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Voluntary trading and strategy update
MAS P.L.C.
Registered in Malta
Registration number C 99355
JSE share code: MSP
ISIN: VGG5884M1041
LEI code: 213800T1TZPGQ7HS4Q13
('MAS', 'the Group' or 'the Company')
VOLUNTARY TRADING AND STRATEGY UPDATE
Introduction
This trading announcement is a pre-closing update prior to the release of MAS' financial results for the financial year to
30 June 2023 and details developments in the Group's markets, strategy and operations. Unless otherwise stated, figures
are presented on a proportionate consolidated basis.
The Group is a green property owner and operator focused on Central and Eastern Europe ('CEE'), with investments in
retail assets in Romania, Bulgaria, and Poland. MAS also benefits from exposure to high-quality commercial and residential
developments via the Development Joint Venture ('DJV')1 with developer and general contractor Prime Kapital. MAS aims
to maximise total long-term returns from property investments, on a per share basis, by focusing on capital allocation,
operational excellence, sensible leverage and cost efficiency, sustainably growing distributable earnings per share.
Market considerations
Inflation remains above target rates in Europe and in the Group's markets. Central banks, including the European Central
Bank ('ECB'), continued tightening monetary policies by adjusting reference interest rates to address this. Currently, the
ECB key interest rate on main refinancing operations is 3.50% (up from 2% in December 2022). While a slower pace of
increases has been indicated, the ECB signalled it may further lift interest rates to curb inflation, and retain interest rates at
higher levels for longer than previously anticipated. This has a direct impact on the cost and availability of debt.
In MAS' largest market, Romania, the European Commission continues to forecast real GDP growth to outpace most EU
economies. The latest estimates, despite continuing macroeconomic challenges and further expected interest rate
increases, project real GDP to grow by 3.2% in 2023 and 3.5% in 2024 (compared to EU averages of 1% and 1.7%,
respectively). The European Commission's latest forecast estimates annual EU inflation for 2023 at 5.8% and at 2.8% in
2024. In Romania, year-on-year average RON-denominated wages have continued to increase in excess of inflation (15.0%
versus 11.2% inflation) up to April 2023. Private consumption remained robust, and consumers' purchasing power outpaced
increased inflation and rising interest rates.
1 DJV is an abbreviation for a separate corporate entity named PKM Development Limited (PKM Development), an associate
of MAS since 2016, with independent governance. MAS owns 40% of PKM Development's ordinary equity (€20million), an investment
conditional on it irrevocably undertaking to provide preferred equity to PKM Development on notice of drawdown. By 31 May 2023,
MAS had invested €309.5million in preferred equity and had an obligation of €160.5million outstanding. In addition, MAS has
committed to provide PKM Development a revolving credit facility of €30million at a 7.5% fixed rate, of which €29.3million was
undrawn on 31 May 2023 (figures not proportionally consolidated). The balance of the ordinary equity in PKM Development (€30million)
was taken up by Prime Kapital in 2016 in cash. In terms of applicable contractual undertakings and restrictions, Prime Kapital:
(i) is not permitted to undertake real estate development in CEE outside of PKM Development until the earliest of the DJV's
capital commitments being fully drawn and invested, or 2030;
(ii) contributes secured development pipeline to PKM Development at cost;
(iii) takes responsibility for sourcing further developments, and
(iv) provides PKM Development with all necessary construction and development services via an integrated in-house platform.
Operations
There was excellent trading in all Central and Eastern European countries where the Group operates during the first five
months of the 2023 calendar year, with all the Group's properties benefiting from robust footfall and tenant sales. MAS
progressed well with asset management initiatives aimed at achieving previously stated asset management targets.
Overall like-for-like ('LFL') footfall for the five months to 31 May 2023 was 11% above the same period in 2019, and tenants'
turnovers per m2 significantly exceeded pre-pandemic levels by 29%, both in enclosed malls (31% increase) and in open-
air malls (28% increase).
Information regarding MAS' Central and Eastern European LFL footfall and tenants' sales (compared to the same period of
the previous financial year), and collection rates for the five months to 31 May 2023, is detailed in Table 1. Figures in respect
of January to March 2023 benefit from, and reflect a lower comparative base as social distancing restrictions were in place
up to March 2022. All figures are reported on 26 June 2023.
Table 1:
Jan 23 Feb 23 Mar 23 Apr 23 May 23 Total
Footfall (2023 compared to 2022) % 139 134 118 110 109 120
Open-air malls % 138 133 121 112 111 121
Enclosed malls % 141 136 113 106 106 118
Tenants' sales per m2 (2023 compared to %
2022) 129 125 115 108 107 115
Open-air malls % 123 121 115 109 109 114
Enclosed malls % 143 134 113 106 103 117
Collection rate % 99 99 99 99 98 99
Collection rates, which include rent indexation of 9.5% applied since January 2023, were excellent for the five-month period.
The collection process is still ongoing for May 2023.
