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ECHO POLSKA PROPERTIES N.V. - Condensed consolidated financial information for the six month period ended 30 June 2017

Release Date: 05/09/2017 07:05
Code(s): EPP     PDF:  
Wrap Text
Condensed consolidated financial information for the six month period ended 30 June 2017

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 financial information for the six month period ended 30 June 2017

Highlights
Net Profit EUR39.555 million
Distributable income EUR36.602 million
Distribution per share 5.19 euro cents
NAV per share EUR1.23
Portfolio value EUR1.7 billion
Successfully executed acquisitions in H1 2017 EUR262 million
On track to deliver 10.8 euro cents distribution per share for year 2017


Consolidated statement of profit or loss
                                                  Period from       Period from
                                               1 January 2017    4 January 2016
                                                        until             until
                                                 30 June 2017      30 June 2016
                                                      EUR'000           EUR'000
Rental income and recoveries                           66 347            38 485
Property operating expenses                           (20 816)          (12 253)
Net property income                                    45 531            26 232
Other income                                            1 029             1 026
Other expenses                                           (611)           (2 340)
Selling costs                                            (261)             (333)
Administrative expenses                                (3 900)           (5 410)
Net operating profit                                   41 788            19 175
Gain on investment properties                          15 582            13 428
Profit from operations                                 57 370            32 603
Finance income                                          1 600             3 180
Finance costs                                          (9 596)          (16 250)
Foreign exchange (losses)/gains                        (2 680)            1 975
Participation in profits of joint ventures              2 682                 -
Profit before taxation                                 49 376            21 508
Taxation                                                        
Current income tax                                     (1 466)             (642)
Deferred tax                                           (8 355)           41 009
Profit for the period                                  39 555            61 875
Earnings per share:                                             
Basic and diluted earnings, on profit for the                   
period (EUR cents)                                        6.2              31.9

Consolidated statement of other comprehensive income
                                                  Period from       Period from
                                               1 January 2017    4 January 2016
                                                        until             until
                                                 30 June 2017      30 June 2016
                                                      EUR'000           EUR'000
Profit for the period                                  39 555            61 875
Other comprehensive income to be                                
reclassified to profit or loss in                               
subsequent periods                                              
Foreign currency translation reserve                   (3 019)           (1 713)
Other comprehensive income, net of tax,                         
to be reclassified to profit or loss                            
in subsequent periods                                  (3 019)           (1 713)
Other comprehensive income, net of tax,                         
not to be reclassified to profit or loss                        
in subsequent periods                                       -                 -
Total comprehensive income for                                  
the period, net of tax                                 36 536            60 162
Total comprehensive income attributable                         
to the parent for the period, net of tax               36 536            60 162




Consolidated statement of financial position
                                                        As at             As at
                                                 30 June 2017  31 December 2016
                                                      EUR'000           EUR'000
ASSETS                                                         
Non-current assets                                  1 742 726         1 423 834
Investment in joint ventures                           91 920            54 285
Tangible assets                                            63                85
Investment property                                 1 623 302         1 359 432
Financial assets                                       27 441            10 032
Current assets                                        125 220            43 568
Inventory                                                 212                74
Tax receivable                                          9 475                 9
Trade and other receivables                            11 641            32 658
Financial assets                                       11 207             9 057
Restricted cash                                        22 664            21 845
Cash and cash equivalents                              70 021            21 921
Total assets                                        1 867 946         1 509 398
EQUITY AND LIABILITIES
Equity                                                789 184           623 794
Share capital                                         571 989           474 702
Share premium                                         146 592            95 095
Accumulated profit                                     74 056            54 431
Foreign currency translation reserve                   (3 453)             (434)
Non-current liabilities                               949 667           818 458
Bank borrowings                                       861 159           741 776
Related-party liabilities                               1 631             5 885
Other liabilities                                      11 912            11 881
Deferred tax liability                                 74 965            58 916
Current liabilities                                   129 095            67 146
Bank borrowings                                        93 363            52 845
Related-party financial liabilities                     2 824               221
Tax payables                                            3 861               175
Trade payables                                         28 961            13 819
Provisions                                                 86                86
Total equity and liabilities                        1 867 946         1 509 398

