Picture: ISTOCK
Picture: ISTOCK

JSE-listed Polish invested Echo Polska Properties has announced one of the largest commercial property deals of 2017, agreeing to buy 12 retail properties for about R11bn in a deal set to take two years to roll out.

The company has grown tremendously since its formation in early 2016 and is competing with another South African-listed group, NepiRockcastle, as well as other real-estate owners in Poland — the largest economy of central and eastern Europe.

The deal will double Echo Polska’s retail asset base and support its strategy of becoming a sole retail fund as it continues to dispose of its offices.

The 12 new properties comprise eight shopping centres and four retail parks with more than 620 stores. They are located in strong regional cities across Poland, Echo Polska says.

The portfolio has a gross lettable area of about 450,000m².

"The transaction is consistent with our investment strategy and provides various benefits. It doubles our current retail portfolio gross lettable area.

"We are acquiring a stable portfolio with a strong track record and are achieving further geographic expansion into established regional cities," said Echo Polska CEO Hadley Dean. In terms of the deal, Echo Polska acts as purchaser.

The seller is a consortium called Chariot Top Group, which consists of JSE-listed Redefine Properties, Pacific Investment Management Company (Pimco) and Oaktree Capital Management.

Pimco and Oaktree each have a 37.5% stake in the consortium, while Redefine has 25%. The consortium is acquiring a large property portfolio, which includes the 12 retail properties which Echo Polska will acquire in a deal worth €692.1m and other properties. Echo Polska will not acquire the other properties in this initial deal.

The consortium will sell shares in certain companies to Echo Polska. These companies will own the specified portfolio directly, or through their respective wholly owned subsidiaries.

The sale will occur in three separate tranches.

The first tranche comprises four properties with an aggregate gross lettable area of 194,400m² and an aggregate value of €358.7m. Conditions for this tranche are expected to be finalised in the first quarter of 2018.

The second tranche portfolio comprises six properties with a gross lettable area of 184,000m² and an aggregate value of €222.5m. Conditions for the tranche must be met by June 20 2019. The third tranche portfolio comprises two properties with a gross lettable area of 68,100m² and an aggregate value of €110.9m. Conditions for this tranche must be met by June 20 2020.

Investec Asset Management portfolio manager Peter Clark said the deal might be attractive, but more details were needed.

"Echo Polska have stated their strategy to increase retail exposure and post their recent office disposal a transaction like this was widely expected. The deal will consist of eight shopping centres and four retail parks which will be acquired in three tranches from early 2018 to 2020.

"The acquisition provides a decent yield at 7%, but we still have to get a better understanding of how the funding will work and what impact it will have on the balance sheet.

"There is limited information disclosed on the underlying assets at this stage, making it hard to assess. However, the transaction is in line with the strategy and viewed positively at this stage," Clark said.

Polish antimonopoly clearance needs to be obtained for the deal to go ahead. Echo Polska has forecast that the first tranche of four properties will generate profit available for distribution of €16m in the year to December 2018.

Echo Polska last week announced it would dispose of an office portfolio for €160m to fund further retail acquisitions.

Dean said that the disposal was in line with Echo Polska retail property strategy.

"We are planning to become a pure retail property fund within the next three years and this transaction helps fuel our growth in retail acquisitions."


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