Klepierre SA

PAR:LI

Earnings Call Analysis

Klepierre Reports Robust H1 2023 Results

Klepierre experienced a strong first half of 2023, characterized by economic challenges. They achieved a year-on-year growth of 7.4% in net current cash flow per share, reaching €1.21, and raised their full-year guidance to at least €2.40, marking a 7% increase over the previous year. The company observed a 7.3% like-for-like net rental income increase, propelled by 6.1% average indexation and tight expense control. Leasing activities soared, with 809 deals signed, a 16% surge, signaling robust tenant demand. Occupancy rates remained stable at 95.7%, retail sales increased by 8%, and foot traffic by 10%. Klépierre continues to exercise prudent financial management with a low cost of debt at 1.4%, a sound credit rating (A- from Fitch and BBB+ from S&P), and high hedging levels, ensuring fiscal resilience amidst rising interest rates.

A Promising Start to 2023 Despite Economic Headwinds

Klépierre's first half of 2023 has been overall robust amidst high inflation and tightening monetary conditions, generating €1.21 of net current cash flow per share which exceeded expectations.

Steady Increase in Rental Income and Diverse Geographic Expansion

The company reported a 7.3% like-for-like increase in net rental income, driven by factors such as average indexation at 6.1% and efficient property expense monitoring. Ancillary income also rose significantly, with a 36% growth in turnover rents and a 32% rise in car parks revenues. All geographies experienced over 5% growth in net rental income, indicating a robust and balanced expansion.

Vigor in Leasing and Retail Sales Showcases Resilience

Leasing activity surged with 809 deals signed, a 16% year-over-year increase, and a 5.3% positive reversion on renewals and re-lettings. The growth of retailers is evident in sports, apparel, health, beauty, and value-for-money segments. The occupancy rate remained stable at 95.7%, with a collection rate slightly up at 96.5%, suggesting continued strong demand for Klépierre's retail spaces.

Consumer Spending Resilience and Strong Retailer Performance

Retail sales increased across various regions and segments, with notable growth in food and beverage at 16.5%, while household equipment saw a slight decrease. Signs of improving real household disposable income include declining headline inflation, wage growth, and employment gains, which have supported consumption and overall resilience.

Robust Balance Sheet and Well-Executed Financial Strategy

Klépierre's balance sheet reflects conservative management, with net debt reduced to €7.4 billion and significant shareholder returns. The company has maintained strong credit metrics, such as a leverage ratio of 7.9 times and an interest coverage ratio of 8.8 times. The average maturity of the group's debt is 6.5 years, with a low cost of debt at 1.4%, and hedging is fully in place for the remainder of the year and 98% for 2024. As a testament to their financial prudence, Klépierre enjoys a double investment-grade rating.

Positive Outlook and Raised Earnings Guidance

The company has raised its earnings guidance by at least 2% due to better-than-expected operational performance, without accounting for any impact of further disposals. Klépierre is now expecting a 7% increase in net current cash flow per share compared to last year. Ancillary income, such as parking revenues and specialty leasing, contributed to this improvement, as did cost-saving efforts between net rental income and gross rental income.

Commitment to Sustainability and Social Responsibility

Klépierre has been recognized for its corporate social responsibility, achieving leading scores in the Global Retail Listed and Europe sectors from the GRESB benchmark. The company is also included in the CDP A-list, fighting climate change and has been rated AAA by MSCI, reflecting its ongoing commitment to sustainability and setting ambitious goals towards a net-zero carbon portfolio.

Looking Ahead: Ancillary Revenues and Cost of Debt

While ancillary income increased by 28%, driven by improved sales and asset management, expectations indicate performance to remain solid with the cost of debt forecasted to be around 1.6% for the full year 2023. This is slightly higher than the current 1.4% but still reflects a well-managed financial structure.

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, welcome to Klépierre’s Half Year Financial Results. I now hand over to Mr. Jean-Marc Jestin, Chairman of the Executive Board; and Stephane Tortajada, CFO, who will lead you through this call. Sir, please go ahead.

