EPP: powerful vehicle to exploit the Polish retail growth story
Investor update
NOVEMBER 2018
EPP: powerful vehicle to exploit the Polish retail growth story - - PowerPoint PPT Presentation
EPP: powerful vehicle to exploit the Polish retail growth story Investor update NOVEMBER 2018 Disclaimer This document has been prepared and issued by and is the sole responsibility of the management of EPP N.V. (the Company or EPP)
NOVEMBER 2018
1
This document has been prepared and issued by and is the sole responsibility of the management of EPP N.V. (the “Company” or “EPP”) and its subsidiaries. No information made available in connection with this presentation may be passed on, copied, reproduced, in whole or in part, or otherwise disseminated, directly or indirectly, to any other person. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of the Company nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract commitment or investment decision in relation thereto nor does it constitute a recommendation regarding the securities of the Company. Investors and prospective investors in securities of the Company are required to make their own independent investigation and appraisal of the business and financial condition of the Company and the nature of the securities. This presentation and any materials distributed in connection with this presentation may include certain forward-looking statements, beliefs or opinions, including statements with respect to the Company’s business, financial condition and results of operations. These statements, which contain the words “anticipate”, “believe”, “intend”, “estimate”, “expect”, “forecast” and words of similar meaning, reflect the management beliefs and expectations and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. No representation is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these statements and forecasts. Past performance of the Company cannot be relied on as a guide to future performance. Forward-looking statements speak only as at the date of this presentation and the Company expressly disclaims any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this presentation. No statement in this presentation is intended to be a profit forecast. As a result, you are cautioned not to place any undue reliance on such forward-looking statements. The information on which these statements has been based has not been reviewed or reported by EPP’s auditors. This document speaks as of the date hereof. No reliance may be placed for any purposes whatsoever on the information contained in this document or on its completeness, accuracy or fairness. The Company, its advisers and each of their respective members, directors, officers and employees are under no obligation to update or keep current the information contained in this presentation, to correct any inaccuracies which may become apparent, or to publicly announce the result of any revision to the statements made herein except where they would be required to do so under applicable law, and any opinions expressed in them are subject to change without notice. No representation or warranty, express or implied, is given by the Company, or any of its subsidiary undertakings or affiliates or directors, officers, any of its directors or employees or any other person as to the fairness, accuracy or completeness of the information or opinions contained in this presentation and no liability whatsoever for any loss howsoever arising from any use of this presentation or its contents otherwise arising in connection therewith is accepted by any such person in relation to such information.
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Introduction to EPP
1 Source: Company filings
estate experience
EMEA operations
Eastern Europe at Colliers International
Real Estate Personality of the Year (2017) award
Hadley Dean CEO
CEE
Management and supervisory Boards
and those controlled by large private equity funds in CEE
Management Board and CFO of Empik Media & Fashion
Jacek Baginski CFO
experience across Poland, Russia and Germany
Head of Retail at Griffin Real Estate
Russia
Development at ECE Projektmanagement
Michal Swierczynski Head of Asset Management
commercial real estate
Echo Investment Property Management
and office sectors
Wojciech Knawa Head of Property Management
experience
Echo Investment
Supervisory Board at Barlinek and Opoczno
Rafal Kwiatkowski COO
4
Introduction to EPP
1
✓
One of the few economies that demonstrated resilience through the global financial crisis
✓
Consistently high GDP growth, well above other Western European economies
✓
Exposure to 38m population
✓
“Safe haven” status due to economic and political stability and convergence towards EU living standards, well educated and large population base
✓
Public debt and budget deficit as % of GDP expected to fall to 52% and 1.3% by Q4’18
✓
Rapid increase in consumer spending, expected to continue
✓
Lack of high-street proposition
✓
Online emergence amplifying brick and mortar retail, while Allegro equivalent “Amazon” already present
and inconvenience of delivery driving consumers to pick up goods in stores.
✓
Tenants increasingly expanding and new e-retailers launching e-stores
✓
Largest Polish retail real estate player
✓
High quality dominant shopping centres in strategic locations
✓
Predictable cash flows, further supported by consistently high occupancy, long leases and secured pipeline of assets
✓
Breadth of expertise within EPP allowing it to win tenants vs. market (EPP university, Dash boards etc.)
