Klepierre S.A.

The stable outlook on French retail property company Klepierre reflects our view that the company's rental income should remain solid over the next two years, experiencing positive like-for-like growth. We believe that the company's strategy of focusing on prime large shopping malls with resilient growth prospects, while divesting of noncore assets, should mitigate the impact of increasing competition in Western Europe, both among shopping center property companies and e-commerce. On this basis, we believe that Klepierre will maintain S&P Global Ratings-adjusted debt-to-debt plus equity of 40%-44% over the next 24 months, while keeping its S&P Global Ratings-adjusted debt-to-EBITDA below 9.5x. We could consider lowering the rating if Klepierre's adjusted debt-to-debt plus equity ratio increased toward 50%, due, for example, to

...Structural challenges in the retail market resulted in appraisers' rising yields for most of the Western European property owners like Klepierre S.A. in the first half of 2019. In Europe, retail tenants have grappled with the growth of e-commerce and shifting consumer preferences for a long time, focusing on a smaller number of physical stores with a stronger marketing impact, such as flagships stores. (For more information, see "Europe's Retail Property Market Is Showing Signs Of Weakening," published Sept. 26, 2019, on RatingsDirect.) We believe the structural challenges in the industry could start harming retail property owners' creditworthiness over the next few years. This is reflected by the homogenous low-single-digit devaluation reported as of June 2019 across rated retail property landlords, like Klepierre which reported 1.2% portfolio devaluation over the past 12 months; and lower, but still positive, like-for-like rental growth. We assume Klepierre will likely suffer from an...

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