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MAS PLC - Voluntary trading update

Release Date: 03/06/2024 09:00
Code(s): MSP     PDF:  
Wrap Text
Registered in Malta
Registration number C 99355
JSE share code: MSP
ISIN: VGG5884M1041
LEI code: 213800T1TZPGQ7HS4Q13
('MAS', 'the Group' or 'the Company')



This trading announcement is a pre-close update prior to the release of MAS' financial results for the financial year to 30 June 2024. It details information regarding the Group's markets, strategy, and operations. Unless otherwise stated, figures are presented on a proportionate consolidated basis.
MAS is a green property owner and operator focused on Central and Eastern Europe ('CEE'), with investments in retail assets in Romania, Bulgaria, and Poland. The Group also benefits from exposure to high-quality commercial and residential developments via the Development Joint Venture ('DJV')1 with developer and general contractor Prime Kapital. MAS aims to maximise total long-term returns from property investments, on a per share basis, by focusing on capital allocation, operational excellence, sensible leverage and cost efficiency, sustainably growing distributable earnings per share. Operations
Consumption remained strong in all Central and Eastern European countries where the Group operates during the first four months of the 2024 calendar year, with all the Group's properties benefiting from robust trading. Overall, like-for-like ('LFL') footfall for the four months to 30 April 2024 was 5% above the same period in 2023, and tenants' sales per m2 exceeded prior year levels by 6%, both in enclosed malls and in open-air malls. Table 1 presents detailed information regarding MAS' Central and Eastern European LFL footfall and tenants' sales (compared to the same period of the previous financial year) and collection rates for the four months to 30 April 2024. The collection rates include collections up to 30 May 2024. Table 1:
Jan 24 Feb 24 Mar 24 Apr 24 Total Footfall (2024 compared to 2023) % 106 111 106 99 105 Open-air malls % 107 112 105 100 105 Enclosed malls % 105 108 107 98 104 Tenants' sales per m2 (2024 compared to 2023) % 106 107 112 100 106 Open-air malls % 108 108 110 101 106 Enclosed malls % 104 106 115 98 106 Collection rate % 99.7 99.6 99.5 98.5 99.3
Collection rates for the four-month period were excellent at 99.3%. Occupancy of Central and Eastern European retail assets, excluding the newly opened Arges Mall, improved marginally to 97.8% on 30 April 2024 (97.7% on 31 December 2023). Occupancy cost ratios (excluding certain tenant categories: supermarkets, DIYs, entertainment and services) to 30 April 2024 remain healthy and stable at 10.7% (10.7% on 31 December 2023). Arges Mall, the DJV's largest commercial development to date, opened on 25 April 2024 with 95% of the 51,200m2 gross leasable area ('GLA') occupied. Tenants reported exceptional sales for the first days of operation, surpassing their expectations.
At Flensburg Galerie (Germany), occupancy increased to 97.6% (89.6% on 31 December 2023). Footfall and tenants' sales have outperformed those in the same four months to 30 April 2023. Developments, extensions, and refurbishments
The refurbishment of Galleria Burgas was finalised in May 2024. This included reconfiguring the food court and improving the centre's leisure and entertainment facilities. Construction was also finalised at Prahova Value Centre's partial extension of approximately 2,900m2 additional GLA, aimed at catering to the increased demand for anchor tenants, with the first tenants becoming operational in May 2024.
Construction at Mall Moldova continues as scheduled to extend and redevelop the existing Era Shopping Centre (26,000m 2 GLA) into Romania's second super regional enclosed mall and retail node. Leasing is progressing very well, with continued strong interest from international and national tenants, reflecting the project's excellent quality and prospects.
The construction of the second phase of the Silk District Residential project and the first two buildings at Pleiades Residence is complete, and the handover of residential units to clients is expected to commence in July 2024.
Further details and progress on DJV's secured development pipeline will be made available in due course. Debt management update
With the release of the Group's 30 June 2023 financial statements, MAS has communicated the outcome of its strategy review at the time, in light of unforeseen changes in the global funding environment affecting conditions in the sub-investment grade real estate bond markets, as well as the underlying assumptions in respect of the Group's debt financing cost and availability, and the likelihood of achieving the residential development targets previously planned to June 2026. The Group's approach remains to maximise risk-adjusted total long-term returns from investments on a per-share basis. As such, a revised debt management plan was put in place to raise bank funding secured against all of MAS' unencumbered properties in CEE aimed at reducing refinancing risks associated with its bond maturity in May 2026 and its funding commitments to the same date, as well as suspension of dividend payments to cover the shortfall.
