Wrap Text
Condensed consolidated financial results for the year ended 31 December 2018
NEPI Rockcastle plc is incorporated and registered in the Isle of Man with registered number 014178V
Registered office: 2nd Floor, 30 Athol Street Douglas, Isle of Man, IM1 1JB
JSE share code: NRP
Euronext share code: NRP
ISIN: IM00BDD7WV31
('NEPI Rockcastle', 'the Group' or 'the Company')
CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018
DIRECTORS' COMMENTARY
All information below excludes joint ventures, unless otherwise stated
In 2018 NEPI Rockcastle has maintained and further strengthened its position
as the CEE's leading property operator, investor and developer. We continued
to deliver strong results, in line with guidance, in a challenging year. The Group
expanded its geographical coverage and benefitted from strong performance
of its properties while managing through competitive markets and changes in
its own management structure.
The Company has continuously adapted its strategy to generate value for its
stakeholders, by prioritising long-term earnings quality and growth and the
stability of its balance sheet. Acquisitions of dominant properties in excess of
EUR594 million were completed, and over EUR260 million were invested in land and
prime developments during 2018. These were funded by a material divestment
from the listed securities portfolio, despite less favourable equity markets, as
well as tapping into the Company's debt capacity while maintaining a safe
credit profile.
Active management of our property portfolio has been and will continue to
be the pillar of our business and we have deployed significant investments
into our properties to ensure they remain the destination of choice in their
respective catchment areas. Considering the recent merger and the addition of
professionals in new countries, having a unified and interconnected team is
an essential component to the continuing success of the Group, which receives
our utmost attention.
With more than eleven years of successful track record in the CEE, NEPI
Rockcastle has accumulated significant know-how of managing retail real
estate operations and a portfolio of dominant assets across a growing number
of diverse jurisdictions. NEPI Rockcastle and its team remain confident and best
placed to benefit from opportunities and growth in its markets to generate
stability and value for its stakeholders.
Alex Morar, Chief Executive Officer
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Strong financial and operational performance
- Distributable earnings per share for the second half of 2018 of 26.37
eurocents, which together with the interim distribution of 26.49 eurocents
per share resulted into a total distribution for the year of 52.86 eurocents
per share. Distributable earnings per share are 9.5% higher than the 2017
combined distribution of 48.26 eurocents per share, and in line with
previously announced earnings guidance;
- NOI growth for the retail portfolio was 4.9% in 2018 compared to the
previous year (like-for-like);
- Net rental and related income ("NOI") of EUR346 million in 2018, up by 29.6%
from EUR267 million in 2017 (considering full impact of former Rockcastle
portfolio for 2017);
- Tenant's sales increased by 7.5%; tenant sales / m2 improved by 5.7%;
both indicators are like-for-like and exclude hypermarkets' sales,
as they don't consistently report turnover data across portfolio;
- Occupancy cost ratio was 11.9% in 2018 (excluding hypermarkets);
- EPRA vacancy of 2.8% as at December 2018;
- Consistent collection rate of 99.9% of annual gross rental income and
service charge income;
- Customer footfall: 307 million visits during 2018.
Active management of the portfolio via acquisitions and developments
- Completed acquisitions pipeline of EUR594 million, plus investment in land
and developments of EUR260 million;
- Gross Lettable Area ("GLA") increased by 278,000m2;
- Entry into a new market, the Baltics, with the acquisition of Ozas
Shopping and Entertainment Centre, a prime asset in Vilnius, Lithuania;
this extended NEPI Rockcastle's retail presence to a total of nine
countries;
- Consolidation of the Group's significant positions in the retail market
through acquisitions in Hungary of Mammut Shopping Centre (Budapest),
in Slovakia of Galeria Mlyny (Nitra) and in Poland of Aura Centrum
(Olsztyn);
- Completion of three development and extension projects in Poland,
Romania and Serbia, with a large part of the space let to leading
international retailers including Carrefour, Cinema City, Douglas, Hervis,
New Yorker, Orsay, Sephora, Starbucks, and the Inditex and LPP brands;
- Nine development and extension projects ongoing in CEE, totalling over
100,000m2, across four different markets.
Robust balance sheet
- Total value of direct property portfolio owned by NEPI Rockcastle of over
EUR5.9 billion, 20% larger than at the end of 2017;
- EPRA NAV per share of EUR7.09 (IFRS NAV per share of EUR6.66) compared
to EUR7.10 (IFRS NAV per share of EUR6.78) in previous year;
- Net listed securities portfolio represented 3% of total assets, a significant
decrease compared to 10% at December 2017;
- Loan to Value ratio ("LTV") of 33%, below the Group's strategic target of 35%
and with comfortable headroom to the unsecured debt covenant of 60%;
- Investment grade credit ratings: Moody's (Baa3, stable outlook), Standard
& Poor's (BBB, stable outlook) and Fitch (BBB, stable outlook);
- Weighted average cost of debt of 2.3%;
- All interest rate exposure related to long-term loans is hedged (excluding
revolving facilities), with a remaining weighted average hedge term
of 4.1 years.
