Mercialys: 2021 Full-year Results

Business Wire · 14.02.2022, 17:39 Uhr

Regulatory News:

Very sound balance sheet enabling the Company to position itself for new investments. Mercialys (Paris:MERY) has continued moving forward with its divestment strategy, with Euro 110 million of sales and preliminary sales agreements at end-2021. The Company has continued to scale back its exposure to its primary tenant and further consolidated its balance sheet, which shows a very optimized loan to value ratio excluding transfer taxes of 36.7%. These developments are enabling Mercialys to relaunch a strategy for growth, built around four major pillars over the medium term: developing services (particularly digital), capitalizing on client knowledge, capitalizing on all spaces, implementing its development pipeline alongside opportunities for targeted and accretive acquisitions.
Resilient portfolio value confirmed once again through asset divestments. Limited contraction in the portfolio value including transfer taxes, with -0.6% like-for-like over six months. EPRA NDV of Euro 17.60 per share, down
-4.5% over the year, but up +2.5% in the second half of the year.
Level of retailer sales returning to the normalized level from 2019 and footfall representing 86% of the 2019 basis, highlighting the outstanding resilience of the sites, despite major operating constraints during the periods when they were open. The marked improvement in the current financial vacancy rate, from 3.8% at end-2020 to 3.2% at end-2021, also illustrates the performance achieved by the assets.
Organic rental growth of +3.0% in 2021, reflecting the contrasting impacts of the health crisis. Very strong turnaround in the EBITDA margin, up from 74.8% in 2020 to 84.0% in 2021.
Funds from operations (FFO) are up +6.5% (+5.0% per share), significantly higher than the target to be at least stable versus 2020.
Sustained yield level, with a proposed dividend of Euro 0.92 per share for 2021, representing 85% of FFO for the year and a yield of 10.7% on the closing share price from end-2021.
2022 objectives: excluding the health situation’s potential impacts on operations, Mercialys is targeting growth of at least +2.0% in funds from operations (FFO) per share, with the dividend to range from 85% to 95% of 2022 FFO.

Dec 31, 2020

Dec 31, 2021

Change (%)

Organic growth in invoiced rents including indexation

-7.0%

+3.0%

EBITDA (€m)

131.2

144.7

+10.3%

EBITDA margin

74.8%

84.0%

Funds from operations, FFO (€m)

95.5

101.8

+6.5%

ICR (EBITDA / net finance costs)

5.0x

5.1x

LTV (excluding transfer taxes)

38.1%

36.7%

LTV (including transfer taxes)

35.8%

34.4%

Portfolio value including transfer taxes (€m)

3,258.3

3,138.2

-2.8% (-0.6% H2) ¹

EPRA NRV (€/share)

21.18

20.51

-3.2%

EPRA NTA (€/share)

19.04

18.39

-3.4%

EPRA NDV (€/share)

18.42

17.60

-4.5%

Dividend (€/share)

0.43

0.92²

I. Contrasting impacts of the health crisis in Mercialys’ accounts for 2021

As in 2020, the shopping center sector was significantly affected in 2021 by the health crisis and the measures put in place by the French government. From January 31, retailers classed as “non-essential” in shopping centers initially with a gross leasable area of over 20,000 sq.m, then 10,000 sq.m (from March 6) and finally all shopping centers (from April 3) were ordered to close until May 19, 2021. Alongside this, sit-down restaurants, which had been closed since the fourth quarter of 2020, were only able to open again without specific restrictions from June 30, 2021. In addition, the level of operational activity for nine Mercialys shopping centers was negatively affected for several weeks during the third quarter of 2021, primarily in August, due to the French State’s introduction of a requirement to show a “health pass” to access certain sites.

These constraints affected the profitability of retailers that had already been impacted by these same measures in 2020, and affected all of the collections for rent, charges and work for 2021. However, the French government made a public commitment to put in place support packages, in addition to the solidarity fund, for retailers that were ordered to close during the first half of 2021. A decree was published on November 16, 2021, introducing support for rent or fees and charges for certain retail and service activities that were forbidden from welcoming members of the public with a view to preventing the spread of the Covid-19 epidemic. These measures are expected to benefit the collection rate for retail property companies.

Impacts of the support measures granted to tenants by Mercialys for the two lockdowns in 2020 on the accounts at end-December 2021

The continued health crisis in 2021 impacted the operational indicators and the accounts for the year.

Firstly, the retailer support measures rolled out by Mercialys for the two lockdown phases in 2020.

On the one hand, Mercialys had set a maximum support budget of Euro 13.5 million to help its tenants faced with the economic impacts of the first lockdown in 2020 (March 15 to May 11). At end-December 2020, the negotiations with retailers relating to the first lockdown led to agreements being signed for a total of Euro 9.4 million. The accounts at end-December 2021 reflect the progress made with these negotiations as follows:

- Euro 2.0 million of new relief granted and to be awarded, with 100% recognized in the accounts at December 31, 2021 under invoiced rents. As these relief measures relate to doubtful receivables covered by provisions in Mercialys’ accounts at end-December 2020, they have resulted in reversals of provisions for doubtful receivables for the corresponding amounts. As a result, these rent relief measures are neutral in terms of the Company’s results. The balance of the Euro 13.5 million support budget for the first lockdown, with Euro 2.1 million recorded in the 2020 accounts under the impairment of doubtful receivables, may be subject to the same treatment if negotiations with the remaining retailers are finalized;

- Euro 1.5 million impact for items being spread in the accounts, recognized under invoiced rents, in connection with the negotiations completed in 2020. For reference, Euro 6.4 million of negotiations from 2020 with arrangements negotiated in exchange were spread in the accounts over the remaining firm term of the leases, with Euro 1.1 million already recognized in the accounts at end-December 2020. The recognition of the remaining Euro 3.8 million will be spread over 2022 to 2026, with Euro 1.4 million, Euro 1.3 million, Euro 0.6 million, Euro 0.3 million and Euro 0.1 million respectively.

