Klepierre’s credit rating improves to ’A-’ due to solid performance and stable outlook: S&P Global

Investing.com -- French real estate investment trust (REIT) Klepierre (EPA:LOIM) S.A. has seen its credit rating upgraded to ’A-’ from ’BBB+’ by S&P Global Ratings on February 24, 2025, owing to its robust operating performance and reduced leverage. The stable outlook reflects S&P’s expectation that Klepierre will continue to generate stable and predictable income due to its diversified geographic presence and high-quality assets.

Despite facing numerous challenges in the retail real estate sector, Klepierre has maintained strong credit metrics over the past few years. In 2024, the company’s debt to EBITDA stood at 7.5x, a decrease from 7.8x in 2023, while its debt-to-debt-plus-equity ratio improved to 42.2% from 43.5% at the end of 2023. These figures align with S&P’s requirements for an upgrade.

Klepierre’s solid asset base, strong cash flow generation capabilities, and prudent financial policy have contributed to its resilience and swift recovery compared to its peers. The company’s net rental income increased by 6.3% in 2024 on a like-for-like basis, following an 8.8% increase in 2023. S&P expects this positive momentum to continue in 2025 and 2026, albeit at a slower pace due to a reduction in inflation to 2.0%-2.5%. The occupancy rate is forecasted to remain stable at 96%.

Klepierre is expected to return to a more acquisitive strategy while maintaining its financial policy. S&P projects the company will make opportunistic asset acquisitions totaling €600 million in 2025 and €100 million per year in 2026 and 2027, while disposing of €100 million worth of assets annually over the same period.

As the company gradually refinances its balance sheet and its hedging instruments mature, S&P forecasts Klepierre’s EBITDA interest coverage will remain above 5.0x. With an average debt maturity of 5.9 years and an average cost of debt of 1.7% as of end-December 2024, Klepierre is shielded from elevated interest costs.

Klepierre’s liquidity profile remains strong, with €3.1 billion in available credit lines maturing beyond 12 months and a solid cash position of €400 million at the end of 2024. Despite projected annual capital expenditure of about €200 million and annual dividends of €620 million-€650 million, Klepierre maintains a liquidity sources-to-uses ratio of about 2x for the 12 months starting January 2025, and comfortably above 1.5x for the subsequent 12 months.

S&P could consider a downgrade if Klepierre’s debt to debt plus equity approaches or exceeds 45%, EBITDA interest coverage decreases toward 3.8x, or if debt to annualized EBITDA stands materially above 7.5x on a sustained basis. A positive rating action is remote at this stage and would require a substantial change in financial policy resulting in a significant reduction in leverage metrics.

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