ENHANCED DISCLOSURE AND TRANSPARENCY
In 2018, the Group joined European Public Real Estate Association (EPRA)
and started reporting EPRA indicators with the aim to enhance disclosure and
transparency, while aligning to industry standards.
2018 2017
EPRA NAV per share (EUR) 7.09 7.10
EPRA Earnings (EUR thousand) 308.7 212.9*
EPRA Earnings per share (EURcents per share) 53.43 37.81*
EPRA Net Initial Yield (NIY) 6.74% 6.69%
EPRA 'topped-up' NIY 6.82% 6.73%
EPRA vacancy rate 2.8% n/a**
* EPRA Earnings are computed based on IFRS financial statements which included the effect of the merger
with Rockcastle from 11 July 2017 onwards. Thus, EPRA earnings do not incorporate the company specific
adjustments relating to antecedent dividend corresponding to Rockcastle distributable earnings for the
six-months ended 30 June 2018 and antecedent dividend corresponding to the equity issue in October 2018,
respectively (cumulated effect of EUR56,392 thousand).
** The Group became an EPRA member in 2018 and the EPRA vacancy rate was not computed for the
comparative period.
RETAIL TRANSFORMATION
Penetration of e-commerce and retail area supply relative to population in
the Group's region are on average lower in CEE as compared to the Western
markets. Even though the CEE region is not under the same pressure for retail
transformation, the Company is embedding international trends in changing
consumer preferences into its business model. Active dialogue with leading
online retailers led to high-profile online brands within the region such as
epantofi.ro, eobuwie.com.pl, Notino and eMag opening brick-and-mortar shops
in our malls in Poland and Romania.
It is notable that the overall supply of shopping centres per capita is lower in
CEE than Western Europe or the US, and CEE malls are relatively newer and
more modern. Furthermore, online penetration in Eastern Europe is low at 3%,
compared to Western Europe at 9%. North America has the highest global
penetration rate: 11% (GlobalData source).
NEPI Rockcastle is focused on offering customers preferred social and
recreational destinations by actively upgrading the leisure and entertainment
activities in its shopping centres. In 2018, the Group refurbished and extended
food courts and leisure areas in Kragujevac Plaza, Shopping City Timisoara,
Shopping City Ploiesti, Braila Mall and City Park Constanta and started the
refurbishment of food court in Mega Mall Bucharest, Shopping City Sibiu and
Aurora Mall Buzau. For newly development shopping centers the Group applied
new design trends, resulting in more attractive leisure areas (e.g: Shopping City
Satu Mare and Promenada Novi Sad).
PROPERTY PORTFOLIO
NEPI Rockcastle's direct property geographic profile as at 31 December 2018
by asset value was:
Romania 36% Croatia 4%
Poland 24% Czech Republic 3%
Hungary 10% Serbia 3%
Slovakia 9% Lithuania 2%
Bulgaria 9%
NEPI Rockcastle implemented its announced strategy of converting the
majority of its portfolio of liquid listed securities into direct property
investment, decreasing the listed securities exposure to EUR197 million, from
EUR593 million at December 2017. The remaining exposure consists of shares in
two large companies, Unibail Rodamco Westfield and Klepierre, that operate
primarily in the US, UK, and Continental Europe.
ACQUISITIONS
NEPI Rockcastle completed acquisitions of EUR594 million and added a total
of over 176,300m2 GLA to its direct property portfolio during 2018. The main
acquisitions are detailed below.
Aura Centrum (Olsztyn, Poland - 30 May 2018)
The Group acquired Aura Centrum, a 25,400m2 GLA shopping and entertainment
centre in the heart of Olsztyn. The top five tenants by rented area are Carrefour,
H&M, Kino Helios, New Yorker and Reserved. Olsztyn, a city with centuries of
history, has a population of 173,000 inhabitants; it is located in north-eastern
Poland and is the capital of the Warmian-Masurian province, with a population
of over 1.4 million people. The city ranks highly in quality of life, income,
employment and security. The shopping centre is within a 15-minute drive for
over 180,000 inhabitants and attracts 5.5 million people on an annual basis.
Ozas Shopping and Entertainment Centre (Vilnius, Lithuania - 31 May 2018)
NEPI Rockcastle acquired Ozas, a 62,400m2 GLA modern shopping centre
with a strong fashion and entertainment-oriented tenant mix, benefitting from
an excellent location in Vilnius. The top five tenants by rented area are H&M,
Maxima, Multikino, Peek&Cloppenburg and Zara.
Vilnius is the capital city of Lithuania and has a population of 574,000
residents, with 432,000 inhabitants within a 15-minute drive from Ozas. The
centre has an annual footfall in excess of 5 million people.
Galeria Mlyny Shopping Centre (Nitra, Slovakia - 31 May 2018)
The Group acquired Galeria Mlyny, a 32,400m2 GLA central shopping and
entertainment destination in Nitra, Slovakia. The top five tenants by rented area
are Billa, C&A, H&M, Mlyny Cinemas and New Yorker.