On the other hand, negotiations have continued moving forward with retailers in connection with the second lockdown in 2020 (October 30 to November 28):

- In line with the French government’s recommendations, Mercialys had offered to waive part of their 2020 fourth-quarter rent for the retailers affected by the second lockdown in 2020. The impact of this measure was estimated at Euro 6.3 million and recognized in full in the accounts at end-December 2020 under invoiced rents as provisions for relief to be granted. During 2021, the negotiations with retailers resulted in an effective amount of relief granted or to be awarded of Euro 4.8 million, lower than initially estimated by Mercialys. The reversal of provisions for relief to be granted therefore led to Euro 1.5 million of net income under invoiced rents at end-December 2021 for the section of these provisions that were no longer applicable;

- As it is not in a position to quantify the specific support measures for sit-down restaurants, Mercialys’ end-December 2020 accounts also included Euro 0.5 million of provisions for the impairment of doubtful receivables associated with this segment’s arrears for the month of November 2020. The total amount of support granted within this framework during 2021 came to Euro 0.3 million, once again resulting in net income for the amount of the Euro 0.2 million differential that was no longer applicable, when reversing the provisions for the impairment of doubtful receivables;

- Lastly, a tax credit mechanism was introduced by the French government in 2020 for the relief granted by landlords in connection with the second lockdown, with various restrictions for each type of tenant and requirements for tenants to provide specific information. Mercialys had not recognized any impact for this mechanism in its accounts at December 31, 2020. In view of the aforementioned support measures put in place during 2021 for the second lockdown in 2020, the Company recorded Euro 1.4 million of income reflecting this tax credit under net rental income in its accounts at December 31, 2021.

In addition, to cover any residual risk concerning arrears (rent and charges) from the second and third quarters of 2020, Mercialys recorded Euro 13.2 million of exceptional provisions at end-December 2020, including the Euro 4.1 million balance from the support budget not yet awarded at the time in connection with the first lockdown.

In 2021, Mercialys continued moving forward with negotiations with its retailers and its collection actions for rent and charges billed for the second and third quarters of 2020. The resolution of these arrears made it possible to generate income linked to the reversal of provisions for the impairment of doubtful receivables concerning the Euro 13.2 million of exceptional provisions recorded at end-December 2020, with Euro 7.2 million in the accounts at end-December 2021. The remaining amount of these exceptional provisions came to Euro 4.0 million at end-2021.

The collection rate for 2020 is broken down for each quarter in the following table. It is presented based on the full amount of rent and charges excluding tax billed to tenants (“gross” rate), while also taking into account the amounts of rent relief already granted or still to be awarded to retailers, in addition to provisions for the impairment of doubtful receivables.

Gross collection rate

Collection rate including
the rent relief already
granted or still to be
awarded

Collection rate including the rent relief
already granted or still to be awarded
and the provisions for impairment of
doubtful receivables

Dec 31, 2020

Dec 31, 2021

1^st quarter of 2020

97.4%

98.2%

99.5%

2^nd quarter of 2020

63.9%

73.6%

90.5%

100.0%

3^rd quarter of 2020

93.4%

96.9%

100.0%

4^th quarter of 2020

86.2%

91.2%

98.6%

100.0%

2020 full year

85.3%

90.1%

96.3%

99.9%

Exceptional provision for 2021 to mitigate the residual risk linked to the health situation in 2021

Lastly, as mentioned above, in view of the government arrangements intended to enable eligible retailers to specifically pay their rent and charges for the periods when they were ordered to close in 2021, Mercialys has not determined any additional support measures.

However, with the ongoing health crisis and its potential impacts weakening retailers, the Company considered it prudent to record an exceptional provision for arrears (rent and charges) for the whole of 2021. This provision aims to cover potential defaults, which could notably be seen if the various public support measures were discontinued and is not intended to grant relief measures to retailers or specific categories of retailers. Its total amount of Euro 7.8 million represents around one month of rent billed for 60% of the rental base, with this rate corresponding to the base of retailers closed during the lockdown periods.

The collection rate for 2021 is broken down for each quarter in the following table. As Mercialys has not granted any rent relief to its tenants for this period, this represents a “gross” collection rate, as defined previously. The residual risk concerning the 2021 receivables not covered by the exceptional provision and by the standard provisions for doubtful receivables totaled Euro 13.1 million at December 31, 2021.

Gross collection rate

Residual arrears for rent and charges excluding tax (€m)

Dec 31, 2021

Dec 31, 2021 (excluding provisions)

1^st quarter of 2021

86.7%

7.2

2^nd quarter of 2021

80.9%

9.9

3^rd quarter of 2021

95.3%

2.5

4^th quarter of 2021

92.2%

4.3

2021 full year

88.8%

24.0

Since December 31, 2021, the closing date for these annual financial statements, an additional Euro 4.4 million of rent and charges have been collected, taking the total collection rate for 2021 up to 91.0%.