[Jean-Marc Jestin, Chairman of the Executive Board]

[Foreign Language] Good evening everyone and thank you for listening to us tonight. I’m pleased with Stephane to report Klépierre 2023 first half earnings. Over this period marked by high inflation and monetary tightening, Klépierre has delivered a very strong set of results. First, we continue to grow at a sustain pace and proceed a better than expected performance generating €1.21 of net current cash flow per share or remarkable 7.4% growth year-on-year. Over the period we carefully managed our expenses, especially our cost of debt that remain contained at 1.4%, thanks to a very high level of hedging. As a result, we are raising our 2023 full year guidance and now expect to generate at least €2.40 of net current cash flow per share. This represents a 7% increase compared to 2022 and demonstrates our confidence in the future.

This being said, let’s review our first half results in more details. First, our obvious performance has been underpinned by a 7.3% like-for-like increase in net rental income over the first half. This growth was mainly driven by a 6.1% average indexation and the tight property expense monitoring translating into an improvement of net rental income to growth rental income ratio. In the meantime, on the back of strong foothold and treasury bonds, ancillary income was up 28% like-for-like, mainly bolster by the 36% growth in turnover rents, and 32% rise in car parks revenues, while specialty leasing was up by 13%. All geographies experienced a robust expansion and exceeded 5% growth in net rental income, especially Iberia and Netherlands and Germany, with net rental income up 12% where Italy was up 7.8% and France up 5.3%.

As regards leasing activity, tenant demand for space in our malls has been very strong with 809 deals signed over the period, up 16% over one year in volume terms. Through these operations, we let close to 250,000 square meters while achieving a 5.3% positive reduction on renewals and re-lettings. We also continue to support the expansion of growing retailers in all segments, especially sports with banner like JD Sports, Courir, or Foot Locker, the apparel segment including Inditex, Primark, Calzedonia, Mango, or Deichmann, and in the health and beauty and the value-for-money verticals with Rituals and Normal. As such, over the last five years, omnichannel retailers have been focusing on best-in-class assets to develop under their last format and significantly increase their footprint in our malls.

Among reserves with more stores and larger ones Nike and JD Sports have increased by 67% and 47% respectively, the total area they range with us since 2019. Same goes with Rituals, up 143%, Normal up 160%, Primark up 48% or Starbucks that almost double its footprint. And make no mistake this performance is a direct result of two elements: one, our top quality portfolio; and second, our leading marketing and asset management expertise all over Europe. Indeed, we focus on offering the best answer to the challenges and needs of retail tenants while matching shopper expectation. For detail now, we have put the emphasis on continuously developing and diversifying our retail mix by replacing old fashioned banners by new concept omnichannel retailers and trendy verticals, especially in fashion, health and beauty, restaurants, sports and services.

Besides with 70 leading malls located in Europe’s largest cities with catchment area of over 1 million inhabitants and with revenue per capita 20% of our national averages. Our portfolio is perfectly suited to the flight-to-quality strategy applied by retailers. And our properties are clearly identified by expanding banners at most of our locations in their development plans. Against this backdrop in the first half, we consolidated our operating KPIs at very high levels. Our occupancy rate reached 95.7% as of June 30 in line with December, 2022 levels, while collection rate was slightly up at 96.5%.

Meanwhile, in spite of the 6.1% indexation applied to tenants, we managed to maintain occupancy cost ratio at a sustainable level below 13%. And I think this is a solid achievement resulting from a very active service charge management and a solid increase in retail sales that follow the trend that we observed during the second half of 2022, and which continue to improve.

Over the first half of 2023 sales of our tenants were up 8%, while the footfall jumped by 10%. In terms of retailer sales southern region were the most dynamic with Iberia posting 11.2%, and Italy experiencing an 8.7% increase. The momentum was also very positive in the Netherlands and Germany up to 17.4%; and Central Europe up 9.9%; while France was up 5.7%; and Scandinavia increases – increased, sorry, by 6.4%.

Sales growth was also strong in the most segment with increases from 6.4% for fashion to 16.5% for food and beverage, while household equipment was slightly down due to a solid 22 base. All these figures underscore the resilience of consumption which is also supported by high level of savings, a starting decline in headline inflation, wage growth and employment gains that productively materialize improvement in real household disposable income. In fact, we know that several retailers recently raised their outlook for 2023 observing that shoppers are absorbing higher prices.

Turning now to development activity, we continue to deliver on our development pipeline and with our two main committed projects Grand Place and Maremagnum. In Grenoble, the construction of the 16,000 kilometer extension is planned to open by the end of the year to showcase global leasable area of 75,000 square meter that will welcome more than ten million shoppers every year.