The city is the oldest urban centre in Slovakia, the seat of two universities, and
is inhabited by approximately 79,000 people; it is also the capital of the Nitra
region, populated by over 689,000 people. Approximately 356,000 inhabitants
are within a 30-minute drive from the shopping centre. Footfall exceeded 8.8
million last year.
Mammut Shopping Centre (Budapest, Hungary - 11 September 2018)
The Group acquired the controlling stake in Mammut, one of the largest and
most successful shopping and entertainment destinations in Budapest, which is
prominently located at Kalman Square, the busiest interchange hub in the Buda
side of the city. The centre offers 61,300m2 of total GLA (out of which 56,100m2
is owned by NEPI Rockcastle) in two buildings connected via a double-level
pedestrian bridge and includes key anchors such as Cinema Pink, H&M, Hervis,
Interspar, Media Markt, New Yorker and Reserved. Mammut is the second
dominant asset that the Group controls in the Hungarian capital.
Budapest is one of the largest cities in the CEE: it is inhabited by 1.75 million
people and its metropolitan area houses a third of the country's population.
The centre is visited by 15.6 million people each year.
DEVELOPMENTS AND EXTENSIONS
The Group has and will continue to invest strategically in developments that
contribute to growth in distributable earnings per share or improve long-term
prospects for its portfolio. NEPI Rockcastle is pursuing a development pipeline
which exceeds EUR1 billion (including redevelopments and extensions, estimated
at cost), of which EUR200 million was spent until 31 December 2018. Out of the
remaining investments, only 24% have already been committed, which gives
the Group flexibility regarding prioritisation and timing of its pipeline projects.
COMPLETED DEVELOPMENTS AND EXTENSIONS
Platan Shopping Centre Extension (Zabrze, Poland, 26 October 2018)
After 15 months of works, the extension of over 14,000m2 of Platan Shopping
Centre opened in October 2018. The city of Zabrze has a population of 175,000
residents and is part of the Silesian metropolitan area that has 4.6 million
residents. The centre serves a 30-minute catchment of 1,968,000 people. The
center has an EPRA occupancy rate of 93.6%. The extension positioned Platan
as an upgraded, fourth generation, upscale shopping centre with a total GLA of
39,400m2; the centre now includes previously missing functions, such as a food
court, fitness centre, cinema and intelligent parking, as well as new brands such
as Carry, Cropp, Home & You, House, Kids Play, KIK, Martes Sport, Maxi Zoo,
Neonet, Pepco, Reserved, Super-pharm and TEDi.
Promenada Novi Sad (Novi Sad, Serbia, 15 November 2018)
After 16 months of works, NEPI Rockcastle opened its first greenfield
development in Serbia. With a 49,200m2 GLA, it is the largest mall in Serbia. It
is located in Novi Sad, the country's second largest city, with a population of
approximately 320,000 inhabitants. The centre serves a 45-minute catchment
of 607,000 people. The city is also 2019's European Youth Capital, was named
Lonely Planet's third best city to visit in 2019 and, in 2021, will be the first non-
European Union city to be the European Capital of Culture.
The centre has an EPRA occupancy of 98.2% and boasts an attractive tenant
mix such as: Adidas, Armani Exchange, Cineplexx, Diesel, Guess, Inditex (Zara,
Massimo Dutti, Zara Home, Oysho, Bershka, Pull&Bear, Stradivarius), KFC,
Lacoste, LC Waikiki, LPP (Reserved, Cropp, Sinsay, House, Mohito), McDonald's,
New Yorker, Nike, Tommy Hilfiger and Univerexport Supermarket.
The Group's strategy to increase the size and quality of the food and leisure
offering was implemented by accommodating a Cosmoland playground, Pro
Fitness, two outdoor terraces used by four restaurants and a large, naturally-lit
food court with cozy seating areas.
Shopping City Satu Mare (Romania, 5 December 2018)
The Group successfully completed the construction of the 29,200m2 GLA
modern retail and entertainment destination in the heart of Satu Mare, a city
of 123,000 residents, with a history going back to the Middle Ages. The centre
is the prime shopping destination for the 288,000 inhabitants that live within
a 45-minute catchment area. Satu Mare Shopping Centre is anchored by
the city's first Carrefour hypermarket and has over 1,000 parking bays. The
centre has a 97.3% EPRA occupancy, hosting tenants such as: Carrefour, CCC,
Cineplexx (the first in Romania), Deichmann, Douglas, Hervis, Intersport, KFC,
LC Waikiki, New Yorker, Pepco, Reserved and Smyk.
The centre features an outdoor terrace of over 1,000m2, overlooking Somes
River, which will be connected to the historical city center by a pedestrian
bridge. The terrace has three outdoor dining areas with selected regional
restaurants. With a welcoming design that includes an integrated green
area, the terrace complements the entertainment offering and is expected to
become the main social hub of the region.
