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Edited Transcript of LI.PA earnings conference call or presentation 25-Jul-19 7:00am GMT

Half Year 2019 Klepierre SA Earnings Call

Paris Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Klepierre SA earnings conference call or presentation Thursday, July 25, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jean-March Jestin

Klépierre SA - Chairman of the Executive Board

* Jean-Michel Rene Gault

Klépierre SA - Deputy CEO, CFO & Member of Executive Board

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Conference Call Participants

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* Bart Gysens

Morgan Stanley, Research Division - MD

* Christian Auzanneau

AlphaValue - Research Analyst

* Jaap Kuin

ING Groep N.V., Research Division - Research Analyst

* Michel Varaldo

Societe Generale Cross Asset Research - Head of the Real Estate Research Sector Team

* Niko Levikari

ABN AMRO Bank N.V., Research Division - Research Analyst

* Peter Papadakos

Green Street Advisors, LLC, Research Division - MD & Lead Research Analyst

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Presentation

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Operator [1]

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Hello and welcome to the Klepierre's Half Year Earnings 2019 Call. Please note the call is being recorded. (Operator Instructions)

I'd now like to hand over to Jean-Marc Jestin to begin today's conference. Thank you.

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [2]

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Thank you. Good morning, everyone. Thank you for joining us today. I'm Jean-Marc Jestin, Chairman of the Klepierre Executive Board; and I'm happy to be here with Jean-Michel Gault, Deputy CEO to present Klepierre first half 2019 earnings. In this presentation, we've got about 5 topics. First, I will say a few words about our strategy, which, in our view, explain why we keep processing modest earnings in a fast-changing environment, after which I will go over the highlights of the first half and cover our operational performances. And then Jean-Michel will present our financial in details.

But first a few words about the current environment and how we are navigating in it, because it can (inaudible) some pricing that we continue to post solid result when the market seems to believe that the retail and the retail property sectors are boom. Of course, to us, this is no surprise. Sure we are facing challenges, the transformation of retail is underway, it is happening pretty fast and those who did not anticipate it are struggling. Some believe that in this new omnichannel world that we are getting to know, traditional players will lose. Only to the extent to which they will lose may vary from one player to the other. But I don't believe this, I believe that some will indeed lose, but many of those will win. I believe that the omnichannel retail benefits those retailers who know how to embrace it and mall owners who can support this transformation.

Take sales, some say online sales are growing at the expense of in-store sales. The total sales are supposedly not growing, there will just be a redistribution of sales between the 2 channels. This is not true. Statistically, total sales are growing and there is even a correlation between online and in-store sales grows. It is now well documented that the retailers online sales grow faster in an area where the retailer has a store. On the opposite, online sales drop in a catchment after our store closure. You just need to have the right store at the right place.

Some argue that consumers' EBIT are changing, say, to the expense of the shops that they are less inclined to go out and shop in malls, that it is not what we are seeing, every time we renovate our malls, every time we change a mix, every time we organize events and enhance our customer care, we see fruitful and sales increasing because the physical and emotional connection experience is simply more powerful than what we can get digital.

One last comment on the pessimist side is that retailers margin are falling, so they can't finance the retail transformation. It is true that many retailers face pressure on their margins, but they all know and we know that if there is any online profitability at all, it is very limited. So they need sure store, but better stores to consolidate their overall profitability.

For many years we have been implementing a strategy to leverage this retail transformation. This is a 3-tier approach. First, our capital allocation is driven by demand from the best-performing retailers on the continent. We keep or buy the assets that want to be used and we invest in those properties, the others we sell. Secondly, we take good care of our consumers to be sure they come to our malls, stay a longer time and want to come back. For this we have 4 initiatives that most of you are already familiar with, when the market seems to believe that the retail and the retail Retail first to get the best of retail in our shopping centers. Let's play to make our malls [pertaining] club store to convey a sense of hospitality and ensure seamless customer journey and as then that these act for good to make sure our business is sustainable and creates value for our local communities. The (inaudible) of our overall strategy is financial discipline, CapEx is spent wisely and only if it is cash flow relative and we keep our debt stable, if not lower. It is easy to increase cash flow with higher leverage, we never did it and we'll not do it.

