The strategy by Luxembourg-and JSE-listed property firm EPP to focus on retail instead of offices in Poland is starting to pay off, with dividends growing 12% in the first half of 2018.
EPP, previously known as Echo Polska Properties, grew net property income 45% to €66m in the six months to end-June, with net profit doubling to €79.4m. It had benefited from strong performances at its shopping centres and its office disposal strategy was on track, CEO Hadley Dean said.
The group is focused on expanding its retail footprint, as it sees "great potential" for retail sales growth in Poland, where 71% of retail spend occurs in shopping centres. In addition to the lack of competition from high-street shopping, a growing middle class is fuelling retail spend, EPP said.
"Shopping centres are seen as destinations. Many Poles attend them with their families not just to buy food and clothing but also for entertainment.
"Given our weather, malls are perhaps more popular in Poland than in countries with warmer weather," said Michal Swierczynski, EPP’s head of asset management.
EPP’s total portfolio value increased 27% year on year to €2.067bn in the interim period, with retail assets accounting for a gross lettable area of nearly 640,000m². At the end of the reporting period, retail assets accounted for 85% of its portfolio, up from 74% a year earlier. The number of shopping centres owned by EPP increased to 18, up from 13 the previous year.
Its numbers were boosted by EPP’s successful acquisition of the first tranche of its three-phase M1 portfolio deal, which added three shopping malls and 194,000m² to its retail property portfolio. In total, the M1 acquisition will cost €692m and add 12 malls to the portfolio. After the close of its half-year, EPP also acquired the 45,300m² King Cross Marcelin shopping centre for €91.1m in the affluent area of western Poznan.
The group intends to own only retail properties by 2020 as it exits its remaining offices. The sale of three of its office parks are "in the final stage of negotiations", it said.
EPP expects its portfolio to consist of 28 malls by then, spanning more than 1 million square metres of gross lettable area, all within a 30-minute drive of 40% of Poland’s population, Dean said.
"Even with the new Sunday sales ban, our asset and property management teams were able to achieve strong returns. The retail sector in Poland continues to be fuelled by a growing middle class, and our vacancy rates remain below 1%," Dean said.
A new law came into effect in March banning trade on two Sundays per month, rising to three Sundays a month from 2019 and finally all Sundays from 2020, except for seven exceptions before the Easter and Christmas holidays.