“After the reopening of all stores in May and June, we have seen a steady pick-up in retail activity across the entire portfolio until 30 September. Footfall in the third quarter of 2020 was 77% and tenant sales 89% of prior-year levels. Negotiations with tenants following the lockdown are progressing very well and are currently 84% complete. Partially as a result of this progress, the collection rate reached 97% for the first six months of 2020 and 90% for the nine-month period ended 30 September 2020. NEPI Rockcastle’s balance sheet strengthened after the disposal of the Romanian office portfolio in August (at the terms negotiated in 2019) and the green bond issue in July. Consequently, the loan-to-value ratio decreased to 31.8% at 30 September and liquidity reached €1.2 billion (including undrawn committed credit facilities), further outlining our commitment to maintaining a prudent financial policy. Since the beginning of October, COVID-19 cases have once again increased throughout Central and Eastern Europe, raising new short-term challenges. However, the Group’s underlying strength and the high potential of the economies where it operates will enable NEPI Rockcastle to return to sustainable growth in the medium and long term,” Alex Morar, CEO of the company commented.

Business highlights

• Footfall during the third quarter of 2020 was 77% of the prior-year level, and decreased to 72% in October, as new restrictions were introduced. Tenant sales during Q3 2020 were 89% of the third quarter of 2019 value (like-for-like property, excluding entertainment, food service and hypermarkets), showing a strong recovery after the re-opening of non-essential stores.
• By the end of October, agreements were reached with tenants representing 94% of gross rental income regarding deferral of payments and rent concessions, of which 84% were signed. The significant progress made is a considerable achievement and a credit to the great work of the Group’s asset management team.
• The total value of COVID-19 related rent reliefs and discounts granted up to 30 September amounts to €55.6 million. A significant amount of this is due to Polish regulations imposing a rent-free period for tenants, including service charges and marketing costs, during the 14 March – 4 May lockdown. Rent concessions were lower in countries where governments partially subsidised rents subject to agreements between landlords and tenants (Czech Republic, Lithuania and Slovakia).
• Collection rate was 97% of reported revenues (adjusted for concessions granted) for the first half of 2020 and 90% for the nine-month period ended 30 September 2020.
• The occupancy rate as of 30 September 2020 was 95.7%, compared to approximately 95.8% as of 30 June 2020.
• Liquidity as at 30 September was very strong, amounting to €1.2 billion, of which €575 million in available committed credit facilities.
• The loan-to-value ratio was 31.8% as at 30 September, significantly below the 35% strategic target. During Q3 2020, the Group further increased the headroom under debt covenants, which was already substantial.
• The launch of the Green Finance Framework and successful issuance of €500 million unsecured green bonds in July 2020 extended the average debt maturity from 3.6 years as at 30 June to 4.4 years as at 30 September.
• The disposal of the Romanian office portfolio, announced on 7 August, was successfully completed on 27 August. The transaction terms were materially the same as initially agreed in 2019. The transaction was fully settled for net cash proceeds of €294.8 million and generated a net gain on disposal of €1.8 million.
• The property portfolio’s value is substantially unchanged, at €5.9 billion. No property valuations were undertaken in Q3 2020, in accordance with the Group’s policy to perform independent revaluations at half-year and year-end reporting dates.

Leasing activity

In Q3 2020 the Group signed 46 new leases and renewed 72 lease agreements (excluding lease term extensions related to tenant support agreements). New leases and renewals are virtually identical to those used pre-pandemic. Commercial terms typically include base rent, fully recoverable service charges, marketing fees and additional turnover rent. Lease terms are a minimum of five years, with no break options or additional incentives, base rent and marketing fees are indexed annually against consumer price indices and leases are denominated in euros.

Development update

NEPI Rockcastle reduced development pipeline expenditure in order to preserve liquidity and optimise capital allocation; non-committed capital expenditure has been deferred unless it would affect a project’s value.

Key committed projects, such as the extension and refurbishment of Focus Mall Zielona Gora (Zielona Gora, Poland) and Bonarka City Center (Krakow, Poland), are progressing as per schedule. Permitting and value-enhancing investments continued in strategic projects, such as the Promenada Mall (Bucharest, Romania) extension and the Promenada Craiova (Craiova, Romania) development. A flexible approach to contracting enables the Group to suspend and resume developments with relative ease.

During the first nine months of 2020, NEPI Rockcastle spent €116 million on developments and capital expenditures. The Group continues to invest in developments that contribute to the growth and improve long-term portfolio value and income generation. The estimated capital expenditures on developments and operating assets, to be spent in the fourth quarter of 2020, amounts to €40 million.