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.
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