Hello, and welcome to the Klépierre 2021 full year earnings presentation. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. We will also be accepting questions via our webcast. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Jean-Marc Jestin, CEO, and Jean-Michel Gault, CFO, to begin today's conference. Thank you.
Good morning, everyone, and thank you for joining us this morning. We had a very busy and productive Q4, which ended a very successful year. 2021 has been challenging with most European governments implementing multiple trading restrictions to contain the outbreak of COVID-19. Our retailer stores have been closed for 2.5 months on average. I am proud of our resilience and the rebound we already notice, notably supported by our unique operational and financial fundamentals. Before going through the main highlights of the year, I would like to pay a special tribute to Klépierre's team, all my colleagues, for their tremendous commitment at every stage of this crisis to serve our stakeholders the best we could and to prepare our platform for a sustainable resumption.
In 2021, Klépierre's operations proved to be extremely resilient as we managed to generate EUR 2.18 per share in net current cash flow, outperforming our last guidance by 9%. We collected at least 87% of 2021 rents despite 2.5 months of closure and collected more than 93.5% from July to December. We posted a 6.9% like-for-like increase in net rental income, reduced our net debt by more than EUR 1 billion, leading to a 38.7% Loan-to-Value ratio, down 270 basis points compared to 2020 year end, and an 8.8x net debt to EBITDA.
Bring up letting operations back to pre-COVID levels with a signature of roughly 1,600 leases, generating a positive reversion, while occupancy increased by 50 basis points over the last six months. Beyond these remarkable financial and operational results, our teams have also delivered exceptional non-financial results thanks to our Act for Good CSR strategy. We further reduced the energy consumption in our malls by 45% since 2013 and cut our carbon emission by an impressive 84% since the same date. 100% of our malls contributed to local employment through tailor-made initiative. Last but not least, we actively took part to the fight against COVID-19, contributing to vaccinate more than a million people in our malls. These actions made us gain worldwide recognition.
GRESB ranked Klépierre first in the global retail listed, Europe retail listed, and Europe listed categories for the second year in a row. CDP once again included us in the A list of the most advanced companies fighting climate change at global level. Klépierre was also selected by Euronext in the CAC 40 ESG index launched in March 2021. Lastly, MSCI upgraded its non-financial rating from double A to triple A, the highest score achievable, demonstrating the group's ambition to make shopping centers more efficient and even more environmentally responsible. These scores are a testament to our Act for Good strategy, which addresses societal, social, and environmental challenges. This being said, the second half of 2021 prove again that when our malls reopen, our retailers experience a rapid business resumption.
Over the last seven months of the year when stores were reopened, retailer sales reached 95% of the 2019 levels. Footfall also benefited from the business restart, albeit at a slower pace, coming out at 80% of 2019 levels on average, still hindered by remaining restrictions in some countries. Overall, our malls posted robust performances, especially in Scandinavia, with retailer sales reaching 98% of 2019 levels over the last seven months of the year. France, we sat at 95%, and Italy and Central Europe at 94% and 93% respectively. Even in Iberia, where our malls are more relying on tourism, sales reached 87% of the 2019 level. By segment, household equipment did best and exceeded pre-COVID levels at 3% compared to June to December 2019, followed by culture and gift and leisure, which both posted a sustained recovery.
Fashion and health and beauty also recorded a strong recovery at 95% of 2019 levels. Despite continuing trading restrictions, food and beverage and restaurants proved resilience remarkably strong. We have signed 1,570 leases in 2021, 65% above 2020 volume and matching 2019 levels. Reversion is 0.9% above passing rent. At the same time, occupancy improved by 50 basis points compared to June 2021, reaching 94.7%. Over the period, we widened the offering in our malls, especially with key accounts in different segments, but also with innovative players. Among others, deals were signed with Inditex, Calzedonia, Sephora, Rituals or Tommy Hilfiger. In the meantime, sport retailers continue to expand with the opening of stores with Foot Locker, adidas, Snipes or Sidestep.
Klépierre also seized opportunity in best-in-class innovative retailers like Samsung, Action or the digital native optician, Mister Spex. Another word on leasing. We have explored a new approach through an innovative partnership model with retailers, in which we share investment through joint ventures. We have signed partnership with NOUS anti-gaspi, Love Star, Fun Dutch, Pataugas, and Gémo Kids. Our strategy aims at enabling us to welcome new players to boost the appeal and competitive edge of our shopping centers. Let me now walk you through rent collection. We have closed our accounts with a target to collect at least 86.7% of our rents and charges. As of February 7, we had already collected 85.7%. Hence, only EUR 13 million are yet to be collected to reach our target, and this will be achieved before the end of this month.