Consolidated statement of changes in equity
                                                        Share
                                                     premium/
                                            Share     capital     Accumulated
                                          capital    reserves    profit/(loss)
                                          EUR'000     EUR'000         EUR'000
Balance as at 4 January 2016                   20           -               -
Profit for the period                           -           -          76 764
Other comprehensive income                      -           -               -
Total comprehensive income                      -           -          76 764
Issue of ordinary shares                  474 682     110 157               -
Acquisition of subsidiary                                                   
and transaction costs                           -     (15 062)              -
Dividend paid                                   -           -         (22 333)
Balance as at 1 January 2017              474 702      95 095          54 431
Profit for the period                           -           -          39 555
Other comprehensive income                      -           -               -
Total comprehensive income                      -           -          39 555
Issue of ordinary shares                   97 287      55 687               -
Acquisition of subsidiary                                                  
and transaction costs                           -      (4 190)              -
Special dividend due                            -           -          (1 528)
Dividend paid                                   -           -         (18 402)
Balance as at 30 June 2017                571 989     146 592          74 056

                                                      Foreign
                                                     currency
                                                  translation           Total
                                                      reserve          equity
                                                      EUR'000         EUR'000
Balance as at 4 January 2016                                -              20
Profit for the period                                       -          76 764
Other comprehensive income                               (434)           (434)
Total comprehensive income                               (434)         76 330
Issue of ordinary shares                                    -         584 839
Acquisition of subsidiary                                  
and transaction costs                                       -         (15 062)
Dividend paid                                               -         (22 333)
Balance as at 1 January 2017                             (434)        623 794
Profit for the period                                       -          39 555
Other comprehensive income                             (3 019)         (3 019)
Total comprehensive income                             (3 019)         36 536
Issue of ordinary shares                                    -         152 974
Acquisition of subsidiary                                  
and transaction costs                                       -          (4 190)
Special dividend due                                        -          (1 528)
Dividend paid                                               -         (18 402)
Balance as at 30 June 2017                             (3 453)        789 184

Condensed consolidated statement of cash flow
                                                  Period from     Period from
                                               1 January 2017  4 January 2016
                                                        until           until
                                                 30 June 2017    30 June 2016
                                                      EUR'000         EUR'000
Cash generated from operations                         78 279          13 933
Tax paid                                               (1 328)           (907)
Dividends paid/due to shareholders                    (19 930)         (9 775)
Net cash generated from operating                    
activities                                             57 021           3 251
Net cash utilised in/generated from
investing activities                                 (307 963)         16 215
Net cash generated from/(utilised in)
financing activities                                  298 743          (1 659)
Net increase in cash and cash equivalents              47 801          17 807
Cash and cash equivalents at the beginning
of the period                                          21 921               -
Effect of foreign exchange fluctuations                  (299)              -
Cash and cash equivalents at the end
of the period                                          70 021          17 807

Headline earnings reconciliation
                                                  Period from     Period from
                                               1 January 2017  4 January 2016
                                                        until           until
                                                 30 June 2017    30 June 2016
                                                      EUR'000         EUR'000
Profit for the period attributable 
to EPP shareholders                                    39 555          61 875
Change in fair value of investment 
properties                                            (15 582)        (13 428)
Headline and diluted earnings 
attributable to EPP shareholders                       23 973          48 447
Actual number of shares in issue                  704 970 211     414 901 280
Weighted number of shares in issue                637 298 120     193 842 583
Basic and diluted earnings 
per share (EUR cents)*                                    6.2            31.9
Headline earnings and diluted 
headline earnings per share (EUR cents)**                 3.8            25.0
*  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
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 Rapenburgerstraat 175 M, 1011VM Amsterdam, The Netherlands. The
company is registered with the Dutch trade register under number 64965945.

On 30 August 2016, EPP listed on the 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.