The overall impacts of the health crisis can be broken down as follows:

Impacts

Period
concerned

Profit and loss
heading

Amount before
potential deferral
(€m)

Treatment in profit
and loss (€m)

Negotiations finalized

1st lockdown

Invoiced rents

-2.0

-3.5 ^a

Negotiations finalized associated with
the documentation to be received from tenants

2nd lockdown

Invoiced rents

+1.1

+1.1 ^b

Subtotal

-0.9

-2.4

Arrears relating to the 2nd and 3rd quarters

1st lockdown

Provisions for
doubtful receivables

+9.2

+9.2 ^c

Arrears for November relating
to sit-down restaurants

2nd lockdown

Provisions for
doubtful receivables

+0.5

+0.5 ^d

Subtotal

+9.7

Tax credit

2nd lockdown

Net rental income

+1.4

+1.4 ^e

Exceptional provision

2021

Provisions for
doubtful receivables

-7.8

Total

+2.4

+1.0

Euro -3.5 million comprising Euro -2.0 million for new relief granted, with 100% recognized in the accounts at December 31, 2021 for the first lockdown from 2020, and Euro -1.5 million for amounts spread in the accounts for the 2020 negotiations relating to the same lockdown;
Euro +1.1 million comprising Euro -4.8 million for relief granted for the negotiations concerning the second lockdown, Euro +6.3 million for the reversal of provisions for relief to be granted as a result of this (therefore generating Euro +1.5 million of net income for the section that was no longer applicable) and Euro -0.3 million for the relief granted and to be awarded for the month of November 2020 for sit-down restaurants;
Euro +9.2 million comprising Euro +2.0 million for the reversal of provisions for doubtful receivables resulting from the new relief granted for the first lockdown in 2020, and Euro +7.2 million for the reversal of provisions for doubtful receivables relating to the additional collection for 2020;
Euro +0.5 million for the reversal of provisions for doubtful receivables relating to rent for the month of November 2020 for sit-down restaurants (therefore generating Euro +0.2 million of net income for the section that was no longer applicable);
Euro +1.4 million for the tax credit recognized to date in connection with the documentation to be provided by retailers that benefited from rent relief for the second lockdown in 2020.

II. 2021 business and results

Mercialys’ shopping centers once again demonstrated their strong positions in 2021, illustrated by the change in footfall and retailer sales, which were both close to their standard levels from 2019.

In 2021, footfall at Mercialys shopping centers came to 86% of the normalized level for 2019, which represents an excellent performance by Mercialys’ sites considering the major operating constraints in place during the periods when they were open:

- curfew (from 6pm from January 2 to March 20, then 7pm through to May 19, then 9pm until June 9 and, lastly, 11pm until June 20),
- deferral of the sales period (from the beginning to the end of January 2021, continuing through February, when many shopping centers were closed),
- rollout of the “health pass” in August 2021.

Footfall, excluding the periods of government-ordered closures, for the year to end-December 2021 represented 94% of the footfall for its portfolio that was open in 2020.

The factors behind this contraction include an unfavorable base effect, resulting from the very strong upturn in visits after centers reopened following each of the two lockdowns in 2020, as well as the negative impact of the “health pass” in 2021.

It is important to note that the analysis of this indicator is complex as the government-ordered closures of “non-essential” stores concerned different periods and different categories of shopping centers in 2020 and 2021.

That is why the change in footfall has been analyzed over the same weeks that were open for the three years (2019, standard year, 2020 and 2021).

The national Quantaflow panel shows that 2021 footfall, based on the same parameters, represented around 84% of the footfall from 2019 and 99% of 2020 footfall, while noting that the basis for comparison with 2020 was marked by the deferred reopening of large shopping centers.

Change in shopping center footfall in 2021³ (source: Mercialys, Quantaflow)

2021 vs. 2020

2020 vs. 2019

2021 vs. 2019

Change over 7 months open⁴

-6.2%

-8.5%

-14.2%

Change over 12 months⁵

-4.4%

-20.7%

-24.2%

In 2021, full-year retailer sales across Mercialys’ portfolio came to nearly 99% of the normalized level from 2019 over the comparable opening periods. Retailer sales contracted slightly by -2.8% versus 2020, with a less favorable trend than the national panel (CNCC), which recorded an increase of +1.9%. Once again, the deferred reopenings for the different categories of shopping centers in 2020 must be taken into consideration.

Across Mercialys’ assets, purchases are driven primarily by satisfying utilitarian needs, with the health crisis leading to a stronger focus on efficiency and practicality, which accounts for part of the positive differential between the level of retailer sales and footfall compared with the normalized level from 2019.

Change in retailer sales for Mercialys’ portfolioin 2021⁶

2021 vs. 2020

2020 vs. 2019

2021 vs. 2019

Change over 7 months open⁷

-2.8%

+1.4%

-1.4%

Change over 12 months⁸

-3.3%

-17.8%

-20.5%

The analysis of the occupancy cost ratio⁹ is subject to the same limitations as the sales analysis due to the periods when stores were ordered to close. Furthermore, as certain retailers’ activities may show strong seasonality during the year, especially in the fourth quarter, any analysis for periods of less than one year is more complex and potentially not relevant. At December 31, 2019, this ratio showed a very moderate level of 10.4%.

The current financial vacancy rate¹⁰ came to 3.2%, significantly lower than at end-December 2020 (3.8%), end-June 2021 (4.0%) and end-September 2021 (3.4%), highlighting the appeal of the Company’s portfolio of assets.

