LI Klepierre

press release

First-half 2018 earnings

Paris - July 26, 2018

Klépierre, the pan-European leader in shopping malls, today reported earnings for the six months ended June 30, 2018.(^[1]) The main highlights include:
 -      Net current cash flow per share +7.8% vs. first half 2017 at €1.31
 -      Shopping center Net Rental Income +3.2% like-for-like,(^[2]) outperforming indexation by 200 bps
 -      Retailer sales +1.4%(^[3]) like-for-like
 -      Cost of debt further reduced by 30 bps vs. June 30, 2017 to 1.6%
 -      Property portfolio valued at €24.6bn,^([4]) +2.9% like-for-like over 12 months⁽²⁾
 -      EPRA Net Asset Value at €39.50, +6.8%^([5]) over 12 months
 -      Disposals since January 1, 2018 totaling €316.5 million^([6])
 -      Immediate success for new Prado mall (Marseille) opened end March
 -      Initial cash-flow guidance for full-year 2018 raised to at least €2.62 per share from €2.57-€2.62

Jean-Marc Jestin, Chairman of the Klépierre Executive Board, commented, "In the first half, Klépierre's teams continued to demonstrate their ability to outperform the market in a polarizing retail environment. This strong performance - as illustrated by our 7.8% increase in net current cash flow per share, exceeding our initial forecast - is the result of our strategy to constantly implement the best of retail in our malls, to create preferred destinations for our retailer and customers, and to enhance the quality of our shopping mall portfolio through  refurbishment and extension projects. Thanks to the exceptional level of our leasing deal flow and operating indicators, supported by our continued financial discipline, we are raising our full-year guidance for 2018 and are confident in our ability to sustain growth in the years to come."

KEY FINANCIALS

	06/30/2018	06/30/2017	Change	LfL Change(2)
In € millions, Total Share
Total revenues	668.9	654.5	2.2%	-
Net Rental Income (NRI), shopping centers	542.2	527.1	2.9%	3.2%
Property portfolio valuation (incl. transfer taxes)	24,594	23,913	2.8%	2.9%
Net debt	9,153	9,134	0.2%	-
Loan-to-Value (LTV)	37.20%	38.20%	-100 bp	-
In €, Group Share
EPRA Net Asset Value (NAV) per share	39.50	37.00	6.8%	-
Net current cash flow per share	1.31	1.22	7.8%	-

OPERATING PERFORMANCE Retailer Sales

On a like-for-like basis,⁽³⁾ total retailer sales at Klépierre's malls rose by 1.4% in the first half of 2018, compared with the same period last year. Over the first 5 months of the year, they outperformed aggregated national retailer sales indices by 100 basis points.^([7]) The dynamic economic climate in most European markets and successful re-tenanting initiatives supported sales growth and offset the impact of adverse weather conditions.
On a geographic basis, retailer sales rose by 2.4% in France, with the overall performance benefiting from the extension of Val d'Europe (near Paris). Iberia remained buoyant (+4.1%), while sales growth in Germany accelerated (+2.9%), driven by the successful leasing initiatives at Forum Duisburg (near Dusseldorf; +5.3%) and Centrum Galerie (Dresden; +6.0%). CEE & Turkey (+5.8%) continued to post solid gains, despite the Sunday trading ban in Poland. In Italy, retailer sales were down by 2.7% in the first half, mainly due to the impact of adverse weather conditions, uncertain political context and to a lesser extent some competitive pressure.
On a segment basis, Food & Beverage (+6.0%) and Health & Beauty (+5.3%) continued to grow steadily, reflecting both the structural outperformance of these segments and Klépierre's efforts to introduce the most successful brands and deploy its Destination Food® concept. Culture, Gifts & Leisure (+1.9%) continued to benefit from the deployment of the Sports and Jewelry segments, more than offsetting the poor performance of toy retailers. On the other hand, extreme weather conditions in the first half had a negative impact on fashion sales (-0.4%), especially in Italy.