The condensed consolidated financial statements for the six month period ended 30 June 2017
comprise the financial statements of the company and its subsidiaries (the "group" or "EPP Group").

2. Financial results
The net profit for the six month period ended 30 June 2017 amounted to EUR39.555 million and
distributable income amounted to EUR36.602 million.

3. Segment information
                                        Retail         Office           Total
                                       EUR'000        EUR'000         EUR'000
Six month period ended                              
30 June 2017                                        
Segment profit                                      
Rent and recoveries income              44 823         21 524          66 347
Property operating expenses            (15 083)        (5 755)        (20 838)
Net property income                     29 740         15 769          45 509
                                                    
                                        Retail         Office           Total
                                       EUR'000        EUR'000         EUR'000
As at 30 June 2017                                  
Segment assets                                      
Investment in joint ventures            91 920              -          91 920
Investment property                  1 202 902        420 400       1 623 302
Total segment assets                 1 294 822        420 400       1 715 222
Bank borrowings                        648 568        236 082         884 650
Total segment liabilities              648 568        236 082         884 650

Headline earnings to distributable income reconciliation
                                                  Period from     Period from
                                               1 January 2017  4 January 2016
                                                        until           until
                                                 30 June 2017    30 June 2016
Headline and diluted earnings attributable       
to EPP shareholders                                    23 973          48 447
Amortised cost valuation of long-term            
financial liabilities                                     901           3 162
Bridge to equity loan costs                               310               -
Prepaid rental income                                    (150)           (106)
Deferred tax                                            8 355         (41 009)
Foreign exchange losses/(gains)                         2 680          (1 975)
Amortisation of leasing fees                              261               -
Participation of profits in joint ventures             (2 105)              -
Capital gains                                          (1 301)              -
Consolidation adjustment on acquisition          
(goodwill impairment)                                       -             459
Antecedent dividend                                     3 678               -
Distributable income                                   36 602           8 978
Actual number of shares in issue                  704 970 211     414 901 280
Distributable income per share (EUR cents)               5.19             2.2

4. Changes in fair value
The group's investment property portfolio has been valued as at 30 June 2017, by independent
professionally qualified valuer, Savills. The external valuation of the portfolio resulted in a fair
value adjustment of EUR15.582 million (EUR13.428 million in the period ended 30 June 2016).

5. Portfolio profile
EPP is a real estate company that owns a portfolio of 13 retail and nine office assets located
throughout Poland and two retail developments in Warsaw. The properties are high quality,
modern assets with solid property fundamentals. The majority of the 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 5.4 in the
retail sector and 3.8 in the office sector by gross lettable area ("GLA").

The investment portfolio has a diversified tenant base of leading retailers with international
brands 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 is provided in the tables below.

5.1. Geographic profile
                                                    By GLA   By fully let NOI
City            Project                                  %                  %
Kielce          Galeria Echo, Astra Park             14.53              13.87
Szczecin        Galaxy, Outlet, Oxygen               13.46              16.89
Wroclaw         Pasaz Grunwaldzki, West Gate         10.98              15.94
Krakow          Zakopianka, Opolska Business Park     7.84               7.81
Kalisz          Galeria Amber                         5.68               4.94
Warszawa        Park Rozwoju                          5.66               5.42
Belchatow       Galeria Olimpia, CH Belchatow         5.53               3.52
Jelenia Gora    Galeria Sudecka                       5.12               3.59
Katowice        A4 Business Park etap I-III           5.07               4.84
Poznan          Malta Office Park                     4.78               4.85
Wloclawek       Wzorcownia Wloclawek                  4.31               4.04
Zamosc          Twierdza Zamosc                       4.03               3.57
Gdansk          Tryton                                3.98               3.54
Klodzko         Twierdza Klodzko                      3.90               3.05
Lomza           CH Veneda                             2.54               2.27
Lodz            Symetris                              1.62               1.45
Przemysl        CH Przemysl                           0.97               0.41
Total                                               100.00             100.00

5.2. Sectoral profile
                                                    By GLA   By fully let NOI
                                                         %                  %
Retail                                               68.12              69.42
Office                                               31.88              30.58
Total                                               100.00             100.00

5.3. Vacancy profile
The vacancy profile indicated below reflects the vacancy percentage in terms of current GLA
by sector.
                                                                Vacancy based
                                                                 on total GLA*
                                                                            %
Office                                                                    2.8**
Retail                                                                   1.59
Total                                                                    2.26**
* Based on existing leases at 30 June 2017.
** Including three years 100% rental guarantee from Echo Investment S.A.