And I’m proud to announce that a hundred percent of the projected net rental income is already let. And among others, Grand Place hosts leading brands such as Zara, Sephora, JD Sports, Normal or Snipes, and Primark will open its first store in the region, while the food area will be upgraded and extended to the latest standard of Klépierre destination food strategy and yield on cost importantly is 8%

At Maremagnum in Barcelona the 5,200 kilometers Time Out Market is planned to open between Q4 2023 and Q1 2024, just in time for the America’s cup and to become the Barcelona leisure hotspot for food and beverage. Following the recent enlargement of lefties, the more now of most of the Inditex satellites including Pull & Beer, Bershka and Stradivarius acting as strong footfall drivers, and we forecast a yield on cost of 13.5% for this project.

Now turning to the balance sheet, since the beginning of the year, we took part of the strong liquidity available in the financing market. Our conservative balance sheet management came together with renewed debt capital market confidence and enabled us to raise new long-term financing total in €730 million with a 6.4-year weighted average maturity. We also renewed or signed €475 million or six years revolving credit facility, and we now rely on a €2.5 billion liquidity position covering our refinancing needs until 2027.

Over the first half of 2023, thanks to a strong cash flow generation, we also managed to decrease the net debt to €7.4 billion, while distributing close to €250 million in cash to our shareholders, corresponding to the first installment of the distribution related to 2022. And then we also remind that on July 11, 2023, we also returned €250 million more corresponding to the second settlement of the dividend.

As of today, we operate one of the most solid balance sheet in the industry. Our loan to value ratio is 38.1%, while the leverage ratio net debt to EBITDA is 7.9 times, and the interest coverage ratio stands at 8.8 times among the highest of our peers. In the quiet investment market we also close or signed €82 million of disposals of different retail assets in France and Sweden since January 1, and the transaction were executed in line with book value just 0.2% below. Despite a rising interest rate, the optimization of our financial structure undertaken over the last few years combined with proactive hedging operation, enable us to maintain topnotch credit metrics.

The average maturity of the Group debt was 6.5 years, while the cost of debt remain low at 1.4%. And going forward, the Group hedging is high at 100% for H2 2023, and 98% in 2024. Over the last six months, our distinctive financial risk profile has been rewarded by rating agencies on May 30, Fitch assigned for the first-time as senior unsecured rating of A-. And on June 9, S&P affirmed Klepierre long-term rating of BBB+ with a stable outlook.

And we now enjoy a double investment grade rating delivered by two leading agencies that acknowledged clearly our financial discipline. And let me finish my presentation with our solid corporate social responsibility outcomes. And I would like to highlight that Klepierre remains the leader of the industry. We ranked top of the Global Retail Listed, Europe Retail, Europe Retail Listed, and Europe Listed categories with a score of 98 out of 100 by GRESB, the worst leading ESG benchmark for real estate and infrastructure investments.

And Klepierre is also integrated into the CDP A-list of the most advanced company fighting climate change included also in the CAC SBT 1.5 degree index and rated AAA by MSCI. Lastly, since 2020, the Group low carbon commitment have also been approved by SBTi at the highest possible level, well below 1.5 degree Celsius.

I’m very proud of those ratings, but further encourage us to continue delivering our ambitious Act4GoodTM CSR strategy launch this year. The main pillar of this time is to achieve a net-zero carbon portfolio with an average portfolio energy efficiency of 70 kilowatt per square meter. We will also lend our support to retailer’s energy reduction initiative with an objective of cutting their consumption by 20% and developing low carbon solutions throughout our portfolio. And this is the way we act as a climate leader aiming to be the most sustainable platform for commerce by 2030.

Thank you very much for listening. And now I will leave the floor to the questions.

[Operator]

Thank you. This is the conference operator. We’ll now begin the question-and-answer session. [Operator Instructions] The first question is from Celine Soo-Huynh with Barclays. Please go ahead.

[Celine Soo-Huynh, Barclays]

Good evening. I have two questions, please. I’ll take them one by one. The first one is about your guidance as you’ve upgraded by at least 2%. The previous one was excluding disposal. Can you elaborate what drove the upgrade and what changed compared to your previous expectations?