DEVELOPMENTS AND EXTENSIONS PIPELINE
Solaris Shopping Centre - extension (Opole, Poland)
Construction work on the approximately 8,900m2 extension, including the
development of a multi-level basement parking and a new town square in
front of the main entrance, are ongoing. Tenant demand is strong: C&A, CCC,
Deichmann, Guess, Just Gym, KFC, LPP group brands, McDonald's and Smyk
have signed lease agreements.
Following the extension, Solaris will be a 26,000m2 dominant shopping centre
serving the 128,000 citizens of Opole, a beautiful historical city. The project's
expected delivery date is in the second quarter of 2019.
Developments in Sibiu: Festival development and Shopping City Sibiu
reconfiguration and extension (Romania)
The Group is continuing the development work on its two projects in Sibiu,
one of the most developed and affluent cities in Romania, a major tourist
destination and home to over 170,000 citizens. The two projects will satisfy a
45-minute catchment of 286,000 residents and complement each
other's offering.
Festival is conveniently located in the inner city. The mall will have a 42,200m2
GLA, with the first Kaufland supermarket located in a shopping centre in
Romania, and a strong fashion and entertainment offering: Cinegold, H&M,
Inditex (Zara, Massimo Dutti, Oysho, Bershka, Pull&Bear, Stradivarius) and
New Yorker. The project is expected to be delivered by the end of 2019. Its
architectural concept will be unique, allowing the centre to seamlessly blend
into the city's medieval skyline.
Shopping City Sibiu will remain the larger destination shopping centre, with a
83,100m2 GLA post-reconfiguration and extension, catering to a wider range
of product demand via its two hypermarkets as well as a DIY store. Shopping
City Sibiu was recently refurbished and extended, with several fashion brands
added, such as Cropp, De Facto (first store in the country), House, LC Waikiki,
Mohito, Reserved and Smyk. Some of the existing stores were refurbished
and extended: CCC, Douglas, Humanic and Norriel. The second phase of the
extension will open in spring 2019, with the food court, cinema and open-air
terrace served by new tenants such as KFC, Pepp&Pepper, Salad Box
and Taco Bell.
Aurora Shopping Mall - extension (Buzau, Romania)
In October 2018, the Group started the development work on the 6,000m2 GLA
extension and reconfiguration of Aurora Mall. The centre is a top performer
due to its unique location and access; it is now being refurbished to include a
Cinema City, a food court and several new fashion tenants. Buzau, a city with
a population of 133,000 residents, is a major transit-hub that links Bucharest to
the Moldavia region. Buzau is the seat of a county with over 430,000 residents
that substantially overlaps with the centre's 45-minute catchment area.
The extension and reconfiguration will be done in several phases expected to
be completed by the end of the year, with the exception of the Cinema City
that will open in spring 2020.
Arena Centar - shopping centre extension and reconfiguration, and retail
park development (Zagreb, Croatia)
Arena Centar is one of the most successful assets in the Group's portfolio, and
the top retail destination in Zagreb. The city is the capital of Croatia and has
a population of over 800,000 residents; its metropolitan area houses almost a
quarter of the country's population.
The Group has planned to extend the centre since its acquisition; the extensive
reconfiguration will be fully completed during 2019, bringing the total GLA to
67,200m2 and adding brands such as CK, Gap, Muller, Peek and Cloppenburg,
TAF and Under Armour, together with the extensions of Adidas, Fashion
Friends, Sport Vision and Stradivarius.
In addition, a new retail park adjacent to the shopping centre is almost
completed and expected to open in May 2019, adding 8,300m2 of GLA. The
retail park will extend the range of tenant mix available to Arena Zagreb with
Extra Sport, Intersport, Jysk, LC Waikiki (market entry in Croatia), Pepco, Pitta
Rosso and Sancta Domenica.
Focus Mall Zielona Gora - extension (Zielona Gora, Poland)
The Company has started the 15,000m2 GLA extension of Focus Mall Zielona
Gora, a vibrant city well known for its annual wine festival, the largest
municipality and the seat of Lubuskie voivodeship. It is well connected to several
international roads and rail routes.
Once completed, the 43,900m2 GLA mall will be the main retail destination
for 140,000 inhabitants in a 30-minute catchment area, including the 284,000
citizens of the city. The extension is expected to be finalised in Q4 2020.
Targu Mures - development (Romania)
The Company is in process of obtaining a building permit for the development
of a 41,300m2 GLA shopping mall in the south-eastern part of Targu Mures, the
seat of Mures county. A vibrant and multi-cultural city of 148,000 inhabitants,
Targu Mures is also home to the largest urban Hungarian community in Romania.
The project aims to become the regional dominant mall and offer to the
390,000 residents estimated to be living in a 45-minute catchment area access
to a large hypermarket, numerous fashion stores, food court and cinema with
leisure areas. Targu Mures Shopping City is currently 30% pre-leased and will
be anchored by a Carrefour hypermarket.
The project is expected to be completed in Q2 2020, depending on permitting.
The Group is pursuing several other development projects which are subject to
permitting and market circumstances.
CASH MANAGEMENT AND DEBT
The Group has a strong liquidity profile, with EUR97 million in cash, EUR236 million
in available unsecured revolving facilities, and EUR197 million net available in the
listed securities portfolio at 31 December 2018.