Leasing

Klépierre registered another dynamic first half in terms of leasing, with 958 leases signed (close to last year's record of 972). Of these, 809 leases were renewed or re-let at an average reversion rate of 11.1%. Overall, new leases represented €19.1 million in additional annual Minimum Guaranteed Rents (MGR; excluding extensions and greenfield projects). The EPRA vacancy rate declined to 3.2% from 3.4% in June 2017. At the same time, the bad debt rate remained at a low 1.6%, with Germany and the Netherlands decreasing by 60 bps and 40 bps respectively. These operational improvements confirmed the relevance of Klépierre's portfolio.
The first half once again demonstrated Klépierre's ability to use key account management to leverage its unique pan-European leasing platform and offer retailers opportunities to deploy their latest concepts throughout Europe. Brands such as Søstrene Grene, Normal, Deichmann, Vodafone, Sephora, Nespresso, Harmont & Blaine, and Rituals will continue to enrich Klépierre's retailer mix by opening new stores. The Sports segment remained extremely dynamic, with brands such as Courir, JD Sports, Skechers, Snipes, and The North Face pursuing their development. Lastly, new brands have started to deploy in Klépierre's malls, including Monki, & Other Stories, Arket, Ray-Ban, and Xiaomi.

Net Rental Income

Net Rental Income (NRI) generated by shopping centers amounted to €542.2 million for the first six months of 2018, up 2.9% on a current-portfolio, Total-Share basis compared to the same period in 2017. This good performance takes into account:
-         A €16.0-million increase in NRI on a like-for-like basis (+3.2%),⁽²⁾ driven by indexation (+1.2%), a solid reversion rate and higher income from specialty leasing;
-         A €2.7 million positive scope impact as the contribution from Nueva Condomina in Spain (acquired in the first half of 2017) and recent pipeline developments more than offset the impact of disposals;
-         A negative €3.5-million foreign exchange impact, mainly related to Sweden and Norway.

Cash flow and portfolio valuation Net Current Cash Flow

In the first half of 2018, net current cash flow per share amounted to €1.31, a 7.8% increase compared with the first half 2017. This strong performance reflects the following:
-         Net Rental Income increased by 2.4% on a Total-Share basis, thanks to the 2.9% growth for shopping centers (+3.2% like-for-like);
-         Operating cash flow increased by 2.6% on a Total-Share basis, outpacing Net Rental Income, thanks to further reductions in payroll and other general expenses;
-         The net cost of debt decreased by €5.5 million to €72.0 million on a Total-Share basis, bringing the average cost of debt down to 1.6% (a 30-bp reduction year-on-year). This improvement reflects recent refinancing initiatives;
-         Tax expense declined by €1 million to €15.9 million on a Total-Share basis thanks to the adoption of the SOCIMI regime in Spain for some shopping centers;
-         The reduction in the average number of Klépierre shares outstanding (-2.7% to 301 million) as a result of the ongoing share repurchase plan.

Portfolio Valuation

On a Total-Share basis, including transfer taxes, Klépierre's total portfolio valuation at June 30, 2018 amounted to €24,594 million, a 2.9% like-for-like increase over 12 months. The EPRA Net Initial Yield of the shopping center portfolio amounted to 4.8% at the end of June 2018, stable compared to the June 2017 level.

EPRA Net Asset Value (NAV)

EPRA NAV per share amounted to €39.50 at the end of June 2018, versus €37.00 one year earlier. This improvement reflects net current cash flow generation (+€2.60 per share) and the increase in the value of the like-for-like portfolio (+€1.80), partly offset by the dividend payment (-€1.96). Foreign exchange and other effects had a limited impact (+€0.10).⁽⁵⁾

DEBT AND FINANCING Debt

At June 30, 2018, Klépierre's consolidated net debt stood at €9,153 million, compared to €8,978 million at December 31, 2017. The €175-million increase mainly reflects the seasonal effect of the full-year 2017 dividend payment in April 2018, which was disbursed for the last time in a single installment.^([8]) As a result, the Loan-to-Value (LTV) ratio increased by 40 bps, to 37.2%, from December 2017 to June 30, 2018. On a year-on-year basis, however, net debt was stable and LTV was reduced by 100 bps (from 38.2% at June 30, 2017). This illustrates the strict financial discipline of Klépierre, whose long-term LTV target is between 35% and 40%.