✓
Strong growth profile (organic and inorganic) backed by in house platform
➢ Polish GDP growth CAGR 18-20 of 3.2% vs 1.7% in Western Europe3 ➢ Recently upgraded by FTSE RUSSELL to developed market ➢ Consumer spending growth CAGR 18-20:
➢ Offline sales growth of
➢ Retail occupancy: 99.4%1
➢ LFL NRI growth: 4.1%1
pipeline & c.EUR1.1bn development pipeline2
Source: Company filings, Oxford Economics
1 As of 1H 18 report; 2 Represents estimated value at completion; 3 Western Europe (EU15)—Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, UK; 4 Div. yield calculated as mid-point of management
guidance DPS 18E of 11.70 cents / Share price of EUR1.31 as of November 7, 2018
5
Introduction to EPP
1
Overview
Source: Company filings
1 1H18 Total portfolio value, excluding value of developments, EUR2.4bn including them; 2 Div. yield calculated as mid-point of management guidance DPS 18E of 11.70 cents / Share price of EUR1.31 as of November 7, 2018; 3 Marcelin shopping centre acquired post year end,
EUR1,763 ex. Marcelin; 4 Total estimated value on completion – Mlociny EUR412 and Towarow 22 EUR680m
Geographical footprint
EPP sites
Pure play Poland
1
Focus on dominant retail assets
1
Largest retail landlord in Poland
1
Anchor shareholder: Redefine properties
1
GAV: EUR2.1bn1 Dividend yield: 9%2 Retail Occupancy:
Employees: >150
Dominant Polish shopping centre portfolio focus
Standing retail (19 assets)
Retail development
Mlociny – Q2 19 Towarowa 22 – 2024/5
Office (6 assets)
Szeczecin Poznan Inowroclaw Wroclaw Jelenia Gora Klodzko Zabrze Czeladz Krakow Przemysl Zamosc Lomza Wloclawek Kalisz Lodz Belchatow Kielce Warsaw
(JSE listed with €3.2bn market cap)
PP Tychy
M1 Tranches 2 & 3 (8 assets)
PP Olsztyn M1 Radom M1 Bytom PP Opole M1 Czestochowa
6
Introduction to EPP
1
locations
Create an income-generating retail champion in Poland
1
Maintain efficient operations through expertise
4
excellent staff retention
client base to optimise tenant mix Utilise strategic relationships
3
scale
Develop even larger scale with prudent leverage
2
extensions and two developments in prime locations in Warsaw
Source: Company filings
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Introduction to EPP
1
Source: EPP
1 30% owned by Echo Investment S.A. until development phase completion 2 Tryton Business House GLA increased from 23,537 sqm in Q4 2016 to 23,875 sqm in Q3 2017
Acquisitions Disposals Retail Development of Towarowa 221 Date: Dec-16 Zoning: 2019 Start of construction: 2021/2022 Completion: 2024/2025 Location: Warsaw GLA: 105,000 (additional potential 45,000) Sale of West Gate Date: Dec-17 Location: Wroclaw GLA: 16,646 Office Sale of Tryton Business House Date: Dec-17 Location: Gdansk GLA: 23,8752 Office Acquisition of Zakopianka Date: May-17 Location: Krakow GLA: 26,142 Retail +252k sqm
retail space3 Sale of A4 Business Park (I, II, III) Date: Dec-17 Location: Katowice GLA: 30,556 Office Jan 2017 2018 Apr Aug Sep May Jan Jun Feb Jul Mar Oct Nov Dec Nov Dec Oct
3 Tranche II and III of M1 portfolio 4 Excluding developments, EUR2.4bn including them
Apr Aug Sep May Jun Feb Jul Mar Acquisition of King’s Cross Marcelin Date: July-18 Location: Poznan GLA: 45,353 Retail Capital raise Apr -17 Equity raise of EUR150mm in an ABB through private placement of new shares. Equity raise Capital raise Jul - 2018 Raised equity
Redefine Jan - 2018 Raised equity
Capital raise Aug/Sep Listed on Luxembourg Stock Exchange (Aug-16) and private placement listing on JSE (Sep 16) Listing Retail Acquisition of 4 assets under tranche 1 of M1 portfolio Purchase price: EUR359mm GLA: 194,400 Rest of the portfolio (8 properties representing 252,000 sqm) to be acquired in 2019/2020
1.2 1.4 1.4 1.6 1.7 1.7 2.0 2.14 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18
Acquisition of Galeria Mlociny1 Date: Jun-17 Location: Warsaw GLA: 82,122 Retail Acquisition of Galeria Solna Date: Jul-17 Loc.: Inowroclaw GLA: 23,359 Retail Acquisition of Blackstone portfolio Date: Jun-17 Wzorcownia Location: Wloclawek GLA: 25,423 Twierdza Klodzko Location: Klodzko GLA: 23,039 Twierdza Zamosc Location: Zamosc GLA: 23,806 Retail
8 1,210 1,623 2,067
IPO- Aug 2016 1H 2017 1H 2018
1
EPP performance update (1H’18)
Total portfolio value (EUR’m)
303,338 402,637 638,815
IPO- Aug 2016 1H 2017 1H 2018
Retail portfolio GLA (m2)
1.04 1.23 1.37
IPO- Aug 2016 1H 2017 1H 2018
Net asset value per share (EUR)
56.4% 50.6% 50.9%
IPO- Aug 2016 1H 2017 1H 2018
LTV (%)
9 13 18
IPO- Aug 2016 1H 2017 1H 2018
Number of shopping centres
76% 74% 85%
IPO- Aug 2016 1H 2017 1H 2018
Share in retail portfolio (%)
Source: Company filings
Introduction to EPP
10
Key investment highlights
2
Poland: growth engine of Europe 3 Predictable cash flows Platform for
National retail champion 2 Active balance sheet management 6 1 4 Secured pipeline 5
11
Population
Population and nominal GDP breakdown GDP growth and Debt/GDP in Poland vs. WE
Real GDP CAGR (%) Nominal GDP across CEE (%)
42 17 17 11 8 5 Bulgaria Poland Romania Czech Republic Slovakia Hungary Total CEE1 nominal GDP: EUR1,114bn 10m 38m 11m 7m 20m 5m 3.8 3.2 2.1 1.7 2015-17 2018-20 Poland Western Europe +1.7pp +1.5pp
Source: Economist Intelligence Unit, European Commission, Oxford Economics, BMI
1 Western Europe — Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, UK
1
Key investment highlights
2
Why Poland? Why retail? Why EPP?
