Polish developer Echo Investments and its spin-off investment company, Echo Polska Properties (EPP), are acquiring a shopping centre-led scheme under construction in Warsaw for €42 mln net, reflecting a yield of 7.1%.
The two Echo companies are buying the Galeria Mlociny project from a Polish-registered developer, Rosehill Investments.
EPP and Echo Investment will hold 70% and 30% shares in the new project respectively. Echo Investment is to complete the construction work and will be responsible for the commercialisation and marketing, while EPP will be the asset manager once Galeria Mlociny is completed. This is the second joint project, after Towarowa 22, which will be developed by the two companies under this formula.
The estimated yield for Galeria Mlociny is 7.1%, however, the partners expect this will rise once the scheme opens.
Galeria Mlociny is a 81,900 m2 mixed-use development, of which 71,000 m2 is retail, restaurant and entertainment space. The facility is located near the main public transport hub in northern Warsaw, which sees 40,000 daily commuters. Construction of the first phase commenced in October 2016, and is on track for completion in Q2 2019. The development is 60% preleased, mainly in the food court, entertainment area and among key fashion brands including Inditex, Van Graaf and H&M.
Underserviced retail market
Hadley Dean, CEO of EPP, said the acquisition provides EPP with an earlier entry into the underserviced Warsaw retail market, ahead of the completion of the Towarowa development. 'The acquisition of Galeria Mlociny 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.'
Listed on Warsaw Stock Exchange, Echo Investment is the largest developer in Poland and has completed 120 residential, shopping centre and office projects, totalling 1.3 million m2, in Poland since 1996. The firm has been part of an investment group with Poland's Griffin Real Estate and US firms, Oaktree Capital Management and Pimco, since 2015.
EPP is a Dutch-registered real estate investment company that follows the REIT formula and is listed in South Africa and Amsterdam. It invests in commercial retail, office and industrial properties throughout Poland. The current portfolio includes nine office, 15 retail projects and one retail development site in the centre of Warsaw, totalling 626,783 m2 gross leasable area.
EPP was created last year around Echo Investment's Polish standing and cash-generating assets, valued at €1.5 bn. On 1 January 2016, South African REIT, Redefine Properties, acquired a 75% stake in EPP's share capital, subsequently reducing its shareholding to just under 50% through the sale of shares to a consortium of South African co-investors.
