EPP announced the acquisition of 12 major shopping centres and retail parks (M1 portfolio) in three tranches over the next three years. The acquisition from a consortium (owned 25% by Redefine Properties), totals €692 million and forms part of a larger 28 property portfolio that has been acquired by the consortium. Upon completion of the transaction in mid-2020, EPP’s portfolio will comprise at least 27 modern shopping centres comprising almost 1 million square metres GLA
The M1 portfolio comprises 12 dominant retail properties with a total of 446,500 sqm GLA and over 620 stores situated in densely populated catchments which are complementary to EPP’s existing assets. The portfolio includes eight M1 regional shopping centres with GLA ranging from 30,000 sqm to 55,000 sqm which attract more than 40 million annual visitors and four retail power parks with GLA ranging from 20,000 sqm to 35,000 sqm.
All the properties are single level and fully leased, grocery anchored and are situated on large motorway fronting sites which total over 195 hectares. All of the centres are anchored by Auchan Hypermarkets as well as a variety of international and domestic brands such as MediaMarkt and fashion retailers, TK Maxx, H&M and C&A. The average rental rate across the portfolio is a low €9.10 per sqm per month and the average rent to sales ratio is below 9%. The entire portfolio is subject to a master lease from Metro AG which expires in April 2024.
“This deal is based on an 'up to 30 minute drive time' measurement which will treble our portfolio catchment to 34% of Poland's total population, increasing to 39% after Galeria Młociny in Warsaw is opened,” says Hadley Dean, CEO of EPP. The transaction will also boost EPP’s annual portfolio footfall by 61% from 76 million to 122 million. “These stats speak to EPP becoming a derivative of Poland's burgeoning consumer market.”
Dean said that EPP as well as the consortium are happy to enjoy the benefits of the income from Metro AG’s head lease until 2024. Auchan acquired from Metro the ‘Real’ supermarket business in Poland in 2014 and the 28 properties that will now be owned by the consortium and EPP represent approximately 35% of the number of stores that Auchan have in Poland. The properties being acquired by EPP have significant extension opportunities and also have asset management initiatives as the line shops are on average paying below market rentals.
The entire portfolio was secured at a yield of 7.1%. The transaction will be closed in 3 tranches:
- Tranche 1 (January 2018): €358.7 million GAV comprising M1 Czeladź, M1 Kraków, M1 Łódź and M1 Zabrze totalling collectively 194,400 sqm GLA and NOI of €25.1 million.
- Tranche 2 (June 2019): €222.5 million GAV comprising M1 Bytom, M1 Czestochowa, M1 Radom, PP Kielce, PP Olsztyn and PP Opole collectively 184,000 sqm GLA and NOI of €16.3 million
- Tranche 3 (June 2020): €110.9 million GAV comprising M1 Poznan and PP Tychy collectively 68,100 sqm and NOI of €7.6 million.
Tranche 1 is being financed by way of 62% debt and the redeployment of some of the capital to be received on the sale of the offices previously announced, as well as the subscription by funds managed by Oaktree and LVS II Luxembourg II S.à r.l for €112.5 million of EPP shares at €1.27 per share. As a result there will be no need for EPP to raise capital from the market. This direct investment in EPP by LVS II Luxembourg II S.à r.l and funds managed by Oaktree reflects their confidence in our platform. Redefine’s holding in EPP will reduce to +/- 35% but Redefine have undertaken to invest a further €40 million for future acquisitions in order to restore their holding to circa 40%.
On completion of the first tranche the return on equity pre-tax and transaction cost will be 13.5%. In the short term the acquisition results in a small increase in EPP’s LTV from 51% to 54% but this is being addressed and the company is committed in the medium term to reducing the LTV to below 50%.
EPP’s advisor in the deal was Dentons law office.