Largest economy in CEE region outpacing Western Europe
FDI
Polish foreign direct investment stock (US$bn)
294.6 307.6 321.1 2018E 2019E 2020E 51% 54% 51% 86% 86% 83% 2015 2016 2017 Poland Western Europe
Debt / GDP
1
1
Only developed economy in the region
12 240 238 265 307 321 343 2015A 2016A 2017A 2018F 2019F 2020F Poland Western Europe
Unemployment rate and Real wages growth evolution Consumer spending evolution
Source: EIU, Oxford Economics, OECD, Euromonitor, IMF
1 Western Europe includes Belgium, France, UK, Ireland, Luxembourg 2 Western Europe (EU15)—Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, UK 3 USDEUR Fx rate of 0.86255
0% 1% 2% 3% 4% 5% 6% 0% 2% 4% 6% 8% 10% 12% 14% 16% Real wages growth (%) Unemployment rate (%) Western Europe Poland Western Europe2 Poland2
2
Consumer spending (EURbn)
1
Key investment highlights
2
5.7% 3.0% Why Poland? Why retail? Why EPP?
Unemployment rate (%) Real wages growth (%)
4% 3% 5%
CAGR 2018–20 (%)
Improving labour market and consumer sentiment
5%
1
2012 2022 2014 2016 2018 2020
2
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0.5% 1.5% 2.5% 3.5% 4.5% 5.5% 6.5% 2012 2013 2014 2015 2016 2017 H1 2018 Warsaw prime shopping centre 10Y Polish bond (EUR)
Source: Company fillings, Savills, Bloomberg
Poland shopping centre supply and commercial investment volumes Structure of investment volumes
0% 20% 40% 60% 80% 100% 1,000 2,000 3,000 4,000 5,000 2012 2013 2014 2015 2016 2017 Other Polish market share (EURm) Warsaw Other Polish markets Other Polish market share
1
Key investment highlights
2
Why Poland? Why retail? Why EPP?
Poland retail real estate yield vs. broader yields
Spread between retail yields and 10 year EUR bond yields (%)
5.0%
Increasing investment and reducing supply driving cap rate compression
EPP yield : 6.4%
New supply of shopping centre stock (000s sqm)
475 607 425 612 443 399 459 253 250 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 1.2%
Current spread: 3.8%
Average: 436,000 sqm
14
European retail density landscape Retail sales Poland vs. Europe
Source: Savills
1 Western European countries include: Austria, Belgium. Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and UK
Existing shopping center stock (GLA in sqm per 1,000 inhabitants)
1
Key investment highlights
2
Retail sales growth and CAGR (2018-2027) Key CEE economies Key WE economies
EPP assets
Why Poland? Why retail? Why EPP?
Favourable underlying retail dynamics
250 500 750 1,000 1,250 US Finland Sweden Netherlands Ireland Portugal France Poland UK Spain Italy Slovakia Czech Rep. Germany Turkey Greece
WE1 Average: 260sqm per 1,000 inhabitants
Podlaskie (3.1%/2.9%) Lubelskie (3.1%/2.9%) Podkarpackie (2.9%/3.0%) Opolskie (2.8%/ 2.8%) Slaskie (2.8% /2.8%) Malopolskie 3.5%/3.2%) Swietokrzyskie (2.4%/2.8%) Mazowieckie (3.9%/3.4%) Warminsko-Mazurskie (2.6%/2.7%) Lodzkie (3.2%/2.8%) Kujawsko-Pomorskie (2.2%/2.6%) Pomorskie (2.9%/2.9%) Zachodniopomorskie (2.3%/2.4%) Wielkopolskie (3.4%/3.5%) Dolnoslaskie (3.0%/3.4%) Lubuskie (2.3%/2.8%)
0.0% 0.9% 1.8% 2.7% 3.6% 4.5% 0% 9% 18% 27% 36% 45%
Poland Czech Rep. Romania Hungary France UK EU28 Germany Netherlands Italy Retail sales growth 2018-2027 CAGR 2018-2027
Poland CAGR 2018-27: 3.1%
Retail sales CAGR in Poland by city 2008-2017 / 2018-2027
Overall Poland retail sales statistics
Excludes high street retail, of which Poland has an insignificant amount representing <1%
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Source: Company filings, Savills, Credit Suisse, Oxford Economics
1 Represents annualised 1H17 Revenue number; 2 Tradewatch
1
Key investment highlights
2
Why Poland? Why retail? Why EPP?