NEPI Rockcastle's gearing ratio (interest bearing debt less cash, divided by
investment property and listed securities) was 33%, below the gearing ratio
target of 35%.
The average interest rate, including hedging costs, was 2.3% during 2018. As at
31 December 2018, fixed-coupon bonds represented 43% of NEPI Rockcastle's
outstanding debt, and out of the remaining long-term debt exposed to Euribor,
30% was hedged with interest rate caps and 48% with interest rate swaps (the
difference relates to the outstanding revolving facilities).
Depending on market conditions, the Group may initiate a repurchase of issued
bonds or shares during the upcoming reporting periods.
In February 2019, NEPI Rockcastle has decided to discontinue the credit rating
agreement with Moody's with a view of optimising costs and management time.
ACCOUNTING AND AUDIT MATTERS
Valuation
NEPI Rockcastle reassesses the valuation of its property portfolio twice a
year. Fair value is determined by external, independent professional valuers,
with appropriate and recognised qualifications, and recent experience in
the location and category of property being valued. The valuations as at 31
December 2018 were performed by Cushman&Wakefield, Cushman&Wakefield
Affiliate Partners and Jones Lang La Salle, and reviewed by the Company's
auditors, PricewaterhouseCoopers LLC ("PwC"), as part of the year-end audit
procedures.
External audit
The Group's consolidated financial statements are audited by PwC Isle of
Man, by relying on the work of PwC firms in the jurisdictions where the Group
operates. The local PwC firms audit the standalone IFRS financial information of
the subsidiaries, for the purpose of issuing an audit report on the consolidated
financial statements of the Group, prepared in accordance with IFRS. For
2018, all property-owning subsidiaries requiring statutory audit will be audited
by PwC, except for Ploiesti Shopping City. For statutory reporting purposes,
audit requirements are driven by local regulations, and not all subsidiaries are
required to submit statutory audited financial statements.
CORPORATE GOVERNANCE
The membership of the Board of Directors went through several changes in
2018. As announced on 12 June 2018, the executive management evolved into
a sole CEO structure. In line with best practice and corporate governance
principles, the Company rotates its board members to achieve a Board
comprised of highly qualified and experienced directors. The Company would
like to thank once more its former directors, Mr. Dan Pascariu, Mr. Michael Mills,
Mr. Spiro Noussis and Mr. Nicholas Matulovich for their valuable contribution
and at the same time welcome its new directors: Mr. George Aase and Mr. Vuso Majija.
With respect to the investigations conducted by the Financial Services
Conduct Authority in South Africa (the "FSCA"), the Board highlights that
the Company has been fully cooperating with the regulator. Considering
the Group's recent communication with its stakeholders and continuous
engagement to ensure transparency, supporting the FSCA towards a swift
resolution of the ongoing investigation is a priority. NEPI Rockcastle looks
forward to the FSCA concluding the pending investigations involving trading of
the Company's shares.
A group of ten investors have raised concerns during 2018 following which
the Board established a special committee to analyse and respond to matters
raised, engaged in fully transparent communications with its investors, and
improved the already existing whistle-blower facilities. The special committee
and the Board consider the respective matters as addressed and reconfirm
that no substantiated allegations were made. The Company maintains its
commitment that any future substantiated allegations will be properly
scrutinised.
NEPI Rockcastle has also initiated the process for obtaining an ESG rating.
Further improvements to corporate governance and other related initiatives
will be detailed in the Annual Report.
DISTRIBUTABLE EARNINGS
The Group achieved 26.37 eurocents in distributable earnings per share for
the second half of 2018, which, aggregated with the distribution achieved
for the six months ended 30 June 2018 of 26.49 eurocents per share, results
in a total distribution per share of 52.86 euro-cents for the year ended 31
December 2018. The 2018 distribution is 9.5% higher than the 2017 distribution
of 48.26 eurocents per share. This growth is in line with previously announced
guidance, although macroeconomic circumstances proved more challenging
than initially envisaged. The strong results reflect the solid performance of
the Group's assets and management team, and the quality of acquisitions and
developments completed during the year.
The Board of Directors declares a distribution of 26.37 euro cents per share for
the second half of 2018. Shareholders can elect to receive distribution either in
cash or as an issue of fully-paid shares based on a ratio between distribution
declared and the reference price. The reference price will be calculated using
a maximum 5% discount to the five-day volume-weighted average traded
price, less distribution, of NEPI Rockcastle shares on the JSE. The Company
reserves the right to limit the total allocation of shares as a percent of the total
distribution. A circular containing full details of the election being offered to
shareholders, accompanied by announcements on the Stock Exchange News
Service (SENS) of the JSE and Euronext Amsterdam will be issued in due course.