Invoiced rents came to Euro 170.4 million, down -1.5% on a current basis, but up +3.0% like-for-like. These changes reflect the following elements:

Year to
end-December 2020

Year to
end-December 2021

Indexation

+1.6 pp

+€2.9m

+0.3 pp

+€0.4m

Contribution by Casual Leasing

-0.8 pp

-€1.5m

+0.2 pp

€+0.4m

Contribution by variable rents

-0.9 pp

-€1.8m

+0.05 pp

+€0.1m

Actions carried out on the portfolio

-1.3 pp

-€2.5m

-2.1 pp

-€3.7m

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

-5.5 pp

-€10.4m

+4.6 pp

+€8.0m

Like-for-like growth

-7.0 pp

-€13.2m

+3.0 pp

+€5.3m

Asset acquisitions and sales

-1.3 pp

-€2.4m

-4.5 pp

-€7.7m

Other effects

-0.2 pp

-€0.3m

-0.1 pp

-€0.1m

Growth on a current basis

-8.4 pp

-€15.9m

-1.5 pp

-€2.6m

The turnaround in organic growth in 2021, from -6.0% at end-March to -4.0% at end-June, -2.9% at end-September and +3.0% at end-December, reflects the robust level of letting activity despite “non-essential” stores being closed for 3.5 months during the first half of the year, as well as base effects concerning the impacts of the health crisis, particularly in relation to the fourth quarter of 2020. These elements, presented in detail in section I of this press release, came to Euro -10.4 million in invoiced rents in 2020 and Euro -2.4 million in 2021, with a Euro +8.0 million change reflected in organic growth.

Rental revenues came to Euro 172.2 million, down -1.8% from 2020, reflecting the change in invoiced rents, including the scope effects, and the drop in lease rights and despecialization indemnities.

Net rental income is up +8.6% to Euro 160.0 million. The change compared with end-2020 is linked to very significant base effects, with Euro 13.7 million of provisions recorded for the impairment of trade receivables due to the impact of the health crisis in 2020. In 2021, Euro 9.7 million of these provisions from 2020 were reversed as a result of both the collection operations completed and the rent relief granted. Alongside this, an exceptional provision for Euro 7.8 million was recorded in the 2021 accounts concerning arrears for rent and charges for the year.

These various effects are presented in detail in section I of this press release. Lastly, Mercialys recorded Euro 1.4 million of income in 2021 relating to the tax credit for landlords that granted rent relief as recommended by the French government in relation to the second lockdown from 2020.

EBITDA totaled Euro 144.7 million, up +10.3% from 2020. The EBITDA margin came to 84.0% (vs. 74.8% for 2020), impacted by the effects of changes in net rental income. The Company has also made major efforts to manage its overheads effectively, despite the cost inflation resulting from the requirements involved with managing the effects of the health crisis, as well as initiatives to bring various functions back in-house.

The net financial expenses used to calculate funds from operations (FFO) came to Euro 32.8 million in 2021, significantly higher than 2020 (Euro 25.7 million), linked primarily to the full-year impact of the refinancing operation carried out in July 2020. These same impacts are reflected in the real average cost of drawn debt, which was 2.0% for the full year in 2021, virtually stable compared with end-June 2021 (1.9%) and up compared with end-2020 (1.4%¹¹).

Other operating income and expenses (excluding capital gains on disposals and impairment) came to Euro -1.4 million, stable compared with 2020, and primarily include the net impacts of provisions, as well as the impact of the Ocitô project.

Tax represents a Euro -0.8 million expense at end-December 2021, compared with Euro -2.0 million at end-December 2020. 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, amortization and impairment) came to Euro 3.6 million at December 31, 2021, compared with Euro 2.2 million at December 31, 2020. The change in this share over the period reflects the assets sold and acquired by SCI AMR at end-December 2020, and the dilution of Mercialys’ interest in this company (from 39.9% to 25.0%), as well as the impact of rent relief granted by associates in connection with the health crisis.

Non-controlling interests (excluding capital gains, amortization and impairment) came to Euro -10.5 million for 2021, compared with Euro -9.9 million in 2020.

Funds from operations (FFO¹²) are up +6.5% to Euro 101.8 million. The Company’s resilient operational performance enabled it to record Euro 1.10 of FFO per share¹³, an increase of +5.0%, with this performance significantly exceeding the target set for FFO per share to be at least stable in 2021 versus 2020.

(In thousands of euros)

Dec 31, 2020

Dec 31, 2021

Change (%)

Invoiced rents

172,911

170,352

-1.5%

Lease rights and despecialization indemnities

2,529

1,879

-25.7%

Rental revenues

175,440

172,232

-1.8%

Non-recovered building service charges and property taxes

and other net property operating expenses

-28,084

-12,188

-56.6%

Net rental income

147,357

160,043

+8.6%

Management, administrative and other activities income

3,035

2,801

-7.7%

Other income and expenses

-6,096

-3,394

-44.3%

Personnel expenses

-13,121

-14,763

+12.5%

EBITDA

131,174

144,687

+10.3%

EBITDA margin (% of rental revenues)

74.8%

84.0%

Net financial items (excluding non-recurring elements¹⁴)

-25,748

-32,755

+27.2%

Reversals of / (Allowances for) provisions

1,343

-997

Other operating income and expenses

(excluding capital gains on disposals and impairment)

-1,480

-1,419

-4.1%

Tax expense

-2,019

-848

-57.9%

Share of net income from associates and joint ventures

(excluding capital gains, amortization and impairment)

2,203

3,583

+62.6%

Non-controlling interests

(excluding capital gains, amortization and impairment)

-9,932

-10,498

+5.7%

FFO

95,541

101,754

+6.5%

FFO per share 13 (in euros)

1.04

1.10

+5.0%

III. Well positioned in a retail market that is evolving, but within which the physical format is still relevant, Mercialys will capitalize on four core pillars to drive its growth over the medium term

These operational results highlight, following two years of the health crisis, the model’s robustness, while the balance between tenants and the Company does not appear to have seen any significant changes.

