French retail real estate giant Klépierre has no immediate plans to emulate its European rivals by entering the M&A market, Chairman Jean-Marc Jestin said in a full-year earnings call.
The European retail property market witnessed two massive deals in December 2017, with French landlord Unibail-Rodamco SE, Europe's largest real estate investment trust by market capitalization, making a $15.68 billion move for Westfield Corp.. Just days before, Hammerson Plc announced a £3.4 billion deal for U.K. rival Intu Properties Plc, which Hammerson said would make it Europe's second-largest listed retail landlord, ahead of Klepierre.
Jestin said Klepierre would not be making any similar moves in the near future. "We have been very active [in] consolidation over the last few years and today we are not," he said. Klepierre bought Dutch group Corio in 2015 in a deal that valued the latter at €7.2 billion.
Given Klepierre's business model as a pan-European landlord with pan-European and global tenants, further consolidation by the company in such a large market was likely at some stage, Jestin said, but only if it made sense.
"We will have to face an opportunity to consolidate if the opportunity is good [and] if we can create synergies with our retailers and [offer] more opportunities for them to grow their business," he said.
The consolidation of the European retail property market comes at a time when brick-and-mortar retail is facing an existential threat from online retailers like Amazon.com Inc., while low wage growth challenges consumer spending.
The difficult operating climate for some retailers is forcing Klepierre to offer incentives, Jestin said.
"I would say bluntly, yes, we do rental discounts when it is necessary but the most important [thing] is to change the tenant when the sales performance is not the one we [expected]," he said.
Rental discounts are not a huge issue for Klepierre, Jestin added, with bad debt from tenants at about 1.5% of total rental income.
"We are fixing situations when situations are difficult. What I can tell you and what you know is that over the last few years, if we compare it to 10 years ago, there is a widening gap between the top performers [in retail] and some who are going through a transformation — and it's clear that the rotation of tenants who are not doing well in some specific situations is [greater]."
Klepierre reported total revenues of roughly €1.32 billion for the full year 2017, up 1.6% compared to the previous year's results. The company's net current cash flow per share was €2.48 for the full year 2017, up 7.4% from the previous year and surpassing its initial guidance of €2.35 to €2.40.
The board will propose a dividend increase to €1.96 per share at the next shareholder meeting, representing a year-over-year rise of 7.7%, Deputy CEO Jean-Michel Gault said on the earnings call.
