Mergers & Acquisitions and Commercial Real Estate and Simon Property Group and Real Estate Investment Trust and Real Estate & Retail

Group plans $2.8B mall buy from firm with heavy Simon ownership

December 16, 2013
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Carrefour SA joined a group of institutional investors to buy 127 European shopping malls in a $2.75 billion ($2 billion euros) transaction that gives the retailer more control of the sites around its hypermarkets.

The purchase from Klepierre SA, which is 29-percent owned by Simon Property Group, adds malls spanning about 5.1 million square feet in France, Spain and Italy, the Boulogne Billancourt, France-based company said Monday in a prepared statement. Carrefour will have a 42-percent stake in a company that combines the sites with 45 malls it owns in its home market.

After shelving a plan to spin off property assets in 2011, Carrefour is investing in real estate as part of efforts to make its largest store format more attractive to consumers amid competition from online shopping and stores in city centers. Carrefour’s third-quarter French hypermarket sales rose for the first time in more than two years as a turnaround gathered pace.

The purchase will have little impact on Carrefour’s earnings, said John Kershaw, an analyst at Exane BNP Paribas. “What the deal reminds investors, however, is that Carrefour cannot just ‘sell its way to greatness.’”

The retailer, France’s largest, is focusing on Europe, Latin America and China after retrenching from markets where it viewed its prospects as weak. Since CEO Georges Plassat joined last year, Carrefour has sold operations with sales of more than 5 billion euros, Deutsche Bank estimates.

Net rental income from all the sites, including the 45 malls Carrefour is placing in the new company, amounts to 172 million euros, Plassat said on a conference call with reporters. The retailer had 101.3 billion euros in revenue last year. Carrefour, which sold a majority of the properties it is now buying to Klepierre between 2000 and 2002, will invest 100 million euros a year in the sites over the next five years, Plassat said.

“We decided to seize this opportunity to preserve the coherence of our sites but also to create value out of the number of stores we plan to extend,” Plassat said. “It’s something which could be very profitable for the group.”

The retailer’s shares rose as much as 2 percent and were up 1.6 percent at 27.62 euros as of 1:10 p.m. in Paris trading. Klepierre advanced as much as 3.5 percent and traded at 33.50 euros, a gain of 2.3 percent.

Klepierre, Europe’s second-largest publicly traded shopping-mall operator, said the sale will have a “minimal impact” on net current cash flow, and part of the 1.54 billion- euro proceeds could be used for “selective opportunistic” acquisitions. The deal will probably be completed in March or April, according to Carrefour.

Indianapolis-based Simon became Klepierre's largest shareholder in March 2008 when it spent about $2 billion to buy 28.7 percent of it's stock.

The price is in line with appraised values for the properties in France and Italy, while the Spanish malls are being sold at a discount, Klepierre said. It plans to initially use the proceeds to repay 1.3 billion euros in debt due in 2014 and to restructure its hedging portfolio.

Carrefour said the new company will help in renovating the sites and will be financed through 1.8 billion euros in equity and 900 million euros in debt. Plassat declined to name the eight institutional investors involved in the purchase.

Klepierre said in 2012 it planned to raise 1 billion euros from asset sales by the end of 2013 by disposing of offices to focus on malls. The real estate investment trust said in October it had completed or reached agreements to sell 900 million euros of assets since the plan was announced.

The company said the sale will reduce annual rental income by about 102 million euros, though that will be mostly offset by interest savings. Klepierre said it expects 2014 net current cash flow won’t be below 2 euros per share and the company doesn’t plan to change its dividend policy.

Klepierre’s portfolio was valued at 16.2 billion euros as of June 30. The company is being advised by Morgan Stanley in the transaction, with White & Case LLP and Bredin Prat acting as legal advisers.

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