Based on our target, the 13.3% of non-collected rents in 2021 breaks down as follows: 7.5% of rent abatements, 3% of provision for bankrupt and insolvent tenants, and 2.8% of provision for credit losses booked pending the final outcome of negotiations. If we benchmark 2021 against 2020, we see that in terms of rent collection, despite a longer closure period, rent abatements in 2021 represent 0.9 months or 2.5 months of closure against 1.2 months of abatement in 2020 for 2.1 months of closure. In 2020, the ultimate bad debt provision for insolvent tenants amounted to a low 3.3%. Let me now talk about balance sheet.
2021 has been an important year in terms of disposals, as we managed to close transactions for a total amount of EUR 874 million. These were made at an average yield of 5.4%, in line with the yield in Germany, Scandinavia, France and Central Europe. 2021 has also been characterized by a stabilization in the value of the shopping center portfolio, which is up by 0.6% on a like-for-like basis over the last six months. This is the result of changes in our yield assumption, which factor in a 1.3% positive cash flow effect, partly offset by a 0.7% negative market effect. These valuations point to an average EPRA net initial yield of 5.2% for the shopping center portfolio, down 10 basis points compared to 2020 year-end.
Regarding investment now, in 2021, Klépierre continued to carefully monitor its capital expenditure and to focus on its main committed projects. Overall, EUR 101 million were allocated to the pipeline, mainly relating to Grand Reno in Bologna and Grand Place in Grenoble. The 17,000 sq m extension of Grand Reno is due for completion in May 2022. As of today, pre-leasing is progressing very well, with 77% of the extension already let and 22% in advanced negotiation. Exciting new brands such as Nike, Primark, Tommy Hilfiger, H&M and the Inditex banners will be added to the mix, bringing this leading mall to the next level. Everything is on track to reach our targeted return on investment of 6.1%.
In Grenoble, Grand Place refurbishment is soon to be delivered, while the extension is scheduled on September 2023 to open. Pre-leasing is already high, reaching 82% with 56% of leases signed and 27% in agreed form. This complete remodeling will house the first Primark store in the region, 50 new boutiques and 10 restaurants with indoor and outdoor terraces, offering customer a great dining experience. We are confident in our ability to reach 7.9% of yield on cost for this project. Let's have a look on leverage now. Thanks to our strong cash flow generation of EUR 720 million and close to EUR 850 million of disposals, we sizably reduce our net debt by more than EUR 1 billion, down to EUR 8 billion.
Besides, as you can see, these proceeds covered our distribution to shareholders and our capital expenditure. I think that these elements clearly showcase how solid our financial situation is, as is our ability to preserve long-term performance while serving the interests of our stakeholders. Here are a few numbers to illustrate the solidity of our balance sheet. The Loan-to-Value ratio reached 38.7%, below 2020 levels, and was even down 390 basis points compared to June 2021. Similarly, net debt to EBITDA decreased to 8.2x. Those sound results led S&P to confirm Klépierre's current rating, BBB+, outlook stable. Relying on these positive financial and operational figures, the supervisory board will recommend that the shareholders at the next annual general meeting on April 26 approve a distribution of EUR 1.7 per share.
This represents a payout of 78% and a 70% increase compared to 2020. Lastly, in 2022, the group expects to generate a net current cash flow per share of EUR 2.3, between EUR 2.3 and EUR 2.35. This guidance assumes that business recovery will not be impacted in 2022 by further COVID-related disruption of our clients' operations. It represents a 9.5%-11.9% growth compared to the EUR 2.1 net current cash flow per share generated in 2021 after having restated the disposal impact. I will end my remarks on this note and open the floor to questions. Thank you for your attention.
Thank you very much. If you would like to ask a question on today's call, please press star one on your telephone keypad now, please. Please ensure your line is unmuted locally, and then you'll be introduced into the call. That is star one on your telephone keypads now, please. Okay, our first question comes from the line of Rob Virdee from Green Street. Please go ahead. Okay, so it sounds like Rob Virdee is no longer available. Just as a reminder, if you would like to ask a question, it is star one on your telephone keypad now, please. Okay. Our first question comes from the line of Florent Laroche-Joubert from ODDO BHF. Please go ahead.
Yes. Hello. Thank you very much for this presentation. I would have maybe three questions, if I may. First question, would it be possible to give us maybe more color on the rationale of your financial strategy now? Because before the COVID crisis, your financial strategy was characterized by a balance between disposals, reduction of debt and share buyback. What is your intention for the next years? My second question, would it be possible maybe to have a first estimate of the collection rate in Q1 2022? My third question is more on 2023. We can see that 2022 will be still a normalization year.