[Jean-Marc Jestin, Chairman of the Executive Board]

Yes, thank you, Celine. So I think we have raised our guidance because the operational performance is better than expected. So this is the main driver. In the guidance, there is no impact of further disposals if we do disposals between now and the end of the year. So we don’t expect to do a major disposal by the end of the year. So we are very confident that we will be in line with the new guidance, which has been raised by, as you said, 2%, which is a 7% increase compared to last year.

[Celine Soo-Huynh, Barclays]

When you say operational performance was better than expected, do you mean that probably less failures, indexation is higher than expected, or can you elaborate on that?

[Jean-Marc Jestin, Chairman of the Executive Board]

It’s a bit combination of – it’s not really more indexation because I think we budgeted almost what we got. It’s a series of improvement as you – as we indicated the rebound in sales and as the sales went up and many of the other ancillary income like parking revenues and specialty leasing were also a bit better than expected. And we have been able also to collect a bit more rents than we initially budgeted. So I would say, and we also cut costs between NRI and GRI. So it’s a series of operational improvement all over the word.

[Celine Soo-Huynh, Barclays]

Amazing. Thank you. And then that second question, can you elaborate on PPR acquiring opening or shopping mall, please?

[Jean-Marc Jestin, Chairman of the Executive Board]

As you said, we – as we said, we never comment rumors. So it’s only rumors.

[Celine Soo-Huynh, Barclays]

Okay. Thank you. Thank you.

[Operator]

The next question is from Florent Laroche-Joubert with ODDO. Please go ahead.

[Florent Laroche-Joubert, ODDO]

Yes. Good evening. And so thank you for this presentation. So I have two questions. The first one is on the ancillary income which are up 28%. So what can we expect on this income for the next period? And so can we say that is maybe also linked to the normalization of your activity? And maybe my second question it’s about the cost of debt. It’s at 1.4% for the cash flow and so what can we expect maybe for the rest of the year and also maybe in 2024? Thank you.

[Jean-Marc Jestin, Chairman of the Executive Board]

Okay. Thank you, Florent for your questions. I think on the – Florent one, I’m going to itemize the guidance for the rest of the year between ancillary income and the other. So I think the as you have seen the – it’s a combination also of rebound of sales that push the sales base rent, but specialty leasing and parking revenues, it’s also I think a better asset management and better leasing management after two years of difficult times.

But it’s not only due to reborn post-COVID. So I’m very proud that we are also able to activate different levels of performance. For the cost of debt it’s 1.4%, and for the second half, it’ll be 1.6%.

[Stephane Tortajada, Chief Financial Officer]

Yes. For the full year 2023, you can expect something around 1.6%.

[Florent Laroche-Joubert, ODDO]

Okay. Thank you very much.

[Operator]

The next question is from [indiscernible] with Kempen. Please go ahead.

[Unidentified Analyst]

Hi, team. Thanks for taking my questions and congrats on the results. I got two question on indexation coming are quite high. Do you get any pushback from a retailer on this indexation, okay, maybe elaborate bit how these – yes, negotiations go. And secondly on that indexation, is it currently supported by ERC growth?

[Jean-Marc Jestin, Chairman of the Executive Board]

So thank you, Peter, for your question. I think on the indexation, we – even though it has been quite elevated in some of the countries and specifically in the Netherlands, as you know, we didn’t really have a significant pushback from retailers. But it’s fair to say that in some of the regions where indexation was above 10% in certain circumstances, we have made some specific arrangement with the tenants to not to charge completely the indexation, but I would say 80%. But this is very, very marginal in most of the countries we had passed the whole indexation and not suffered any significant pushback.

On – and the second question was related – yes, it also I think we – when we look at the lesion activity, it’s quite sustain. We are also showing a 5.3% reversion on this. We think that the sales are in some of the countries, we clearly see that sales are really growing due to inflation even though sometimes the volume are a bit lower, but in absolute levels in Central Europe, Spain, a bit in Italy, but in Portugal and also we think in the Netherlands, we have seen really a pricing going up due to inflation.

So we consider that our ERVs will also go up accordingly. In terms of valuation, the – you will have noticed that the preserve have a bit – have been a bit more conservative on the impact of future indexation on ERVs as the CAGR for the next 10 years has a slightly decrease from 2.8% per annum to 2.4%. So I will say the – from a portfolio valuation perspective, this has not been translated, but in many countries we will see going up by significant portion of indexation.

