Simon Property Group Inc. (SPG)’s cutting-edge experience as the biggest U.S. mall owner will help Klepierre SA boost rental income at its shopping centers, the French company’s chief executive officer said.
Simon became the biggest shareholder in Klepierre, Europe’s second-largest publicly traded mall operator by value, last week after the Indianapolis-based company bought a 28.7 percent stake for about 1.5 billion euros ($2 billion).
“Simon has a savoir-faire that’s a step ahead of European companies,” Klepierre CEO Laurent Morel, 49, said in an interview yesterday. “In terms of marketing, there will be significant gains.”
Klepierre can use the help. Europe’s economic slowdown is hurting retail demand in Greece, Spain, Italy, Portugal and Hungary, where about 24 percent of its real estate by value is located, according to its latest figures. The company has already offered rent holidays and other incentives to tenants to maintain occupancy levels.
The U.S leads Europe because of the greater sophistication of its retail market in the face of mounting online sales, and Klepierre expects to benefit from Simon’s experience using mobile-device technology to attract shoppers, Morel said.
“U.S. malls are a generation ahead of us in optimizing revenue,” Morel said, adding that Klepierre will hire staff and add technology to bring U.S. know-how to its centers. “I’m very optimistic about this.”
Another benefit of the Simon Property investment will be to bring more U.S. retailers to Europe and help some of Klepierre’s existing customers set up at U.S. malls, he said. Simon bought its stake from BNP Paribas (BNP) SA, which said it will retain its remaining 22.2 percent holding in the company for at least another year.
Retail sales by tenants at Klepierre’s 271 centers in 13 countries fell 0.8 percent last year, the company reported last month, while rents rose by 1.6 percent. Both figures exclude currency fluctuations and are for properties owned through 2011.
Klepierre’s revenue could be hurt as leases come due for renewal in the economically troubled countries on Europe’s periphery, said Martijn van den Eijnden, an analyst at Rabobank International in Utrecht, the Netherlands. He has a buy rating on the shares.
“Moreover, the smaller centers in its portfolio, which are mainly anchored by the poorly performing Carrefour SA, could feel the consequences in terms of footfall,” he said.
Morel said sales at Klepierre’s centers will probably exceed national averages and rising rents and sales in Scandinavia and France will compensate for the slowdown in southern Europe. He reiterated last month’s forecast that profit excluding one-time charges, known as net current cash flow, will increase “slightly” from the 1.99 euros a share earned in 2011.
“Consumer spending isn’t going to be exceptional, but there is investment taking place by successful retail brands,” he said, speaking after presenting Klepierre’s newest center in Paris’s St. Lazare railroad station.
Klepierre climbed 11 percent after the Simon Property purchase, bringing the gain for this year to 20 percent. That compares with an 11 percent advance for the FTSE EPRA/NAREIT Developed Europe Index.
Sign of Confidence
“That’s a sign of confidence and puts an end to a period of uncertainty,” Morel said.
The shares fell 32.5 cents, or 1.2 percent, to 26.06 euros. in Paris, reducing the company’s market value to about 4.9 billion euros. Simon Property declined 1 percent from yesterday’s record high of $144.22, trimming its value to $43.8 billion.
Simon Property’s investment is unlikely to change Klepierre (LI)’s strategy anytime soon, said Michel Varaldo, an analyst at Societe Generale SA with a buy rating on the French company’s shares. Stephan van Weeren, an analyst at Amsterdam- based brokerage Petercam Bank NV, agreed.
“Simon will take its time and once Europe’s recession has passed, they will see what they will do with it,” van Weeren said. He has a hold rating on the stock.
St. Lazare Station
Klepierre invested 160 million euros building a 108,000 square-foot mall in St. Lazare station as part of a five-year renovation program. It’s due to open at the end of the month. About 450,000 travelers, mostly commuters, pass through the station daily to work or shop on nearby Boulevard Haussmann, one of Paris’s main shopping strips.
St. Lazare is the first of Klepierre’s two large projects scheduled to open this year. The second, the Emporia mall in Malmo, Sweden, will open Oct. 25. An extension to its existing property at Claye-Soilly, near Paris, will start operating by the year-end.
Morel plans to raise 1 billion euros from disposals through 2013 to cut debt to 40 percent of the value of its real estate from 45.8 percent at the end of last year. The proceeds will also fund projects valued at 3.3 billion euros.
About 140 million euros of agreed sales await completion “and there are more coming,” Morel said.