Klépierre and Corio, two listed companies that specialise in European retail property, have reached an agreement to merge.
It will be some time before the French REIT’s €7.2bn purchase of its Dutch counterpart is rubber-stamped and a new listed retail giant with a combined market cap of €10bn is created. Coinciding with heightened enthusiasm for European retail, the proposal has much in common with a similar merger seven years ago.
The last time a French property company walked up the aisle with a Dutch partner, it created Europe’s biggest listed real estate company.
If Klépierre and Corio need to sell – an obvious consequence of such a deal – the merged company will find no shortage of appetite, with volumes forecast to rise 21% to €50bn this year
Unibail and Rodamco Europe then refocused their joint efforts, moving away from offices and targeting the continent’s retail sector. More than just symbolic, the closure of Rodamco’s Amsterdam headquarters also signalled a managerial shift towards Paris.
While Unibail and Rodamco’s merger brought together office and retail portfolios, the latest Franco-Dutch fusion combines two pure retail players.
Klépierre and Utrecht-based Corio’s combined net rental income for 2013 was more than €1.21bn. With 30.6% shareholder APG having agreed to tender its stake, the new entity will have a combined, Klépierre-dominated portfolio of more than 182 shopping centres worth north of €21bn (gross asset value) in 16 countries, creating a sizeable “footprint”.
Not quite as big as Unibail Rodamco (€34bn), but significant for the listed sector and for European retail.
Analysts at JP Morgan said the proposed merger – which is likely to be completed early next year – is positive news for Corio, a “perennial takeover target”, which has “suffered operationally for several years”, JP Morgan said.
Corio was created in 2000 from the merger between pension fund consortium Vastgoedfonds voor Institutionele Beleggers (VIB) and Dutch pension fund ABP’s retail real estate subsidiary, Winkel Beleggingen Nederland (WBN). In 2007, the company began offloading office and industrial property.
“The potential merger has a clear rationale in our view,” property analysts at the US bank said today, noting “the first signs of improvement in the Dutch retail market”, where around a quarter of Corio’s portfolio is located.
The company, it added, has “cleaned up” its portfolio in recent years, selling properties from its Spanish portfolio as well as assets in France.
As of April this year, Corio’s portfolio was split between Netherlands (25%), France (22%), Italy (21%) and Germany 16%, with Spain/Portugal and Turkey both representing 8%. Germany and Turkey would be new territories for Klépierre, majority-owned by Simon Property Group and BNP Paribas.
The merger proposal follows the sale earlier this year of a €2bn portfolio of retail assets in France, Spain and Italy to Carrefour. As well as allowing Klépierre to deleverage to below a 40% loan-to-value, the sale also refocused its portfolio on regions it considered core.
At the time, Klépierre chairman Laurent Morel said the sale released “significant financial capacity” to fund future growth and “selective opportunistic acquisitions.”
Klépierre, founded in 1990, has assets in its native France, neighbouring Belgium, Germany, Italy, central and eastern Europe and the Nordics, where, with ABP, it co-owns shopping centre manager Steen & Strøm.
Corio and Klépierre said the merger would give the new company a combined development pipeline of €3bn, with tailormade shopping centres and extensions in the “most desirable areas” of continental Europe. With a combined footfall of more than 1.15m and a portfolio of 4.5m sqm portfolio, the new firm with be a major player in European retail, a sector now enjoying increased appeal.
Cushman & Wakefield estimates that European retail investment volumes are at their highest since 2007, totalling €49bn in the first half of this year. If Klépierre and Corio need to sell – an obvious consequence of such a deal – the merged company will find no shortage of appetite, with volumes forecast to rise 21% to €50bn this year.
Prices, Cushman says, are rising as competition intensifies. More significantly, France is back in vogue, becoming Europe’s second most popular retail investment destination by the mid-way point of this year.
David Hutchings, head of EMEA investment strategy, said improvements in finance availability and the low cost of debt were “undoubtedly” helping the core markets of France, the UK, Sweden and Germany.
“This impact will continue to spread to new markets,” he said.
JLL foresees “the large, liquid markets of the UK, Germany and France” remaining in demand. The three markets accounted for over 70% of total volumes in the second quarter of this year, the agent said.