Wrap Text
Unaudited condensed consolidated financial information for the nine months ended 30 September 2018
EPP N.V.
(previously Echo Polska Properties N.V.)
(Incorporated in The Netherlands)
(Company number 64965945)
JSE share code: EPP
ISIN: NL0011983374
LEI code: 7245003P7O9N5BN8C098
("EPP" or "the company" or "the group")
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
for the nine months ended 30 September 2018
Highlights
- Net property income up 37% to EUR102.2 million (September 2017: EUR74.4 million)
- Earnings available for distribution up 22% to EUR72.6 million (September 2017: EUR59.3 million)
- Earnings available for distribution per share up 4% to EUR8.75 cents (September 2017: EUR8.41 cents)
- Total investment properties value exceeded EUR2 billion
- Successful acquisition of tranche 1 of M1 portfolio and Marcelin adding approximately 240 000 m2
of high-quality retail space
Consolidated statement of profit or loss
Unaudited Unaudited
period from period from
1 January 1 January
2018 until 2017 until
30 September 30 September
2018 2017
EUR'000 EUR'000
Rental income 108 218 75 055
Service charge income 34 133 32 161
Property operating expenses (40 106) (32 805)
Net property income 102 245 74 411
Other income 1 135 1 889
Other expenses (1 307) (952)
Administrative expenses (11 259) (6 254)
Net operating profit 90 814 69 094
Profit on investment properties 26 249 12 281
Profit from operations 117 063 81 375
Finance income 4 635 2 444
Finance costs (27 901) (16 772)
Foreign exchange (losses)/gains 2 959 (734)
Participation in profits of joint ventures 28 381 (1 117)
Profit before taxation 125 137 65 196
Current income tax (6 894) (2 497)
Deferred tax (22 742) (7 816)
Profit for the period 95 501 54 883
Profit for the period attributable to EPP shareholders 95 501 54 883
Basic and diluted earnings per share (EUR cents) 11.51 8.3
Headline earnings and diluted headline earnings per share (EUR cents) 8.34 6.50
Consolidated statement of other comprehensive income
Unaudited Unaudited
period from period from
1 January 1 January
2018 until 2017 until
30 September 30 September
2018 2017
EUR'000 EUR'000
Profit for the period 95 501 54 883
Other comprehensive income to be reclassified to
profit or loss in subsequent periods
Foreign currency translation reserve (7 180) (4 312)
Total comprehensive income for the period, net of tax 88 321 50 571
Total comprehensive income attributable to the parent
for the period, net of tax 88 321 50 571
Consolidated statement of financial position
Unaudited Audited
as at as at
30 September 31 December
2018 2017
EUR'000 EUR'000
ASSETS
Non-current assets 2 358 455 1 797 545
Investment in joint ventures 141 062 116 009
Tangible assets 88 47
Investment property 2 199 067 1 655 572
Financial assets 16 828 25 917
Deferred tax asset 1 410 -
Current assets 144 524 154 569
Inventory 320 525
Tax receivable 8 973 209
Trade and other receivables 17 985 26 723
Financial assets 4 588 3 955
Restricted cash 34 320 23 613
Cash and cash equivalents 78 338 99 544
Total assets 2 502 979 1 952 114
EQUITY AND LIABILITIES
Equity 991 059 833 821
Share capital 672 292 571 026
Share premium 203 155 147 534
Treasury shares - (783)
Accumulated profit 118 586 111 419
Share-based payment reserve 4 490 4 909
Foreign currency translation reserve (7 464) (284)
Non-current liabilities 1 444 195 941 710
Bank borrowings 1 266 072 831 183
Related-party liabilities 366 1 741
Other liabilities 62 157 15 033
Deferred tax liability 115 600 93 753
Current liabilities 67 725 176 583
Bank borrowings 28 818 117 155
Related-party financial liabilities 8 671 18 019
Tax payables 4 192 879
Trade payables 22 512 40 353
Provisions 3 532 177
Total equity and liabilities 2 502 979 1 952 114
Statement of changes in equity
Share Accumu-
premium/ lated
Share capital Treasury profit/
capital reserves shares (loss)
EUR'000 EUR'000 EUR'000 EUR'000
Balance as at 31 December 2017 (audited) 571 026 147 534 (783) 111 419
Profit for the year - - - 95 501
Other comprehensive income - - - -
Other comprehensive income from joint ventures - - - -
Total comprehensive income - - - -
Issue of ordinary shares 101 266 56 235 - -
Transaction cost related to issuance of shares - (614) - -
Acquisition of own shares - - (2 312) -
Transfer of own shares - - 3 095 -
Recognition of share-based payments - - - -
