Echo Pol­ska’s R11bn deal dou­bles port­fo­lio

Business Day - - FRONT PAGE - Alis­tair An­der­son Prop­erty Writer

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, Nepi-Rock­cas­tle, as well as other realestate 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 has a 37.5% stake in the con­sor­tium, while Re­de­fine has 25%. The con­sor­tium is ac­quir­ing a large prop­erty port­fo­lio that in­cludes the 12 re­tail prop­er­ties that 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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