I think this strategy is paying off. In the first half, once again, we posted solid results. Our like-for-like NRI grew by 3.1%. Our net current cash flow increased by 5.4%. We delivered on our disposal plan and we de-leveraged the company and further reduced our net debt-to-EBITDA ratio, which is now close to 8x. We'll come back to all of these points in greater detail during his presentation with Jean-Michel.

All of these make us confident for the future. And starting with this year, considering among them, there seems a good level of our operating performance. We have decided to raise our cash flow guidance for 2019 from between EUR 2.72 and EUR 2.75 to at least EUR 2.76 per share. In fact, looking forward, we think we'll be able to continue growing our revenues and for this, there are structural reasons for our confidence.

When all the smoke clears, everyone will realize that the physical stores is central to retailers' ecosystem, because this is where emotional connections happen and brand loyalty is built. This is also a showroom for the online marketplace, the store will increasingly clear all of our logistic hub, and this is where the profitability remains. So retailers don't pay a rent for a store just to make sales in the store. The investing in an essential asset in their omnichannel ecosystem. And the best from retailers, we know them well and they lack our properties and the way we run them, because they are distinctive places.

And please never forget our occupancy cost ratio are on average low around 12%. And our cash flow will grow even further because beyond this increase in our like-for-like rental growth, we'll pursue a accretive capital allocation. We continue to work on our pipeline projects to extend and to refurbish our properties Our cash flow growth for those will be sustained by further reductions in our interest expenses, everyone was betting on rising interest rates, we have actually gone down significantly which considerably change the picture, Klepierre is a growth story, we have designed our strategy for this.

Now, let me touch on the highlights of the first half, starting with NRI. As I said earlier, NRI grew by 3.1% on a like-for-like basis, this is significantly above indexation. And then as you can see, all countries are positive. Iberia and the Netherlands lead with impressive growth. On the leasing side our leasing teams maintained strong deal flow, the 820... sorry 821 leases we saw in the first half at an average 9.4% reversionary rate. Where these include 689 renewals and re-lettings, and once again, the Netherlands and Iberia led the way in reversion.

Our operational metrics are also well oriented. The good leasing performance I just mentioned translated into lower vacancies. We can now say that we are back to peak (inaudible) levels at 3% and this is increasing. And Asia is increasing in a reasonable way and remain low, as I indicated earlier. And bad debt remains at the very low level. Retailer sales recovered somewhat at plus 1.6%, the increase by 0.8% last year, as you know, and the first quarter of 2019 was specifically soft at 0.2%, but the second quarter was more dynamic at plus 2.8%. As usual geographic performances were mixed, Iberia and Central Europe are still benefiting from dynamic consumer spending trends, while France is recovering from the yellow vest protest.

From a segment perspective, food and beverage, health and beauty remained the best performing segment, while fashion was slightly positive. Another notable event of the first half is that we sold EUR 501 million worth of assets. On this map, you can see that we have sold over the last 18 months for a total of EUR 1 billion and this demonstrates that, thanks to our Pan European footprint and our good investment team, we can continue to sell a variety of asset to a variety of buyers and at good conditions, 3.5% of those book value.

It is also important to stress as we see on the other side, the evolution of the value of the 11 malls we sold in the first half of this year. They were sold 5.5% above their latest appraisal value, but 18.2% above their 2015 valuation.

The last highlight I would like to provide is financing. As I mentioned in my introduction, the decline in interest rate is an important feature of the first half to take into consideration and to a sales value of our business. We raised capital on the bond market at historically low conditions with our 11-year bond at just 0.625%. We also continued our de-leveraging efforts, reducing our net debt in absolute terms by nearly EUR 60 million in the first half.

Now let's quickly take a closer look to our operational performance with our 4 operational pillars, starting with retail sales. We continue to transform the retail offering in our malls at very, very fast pace. In just 6 months, as you can see on this slide, we have managed to significantly rotate the mix of (inaudible) malls. At the Group level, the adaptation of the mix is also very significant, this graph show that we continue to replace trailing segments such as Toys and (inaudible) or fashion by more profitable ones such as Health & Beauty, Fitness and Sports, and as you can see the figures are quite impressive.