[Unidentified Analyst]

Thanks.

[Operator]

The next question is from Bruno Duclos with Invest Securities. Please go ahead.

[Bruno Duclos, Invest Securities]

Hi. Could you elaborate a little bit on the bank loans that have been signed during H1 in terms of total cost or margin?

[Jean-Marc Jestin, Chairman of the Executive Board]

Yes, we have issue on a six year bond, six year remaining maturity bond and seven year maturity bond in average, the spread or margin achieve in the order of magnitude of 150 basis points.

[Bruno Duclos, Invest Securities]

Thousand, sorry, go ahead. Sorry.

[Stephane Tortajada, Chief Financial Officer]

150 basis points.

[Bruno Duclos, Invest Securities]

Okay. How does compare to margin? You had say 12 months or, I mean, do you see the mapping decreasing?

[Stephane Tortajada, Chief Financial Officer]

Note that in the European market, there was no European reach issuing public bonds. Since one year except Scandinavia end of November, much more spread. So basically it’s difficult to compare because there were very little transaction. What we can see as a positive today is that there is more traction, and that’s why we have been able to issue some notes. I will say the spreads are quite in line with what we have seen end of the summer last year. So there was kind of winding of spread end of Q1 this year, but it has tightened since and we are around 140, 150 right now. So I think it’s a market that you have spread today for six to seven year bond.

[Bruno Duclos, Invest Securities]

Okay. Okay. I understand that you don’t comment on remorse, just the guidance that you are mentioning, is it including some acquisitions or…

[Stephane Tortajada, Chief Financial Officer]

No.

[Jean-Marc Jestin, Chairman of the Executive Board]

It doesn’t – It don’t, it doesn’t.

[Bruno Duclos, Invest Securities]

Okay. Okay, okay. Okay. Thank you.

[Jean-Marc Jestin, Chairman of the Executive Board]

No acquisition.

[Bruno Duclos, Invest Securities]

Okay. Thank you. Thank you.

[Operator]

The next question is from the conference call in French from Florent Egonneau with Bank of America. Please go ahead.

[Florent Egonneau, Bank of America]

Yes. Hello. Thank you. Thank you for your results. So with respect to the €200 million bond issue that you conducted this quarter, can you give us more information please?

[Stephane Tortajada, Chief Financial Officer]

Well, indeed there was no press release because it was issued based on the underlying bonds, so there was just information disclosed on Bloomberg. But as a company, we did not disclose any specific press release, just that we invested – we increased the two bonds by 2029, 2030 by an additional €100 million, and we paid the market spread level that what I mentioned, 150 basis points, which I mentioned earlier, on average over €200 million. So you can consider that out of the €200 million of bonds issue, the average margin or the spread is 150 basis points on the €200 million, which were issued.

[Foreign Language] Next question.

[Operator]

The next question is from Markus Kulessa with Bank of America. Please go ahead.

[Markus Kulessa, Bank of America]

Yes. Good evening. Thank you very much for taking our question. I just have a quick question on the evolution of your LTV. Just to understand because your LTV is up 40 bps and the LTV is up 3 percentage points or 2.6 percentage points just to understand how or what has been the difference in the drivers. And then maybe also looking forward the €80-something-million disposes you have signed and done. As you always say, it’s total share. Do you have a number in your share? And then you said also you are not doing any merger, any other disposals in H2? Is what you said at the beginning of the call as I understood, right?

[Stephane Tortajada, Chief Financial Officer]

In the revised guidance, we assume no further disposal. It doesn’t mean that we are not going to do, but I think it’s reasonable that it’ll not be of any important magnitude if we do. So for the LTV, the LTV is slightly up. It’s mainly due to the impact of the mark-to-market of the portfolio property, which decreased by on a like-for-like basis by minus 1.4%. And for the EPRA LTV maybe we can take the question off because we don’t have that that number on top of – we don’t have this number with us. We have it, but we don’t see where you are referring to. So if we can take it offline we then some more precisely.

[Markus Kulessa, Bank of America]

Okay. Thank you.

[Unidentified Company Representative]

And we can switch to the webcast now. So we have a question from Frédéric Renard from Kepler Cheuvreux, who would like to comment on our operational improvement in the gross net rental income versus – gross rental income versus net rental income. What is the current margin between the two, and how confident are you to maintain improvements going forward? What can we expect?