Online retail amplifying brick and mortar sales
Online and offline retail sales (€ bn) Ecommerce share in total retail sales Majority of online sales are “click and collect”
Performing brick and mortar sector despite “Allegro”, major player with >50%2 of total Polish e-commerce market share
Customer prefers to “touch and feel”, driving footfall Lack of high street driving consumers to shopping centres Unique take-away’s
Traditional retail e-Commerce Omni-channel (Click n Collect)
6.2% 8.9% 10.9% 18.5% 6.6% 9.7% 11.4% 19.1% 7.1% 10.2% 11.6% 19.4% 2018 2019 2020
Online CAGR 18-20 Offline CAGR 18-20 10.1% 4.2% 7.8% 0.0% 4.7% 1.8% 5.4% 1.6%
Online sales in Poland remain a small proportion of
84% of total online and offline growth from 2018 – 2020 is in from bricks and mortar
105.9 112.4 118.9 123.4 127.0 6.1 6.7 7.4 8.2 9.0 2016 2017 2018E 2019E 2020E Offline retail sales Online retail sales
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2
Key investment highlights
2
Why Poland? Why retail? Why EPP?
Source: Company filings
1 Includes tranche of M1 portfolio acquisition which closed in January 2018 2 Latest available data; 3 Taking 1997 as year 1; 4 28 assets as of 2020, which includes M1 portfolio
Leading Polish retail portfolio, with modern asset base
684 558 435 428 411 243 147 128 113
GLA of retail assets in Poland (000s sqm)2
284 21 6 11 6 2
Additional GLA following the acquistion of M1 tranche II, III, and completion of Galeria Mlociny and Towarowa 22
12 9 7
Year of completion split by GLA (000s sqm)
European retail real estate landscape Modern and well-invested buildings
1,118
34 39 28 24 23 25 48 57 72 50 69 91 26 54 2014 2013 2012 2011 2010 2009 2007 2003 2002 2001 2000 1999 1998 1997 Undergone refurbishment / extension since M1 tranche 1 assets Refurbishment usually carried
completion >50% of stock under 10 years old 52 Represents only 1 property each, both recently acquired
1
17 Urban shopping centres Regional shopping centres
Source: Company filings
EPP retail assets Large urban shopping centres
to the city centres
and F&B. EPP in the process of improving and increasing the F&B and leisure component of all its assets. Dominant regional shopping centres
will further enhance this
formats (e.g. hypermarkets or smaller retail parks)
Lomza Kielce Przemysl Wroclaw Jelenia Gora Szczecin Belchatow Wloclawek Krakow Klodzko Zamosc Inowroclaw Warsaw Lodz Kalisz Czeladz Zabrze
2
63%
x% of 1H 18 retail portfolio valuation
Key investment highlights
2
37% Why Poland? Why retail? Why EPP?
Dominant regional centres becoming “town squares” in regional locations
Retail developments
18
GAV (EURm) 282 GLA (m2) 56,630 Key tenants GAV (EURm) 130 GLA (m2) 53,648 Key tenants GAV (EURm) 130 GLA (m2) 49,643 Key tenants
2
Source: Company filings Note: Catergory 1 shopping centres represent Large urban shopping centres
Key investment highlights
2
Why Poland? Why retail? Why EPP?
Category 1 shopping centres represent 63% of retail GAV
Galaxy
SZCZECIN WROCŁAW
Pasaz Grunwaldzki
GAV (EURm) 257 GLA (m2) 48,352 Key tenants
Galeria Echo
KIELCE GAV (EURm) 225 GLA (m2) 71,830 Key tenants
M1 – Zabrze
ZABRZE
M1 – Kraków M1 – Czeladź
CZELADZ KRAKOW GAV (EURm) 82 GLA (m2) 52,775 Key tenants
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Comparison of 10 year bond yields of Poland vs other EU economies
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Dec-08 Sep-09 Jun-10 Mar-11 Dec-11 Sep-12 Jun-13 Mar-14 Dec-14 Sep-15 Jun-16 Mar-17 Dec-17 Polish EUR 10 year bond 10Y German bond 10Y French bond 10Y Italian bond 10Y Spanish bond
1.2% 0.4% 0.8% 1.6% 2.0%
2
Key investment highlights
2
EPP has a high yielding portfolio compared to peers, on a risk adjusted basis
Source: Company filings, Savills
Why Poland? Why retail? Why EPP?