PROSPECTS AND EARNINGS GUIDANCE
NEPI Rockcastle's strategy is to continue focusing on the long-term
performance of its portfolio and selective expansion via developments
and acquisitions. Leveraging on the quality of the existing portfolio and
management platform, future results are expected to outperform those of
the Company's peers operating in the same markets. Moreover, superior GDP
growth between 2.8% and 4.5% is expected to continue in CEE, relative to
EU average of 2.2%, driving up retail consumption and tenant turnovers in
the countries where NEPI Rockcastle operates. The Company will maintain
a flexible approach to new development and acquisition opportunities,
considering the availability and cost of funding, with the aim of optimising the
long-term benefit to its stakeholders.
Based on strategic options currently under management's control, distributable
earnings per share for 2019 are expected to be approximately 6% higher
than the 2018 distribution. This guidance is based on the assumptions that a
stable macroeconomic environment prevails, no major corporate failures occur
and controlled developments remain on schedule. This forecast has not been
audited or reviewed by NEPI Rockcastle's auditors and is the responsibility of
the Board of Directors.
By order of the Board of Directors
Alex Morar Mirela Covasa
Chief Executive Officer Chief Financial Officer
27 February 2019
INFORMATION EXTRACTED FROM THE AUDITED IFRS FINANCIAL STATEMENTS
All amounts in EUR'000 unless otherwise stated
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31 Dec 2018 31 Dec 2017
ASSETS
Non-current assets 6 116 059 5 127 197
Investment property 5 911 070 4 927 509
Investment property in use 5 688 610 4 725 093
Investment property under development 222 460 202 416
Goodwill 93 070 82 582
Deferred tax assets 13 739 12 490
Investments in joint ventures 49 185 40 856
Long-term loans granted to joint ventures 21 311 25 792
Other long-term assets 19 039 36 175
Interest rate derivatives financial assets at fair value through profit or loss 8 645 1 793
Current assets 374 628 860 366
Trade and other receivables 80 750 60 793
Financial investments at fair value through profit or loss 168 339 326 565
Equity derivative collateral 27 784 265 541
Financial assets at fair value through profit or loss 831 11 923
Cash and cash equivalents 96 924 195 544
Investment property held for sale 11 957 10 238
Total assets 6 502 644 5 997 801
EQUITY AND LIABILITIES
Total equity attributable to equity holders 3 845 873 3 914 719
Share capital 5 778 5 778
Share premium 3 625 568 3 625 568
Accumulated profit 208 426 282 897
Non-controlling interest 6 101 476
Total liabilities 2 656 771 2 083 082
Non-current liabilities 2 221 338 1 937 282
Bank loans 930 048 734 493
Bonds 892 397 889 917
Deferred tax liabilities 351 187 271 105
Other long-term liabilities 44 981 37 089
Interest rate derivatives financial liabilities at fair value through profit or loss 2 725 4 678
Current liabilities 435 433 145 800
Trade and other payables 159 786 113 553
Financial liabilities at fair value through profit or loss - 10 934
Bank loans 265 006 10 568
Bonds 10 641 10 745
Total equity and liabilities 6 502 644 5 997 801
BASIS OF PREPARATION
The condensed consolidated financial results for the year ended 31 December 2018 have
been prepared in accordance with the recognition and measurement criteria of the
International Financial Reporting Standards ("IFRS") and interpretations adopted by the
International Accounting Standards Board ("IASB"), the presentation and the disclosure
requirements of IAS 34 Interim Financial Reporting and the JSE Listings Requirements.
The accounting policies which have been applied are consistent with those used in the
preparation of the annual financial statements for the year ended 31 December 2017, with
the exception of the adoption of IFRS 9 and IFRS 15 starting 1 January 2018. The directors
take full responsibility for the preparation of this preliminary report. This condensed report
contains information extracted from the audited financial statements for the year ended
31 December 2018, but is not itself audited. The directors take full responsibility for the
preparation of the condensed report and for ensuring that the financial information has
been correctly extracted from the underlying audited annual financial statements. The
Directors confirm that the Condensed Consolidated Financial Statements give a true and
fair view of the state of affairs of the Group for the year ended 31 December 2018 as well as
the comparative period presented. The auditors, PwC, have issued their unmodified audit
report on the annual financial statements for the year ended 31 December 2018 and a copy
of the audit opinion, together with the underlying audited annual financial statements are
available for inspection at the company's registered office as well as on the Company's
official website.
For the comparative information, in accordance with IFRS 3 - Business Combinations, the
merger between New Europe Property Investments (NEPI) and Rockcastle Global Real
Estate Company (Rockcastle) was classified as a purchase of Rockcastle by NEPI, with NEPI
Rockcastle being assessed in substance as a continuation of NEPI. Consequently, in these
consolidated financial statements, in accordance with IFRS, NEPI Rockcastle presents the
results of former NEPI Group before the merger date (11 July 2017), and the results of the
combined Group from the merger date onwards.