Financing

Klépierre's average cost of debt has continued to decrease in the first half, at 1.6% compared to 1.9% at June 30, 2017. It continues to benefit from the low level of short-term interest rates and from the attractive refinancing conditions secured by Klépierre. Assuming unchanged market conditions and projecting its current debt structure with planned refinancing transactions, Klépierre expects its cost of debt to remain low over the next three years thanks to its interest rate hedging strategy.
In the first half, Klépierre increased its liquidity position to €2.0 billion as of June 30, 2018 through the renegotiation of several bilateral and syndicated banking facilities. The new facilities were secured at better terms, allowing Klépierre to keep the average duration of its total debt virtually stable, at 6.2 years as of June 30, 2018 (vs. 6.3 years at December 31, 2017).

Share Buyback Program

Concerning the €500-million share buyback program announced on March 13, 2017: at the end of June 2018 Klépierre had repurchased 11,691,968 of its own shares at an average price of €35.64 per share; of the total investment of €417 million, €67 million was in the first half of 2018. Between June 30 and July 20, 2018, Klépierre purchased an additional 654,265 of its own shares, representing a further investment of €21 million.

DEVELOPMENT PIPELINE AND ASSET ROTATION Development Pipeline

Klepierre's development pipeline, after the opening of Prado in March 2018, stand at €2.9-billion and is designed to ensure tomorrow's growth with a reasonable risk profile. Considering retailers' limited demand for greenfield projects, Klépierre's strategy focuses primarily on extensions, which account for 80% of its pipeline in value terms. Through this strategy, the Group aims to transform its shopping malls, while reinforcing the malls' leadership positions in their respective catchment areas.

Hoog Catharijne (€438 million investment,^([9]) yield-on-cost of 6.4%)^([10])

Located in Utrecht, Hoog Catharijne is the most-visited mall in the Netherlands. The construction works related to this large-scale redevelopment have been conducted in several phases and are expected to be fully completed by the end of 2019. The latest phase of the project (fully let) was delivered in March 2018 and consists of a new connection from Utrecht's central train station - which hosts 88 million passengers per year - to the heart of the mall and city center. Since opening this latest phase, footfall at Hoog Catharijne has increased by 12% to reach 26.9 million. The next redevelopment phase is the "South Mile," an 11,200-sq.m. retail space to be delivered by the end of 2018. It will add new brands to the mall's retail mix, including Guess, Levi's, Pandora and Ray Ban. The "City Square" - the new heart of the mall, organized around Klépierre's Destination Food® concept - will be completed as part of this phase, and include Starbuck's, Comptoir Libanais and Leon, as well as new concepts such as leading Turkish coffee brand Mado and Bistrot Bakery. Overall, the leasing rate for the entire mall currently amounts to 82%.

Créteil Soleil (€134 million investment,⁽¹⁰⁾ yield-on-cost of 5.7%)⁽¹¹⁾

The extension of Créteil Soleil is advancing according to plan and is expected to be completed by the end of 2019. The 11,500-sq.m. extension is located at the main entrance of the shopping center, which welcomes 35% of the mall's 20.3 million in footfall. Spread over three floors, the extension will create an outstanding connection between the subway station and the heart of the mall. The program consists of creating 18 new retail premises, 15 restaurants, and 6 additional screens for the existing 12-screen cinema. The shopping experience will be considerably improved, leveraging synergies between the Food & Beverage area and the cinema. Leasing is progressing well, with 57% of the new space already signed or in advanced negotiations. This extension will be complemented by a full refurbishment, due to start in the 4th quarter of 2018. The Destination Food® concept will notably be implemented, with the existing food offering combined with the new extension area to provide visitors with a total of 35 restaurants in a welcoming and exciting new environment.

Disposals

Since January 1, 2018, Klépierre has completed a total of €310.0 million(^[11]) worth of disposals. This amount includes the disposals of Grand Vitrolles in Marseille (France) and Gran Via de Hortaleza in Madrid (Spain) to Carmila for €202.8 million.
Additionally, Klépierre sold a development plot in Cologne, Germany and other properties in Europe for a total amount of €107.2 million.
As of June 30, 2018, and taking into account sale promissory agreements, Klépierre's total disposals amounted to €316.5 million.