Mercialys is continuing to develop strong competitive positions in buoyant peripheral areas. During the last few years, the appeal of these out-of-town locations in French regional cities has notably been reflected in housing construction trends, which have generally been more favorable for the regions that Mercialys’ portfolio is positioned around compared with the national average.

Within these vibrant communities, Mercialys’ retail sites are deeply anchored in everyday consumption practices. The classification of around 40% of the Company’s rental base as “essential retail” during the various lockdowns highlights this core characteristic of recurrent visits. A survey conducted with around 4,000 clients registered for Mercialys’ loyalty program in January 2022 also confirmed the shopping centers’ appeal despite a health environment that was favorable for online purchases at the expense of physical retail. 59% of the clients surveyed said that they prefer to buy in-store, while 13% have a 50:50 split between in-store and online. This interest in physical retail is supported by their need to see the product (35% of respondents), the notion of proximity (27%), the ability to benefit from advice (15%), the activities and events organized (10%), and the commercial offers available (11%).

Alongside this, the criteria that might encourage clients to buy online are the practicality of this experience (27%), the absence of any physical store in their living area (22%), the availability of products (21%) and the pricing applied (29%).

These answers highlight the human factor’s core positioning in terms of the desirability of physical retail, as well as the need for a combination between physical and digital in order to meet their expectations for practicality and product availability. This accounts for the success of “phygital” retailers: the market share gain seen for online sales by retailers, from 10% in 2019 to 13.4% in 2021¹⁵, benefited from the restrictions linked to the health measures, as well as the ramping up of multichannel sales by traditional retailers. Online sales growth for traditional retailers significantly outpaced pure players on average (66% vs 18%) in 2021¹⁶. These developments indicate that the future of retail will be hybrid, while ensuring the sustainability of the shopping center’s role in the client journey. They also show that it will be necessary to capitalize on client knowledge that is specific to retailers, as well as knowledge built up by the landlord, in order to ensure the continued appeal of sites and stores.

With a portfolio that has proven its resilience and a balance sheet that will enable it to move forward with investments again, Mercialys will continue to focus its efforts over the medium term on four key areas for development aimed at further strengthening the shopping centers’ capabilities.

1. Developing services

Mercialys started to build its Ocitô service in 2019. This proprietary web and mobile marketplace enables consumers to buy food and non-food products online directly from their center’s retailers. Mercialys shopping centers need to become, locally, a bridge between physical and digital retail.

In 2021, Mercialys continued to develop this service. 31 sites across the portfolio now offer Ocitô to their clients, with 308 retailers present. Mercialys will continue to bring more retailers on board in 2022 in order to further strengthen the appeal of the selection available.

Ocitô is designed to meet the need for hybrid retail among shopping center visitors in order to ramp up the capabilities of these sites and support retailers to develop a more extensive regional network, making it possible to optimize the spaces and their logistics, in addition to further strengthening the reversion potential for rents.

The operational feedback gained on Ocitô in 2020 and 2021 has made it possible to identify consumers’ needs more effectively. On the one hand, the service is used in the vast majority of cases by clients from the catchment area, primarily through click and collect orders, with the proportion of home delivery requests remaining marginal. This trend is aligned with the fundamentals of physical retail at Mercialys centers: a practical aspect encouraging recurrent but short visits. On the other hand, orders shipped by post are in virtually all cases to destinations outside of the catchment area. Meeting this need through Ocitô enables retailers to access additional markets. The platform also provides access to e-commerce for independent retailers that have not developed this tool by themselves, while offering a channel that will generate additional traffic for retailers that have their own systems in place.

2. Capitalizing on client knowledge

The development of Ocitô, based on a series of local marketplaces, is being made possible without extensive advertising investment through access to 1.4 million clients from Mercialys’ loyalty base, as well as the SEO work carried out for the Ocitô site with the main search engines.

The client data collected directly by Mercialys, in accordance with GDPR¹⁷, is rich on account of its features (contact data, visits, personal data, purchases, etc.) and the levels of analysis that it makes possible (data for Mercialys’ entire portfolio, per business sector, per retailer, per shopping center, etc.). This rich data is intended to:

- effectively satisfy visitors by identifying their needs, missing services or offers, and potential irritants;
- support retailers through more targeted and therefore more efficient and effective client communications, recommendations for locations and comparative performance analysis;
- extend, over the medium term, the scope of this data, particularly in terms of clients preparing to make purchases, providing services and potentially monetizing certain aspects.

This data also makes it possible to optimize client transit times in shopping centers so that that they visit them more often, increasing both retailer sales and rental reversion potential.

3. Capitalizing on all spaces

Mercialys’ multifunctionality strategy is focused on the digitalization of the retail offering across its sites, as well as capitalizing on all of their spaces, representing close to 815,000 sq.m. Efficient and effective use is a major challenge. The “Climate and Resilience Act” of August 22, 2021 aims to combat the proliferation of artificial ground cover and sets a target for “net zero artificialization” over time, which will support growth in the value of existing assets. Only projects with a sales area of less than 10,000 sq.m will be able to be carried out, subject to certain conditions (project’s integration into regional regeneration or urban development sectors or development operations within an existing urban space, or offsetting with the transformation of artificial ground cover into non-artificial).

