Redefine Properties’s Polish subsidiary EPP is well on the road to recovery post-pandemic and has no major vacancies at its six core retail centres in that country, says CEO Andrew König.
In an interview during a tour of EPP’s retail centres, he said “the tenant situation at the malls is good”, and average vacancies negligible at 2%. On trading conditions of the centres, he warned the retail sector in Poland was likely to be impacted by high inflation, although turnover-to-rent ratios at the centres was currently good.
EPP was restructured in March last year, a process that involved the disposal of all its assets under a €100 million (more than R2 billion) valuation, with about €400m raised from that to settle debt and meet short-term liquidity requirements – this was after the Covid-19 pandemic had severely negatively impacted trading at the centres.
“The last interim period (to February 28, 2023) was the first time since the pandemic that EPP was able to repatriate cash back to South Africa equivalent to its earnings contribution, and this restored the dividend paying prospect to Poland,” he said.
EPP is the largest asset manager of retail real estate in Poland in terms of gross lettable area, and its assets are located in cities with the strongest consumer demand and growth potential.
König said EPP had undergone many challenges in the past few years. Apart from the impact of the pandemic, the Russia-Ukraine war and the high interest rate and high inflation rate environment currently also presented challenges to the Polish retail market.
EPP assets were now stable and the bank debt refinancing due this year had been settled.
He said that during the integration process, Redfine’s South African management teams had learnt much of “best in breed” practices at EPP, such as, for example, the use of an app to communicate with tenants.
Redefine leaves EPP’s management to run the operations in Poland, with weekly meetings between the executives in the two hemispheres.
“We provide financing and strategic direction,” said König.
For now, the strategy was to optimise the assets in Poland. Raising capital would prove “dilutive” in the current environment. König said the retail centres were in “pristine” condition and did not require substantial capital spending.
For instance, the 27 932 square metre Psaz Grunwaldzki centre in the city of Wroclaw was last refurbished in 2007 and partially refurbished in 2016.
Outlet Park in Szczecin, which features a unique tenancy that sells heavily-discounted goods over 100 589 square metres was extended for a third time in 2017, while the 56 000 square metre Galaxy mall, with the highest fair value in the portfolio of €272m, was last extended in November, 2017.
Overall, EPP operates in 23 cities in Poland; has 29 retail projects; six office projects; and a total gross lettable area of about 1 million square metres.
The core retail centres BR visited were particularly well sited, with for instance, the 54 086 square metre M1 Poznan centre located within 30 minutes of a catchment area of some 870 000 people. In Szczecin, the Galaxy centre is the most extensive retail, leisure, and fashion and beauty offer in the north west of Poland, and its closeness to Germany enhances the customer base.
According to EPP’s management, the war in Ukraine has impacted energy prices in Poland, and although the prices remain high, they have fallen significantly this year. Some investment decisions in Poland may have been postponed because of the war, but this was an unquantifiable cost.
There were some initial 2.5 million refugees from Ukraine into Poland, but these were estimated to have reduced to about 1.5 million, after many moved to other European cities. EPP’s directors believe the immigrants represent a boost to Poland’s retail market.
Also operating in Poland is Redefine Europe’s 48.1% held ELI, which started in 2019 with the acquisition of nine logistics properties and which has grown to 33 buildings over 887 000 square metres, after 10 buildings were sold. It is a very young portfolio, with most of them having been completed between 2019 and 2022.
Meanwhile, commenting on Redefine’s South African retail assets, König said all had been provided with emergency electricity back-up diesel generators in 2013 already. He added that these had been designed for emergency use, and extended periods of load shedding may well result in higher costs.
He said trading in their retail centres in South Africa was “okay”, but the high interest rates, particularly the last 50 basis points’ increase would take a toll on the financial well-being of consumers, particularly among lower-income groups.
König said it had become difficult to make a forecast on interest rates, as the last increase came from “political” choices, which had created uncertainty.
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