The auditor's report does not necessarily report on all of the information contained in
these financial results. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor's engagement they should obtain a copy of the
auditor's report together with the accompanying financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 31 Dec 2018 31 Dec 2017
Net rental and related income 346 070 232 085
Gross rental income 349 907 233 807
Service charge income 151 826 103 170
Property operating expenses (155 663) (104 892)
Administrative expenses (22 022) (15 191)
EBITDA 324 048 216 894
Net result from financial investments (122 915) (6 028)
Income from financial investments at fair value through profit or loss 29 132 18 084
Fair value and net result on sale of financial investments at fair value through profit or loss (152 047) (24 112)
Acquisition fees (6 079) (10 681)
Fair value adjustments of investment property 108 411 162 022
Foreign exchange loss (923) (1 255)
Gain on disposal of investment property - 9
Gain on acquisition of subsidiaries 6 933 -
Profit before net finance expense 309 475 360 961
Net finance expense (39 859) (22 906)
Interest income 2 444 2 526
Interest expense (40 318) (24 370)
Other net finance expense (1 985) (1 062)
Fair value adjustment of interest rate derivatives financial assets and liabilities (1 432) 500
Share of profit of joint ventures 8 329 16 068
Impairment of goodwill* - (886 167)
Profit/(Loss) before tax 276 513 (531 544)
Income tax (54 808) (47 870)
Current tax expense (9 482) (1 671)
Deferred tax expense (45 326) (46 199)
Profit/(Loss) after tax 221 705 (579 414)
Total comprehensive (loss)/profit for the year 221 705 (579 414)
Non-controlling interest 150 (280)
Profit/(Loss) for the year attributable to equity holders 221 855 (579 694)
Profit for the year attributable to equity holders excluding impairment of goodwill 221 855 306 473
Weighted average number of shares in issue 577 800 734 436 806 684
Diluted weighted average number of shares in issue 577 800 734 436 809 203
Basic/diluted earnings/(loss) per share (euro cents) 38.40 (132.71)
Basic/diluted earnings per share (euro cents) excluding impairment of goodwill 38.40 70.16
* Impairment of goodwill arising from the merger with Rockcastle, computed as the difference between Rockcastle's market capitalisation
and its net asset value at merger date.
Share-based Currency Non-
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Share payment translation Accumulated controlling
capital premium reserve reserve profit interest Total
Balance at 1 January 2017 3 215 1 368 171 4 797 (1 229) 439 598 - 1 814 552
Transactions with owners 2 563 2 257 397 (4 797) 1 229 422 993 196 2 679 581
- Issue of shares 514 395 596 - - - - 396 110
- Sale of shares issued under the Initial Share Scheme - 18 - - - - 18
- Issue of shares for the acquisition of Rockcastle 2 049 2 747 950 (4 797) 1 229 (424 152) 196 2 322 475
- Transfer of goodwill impairment on acquisition
of Rockcastle Group to share premium - (886 167) - - 886 167 - -
- Earnings distribution - - - - (39 022) - (39 022)
Total comprehensive income - - - - (579 694) 280 (579 414)
- Impairment of goodwill - - - - (886 167) - (886 167)
- Profit for the year excluding impairment of goodwill - - - - 306 473 280 306 753
Balance at 31 December 2017 5 778 3 625 568 - - 282 897 476 3 914 719
Balance at 1 January 2018 5 778 3 625 568 - - 282 897 476 3 914 719
Transactions with owners - - - - (296 326) 5 775 (290 551)
- Issue of shares - - - - - 5 775 5 775
- Earnings distribution - - - - (296 326) - (296 326)
Total comprehensive income - - - - 221 855 (150) 221 705
- Profit for the year - - - - 221 855 (150) 221 705
Balance at 31 December 2018 5 778 3 625 568 - - 208 426 6 101 3 845 873
RECONCILIATION OF PROFIT FOR THE YEAR TO DISTRIBUTABLE EARNINGS 31 Dec 2018 31 Dec 2017
(Loss)/Profit for the year attributable to equity holders 221 855 (579 694)
Reverse indirect result 58 876 776 019
Foreign exchange loss 923 1 255
Acquisition fees 6 079 10 681
Fair value adjustments of investment property for controlled subsidiaries (108 411) (162 022)
Gain on disposal of investment property - (9)
Gain on acquisition of subsidiaries (6 933) -
Fair value and net result on sale of financial investments at fair value through profit or loss 152 047 24 112
Income from financial investments at fair value through profit or loss (29 132) (18 084)
Fair value adjustment of interest rate derivatives financial
assets and liabilities for controlled subsidiaries 1 432 (500)
Deferred tax expense for controlled subsidiaries 45 326 46 199
Impairment of goodwill - 886 167
Adjustments related to joint ventures
Fair value adjustments of investment property for joint ventures (4 374) (14 344)
Fair value adjustment of interest rate derivatives financial assets and liabilities for joint ventures (141) (439)
Deferred tax expense for joint ventures 1 889 2 903
Foreign exchange loss for joint ventures 171 100
Company specific adjustments 24 682 17 004
Amortisation of financial assets (2 292) (1 807)