We are to also able to expand the presence of retail champions in our malls, thanks to a very privilege relationships with them. We signed a handful of deals with each of the leading brands you see here. They are among the retailers who embrace the transformation of retail and know how to manage the omnichannel world. Now also we see newcomers to our malls and in some instances to the shopping center market like Dyson, Hawkers, Netflix, Daniel Wellington and many others, proving once again that our malls are very attractive places to build brand awareness indeed. And as I said earlier, the success of sports stores is continuing, sports retailers sales have increased by 8% since the start of the year, which is significant. We have signed 28 new deals with brands such as Snipes, Decathlon, JD, Foot Locker, Decimas.

Now moving to the Let's Play. We are also accelerating our event strategies. The quality of our events is increasingly high, and they do other powerful impact. Let me take a few example. In the past few months, we have deployed 2 new license events in our malls across Europe. One is for the latest Spider-Man movie, Far From Home, which has been a tremendous success and (inaudible) by 17%. The second was in (inaudible) with the European Tour of Just Dance. It is making stop at several of our malls and the (inaudible) edition was in, I must say, is 12% footfall increase. That speaks also about the digitalization of our relationship with our consumers. Our digital ecosystem is expanding rapidly, take Instagram for instance, our consumer are our best ambassadors and they like to post photos of what is happening in our malls on their Instagram accounts. Our number of Instagram followers increased by a massive 55% year-on-year in the first half.

Turning to capital. We keep renovating our malls to infuse a sense of hospitality and ensure our consumers feel pampered. In the first half, we completed the renovation of 5 malls (inaudible) Toulouse in France. And this generates a return, we did our sales on the 12 months rolling basis have increased by 4.2%. So definitively more customer care means more sales for our retailers.

The overview of our operational pillars wouldn't be complete without (inaudible) our CSR strategy. I would like to highlight that we at Klepierre are at the forefront of our industry in terms of efforts to reduce our carbon footprint. For this, we are reducing our energy consumption across the board. We are also committed to using 100% electricity from renewable sources by 2022, at the end of the first half we were already at 83%, it's very encouraging. This means a lot in terms of reducing greenhouse gas emissions.

To conclude, just a few words about our 2 main underlying development projects. The extension of (inaudible) is proceeding according to plan, which is almost entirely leased almost before opening. The great brands include a handful of trendy restaurants for the food avenue that we are creating. And in (inaudible), we are reinforcing (inaudible) lead in position in its catchment area with a 24,500 square meter extension, the construction work are starting as we speak, pre-leasing rate is at 50% and this mall (inaudible) is going to be truly munificent.

With this, I will hand over the microphone to Jean-Michel for the financial review. Jean-Michel, your time.

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Jean-Michel Rene Gault, Klépierre SA - Deputy CEO, CFO & Member of Executive Board [3]

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Thank you, Jean-Marc, and good morning, everyone. Before digging deeper in our financial performance, let me briefly come back to one of the main highlights of the first half which was rapidly mentioned by Jean-Marc, interest rates. When we prepared all budget at the end of last year we were not expecting such a drop in interest rates. Looking at the 10 year EURO swap curve, we have to the at close to 0. That's an all-time low and close to 100 basis points lower compared to last December obviously this has and will continue to have positive implication, not only for our P&L and for the structure of our debt, but also for the underlying assumption related to valuation.

Let me start with our balance sheet and the portfolio valuation, over the past 6 months our portfolio value declined by 0.9% on a like-for-like basis, when looking at the changes in the main assumption used by the appraisers, it's worth noting the slight increase in the risk premium and the slight decrease in the risk free rate and corresponding lower indexation. When it comes to the risk-free rate, the change has been relatively limited at roughly 10 basis points to 15 basis points. Overall, on a like-for-like portfolio basis, the discount rate used by appraiser was broadly stable with the exit rate increased slightly. This explain why the market effect has been slightly negative, minus 1.2%.

Regarding the NRI forecast, thanks to LC renewals and despite slightly lower indexation assumption, NRI growth was broadly unchanged. This is consistent with our view that our like-for-likes revenue will continue to grow going forward. Therefore, our EPRA net initial yield was stable at 4.9% when comparing it with the spot risk-free rate, this rate now stands at 420 bps, this is huge and much higher than we have seen in the past. I think it's interesting to note that our portfolio yield has only decreased by 80 basis points since 2011, while the risk-free rate has collapsed by 350 basis points. This is even more hiking when we compare with other investment classes.

