Mercialys: 2023 Full-year Results

Regulatory News:

Mercialys (Paris:MERY):

The food retailers Intermarché, Auchan and Carrefour will gradually replace the Casino group banners and therefore considerably improve the Company’s rental risk profile from 2024. On the basis of publicly available information, these three retailers are expected to respectively represent 5.2%, 4.1% and 2.0% of Mercialys’ pro- forma rental base.
Net recurrent earnings (NRE) came to Euro 109.0 million (+3.3%), with Euro 1.17 per share, up +3.3%, exceeding the target for growth of at least +2%. The basis for comparison for 2022 incorporated various elements relating to the health crisis. On a basis restated for these non-recurring impacts, 2023 NRE are up +11.0%.
The combination of the stabilization of the reversion rate, the +4.1% organic growth in invoiced rents and the limited vacancy rate of 2.9% fully contributed to the growth in NRE.
Tenant retailer sales, up +2.2% from 2022, illustrate the good level of resilience of business for the Company’s retailers, supported by the sustainable occupancy cost ratio of 10.7%, compared with 11.1% in 2022.
The EBITDA margin came to 83.9%, reflecting an improvement compared with 2022 (83.2%), thanks to the robust letting performance and the effective management of operating costs.
The portfolio value including transfer taxes is down -7.0% like-for-like at end-2023 (-3.7% for the second half of the year) factoring in an +86bp increase in the average appraisal rate to 6.61% (+40bp during the second half of the year). Mercialys’ asset portfolio offers a particularly high yield of 405pb above the risk-free rate. The EPRA NDV came to Euro 17.10 per share, down -18.4% for 2023 and -9.1% for the second half of the year, reflecting the decrease in the value of sites and the revaluation of fixed-rate debt in marked to market.
The Company’s growth potential remains intact and is in line with its focus on maintaining a sound financial structure. The loan to value ratio (excluding transfer taxes) for 2023 came to an effectively managed level of 38.9% despite the contraction in asset values, with an ICR of 5.1x.
Mercialys’ strong financial position will also enable it to deploy its project pipeline, which represented Euro 429 million at end-2023, with a view to supporting its future growth, while maintaining a very strict profitability criterion for projects of at least 250bp above the refinancing cost.
A proposed dividend of Euro 0.99 per share for 2023, up +3.1% from 2022. It represents 85% of NRE and offers a particularly high yield of 9.9% on the end-2023 closing price.
2024 objectives: The Company will maintain its highly selective approach for choosing its projects and will continue to focus on ensuring an attractive yield for its shareholders. Mercialys is targeting NRE per share growth of at least +2.0%, combined with a dividend ranging from 75% to 95% of 2024 NRE.

Dec 31, 2022

Dec 31, 2023

Change (%)

Organic growth in invoiced rents including indexation

+4.1%

EBITDA (€m)

144.2

149.4

+3.6%

EBITDA margin

83.2%

83.9%

Net recurrent earnings (€m)

105.5

109.0

+3.3%

ICR (EBITDA / net finance costs)

5.9x

5.1x

LTV (excluding transfer taxes)

35.3%

38.9%

LTV (including transfer taxes)

33.0%

36.4%

Portfolio value including transfer taxes (€m)

3,091.2

2,872.0

-7.0%1

EPRA NRV (€/share)

20.54

18.25

-11.2%

EPRA NTA (€/share)

18.42

16.29

-11.6%

EPRA NDV (€/share)

20.94

17.10

-18.4%

Dividend (€/share)

0.96

0.992

+3.1%

i. full-year business and results

1 - Mercialys is becoming the only real estate partner of all the major French food distribution networks

On December 18, 2023, the Casino group announced that it had entered exclusive negotiations with Intermarché and Auchan Retail with a view to selling virtually the entire scope of Casino group hypermarkets and supermarkets (excluding Corsica) to Groupement Les Mousquetaires and Auchan Retail. Following these exclusive negotiations, Casino announced on January 24 that it had reached agreements with Auchan Retail and Groupement Les Mousquetaires to sell 288 stores. This operation, which remains subject to approval by the competition authorities, is expected to be carried out in the second quarter of 2024, after consulting with the relevant employee representative bodies. The agreements plan for the stores to be transferred in three successive waves: on April 30, 2024, May 31, 2024 and July 1, 2024.

The portfolio of Casino group hypermarkets and supermarkets in Corsica, where Mercialys has a 60% stake in five Casino hypermarkets that it owns in partnership with the company Corin, has not been included by the Casino group in this sales agreement.

On January 24, 2024, Carrefour also announced that it has entered into exclusive negotiations with Groupe Intermarché to acquire 31 stores. Under the terms of the agreement, Carrefour will substitute Intermarché for the purchase of 26 stores from Casino, while the remaining 5 stores will be acquired directly from Intermarché.

On January 25, 2024, the magazine LSA published the list of the 31 points of sale, including the Lanester and Le Puy hypermarkets, owned by Mercialys.

Through this deep realignment of the retail sector in France, Mercialys, whose food anchoring was represented exclusively by the Casino group, which accounted for 20.5% of its rental income in 2023 on a consolidated basis, will become the only European retail property company to partner with all the major French food retailers.

Mercialys is once again setting out its strategic conviction to maintain significant exposure within its rental revenues to food retail, an asset class offering a foundation for recurring index-linked revenues.

At end-2023, Mercialys’ rental exposure to large food stores is split between:

5 food stores (including one Monoprix store) operated by Casino and fully owned by Mercialys

5 food stores operated by Casino and 60% owned by Mercialys
10 food stores (9 operated by Casino and 1 by Intermarché since October 1, 2023) 51% owned by Mercialys (through SAS Immosiris and SAS Hyperthetis Participation, both 49% owned by BNPP Real Estate)

5 food stores (3 operated by Monoprix, 1 by Casino and 1 by Intermarché since October 1, 2023) 25% owned by Mercialys (through SCI AMR, 75% owned by Amundi).

Taking into account the share of rental income depending on how assets are held through these various entities, Mercialys’ economic exposure to rent from retailers operated by the Casino Group comes to 17.4%.

On a pro forma basis and based on information published in the press (above and article of January 22, in the magazine LSA) and subject to the final breakdown of the various hypermarkets, the retailers Intermarché, Auchan and Carrefour would respectively represent 5.2%, 4.1% and 2.0% of rents on an economic basis.

