MAS Real Estate, owner of shopping centres in Central and Eastern Europe, says it continues to benefit from the region’s high growth consumption which bodes well for its retail portfolio.
For the six months ended-December 2022, retail sales on a like-for-like basis outperformed the same period in 2021.
Compared with December 2021, sales were up 20% in open-air malls and 30% in enclosed malls. Retail categories including entertainment, services, food service, shoes and clothing recorded a strong performance during the period, the company said in its interim results.
“Growth in Central and Eastern European countries, and in particular those in which MAS currently invests, is expected to continue to outperform Western European growth prospects,” said CEO Irina Grigore.
Passing net rental income increased by 5.6% during the reporting period and 10.9% year-on-year, partly attributable to higher rent indexation due to euro inflation.
She said MAS’s properties benefit from euro-based, triple-net leases, with full euro indexation to base (minimum) rents and turnover clauses. Therefore indexation is passed on in full to tenants.
“Due to continued robust tenants’ sales, occupancy cost ratios are expected to remain healthy, and it is anticipated tenants will be able to comfortably absorb higher rents,” she said.
With a primary listing on the JSE, and secondary listing on A2X , MAS owns retail assets in Romania, Bulgaria and Poland. It also benefits from exposure to high-quality commercial and residential developments via the development joint venture with developer and general contractor Prime Kapital.
For the six months to December, overall occupancy of Central and Eastern European assets remained stable at 96.3% and increased to 96.8% on a like-for-like basis. The group did not provide support in the form of deferred or waived rentals to tenants.
Grigore said after the disposal of the Langley Park land in the UK in December, Flensburg Galerie in Germany and Arches Street retail units in the UK are the last of MAS’s Western European properties held for sale.
At the end of December these assets had a combined book value of €59.6m with €33.8m secured bank debt outstanding. The disposal is expected to be concluded during the second half of the 2023 financial year.
To protect shareholder value and position the Flensburg Galerie asset for optimal sale , management refurbished the food court and changed the tenant resulting in occupancies increasing from 81.5% in June to 87.7%.
Grigore said based on existing offers for their assets, management’s estimation of the Western European disposal realisation costs and losses has been reassessed to €21.3m, from €4.2m at the end of June.
She said these include the expected result on sales, punitive fixed-interest arrangements on secured debt, early bank debt repayment penalties, agency fees and other related costs to be incurred in completing the sales processes of remaining assets held for sale.
About four years ago MAS changed its investment strategy to focus on Central and Eastern Europe and exit Western Europe. To date, it has sold assets valued at €23.4m in Western Europe.
MAS said Western Europe offers stability and low growth while Central and Eastern Europe offer stability and higher growth, and this is unlikely to change.
During the period, the development joint venture (DJV) with Prime Kapital had about €102.9m of commercial development pipeline.
At end-December, MAS had €187.3m in cash, listed securities and undrawn credit facilities. It has an ongoing undrawn preferred equity investment commitment of €223.9m and €9.5m undrawn committed revolving facility to the DJV.
In October, the group repurchased bonds issued by its subsidiary MAS Securities for €5.2m at a 20.5% discount to their nominal value of €6.6m — resulting in the group having €455.9m of outstanding debt and loan-to-value of 28.5%.
The group’s investment in JSE-listed Nepi Rockcastle was valued at €101.1m. For the six-month period, adjusted total earnings reached €50.2m, with adjusted distributable earnings per share up 14.3% to 4.42 eurocents.
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