EDWARD WEST
EPP, the Netherlands-based owner of retail property in Poland, will delist from the Luxembourg Stock Exchange and from its secondary listing on the JSE, prior to an internal reorganisation of the company, EPP said yesterday.
The delisting plans follows Redefine Properties’ announcement to buy all the shares it does not own in EPP in order to recapitalise and to restore it to a dividend paying company by 2023. Redefine already owns 45.44 percent of EPP.
EPP’s share price increased 3 percent to R12.36 yesterday afternoon on the JSE, while the Redefine share price was up 3.1 percent percent to R4.95.
EPP owned 29 retail properties and six office complexes in most of Poland’s regional cities as at June 30, 2021. It also owns a share of the mixed-use Towarowa 22 development in Warsaw.
Redefine will offer 2.70 of its shares per EPP share, and shareholders who do not wish to take up the offer may retain their shareholding in an unlisted EPP.
EPP warned, however, about the lack of liquidity in the unlisted environment.
EPP’s reorganisation after the delisting involved two joint venture transactions with third party investors, which would bring a €191 million (R3.46 billion) cash injection into EPP.
The transactions will leave EPP with a loan-to-value of 37.4 percent compared with 55.6 percent as at June 30, 2021.
It will be left with eight direct properties comprising six retail properties (including its 70 percent interest in Galeria Mlociny) and two Power Parks, valued at €1.35bn; a 30 percent interest in Henderson Park which owns three office properties; a 53.74 percent interest in Towarowa 22, a development property, and a 51.2 percent interest in EPP Community Properties, a joint venture that will own 12 community retail and three office properties valued at €640.3m; a 50 percent interest in M1 Holdco, a joint venture which will own 11 shopping centres valued at €739.1m
EPP said since its listing in 2016 it had been unable to achieve meaningful liquidity in its shares or maintain an investment rating comparable to what was achieved at listing.
“EPP remains relatively highly geared and has various short and medium term liquidity requirements related to refinancing or repayment of debt maturing in 2022 that need to be met. Given the deep discount at which its shares trade to NAV and highly constrained liquidity in the Polish property market, particularly post the onset of the pandemic, the proposed delisting and related transactions present an effective solution to EPP’s balance sheet challenges,” its directors said yesterday.
It said the listed equity market no longer presented EPP with a conducive market on which to raise significant equity capital. “Issuing shares at a deep discount to its NAV will result in significant value destruction for EPP shareholders,” it said.
EPP said a significant contributing factor to its low liquidity was Redefine’s holding and the fact that EPP’s shareholder of reference was also listed on the JSE, affording the market two points of entry to EPP on the JSE, and thus diverting a degree of liquidity away from EPP shares.
“EPP is not currently in a position to deliver income to its shareholders in the form of dividends and capital market dynamics restrict EPP’s ability to remedy this position in the short term.”
The joint venture transactions would provide an accelerated and effective solution to EPP’s balance sheet challenges. It said that if its planned disposals were successful during 2022, it might return to a dividend paying position during 2023.
Redefine said its shareholding in EPP had a carrying value of R6.5bn, yet EPP had not paid a dividend since June 30, 2019.
“Apart from the consequent decline in Redefine's distributable income, this loss of dividend income also impacts negatively on Redefine's interest cover ratio and corresponding loan covenant headroom. Given challenging market conditions, EPP has not been able to deliver on its asset disposal strategy required to bolster its balance sheet and to manage its liquidity requirements,” Redefine said yesterday in a statement.
It said the reorganisation would resolve EPP's liquidity issues and eliminate the potential need for EPP to undertake an equity capital raise.