Restrictions concerning the potential for construction over the medium term will help develop the value of existing assets, which will need to offer a wider range of uses for their users, clients and retailers.

Building on the success of the first two Cap Cowork spaces in Angers and Grenoble, Mercialys continued to roll out this service in 2021 in Nîmes and Toulouse. Within three years, more than 5,000 sq.m of coworking offices will be opened across the portfolio, with expected revenues of Euro 1.5 million. They will be operated directly by Mercialys’ teams, contributing to this activity’s profitability.

Mercialys’ development portfolio also includes healthcare centers, complementing the pharmacies that are already present at most of its shopping centers.

4. Implementing the development pipeline and positioning the Company on opportunities for targeted accretive acquisitions

Mercialys has financial flexibility in place that will enable it to resume an investment policy once the health situation has stabilized.

A growth strategy will be able to be rolled out through acquisitions or the development portfolio.

At end-December 2021, the Company’s project portfolio represented Euro 493.8 million looking ahead to 2027, with around Euro 33.7 million of potential additional rental income, for a target average yield rate of 7%. This portfolio, which concerns 28 sites out of the 50 shopping centers held by Mercialys, includes 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 profile over the long term.

(In millions of euros)

Total
investment

Investment still to

be committed

Target net
rental income

Target net yield
on cost (%)

Completion
date

COMMITTED PROJECTS¹⁸

19.9

18.5

0.5

2022 / 2026

Dining and leisure

2.1

1.2

0.1

6.5%

2022 / 2023

Tertiary activities

17.8

17.3

0.4

2026

CONTROLLED PROJECTS

125.4

121.0

8.8

2022 / 2025

Retail

81.1

76.8

5.7

2022 / 2025

Dining and leisure

0.1

0.0

2022

Tertiary activities

44.3

44.2

3.1

2022 / 2023

IDENTIFIED PROJECTS

348.4

24.4

2023 / 2027

Retail

102.3

7.2

2024 / 2026

Dining and leisure

35.0

2.5

2025 / 2026

Tertiary activities

211.1

14.8

2023 / 2027

Total¹⁹

493.8

487.9

33.7

2022 / 2027

- 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

Mercialys’ sound balance sheet could also enable it to carry out accretive external growth operations. These would be focused on retail property or related activities, including shopping centers, retail parks and hypermarkets. Lastly, Mercialys is capitalizing on its know-how by taking part in calls for tenders for mixed-use development projects organized by cities or local authorities looking to reposition their neighborhoods.

IV. Success of the divestment strategy, illustrating the assets’ underlying value

In 2021, Mercialys sold Euro 28.0 million of assets and signed Euro 82.0 million of preliminary sales agreements

During the fourth quarter of 2021, Mercialys completed the sale of two assets: the Marseille Canebière Monoprix store and the Carré Duparc retail park in Sainte-Marie (Reunion Island). In addition, Mercialys sold various plots in jointly-owned properties at non-strategic and fragmented sites in 2021. The combined total of assets sold during the year came to Euro 28.0 million.

The Company also signed preliminary sales agreements without financing conditions for the Annecy and Saint-Etienne hypermarkets. These assets, acquired in 2014 and since subject to transformation work, illustrate Mercialys’ value creation strategy.

These sales have also enabled Mercialys to continue reducing its exposure to its primary tenant, the Casino group (22.4% of Mercialys’ total rental income at end-2021 and 20.7% proforma for these sales).

The Bordeaux Pessac shopping center, held by the OPCI fund UIR2, in which Mercialys has a 20% interest (this OPCI real estate investment fund is recorded in Mercialys’ accounts under non-consolidated securities in non-current assets), was also subject to a preliminary sales agreement in 2021 and the corresponding condition precedent was lifted in January 2022.

Lastly, preliminary sales agreements were signed for various geographically dispersed assets in 2021.

These divestments represent a total volume of Euro 110 million including transfer taxes, with Euro 28.0 million of sales completed and Euro 82.0 million of preliminary sales agreements, with 94% no longer subject to conditions precedent to date.

Overall, the transaction values for the sales and preliminary sales agreements secured by Mercialys (excluding UIR2) are slightly higher than the end-June 2021 appraisals.

These divestments are in line with Mercialys’ asset rotation strategy and the portfolio’s realignment around sites with potential for growth in the medium term. They will enable Mercialys to further consolidate its balance sheet and give it financial flexibility with a view to capitalizing on value-creating investment opportunities outside of the Company’s current scope.

V. Portfolio and financial structure

EPRA Net Disposal Value (NDV) up +2.5% over six months and down -4.5% over 12 months

Mercialys’ portfolio value came to Euro 3,138.2 million including transfer taxes, down -1.5% over six months and -3.7% over 12 months. Like-for-like²⁰, it is down -0.6% over six months and -2.8% over 12 months.

Excluding transfer taxes, the portfolio value was Euro 2,945.1 million, also down -1.7% over six months and -3.9% over 12 months. Like-for-like²⁰, it is also down -0.9% over six months and -3.1% over 12 months.

At end-December 2021, Mercialys’ portfolio mainly comprised 50 shopping centers²¹, with 25 large regional shopping centers and 25 leading local retail sites.

The average appraisal yield rate was 5.71% at December 31, 2021, compared with 5.74% at June 30, 2021 and 5.72% at December 31, 2020.