[Jean-Marc Jestin, Chairman of the Executive Board]

Thank, you Frédéric, but I don’t want to be to negative for my answer, but I’m not going to itemize in detail the different levels of improvement between the NRI and GRI. But I think the main takeaway, if you want one, is that we have reduced cost at different level of operations, and we have probably also better manage and non-rechargeable expensive that are –that have been reduced significantly compared to the previous year. So we have been very careful during a year where inflation has been very high to cut as much as possible, all the cost in the company at the operation level, but also at the headquarter level.

As you can see, our G&A and payroll number is flat in an environment where inflation was –wages inflation was above 5% in Europe. So, we have been very, very stringent with cost all over the company, and I think it’s a good achievement.

[Unidentified Company Representative]

The next question is from the Degroof. Could you please elaborate on the positive reversion achieved for renewals with existing tenants versus letting to new?

[Jean-Marc Jestin, Chairman of the Executive Board]

No, we are not going to elaborate on that. We are sending renewals and re-lettings, and a significant part of the deals are renewals. So and I think the reversion between renewals and re-lettings, I would say it’s quite similar, but we are – we don’t have, I don’t even have the number on top of my mind, so I’m not going to elaborate. I think there is no tricky – my answer is not tricky. Just we don’t want to elaborate in that global detail.

[Unidentified Company Representative]

We have a question from French long-only investor. France, you experienced a week of riots at the end of June, and at the beginning of July. Could you please elaborate on the consequences for your tenants and more broadly, how affected your centers have been?

[Jean-Marc Jestin, Chairman of the Executive Board]

So thank you for the question, for the French audience, but also for the international audience. It has been quite a difficult week for France, and clearly retail has been exposed to riots quite severely high strict retail, but also some of the shopping centers. And I would like to thank you the whole KPI team for working day and night to protect our property. At the end of the day if even though it was quite very difficult time. The bottom line we – the level of damages we have suffered financially is around €5.2 million, which will be covered by insurance and the rest of – and we had something like 150 stores between 100 store and 150 store that has been looted and devastated. So out of the 6,000 store, it’s a small proportion, but for our retailers, for some of them so tough time. So they will be insured. And we also have decided to support some of them in the reconstruction of their shop. And the budget for that is roughly €0.5 million – or between €0.5 million and €1 million for Klépierre.

[Stephane Tortajada, Chief Financial Officer]

And just to add a few details in terms of traffic, the week of the riot for the center, which have been affected, we have decreased by around 14% since then. When we have looked at the traffic again at the end of July, compared to end of July 2022, we are plus 1.5%. So people came back to the center after the riot.

[Operator]

The next question is from Robert Jones with BNP Paribas. Please go ahead.

[Robert Jones, BNP Paribas]

Hi. Yes. Thanks for the presentation. I had a question on tenant health and also a question on asset value. So firstly, on the tenant health. I appreciate obviously rent collection very strong. And importantly, you’re also capturing the vast majority of the indexation that you are legally entitled to. But I wonder in terms of your latest conversations with tenant health, to what extent there’s any sort of signs with any incremental pressure on them? It’s a question that we get a lot from investors at the moment around going into a sustained period of lower GDP growth. What does that mean for talents’ ability to trade profitably? Appreciate your point around those [indiscernible]?

And then the one on asset values is obviously asset values, as you said, down only 1.4 like to like during the half. Do you get any indication in terms of the value as view on the extent to which we could see further outward yield shift? Or do you expect going forward that we could have an environment where yield shift is broadly offset by ERV growth and thus we can be kind of relatively confident in calling the bottom in terms of asset value? Thanks.

[Jean-Marc Jestin, Chairman of the Executive Board]

Thank you, Robert Jones. For the tenant health, as you know, I spend a significant part of my time to discuss with our tenants. I think they in – I don’t want to be too rosy, but I think in the vast majority of finally are going through 2023 in a better shape than the fear they would be at the beginning of 2023 or November, December last year. And as you have seen, we see a lot of retailers being much more positive for 2023, and also raising their guidance for the year.

