MAGAZINE: Carrefour changes tack with €2b mall deal

French retail giant Carrefour has joined forces with eight institutional investors to acquire a €2 bn portfolio of retail galleries from Klépierre and insurer CNP

A consortium led by French supermarket group Carrefour has signed a preliminary agreement to acquire a portfolio of 127 Carrefour-anchored retail galleries in a €2 bn deal. The package, which is owned by Klépierre (83%) and insurer CNP (17%), comprises small and medium-sized retail galleries which Klépierre initially acquired from Carrefour in 2000 and 2001. It includes 57 assets in France (70% of the total transaction value), 63 assets in Spain (19% of total value) and seven assets in Italy (11% of total value), representing a total area of 476,000 m2. The total consideration for the transaction is expected to be €2.01 bn, with Klépierre’s share accounting for €1.67 bn. This price is in line with appraised values at end-June 2013 in France and Italy and reflects a discount of around 20% in Spain, the Paris-based REIT said. The deal is expected to close during the second quarter of 2014. Based on the portfolio’s gross annual rental income of around €135 mln, the transaction reflects a yield of 6.7%.

New holding company
According to well-informed market sources consulted by PropertyEU, Carrefour is taking a 42% stake in the new company which will own the galleries while its shareholders – private equity firm Colony Capital, insurers Predica and Cardif as well as US investment manager Pimco and Sogecap – will account for the bulk of the remaining stake. None will hold more than 15% of the new company. Carrefour is also taking over the asset and property management of the assets. Klépierre was represented by Morgan Stanley & Co International on the deal, with White & Case and Bredin Prat & Associés acting on the legal side. Carrefour’s acquisition reflects a new strategy launched by CEO Georges Plassat aimed at increasing its control of the hypermarkets it operates by owning and managing the surrounding sites and retail areas. As part of this strategy, the group’s property arm is acquiring a total of 172 shopping centres which it plans to reposition, extend or redevelop. Besides the properties bought from Klépierre, Carrefour has transferred another 45 French malls with a value of €700 mln to the new joint venture, which will eventually own €2.7 bn of assets with over 800,000 m2 of retail space. The new retail property company, which has yet to be named, is being financed with roughly €1.8 bn in equity and €900 mln in debt. It will remain unlisted for the time being, sources say, and the company’s results will be consolidated in Carrefour’s accounts. ‘Carrefour has a view of what their consumers should experience when visiting their hypermarkets and adjoining sites. They have done a smart deal, in which they take control of the portfolio, share it with other institutional investors, and fork out a very limited amount of cash,’ commented a person close to the deal who wished to remain anonymous.

Strategic milestone
For Klépierre, the transaction marks a milestone in the company’s strategy to refocus on prestigious shopping centres located in selected regions of Europe. ‘We were somewhat criticised when we bought these assets from Carrefour 12 years ago because they revolved around the hypermarkets which were the main attraction of the sites. In reality, we have been able to create a lot of value from these assets. We came up with a way to improve the retail mix, their appeal and therefore their rental level,’ Klépierre’s CEO Laurent Morel told PropertyEU. At the time of acquisition, the properties represented the core of Klépierre’s retail portfolio and were the main trigger of a business transformation revolving around the group’s international expansion, he added. ‘Since then, we have continued to develop our portfolio, focusing largely on malls that are dominant in their catchment areas.’ Morel continued: ‘Today, we have more than 60 large malls and the business of retail schemes anchored by hypermarkets has become marginal in our portfolio. By selling these assets, we are killing two birds with one stone: first, we are deleveraging the company to 40% loan-to-value which will have a dramatic effect on our financial profile, including a likely rating increase and better and cheaper access to debt. Thanks to this deal, Klépierre will become part of a very select number of best-in-class REITs. Second, we are moving forward in our goal to become a pure owner of dominant European malls.’

Slimmer Klépierre
Through the sale of what amounts to about half of its shopping centres, Klépierre will have a much more focused portfolio. In France, around 95% of its assets by value will be located in the Ile-de-France, Toulouse, Montpellier, Lyon and Bordeaux regions. In Italy, the northern part of the country and Rome will account for 85% of Klépierre’s assets and in Spain the company is retaining two regional malls in Madrid and Tenerife. Morel: ‘Spain has become marginal for Klépierre. We still keep two very interesting assets but we will not necessarily consider investing further in the country. We will focus on regions which show high growth potential, thanks notably to their level of purchasing power combined with their demographic trends, namely the Benelux, Nordics and some parts of France and Italy. Our strategy is to own a large number of relevant assets in those regions so that we have a nice positioning vis-à-vis retailers.’ He continued: ‘This deal leaves us with a smaller, but much more focused and consistent portfolio. We exited the office business which used to be part of the Klépierre portfolio in Paris. With this deal we are focusing on dominant malls and have become a pure player of large shopping centres. We are transforming the company radically.’ Klépierre will use the proceeds to pay down €1.3 bn of existing debt and to help to fund its €2.3 bn development pipeline of projects concentrated in dynamic and growing regions across Europe, mostly in France and Scandinavia.Later this year, the company plans to open the 28,000 m2 Kristianstad mall in Copenhagen, along with an extension to its existing Romagna centre in Italy. The company expects the loss of net rental income as a result of the disposal to be mostly offset by interest savings from deleveraging and restructuring the hedging portfolio. The deal will have a limited impact on NAV of a negative €0.70 per share and the company does not expect to change its dividend policy as a result of the proposed transaction.

Acquisition opportunities
Klépierre said the sale will also support its ability to ‘seize potential selective acquisition opportunities’, such as the purchase of Icade’s 50% stake in the Odysseum shopping centre in Montpellier announced in December 2013. ‘We want to grab the opportunity to take greater control of the few malls that we share with partners,’ Morel said, stressing that this will, however, be a marginal focus. ‘Our main driver of growth will be organic and will derive from the development pipeline,’ he noted. In Italy, Klépierre has an 88% stake in IGC, the owner of nine shopping centres largely located in the vicinity of Milan. It is expected to take full control of the unit in the future.

by Virna Asara

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