5.4. WAULT*
Sector                                              By GLA   By rental income
Retail                                                5.39               4.81
Office                                                3.78               3.90
* Weighted average unexpired lease term in years.

6. 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 respected 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 growth in dividends per share in the short
and medium term through a combination of organic and acquisitive growth.

Combined with the organic growth retail opportunities is the potential for increasing retail
rentals through a combination of the current high levels of retail sales growth in Poland
(at 8.2% year-on-year in the first six months of 2017), 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. This strategy will be further enhanced by the development of the
Warsaw retail development sites.

EPP's acquisition strategy is focused on acquiring retail assets in strategic locations, allowing
the company to further leverage its portfolio and platform with retail tenants. EPP will trade
office assets proactively 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. The details of the acquisition transactions completed after 30 June 2017 are detailed in
note 8.1 Acquisitions, below.

In addition to the opportunities for growth in distributions per share, the company believes that
there are opportunities for growth in the underlying net asset value per EPP share. The Warsaw
retail developments, the ROFO assets and the extensions to certain existing retail assets all
represent the potential for (in some cases substantial) enhancements in the underlying net asset
value of EPP, given the costs at which they are being acquired and/or developed, relative to the
anticipated valuation yields. Taking the strength and growth of the Polish economy into account,
the company also believes that there is a potential for further compression in Polish commercial
property yields, which would in turn result in an increase in the value of the EPP portfolio.

7. Basis of preparation
The condensed consolidated financial information for the period ended 30 June 2017 has been
prepared in compliance with International Financial Reporting Standards ("IFRS"), the
presentation and disclosure requirements of IAS 34: Interim Financial Reporting, the Dutch Civil
Code, the JSE Listings Requirements and the Rules and Regulations of the LuxSE.

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

8. Subsequent events
8.1. Acquisitions
Galeria Solna
EPP concluded an agreement relating to the acquisition of another retail asset - Galeria Solna
in InoWroclaw, North West Poland. The purchase consideration was EUR22.4 million, based on
asset value of EUR55.4 million.

In line with EPP strategy, the 24 000m2 centre is located in a regionally growing Polish city with
a large catchment area and a proven track record since opening in 2013.

9. Dividend declaration
EPP's dividend policy states that the company intends to declare 100% of its distributable
income to shareholders. The company intends declaring half-yearly dividends, which are
expected to be declared for the periods ended 30 June and 31 December of the relevant year.
No assurance can be made that dividends will be proposed or declared in any given year.

The board has declared an interim dividend of 5.192 euro cents per ordinary share for the six
months to 30 June 2017.

The dividend is payable to EPP shareholders in accordance with the timetable set out below:
                                                                                2017
Announcement of Euro to Rand conversion rate on                Tuesday, 12 September
Last day to trade in EPP shares on the JSE and LuxSE        
in order to receive the dividend                               Tuesday, 19 September
EPP shares trade ex dividend                                 Wednesday, 20 September
Record date for the receipt of the dividend                     Friday, 22 September
Dividend paid to EPP shareholders                              Tuesday, 26 September

Share certificates may not be dematerialised or rematerialised between Wednesday, 20 September
2017 and Friday, 22 September 2017, both days included. Transfers between the European and
South African share registers may not take place between Tuesday, 12 September 2017 and
Friday, 22 September 2017, both days included.

9.1 Tax considerations
9.1.1 Dutch dividend withholding tax
Dutch dividend withholding tax ("DWHT") at a rate of 15% will be withheld by EPP on the
dividend distribution and EPP will remit the DWHT withheld to the Dutch Tax Authorities.