MAS previously estimated that, with financial resources on 30 June 2023, it requires a minimum of '414million in new capital by June 2026 to repay the bond and fulfil other commitments (including its capital commitments to DJV, capital expenditure requirements and debt amortisation payments) assuming the suspension of dividend payments by MAS, and assuming MAS receives no dividends from the DJV until the bond's maturity.
Since 30 June 2023, management achieved substantial progress with raising new secured debt finance, finalising and drawing down '156million in new secured loans and additionally signing term sheets in respect of secured funding for another '90.5million, subject to conclusion of the relevant legal documentation. Processes with respect to sourcing additional capital are ongoing to achieve the new capital target set.
With respect to unsecured funding, notwithstanding persistently challenging conditions for sub-investment grade real estate companies, in April 2024 the Group issued '40.2million in unsecured debt via a private placement to an existing noteholder ('New Notes'). The New Notes mature in April 2029, and were issued in exchange for existing notes maturing in May 2026. The New Notes have a coupon of 6.5% p.a. and include a dividend payment restriction in the form of a financial covenant. Should the Company declare and pay a dividend in respect of a period for which the adjusted consolidated coverage ratio was less than the relevant covenant level, a put option would be triggered, potentially requiring the Company to immediately redeem the notes. Prospects and funding commitments to DJV
By 30 April 2024, PK Investments Limited, a wholly-owned subsidiary of PKM Development, acquired 61,841,522 additional MAS shares. One of the funding sources for this investment was preferred equity funding drawn down from MAS, which MAS has a contractual obligation to provide. By the same date, MAS had invested '420.2million in preferred equity and had ongoing undrawn commitments to invest '49.8million in DJV preferred equity, as well as make available to it a '30million revolving credit facility, which was undrawn on 30 April 2024 (figures not proportionally consolidated).
The Company continues to progress with its debt management plan to raise debt capital to cover its funding commitments, which resulted in MAS having temporary excess liquidity. The recent preferred equity drawdowns reduced the extent of MAS' remaining funding commitment to the DJV and the cash drag resulting from MAS' temporary excess liquidity, as returns on preferred equity invested in the DJV far exceed those from available cash deposit alternatives. The DJV's decision to acquire MAS shares reflects its assessment of MAS' intrinsic value, as the shares were acquired at a deep discount to the Company's Tangible NAV per share. As a holder of both preferred and ordinary equity in the DJV, MAS will continue to benefit significantly from the creation of value in the DJV, including as a result of its investment in MAS shares. The share acquisitions will reduce the weighted number of shares used in earnings numbers on a proportionate consolidated basis, enhancing returns per share. Earnings guidance
The Company expects its results from operations to achieve the diluted adjusted distributable earnings guidance for the financial year to 30 June 2024, ranging from 8.83 to 9.31 eurocents per share. However, the Group is in the process of assessing the net realisable value ('NRV') of the DJV's residential inventory property. Reduced margins being achieved on some residential projects for the final months of this financial year are expected to result in an NRV impairment which will be reflected in the Group's financial statements to 30 June 2024. The Group is also assessing the recoverable amounts in respect of land for residential developments held by the DJV, previously intended for additional phases to residential property, which were paused in August 2023. The Group is currently still appraising the extent of both residential related impairments and the impact on its diluted adjusted distributable earnings.
The Board and management are confident that MAS' strategy to continue investing in CEE by concentrating on capital allocation, operational excellence, sensible leveraging and cost efficiency will sustainably grow distributable earnings per share and maximise total long-term returns from investments on a per share basis.
1 DJV is an abbreviation for a separate corporate entity named PKM Development Ltd ('PKM Development'), an associate of MAS since 2016, with independent governance. MAS owns 40% of PKM Development's ordinary equity ('20million), an investment conditional on it irrevocably undertaking to provide preferred equity to PKM Development on notice of drawdown. By 30 April 2024, MAS had invested '420.2million in preferred equity and had an obligation of '49.8million outstanding. In addition, MAS has committed to provide PKM Development a revolving credit facility of '30million at a 7.5% fixed rate, which was undrawn on 30 April 2024 (figures not proportionally consolidated). The balance of the ordinary equity in PKM Development ('30million) was taken up by Prime Kapital in 2016 in cash. In terms of applicable contractual undertakings and restrictions, Prime Kapital:
(i) is not permitted to undertake real estate development in CEE outside of PKM Development until the earlier of the DJV's capital commitments being fully drawn and invested, or 2030;
(ii) contributes secured development pipeline to PKM Development at cost; (iii) takes responsibility for sourcing further developments, and
(iv) provides PKM Development with all necessary construction and development services via an integrated in-house platform. 3 June 2024 For further information please contact:
Irina Grigore, MAS P.L.C. +356 27 66 36 91
Java Capital, JSE Sponsor +27 11 722 3050 Date: 03-06-2024 09:00:00
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