The EPRA net asset value indicators are as follows:

EPRA NRV

EPRA NTA

EPRA NDV

Dec 31,
2020

Jun 30,
2021

Dec 31,
2021

Dec 31,
2020

Jun 30,
2021

Dec 31,
2021

Dec 31,
2020

Jun 30,
2021

Dec 31,
2021

€ / share

21.18

20.32

20.51

19.04

18.26

18.39

18.42

17.17

17.60

Change over 6 months

-3.7%

-4.1%

+1.0%

-3.3%

-4.1%

+0.7%

-7.4%

-6.8%

+2.5%

Change over 12 months

-7.4%

-7.6%

-3.2%

-7.1%

-7.2%

-3.4%

-7.9%

-13.7%

-4.5%

The EPRA NDV came to Euro 17.60 per share, up +2.5% over six months and down -4.5% over 12 months. The Euro -0.82 per share change over 12 months takes into account the following impacts:

- dividend payment: Euro -0.42;
- funds from operations (FFO): Euro +1.09;
- change in unrealized capital gains (i.e. difference between the net book value of assets on the balance sheet and their appraisal value excluding transfer taxes): Euro -0.98, including a yield effect for Euro -0.08, a rent effect for Euro 0.92 and other effects²² for Euro +0.02;
- change in fair value of fixed-rate debt: Euro -0.33;
- change in fair value of other items: Euro +0.01;
- the capital increase in connection with the option for the 2021 dividend to be paid in shares, as well as the change in treasury shares: Euro -0.18.

Balance sheet with a very defensive profile, enabling Mercialys to position itself on new investments or acquisitions

Mercialys has continued to optimize the management of its bond maturities and, in 2021, redeemed Euro 99.2 million of the bond issue maturing in March 2023, reducing the outstanding nominal amount to Euro 469.5 million. These bonds were canceled in the Company’s books. During the first quarter of 2022, Mercialys aims to complete the early refinancing of the bond issue due to mature in March 2023 by exercising its make-whole early redemption option, which would require new financing to be issued. The Company could also launch the refinancing of other bond maturities, including the July 2020 issue for a nominal total of Euro 300 million.

Alongside this, Mercialys has extended and further strengthened its undrawn liquidity arrangements. These arrangements, based on bilateral facilities and a revolving credit facility, were increased by Euro 75 million during the year, including a new Euro 50 million line set up, and the maturity of 92% of the available lines at end-2020 was extended in 2021. In addition, Mercialys began working in 2021 to set up environmentally responsible financing, with environmental clauses incorporated into four undrawn bilateral lines representing a combined total of Euro 165 million.

This development will enable the Company to extinguish various lines due to mature with a banking partner that now has only a limited presence in France for a total of Euro 75 million, and, from the first quarter of 2022, to terminate the current account advance made available by the Casino group for Euro 35 million before it was due to mature in December 2022.

At end-December 2021, drawn debt represented Euro 1,354.5 million, made up of three bond issues and a private placement, with a residual nominal amount of Euro 1,219.5 million, as well as commercial paper, with Euro 135 million outstanding at end-December 2021.

The real average cost of drawn debt was 2.0%²³ for the full year in 2021, virtually stable compared with end-June 2021 (1.9%) and significantly higher than the full-year figure for 2020 (1.4%). This change primarily reflects the full-year impact of the bond refinancing operation carried out in July 2020.

The average maturity of drawn debt was 3.2 years at December 31, 2021, compared with 3.6 years at end-June 2021 and 3.5 years at end-December 2020.

Mercialys has a healthy financial structure, with an LTV ratio excluding transfer taxes²⁴ of 36.7% at December 31, 2021 (compared with 38.3% at June 30, 2021 and 38.1% at December 31, 2020) and an LTV ratio including transfer taxes of 34.4% on the same date (versus 36.0% at June 30, 2021 and 35.8% at December 31, 2020). The Company has significantly optimized its financial structure through the effective management of its investments and its active divestment policy, implemented under very satisfactory valuation conditions, despite an investment market that continued to be affected by the uncertain health context and a collection rate that did not yet seem to be fully normalized at end-2021.

The ICR²⁵ was 5.1x at December 31, 2021, compared with 5.6x at June 30, 2021 and 5.0x at December 31, 2020, reflecting the impacts of the health crisis on EBITDA and the impacts of the July 2020 bond refinancing on financial expenses.

On May 19, 2021, Standard & Poor’s confirmed its BBB rating for Mercialys, while its outlook was upgraded from negative to stable on September 13, 2021.

Alongside this, Mercialys has maintained a high level of hedging for its debt, with a hedged or fixed-rate debt position (including commercial paper) representing 86% at end-December 2021, compared with 87% at end-June 2021 and 92% at end-December 2020.

VI. Outlook and dividend

Outlook for 2022

Excluding the health situation’s potential impacts on its operations, Mercialys has set the following objectives for 2022:

Growth in Funds From Operations (FFO) per share to reach at least +2% vs. 2021;
Dividend to range from 85% to 95% of 2022 FFO.

Dividend for 2021

Mercialys’ Board of Directors will submit a proposal at the General Meeting on April 28, 2022 for a dividend of Euro 0.92 per share, compared with a limited dividend of Euro 0.43 per share for 2020. The payout corresponds to 85% of 2021 FFO and offers a yield of 5.2% on the NDV of Euro 17.60 per share at end-2021 and 10.7% on the year’s closing price.