The DWHT may be reduced if a shareholder qualifies for an exemption from or a reduction of
DWHT on the basis of Dutch domestic law and/or a Double Tax Agreement concluded by the
Netherlands ("DTA") and the formal requirements that apply to such exemption from or
reduction of DWHT are satisfied.

The relevant DWHT aspects for EPP's shareholders in general, the possibilities for South
African shareholders to qualify for reduction or exemption of DWHT under the DTA between the
Netherlands and South Africa and the formal requirements to claim such reduction, are set out
in more detail on EPP's website at www.echo-pp.com/s,92,shareholder-circulars.html.

9.1.2 South African dividend withholding tax
Dividends received from a foreign resident company in respect of a share that is listed on the
JSE are regarded as foreign dividends for South African income tax and dividends withholding
tax purposes. The foreign dividends are exempt from South African income tax in respect of
foreign shareholders and South African shareholders.

The dividends will however be subject to South African dividends withholding tax ("SADWT") at
a rate of 20%, unless a shareholder qualifies for an exemption from SADWT. For example, a
South African company shareholder or retirement fund will be exempt from SADWT.

However, a shareholder who receives a dividend which is subject to SADWT and who does not
qualify for an exemption, will qualify for a rebate of the foreign taxes paid in respect of such
dividend. Accordingly, if 15% DWHT is suffered in the Netherlands, dividends received in respect
of a share that is listed on the JSE will be subject to an additional 5% SADWT. The regulated
intermediary will be responsible for withholding the 5% from the dividend payable to
shareholders on the South African register and paying such amounts to the South African
Revenue Service, such that the total dividend withholding tax paid by such shareholders
amounts in aggregate to 20%.

The information provided above does not constitute tax advice and is only provided as a
general guide on the Dutch and South African tax treatment of the cash dividend declaration by
EPP to South African tax resident shareholders. For shareholders residing outside of South
Africa, the dividend may have other legal or tax implications and such shareholders are advised
to obtain appropriate advice from their professional advisers in this regard. Tax matters are
complex, and the tax consequences to a particular shareholder will depend in part on such
shareholder's circumstances. Accordingly, a shareholder is urged to consult his own tax
advisor for a full understanding of the tax consequences to him, including the applicability and
effect of Dutch tax laws.

For shareholders residing outside of South Africa, the dividend may have legal or tax
implications and such shareholders are advised to obtain appropriate advice from their
professional advisers in this regard.

As at the date of declaration of this dividend, the company has 586 051 292 shares in issue.

By order of the board

Echo Polska Properties N.V.

4 September 2017

For more information
Java Capital
JSE Sponsor
Phone: +27 11 722 3050

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

5 September 2017

Company information
Directors
Hadley Dean (chief executive officer)
Jacek Baginski (chief financial officer)
Robert Weisz* (chairman)
Marek Belka*
Peter Driessen*
Maciej Dyjas**
Dionne Hirschowitz*
Andrew König**
Przemyslaw Krych**
Nebil Senman**
Andrea Steer*
Marc Wainer**
* Independent non-executive
** Non-executive

Registered office
Rapenburgerstraat 175 M
1011VM Amsterdam
The Netherlands

Company secretary
Rafal Kwiatkowski (Master of Laws)
a.l Solidarnosci 36
25-323 Kielce
Poland

Transfer secretaries
Computershare Investor Services (Pty) Ltd
Rosebank Towers
15 Biermann Avenue
Rosebank
2195

PO Box 61051
Marshalltown
2107

LuxSE listing agent
M Partners
56 rue Charles Martel L-2134
Luxembourg

Phone: +352 263 868 602

JSE sponsor
Java Capital Trustees and Sponsors Proprietary Limited
6A Sandown Valley Crescent
Sandton
2196

Phone: +27 11 722 3050

Investor relations
Singular Systems IR
28 Fort Street
Birnam
2196

Phone: +27 (0)10 003 0661






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