This realignment will modify and considerably improve the Company’s rental risk profile. It will make it possible to replace single-tenant exposure to one struggling retailer with multi-tenant exposure to retailers that have sound financial foundations and robust commercial performance levels.

This operation will also make a significant contribution to the drive to diversify Mercialys’ rental base: the Company’s current leading tenant will represent considerably less than 10% of the rental base.

In addition, Mercialys may be able to support these operators, if required, to optimize their concept and format, capitalizing on its experience with asset transformation and in synergy with the adjoining shopping centers.

Looking beyond this scope for sites where Mercialys is directly exposed to large food stores:

19 of its shopping centers are currently anchored by Casino hypermarkets whose premises it does not own and which are subject to proposed food banner transfers to Intermarché and Auchan;
7 of its shopping centers are already anchored by hypermarkets whose premises it does not own and which are operated by retailers other than Casino: Super U in Rennes, Rodez, Montauban, Carrefour in Le Port, Saint-Benoît and Saint-Pierre (Reunion Island), RunMarket (Intermarché partner) in Sainte-Marie (Reunion Island).

Across all these sites, the attractive price positioning of Intermarché, Auchan and Carrefour will consolidate Mercialys’ retail mix, focused on affordable day-to-day products, and will support the consistency of the offering, help drive footfall in its centers and boost the retailers’ operational performances.

2 - The excellent commercial performances by the centers, focused on day-to-day needs, are supporting the good trend for operational indicators

In 2023, the +0.6% increase in household purchasing power, supported by higher wages and savings income, was reflected in +0.7% growth in consumption, following +2.1% in 2022, according to the latest projections of the Banque de France (Dec 19, 2023). This trend masks a number of trade-offs made by consumers with their spending to limit the impacts of inflation, which remained high in 2023, with consumer prices climbing +4.5 % year-on-year in the last quarter of 2023.

Footfall in Mercialys’ shopping centers (excluding hypermarkets) is up +1.4% for 2023, compared with +1.9% for the Quantaflow national index. The -50bp performance differential compared with the national index was reduced throughout the year (-140bp at end-June and -80bp at end-September) and reflects the attractive positioning of the centers, offsetting the deceleration of the hypermarkets managed by the Casino group, which recorded a -8.7% decline in footfall over the year.

From October 15, 2023, the opening under the Intermarché banner of two hypermarkets previously operated by Casino and owned by Mercialys in Le Puy (51% stake, with the remaining interest held by BNPP Real Estate) and Besançon (25% stake, with the remaining interest held by Amundi), has been well-received by customers. As a result, the footfall at the Besançon hypermarket have shown a significant improvement in the last two months of the year, with an increase of +24.9% in November and +37.5% in December, compared to stable footfall in the first 9 months of 2023.

In this context, the average basket for consumption at the Company’s centers continued to progress in 2023 to reach Euro 20.3 per visitor, compared with Euro 19.3 in 2022 (+5.2%). Looking beyond the impact of inflation, this increase reflects the continued attractive positioning of Mercialys’ shopping centers through their affordable offering focused on essential needs, which is proving resilient faced with the trade-offs that consumers are being forced to make.

This increase in the transformation rate helped drive further progress with retailer sales across Mercialys’ portfolio, up +2.2% in 2023 compared with 2022, while the national panel (FACT) increased by +3.3%.

Change in the relative performance of Mercialys shopping centers vs. the national panel (FACT) for 2023

Sales (year to)

1st half of 2023

2nd half of 2023

End-December 2023

Mercialys’ retailers

+3.5%

-1.3%

+2.2%

FACT activity index

+4.8%

-1.4%

+3.3%

Delta

-130bp

+10bp

- 110bp

The outperformance by the FACT panel, linked mainly to a very favorable base effect during the first quarter (large shopping centers had been affected by the rollout of the vaccine pass in the first quarter of 2022), reversed during the second half of the year, reflecting the good commercial performance by Mercialys’ retailers.

The occupancy cost ratio3 was 10.7% in 2023, compared with 11.1% in 2022 and 10.9% for the first half of 2023. This ratio, which shows an improvement and remains at a particularly measured level, makes it possible to assess the sustainability of rents for the Company’s tenant retailers. This reasonable real estate occupancy cost is underpinned by an average level of service charges per sq.m (excluding property taxes) for retailers of Euro 48, reflecting the increase in charges due to inflation, as well as the Company’s extensive work to limit its impact, particularly through energy efficiency measures.

Alongside this, the collection rate for rent and charges for 2023 was 96.3% at end-January 2024, while noting that to date, the Casino group is paying its rents in line with its contractual commitments.

The current financial vacancy rate4 came to 2.9% at end-December 2023, showing a significant improvement compared with the 3.3% recorded at end-June 2023 and in line with the 2.9% from end-December 2022.

This stability of the current financial vacancy rate is particularly satisfactory considering the significant number of retailers, primarily in the textile sector, that filed for bankruptcy or went into liquidation in 2023 in a context of the emergence from the health crisis and the withdrawal of government support measures.

Mercialys’ intense reletting activity throughout 2023 enabled it to keep the current financial vacancy level effectively under control at just 40bp above its all-time low of 2.5% from 2019.

This robust performance is illustrated by the 150 leases signed for renewals or reletting during 2023, as in 2022. While the year-on-year comparison is not meaningful considering the diversity of the lease schedule, Mercialys recorded a very sustained commercial performance and an acceleration in the last quarter.

The 2023 reversion rate, linked to these negotiations, was stable (+0.1%) and consistent with the high level of indexation in 2023 of +3.7%.

Mercialys’ strategy of continuing to focus its retail mix moving towards recognized, affordable and essential retailers for consumers was illustrated by the leases signed in 2023, reflecting its focus on continuing to enhance the letting potential and attractive features of its sites. This concerns both leading assets and sites that are looking to reconquer positions within Mercialys’ portfolio.

Among the leading centers, Angers and Nîmes saw new leases signed in 2023 with retailers that are popular with clients, such as Rituals, Darty, Intimissimi, The Waffle Factory and Amorino in Angers, and Adidas Originals, Project X Paris, Adopt, Rituals, Bouygues Telecom and La Fabrique Cookies in Nîmes.