Realised foreign exchange loss for controlled subsidiaries (912) (769)
Realised foreign exchange (loss)/gain for joint ventures (1) 3
Accrued dividend for financial investments 28 122 19 803
Fair value adjustment of investment property for
non-controlling interest (350) (392)
Deferred tax expense for non-controlling interest 115 166
Antecedent dividend - 6 861
Antecedent dividend - Rockcastle distribution Jun 2017 - 49 531
Distributable earnings 305 413 269 721
Less: Distribution declared (305 413) (269 721)
Interim distribution* (153 041) (126 438)
Final distribution (152 372) (143 283)
Earnings not distributed - -
Number of shares entitled to interim distribution* 577 800 734 538 953 794
Number of shares entitled to final distribution 577 800 734 577 800 734
Distributable earnings per share (euro cents) 52.86 48.26
Less: Distribution declared per share (euro cents) (52.86) (48.26)
Interim distribution per share (euro cents)* (26.49) (23.46)
Final distribution per share (euro cents) (26.37) (24.80)
Earnings not distributed (euro cents) -
* Interim distribution, interim distribution per share and number of shares entitled to interim distribution computed on a combined basis for H1 2017.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 31 Dec 2018 31 Dec 2017
Profit/(Loss) after tax 221 705 (579 414)
Adjustments 104 593 801 695
Interest and coupon paid (40 903) (24 034)
Changes in working capital (3 490) 14 829
Cash flows from operating activities 281 905 213 076
Proceeds from issue of shares - 396 128
Earnings distribution (296 326) (39 022)
Net movements in bank loans and bonds 401 835 422 048
Other proceeds/payments (12 845) 196
Cash flows used in financing activities 92 664 779 350
Investments in acquisitions and developments (759 231) (947 245)
Net cash flow from/(used in) investments in financial assets 275 834 102 712
Other investments 10 208 (369)
Cash flows used in investing activities (473 189) (844 902)
Net increase/(decrease) in cash and cash equivalents (98 620) 147 524
Cash and cash equivalents brought forward 195 544 48 020
Cash and cash equivalents carried forward 96 924 195 544
RECONCILIATION OF PROFIT FOR THE YEAR TO HEADLINE EARNINGS 31 Dec 2018 31 Dec 2017
(Loss)/Profit for the year attributable to equity holders 221 855 (579 694)
Fair value adjustments of investment property for controlled subsidiaries (108 411) (162 022)
Gain on sale of investment property - (9)
Gain on acquisition of subsidiaries (6 933) -
Impairment of goodwill - 886 167
Tax effects of adjustments for controlled subsidiaries 16 888 27 089
Fair value adjustments of investment property for joint ventures (4 374) (20 928)
Tax effects of adjustments for joint ventures 700 2 295
Headline earnings 119 725 152 898
Weighted average number of shares in issue 577 800 734 436 806 684
Diluted weighted average number of shares in issue 577 800 734 436 809 203
Headline earnings per share (euro cents) 20.72 35.00
Diluted headline earnings per share (euro cents) 20.72 35.00
RECONCILIATION OF NET ASSET VALUE TO ADJUSTED NET ASSET VALUE 31 Dec 2018 31 Dec 2017
Net Asset Value per the Statement of financial position 3 845 873 3 914 719
Deferred tax liabilities for controlled subsidiaries 351 187 271 105
Deferred tax assets for controlled subsidiaries (13 739) (12 490)
Goodwill (93 070) (82 582)
Interest rate derivatives financial assets at fair value through profit or loss (8 645) (1 793)
Interest rate derivatives financial liabilities at fair value through profit or loss 2 725 4 678
Deferred tax liabilities for joint ventures 10 744 8 856
Interest rate derivatives at fair value through profit or loss for joint ventures 916 1 056
Adjusted Net Asset Value 4 095 991 4 103 549
Net Asset Value per share (euro) 6.66 6.78
Adjusted Net Asset Value per share (euro) 7.09 7.10
Number of shares for Net Asset Value per share 577 800 734 577 800 734
Number of shares for adjusted Net Asset Value per share 577 800 734 577 800 734
SEGMENTAL ANALYSIS Retail Office Industrial Corporate Total
Year ended 31 December 2018
Revenues from rent and expense recoveries 314 229 29 946 1 895 - 346 070
Profit before Net finance expense 421 592 16 789 1 311 (130 217) 309 475
Total Assets 5 786 204 450 217 16 237 249 986 6 502 644
Total Liabilities 1 270 674 52 051 2 522 1 331 524 2 656 771
Year ended 31 December 2017
Revenues from rent and expense recoveries 204 246 26 041 1 798 - 232 085
Profit before Net finance expense 340 084 37 584 2 205 (18 912) 360 961
Total Assets 4 762 373 461 738 16 906 756 784 5 997 801
Total Liabilities 1 103 047 53 076 2 567 924 392 2 083 082
For further information please contact:
Alex Morar, Mirela Covasa:
+40 21 232 1398, officeiom@nepirockcastle.com
JSE sponsor: Java Capital: +27 11 722 3050
Euronext listing agent: ING Bank: +31 20 563 6799
Media Relations: Brunswick Group: +44 20 7404 5959, +27 11 502 73 00, nepirockcastle@brunswick.com
www.nepirockcastle.com
Date: 27/02/2019 09:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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