Looking at the bond market for instance, the gap is very significant. Back in 2011 Klepierre issued a 10-year bond and got a coupon of 4.75% at that time. This year, as Jean-Marc mentioned earlier, we issued a 11-year bond for a coupon of 0.6%. This is a comparison of more than 400 basis points compared to 80 bps for our EPRA net initial yield. That is to say that we operate in a very different environment. Therefore, we continue to believe that valuation will not decline materially, sustained by continually growing cash flows while yields will remain broadly stable, sustained by lower interest rates environment.

Moving to our EPRA NAV, the evolution in the portfolio valuation translate into a slight decline in our EPRA NAV. Our EPRA NAV per share stood at EUR 40 at the end of June 2019, this represent a 1.3% decrease compared to December 2018.

The main driver of this is strong cash flow generation, EUR 1.30 per share, more than offset by the asset revaluation for minus EUR 0.80, and the interim dividend payment for EUR 1.05. Forex and other operating and financial cost were mostly responsible for EUR 0.07 reduction in NAV, while our share buyback program had a positive impact. Our EPRA triple net NAV is at EUR 39 per share at June 30, a 3.5% decrease, the gap compared to EPRA NAV reflect the fair value of a fixed-rate debt, which as mentioned earlier, was impacted by the drop in interest rates during the first half.

Moving now to the cash flow. We continue to grow at a sustained pace. As you can see we posted 5.4% growth in our net current cash flow, despite a slightly negative impact from capital allocation. Once again, this is a very solid performance. In the first half, the main driver for our net current cash flow growth is the NRI like-for-like. Part of the NRI increase is from indexation and reversion, that we also generated higher efficiency in leasing income, the contribution of 30 basis point, and a reduce of service charges for 15 basis points. The reduction in our financial cost has also contributed to our net current cash flow growth. In fact, we reduced our average cost of debt by further 10 basis point in the first half to just 1.5%.

Regarding the capital allocation, the dilutive impact of disposals completed in Italy and Hungary at the end of last year, and the disposals in France in Portugal at the beginning of this year, was slightly higher than positive contribution from recent development and the share buyback program, which implied -- which implement as you know in collection, which we implement, sorry, as you know, in connection with disposal proceeds.

Looking ahead and considering the net current interest rate environment, we believe we have further potential to lower our cost of debt. In the next 3 years, we will have to refinance bonds worth roughly EUR 1.8 billion at an average coupon of 4.2%. Taking into account that some of these bonds have been partly or fully swapped at variable rates, as indicated on this [call]. The average coupon stands at 2.7%. Assuming we can refinance these bonds at the same 0.6 rate as recent 11-year bond issue, we can even choose for a shorter duration if rates are going to increase, we could save approximatively EUR 40 million per year or 5% of our net current cash flow, this is very, very substantial. We are used to saying that we are very disciplined when it comes to our leverage, this implies allocating recurring resources such as our net current cash flow to finance recurring items such as the dividend payment and maintenance CapEx. On the other hand, to finance less committed or non-recurring expenses such as our development pipeline, acquisitions, our share buyback program, we generate proceeds from disposals.

Once again, in the first half of 2019, our net current cash flow more than cover the interim dividend and distribution to minority partners, as well have maintenance CapEx, which amounted to EUR 41 million of which EUR 9 million are re-charged to tenants. As you can see on this slide, our cash flow was even sufficient to finance our EUR 79 million in development CapEx as well. Our second source of cash consist of proceeds from disposal, which reached EUR 257 million in the first half. Part of this was allocated to our share buyback and the remaining amount to pay down our debt. As a result, we continue to bring down our net debt-to-EBITDA ratio to 8.1x, as we often like to emphasize cash flow growth should be looked at together with the evolution of the leverage.

Since the end of 2015, we have reduced our net debt-to-EBITDA ratio by 1.1x, while generating 27 growth in the net current cash flow per share. I believe this is quite remarkable and unique performance. Thanks to this consistent de-leveraging, today we are very well positioned. Our leverage is among the lowest of European REITs, we believe this is a great strength in the current environment. So now before taking your question, let me briefly conclude this presentation.