Reported EPRA Net Initial Yield
x.x% Weighted average country risk premium x.x% Portfolio yield adjusted for country risk premium
6.4% 4.1% 4.8% 6.7% 5.4% 4.9% 5.2% 4.8% 6.8% 4.7% 5.1% 7.1%
1.2% 1.3% 1.0% 1.2% 0.8% 1.5% 1.1% 1.5% 0.6% 0.6% 2.0% 0.7% 5.2% 2.8% 4.4% 3.6% 3.9% 5.6% 3.7% 5.2% 4.2% 4.5% 4.8% 4.5%
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3
Tenant mix Stability from Top strong 10 retail tenants5 Sectoral breakdown of income Occupancy cost ratio on average (as reported)
Source: Company filings, Orbis
1 Other includes Health and Beauty, Household appliances, Specialty Goods, Electronics and Services; 2 Latest available; 3 OCR defined as : (rental charges + service charges including marketing costs for tenants, all including VAT) / (tenants’ sales,
including VAT); 4 The proportion of retailer’s sales compared with the total cost of occupation being: rent, business rates, service charge and insurance. Calculated excluding anchor stores # LPP market cap c. EUR 3.4bn CCC market cap c. EUR 1.9bn; 5 As at Dec 2017
International tenants Polish chain tenants Local tenants
No. Tenant name Description % share in total rental income Overall Sales growth y-o-y2 Poland Sales growth y-o-y2 1 Polish clothing company 8.1% 18.0% 15.8% 2 French supermarket 5.3% Private Private 3 Swedish clothing brand 2.3% 3.0% 13.0% 4 One of largest footwear retailer 2.2% 18.3% n.m. 5 2nd largest Polish multiplex chain 2.0% 20.9% 20.9% 6 Spanish multinational clothing co. 1.9% 8.7% n.m. 7 British multinational supermarket 1.9% 2.8% 6.3% 8 Germany's 2nd largest chemist 1.9% 7.1% n.a. 9 All for kids store 1.6% 14.2% n.a. 10 Consumer electronics 1.5% Private Private Leading CEE retailers
Key investment highlights
2
Fashion & Accessories 49% Food / Supermarkets 14% Entertainment 13% Food Court, Restaurants & Cafe 3% Other1 20% 16%
51% 44% 5%
15.1% 15.2% 3 12.2% 8.5% 11.6% 14.3%
Average: 12.4%
4
Why Poland? Why retail? Why EPP?
Diversified tenant base geared towards growth
“Once gastronomy and leisure units occupied approx. 5-7% of shopping space, now this ratio has increased to approximately to 10-15% with a few examples exceeding 20%. This ratio is expected to grow even further in the future”
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3
7.9 9.2 12.5 17.2 15.7 9.3 6.0 5.3 1.9 9.1 2018 2019 2020 2021 2022 2023 2024 2025 2026 >2026
Source: Company filings
1 By total GLA; 2 As of FY 2017; 3 Based on weighted average lease term
98.4 98.7 98.4 98.3 98.6 99.7 99.4 95.8 97.0 97.2 97.3 96.0 93.7 94.0 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18
Occupancy rate Security of income stream
Occupancy1 (%)
Tax ✓ Insurance ✓ Maintenance ✓ Triple net lease ✓✓✓
1
Expenses covered by tenants EUR contracts with tenants are matched with predominantly EUR-denominated debt payments
2
Interest Rent ✓✓✓ EUR EUR
Primarily CPI-indexed contracts (almost 100%)
3
Office Retail
+1.0pp
By rental income (EURm)2
Lease expiry profile
Retail: 5.4 years1,3 Office: 4.2 years1,3
WAULT Key investment highlights
2
Why Poland? Why retail? Why EPP?
Secured income stream
22
4
Source: Company filings, Company information, Trading economics
1 Impacted from departure of larger tenants in Belgium, free-parking initiatives and banks restructuring
management platform
contracts – average 2018-2020 inflation rate of 2.3% Last reported LFL NRI growth (%) Actively improve tenant mix CPI indexing A
in overall GDP growth and resulting rise in disposable income, with consumer spending growing at a CAGR of 5.7% from 2018-20
power Market backdrop B C Key investment highlights
2
Drivers of organic growth
Why Poland? Why retail? Why EPP?
4.3% 4.1% 4.1% 3.8% 3.2% 3.0% 2.9% 1.5% 1.4% 1.1% (0.6%)
Rental growth supported by macro factors and asset management
1
23
Help tenants improve performance, leading to rental growth 1 Attracting smaller tenants with rents higher than larger tenants 2 Identify potential problems early and prevent long-term voids 3
Source: Company filings
4
Key investment highlights
2
Key focus areas of EPP University EPP University overview
xx Growth
Why Poland? Why retail? Why EPP?
Goal to support tenants in daily operations Team of highly trained professionals Provides professional training to tenant’s staff on most important performance factors Units work shop with tenant staff
EPP University: a dedicated team to support tenants, with >2,500 retail staff trained
>2,500 retail staff trained
Tenants’ KPIs before and after EPP University training
24.8% 16.9% Before After
Sales density (EUR/sqm/p.a.) OCR RTS
805 2,014 Before After 3,887 5,925 Before After 27.2% 10.9% Before After 20.1% 12.9% Before After
150.2% 52.4%
42.2% 18.9% Before After
Specialist store Jewellery store
Key individual has >18 years of tailored experience
24
Source: Company filings
5
Key investment highlights
2
Why Poland? Why retail? Why EPP?