I can see that, for 2023, the consensus expect maybe a net current cash flow per share at EUR 2.50. What do you think about this estimate? Do you think this is something that is reachable for Klépierre? Thank you very much.
Thank you, Florent, for your three questions. I think for the financial strategy, I think we will keep following the portfolio strategy, which is to constantly refocus our portfolio to the large assets in the large cities of Europe. We are disposing every year non-core assets. This has historically been rebalanced by either a pipeline investment or acquisition or share buyback. We will probably continue to have the same financial discipline of keeping the leverage at the lowest level for us. I'm sure that the disposal we have done gives us plenty of room for maneuver for the years to come.
For Q1 2022, rent collection is starting faster than last year. As of today, we are around 75%. A bit lagging compared to what we were used to in 2019, but far quicker than in 2020 and 2021. 75%, that's a good start, and we expect to reach high levels around 93% pretty soon.
Yeah, it's even higher on January, where we are at 83% already. February is a little bit lower.
Yeah, I was talking about the whole quarter.
Yeah.
January is already very high. For the consensus of 2023, we are here today to provide a guidance for 2022. I think as you have indicated, 2022 is a year of business resumption, and is probably half the road to what was the cash flow before COVID. We are confident in the trajectory, and I'm sure that 2023 will be also a good year after 2022.
Okay, thank you very much.
Thank you very much. Our next question comes from the line of Alvaro Soriano from BNP Paribas. Please go ahead.
Thank you very much for the presentation. Just a quick one on one of the key topics, indexation, and how you can pass inflation into your tenants. It seems that for some countries and some retailers, it is gonna be difficult to pass in full the inflation, the increase in CPI. I'm referring to Spain and France, and also your key-
... tenants. What sort of conversations are you currently having with those groups of stakeholders of retailers in terms of inflation?
Thank you for the question, Alvaro. All our leases are indexed to CPI or related CPI indexes. Contractually, the index is due, and they have been charged to tenants at the beginning of 2022. It's fair also to mention that in some countries, indexation is at a very high level. Spain is around 5.6%, probably we'll have a conversation with our retailers. I'm sure we will find the good compromise. Contractually, indexes are due and have been charged to tenants. Globally for 2022, we have an average in our forecast.
We have an average 1.9, between 1.9% and 2% indexation in our numbers for the whole Europe.
Okay, thank you.
Thank you very much. Our next question comes from the line of Julian Livingston-Booth from RBC. Please go ahead.
Yeah, good morning. My question was exactly the same really about the indexation. Maybe just a follow-up. If you're only going to get around 2% from indexation, are you likely to get other benefits from your tenants instead? Linked to that, I think the occupancy cost ratio is still only 12%-13% across your portfolio, so you don't feel the tenants could pay that higher indexation?
Thank you for the question. Let's make it simple. The indexation is contractually due, and the indexation will be in most of the circumstances paid by the tenants according to the contract. I will put an end to that discussion about indexation. We just indicated that in our numbers, we have taken the view that indexation for the whole year will be around 2%. It may be higher, we will see. But we have taken that assumption. Once more, indexation is due. We will have probably some conversation in Spain with some of the retailers, but I'm confident this will be beneficial to us.
Okay. Thank you.
Thank you very much. Our next question comes from the line of Marcus Tressa from Bank of America. Please go ahead.
Yes, hello. Can you hear me?
Yeah.
Coming back just on the question on indexation from Alvaro, what was the indexation impact in 2021? Maybe the like-for-like 2021, if you exclude, any COVID effects ? so just indexation plus your relettings and change in vacancy.
Thank you for the question, but I'm not going to answer to that question. I think the like-for-like NRI growth is the NRI 2021 versus NRI 2020. 2020 was impacted by COVID. 2021 was impacted by COVID. The like-for-like between two impacted years of COVID is 6.9% up. I can't give more information about this.
Okay.
For 2021 was
Was less than 1%. Yeah. 10.5. Yeah.
Less than 1%. My second question is on your guidance for the net current cash flow per share. Maybe you can walk me through. If I look at your 2021 numbers, the implied NCCF for H1 is around 1.5 per share. If I'm just taking a simple calculation, I multiply it by two, I take out your disposal impact, your guidance, I come around 2.8 NCCF versus your guidance of 2.3-2.35. Can you maybe guide me how you came to your 2.3?
