Shares in Polish shopping centre group Echo Polska Properties (EPP) rose 3.79% to close at R17.82 after it said it expected to declare dividends of between 11.6 and 11.8 euro cents for the 2018 financial year.
EPP said the dividend growth was based on the assumptions that a stable global and Polish macroeconomic environment would prevail, no major tenant failures would occur and that no new acquisitions or disposals would be implemented during the reporting period.
EPP is the only property company listed on the JSE that is solely invested in Polish real estate. Its current strategy is to sell its office assets and invest only in retail property.
During the year EPP sold three offices, A4 Business Park, West Gate and Tryton Business House, with a deal involving the three having been completed in December. Three more offices were in the process of being sold. Proceeds from the office disposals were used to fund retail acquisitions such as the M1 acquisition.
EPP made distributable earnings of €76.6m during the year to December 2017, which translated into an after-tax distribution of 10.87c a share.
The group also grew its retail asset base by completing €334m worth of acquisitions during the year. EPP announced the €692m acquisition of a retail portfolio, known as the M1 portfolio in the Polish commercial real estate industry. This transaction would be concluded in three tranches and would ensure that, by 2020, EPP would own 27 shopping malls with almost 1-million square metres of gross lettable area in Poland.
EPP’s net asset value excluding deferred tax increased 39% to €928m. This equated to a net asset value (NAV) per share of €1.32, which was 16% higher than 2016’s NAV. Total assets rose 29% to €1.95bn.
CEO Hadley Dean said EPP’s shopping centres were boosted by solid macroeconomic conditions in Poland and growth in consumer spending. "Footfall in our centres is up 4.6% compared to an increase of 3% in the prior year with sales up an impressive 7% compared to 3% in 2016." Retail vacancies fell to 1.41% compared with 1.63% in the prior year.
Garreth Elston, a research analyst at Golden Section Capital, said EPP’s results were very positive and strong fundamentals were in place for the future.
"We expect a good performance from the portfolio over the next two years. The portfolio has performed well and the company has achieved very solid growth in terms of footfall and sales, plus a decline in vacancies," he said.
Coupled to strong Polish economic fundamentals and the continuing growth of middle class purchasing power, "we feel confident that EPP will achieve, and ideally surpass, its growth targets for the year".
"On the negative side, we view EPP’s LTV [loan-to-value] ratio as being on the high side. While the high ratio is in line with levels that we are seeing in western Europe, we would be more comfortable with the company coming down to below 45%, but we expect the LTV to end 2018 above 50%."
Meago Asset Management director Thabo Ramushu said EPP’s shift to being a retail landlord was working well as the group had enough cash resources and did not plan to raise further equity for its current development pipeline.