(News Bulletin 247) – For the Canadian bank, the shopping center operator is now operating at demanding valuation levels, while its earnings per share are expected to decline and the economic situation risks penalizing household consumption and therefore, consequently, its rents.

Klépierre has managed to swim against the tide in 2023. Real estate is one of the sectors that has suffered the most on the stock market since the start of the year, due to the rise in interest rates. The rise in rates pulls down the prices offered for resale and thus exerts, all things being equal, downward pressure on the value of existing real estate assets.

As a result, real estate companies have had a very dismal year in 2023 so far. The Stoxx Europe 600 REIT index, which brings together the big European names in the real estate sector, has fallen 16% since its calendar peak reached in February. Over the whole of 2023, the index shows a decline of 4.2%, well away from the performance of the equity markets as a whole.

And yet, Klépierre for its part has had a very good vintage. The shopping center operator progresses by 10% over the whole of 2023, more or less the same performance as the SBF 120.

The company had notably raised its annual objectives at the end of the first half, after publishing an increase in the occupancy rate of its premises and an increase of 7% over one year in its rental income.

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A good strategy that created outperformance

Even beyond this single year 2023, Royal Bank of Canda (RBC) notes, in a note published this Monday, that the French group has outperformed the entire real estate sector on the stock market by 39% over the last five years.

“Such outperformance over a five-year period during which market confidence in shopping centers has deteriorated markedly reflects, in our view, the positive impact of management to a large extent,” emphasizes the Canadian bank. This last note as well as Klépierre benefited from a good strategy coupled with robust execution.

However, in the eyes of the design office, the action now appears expensive. And as a result Royal Bank of Canada lowered its advice from “sector performance” to “underperformance” (which amounts to going from “neutral” to “sell”) with a price target of 25 euros. This weighs down Klépierre shares, which dropped 2.6% around 10 a.m.

A valuation now tense

RBC notes that Klépierre shares trade at a premium of 10% compared to its historical average over the last five years, compared to a discount of 19% for other European real estate groups listed on the same basis.

However, this tense valuation fits in quite poorly with the outlook calculated by the Canadian bank. RBC anticipates an average annual decline of 4% in its earnings per share over the next five years, compared to growth of 1% over the last five and an increase of 3.5% over the next five for all the real estate companies in its portfolio. blanket.

Furthermore, the Canadian bank is concerned about the repercussions of the deterioration in the economic situation on Klépierre’s rents.

“Several factors suggest that shopping centers in mainland Europe are unlikely to experience a correction in rents and yields of the same magnitude as has occurred in the UK. However, we believe there is still a certain negative impact to come,” says RBC.

“Any impact on consumer spending due to more difficult macroeconomic conditions risks exacerbating the impact on supply and demand dynamics and therefore on rents,” she adds.

Note that, on the other major operator of French shopping centers on the Paris coast, Unibail-Rodamco-Westfield (URW), Royal Bank of Canada also has a negative opinion of “underperformance”. URW is currently trying to reduce its debt by carrying out a major asset disposal program in the United States. Which in the environment of rising interest rates is not an easy task.

“We believe that the combination of higher interest rates and a more uncertain macroeconomic outlook is likely to have a negative impact on the conditions under which Unibail can reduce its exposure to the United States, a key element of its strategy and a significant factor having an impact on its future profitability”, explains Royal Bank of Canada.

“This deterioration, combined with Unibail’s relatively high financial leverage and structural changes in retail markets, creates significant uncertainty over the future level of its profits, which in our view justifies a significant downgrade of the multiples of the share price,” adds the Canadian bank.