Dividends provided for or paid - - - (88 334)
Balance as at 30 September 2018 (unaudited) 672 292 203 155 - 118 586
Foreign Share-
currency based
translation payment Total
reserve reserve equity
EUR'000 EUR'000 EUR'000
Balance as at 31 December 2017 (audited) (284) 4 909 833 821
Profit for the year - - 95 501
Other comprehensive income (2 435) - (2 435)
Other comprehensive income from joint ventures (4 745) - (4 745)
Total comprehensive income (7 180) - (7 180)
Issue of ordinary shares - - 157 501
Transaction cost related to issuance of shares - - (614)
Acquisition of own shares - - (2 312)
Transfer of own shares - (3 095) -
Recognition of share-based payments - 2 676 2 676
Dividends provided for or paid - - (88 334)
Balance as at 30 September 2018 (unaudited) (7 464) 4 490 991 059
Statement of changes in equity (restated)
Share Accumu-
premium/ lated
Share capital Treasury profit/
capital reserves shares (loss)
EUR'000 EUR'000 EUR'000 EUR'000
Balance as at 31 December
2016 after restatement (audited) 474 702 95 095 - 38 075
Profit for the year - - - 54 883
Other comprehensive income - - - -
Other comprehensive income from joint ventures - - - -
Total comprehensive income - - - 54 883
Issue of ordinary shares 96 324 56 650 - -
Transaction cost related to issuance of shares - (4 211) - -
Acquisition of own shares - - - -
Recognition of share-based payments - - - -
Transfer of shares - - - -
Special dividend due - - -
Dividend paid - - - (55 004)
Balance as at 30 September 2017 (unaudited) 571 026 147 534 37 954
Foreign Share-
currency based
translation payment Total
reserve reserve equity
EUR'000 EUR'000 EUR'000
Balance as at 31 December
2016 after restatement (audited) (434) - 607 438
Profit for the year - - 54 883
Other comprehensive income (3 112) - (3 112)
Other comprehensive income from joint ventures (1 200) - (1 200)
Total comprehensive income (4 312) - 50 571
Issue of ordinary shares - - 152 974
Transaction cost related to issuance of shares - - (4 211)
Acquisition of own shares - - -
Recognition of share-based payments - - -
Transfer of shares - - -
Special dividend due - -
Dividend paid - - (55 004)
Balance as at 30 September 2017 (unaudited) (4 746) 751 768
Condensed consolidated statement of cash flow
Unaudited Unaudited
period from period from
1 January 1 January
2018 until 2017 until
30 September 30 September
2018 2017
EUR'000 EUR'000
Cash generated from operations 69 177 96 700
Tax paid (5 549) (2 397)
Net cash generated from operating activities 63 628 94 303
Investing activities
Purchase of investment property (499 113) (275 152)
Investments in joint ventures - (19 149)
Capital expenditure on completed investment property (21 788) (28 468)
Loans granted (780) (43 535)
Interest received/(paid) - 240
Profit share 1 180
Net cash (utilised in)/generated from investing activities (521 681) (364 884)
Financing activities
Proceeds from borrowings 644 143 249 571
Repayment of borrowings (297 853) (40 018)
Borrowing arrangement fees (2 141) -
Proceeds from issue of share capital 157 498 148 747
Transaction costs on issue of shares (607) -
Acquisition of own shares (2 313) -
Dividends paid (40 029) (56 532)
Loans repaid (7 942) -
Interest paid (16 553) (12 206)
Interest received 800 -
Net cash generated from/(utilised in) financing activities 435 003 289 562
Net increase/(decrease) in cash and cash equivalents (23 050) 18 981
Cash and cash equivalents at the beginning of the period 99 544 21 921
Effect of foreign exchange fluctuations 1 844 (5 428)
Cash and cash equivalents at the end of the period 78 338 35 474
Headline earnings reconciliation
Unaudited Unaudited
period from period from
1 January 1 January
2018 until 2017 until
30 September 30 September
2018 2017
EUR'000 EUR'000
Profit for the period attributable to EPP shareholders 95 501 54 883
Change in fair value of investment properties (26 249) (12 281)
Headline and diluted earnings attributable to
EPP shareholders 69 252 42 602
Actual number of shares in issue 829 989 804 704 970 211
Weighted number of shares in issue 829 989 804 660 103 366
Basic and diluted earnings per share (EUR cents)* 11.51 8.3
Headline earnings and diluted headline earnings per share (EUR cents)** 8.34 6.5
* There are no dilutionary instruments in issue and therefore basic and diluted earnings per share
are the same.