GLA extensions
✓Apart contracted M1 tranches II and III (252,000
sqm), EPP acquired King Cross Marcelin (45,000 sqm) located in Poznan
✓Excellent access to additional opportunities to
further increase the scale of its portfolio in Poland
✓Actively engaged in recycling of assets (office and
retail)
External acquisitions
✓Extensions of 2 best-performing retail assets,
Galaxy and Outlet Park, both of which opened in H2 2017
✓13 assets have been identified for potential future
extension and this represents additional GLA in of 160,000 sqm
External acquisitions
✓2 projects under development with a GLA of
187,000 sqm (Mlociny c.82,000 sqm, Towarowa 22 105,000 sqm) with an additional 45,000 sqm for mixed use (from Towarowa), both located in Warsaw
to open in April 2019
urban retail project in Poland and one of the largest in Eastern Europe
properties of Echo Investments
Developments A C B Kings Cross Marcelin Galeria Belchatow (Olimpia) Towarowa 22
25
A 5
Key investment highlights
2
Why Poland? Why retail? Why EPP?
Additional value potential
major junctions (land base >200 ha)
Location
Maxx, H&M, C&A
Tenants
the greatest retail offer and best prices
Bespoke shopping centres
Extensions
Assets highlights
Active asset management
Source: Company filings
M1 Transaction summary GAV: EUR692 million Sustainable NOI: EUR49 million 13 million people live within a 30-min drive 120 million annual footfall combined
Krakow 18.2% Czeladz 17.8% Poznan 12.9% Zabrze 10.9% Radom 8.4% Czestochowa 7.4% Kielce 5.1% Others 19.2%
GAV: EUR692mm GLA 446k sqm
M1 transaction rationale
26
Key tenants
next to a rapidly growing residential area – Mlociny
schedule
leased
Planned total GLA 82,212 sqm
EUR300m
EUR22m
completion
EUR 412m
B
Source: Company filings
1 70% owned by EPP, 30% by Echo Investment 2 Fair value reflects 54% of the value of the land plot
5
Key investment highlights
2
Why Poland? Why retail? Why EPP?
KPI’s Galeria Mlociny1 overview Asset snapshot Brief timeline
March 2019 Completion of Galeria Mlociny Q3 2016 Start of construction
Q2 2019 Opening of Galeria Mlociny
Q3 2016 March 2019 Q2 2019
Warsaw
Mlociny: Flagship Warsaw development on track to open in Q2 2019
Strong purchasing power Affluent consumers Relatively less saturated RE market
1 1 1
27
city-centre, next to the metro line
additional potential identified 45,000 sqm GLA expected for offices, Residential for rent or sale, entertainment and cultural, student housing and hotel
B 5
Key investment highlights
2
Why Poland? Why retail? Why EPP?
Planned total retail GLA 105,000 sqm
EUR420m
EUR34m
EUR680m
EUR150m TOTAL EUR830m 2024/2025 Planned opening
2019 Zoning process for Towarowa 22 2021/2022 Start of construction
Source: Company filings
1 Land included;
KPI’s Towarowa1 overview Asset snapshot Brief timeline
Warsaw
Towarowa: First of its Kind shopping destination
Strong purchasing power Affluent consumers Relatively less saturated RE market
1 1 1
28
C
Source: Company filings
5
Key investment highlights
2
Why Poland? Why retail? Why EPP?
New tenants
GLA NOI GAV
+15,150 sqm 41,477 56,627 +EUR3.1m 12.6 16.4 +EUR53m 210 275
Case study: Galaxy extension (completed 15 November 2017) Case study: Outlet Park extension (completed September 2017)
GLA NOI GAV
+7,229 sqm 21,054 28,283 +EUR1.1m 4.3 5.8 +EUR17m 69 92 New tenants
Track record of successful extensions at attractive development yields of c.8.5%
IPO DEC -17
ATTRIBUTED TO EXTENSION
IPO DEC -17
ATTRIBUTED TO EXTENSION
29
Key investment highlights
2
Why Poland? Why retail? Why EPP?
