Poland retail landlord, EPP, reveals in its annual results that amid the Covid-19 global health pandemic, customers are still eager to visit shopping centres.
Bricks and mortar remains the most favoured form of shopping for Poles, with EPP’s retail portfolio continuing to attract new store openings by leading brands.
“We saw a strong retail rebound post each of the three lockdowns implemented by the Polish government to date, with tenant turnover growth outpacing footfall increases,” says Tomasz Trzósło, EPP CEO.
The company, which is listed on the Johannesburg Stock Exchange and Luxembourg, EPP owns 32 properties (25 retail, six offices and one mixed-use currently under planning) valued at approximately €2bn, with more than one million square metres of lettable space.
Speaking to Safrea Chronicle, Trzósło explains that people prefer shopping in-store with added experience to e-commerce. Given that Covid is still with us, people go to shopping centres for a reason, not for socialising. This has resulted in the company recording negative growth on impulse buying levels, as seen pre-Covid.
“People need shops where they can see, touch and feel the products they are buying. Also, the high Covid-19 sanitary standards implemented in EPP’s shopping centres make customers feel safe.”
However, he says online sales increased during lockdown periods, and declined sharply when trading restrictions were lifted – a clear indication that consumers long for in-store shopping experiences.
“EPP is working on several initiatives for post-Covid-19 retail success, including an omni-channel strategy, and last-mile logistics to support click-and-collect services and drive additional in-store sales.”
According to Trzósło, Polish retail faced two closure periods in 2020, lasting more than 10 weeks in total, during which landlords could not legally enforce rent payments.
Tomasz Trzósło, EPP CEO
At the moment, legislation allows tenants not to pay rent during lockdowns in exchange for extending their leases by six months, plus the amount of time the tenant’s store is closed.
This had a material €40m impact on EPP’s net operating income, with net property income declining to €114.2m, and distributable earnings falling to €50.5m.
For the year ending 31 December 2020, EPP’s distributable earnings reached €5.56 cents per share, exceeding its guidance of between €4.75 and €5.25 cents. The company board resolved not to distribute a dividend for the second half of its financial year to reinforce its capital structure, given Covid-19 challenges.
“We are focused on resuming dividend payments (2021 financial year) to shareholders as soon as possible while being cognisant of our balance sheet strength.”
Strong retail market
EPP says that the Polish real estate market is the largest and most liquid in Central and Eastern Europe (CEE), and continues to see a growing interest from investors.
The company’s retail properties with a gross lettable area (GLA) of 900,000 m2 are located in affluent Polish cities with the highest consumer demand and growth potential.
Post lockdowns, EPP saw high conversion rates with tenant sales growth outpacing footfall increase. Footfall in Poland is recovering faster than in other European countries, says Trzósło.
EPP’s tenant mix comprises 50% of international retailers, 41% of Polish chain retailers and 9% of local retailers.
Trzósło says there is a high percentage of international retailers, generally because it is easy to transport goods within Europe.
A number of retailers are represented in the region, along with a growing number of Polish businesses within the EPP portfolio looking to grow their Food & Beverage, and leisure offerings.
Additionally, local retailers are ambitious to expand their operations outside Poland into other CEE countries, however, Covid has slowed some of these growth plans.
“Poland remains economically stable and is well-positioned for further growth with its low unemployment and rising wages,” says Trzósło.
EPP aims to reduce its loan-to-value (LTV) ratio, which is 54.8% (net) right now – within its average covenant levels of 67%, and below average LTV levels for Polish real estate.
To this end, the company will go ahead with the sale of some of its assets, as announced in September 2020. “Our assets are performing well, and selling will enable the reduction of LTV. Assets to be sold will be mainly retail, and we will consider selling some office properties.”
Tenant failures
According to Trzósło, bad debt or tenant failures didn’t significantly impact EPP’s operations and results in 2020.
“In September/October 2020, before the November lockdown, we recorded a collection rate of close to 100% of due rents. I believe that the temporary reduction of this value as a result of the November and January lockdowns will bring us back to a similar collection rate, only if there is no significant risk of further lockdowns.”
EPP portfolio occupancy is also a stable 96%, and continues to attract new store openings by leading brands including Primark, Pepco, Dealz, Sephora, Levi’s® and Carrefour.
Trzósło says that in 2020, 10 new retail brands debuted in Poland, while five brands that had already experienced problems before the pandemic exited the market.
“We can see that the pandemic has not impacted all players in the retail market to the same extent. There are tenants who announce expansion and hiring of staff, but there are also those who have problems such as lack of online stores.”
With Poland’s vaccination program moving forward, and the Polish economy being in good shape, I believe we will quickly get the pandemic under control and work with tenants on a quick recovery of the sector.”
Poland has achieved one of the highest rates of Covid-19 vaccine doses administered per 100 people in Europe, with 3.3 million doses given to 5.7% of its population (4.8% EU average) by 27 February 2021. Infections are expected to decline steadily in the months ahead, supporting the economy’s dynamic recovery, according to EPP.
Government support
For now, 96% of EPP’s retail GLA is allowed to trade, not including leisure tenants such as fitness centres, who are restricted from operating.
EPP says the Polish government is keen to restore economic activity. To this end, financial assistance includes €70bn from Polish governmental aid, which is aimed at stimulating the economy and providing financial support to companies, and €173bn in grants and loans from the European Union (EU) economic recovery fund, and a seven-year EU budget.
“EPP operates in a resilient and strong economy, with Poland reporting a GDP drop of a low 2.8% in 2020. Poland remains one of the most attractive investment markets in Europe, and is expected to achieve rapid GDP growth of 8% combined in the next two years,” says Trzósło.
Edited by Gudrun Kaiser