In terms of the centers that are in a reconquest phase, the Fenouillet center in Toulouse benefited from 14 leases signed in 2023, with 4 in the culture-leisure-gifts segment (including Wizzle and Media Clinic) and 3 in health-beauty (Krys Audition, Afflelou and La Boutique du Coiffeur), as well as the discount fashion retailer Naumy in a mid-size unit. The Annecy center, which also opened a Megarama cinema at the start of the year, signed several leases with leading national retailers such as New Yorker and Normal.

These leases illustrate Mercialys’ ability to relet its units following defaults by retailers, while scaling back the weighting of textiles and expanding the selection offered to consumers, helping further strengthen the letting potential of its sites.

The retail mix, excluding large food stores, of the 150 leases signed for renewals and relettings in 2023, presented in the chart below, clearly illustrates this in-depth trend.

Personal items accounted for 20% of the new leases signed (in terms of the number), while this category represents 36.5% of the Company’s rental base excluding large food stores at end-2023. Health-beauty accounted for just under 27% of the leases signed in 2023, while this segment currently represents 16.4% of the rental base excluding large food stores at end-2023.

Breakdown of renewals or reletting leases signed in 2023 by business segment

[Graphic omitted]

3 - Net recurrent earnings growth exceeding the target set, driven by sustained organic growth and the effective management of operating costs and financial expenses

Invoiced rents came to Euro 177.5 million, up +2.8% on a current basis and +4.1% like-for-like. These changes reflect the following elements:

Year to end-December 2022

Year to end-December 2023

Indexation

+1.9 pp

+€3.3m

+3.7 pp

+€6.3m

Contribution by Casual Leasing

+0.7 pp

+€1.3m

-0.3 pp

-€0.5m

Contribution by variable rents

-0.1 pp

-€0.3m

+1.1 pp

+€1.9m

Actions carried out on the portfolio

+1.0 pp

+€1.7m

-0.8 pp

-€1.4m

Accounting impact of “Covid-19 rent relief” granted to retailers

+0.5 pp

+€0.9m

+0.4 pp

+€0.8m

Like-for-like growth

+4.1 pp

+€6.9m

+4.1 pp

+€7.1m

Asset acquisitions and sales

-2.5 pp

-€4.3m

-1.2 pp

-€2.0m

Other effects

-0.2 pp

-€0.4m

-0.1 pp

-€0.2m

Growth on a current basis

+1.3 pp

+€2.3m

+2.8 pp

+€4.9m

Organic growth5 in invoiced rents, up +4.1%, reflects the impact of indexation at +3.7% and the contribution by variable rents, illustrating the good level of business for tenant retailers.

The contribution from Casual Leasing is down slightly for the full year in 2023. This business was impacted by the decrease in hypermarket footfall levels for certain types of activities.

The scope effects had a Euro -2.0 million impact on rental income for 2023, linked mainly to the sales completed in April 2022 (Géant Casino hypermarkets in Annecy Seynod and Saint-Etienne Monthieu) and December 2022 (Marseille Sainte-Anne and Marseille Croix-Rouge centers).

Rental revenues are up Euro +4.7 million (+2.7%) compared with 2022 to Euro 178.0 million, reflecting the change in invoiced rents and the drop in lease rights and despecialization indemnities.

Net rental income is up +3.0% end-2023 to Euro 170.9 million. Two key factors were behind this change.

The Company benefited from the lower level of management fees paid after various activities were brought in-house beginning 2023 for around Euro 6 million. However, in 2022, Euro +7.8 million of net income was recorded for various impacts relating to the health crisis: a non-recurring positive effect linked to reversals of provisions for arrears recorded for 2020-2021 for a total of Euro +9.2 million and, alongside this, a Euro -1.4 million expense relating to rent relief. In 2023, the net impact relating to this exceptional situation was very limited, representing Euro +0.4 million, split between a Euro -0.7 million expense corresponding to relief on the rent billed and a reversal of provisions relating to the arrears resulting directly from the health crisis for Euro +1.1 million. Excluding these non-recurring items associated with the health crisis, net rental income would be up +7.8% for 2023.

Despite this strong basis of comparison effect, EBITDA totaled Euro 149.4 million, up +3.6% from 2022. An indicator for the efficiency of the Company’s operational management, EBITDA benefited from the rental income growth achieved and was supported by strict control over site operating costs and overheads. The EBITDA margin is up to 83.9% (vs. 83.2% in 2022).

The net financial expenses used to calculate net recurrent earnings totaled Euro 29.6 million, stable compared with 2022 (Euro 29.7 million). The real average cost of drawn debt was 2.3% for the full year in 2023, compared with 2.1% at end-June 2023. The +30bp increase compared with end-2022 (2.0%) is linked primarily to the fixed/floating rate products extinguished, helping further strengthen the hedging of fixed-rate debt, up to 96%, in line with what the Company had announced in a context of interest rate volatility. However, the increase in financial income from the cash invested made it possible to largely offset the increase in the average cost of drawn debt.

Other operating income and expenses (excluding capital gains or losses on disposals and impairment) came to Euro +2.2 million, compared with Euro +0.6 million in 2022, primarily including the impact of net reversals of provisions. Specifically, a Euro 2.1 million provision for a dispute concerning a site on Reunion Island, relating to an issue with the road network, was reversed at the end of June 2023.

The tax retained to calculate net recurrent earnings represents a Euro -0.6 million expense at end-December 2023, compared with Euro -0.5 million at end-December 2022. This amount corresponds primarily to a CVAE corporate value-added tax expense.

The share of net income from associates and joint ventures (excluding capital gains or losses, amortization and impairment) came to Euro 3.6 million in 2023, compared with Euro 3.7 million at December 31, 2022.

Non-controlling interests (excluding capital gains or losses, amortization and impairment) came to Euro -11.2 million for 2023, compared with Euro -10.4 million in 2022.

Net recurrent earnings are up +3.3% from 2022 to Euro 109.0 million. This operational performance enabled the Company to record Euro 1.17 of net recurrent earnings per share6, up +3.3%, with this performance exceeding the target set for net recurrent earnings per share growth of at least +2% versus 2022. As indicated above, the basis for comparison at December 31, 2022 benefited from Euro +7.8 million of net income for various impacts relating to the health crisis, compared with Euro +0.4 million of net income in the accounts at end-December 2023. Net recurrent earnings restated for these non-recurring items would be up +11.0%.

