NEPI Rockcastle reports 19% decrease in rental income

Report highlights

• Net rental and related income (referred to as Net Operating Income or NOI) was €323 million, 19.4% lower than in 2019. Part of the decrease reflects the sale of the Romanian office portfolio in August 2020 (impact of NOI loss for the year of approximately €9.2 million).
• Retail NOI decreased by 18.5%, to €300.7 million, and by 21.3% on a like-for-like basis. The key drivers were the temporary rent concessions granted to tenants as COVID-19 support (€69.5 million recognised in 2020) and a reduction of variable (turnover and overage) rent from €33.5 million (2019) to €26.6 million (2020).
• There were 221 million visits in 2020, a decrease of 32% compared to 2019. The largest declines recorded during lockdowns (March-May and November-December), when most non-essential stores were closed. Tenant turnover decreased by 29.4% (excluding hypermarkets), and by 31.5% on a like-for-like basis.
• Negotiations have been completed and agreements signed in relation to 2020 with more than 97% of tenants. 6,150 addenda to lease agreements were signed, over a period of seven months. The collection rate remained high (95% of 2020 reported revenues were collected as at 31 December 2020, increasing to 97% as at mid-February 2021) and tenants received the support needed to continue operating.
• Throughout 2020, non-essential stores were closed for 73 days on average (approximately 20% of the year), with trading restrictions for certain businesses (such as restaurants, cinemas) lasting much longer. By mid-February 2021 most restrictions were lifted and 85% of GLA was operational.
• Investment property on 31 December 2020 was valued at €5.8 billion, compared to €6.0 billion at the end of 2019 (excluding the Romanian office portfolio, classified as held for sale at 31 December 2019 and sold in 2020). The property portfolio incurred a devaluation of €345.3 million compared to previous year, corresponding to a fair value loss of 5.2% on a like-for-like basis.
• The launch of the Green Finance Framework and successful issuance of €500 million unsecured green bonds in July 2020 extended average debt maturity from 3.6 years on 30 June 2020 to 4.1 years on 31 December.
• The average interest rate, including hedging, was 2.3% for 2020, slightly lower from 2.4% in 2019.
• The company successfully opened a new shopping centre in Targu Mures, Romania (GLA: 40,200 sqm) and completed extension and refurbishment works in Shopping City Buzau (Romania) and Forum Liberec Shopping Centre (Czech Republic). Throughout the year the Group invested €143 million in developments and capital expenditures.
• In 2020, NEPI Rockcastle spent €143 million on developments and capital expenditures. Following a comprehensive review, the Group actively optimised capital allocation, including deferring non-committed developments and capital expenditure projects. However, no projects were cancelled. Significant progress was made with the permitting of the Promenada Mall extension and Promenada Craiova, a new 56,500 sqm GLA modern retail and entertainment destination in one of Romania’s premier cities. The Group will continue to invest in developments contributing to growth and improving long-term portfolio prospects, and will constantly monitor, and revise, the development pipeline in line with current objectives and constraints. The Group estimates to invest in 2021 €95 million in development and capital expenditure related to its ongoing projects and will consider new development opportunities depending on how market circumstances evolve. The development strategy going forward will target diversification through a focus on mixed-use and residential projects.

“The shopping environment is changing. Some effects of the pandemic will be short-lived, but some longer-term trends were accelerated. People have already started returning to more communal forms of leisure, entertainment and shopping where possible (and we strive to ensure that they do so safely) and continue to enjoy visiting our centres. As retail is changing, we are working on adapting our business model to capitalise on these changes. The future of retail is omnichannel, with more digital engagement, and we are taking steps to adjust our offering in that direction.

We expect that 2021 will be a better year for NEPI Rockcastle. The pandemic in CEE countries has recently started to abate and the ongoing vaccination programme will accelerate over the next few months. The European Union approved a significant support plan that will start producing effects in 2021. National governments in CEE indicated that they will continue fiscal and monetary stimulus. There are no signs that monetary conditions will tighten soon. All these make a strong economic rebound likely, with a particularly pronounced effect on personal consumption. In the physical retail sector, the CEE region is not blighted by the overcapacity affecting Western European real estate and still has lower e-commerce penetration rates. Our Group is well-positioned to benefit from improving economic conditions and return to a steady and sustainable growth path.” Alex Morar, CEO of NEPI Rockcastle said in the report.