Once again, we delivered a strong set of results in the first half in the transforming retail environment, our malls keep delivering and gaining market share. Our like-for-like NRI grew by 3.1%. Our net current cash flow was up by 5.4%. We were quick to deliver on our disposal plan. We continue to deleverage the company and further reduce our net debt-to-EBITDA ratio, which now close to EUR 0.10. As a result, we are raising our guidance for net current cash flow per share for 2019 to at least 4.2% growth. This clearly demonstrate our confidence in the future.

Thank you very much for your attention. Jean-Marc and I are now ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Bart Gysens from Morgan Stanley.

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Bart Gysens, Morgan Stanley, Research Division - MD [2]

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My first question or my question is about the MGR uplift for the leases that you've signed. So, if I look on Page 2 of your press release, you say you signed 821 leases for the first half that's giving you about EUR 6 million of additional minimum guaranteed rents. Now if you look at the first quarter, you signed about 400 of those in the first quarter when you had almost EUR 8 million of additional minimum guaranteed rent. Can you reconcile the 2, so was the second quarter just a bit weaker or am I getting the wrong end of the stick here?

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Jean-Michel Rene Gault, Klépierre SA - Deputy CEO, CFO & Member of Executive Board [3]

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So, (inaudible) calculations, I need a few seconds to answer to it. So, what I've been told is that the EUR 8 million you are referring to includes the new letting which is not included in the numbers you are referring to in the first as here. So the 2 numbers are comparable, so we should break it down for you.

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Bart Gysens, Morgan Stanley, Research Division - MD [4]

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Okay. Because it looks a bit confusing, right. So 400, I think 18 -- 418 leases in the first half with EUR 7.7 million of MGR, then another EUR 403 million leases in the second half, 403 leases in the second half and it looks like you've lost EUR 1.7 million of MGR there. But I think, it would be good if you can tell us whether they are not comparable or comparable or not?

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Jean-Michel Rene Gault, Klépierre SA - Deputy CEO, CFO & Member of Executive Board [5]

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Sorry for the confusion that the numbers are, I mean we'll provide the details and give you more comfort by the numbers.

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Operator [6]

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Our next question comes from the line of Peter Papadakos from Green Street Advisors.

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Peter Papadakos, Green Street Advisors, LLC, Research Division - MD & Lead Research Analyst [7]

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Just I have 2 questions. One is, I guess, on Slide 16, so thanks for the additional disclosure on disposals and how it progressed. But when I look at that slide, just very basically when I take around the 20 assets in the EUR 1 billion, so the average ticket size is around the EUR 50 million mark. Can you comment on how the valuation has performed between, let's say, the assets which are under EUR100 million versus the assets that are above EUR 500 million, because we do hear from various sources, credible sources in the private market that actually the bigger malls are finding it more difficult to find ultimately bids because it's very difficult to go through investment communities when you have to commit EUR 400 million as opposed to EUR 20 million. So can you give us a little bit of color in terms of how your portfolio has done by size, any sort of additional comment would be good?

And then the second point, I appreciate you making the point about collapsing interest rates. But I guess the other side of that coin is that growth expectations should also be coming down. So when you think about yield, as well as growth and you think about that Slide 34, where you say the risk premium is at an all-time high. If you went back and did that yield plus growth, do you think we are still at an all time high or from a look forward total return perspective or is actually the growth expectations coming down faster than that -- than in the past and therefore the spread is not as big as we would like?

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [8]

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So for the first question, I think we don't itemize too much or by size of the assets, because we are cleaning the top and odd properties in terms of size, for Klepierre, it's 93% of the portfolio and it's clear that we have 7% of our portfolio, which are low -- smaller or shopping malls or retail properties that we are selling from time to time. So there is not a big, I would say, it's difficult to say if there is a -- if size really matters. I think in terms of valuation, I think what matters the most with value that, what they consider as prime and when they consider as not really prime and there is a huge expansion in the non-prime assets and non-prime is quantified as not dominant in a catchment area, lower gross profile in terms of NRI and lower demand from retailers. So it's not really a matter of size.

But when it comes to investment market, I think it's clear today that the investment market is quite muted in many places, so there is a lot of discussion about it. But when it comes to what we are doing on the non-core assets, we are selling, we see a lot of investors of different nature buying assets. Yes, ranging between EUR 20 million and EUR 100 million and there is a market, as you said for that, for bigger transaction, we are not seller of bigger assets, so we cannot comment, but it's clear that this type of asset then there is a lot of barriers fight.

