Klépierre: Strength of Revenues Reinforced Financial Flexibility

Regulatory News:

Klépierre (Paris:LI):

¹ Data adjusted following payment of the dividend in shares on May 15, 2009 and 2008 capital increase

² Transfer duties included, after taxes on unrealized capital gains and marking to market of financial instruments

• Resilient retailers’ revenues in Klépierre-owned malls in a challenging economic environment. No major retailer default experienced.
• Strong rental growth in shopping centers (+37.3%) driven by external growth (among which Steen & Strøm), a favorable level of indexation and positive rental reversions.
• Group share net current cash flow up by 13.7%. Stable net current cash flow per share given the dilutive effect of capital transactions.
• RNAV (transfer duties included) decreases by 14.1% on the basis of an average yield of 6.7% (transfer duties excluded) - a market level as confirmed by negotiations underway on the disposal program.
• Disposals of shopping centers amounting to €154 million and a seller’s promise signed for one office property rue La Pérouse (Paris 16^th) for 32 million euros.
• Financial flexibility reinforced through eased financial covenants and increased debt duration (6.4 years). Available lines of credit amount to nearly 650 million euros.

Commenting on these results, Laurent Morel, Chairman of the Klépierre Executive Board, stated: « Against a difficult economic background, we can see that large retailers are generally showing a good resilience and signs of their ability to adapt are already visible.

In this environment, Klépierre enjoys a number assets: its focus on shopping centers, its geographic diversification, with an overweight to areas with high purchasing power (Scandinavia, France and Northern Italy du Nord account for over 70% of the portfolio) as well as from its variety of its commercial formats which allows it to take advantage of the outperformance of hypermarket malls in all markets, especially in Spain.

Klépierre’s ability to deliver a sustainable cash flow growth is reinforced by the combined effect of high visibility on revenues, a secured access to debt at an attractive cost over long maturities, the launch of a disposal program that targets non strategic or mature assets, and the continuation of high-potential projects for the future. »

Detailed analysis

RETAILERS’ REVENUES: A MODERATE DROP IN A CHALLENGING ECONOMIC ENVIRONMENT

• Over the first 5 months of the year, the revenues for retailers in Klépierre-owned malls declined by 3.0% compared with the same period one year earlier.
• France-Belgium, Scandinavia and Italy-Greece, the top three regions of operation for the Group (together comprising 3/4 of its shopping center rents) are proving to be resilient. And while the malls adjacent to hypermarkets in Spain are clearly outperforming the regional centers, assets in Hungary are having an adverse impact on the performance of Central Europe.

6- month figures for France, 5-month figures for other countries

RENTS UP BY 3.0% ON A CONSTANT PORTFOLIO BASIS

• Rents from shopping center assets reached 390.5 million euros for the six months ended June 30, 2009, an increase of 37.3% over one year.

• External growth contributed 34.9%, attributable in particular to the integration of Steen & Strøm (+€78.4M), but also to acquisitions and extensions in France (Drancy, Blagnac, Nîmes Etoile, the first phases of the St-Orens extension: +€10.3M), Spain (La Gavia: +€7.1M), Italy (Lonato/Verona: +€1.7M) and the Czech Republic (Plzen Plaza: +€2.6M).
• On a constant portfolio basis, the increase was 2.4%, reflecting the combined effects of index-linked adjustments (+3.7%) and positive rental reversions; during the first six months of 2009, the latter were transacted for financial conditions up 10.8% on average.

• Rents from the Retail segment came to 20.8 million euros (+37.7%)

• Acquisitions made in 2008 (Defi Mode) and 2009 contributed for 31.3%.
• On a constant portfolio basis, the increase was 6.4%, attributable to index-linked adjustments (+7.5%), lower variable rents (-€0.3M) absorbed by this strong indexation, and the contribution of rental capital gains.

• Rents from the Office segment came to 26.0 million euros (+2.4%)

• This positive tend reflects the impact of the October 2008 sale of the building at 46 Notre-Dame-des-Victoires (Paris).
• On a constant portfolio basis, rents rose by 7.7%, mainly driven by index-linked adjustments (+6.5%).

• Fee income came to 37.9 million euros (+17.4%)

• The contribution from Steen & Strøm’s third-party management business largely offset the drop in development fee income.

NET CURRENT CASH FLOW PER SHARE: STABLE AT €1.05 PER SHARE

• Cash flow from operations totaled 377.9 million euros (+28.8%), total share.

• The net cost of debt at the June 30, 2009 reporting date was 143.5 million euros, compared with 90.0 million euros one year earlier. The increase reflects the rise in net debt (€7 223M on June 30, 2009, versus €4 992M one year earlier, which is mainly the result of the integration of Steen & Strøm).

• Net current cash flow came to 231.9 million euros total share. The group share was 187.2 million euros (+13.7%).

• The organic component of this growth is +8.3% (after elimination of the interest expense savings generated by capital transactions completed in 2008 and 2009, based on the average cost of the debt).
• Given the dilutive effect of the aforementioned capital transactions, net current cash flow is 1.05 euro per share, stable compared to the first half of 2008.

• Consolidated net income for the six months ended June 30, 2009 totaled 87.3 million euros (total share) and 68.9 million euros (group share), a decline of 14.4% that mainly reflects the increase in allowances for depreciation and provisions for buildings.

RNAV (TRANSFER DUTIES INCLUDES): €28.6 PER SHARE (-14.1%)

• The value of holdings, transfer duties included, came to 14.4 billion euros total share and 11.7 billion euros group share.

• On a constant portfolio basis, the decline over 6 months is 6.5%, reflecting a 50bp rise in the average yield on the portfolio, from 6% to 6.5%.

• Revalued Net Assets (transfer duties includes), after taxes on unrealized capital gains and marking to market of fixed-rate debt, came to 28.6 euros per share for the six months ended June 30, 2009, compared with 37.3 euros per share one year earlier and 33.3 euros on December 31, 2008. The decline over 6 months is 14.1%:

• -11.4% attributable to declining property values;
• - 3.3% due to the decline in interest rates and narrower spreads, which adversely impacted the fair value of the Group’s financial instruments;
• The rest corresponds to the result for the period, partly offset by forex impacts.

GREATER FINANCIAL LATITUDE

• After completion of the restructuring of its bank financing in June 2009, Klépierre now has:

• Long debt (6.4 years on average), the cost of which (4.5% on June 30, 2009) is largely secured by prudent management of the interest-rate risk (which is 80% hedged)
• Covenants that offer real flexibility:

• 648 million euros in available credit lines.

• The successful offer to pay the dividend in shares allowed the Group to reinforce its equity by 175.4 million euros.
• In June 2009, Klépierre sold a shopping mall in Le Mans and a minority interest (circa 25%) in the Noisy Arcades, Blagnac and St-Orens centers, for a global price of 154.5 million euros. A seller’s promise was also signed on July 23, 2009 for the building at 18-20 Rue La Pérouse Paris 16th for a deed in hand price (commission and fees included) of 32 million euros.

OUTLOOK

• For the full year 2009, rental growth is expected to be significant, as the internal growth will still benefit from index-linked rent adjustment and geographic diversity, whereas 2008 and 2009 acquisitions will boost current portfolio growth.
• 2009 net current cash flow per share should post a small decrease compared to last year given the dilutive effect of the 2008 capital increase.
• 5 new shopping centers are under construction to be completed by end 2011: expected additional rents close to 50 million euros.
• Klépierre will continue its disposal program simultaneously: in addition to 180 million euros already cashed in or committed, negotiations are under way for nearly 300 million euros more.