OUTLOOK

For the full year 2018, Klépierre expects to generate net current cash flow per share of at least €2.62 (i.e., an increase of at least 5.6% compared to 2017). This compares with the Group's initial guidance for the year of €2.57-€2.62. The upward revision reflects Klépierre's sound business evolution over the first half of 2018. Based on recent leasing activity, Klépierre expects to maintain a sustained level of rental growth during the second half of the year.

RETAILER SALES like-for-like change
FOR THE first-half of 2018

Countries	Like-for-Like change(a)	Share in Total Reported Retailer Sales
France	+2.4%	30%
Belgium	-2.9%	2%
France-Belgium	+2.1%	31%
Italy	-2.7%	25%
Norway	+0.3%	9%
Sweden	+0.4%	7%
Denmark	-3.2%	4%
Scandinavia	-0.4%	20%
Spain	+3.4%	8%
Portugal	+5.7%	3%
Iberia	+4.1%	11%
Poland	0.0%	3%
Hungary	+10.8%	3%
Czech Republic	+1.0%	1%
Turkey	+12.6%	2%
CEE and Turkey	+5.8%	8%
The Netherlands(b)	n.s.	n.s.
Germany	+2.9%	3%
TOTAL	+1.4%	100%

Segments	Like-for-like change(a)	Share in total reported retailer sales
Fashion	-0.4%	40%
Culture, gift, and leisure	+1.9%	17%
Health & Beauty	+5.3%	13%
Household equipment	-0.1%	11%
Food & Beverage	+6.0%	11%
Others	-1.0%	8%
TOTAL	+1.4%	100%

(a) Like-for-like change is on a same-center basis and excludes the impact of asset sales, acquisitions and foreign exchange.
(b) Only a few Dutch retailers report their sales to Klépierre.

TOTAL REVENUES

In €m	Total Share			Group Share
	06/30/2018	06/30/2017		06/30/2018	06/30/2017
France	214.4	208.5		175.0	171.3
Belgium	9.2	9.0		9.2	9.0
France-Belgium	223.5	217.6		184.2	180.4
Italy	106.4	104.4		104.7	102.8
Norway	35.9	36.4		20.1	20.4
Sweden	30.2	31.8		16.9	17.8
Denmark	28.7	28.5		16.1	16.0
Scandinavia	94.8	96.8		53.2	54.3
Spain	55.6	47.2		55.6	45.7
Portugal	11.5	10.9		11.5	10.9
Iberia	67.2	58.1		67.2	56.6
Poland	17.2	17.2		17.2	17.2
Hungary	12.5	10.9		12.5	10.8
Czech Republic	16.6	15.1		16.6	15.1
Turkey	13.1	16.6		11.8	15.3
Others	1.5	1.4		1.5	1.3
CEE and Turkey	60.9	61.2		59.6	59.8
The Netherlands	35.4	31.5		35.4	31.5
Germany	26.2	27.3		24.9	26.0
SHOPPING CENTERS GROSS RENTAL INCOME	614.4	596.8		529.2	511.3
Other retail properties	12.7	14.8		12.7	14.8
TOTAL GROSS RENTAL INCOME	627.1	611.7		542.0	526.1
Management, administrative and related income (fees)	41.8	42.8		40.1	41.0
TOTAL REVENUES	668.9	654.5		582.0	567.1
Equity Accounted Investees*	41.9	44.1		40.0	42.2

* Contributions from Equity Accounted Investees include investments in jointly-controlled companies and investments in companies under significant influence.