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Peter Papadakos, Green Street Advisors, LLC, Research Division - MD & Lead Research Analyst [9]

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For the second question, that...

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Jean-Michel Rene Gault, Klépierre SA - Deputy CEO, CFO & Member of Executive Board [10]

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Well on -- for the second question, I'm not sure we got all the content of your question that just to frame it our way. First, I would like just to say that the, speaking from valuation, because it has been a very limited transaction as you know into the market for -- especially for prime asset, which put valuer a little bit in trouble as you know. So, what we can say is, when it comes to Klepierre portfolio valuation, they have an overall assumption, a 2.4% of new CAGR in their discounted cash flow with 1.3% average indexation. We believe that this is very consistent with our own expectations considering our low [OCR]. I'm with you to say that when interest rates are so low, it is because that is probably an expectation that the economy will slow down that if we look also at the typology of our portfolio and our geographies and so on, we still believe that this is a pace of growth that we can deliver going forward then after or I think it's very difficult to justify today this very significant premium, which is probably attributable because, I would say, when we don't know where to put the blame on, we put it probably on the liquidity issues. So, it's probably higher liquidity premium due to the lack of production, again we need -- we are lacking currently prime transaction into the market to give evidence that from prime asset with a yield at, let's say, 4%, they are still of an interest for investors in the current interest rate environment.

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Peter Papadakos, Green Street Advisors, LLC, Research Division - MD & Lead Research Analyst [11]

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Understand.

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [12]

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Just I don't know, if Bart you are still on the line, but so we are digging to the Q1 press release and the number for renewal and release was EUR 3 million. So we move from EUR 3 million in the quarter Q1 to EUR 6 million in H1. So that was indicated, so it was not as you indicated. So it's EUR 3 million to EUR 6 million question.

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Jean-Michel Rene Gault, Klépierre SA - Deputy CEO, CFO & Member of Executive Board [13]

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Yes. And there is a question I think on the website about the more details on the disposal. And what was the average yield. The average yield for the whole transaction is around 6.5%.

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [14]

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But we don't disclose it country by country as requested into the question, because it would come mostly to 1 deal and then we don't use to disclose on the deal per deal basis. Sorry.

There is another question on the phone.

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Operator [15]

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Yes, we do. Our next question comes from the line of Jaap Kuin with ING.

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Jaap Kuin, ING Groep N.V., Research Division - Research Analyst [16]

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This is Jaap with ING. Just a question also on disposals, I appreciate your disclosing the yields. Obviously you're selling kind of the lower end of the portfolio at an average of EUR 2,500 per square meter, which is obviously way below to the better part of your portfolio. So, I was just wondering if you could share your feelings on indeed the market for -- you said something about the bigger assets, but also could you maybe share something on the feeling you get from potential buyers, for example, if they get into problems getting funding for some of the assets that they would like to buy, and if that would become a prohibitive factor going forward, any clouding deals with, people who are dependent on secured funding for example?

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [17]

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Thank you for turning the question to us because this is a [long term] question that everybody wants to have an answer to. So I think the investment market, it is as it is, okay. For the -- we have not seen nice transactions recently, but in France. With the supermarket deals was quite a significant transaction with Casino. So, we have to say #1, the number of prime large assets transacted, it's -- I know, so it's difficult to say why and if there are buyers for that. We are not sellers of our prime assets, we are selling only non-core assets, so we can only comment on what we are doing. I'm still -- probably what my feeling is that, when I look at the portfolio of Klepierre, you are seeing at the proxy of the market. What we are selling, as you can see on the EUR 1 billion is even if I will look not very modest thing is, it's far above in terms of quality of what you can see on the market and which does not transact. So the properties we are selling, whatever we think about it, whether we think it is core and non-core, they are good assets, they have strong cash flow, still some growth going forward, they are good in that catchment area, we may like or dislike convenience malls or whatever, but they are good assets. So I think the -- my general comment on that is that the general quality, the overall quality of what we own is still above the market and that's the big gap. The other in terms of valuation and transaction, I think there is a lot of noise is coming from the U.K., the point of the U.K. that they have declining NRI, we are growing NRI and even for the non-core assets we are sitting, they are not assets with declining NRI. That's the only comment I can do.

