Poland malls make sense for investors - why else would 90% of EPP shareholders be South African?

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EPP CEO Tomasz Trzóslo
Photo: Supplied by EPP
EPP CEO Tomasz Trzóslo Photo: Supplied by EPP
  • Dutch-based mall owner EPP says over 90% of its shareholders are still South African investors.
  • That's despite the fact that the company's shopping malls are all in Poland, and it has no assets in SA.
  • The demand for diversifying their property exposure by looking offshore for greener pastures is likely the number one reason for this.

Five years after the formation of Dutch-based real estate company EPP following a transaction between Redefine Properties and Polish property developer Echo Investment, its shareholders are still largely South African investors.

The company is listed on the Luxembourg Stock Exchange and the JSE's main board. It is Poland's largest retail real estate owner, with a portfolio of 29 retail properties and six office complexes. But it has no assets in South Africa.

Still, it is enjoying the backing of local investors, with Redefine holding just under a 50% stake in the company. But pension funds and other local investors are also holding on to their shareholding.

"Majority of our investors are still South African, not 100% but about 90%," said EPP CEO Tomasz Trzóslo.

He said when EPP was formed five years ago, and the opportunity came up to list on the JSE for the company to raise capital to grow its operations, there was a big demand from various pension funds in South Africa.

"I believe the fundamental reasoning behind the interest back then continues to be taking place until today," said Trzóslo.

Better economic prospects, Covid-19 strategy

Trzóslo thinks that initially, investors saw an opportunity to diversify their property exposure. But now, with Covid-19 turning the sector on its head, investors are looking at their portfolios with an even eager eye, pondering about how much of their property-related investments should be in South Africa.

With all its assets in Poland, a country where 51% of the population is fully vaccinated, odds are in EPP's favour. Investors might expect fewer economic disruptions there in the future compared to SA, where only over 7 million people are fully vaccinated.

Polands' seven-day rolling average of new Covid-19 infections has come down to 12 cases in September, and the country has had four intermittent lockdowns. In contrast, SA has consistently been on lockdown since 27 March 2020.

It also enjoys low employment. Its GDP growth and retail sales have been outperforming the European Union average, and this is expected to continue doing so for the next two years.

"The retail spending forecasts, the GDP forecasts, the low unemployment metrics in the country, I think this all adds up to comparatively better perspective for the EPP asset base and whatever alternatives might be analysed by some African investors," said Trzóslo.

But also, whenever Poland lifts lockdown restrictions and stores reopen, people flock back. In the months without trading limitations during the period under review – February and May to July – EPP's tenants' sales exceeded the corresponding months of 2019 by 4% on average.

The company said the e-commerce penetration level in Poland also dropped from 9.8% during the lockdown in January to 7.4% in July 2021 when shopping centres were fully trading.

"There's a big group of people that don't really like sending things back and forth, waiting," said Trzóslo. "Youngsters here love their mobile phones and social media and internet. And that's only going to become stronger.

"But there is enough room for the people to come to the shopping centres," he added.

Another thing that EPP believes counts in its favour is that there is less shopping mall saturation in Poland. The group's strategy is to own large dominant shopping centres in mid-sized and large cities in Poland.

"Poland was never oversaturated. Of course, there are one or two cities where the situation is worse. In some other cities, it's better, but on average, the number of shopping centres is comparatively better than in most Western European countries and actually, in South Africa having been there a couple of times," said Trzóslo.

Because of how Poland's dynamics are helping the recovery of its retail sector, EPP's net property income increased by 12% in the year ended on 30 June. The group's distributable earnings per share increased by 54% to 3.66 euro cents. And the company continues to expand due to the positive prospects for retail spending in Poland. It acquired four retail parks in March 2021.

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