So obviously, we have different type of watchlists where we have signal from tenants that are going through difficulties. Nothing very special here. I would say the only country where we have a bit more of financial difficulties it’s in France where you have observed that the number of bankruptcies has been picking up very recently since I would say Q3 last year so, and you know, the names. So in the rest of Europe when we look at the number of bankruptcies it’s very, very low. So I would say the – the only signal where we see retailers, which are going through 2023 in difficulties is French, it’s many fashion retailers, a bit of franchisee also in different segment like Health & Beauty.

And some of them, it’s for one good reason is that they have been supported by the French government, and they have to repay the state back loan, and some of them are not able to do so. So we have seen as you see a pickup in bankruptcy. It doesn’t really affect the whole performance of KPI as you can notice, because our like-for-like growth in Europe is strong, but France has been slightly weaker than expected due to this, okay.

In Italy, the conversation with retailers it’s very positive. Spain and Portugal, very positive. Central Europe is very positive and it’s a bit weaker I would say in Germany because Germany, the GDP growth is very lukewarm and has been slightly negative. So the retailers are experiencing I would say a tougher time. But our presence in Germany is very small, so it’s not really much. And Scandinavia, Sweden, even though we could have fear that the household consumption could have been more impacted by the increase of interest rates for the – for the mortgage. Finally the sales in freedom has been extremely good, and has been up by a double digit. So I will say that not being wanted to be worry, I would say the sentiment when discussing with the retailers is overall they are doing – they’re doing a good year.

[Robert Jones, BNP Paribas]

Okay. Okay. And that question, sorry the...

[Jean-Marc Jestin, Chairman of the Executive Board]

I know it’s – it’s a crystal ball, conversation. I think the – I think the – I think we have the asset class we own has already – has already seen an expansion of yield this contract and exit three yield. And this has started, I don’t know almost two or three years ago. So we have already expanded quite a lot. In the current interest rate environment as long as they will stay as they are today, it’s probably can be expected that a yield could slightly be expanded again for all the type of asset classes, I would say. And when they will – they will – they will – they will entire side will slightly go down, probably this will stop, that’s my sentiment, even though I cannot put a number on – on this sentiment.

On the – on the leasing – on the leasing side it’s also fair to say that the leasing deals we are doing are really supporting the fact that indexation is passed to the tenants, and that – and that inflation is also having an impact on ERV. But I would say that when you mix all that up, okay, and when you look at the CAGR of – in our DCF for the next 10 years of the net rental income, its 2.4%, which I think it’s rather modest. So I think we’ll probably see this growing even though, it’s not the assumption they have taken, but only I think the valuation we should start to stabilize as end of 2023 mid of 2024. That’s my sentiment. But I’m not doing the job for the appraisers, but that’s how we see the future for the next, we’ll say 12 months.

[Robert Jones, BNP Paribas]

Thank you very much. Thank you.

[Unidentified Company Representative]

We have one more question from the webcast from Inna Maslova, which is the second one. What is your assumed cost of debt for 2023 and 2024, given the high level of edging? Is it at 1.4%? Thank you.

[Stephane Tortajada, Chief Financial Officer]

So for 2023 full year, we expect to be around 1.6%, and for 2024 full year, we expect to be at maximum 1.9%.

[Operator]

Now we have one question from Boston based Asset Manager. How do you see the current acquisitions of more made across Europe recently?

[Jean-Marc Jestin, Chairman of the Executive Board]

How do we see that? We are not really active in terms of – doing acquisitions. So we are a bit on the sideline there, there are not so many transactions as we can observe. So for the time being, we are – we have no acquisition on the other list – on other screen. Sorry.

[Unidentified Company Representative]

We have one more question from a UK Hedge Fund investor, could you consider a share buyback program in the coming months?

[Jean-Marc Jestin, Chairman of the Executive Board]

If – it has to be done, this would be a decision of the board. So it’s not in my, I can’t answer to that question. So we did in the past share buyback when we were doing disposals and this was to soften the dilution of disposals. Today we are running the company with a view of keeping the debt flat or decreasing. We are not spending a lot of CapEx on new project. So we are, I think in a very good situation to manage the – to manage a balance sheet. And we have no specific plan to increase leverage or to reduce the leveraging of the company.

Okay. Thank you very much for attending and for your questions. And we put an end to this conference call.

[Stephane Tortajada, Chief Financial Officer]

Thank you very much.

[Unidentified Company Representative]

Thank you very much. Bye-Bye.

[Jean-Marc Jestin, Chairman of the Executive Board]

Thank you.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.