** There are no dilutionary instruments in issue and therefore headline earnings and diluted headline
earnings per share are the same.
Commentary
1. Introduction
EPP is a Dutch-based real estate company that follows the REIT formula and is one of the leading
owners of retail space in Poland. At 30 September 2018 the company manages a portfolio of
19 retail centres and six high-quality offices located in the majority of regional cities in
Poland. In addition to these income generating properties, EPP also has two developments in the
capital - Warsaw, namely Towarowa 22 and Mlociny (set to open in April 2019). By the end of 2020
EPP expects to own 28 shopping centres post the conclusion of tranches two and three of the
M1 transaction.
At period end EPP owned and operated 684 000 m2 retail gross lettable area ("GLA") and 137 000 m2
office GLA, excluding joint ventures. The investment portfolio has a diversified tenant base of
leading retailers with international brands in the retail properties, and primarily blue-chip
companies in the office properties.
The company's operations are fully internalised and all asset management and property management
is done in-house.
EPP's shares are listed on the official list and admitted to trading on the Euro MTF market of
the Luxembourg Stock Exchange ("LuxSE") and on the Main Board of the JSE Limited ("JSE") in the
Real Estate Holdings and Development Sector. The company has primary listings on both the LuxSE
and the JSE.
The company's strategy is to own large dominant shopping centres, located in strong catchment
areas and which have asset management opportunities in terms of extensions across Poland. EPP
intends continuing to divest from offices and recycle the proceeds to fund purchases of
retail assets.
2. Basis of preparation
The unaudited condensed consolidated financial information for the nine months ended
30 September 2018 ("the period") has been prepared in accordance with IAS 34: Interim Financial
Reporting, the Dutch Civil Code, the JSE Listings Requirements and the Rules and Regulations of
the LuxSE.
The accounting policies applied in the preparation of the unaudited condensed consolidated
financial information for the period is consistent with those applied in the previous IFRS
financial statements as of and for the year ended 31 December 2017.
3. Significant accounting policies - impact of new standards
IFRS 9: Financial Instruments
The group performed an assessment of the impact of IFRS 9 on its consolidated financial
statements. Two separate classes of financial assets, currently accounted for under amortised
cost in line with IAS 39, did not pass the SPPI ("Solely Payments of Principal and Interest")
test and are classified as FVTHPL ("Fair Value Through P&L") under IFRS 9. The financial assets
considered are:
- Other financial assets representing loans granted to Kalisz Retail sp. z o.o. and to Aradiana
Ltd, a shareholder and a controlling party of Kalisz Retail sp. z o.o. ("Kalisz loans").
- Other financial assets in related to entities representing advances to each of the Right of
First Offer ("ROFO") entities in connection with the ROFO projects ("ROFO loans").
In relation to Kalisz loans granted by EPP Group, in the first half year of 2018 the borrowers
repaid EUR10.75 million in total of the initial aggregated amount of EUR23.30 million. There
are various possible repayment scenarios including the following: a prepayment of the loan;
repayment of the loan following a five-year period; refinancing of the loan following a
five-year period; sale of the underlying asset; and repayment of the loan. As the options
available are outside of EPP's control, group management has decided to assume that the loan
will be repaid after a five-year period. Under this assumption amortised cost valuation as of
30 September 2018 approximates the fair value of the loan granted.
In relation to the ROFO loans the fair value is calculated using the present value technique,
where the present value of expected net cash flows from the asset is discounted at a current
market-based rate. The cash flows related to the selling price of the building and the final
outcome of the ROFO transaction are impacted by a number of factors, which are very difficult
to estimate. We concluded that the carrying amount of the ROFO loans approximates its
fair value.
IFRS 15: Revenue from Contracts with Customers
IFRS 15 does not have a significant impact on the group's consolidated financial statements.
Note that IFRS 15 does not affect the recognition of lease income as this is still dealt with
under IAS 17: Leases.
IFRS 16: Leases
The standard is effective for periods beginning on or after 1 January 2019 and has not been
adopted by the group yet. The group does not expect the new standard to have a material impact,
as IFRS 16 leaves lessor accounting largely unchanged.