(In thousands of euros)

Dec 31, 2022

Dec 31, 2023

Change (%)

Invoiced rents

172,602

177,495

+2.8%

Lease rights and despecialization indemnities

674

515

-23.6%

Rental revenues

173,277

178,010

+2.7%

Non-recovered building service charges and property taxes and other net property operating expenses

-7,345

-7,086

-3.5%

Net rental income

165,932

170,924

+3.0%

Management, administrative and other activities income

2,846

3,078

+8.1%

Other income and expenses

-5,859

-4,433

-24.3%

Personnel expenses

-18,690

-20,169

+7.9%

EBITDA

144,229

149,400

+3.6%

EBITDA margin (% of rental revenues)

83.2%

83.9%

Net financial items (excluding non-recurring elements 7)

-29,659

-29,593

-0.2%

Reversals of / (Allowances for) provisions

-2,527

-4,774

+88.9%

Other operating income and expenses

(excluding capital gains or losses on disposals and impairment)

624

2,179

Tax expense

-463

-634

+36.9%

Share of net income from associates and joint ventures

(excluding capital gains or losses, amortization and impairment)

3,680

3,574

-2.9%

Non-controlling interests

(excluding capital gains or losses, amortization and impairment)

-10,360

-11,191

+8.0%

Net recurrent earnings 8

105,524

108,961

+3.3%

Net recurrent earnings per share (€)

1.13

1.17

+3.3%

ii. Very healthy financial structure making it possible to absorb the portfolio value adjustment

1. - EPRA Net Disposal Value (NDV) down -9.1% over six months and -18.4% over 12 months, reflecting the lower valuation of sites and a significant impact of the revaluation of fixed-rate debt in marked to market

Mercialys’ portfolio value came to Euro 2,872.0 million including transfer taxes, down -3.8% over six months and - 7.1% over 12 months. Like-for-like9, it is down -3.7% over six months and -7.0% over 12 months.

Excluding transfer taxes, the portfolio value was Euro 2,692.3 million, down -3.8% over six months and -7.1% over 12 months. Like-for-like9, it is down -3.7% over six months and -7.0% over 12 months.

At end-December 2023, Mercialys’ portfolio mainly comprised 48 shopping centers10, with 25 large regional shopping centers and 23 leading local retail sites.

The average appraisal yield rate was 6.61% at December 31, 2023, compared with 5.75% at December 31, 2022 and 6.21% at June 30, 2023. This decompression of the appraisal rates by 40bp during the second half of the year and 86bp over the full year reflects the context of rising interest rates between 2022 and 2023, as well as an overall increase in the risk premium recognized by the appraisers across the real estate sector in general and specifically for Mercialys, with this risk considered to be higher with regard to the sustainability of rental income from the Casino group, before the completion of the restructuring process. However, the economic and financial assumptions retained by the appraisers do not show any fundamental changes from year to year, reflecting the strong position of the Company’s sites, illustrated by a low vacancy rate and the positive indexation.

This decompression of the appraisal rate to 6.61% enables Mercialys to offer a significant yield spread on its assets of 405bp versus the risk-free rate (10-year OAT) at December 31, 2023.

One would need to go back to 2006 to find a relatively similar appraisal rate of 6.30% for Mercialys, which at the time represented a yield spread versus the OAT of 231bp, some way below the level recorded at end-2023. During this period of over 15 years, the Company has made in-depth changes to the structure of its asset portfolio through a large-scale realignment, transitioning from 157 assets to 48 sites. The Company has further strengthened its portfolio considerably through these successive rationalizations, with the unit value of its assets up to Euro 60 million in 2023 compared with Euro 8.1 million in 2006.

The EPRA net asset value indicators are as follows:

EPRA NRV

EPRA NTA

EPRA NDV

Dec 31, 2022

Jun 30, 2023

Dec 31, 2023

Dec 31, 2022

Jun 30, 2023

Dec 31, 2023

Dec 31, 2022

Jun 30, 2023

Dec 31, 2023

€ / share

20.54

19.03

18.25

18.42

16.99

16.29

20.94

18.80

17.10

Change over 6 months

+0.9%

-7.4%

-4.1%

+1.0%

-7.8%

-4.1%

+6.6%

-10.2%

-9.1%

Change over 12 months

+0.1%

-6.5%

-11.2%

+0.2%

-6.9%

-11.6%

+19.0%

-4.3%

-18.4%

The EPRA Net Disposal Value (NDV) came to Euro 17.10 per share, down -9.1% over 6 months and -18.4% over 12 months. The Euro -3.84 per share change over 12 months takes into account the following impacts:

- Dividend payment: Euro -0.96;

- Net recurrent earnings: Euro +1.17;

- Change in unrealized capital gains or losses11: Euro -2.04, including a yield effect for Euro -4.07, a rent effect for Euro +1.90 and other effects12 for Euro +0.13;

- Change in fair value of fixed-rate debt: Euro -1.53;

- Change in fair value of derivatives and other items: Euro -0.49;

2. - Loan to value ratio (LTV) including transfer taxes of 36.4% and ICR of 5.1x reflecting a particularly solid financial profile

The real average cost of drawn debt13 for 2023 came to 2.3%, following a limited increase compared with the 2.0% recorded at end-2022 and 2.1% at end-June 2023. This change is linked mainly to the instruments set up to fix and extinguish the fixed/floating rate products, helping further strengthen debt hedging. In a context of interest rate volatility and significant increases in rates from the first half of 2022, Mercialys further strengthened its hedging rate for its fixed-rate debt, up to 96% for 2023. For 2024, the hedging instruments set up on the residual debt will make it possible to reach 100% hedging for fixed-rate debt, with the real average cost of drawn debt, on this basis, expected to move closer to the average cost of bond debt, i.e. 2.6%.

At end-December 2023, drawn debt represented Euro 1,192 million. It is made up of three bond issues and a private placement, with a residual nominal amount of Euro 1,150 million, as well as commercial paper, with Euro 42 million outstanding at end-December 2023. Alongside this, the cash position totaled Euro 118 million at end-2023.