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Jaap Kuin, ING Groep N.V., Research Division - Research Analyst [18]

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Okay. Just maybe...

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [19]

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Can you speak on continuing, selling the assets that we have to finance our pipeline and to have a better investment opportunities.

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Jaap Kuin, ING Groep N.V., Research Division - Research Analyst [20]

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Okay, good. So maybe just to confirm then, you haven't had any sounds from potential buyers of your assets that they would have trouble getting funding -- getting funding in place to actually buy the assets you're selling?

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [21]

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No. No, we will not -- all the transaction we have done has been funded, so the last one is (inaudible) that would be closed by the end of the year and I'm confident that for me it will not be an issue. Let's meet when it is done.

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Jean-Michel Rene Gault, Klépierre SA - Deputy CEO, CFO & Member of Executive Board [22]

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I think there is a question on the phone.

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Operator [23]

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Our next question comes from Varaldo Michel from Societe Generale.

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Michel Varaldo, Societe Generale Cross Asset Research - Head of the Real Estate Research Sector Team [24]

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I have 2 questions. The first question is about the buyers for your shopping malls. Can you tell us a bit more who where the buyers for your 11 shopping centers for EUR 485 million that you mentioned? The second question is with respect to your shareholding, we've observed Simon Property increasing its stake at 21% and a reduction of APG and can you comment upon this?

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Jean-Michel Rene Gault, Klépierre SA - Deputy CEO, CFO & Member of Executive Board [25]

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Can I make my answer in English or -- Okay, so for the question on the disposal of the 11 malls for we sold these properties and you won the identity, I think we are not going to do that, okay, one by one. But there is -- as we said, there is a variety of buyers. It can be a family of offices, it can be a smaller REIT, it can be a different type of players. They are -- most of the time, I would say to characterize them, they are local guys, if I may say like this. So, in the Netherlands, we sell to Dutch; in Hungary, we sell to Hungarian and in Portugal, we sell to Portuguese, and probably because they know the better the market, that the big institutional pockets that are still wondering, where are we growing. So, very local, very knowledgeable people in their market. So for your second question, about the shareholding of Klepierre and Simon going up and APG going down, we have no comment to do that, we don't do that for any one of our shareholders.

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Operator [26]

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Next question for Christian Auzanneau of Alpha Value.

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Christian Auzanneau, AlphaValue - Research Analyst [27]

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I have a series of short questions. The first, with respect to Spain, how long will this significant reversion rates to be sustainable? Second question, is it now time to accelerate the process of disposal in Spain, where the market is still very buoyant? And I have more questions after that.

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [28]

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For the reversionary that we proceed in Spain, it's clear that when you do reversionary starting with the [2], that's a pretty high number. I think this reflects many things. Our properties are really doing very well in terms of sales, we are also catching up after a few years of recovery, and you have to remember that 5 years ago, Spain was in a different situation. So actually there is also a cyclical effect to that, so by definition, I would say, it would not be lagging forever.

I think what is important when we look at the performance on a 6-months basis is also to zoom out a little bit and look at the performance over few years. So -- and that's probably -- that what makes our company more resilient is that we -- we may benefit from the different macroeconomic cycles, all over Europe, which are never synchronized, so Spain is getting -- is doing very well, like Portugal and Central Europe. Some of the countries a little bit weaker. I would say they are all positive. I have to say. And if you look at 5 years ago it was a different picture in 5 years' time it would be also slightly different. So the distribution of the growth of Klepierre may vary from a country to another from -- yes, on a 5 year basis. So it's difficult to say more details on that.

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Christian Auzanneau, AlphaValue - Research Analyst [29]

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(foreign language) So then I deduct that Spain will not be your preferred focus area for disposals?

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [30]

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We have one strategy which is to be financially disciplined, okay. And our financial discipline, I mean that we need to finance our pipeline and our CapEx with our cash flows and the disposals comes on top of it and we do the disposal to with 1 main objective is to refocus our capital to, I would say, the top 100 properties we own, step by step, so that we can -- we can -- we can, yes, we concentrate our capital to the big countries where we are in the big cities, which is the vast majority of our portfolio. So this is an ongoing process. And as you said, if you do it steadily and not in a rush, because you don't have a pressure to clear your balance sheet, you do it in a much better condition. And once more coming to the valuation, I think it also proves that the valuation we have in our books really take into consideration these variety of the -- the variety of the portfolio and the yield are different between those type of assets and the others and when we go to the market we hit the value and we even do better. So I think there is quite a good consistency and that make us confident to continue doing like this.

