Romania-focused retail property company MAS Real Estate said that it had inked a deal to buy 100 percent of its development joint venture PKM Development for €319.7 million (R5.3 billion) as it grows its footprint in Central and Eastern Europe (CEE).
MAS would purchase PKM’s share capital and shareholder loans of six subsidiaries, which own six commercial retail centres in Romania through two subsidiaries, MAS CEE Management Holdings SRL and MAS Real Estate Finance SRL.
PKM Development is the development joint venture (DJV) established in March 2016 by Prime Kapital, PKM Development, MAS and MAS CEE Developments Limited.
MAS said yesterday that via the deal it had certain goals to achieve by the end of the 2026 financial year, such as an annual like-for-like net rental growth of at least 4 percent on CEE retail assets from a normalised post-Covid-19 base, in addition to specific asset management initiatives to improve occupancy rates for the current CEE retail assets to 99 percent over this period.
The completion of commercial developments would cost roughly €600m at a weighted initial net yield of more than 9 percent by the DJV over this period.
Its goals included residential sales and deliveries by the DJV of €200m a year by the 2026 financial year at net after tax margins of 20 percent and the direct acquisitions of high-quality CEE-based commercial assets to the value of at least €150m during the 2022 financial year and a further €50m by the end of the 2023 financial year.
“Achieving these targets should lead to substantial improvements in total returns per share and implies an increase in scale that will position MAS well for an investment-grade credit rating, which will enable further flexible access to debt finance at optimal cost,” MAS said.
It said it had made significant progress with the disposal of the investment properties previously held by MAS outside of CEE, resulting in MAS holding significant cash balances of €194.5m on April 30.
Capital previously invested in Western Europe, and surplus to capital commitments to the DJV, was reserved for investment in income property in CEE.
It said DJV exclusivity would come to an end in less than three years and MAS was at risk of not benefiting from the additional development pipeline targeted by Prime Kapital, as the DJV's capital base was likely to be exhausted by the completion of the €1.65bn secured development pipeline.
The acquisition provided MAS with the opportunity to substantially outperform its direct acquisition targets via attractive direct acquisitions, by adding increased scale to MAS’s operations in CEE and mitigating the potential for exacerbated drag on real total returns per share and the deterioration in real value of cash holdings due to potential higher than expected medium-term inflation.