Klépierre turns in ‘solid’ rental income growth in H1 on like-for-like basis

Listed French retail specialist Klépierre reported shopping centre net rental income rose 3% in the first half of this year on a like-for-like basis to €378.5 mln.

On a current basis, however, rental income fell 4% due to disposals of €2.2 bn worth of shopping centres in the past 18 months in France, Spain, Italy, and Norway. Overall, the shopping centre vacancy rate (EPRA format) remained low at just 3.2%.

On April 16, Klépierre completed the disposal of a portfolio of 126 Carrefour-anchored retail galleries for a total of €1.9 bn. The portfolio included 56 assets in France, 63 assets in Spain, and 7 assets in Italy. In addition, Klépierre sold a portfolio of retail assets and the 3 remaining offices in the portfolio for a total of €149 mln.

Commenting on the earnings update, CEO Laurent Morel called the results ‘solid’. ‘Thanks to strong leasing activity and operating efficiencies across all regions, we delivered robust net rents growth, well above indexation. Our recent credit rating upgrade gives us more flexibility to access financing at a lower cost and to further improve cash-flow generation. Klépierre has clearly emerged from the recent substantial reshaping of its portfolio much stronger. Looking ahead, we will continue to upgrade our platform of leading shopping centres, and our high-quality extension projects will provide us with the opportunity to develop the latest shopping and retail concepts whilst further improving our tenant mix.’

SCANDINAVIA AND CEE LEAD RENTAL GROWTH
On a like-for-like basis, Scandinavia and CEE turned in the strongest growth figures over the period, of 4.2% and 7% respectively. Poland and the Czech Republic posted strong, above indexation growth thanks to new leases and re-tenanting. Italy also performed well, with net rental income outperforming the index by 140 basis points, rising 2.4% like-for-like.

In Iberia, the portfolio posted a 3.1% increase in net rental income like-for-like that reflected the first signs of economic recovery and significant cost control efforts. The opening of a Primark store in February also had a positive impact on rents in Meridiano (Tenerife), the company said. The portfolio was substantially reshaped during the first half following the disposal of 63 retail galleries in April.

France-Belgium brought up the rear with a net rental income increase of 1.8% over the period.

Overall the retailers in Klépierre’s portfolio lifted sales by 1.7% on a like-for-like basis and 3.4% including extensions opened in 2013.

In the past 18 months, Klépierre has significantly reshaped its portfolio through a major divestment programme. Subsequent to the half-year closing, the company completed the disposal of five shopping centres in Sweden, effective July 1, for a total value of €354 mln. Rents on these five shopping centres represented 2.8% of Klépierre’s rents (total share) for the first six months of 2014.

Following the disposal programme, Klépierre is now exclusively focussed on pan-European retail. It currently has a development pipeline valued at €2.7 bn focused on its targeted regions, including €1.4 bn of committed and controlled projects and between 2015 and 2018, it is planning around 10 extension projects for a number of its leading centres. The company is due to open its Romagna Center (Rimini, Italy) extension in September 2014, which will be followed by movie theatre openings at Field’s in Denmark in Q2 2015 and the opening of the extension at Centre Bourse in Marseille in the final quarter of 2015.

UPWARD EARNINGS REVISION
Following the strong first-half performance and a 2.8% increase in net current cash flow per share, Klépierre has upwardly revised its guidance for full-year 2014: net current cash flow per share is now expected to reach between €2.03 and €2.05, an increase over the previously indicated level of ‘at least €2’.

At end-June, Klépierre’s portfolio was valued at €14 bn, comprising large shopping centres in 13 countries of Continental Europe. Klépierre holds a controlling stake in Steen & Strøm (56.1%), Scandinavia’s leading shopping centre owner and manager. Klépierre’s largest shareholders are Simon Property Group (28.9%), world leader in the shopping center industry, and BNP Paribas (21.3%).