QUARTERLY NET rental income ON A TOTAL-SHARE BASIS

	2018			2017
In €m	Q2	Q1		Q4	Q3	Q2	Q1
France	99.1	93.4		93.3	97.2	98.1	89.5
Belgium	4.3	4.4		4.9	4.0	4.2	3.7
France-Belgium	103.4	97.8		98.1	101.2	102.3	93.2
Italy	51.6	44.5		51.0	50.6	50.8	42.7
Norway	16.4	16.0		15.7	16.3	16.3	17.1
Sweden	13.9	13.4		13.9	14.0	14.0	14.2
Denmark	13.2	12.4		13.3	12.5	12.5	12.8
Scandinavia	43.5	41.7		42.9	42.8	42.8	44.1
Spain	24.8	24.9		23.5	24.7	21.7	19.7
Portugal	5.2	5.5		4.9	5.5	4.9	5.1
Iberia	30.0	30.4		28.4	30.2	26.6	24.8
Poland	7.8	8.0		7.8	8.0	7.7	8.0
Hungary	5.8	5.8		5.7	5.4	4.8	5.3
Czech Republic	8.1	8.0		7.7	7.7	7.4	7.5
Turkey	5.7	5.2		7.1	7.4	7.3	6.9
Others	0.8	0.7		0.9	0.2	0.6	0.6
CEE and Turkey	28.2	27.8		29.1	28.7	27.7	28.3
The Netherlands	14.6	9.5		13.2	13.4	13.2	9.5
Germany	9.9	9.3		10.5	11.3	11.8	9.3
SHOPPING CENTERS NET RENTAL INCOME	281.3	261.0		273.3	278.2	275.2	251.9
Other activities	6.1	6.1		6.5	6.2	7.2	7.1
TOTAL NET RENTAL INCOME	287.3	267.1		279.8	284.4	282.4	259.0

Net current cash flow

	2018 H1	2017 H1	Change
Total share, in €m
Gross Rental income	627.1	611.7	2.5%
Rental & building expenses	-72.7	-70.2	3.6%
Net rental income	554.4	541.5	2.4%
Management and other income	45.8	46.8	-2.1%
G&A expenses	-96.0	-93.3	2.9%
EBITDA	504.2	495.0	1.9%
Adjustments to calculate operating cash flow exclude:
Employee benefits, stock-options expenses and non-current operating expenses	10.7	6.5
IFRIC 21 impact	7.0	7.1
Operating cash flow	522.0	508.6	2.6%
Net cost of debt	-77.0	-84.3	-8.7%
Adjustments to calculate net current cash flow before taxes exclude:
Corio's debt mark-to-market amortization	-9.9	-16.3
Financial instruments close-out costs	14.9	23.1
Net current cash flow before taxes	450.0	431.1	4.4%
Share in equity method investees	26.9	28.6
Current tax expenses	-15.9	-16.9
Net current cash flow	460.9	442.8	4.1%
Group share, in €m
NET CURRENT CASH FLOW	395.6	377.4	4.8%
Number of shares*	301,032,676	309,505,908
Per share, in €
NET CURRENT CASH FLOW	1.31	1.22	7.8%

* Average number of shares, excluding treasury shares.

2018 HALF-YEAR EARNINGS WEBCAST - PRESENTATION AND CONFERENCE CALL

AGENDA
October 15&16, 2018	Investor Day (Amsterdam)
October 22, 2018	2018 third quarter business review (after market close)
Investor relations contacts		media contacts
Hubert d'AILLIÈRES  +33 (0)1 40 67 51 37 - hubert.daillieres@klepierre.com Mengxing ZHANG  +33 (0)1 40 67 53 05 - mengxing.zhang@klepierre.com		Lorie LICHTLEN / Camille PETIT / Stéphanie LASNEL Burson-Marsteller i&e  +33 (0)1 56 03 12 12 - klepierre.media@bm.com

ABOUT KLÉPIERRE

Klépierre, the pan-European leader in shopping malls, combines development, property and asset management skills. The company's portfolio is valued at €24.6 billion at June 30, 2018 and comprises large shopping centers in 16 countries in Continental Europe which together host 1.1 billion visitors per year. Klépierre holds a controlling stake in Steen & Strøm (56.1%), Scandinavia's number one shopping center owner and manager. Klépierre is a French REIT (SIIC) listed on Euronext Paris and included in the CAC Next 20, EPRA Euro Zone and GPR 250 indexes. It is also included in ethical indexes, such as DJSI World and Europe, FTSE4Good, STOXX® Global ESG Leaders, Euronext Vigeo France 20 and World 120, and figures in CDP's "A-list". These distinctions underscore the Group's commitment to a proactive sustainable development policy and its global leadership in the fight against climate change.
For more information, please visit the newsroom on our website: www.klepierre.com  

This press release and its appendices together with the earnings presentation slideshow
are available on the Klépierre website:www.klepierre.com

---