It's rather simple. I don't recommend you take H2 and multiply it by two. The second half has been better than the first half because we have better collected rents on H2 than on H1. I think the guidance for 2022 is based on the net current cash flow of 2022, where we have excluded some COVID impact plus organic growth, and then it reached EUR 2.30-EUR 2.35. I recommend that you don't take a second half, multiply it by two.
Okay. One way it is more 2.3, and this has no COVID effect anymore, no more provisions about that?
No, we have taken the view that we will have no severe restriction or disruption due to post-COVID or COVID-related events. In our guidance, we have taken certain assumptions for rent collections and for rent abatements, and they are included into the guidance.
Yes, we are not exactly back to the same high level we had before COVID in terms of rent collection, vacancy and so on. 2022 is not exactly the back to normal year.
Exactly. What is it back to normal year with maybe the move and rents we have been in between? If you had 100% rent collection, would we come back to pre-COVID levels of EUR 2.8?
If we take it by the other side, and we look at 2019, which was the last undisturbed period where you remember cash flow was at EUR 2.82. In between, we have disposed for about 0.22 in terms of cash flows of disposal, you know, cash flow creation. So we are at 2.60. This is a fair comparison we should do with what we are saying today, EUR 2.30-EUR 2.35, you know. This is clearly the next target for us to go back at least to this 2.60.
Okay. 260 excluding all your disposals, impact.
0.08.
Okay. Very clear. Thank you.
Thank you very much. Our next question comes from the line of Jaap Kuin from Kempen. Please go ahead.
Hi, good morning. I guess the main question on the footfall and retail sales and then I think one final question on the revenue revision. On footfall and sales, because you are still at, especially if you compare it to maybe other companies that have reported in the 80s% for footfall and in the 90s% for retailer sales. Could you maybe shed some light on the December and January numbers for those and your expectations for, let's say, the first half of 2021?
I think when we benchmark Klépierre with the rest of the industry, we can notice that a bit everywhere in Europe, footfall is around 80% of 2019 levels, while sales are closer to 95%, 96% of 2019 levels. There is a lot of narrative about it. I think the number of visitor is less. We are still in a health environment which is not fully secured. But the conversion per visit is higher, so I think there are solid numbers. We will see how footfall develop in 2022 and 2023, post-COVID, and we'll report on that.
For sales, December has been quite good everywhere, so around 93% compared to 2019 levels, off the top of my mind. January has been less good, okay. Sales has been quite disappointing. I think we have January sales around 85% of 2019 levels. We expect February to be better. The feedback we have from retailers is February is better than January.
Right. Thank you. That helps. If you look at the reversion number you posted, because I think at Q3 you still had a negative number for reversion. It looks like you signed quite a bit of positive delta contracts in Q4. Maybe if there's any outliers worth mentioning, that would be great. What's your expectation for reversion this year?
Well, I think the first important takeaway is that in that difficult environment, we have been able to sign a great number of leases. It's fair to say that at 0% or 1% reversion, which I think it's a fantastic achievement. By quarter, it's difficult to say and to draw conclusions if a quarter has been less positive than the other. On the whole year, it's 1% up, and I think it's a remarkable achievement. For next year, we expect two important things. First one is that tenant sales will be comparable to what we have experienced since reopening of the malls.
We also are very confident that the demand for our malls is strong and that we will be able to sign leases probably the same volume that we signed this year. When it comes to reversion, we have taken some view in our forecast, and we'll keep it for us, but we think we can still expect to have a positive reversion next year.
Okay, great. Thanks.
Thank you very much. Our next question comes from the webcast. Please go ahead.
Do you think you will pay a dividend in 2023 comparable to the one paid in 2019? If not, when do you think it will be the case?
I think we are paying a dividend for 2021. This is we are back to payout very close to what we were used to in the past. I think Klépierre strategy has always been to pay a cash dividend to shareholders. We have been among the very few able to pay a dividend and a growing dividend in the two last years. For 2023, we'll see when it comes. As you have seen, we are with about 80% payout ratio. You know the guidance. You can probably build an assumption from there.
Excellent. Our next question comes to the line of Stéphane Afonso from Invest Securities. Please go ahead.
Good morning. Thank you for this presentation. I have one question on my side regarding the dividend. Some of your peers gave a midterm guidance on their dividend, especially Carmila, with a dividend at least stable for the next five years. I think that part of the increase in the stock price is linked to that. My question is, why didn't you adopt the same communication strategy?
That's a good question. I think in the past history in our industry, those who have provided midterm guidance has never been able to deliver that. Okay? We give a guidance for next year. We pay a dividend to our shareholders in cash, and I think it's. We have a Loan-to-Value which is decreasing. We control the balance sheet. This is probably the best evidence that we have the capacity to pay a regular dividend in cash to our shareholders. And we will see 2023 when it comes. But the track record of Klépierre speaks for itself.
