MAS PUNCH­ING ABOVE ITS WEIGHT

JSE-listed MAS Real Es­tate is bank­ing on growth op­por­tu­ni­ties in re­tail parks and its hefty devel­op­ment pipeline in the Cen­tral and East­ern Europe re­gion.

Finweek English Edition - - IN DEPTH PROPERTY - By Glenda Wil­liams

the pen­du­lum has swung de­cid­edly in favour of in­vest­ment into Cen­tral and East­ern Europe (CEE) in re­cent years. One com­pany ag­gres­sively tar­get­ing that re­gion’s growth prospects is JSE-listed MAS Real Es­tate Inc. MAS, also listed on the Lux­em­bourg bourse, has a port­fo­lio val­ued in ex­cess of €500m made up of 53 prop­er­ties spread across the UK, Ger­many, Switzer­land and the CEE. But an im­mense pipeline around twice the cur­rent as­set value looks to grow that mostly re­tail port­fo­lio value to one that ex­ceeds €1bn in the next three to five years. His­tor­i­cally fo­cused on Western Europe, a lit­tle over a year ago MAS ex­panded its strat­egy and in­vest­ment ju­ris­dic­tion to in­clude the CEE. It en­tered into a joint ven­ture (JV) with Prime Kap­i­tal, a com­pany highly ex­pe­ri­enced in the devel­op­ment of suc­cess­ful re­tail as­sets in the CEE re­gion. Its founders, Martin Slabbert and Vic­tor Semionov, pre­vi­ously headed up the highly suc­cess­ful Ro­ma­nian-based New Europe Prop­erty In­vest­ments (Nepi). The part­ner­ship also al­lows MAS to ex­pand into East­ern Europe with a low cost busi­ness model. The com­pany has ven­tured into Poland, ac­quir­ing Nova Park, a dom­i­nant re­gional mall, and more re­cently has struck fur­ther into East­ern Europe into Bul­garia, Ro­ma­nia and Slove­nia. Its projects in the re­gion with Prime Kap­i­tal now num­bers 16. The sor­tie into East­ern Europe has much to do with MAS’s goal to hit am­bi­tious tar­gets in earn­ings and dis­tri­bu­tions. MAS has com­mit­ted to 30% growth in dis­tri­bu­tions for three years and is tar­get­ing the same earn­ings growth fig­ure. “What’s im­por­tant is that we make sure that we are not only grow­ing our dis­tri­bu­tions by 30% per an­num but that we are also grow­ing our un­der­ly­ing earn­ings by 30% per an­num,” says MAS Real Es­tate’s out­go­ing CEO, Lukas Nakos (see side­bar). How the com­pany aims to de­liver on this es­sen­tially lies in its mas­sive dual cat­e­gory €1.026bn pipeline and in par­tic­u­lar an over­weight €893m devel­op­ment and ex­ten­sion pipeline (82% of the pipeline) that dwarfs the €133m al­lo­cated to­wards in­come gen­er­at­ing as­sets.

Ex­ten­sive and am­bi­tious pipeline

Un­like some of its com­peti­tors, MAS is ex­pand­ing into East­ern Europe by largely de­vel­op­ing its own as­sets from the ground up rather than buy­ing estab­lished as­sets. This pro­tects the com­pany from be­com­ing ex­posed to poorly de­signed re­tail as­sets that tend to en­tice com­peti­tors over the longer term, an­a­lyst Wes­sel Baden­horst of 36ONE As­set Man­age­ment tells fin­week. “With many other prop­erty coun­ters in­vest­ing into East­ern Europe, the gen­eral im­pres­sion is of a fo­cus on yield dif­fer­en­tials, rather than on the un­der­ly­ing qual­ity of the prop­erty as­sets or growth op­por­tu­ni­ties within these as­sets,” he adds. MAS could eas­ily have hit tar­gets by plac­ing 90%

of its pipeline into high-yield­ing, eas­ily lever­age­able op­por­tu­ni­ties. But it has in­stead cho­sen op­por­tu­ni­ties where it can de­liver as­sets that will grow net oper­at­ing in­come sig­nif­i­cantly over time. “This pipeline is an im­por­tant part of our busi­ness for the next three to five years and is what dif­fer­en­ti­ates MAS from any other com­pany,” says Nakos. Of that €1.026bn pipeline, €356m is chan­nelled to­wards as­sets owned and where devel­op­ment has al­ready be­gun, with €420m al­lo­cated for se­cured as­sets where the com­pany has le­gal con­trol of sites. €250m is di­rected to­wards fur­ther op­por­tu­ni­ties MAS is con­fi­dent it can de­liver on. Sig­nif­i­cantly, the ma­jor­ity of the com­pany’s devel­op­ment pipeline is fo­cused to­wards the CEE, 68% of the to­tal pipeline a devel­op­ment JV with Prime Kap­i­tal. Prime Kap­i­tal says it only makes sense to build what can be rented. That could mean build­ing a shop­ping mall that can be turned into a re­gional mall in the fu­ture. “Fo­cus on the devel­op­ment and ex­ten­sion pipeline is the driver of the com­pany’s earn­ings growth over the medium term, the devel­op­ment yields sought in ex­cess of 10% ungeared. The re­turn on eq­uity will be sig­nif­i­cantly higher and will trans­late into strong earn­ings and dis­tri­bu­tion growth for the com­pany,” says Liliane Barnard, CEO of Me­tope In­vest­ment Man­agers. MAS’s devel­op­ment pipeline is a hefty one so some of those earn­ings that Nakos refers to may be “lumpy” as de­vel­op­ments come to in­come, the use of cap­i­tal prof­its in or­der to smooth dis­tri­bu­tions a like­li­hood

“While shop­ping cen­tres may come un­der pres­sure from the threat of on­line re­tail, value cen­tres and re­tail parks gen­er­ally tar­get an un­der­served de­mo­graphic mar­ket.” Of that €1.026bn pipeline, €356m is chan­nelled to­wards as­sets owned and where devel­op­ment has al­ready be­gun.

Martin Slabbert Co-founder of Prime Kap­i­tal

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