The average maturity of drawn debt was 3.8 years at December 31, 2023, compared with 4.2 years at end-June 2023 and 4.5 years at December 31, 2022. Excluding commercial paper, Mercialys does not have any drawn debt maturities before February 2026.

Mercialys continues to benefit from a very healthy financial structure, with an LTV ratio excluding transfer taxes14 of 38.9% at December 31, 2023 (compared with 38.6% at June 30, 2023 and 35.3% at December 31, 2022) and an LTV ratio including transfer taxes of 36.4% on the same date (versus 36.1% at June 30 and 33.0% at December 31, 2022). The LTV ratio is significantly below the bank covenant level of 55% concerning 92% of the undrawn lines.

The ICR was 5.1x 15 at December 31, 2023, compared with 5.2x at June 30, 2023 and 5.9x at December 31, 2022, reflecting the impacts of the operational performance on EBITDA. It is significantly higher than the minimum level of at least 2x set by the bank covenants.

Mercialys also has Euro 385 million of undrawn financing resources, stable compared with end-December 2022, with the maturity of 90% of them extended in 2023. The average maturity of undrawn bank resources represents 2.9 years. In addition, at end-2023, 100% of the undrawn bank lines included ESG criteria, compared with just over 53% at end-2022.

On October 20, 2023, Standard & Poor’s confirmed its BBB / stable outlook rating for Mercialys.

With its particularly robust balance sheet, Mercialys has the capacity to accelerate its growth through its major project pipeline, as well as opportunities for acquisitions.

iii. Resilient risk profile and effectively managed growth

At the end of the financial year 2023, with an uncertain economic environment, excellent operational and financial performances and relatively marked adjustments to the property values by the appraisers, Mercialys is moving into 2024 with a significant change in its food retail exposure.

In this context, the Company will continue to be ambitious as it looks to grow its real estate fundamentals, while benefiting from the relaunch of the hypermarkets anchoring its portfolio and deploying its resources to work on its project pipeline and potential for investments.

1. - Focusing on the key financial balances

Following an intense phase to rationalize its portfolio from 2019 to 2022, when Mercialys divested close to Euro 500 million of assets (100%-owned) after considerably developing their attractive positioning, the Company is maintaining its opportunistic approach to new disposals with a view to focusing on the most promising sites with potential for medium-term growth in terms of value creation.

Thanks to its very sound financial structure, the Company has resources in place to firmly commit to a development phase over the coming years.

This growth strategy will be achieved through the development pipeline or through targeted accretive acquisitions focused on retail property or related activities, including shopping centers, retail parks and storage centers. Specifically, the Company will aim to ensure that the yield on these operations is at least 250bp higher than the refinancing cost for the projects or acquisitions.

2. - Continuing to make progress with the Company’s management in line with the core pillars of the 2020-2030 CSR strategy

In 2023, Mercialys made concrete progress with key milestones from the roadmap set out with its 10-year CSR strategy “4 Fair Impacts for 2030”.

Various objectives aimed at improving the environmental footprint of sites are showing very positive trends, including:

- a reduction in greenhouse gas emissions per sq.m by -24% compared with 2020 and -35% versus 2017, the date when Mercialys rolled out its carbon trajectory,

- a waste recovery rate of 66.2%,

- 100% BREEAM In Use certification for strategic centers, including the regular renewal of this certification in line with the increasingly demanding rating criteria. Illustrating this, the average score of strategic assets in part 2 is 72.0%,

- nearly 60% of the strategic centers have multifunctional spaces and 75.9% are equipped with electric vehicle charging stations.

This strategy also concerns the Company’s ethical management, and this dimension is illustrated in particular by its very good performance in terms of gender equality, measured by the workplace equality index (drawn up by the French Ministry of Labor, Employment and Inclusion), after Mercialys scored 93 / 100 in 2023, compared with a national average of 88 / 100.

Lastly, Mercialys structures its governance in line with the best corporate governance standards, as illustrated by its Board of Directors, since 78% of its directors are independent and 56% are women.

The Company’s committed approach around the various CSR pillars is recognized by the leading sustainability rating agencies and public authorities. In 2023, Mercialys was once again ranked second for the representation of women in management structures on the SBF 120. The Company also maintained its second-place ranking in its category (listed retail property companies in Europe) in the GRESB, with a high score of 89/100, and was recognized as a “Regional and Industry Top ESG Performer” for the third year running by Sustainalytics. Lastly, in February 2024, Mercialys was included in the Carbon Disclosure Project’s Climate A List for the sixth consecutive year.

3. - Capitalizing on opportunities for external growth, illustrated by the achievements in 2023

The two external growth operations carried out in 2023 contribute to the desire for development and the creation of new real estate tools.

In September 2023, Mercialys announced the acquisition, in two phases, of the investment management company Imocom Partners. In December 2023, after this operation was approved by the French financial markets authority (AMF), Mercialys acquired 30% of the capital from the company’s longstanding shareholders for Euro 5.7 million. The remaining 70% will be acquired by the Company during the first half of 2025, after the approval by the French financial market authority and following an interim period during which the current management team will accompany and support the company’s development. The price of this second tranche will be adjusted based on the performance of the SGP and the underlying fund.

Imocom Partners manages the OPPCI investment fund ImocomPark, which holds a portfolio of 33 retail parks in France, with a total rental area of over 385,000 sq.m, let to around 400 tenants. The fund’s assets represent a value of Euro 652 million including transfer taxes and generate Euro 40 million of annual rental income.

This operation offers increased visibility in relation to tenant retailers, while increasing the Company’s capacity to work on retail or mixed real estate development projects. In a context of pressures on land reserves, linked in particular to the French Climate and Resilience Act, land management is becoming increasingly important and will open up opportunities that Mercialys and Imocom Partners aim to capitalize on.

Lastly, the development of new retail property funds represents a major source of value creation for Mercialys.

In 2023, Mercialys also took up a major stake in the round of fundraising carried out by DEPUR Expériences to become this company’s second largest shareholder, after its founder, with just under 23% of its capital, for a total of Euro 1.1 million.

This investment in a company specialized in the design and execution of major Food & Beverage & Entertainment (F&B&E) projects, alongside Bouygues Immobilier and the BPI Tourism/Leisure fund, further strengthened Mercialys’ expertise covering fine-grained consumption trends.

