NEPI investors rubbing their hands with glee as property portfolio rakes in dividends

Posted On Saturday, 05 March 2016 00:47 Published by
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New Europe Property Investment is a story is now synonymous with robust growth.

Alexandru Morar NEPI
Alex Morar NEPI CEO

For the latest reporting period, profit attributable to equity holders came in at €158 million.

That’s a tidy 60% surge. In Romania, where the REIT is focused, it extended its shopping spree by completing the purchase and development of several properties.

You just have to look for ear-to-ear smiles to find investors who bought into NEPI in 2007 when it was founded. The Alex Morar-led firm – with properties in Romania, Serbia and Slovakia – has soared with aplomb in its nine-year history. Now commanding a R53 billion market cap, the REIT is the second-largest on the local exchange behind Growthpoint.

NEPI’s 31 properties, which span across three geographies (with a combined population of 33 million), extend to a dizzying 875 000m² in lettable area of income-producing developments. Another 11 are under in the pipeline. The majority of the money-earning properties are in Romania where the group, whose portfolio includes Bucharest’s 75 500m² Mega and Honeduara’s 52300m² Deva malls, is a revered player in retail developments. For context, the former is in the league of Rebosis’s Hemingways Mall (by size) while Deva is slightly bigger than Jabulani Mall.

Romania, like Serbia and Slovakia, might be a curious choice. But, numbers from those markets speak of insatiable hunger for retail space. What’s more, annual growth in retail sales in this part of Europe ranges between 3% and 7%. Such stats, and appetite, augur well for the REIT and its investor base.

“Since opening (in the first half of 2015, Mega Mall) has dominated retail in heavily populated eastern Bucharest, with a catchment area of 910000 within a 30-minute drive. Peek & Cloppenburg opened its largest store in Romania in Mega Mall during October 2015,” NEPI said as it released earnings results for the first half to end-December last month.

During the period under review, the firm went on to buy Iris Titan Shopping Centre, located in the capital city’s most densely populated district, which has a 600000-strong population (within a 15-minute drive). Tenants include Auchan hypermarket– Romania’s largest – and international brands such as Adidas, Deichmann, Flanco, H&M, and Takko. The centre also has a seven-screen cinema.

“The group has steadily increased its investment in developments and, during the last five years, completed developments and redevelopments have significantly contributed to the growth in distributable earnings per share,” the Morar-led REIT told investors. “NEPI’s development pipeline, including redevelopments and extensions, has increased to €601 million (estimated at cost), of which €145 million had been spent by 31 December 2015. This represents an increase of €54 million compared with the previous year.”

It’s hardly surprising then that the investment community, impressed by the nine-year company’s track record and convinced of its future prospects as the region’s property sector takes on a new lease, are sold on the stock even when they are not convinced about the sector right now as figures from Catalyst Fund Managers show.

The counter has more than quintupled since January 2012 to change hands at almost R175 today (after easing from around R190 it commanded in January). Judging by the latest set of earnings numbers, the rally should continue. Last year was particularly pleasing. The REIT’s total return for 2015 was a firm 62%, according to Catalyst Property Fund. That’s second only to Fortress B, which surged an inimitable 103%. The endearing NEPI is also listed in Bucharest and on AIM, London’s junior bourse.

Investors, including the Public Investment Corp and JSE-listed REIT Resilient, whose combined interest is 20%, are delighted. Fortress Income Fund, now-delisted Capital Property Fund and Investec Asset Management are listed among large shareholders.

Property mogul and co-founder and CEO of Resilient, Des de Beer, must be as smitten as his 2% interest in NEPI continues to swell in value, tracking the northbound stock.

NEPI’s latest first-half numbers for the period to end-December was just another piece of good news. The REIT’s investors are rubbing their hands with glee as they await yet another payday. Final distribution comes in at 17.17 euro cents for 2015, and combined with the distributable earnings for the first half works out to a total of mouth-watering 35.34 euro cents per share. The exchange rate, for conversion purposes, for investors on the local share register is around €1/R17. So, in local currency terms, cash dividend declared equals 295c (SA) per share.

With the British grocer market “in the throes of unprecedented change”, according to Knight Frank’s newsletter on retail, NEPI’s markets are on the rise. “A multitude of factors have conspired to create what is widely – but erroneously – described as a perfect storm. Storms eventually pass, whereas what we are witnessing here is permanent, structural change,” says the newsletter. The picture from markets such as Romania (a country of 20 million, and largest of NEPI’s three-way foothold), according to the Trading Economics, is a sharp, and yet comforting, contrast.

For example, retail sales in that country lunged 15%, year-on-year, in January, reports Trading Economics, a global data portal. “Retail sales year-on-year in Romania averaged 7% from 2001 until 2015, reaching an all time high of 33% in June of 2008,” it says, quoting the Institutul National de Statistica. Just a year later it plunged to a record -17.30%. The turnaround that this European state has staged, and prospects thereof, sounds like music to NEPI investors’ ears.

Things are set to keep improving. Subsequent to a roadshow in November, the firm, whose Moody’s rating has improved to Baa3, issued €400 million of unsecured, 5.25 year Eurobonds maturing in February 2021. This bundle is meant to enable the REIT to compete more effectively in this part of Europe’s real estate markets in the long term. Of the proceeds, just more than half refinanced existing debt, while the rest is set aside for acquisitions and developments.

Last modified on Thursday, 10 March 2016 17:04

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