EPP's amazing run goes from strength to strength
Over the last two years EPP has been on an amazing run. The investment company, which only started in January 2016, has made 11 retail acquisitions, raised €360 million in equity and increased its market value from €1.2 billion to €2 billion to date.
“It's been a really exciting journey, a private equity led journey,” explained EPP's CEO Hadley Dean. “It's been an interesting learning curve for our company. We've doubled in size in just two years. What private equity has taught us is that things can be done a lot a quicker; we are now moving at a completely different pace. By 2020 we will have trebled in size with assets under management of around €2.8 billion.”
Poland's retail champion
Back in October 2016 EPP's private equity led acquisition strategy took a different turn. “What we noticed back then was that in the smaller regional cities shopping centre turnovers were going through the roof. For example, in the big cities of Wroclaw and Warsaw the increase in turnover sales was just 3 percent but in the smaller cities turnover sales growth was 12.5 percent – a result of the 500 plus program, continued solid macroeconomic conditions and growth in consumer spending. So we boosted our retail portfolio by acquiring regionally dominant shopping centres with high footfall in line with our strategy of becoming Poland’s retail champion, and it has been proven 100 percent right. We are a long-term institutional investor that wants to hold onto these assets for the next 20-30 years, and build them up,” said Dean.
A game changer
A fillip to that strategy came in the shape of last year's M1 deal. This was a game changer for us,” said Dean. “It trebled our catchment area and doubled our footfall. By the summer of 2020 we will own 29 shopping centres across Poland. We are now the largest retail owner of shopping centres. We own 640,000 sqm of shopping centres. That will go to around 1.1 million sqm in 2020 with the M1 acquisition.”
M1 is a portfolio of regional super malls that cater more for the suburban market. The 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.
All the properties are single level and fully leased, grocery anchored and are situated on large motorway fronting sites. 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 opportunities here for more are great. We believe that there is a huge amount to be unlocked in these assets. The M1 portfolio has substantial expansion opportunities which fit perfectly with our current strategy. This will help us not only to increase the NOI, but also strengthen each property’s competitive position,” Dean said.
Click & collect can increase your sales
Online is growing quicker than bricks and mortar and forecasts suggest that it will treble in the next five years. However, according to Dean, this is no threat to shopping centres because in Poland there will be a 50 percent growth in total retail sales.
“This is the beauty of the Polish retail story,” enthused Dean. “The key difference is that 50 percent of all online sales in Poland is click & collect. For example, 85 percent of Empik's sales is click and collect. Poles are choosing their pick up locations as it is cheaper than paying delivery fees direct to their homes so they go directly to the retail location and pay for the product. Our job is to make sure we own the dominant shopping centre in the catchment area and we make sure that when they arrive there is the possibility of them spending extra on coffee, burgers or an ice cream or something else. This is why, according to the retailers, e-commerce is amplifying store sales in Poland,” he stressed.
Commenting on trends in retail, Dean explained that retailers are adapting to meet the challenges of e-commerce. “We have seen the growth of click & collect and the omni-channel environment whereby consumers engage both online and in-store. We are well placed to support our tenants in adapting to this as convenience of location and desirability of the shopping centre drives willingness of the consumer to engage with retailer.”
Making retail destinations
In Poland shopping is a leisure activity, it's much more social than in the West, and if you combine that with no high streets its means that 71 percent of shopping is in shopping centres, says Dean.
EPP's strategy is to maximise existing assets through extensions and refurbishments. “With food as the new fashion, we are focused on further enhancing our food court areas across the portfolio to create engaging, ambient food hall concepts,” he said.
Dean stressed that EPP’s goal is not only to create typical shopping malls, but also to create destinations which will become the destinations of exciting family trips, meetings with friends, places where one can have an excellent meal, see a good movie, do shopping and simply have a good time.
“It should be an event to go to a shopping centre; we have to create something a bit different. We are making our food halls much more urban, trendier. We are holding events in shopping centres on a Sunday, for example, a bric-a-brac market or farmer's market which add to the food court and increase food court sales,” he said.
“On Sunday's people really want somewhere to go so this is where we are really lucky because across our portfolio 20 percent is food and beverages already. In this way footfall increases can be achieved despite the March introduction of the Sunday trading ban for two Sundays a month. We have seen footfall increase on Fridays, Saturdays and Mondays to compensate and to date the ban has not had a significant impact on performance,” explained Dean.
Construction of Galeria Młociny, EPP’s flagship Warsaw development, is ahead of schedule and on budget with pre-letting at 75 percent. “We are particularly pleased with the interest from a number of new international entrants to the Polish market,” said Dean. It is scheduled to open in spring 2019, and upon completion will offer 70,000 sqm GLA.
“The acquisition of Galeria Młociny is in line with our stated strategy of investing in quality retail assets in strategic locations. Warsaw is underserved per 1,000 inhabitants in terms of retail compared to other regional Polish cities. It is located in a strategic transport hub, which includes tram terminals, bus stops and an underground station. We believe in the power of the metro line,” said Dean.
“The whole top floor of Młociny will consist of 50 restaurants – it will be called “Hala Kuchnia” offering slow food, bars, traditional food – it will be a unique destination – currently there's nothing like that in a shopping centre,” he continued.
Speaking of other retail developments in Warsaw Dean briefly mentioned Jupiter, a retail project on Towarowa that is on schedule and is awaiting town planning approvals. “Jupiter will be one of the coolest architectural developments in Warsaw, something completely different,” he said. A well known international architectural star is designing the project.
Dean remained upbeat about growth prospects in Poland while highlighting that the year ahead will be one of continued focus on integrating new assets into the portfolio “We will focus on bedding down our acquisitions and fully integrating them into our market leading asset management systems. In doing so, EPP will look to unlock the potential of food halls, click and collect and exploring extensions and refurbishments at existing centres.”
Hadley Dean concluded: “EPP boasts a high quality portfolio with attractive and secure yields located in one of Europe’s most dynamic and fastest growing economies with a burgeoning consumer market. We believe we are well positioned to continue benefiting from these favourable market conditions and are well on track to become Poland’s leading retail landlord.”