DEPUR’s approach involves structuring in one place a range of food and beverage and entertainment services for a customer experience that extends well beyond culinary know-how.

Thanks to the funds raised with this operation, DEPUR has resources in place to accelerate its development and further strengthen its expertise, with its ambition to establish itself as the first vertically integrated operator specialized in the F&B&E sector, from conceptualization through to operations.

4. - Implementing the project pipeline

At end-2023, the pipeline of projects already identified and likely to be deployed on the mid-term represented Euro 429 million, as presented below. Mercialys will continue to focus its development on the retail sector, while capitalizing on its various areas of real estate expertise, enabling it to take part in calls for tenders for mixed-use development projects organized by cities or local authorities looking to reposition their neighborhoods or developments incorporating property development margins.

The pipeline’s other projects concern 28 sites out of the 48 shopping centers held by Mercialys and include retail space projects (redevelopments, extensions, retail parks), dining and leisure projects, and tertiary activity projects (housing, healthcare, coworking, etc.). This potential reconfiguration of sites will make it possible to ensure their continued appeal looking beyond purely convenience retail aspects, while ensuring the sustainability of their strong positioning in their catchment areas and their cash flow generation profile over the long term.

The increase in both borrowing rates and construction costs is leading to a highly selective approach for projects, which must meet a demanding criterion for a yield of 250bp above the refinancing cost. Investments will also need to meet strict quality criteria in terms of rental exposure (resilient sectors) and geographic location.

Around 30% of the investment projects concern dining, leisure and tertiary activities, illustrating the diversification around projects connected to the retail sector.

(In millions of euros)

Total investment

Investment still to be committed

Completion date

COMMITTED PROJECTS16

20.2

18.8

2024 / 2026

Tertiary activities

20.2

18.8

2024 / 2026

CONTROLLED PROJECTS

181.2

171.3

2024 / 2026

Retail

152.2

142.6

2024 / 2026

Dining and leisure

14.1

14.0

2025 / 2026

Tertiary activities

14.9

14.7

2025 / 2026

IDENTIFIED PROJECTS

227.5

227.2

2024 / > 2028

Retail

148.5

148.3

2024 / > 2028

Dining and leisure

65.9

65.8

2026 / > 2028

Tertiary activities

13.1

2025 / > 2028

Total

428.8

417.4

2024 / > 2028

- Committed projects: projects fully secured in terms of land management, planning and related development permits

- Controlled projects: projects effectively under control in terms of land management, with various points to be finalized for regulatory urban planning (constructability), planning or administrative permits

- Identified projects: projects currently being structured, in emergence phase

IV. Outlook and dividend

Outlook for 2024

In an environment in which interest rates could remain considerably higher than the levels from 2015 to 2022, the Company is moving forward in 2024 with significant assets in place.

Mercialys’ rental risk profile will improve considerably and see a clear pivot, thanks to the gradual replacement of the Casino group banners, the Company’s legacy tenant, which still represented 17.4% of rental income in 2023, while benefiting from a diversified anchoring with all of the major food operators in France.

Mercialys is also once again setting out its strong attachment to food retail as the foundation for its rental base considering the proximity and recurrence that it generates with consumers, in line with the positioning of the centers.

The Company’s sound financial foundations and the visibility offered by indexation, a core pillar supporting a balanced landlord-tenant relationship, while continuing to carefully monitor the solvency of client retailers, enable Mercialys to set the following objectives for 2024:

Net recurrent earnings per share growth of at least +2.0% vs. 2023;
Dividend to range from 75% to 95% of 2024 net recurrent earnings.

The change in the lower range to 75% of net recurrent earnings for the year, compared with 85% previously, will make it possible to free up additional capacity to fund investments in 2024 if necessary.

Mercialys could capitalize on the opportunity opened up by the changes in the hypermarkets anchoring its sites to work in partnership with the new retailers to further strengthen the appeal for clients (comfort, services, renovations) and establish new mid-size stores and retailers with activities that effectively complement those of the hypermarkets, the majority of which have realigned around their food offering.

In connection with its project pipeline following the work carried out in the last two years on significant calls for projects (Chartres and Angers), the Company will need to hold land reserves while waiting for the work to start up.

This payout range contributes to a yield per share that will continue to be particularly attractive for 2024, with the financing potential freed up in this way to support the return for shareholders over the medium term.

Dividend for 2023

Mercialys’ Board of Directors will submit a proposal at the General Meeting on April 25, 2024 for a dividend of Euro 0.99 per share, compared with a dividend of Euro 0.96 per share for 2022. The payout corresponds to 85% of 2023 net recurrent earnings and offers a yield of 5.8% on the NDV of Euro 17.10 per share at end-2023 and 9.9% on the year’s closing price.

For the last three years, Mercialys will have paid out Euro 2.87 of dividends, representing 85% of its recurrent earnings and providing an average yield of 10.1% for its shareholders over this period. Mercialys is therefore fulfilling its role as a listed real estate investment company (SIIC).

The proposed dividend for 2023 is based on the distribution requirement with the SIIC tax status concerning exempt profits from:

- property rental or sub-letting operations (including dividends paid by the subsidiaries subject to the SIIC system), i.e. Euro 0.86 per share;

- the distribution of exempt income recorded on the Company’s balance sheet for Euro 0.13 per share.

The ex-dividend date is April 29, 2024, with the dividend to be paid on May 2, 2024.

* * *

This press release is available on www.mercialys.com.

A presentation of these results is also available online, in the following section:

Investors / News and press releases / Financial press releases

About Mercialys

Mercialys is one of France’s leading real estate companies. It is specialized in the holding, management and transformation of retail spaces, anticipating consumer trends, on its own behalf and for third parties. At December 31, 2023, Mercialys had a real estate portfolio valued at Euro 2.9 billion (including transfer taxes). Its portfolio of 2,038 leases represents an annualized rental base of Euro 175.5 million. Mercialys has been listed on the stock market since October 12, 2005 (ticker: MERY) and has “SIIC” real estate investment trust (REIT) tax status. Part of the SBF 120 and Euronext Paris Compartment B, it had 93,886,501 shares outstanding at December 31, 2023.