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Christian Auzanneau, AlphaValue - Research Analyst [31]

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(foreign language) Okay, fine. Next question. On the future disposals, you are saying that you wanted to dispose of EUR 1.4 billion, there are EUR 900 more million to go, will it lead you in the future to engage new share buyback programs, or will you stay with the EUR 400 million and the remaining EUR 900 million will be allocated more to deleveraging rather than share buyback?

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [32]

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Differently. Okay, we don't have a specific program to dispose x billion of assets at some point of time. Some of this, we do have this on the agenda and we don't, okay. We protect our company to never been that situation, okay. So we are selling assets for refocusing and also to finance our pipeline. And that's -- and we do it on when it comes, okay. And I think we have proven in the past that we are selling at good prices. So, we have no guidance whatsoever on the disposal plan. We do it, as we said, once more every year, we review the cash flows. The CapEx that we want to spend to improve our property, the development pipeline we have. We are committed and then we fix the financing for that.

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Jean-Michel Rene Gault, Klépierre SA - Deputy CEO, CFO & Member of Executive Board [33]

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I think there are some other question on the phone.

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Christian Auzanneau, AlphaValue - Research Analyst [34]

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(foreign language) Yes, to finish with my questions, a more philosophical question on the change in regulations in Europe. On the REIT dividend payout rates, would it be desirable to start negotiating with the French and European authorities to reduce the obligations to pay out dividend, as is mandatory as is the case in France, considering what's coming up in the U.K., what's already happened in the U.S., with the suspended dividend payouts with more difficulty for companies to pay them out. Is there a possibility to start engaging discussions with the authorities in this respect?

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Jean-Michel Rene Gault, Klépierre SA - Deputy CEO, CFO & Member of Executive Board [35]

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Well, it's difficult for me to answer this question. We don't need to reduce our dividend payout, right. We are not seeing this logic. What is important to note here is that Klepierre is a company which has several tax regimes, the primary tax regime is that of a SIIC, but the French business in our portfolio accounts for only 37% for those were 100% SIIC based or whatever based, they have their own considerations. But changes in regulations, we of course scrutinize and monitor, but we don't want to make any more comment on what we we'll be doing in the future.

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [36]

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Sorry, I think we have to move to another participant because we have a list of participants waiting on the phone, sorry.

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Operator [37]

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(Operator Instructions) Our next question comes from the line of Niko Levikari from ABN AMRO.

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Niko Levikari, ABN AMRO Bank N.V., Research Division - Research Analyst [38]

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Just a quick question as a follow-up for the disposals. I understand you manage to sell the Kristianstad at Galleria. I was just wondering, given that I had a chance to see the asset which, on a basis, seem to be half empty on a GLA basis. Do you actually use rental guarantees with some of these more challenging assets to sell them? Or how would you like to -- or if you can provide a bit more color on that one?

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [39]

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Which Galleria are you referring to?

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Niko Levikari, ABN AMRO Bank N.V., Research Division - Research Analyst [40]

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The Kristianstad one, the other one in Sweden or south of Sweden.

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [41]

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(inaudible) so no comment. The one which is in Sweden?

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Niko Levikari, ABN AMRO Bank N.V., Research Division - Research Analyst [42]

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Yes.

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [43]

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We still own it. We are very happy to own it. Do we have not sold it? So no, and we never, we never give rental guarantees when we do disposals. We never do structured disposal, okay. We do plain vanilla as is disposals because what we sell is good quality, good stuff, easy to understand. So -- but Kristianstad, not sold.

(inaudible) we have a notice bidding rights, we thought -- which is probably what you are referring to, but it's a couple of millions.

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Operator [44]

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Thank you for your questions. At the moment, there are no further questions.

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Jean-March Jestin, Klépierre SA - Chairman of the Executive Board [45]

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Okay. So thank you very much for attending the call, and some of you, we'll see later. We wish you a good early days with your family and see you soon. Thank you very much.

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Operator [46]

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Thank you very much for joining this morning's conference call. You may now disconnect your lines.