EPP, which listed on the JSE but operates in Poland, has become the latest property fund to choose not to pay a dividend, given how the Covid-19 pandemic and resultant economic lockdowns have derailed its performance.
The company made the announcement after the release of financial results for the year to December, in which its distributable earnings declined to €50.5m (R911m) compared with the same period in 2019 financial year's €105.5m.
But the group still reported distributable earnings of €5.56 per share, exceeding its guidance of between €4.75 and €5.25 per share.
EPP and other Polish landlords gave their tenants millions of euros in rental relief in 2020 while they could not trade during lockdowns, the last of which was imposed from December 28 until February.
“Given the unprecedented and uncertain impact and duration of the Covid-19 pandemic, the board has decided it is prudent to refrain from paying a dividend during the year. It believes it is in the best interests of the company and all its stakeholders to preserve EPP’s financial liquidity as the current environment continues to stabilise,” EPP said on Wednesday.
“Future dividend payments will take into consideration the stability of the retail environment, progress made on disposals, refinancing of EPP’s upcoming debt and overall capital structure,” it said.
As at the end of December 2020, the company managed a portfolio of 25 retail centres and six high-quality offices located in the majority of regional cities in Poland.
In addition to these income-generating properties, EPP also owns the Towarowa 22 multi-use development in Poland’s capital city, Warsaw.
The 25 retail centres under management include Poland’s flagship Warsaw shopping centre Galeria Mlociny, which opened in May 2019.
“Within the month of March 2021, EPP expects to own or co-own 29 shopping centres post the conclusion of the final tranche of the M1 transaction,” the group said.
The company first announced the three-tranche M1 transaction in December 2017.
The M1 portfolio comprises 12 major shopping centres and retail parks with an aggregate transaction value of €692m. The portfolio was acquired from Chariot Top Group, a consortium in which JSE-listed Redefine Properties owns 25%.
The first tranche, which was finalised in January 2018, was valued at €358.7m and includes shopping centres M1 Czeladz, M1 Kraków, M1 Lódz and M1 Zabrze.
The remaining two tranches would be finalised over the next three years.
“The lockdown at the end of 2020 was a negative surprise, but the economy is nevertheless showing resilience and I believe our guidance is positive,” said CEO Tomasz Trzósło.
EPP provided guidance of between €7 and €7.25 distributable earnings per share for its 2021 financial year, assuming there are no further market disruptions.
Trzósło said EPP was taking steps to bring its loan-to-value (LTV) lower from 54.8% to between 40% and 45%, in line with SA property companies.
LTV measures the value of a company’s debt relative to its assets. Fund managers prefer LTVs to be between 35% and 40%, as a ratio higher than that could imply financial distress.
He said that in Europe LTVs were often high with some American investors in private property funds happy with LTVs that were in excess of 70%.
“EPP’s 54.8% net LTV is well within EPP’s average covenant levels of 67% and below the average LTV levels for Polish real estate, which is dominated by private market investors who strategically seek to maximise LTV,” he said.
“While it remains at appropriate financial and operational levels, EPP is acutely aware that the SA market prefers lower LTV levels for listed property, and plans to reduce it materially over the next two years as the investment market improves,” he said.
The company would sell €500m worth of assets to pull down the LTV, Trzósło said, adding that it could also get a partner to buy half of one or two of its largest assets.
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