Occupancy cost ratios (excluding certain tenant categories: supermarkets, DIYs, entertainment and services) to
31 May 2023 were stable at 10.7% (10.6% on 31 December 2022). Excellent tenants' sales performance comfortably
allowed tenants to absorb the higher total occupancy costs resulting from increased rentals due to indexation.
In addition, occupancy of Central and Eastern European assets increased to 97.1% on 31 May 2023 (96.3% on
31 December 2022).
At Flensburg Galerie (Germany), by 31 May 2023 occupancy increased to 90% (87.7% on 31 December 2022). As a result,
footfall (18.5% increase) and tenants' sales (16.3% increase) have outperformed those in the same five months to
31 May 2022. The disposal of this asset, as well as that of Arches street retail units (UK), progresses and it is expected that
the Group will conclude the sales processes before the end of the calendar year.
Developments, extensions, and refurbishments
Construction works in respect of the Slobozia Strip Mall extension were substantially finalised, and additional retail units
have become operational, as scheduled, on 31 May 2023. The additional 4,300m2 retail GLA will transform the strip mall
into a value centre and position it as the dominant retail destination in its catchment area for the foreseeable future.
Other ongoing developments previously reported on continue broadly in accordance with expectations, and further details
will be made available in due course.
Liquidity and funding commitments
MAS held €116.5million in cash, listed securities and undrawn revolving credit facilities on 31 May 2023 (figures not
proportionally consolidated), and, as a result, is in a strong position to meet day-to-day financial obligations. At the same
time, the Group had ongoing undrawn commitments to the DJV of €189.8million, of which €29.3milion in undrawn revolving
credit facility.
Strategy updates
MAS published, with the release of the Group's 30 June 2021 financial statements, four quantified strategic objectives set
to be achieved over five years (by the end of the 2026 financial year). Achieving these targets is expected to lead to
substantial improvements in total returns per share, and implied an increase in scale that would have positioned the
Company well for an investment-grade credit rating. An investment-grade credit rating would have potentially enabled MAS
to have flexible access to debt finance at optimal cost, which is integral to this long-term strategy.
The Board had, at the same time, resumed dividend payments with the intention of maintaining a full pay-out of distributable
earnings over the five financial years to 30 June 2026, in the absence of unforeseen circumstances and provided that the
Company's long-term objectives, including self-imposed gearing limitations, fulfilling MAS' commitments and achieving an
investment grade credit rating by the end of the 2026 financial year at the latest, were not considered at any point during
this period to be at undue risk.
MAS continues to make significant progress in respect of the stated strategic objectives. However, significant changes,
which have affected the underlying assumptions in respect of debt financing cost and availability, have taken place. Rating
agencies have become more conservative, demand for bond issues has softened significantly and funding costs are
significantly higher, especially in the sub-investment grade bond market. The probability of achieving an investment grade
credit rating within an acceptable timeframe prior to the maturity date of the bond in issue has deteriorated.
As previously stated, MAS will not hesitate to adopt changes in strategy if this is considered appropriate from a long-term,
risk-adjusted, total return perspective. In light of changes in the debt markets and the increased cost of current and future
anticipated debt funding, MAS' board of directors ('Board') is currently undertaking a comprehensive process of reviewing
the Company's strategy. In keeping with the Group's long-term investment approach of maximising risk-adjusted total long-
term returns from investments on a per share basis, the Board is considering the appropriateness of the Company's capital
structure, its planned capital and debt management initiatives, its self-imposed debt limitations and dividend policy. This will
likely lead to the adoption of more stringent self-imposed debt limitations than those currently applicable and the
implementation of a process to ensure the refinancing of its bond (due May 2026), should the bond market remain
unfavourable, with secured debt finance. The adoption of more stringent self-imposed debt limitations will reduce the upper
limit of debt finance capacity to be utilised for capital and debt management, which will possibly lead to the reduction of
dividend pay-out relative to diluted adjusted distributable earnings.
Strategy changes are subject to final determination by the Board and the outcome of the review will be announced with the
release of MAS' financial results for the financial year ending on 30 June 2023.
Prospects
It is expected that CEE fundamentals, especially long-term consumption growth in Romania and other CEE countries, will
remain robust and outperform growth in Western European countries for the foreseeable future, despite the current
macroeconomic uncertainty.
The Company expects to achieve its diluted adjusted distributable earnings guidance for the financial year to 30 June 2023,
ranging from 8.85-9.34eurocents per share (of this, 4.36eurocents per share related to the six-month period to
31 December 2022).
The Board and management are confident that MAS' strategy to continue investing in CEE by concentrating on capital
allocation, operational excellence, sensible leveraging and cost efficiency will sustainably grow distributable earnings per
share and maximise total long-term returns from investments on a per share basis.
29 June 2023
For further information please contact:
Leon Alison, MAS P.L.C. +27 82 307 3667
Dan Petrisor, MAS P.L.C. +356 77 186 791
Java Capital, JSE Sponsor +27 11 722 3050
Date: 29-06-2023 05:45:00
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