The source of Unibail Rodamco’s outperformance in recent years will likely disappear in the future, according to a new report issued by Deutsche Bank.
The source of Unibail Rodamco’s outperformance in recent years will likely disappear in the future, according to a new report issued by Deutsche Bank.
Deutsche Bank’s research shows that Unibail Rodamco's historical outperformance has been generated from increasing its occupancy cost ratios in the retail portfolio to levels that the bank believes will be hard to exceed.
The occupancy cost ratio helps determine the amount of rent a retailer can afford to pay.
The Franco Dutch listed property giant has increased its occupancy cost ratio in a decade from 9.0% to 13.5% on its French shopping centre portfolio - representing 34 malls out of a total of 82. This increase accounted for +4.1% per annum of the group's like-for-like rental growth.
‘With this group itself suggesting that it is hard to exceed an occupancy cost ratio in the 13-15% range, it seems unlikely that this historical source of the group's outperformance will be available to it in the future,’ said analyst Martin Allen in the report.
The bank has scaled back its share price target from €206 to €199 and cut its stock rating from 'Buy' to 'Hold'.
Unibail-Rodamco saw total gross rental income rise to €383.7 mln in Q1 2013 from €375.4 mln in the year-earlier period. The increase mainly reflected higher income from the group's shopping centre division, which increased 6% to €288.3 mln as a result of a number of new mall openings.
Unibail-Rodamco confirmed its confidence in achieving earnings per share growth of a least 5% across 2013 as a whole despite the challenging economic environment.
