to 31 December 2016.

Thereafter, the Company intends to declare half-yearly dividends, which are expected to be declared
for the periods ended 30 June and 31 December.

Shareholders are advised that, due to the nature of the Company's business, EPP will be adopting
distribution per share as its key performance measure for the reporting period ending on 31 December
2016 onwards.

By order of the Board
Echo Polska Properties N.V.
Chief Financial Officer

30 September 2016

More information:

Java Capital, JSE Sponsor
Phone: +27 11 722 3050

M Partners, Luxembourg Listing Agent
Phone: +352 263 868 602



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