IMPORTANT INFORMATION

This press release contains certain forward-looking statements regarding future events, trends, projects or targets. These forward-looking statements are subject to identified and unidentified risks and uncertainties that could cause actual results to differ materially from the results anticipated in the forward-looking statements. Please refer to Mercialys’ Universal Registration Document available at www.mercialys.com for the year ended December 31, 2022 for more details regarding certain factors, risks and uncertainties that could affect Mercialys’ business. Mercialys makes no undertaking in any form to publish updates or adjustments to these forward-looking statements, nor to report new information, new future events or any other circumstances that might cause these statements to be revised.

Financial report

Pursuant to Regulation (EC) No. 1606/2002 of July 19, 2002, the Mercialys Group’s consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union and applicable at December 31, 2023. These standards are available on the European Commission website at: https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/financial-reporting_en. The accounting policies set out below were applied consistently to all the periods presented in the consolidated financial statements, after taking into account, or with the exception of, the new standards and interpretations described below.

1. Financial statements

The audit procedures on the consolidated accounts have been completed. The certification report is currently being issued.

1.1. Consolidated income statement

(In thousands of euros)

Dec 31, 2022

Dec 31, 2023

Rental revenues

173,277

178,010

Service charges and property tax

(45,159)

(51,079)

Charges and taxes billed to tenants

37,883

45,201

Net property operating expenses

(69)

(1,208)

Net rental income

165,932

170,924

Management, administrative and other activities income

2,846

3,078

Other income

424

Other expenses

(6,283)

(4,433)

Personnel expenses

(18,690)

(20,169)

Depreciation and amortization

(37,729)

(38,540)

Reversals of / (Allowances for) provisions

(2,527)

(4,774)

Other operating income

88,740

10,647

Other operating expenses

(86,486)

(30,915)

Operating income

106,227

85,818

Income from cash and cash equivalents

246

3,185

Gross finance costs

(53,480)

(38,194)

(Expenses)/ Income from net financial debt

(53,234)

(35,009)

Other financial income

1,089

774

Other financial expenses

(3,939)

(6,085)

Net financial items

(56,083)

(40,321)

Tax expense

(709)

(495)

Share of net income from associates and joint ventures

2,380

1,727

Consolidated net income

51,814

46,730

Attributable to non-controlling interests

8,720

(6,643)

Attributable to owners of the parent

43,094

53,373

Earnings per share17

Net income attributable to owners of the parent (in euros)

0.46

0.57

Diluted net income attributable to owners of the parent (in euros)

0.46

0.57

1.2. Consolidated statement of financial position

ASSETS (in thousands of euros)

Dec 31, 2022

Dec 31, 2023

Intangible assets

3,381

3,144

Property, plant and equipment other than investment property

4,743

5,825

Investment property

1,907,148

1,864,950

Right-of-use assets

10,184

10,615

Investments in associates

35,203

39,557

Other non-current assets

50,219

37,577

Deferred tax assets

1,601

1,614

Non-current assets

2,012,478

1,963,282

Trade receivables

28,557

35,936

Other current assets

31,854

31,902

Cash and cash equivalents

216,085

118,155

Investment property held for sale

1,400

Current assets

276,496

187,393

Total assets

2,288,974

2,150,676

EQUITY AND LIABILITIES (in thousands of euros)

Dec 31, 2022

Dec 31, 2023

Share capital

93,887

Additional paid-in capital, treasury shares and other reserves

631,246

583,337

Equity attributable to owners of the parent

725,132

677,224

Non-controlling interests

205,294

188,871

Shareholders’ equity

930,426

866,095

Non-current provisions

1,225

1,406

Non-current financial liabilities

1,131,974

1,131,627

Deposits and guarantees

23,622

24,935

Non-current lease liabilities

9,409

9,529

Other non-current liabilities

2,377

4,834

Non-current liabilities

1,168,607

1,172 332

Trade payables

13,910

9,265

Current financial liabilities

126,353

53,037

Current lease liabilities

1,084

1,331

Current provisions

13,279

15,581

Other current liabilities

35,237

32,940

Current tax liabilities

Current liabilities

189,941

112,249

Total equity and liabilities

2,288,974

2,150,676

1.3. Consolidated cash flow statement

(In thousands of euros)

Dec 31, 2022

Dec 31, 2023

Net income attributable to owners of the parent

43,094

53,373

Non-controlling interests

8,720

(6,643)

Consolidated net income

51,814

46,730

Depreciation, amortization(1) and provisions, net of reversals

46,161

64,054

Calculated expenses/(income) relating to stock options and similar

773

763

Other calculated expenses/(income)(2)

(386)

5,559

Share of net income from associates and joint ventures

(2,380)

(1,727)

Dividends received from associates and joint ventures

3,065

2,525

Income from asset disposals

(8,486)

(766)

Expenses/(income) from net financial debt

53,234

35,009

Net financial interest in respect of lease agreements

321

344

Tax expense (including deferred tax)

709

495

Cash flow

144,825

152,987

Taxes received/(paid)

(1,033)

(569)

Change in working capital requirement relating to operations, excluding deposits and guarantees(3)

5,816

(19,464)

Change in deposits and guarantees

515

1,313

Net cash flow from operating activities

150,124

134,267

Cash payments on acquisitions of:

investment properties and other fixed assets

(19,098)

(22,532)

non-current financial assets

(43)

(4)

Cash receipts on disposals of:

investment properties and other fixed assets

81,161

3,964

non-current financial assets

1,274

3,146

Investments in associates and joint ventures

(6,312)

Impact of changes in scope with change of control

(4,292)

Change in loans and advances granted

Net cash flow from investing activities

59,002

(21,740)

Dividends paid to shareholders of the parent company (final)

(86,025)

(89,565)

Dividends paid to shareholders of the parent company (interim)

Dividends paid to non-controlling interests

(5,437)

(9,780)

Capital increase and reduction

Other transactions with shareholders

Changes in treasury shares

(439)

(744)

Increase in borrowings and financial debt

754,809

109,000

Decrease in borrowings and financial debt

(880,222)

(192,204)

Repayment of lease liabilities

(1,398)

(1,231)

Interest received (4)

20,999

17,880

Interest paid

(52,484)

(43,727)

Net cash flow from financing activities

(250,198)

(210,371)