5
Retail properties Retail GLA (000) Retail NOI (€m) Tranche I + Marcelin July 20182 2017YE Tranche III June 2020 Tranche II + Mlociny3 June 2019 86 118 148 157 19 26 28
Pro-forma impact of the committed M1 portfolio acquisition1, Marcelin acquisition and Mlociny development completion
Retail 76% Office 24% GLA split 684 921 989 Retail portfolio value (€m) Retail 83% Office 17% Retail 87% Office 13% Retail 88% Office 12% 14 444 1,352 1,859 2,369 2,480
Source: EPP
1 Pro-forma as of FY 2017 values assuming full let NOI with no indexation, no retail / office acquisitions or disposals other than M1 portfolio, Marcelin acquisition, value dislosed to market, and Mlociny development completion 2) Assumes disclosed value or retail portfolio as at H1 2018 and Marcelin value 3) Mlociny assumes 70% stake
+5 +240 +507 +7 +237 +510 +2 +68 +111 Selected tenants + 160,000 sqm extensions identified
30
Source: Company filings, S&P, Moody’s
Financial management guidelines
6
Intention to distribute 100% of distributable earnings to the shareholders Medium term target LTV of 45% Robust approval system and periodic monitoring of costs versus the budget on a monthly (at properties and HQ level) and quarterly (overall for EPP) basis Require tenants to pay rentals in advance and present security of the liabilities resulting from lease agreements, bad debts ratio <1% Target to hedge 90% of interest rate exposure; currency of rental income matching the currency of EPP funding
Key investment highlights
2
Liquidity and working capital management Hedging Credit risk Operational costs Leverage Dividend policy Maintain a balance between continuity of funding and flexibility through the use of proceeds from disposal of assets, bank deposits and corporate loans, monitoring the available cash position on a daily basis 56.4% 55.4% 47.4% 50.9% 45.0% At IPO FY16 FY17 1H18 Medium-term target
Reported LTV (%)
11 195 672 425 2018 2019 2020 2021 2022 >2022
(EURm)
Debt levels Maturity dates
Average maturity: 4.3 years
Why Poland? Why retail? Why EPP?
Consistently decreasing leverage since IPO
Average cost of debt: 2.38%
31
Source: Company filings
1 FV figure of the three announced properties to dispose as per 1H18
6
Disposals strategy Key investment highlights
2
Why Poland? Why retail? Why EPP?
Business House and West Gate for EUR160m in December 2017, at a yield c. low 7%
positively to the company’s NAV
Park, Malta and Symetris Business Park
core retail assets
Tranche sold in October 2017 Tranche being currently for sale
A4 Business Park
Katowice GLA: 29,900 sqm
Tryton Business House
Gdansk GLA: 23,537 sqm
O3 Business Park (I, II, III)
Krakow GLA: 56,926 sqm
Malta Office Park
Poznan GLA: 28,270 sqm
Symetris (I & II)
Lodz GLA: 19,000 sqm
West Gate
Wroclaw GLA: 16,532 sqm
EPP has historically disposed assets at / above NAV
33
Financial overview
3 4
Historic development of key metrics
Increase in net operating income
and property management initiatives (LFL) Cost stabilisation
as the company completed the integration of its own asset management and property management team Distributable earnings
earning growth of 126% for 2017
10.84 10.87 5.82 IPO guidance FY'17 H1'18
Distribution per share (EUR cents)
Source: EPP, FactSet as of November 7, 2018
1 LTM dividend on closing price of November 7, 2018 (ZAR 21.05)
67 103 66 FY'16 FY'17 H1'18
NOI (EURm)
54 87 59 FY'16 FY'17 H1'18
EBITDA (EURm)
34 77 48 FY'16 FY'17 H1'18
Distributable earnings (EURm)
Distribution per share
representing growth of 7.6% on 2017.
11.7 cents mid-point of management guidance
Dividend yield1 (%)
8.9% 8.8% 8.7% 7.7% 7.5% 6.8% 6.4% 6.3% 5.2%
34
Financial overview
3 4
Balance sheet (EURm)
2016A 2017A 2018H1 Investment property 1,359 1,656 2,067 Investment in joint ventures 54 116 138 Financial assets 19 30 22 Other assets 33 28 22 Cash 44 123 70 Total assets 1,509 1,952 2,320 Equity 607 834 976 Borrowings 795 948 1,190 Deferred tax liability 59 94 110 Trade & other liabilities 48 76 44 Total equity and liabilities 1,509 1,952 2,320
Portfolio evolution
acquisitions of 5 retail properties in 2017
2 and 3 are expected to be acquired in June 2019 and June 2020
share mainly due to positive asset revaluation driven by strong NOI growth Leverage management
reduction was driven by positive asset revaluation, partial utilisation of proceeds of asset sales and debt amortisation
Source: Company filings
35
➢ Polish GDP growth CAGR 18-20 of 3.2% vs 1.7% in Western Europe3
➢ Stable economy with a well capitalised financial system
➢ Developed market status ➢ Consumer spending growth CAGR 18-20: 5.7% ➢ Offline sales growth of 4.2% in the next 3 years
➢ Exposure to 38m population, a place for immediate scale for new retailers
➢ Retail occupancy: 99.4%1
➢ Historical LFL NRI growth: 4.1%1
Source: Company filings, Oxford Economics
1 As of 1H 18 report; 2 Represents estimated value at completion; 3 Western Europe (EU15)—Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, UK; 4 Div. yield calculated as mid-point of management