4. Financial results
The net profit for the period amounted to EUR95.5 million and distributable income totalled
EUR72.6 million. Net asset value ("NAV") amounted to EUR991.1 million equating to a NAV per
share of EUR1.33. The net loan-to-value ratio as of 30 September 2018 was 50.7%.
Acquisition of the M1 portfolio
In October 2017 EPP reached an agreement to acquire a portfolio of retail properties for a
combined consideration that values the portfolio at EUR692.1 million. During the period, the
group successfully purchased the first tranche of the M1 portfolio consisting of four properties
for a consideration of EUR359 million.
The acquisition of the remaining properties is conditional upon fulfilment of outstanding
conditions precedent and is scheduled as follows:
- the Second Tranche portfolio comprising a further six properties with an aggregate GLA of
184 000 m2, an aggregate value of EUR222.5 million and an aggregate purchase consideration of
EUR75.2 million and an expected completion date by either 27 June 2019 or 10 July 2019; and
- the Third Tranche portfolio comprising a further two properties with an aggregate GLA of
68 100 m2, an aggregate value of EUR110.9 million and an aggregate purchase consideration of
EUR44.1 million and an expected completion date by either 29 June 2020 or 9 July 2020.
The delay in completing the second and third tranche acquisitions is to enable the seller to
implement various contracted asset management initiatives (including certain lease renewals or
renegotiations) to align those acquisitions with EPP's investment requirements and strategy.
Acquisition of Symetris Business Park phase II
On 27 July 2018 EPP concluded the acquisition of the second phase of Symetris Business Park as
part of the ROFO agreement.
Acquisition of King Cross Marcelin Shopping Centre in Poznan
King Cross Marcelin is the major shopping destination in western Poznan with an immediate
catchment of over 202 000 people living within a 15 minute drive of the centre. The local
average per capita purchasing power is close to EUR9 000 (37% above the national average).
An additional 459 000 people live within a 16 to 30 minute drive.
King Cross Marcelin opened in March 2005 and occupies a prominent and highly visible location at
Bukowska Street, one of the important roads leading west towards Poznan - Lawica Airport.
King Cross Marcelin is situated at the fringe of the Poznan Grunwald and Lawica districts.
Approximately 95% of King Cross Marcelin is let to popular international and national retailers
including Auchan, Media Markt, H&M, Intersport, Jysk, Reserved, New Yorker, CCC, Smyk, Empik
Pepco, Rossmann, Super-Pharm and McDonalds.
New equity raise
EPP successfully placed 36 436 916 new shares with Redefine Properties Limited at a price of
R19.26 per share to partially fund the acquisition of the King Cross Marcelin Shopping Centre.
5. Segment information
Retail Office Unallocated Total
EUR'000 EUR'000 EUR'000 EUR'000
Unaudited
Nine months ended 30 September 2018
Segment profit
Rent and recoveries income 117 361 23 717 1 273 142 351
Property operating expenses (33 258) (5 975) (873) (40 106)
Net property income 84 103 17 742 400 102 245
Unaudited
As at 30 September 2018
Segment assets
Investment in joint ventures 141 062 - - 141 062
Investment property 1 868 473 330 594 - 2 199 067
Total segment assets 2 009 535 330 594 - 2 340 129
Bank borrowings 1 014 788 177 365 102 737 1 294 890
Total segment liabilities 1 014 788 177 365 102 737 1 294 890
Headline earnings to distributable income reconciliation
Unaudited Unaudited
period from period from
1 January 1 January
2018 until 2017 until
30 September 30 September
2018 2017
EUR'000 EUR'000
Headline and diluted earnings attributable to EPP shareholders 69 252 42 602
Amortised cost valuation of long-term financial liabilities 3 643 2 310
Unrealised foreign exchange and other items 1 454 734
Fair value losses/(gains) in joint ventures (28 156) 1 714
Change in deferred tax 22 742 7 816
Provision for Long Term Incentive Plan 2 677 -
Other non-distributable items 1 234 1 778
Distribution of shares to the board (2 349) -
Non-distributable capital gains - (1 356)
Antecedent dividend* 2 121 3 678
Distributable income 72 618 59 276
Actual number of shares in issue 829 989 804 704 970 211
Shares issued on 31 July 2018 36 436 916 -
Shares in issue for distributable earnings 829 989 804 704 970 211
Distributable income per share (EUR cents) 8.75 8.41
* Antecedent dividend relates to the issuance of shares on 24 July 2018 in connection with
acquisition of King Cross Marcelin Shopping Centre.
6. 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.