Change in cash position

(41,072)

(97,844)

Net cash at beginning of year

257,071

215,999

Net cash at end of year

215,999

118,155

of which cash and cash equivalents

216,085

118,155

of which bank overdrafts

(87)

(1)

Depreciation and amortization exclude the impact of impairment on current assets

(2)

Other calculated expenses and income mainly comprise:

- discounting adjustments to construction leases

(236)

(207)

- lease rights received from tenants and spread over the firm term of the lease

(662)

2,920

- deferred financial expenses

826

648

- interest on non-cash loans and other financial income and expenses

(362)

2,024

(3)

The change in working capital requirement breaks down as follows:

- trade receivables

8,392

(7,462)

- trade payables

(2,863)

(4,646)

- other receivables and payables

287

(7,356)

Total working capital requirement

5,816

(19,464)

(4)

Primarily comprising interest received on debt hedging instruments in accordance with IAS 7.16

2. Key developments in 2023

Financing

At end-June 2023, Mercialys set up a new credit line for Euro 180 million, maturing in June 2026, with two options for a one-year extension. This new credit line, which has not been drawn down to date, incorporates ESG criteria and replaces the Euro 180 million line due to mature in December 2024.

Change in the rental base

On December 18, 2023, the Casino group announced that it had entered exclusive negotiations with Intermarché and Auchan Retail with a view to selling virtually the entire scope of Casino group hypermarkets and supermarkets (excluding Corsica) to Groupement Les Mousquetaires and Auchan Retail. Following these exclusive negotiations, Casino announced on January 24 that it had reached agreements with Auchan Retail and Groupement Les Mousquetaires to sell 288 stores. The sales will be completed in the second quarter of 2024, after consulting with the relevant employee representative bodies. The agreements plan for the stores to be transferred in three successive waves: on April 30, 2024, May 31, 2024 and July 1, 2024.

This operation remains subject to the relevant approvals being obtained from the competition authorities.

On January 25, 2024, the magazine LSA published the list of the 31 points of sale, including the Lanester and Le Puy hypermarkets, owned by Mercialys.

3. Summary of the main key indicators for the period

Dec 31, 2023

Organic growth in invoiced rents

+4.1%

EBITDA18

149.4

EBITDA/rental revenues

83.9%

Net recurrent earnings 19

109.0

Net recurrent earnings per share20

1.17

Fair value of the portfolio (including transfer taxes)

2,872.0

Change vs. Dec 31, 2022 (current basis)

-7.1%

Change vs. Dec 31, 2022 (like-for-like)

-7.0%

EPRA NDV per share

17.10

Change vs. Dec 31, 2022

-18.4%

Loan to Value (LTV) – excluding transfer taxes

38.9%

4. Review of activity

4.1. Main management indicators

The following table presents details of the lease schedule:

At Dec 31, 2023

Number of leases

Annual MGR* + variable rents (€m)

Share of leases expiring (% annual MGR + variable)

Expired at December 31, 2023

350

23.6

13.5%

2024

157

9.0

5.1%

2025

125

7.8

4.4%

2026

170

16.3

9.3%

2027

205

40.7

23.2%

2028

196

15.1

8.6%

2029

176

11.7

6.7%

2030

255

26.0

14.8%

2031

187

11.6

6.6%

2032

118

6.9

3.9%

2033 and beyond

6.8

3.9%

Total

2,038

175.5

100%

* MGR: minimum guaranteed rent

The stock of expired leases at end-2023 reflects the negotiations underway, refusals to renew leases with the payment of compensation for eviction, global negotiations for each retailer, tactical delays, etc. Among the 13.5% of leases due at the end of 2023, 1.7% are the subject of agreements signed in January 2024.

At end-January 2024, the collection rate for rent and charges from 2023 represents 96.3%.

The current financial vacancy rate - which excludes “strategic” vacancies following decisions to facilitate the deployment of extension and redevelopment plans - came to 2.9%21 at December 31, 2023, stable compared with the level from end-2022 and showing a significant improvement compared with June 30, 2023 (3.3%). Mercialys’ robust letting activity enabled it to offset the impact of the retailers going into turnaround or liquidation proceedings, particularly in the textiles sector.

The total vacancy rate22 was 4.4% at December 31, 2023, which is also significantly lower than end-June 2023 (4.7%) and stable compared with end-2022.

Mercialys’ robust underlying letting performance led to 150 leases being signed for renewals or relettings in 2023, securing a reversion rate that is stable (+0.1%) and relevant considering the combination of high indexation in 2023 at +3.7%.

Thanks to the positive trend for retailer activity levels, the occupancy cost ratio23 remained at a still very measured rate of 10.7% at end-December 2023, down from end-June (10.9%) and end-December 2022 (11.1%), despite the like-for-like increase in rents.

The rents received by Mercialys come from a very diverse range of retailers as, with the exception of the Casino group retailers (details presented below), no other tenant represents more than 2% of total rental income.

The Casino group’s restructuring and the in-depth realignment of the food retail landscape in France, as presented earlier, will significantly change Mercialys’ rental structure from 2024.

Casino group retailers accounted for 20.5% of total rental income at December 31, 2023, down from 21.4% at June 30, 2023 and 21.0% at December 31, 2022. This decrease of exposure to the Casino group is generated by the transfer of the Besançon and Le Puy hypermarkets to Intermarché.

This consolidated accounting exposure is calculated factoring in all of the rent paid by Casino group retailers. Mercialys’ economic exposure to rent from retailers operated by the Casino group came to 17.4% vs. 18.3% at June 30 and 18.0% at end-2022, after being adjusted:

(1) downwards for the 49% minority interest held by BNP Paribas REIM in SAS Hyperthetis Participations and SAS Immosiris, which together own a total of nine hypermarkets operating under the Géant Casino banner (with the Le Puy site operated by Intermarché since October 2023), and

(2) upwards for Mercialys’ 25% minority interest in SCI AMR, which holds three Monoprix stores and two hypermarkets operating under the Géant Casino and Intermarché banners.

The lease schedule for Mercialys’ main tenant is presented below:

Schedule for key Casino group leases

Site

% held by Mercialys

Type

Lease start date

Lease end date

Lease characteristics

Grenoble

100%

Monoprix

02/2010

02/2022