guidance DPS 18E of 11.70 cents / Share price of EUR1.31 as of November 7, 2018; 5 As of 2020 and including M1 portfolio
Financial overview
3 4
37
Standing GLA (000s sqm) Number of investments Value of EPP's portfolio (EURm)1 Fully-let annual NOI (EURm)
Occupancy (%)2
96.0 97.5 98.1 98.0 98.0
937 940 972 975 1,203 1,271 1,347 359 268 268 387 392 420 422 309 1,205 1,208 1,359 1,367 1,623 1,693 2,0145 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 93 93 93 93 133 143 143 4 6 6 9 9 94 94 6 15 15 18 18 22 23 245 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
98.0 96.2
Disposal of A4 Business Park, West Gate and Tryton Business Park
58 58 59 59 76 80 86 25 22 22 31 31 33 33 24 80 80 90 90 109 113 1355 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 299 299 299 303 401 429 444 194 125 125 176 176 188 189 137 424 424 476 479 590 618 7765 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
Retail Office M1 tranche I (retail)
Source: Company filings
1 Defined as investment property value 2 Based on total GLA 3 Galeria Olimpia and Centrum Echo Belchatow treated as one project 4 Acquisition of A4 Business Park III; treated as one project together with A4 Business Park I/II 5 Pro forma for M1 tranche I acquisition completed in January 2018
Proven track record of delivery and leasing while achieving strong value creation
Appendix
4
38
LPP in Galeria Echo
Source: Company filings, FactSet
2002 2011 2018 861 1,430 1,430 1,430 3,000 2002 2011 2013 2014 2018 2002: First LPP store opened 2002: First CCC store opened 2011: Reserved store extension in a new, two-level format 2013: Stores with new brands introduced: Mohito and Sinsay (787 sqm) 2018: House store extension in the latest format opened; further extension of Reserved store already planned 2011: Extension
new format 2014: Further extension
2013 2018: Planned
latest concept store
GLA evolution (sqm)
169 419 419 668 1,500 2002 2011 2013 2014 2018
CCC in Galeria Echo
2014 2018 2002 2011 Market cap of c. EUR 3.6bn
One of largest Polish retailers listed at WSE Market cap of c. EUR 1.9bn
One of largest Polish retailers listed at WSE
Appendix
4
39
EPP Asset Management and Property Management capabilities
Source: Company filings, press releases
1 As of July 2018; 2 Retail GLA of 684,000 sqm (including Marcelin)
Key highlights
Echo Investment Property Management Office team Property Managers Echo Investment Property Management Retail team Shopping Mall Directors Marketing Managers Lease Administration Managers Financial & Accounting Managers Technical Managers Echo Investment Property Management Property Management Facility Management Team Budgeting Reporting & Analysis Team Marketing Management EPP University Integration Team Architecture Team Legal Department Financial and Accounting Department Retail Leasing Team Construction and Development Team Office Leasing Team AM
Total Retail GLA
sqm >150 employees
CIJ Awards Best Asset Management Co. 2017
1,545 retail units
2017 Eurobuild Awards Property Management Co.
Select awards Appendix
4
Europa Property Awards Core+/Value Add Investor 2017
Retail 19 projects1 684k sqm2
40
1 Acquisition yield excluding transaction costs; 6.8% for the total portfolio including transaction costs 2 Represents M1 Poznan only
Source: Company filings
Appendix
4
Tranche 1 Tranche 2 Tranche 3 Number of properties 4 6 2 GAV (EURmm) 359 222 111 GLA (000s sqm) 194 184 68 NOI (EURmm) 25 16 8 Acquisition yield (%) 7.0%1 7.3%1 6.9%1 GLA (‘ooo sqm) 194 184 68 Footfall (million) 22 12.62 5.7
Portfolio
Geographic footprint of M1 portfolio Key operational statistics of M1 portfolio
To be acquired Perform. Key tenants
Tranche 1 Tranche 2 Tranche 3
M1 Lodz M1 Zabrze M1 Czeladz M1 Krakow PP Olsztyn M1 Radom PP Kielce M1 Czestochowa PP Opole M1 Bytom
M1 Poznan M1 Tychy
41
Source: Company information, FactSet
Strong performance of current retailers i.e. LPP, CCC, etc.
with the ban on trade on selected Sundays. 80% of LFL stores recorded higher YoY revenues in 2Q18.” – LPP market cap of
1
Consumer shift to other days in the week
2
Already existing in many other European countries
3
Greece and others
Mon Tue Wed Thu Fri Sat Sun Mar-Jun 2017 Mar-Jun 2018 +12% +3% +7% +4% +8% +12% (48%)
Average footfall change (%)
Appendix
4
42
Source: Company filings
Executing clearly-defined purposes
executive directors
–
set the strategic objectives of EPP and determine the company’s investment and performance criteria
–
take responsibility for the company’s sustainability, proper management, control and compliance, and the ethical behaviour of the businesses
tasks by the Members of the Board
–
the Non-Executive Directors are individuals of calibre, credibility and have the necessary skills and experience to provide judgement that is independent
committee, nomination and remuneration committee) to give detailed attention to certain
circumstances necessitate
Comprising of experienced professionals Status Member Nationality Experience in real estate
Executive Directors
Independent Non- Executive Directors
Non- Executive Directors
Appendix
4