Group management report
Portfolio performance
During the period, the company increased the number of retail properties from 18 to 19 assets with the
successful acquisition of King Cross Marcelin. The average GLA of the new acquisitions was
approximately 48 000 m2 GLA per asset which is line with the company's strategy to acquire large
dominant centres that are located in strong catchment areas. The total retail GLA increased by
approximately 45 500 m2 in the last quarter, which brings EPP's total retail exposure to 684 000 m2.
Post the successful acquisition of tranche 1 of the M1 portfolio and King Cross Marcelin, EPP now
holds one of the largest shopping centre portfolios by GLA in Poland.
Footfall and sales were largely flat during the period despite the introduction of the Sunday trading
ban in March of this year. Notably like for like NRI growth was 4.2% year to date.
Construction at EPP's flagship Warsaw-based shopping centre Mlociny remains on track and on schedule
to open in April 2019. Mlociny is more than 87% pre-leased, with many first time entrants to Poland
looking to open in the shopping centre. Towarowa 22 is in the process of zoning approval which is
expected in 2019.
Vacancy profile
The vacancy profile indicated below reflects the vacancy percentage in terms of current GLA by
sector, including the Metro Master Lease agreement.
Unaudited
30 September
2018
Vacancy based on total GLA (%)
Office 5.6
Retail 0.6
Total 1.7
Tenants
During the quarter retail units totalled 1 947 with 89 office tenants.
Geographic profile
By fully let
net operating
income
By GLA ("NOI")
City Project % %
Wroclaw Pasaz Grunwaldzki 5.89 9.90
Szczecin Galaxy, Outlet, Oxygen 12.03 16.98
Kielce Galeria Echo, Astra Park 10.47 10.71
Kalisz Galeria Amber 4.08 3.94
Lomza Galeria Veneda 1.83 1.78
Jelenia Gora Galeria Sudecka 3.68 2.70
Belchatow Galeria Olimpia, CH Belchatow 3.98 2.57
Przemysl Centrum Handlowe Przemysl 0.70 0.29
Krakow Zakopianka, Opolska Business Park, M1 13.83 14.07
Zamosc Twierdza Zamosc 2.90 2.75
Klodzko Twierdza Klodzko 2.80 2.26
Wloclawek Wzorcownia Wloclawek 3.09 2.73
Inowroclaw Galeria Solna 2.87 2.81
Poznan Malta Office Park 3.45 3.38
Warszawa Park Rozwoju 4.09 4.03
Lodz Symetris, M1 5.84 3.71
Czeladz M1 6.53 5.97
Zabrze M1 6.42 4.45
Poznan King Cross Marcelin 5.53 4.98
Sectoral profile
By fully
By GLA let NOI
% %
Retail 78.07 83.56
Office 21.93 16.44
Total 100.00 100.00
WAULT*
By rental
By GLA income
Sector
Retail 5.25 4.39
Office 4.48 4.49
* Weighted average unexpired lease term in years.
Prospects
EPP has a quality portfolio of dominant retail properties complemented by high-quality office
properties. The company continues to focus on integrating its recent acquisitions into the portfolio,
exploring asset management opportunities and continuing on its asset recycling strategy. The Polish
economy continues to perform well and the current property fundamentals remain favourable.
The EPP board of directors ("board") remains confident that EPP will deliver on its stated full year
distribution per share guidance of between EUR11.6 and EUR11.8 cents.
There have been no changes to the board during the period under review.
By order of the board
EPP N.V.
6 December 2018
Company information
Directors
Hadley Dean (chief executive officer)
Jacek Baginski (chief financial officer)
Robert Weisz* (chairman)
Marek Belka*
Peter Driessen*
Maciej Dyjas**
Dionne Ellerine*
Andrew Konig**
Nebil Senman**
Andrea Steer*
Marc Wainer**
* Independent non-executive
** Non-executive
Registered office
Gustav Mahlerplein
28, 1082 Amsterdam
The Netherlands
Company secretary
Rafal Kwiatkowski (Master of Laws)
al. 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
JSE sponsor
Java Capital Trustees and Sponsors Proprietary Limited
6A Sandown Valley Crescent
Sandton
2196
EPP Investor Relations
Curwin Rittles
Mobile: +48 885 982 310
curwin.rittles@epp-poland.com
Singular Systems IR
Michele Mackey
+27 (0)10 003 0700
michele@singular.co.za
Jacques de Bie
+27 (0)82 497 9827
jdebie@singular.co.za
www.epp-poland.com
Date: 06/12/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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