Thank you.
Thank you. Our next question comes from the line of Pierre Clouard from Kepler. Please go ahead.
Yes. Thank you. Good morning. Just coming back on your capital allocation. You always had the strategy of keeping a level of debt stable around EUR 9 billion, so you are not now at EUR 8 billion. Can we expect an increase of the debt through acquisitions or share buybacks? On the other side, are you done with disposals or can we bet on, I don't know, half billion of new disposals in 2022?
I think once more the strategy is very clear. We continue step-by-step to dispose the non-core assets when we think that we cannot grow the cash flow any longer. We do that as you can see almost every year. I have to confess that 2021 has been an exceptional year in a very difficult investment market environment. When we started the year, we didn't expect it to be that successful. For 2022, we'll continue pruning the portfolio. When it comes to the level of disposal we can achieve, I will be like always, we will tell when it comes.
We never gave any guidance about disposals, so we stick to what I used to say to the financial market. That's another question? No? No, I don't think so.
No, that's clear. Thank you.
Okay. Over to the webcast for another written question.
Yes. The question is probably for me. Can you please elaborate on financing conditions? Well, as you know, in Europe, like in the U.S., long-term interest rates have increased quite sharply for different reason, inflation, but also probably the Ukrainian story also that have put pressure on financial market. The move is about 40-50 basis points on long-term, seven to10-year swap. When the Euribor three-month is still quite stable, that is to say at -0.5%. When it comes to Klépierre, we are hedged through caps at close to 90%. Right now, 89%, actually, so we are pretty well covered. We don't expect any material change due to this.
In terms of refinancing, we don't have significant refinancing this year. It's less than EUR 400 million coming to redemption, and it's about EUR 900 million next year. But we have EUR 2.8 billion of liquidity position, so we are not in the rush to go to the market now. Well, we will see, and of course, we monitor the situation, but we don't see the cost of the debt being significantly impacted. I mean, a couple of basis points maybe, but probably not very much than this in the next coming probably two years. The range of hedging to the high level of hedging we have.
Thank you. If you'd like to ask another question, please press star one on your telephone keypad now, please. Our next question comes from the line of Rob Virdee from Green Street. Please go ahead.
Morning. Morning, gentlemen. Can you talk a little bit more about the capital allocation strategy? Really what I want to say is, how do you propose to close the gap between your share price and your current NTA? Do you-
We don't hear you very well. I think you need to fix that. Otherwise, we can't answer your question.
NTA, the gap between NTA and the share price. How we can manage to fill this gap.
No, I think this is a question that you probably have to do your own. You need to do your own work for that. I think the context in which we are releasing our earnings, it's an. I think we have a very solid earnings. We have very solid earnings. The business is back. Sales are high compared to 2019 levels after almost six months of closing in Europe. Footfall is strong. Rent collection is very high. Demand for our malls is fantastic. We are signing leases with a 1% reversion in the most difficult period of our time.
We have been able to dispose assets at book value at a 5.4% Net Initial Yield. We have a strong balance sheet. The gap between NTA and the share price should be resolved at some point in time. Klépierre is proving, I think, the extreme resilience of our cash flows going through the period. Our growth for 2022 is 10% above this year, back to probably 2023 to normal numbers. I think the market is not recognizing fully the resilience of our business model, and I hope at some point of time it will do it.
Okay, thank you very much. Just as a reminder, it is star one if you would like to ask a question now, please. Okay, it looks like we have a question from the webcast. Please go ahead.
Yes, the question is about the tax treatment of the dividend paid in 2022. First to say we are not used to give tax advice, you know? We would recommend you to have a look at it from your side. But the fact is that when it comes from equity repayment, they are not subject to withholding tax. This is what we can say. The normal tax treatment of this, it correspond to a lowering of the share price of the price of the shares you have in your books, you know? The taxation will come when you will dispose the shares through the capital gains tax.
Thank you very much for attending. Thank you very much for your question, a lot about indexation. I will end on the good news. Once more, this has been what I would say an exceptional year in a very difficult period of time. We are exceeding our guidance. We are growing the cash flows. We are strengthening the balance sheet. I think Klépierre has delivered exceptional earnings today, and we are looking forward to see you soon. The agenda for Klépierre, the next one is a general meeting on April 26th at 8:00 A.M. in the morning or 9;00 A.M. in the morning. Thank you very much for taking the call, and see you soon.