This proposed dividend 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 0.39 per share;
- the distribution based on 70% of exempt profits for 2021 from the disposal of properties and investments in real estate companies, i.e. Euro 0.01 per share;
- the distribution based on 70% of exempt profits for 2020 from the disposal of properties and investments in real estate companies, i.e. Euro 0.38 per share;
- the distribution of exempt income recorded on the Company’s balance sheet for Euro 0.14 per share.

The ex-dividend date is May 3, 2022, and the dividend will be paid on May 5, 2022.

* * *

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, 2021, Mercialys had a real estate portfolio valued at Euro 3.1 billion (including transfer taxes). Its portfolio of 2,134 leases represents an annualized rental base of Euro 168.8 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, 2021.

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, 2020 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.

APPENDIX TO THE PRESS RELEASE

Financial report

1. Financial statements..... 18
2. Key developments in 2021..... 21
3. Summary of the main key indicators for the period..... 23
4. Review of activity..... 23
5. Review of consolidated results..... 27
6. Changes in scope and valuation of the asset portfolio..... 38
7. Outlook..... 39
8. Subsequent events..... 39
9. EPRA performance measurements..... 39

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, 2021. 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)

December 31, 2021

December 31, 2020

Rental revenues

172,232

175,440

Service charges and property tax

(45,260)

(44,390)

Charges and taxes billed to tenants

38,476

38,555

Net property operating expenses

(5,403)

(22,248)

Net rental income

160,043

147,357

Management, administrative and other activities income

2,801

3,035

Other income

1,559

Other expenses

(4,953)

(6,150)

Personnel expenses

(14,763)

(13,121)

Depreciation and amortization

(39,157)

(40,777)

Reversals of / (Allowances for) provisions

(997)

1,343

Other operating income

28,760

242,125

Other operating expenses

(29,810)

(209,381)

Operating income

103,484

124,484

Income from cash and cash equivalents

177

Gross finance costs

(30,842)

(21,891)

(Expenses) / Income from net financial debt

(30,665)

(21,830)

Other financial income

296

233

Other financial expenses

(3,466)

(3,024)

Net financial items

(33,835)

(24,621)

Tax expense

(848)

(2,019)

Share of net income from associates and joint ventures

2,264

(3,695)

Consolidated net income

71,065

94,148

Attributable to non-controlling interests

8,882

8,316

Attributable to owners of the parent

62,183

85,833

Earnings per share²⁶

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

0.67

0.94

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

0.67

0.94

1.2. Consolidated statement of financial position

ASSETS (in thousands of euros)

Dec 31, 2021

Dec 31, 2020

Intangible assets

5,028

4,052

Property, plant and equipment other than investment property

6,922

1,605

Investment property

1,935,117

2,050,907

Right-of-use assets

8,590

8,902

Investments in associates

37,907

38,918

Other non-current assets

50,733

73,865

Deferred tax assets

1,346

1,728

Non-current assets

2,045,642

2,179,976

Trade receivables

36,865

38,217

Other current assets

34,595

40,660

Cash and cash equivalents

257,178

464,611

Investment property held for sale

60,086

111

Current assets

388,724

543,599

Total assets

2,434,366

2,723,575

EQUITY AND LIABILITIES (in thousands of euros)

Dec 31, 2021

Dec 31, 2020

Share capital

93,887

92,049

Additional paid-in capital, treasury shares and other reserves

649,231

600,875

Equity attributable to owners of the parent

743,118

692,925

Non-controlling interests

202,011

202,193

Equity

945,129

895,118

Non-current provisions

1,008

1,207

Non-current financial liabilities

1,237,101

1,355,914

Deposits and guarantees

23,003

22,295

Non-current lease liabilities

8,353

8,655

Other non-current liabilities

5,716

15,311

Non-current liabilities

1,275,181

1,403,381

Trade payables

16,477

15,394

Current financial liabilities

150,144

348,553

Current lease liabilities

1,030

985

Current provisions

11,443

9,942

Other current liabilities

34,826

50,193

Current tax liabilities

136

Current liabilities

214,056

425,076

Total equity and liabilities

2,434,366

2,723,575

1.3. Consolidated cash flow statement

(In thousands of euros)

Dec 31, 2021

Dec 31, 2020

Net income, attributable to owners of the parent

62,183

85,833

Non-controlling interests

8,882

8,316

Consolidated net income

71,065

94,148

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

49,249

53,372

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

(47)

Other calculated expenses/(income) ⁽²⁾

(1,280)

(2,419)

Share of net income from associates and joint ventures

(2,264)

3,695

Dividends received from associates and joint ventures

3,014

6,234

Income from asset disposals

(8,962)

(47,542)

Expenses/(income) from net financial debt

30,665

21,830

Net financial interest in respect of lease agreements

295

334

Tax expense (including deferred tax)

848

2,019

Cash flow

142,583

131,695

Taxes received/(paid)

(409)

(3,298)

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

(7,141)

5,696

Change in deposits and guarantees

708

792

Net cash flow from operating activities

135,742

134,885

Cash payments on acquisitions of ⁽⁴⁾:

investment properties and other fixed assets

(15,913)

(61,593)

non-current financial assets

(115)

(1,833)

Cash receipts on disposals of ⁽⁴⁾:

investment properties and other fixed assets

30,746

188,386

non-current financial assets

Investments in associates and joint ventures

Impact of changes in scope with change of control

Change in loans and advances granted

1,799

Net cash flow from investing activities

14,724

126,757

Dividends paid to shareholders of the parent company (final)

(22,398)

(43,957)

Dividends paid to shareholders of the parent company (interim)

Dividends paid to non-controlling interests

(9,063)

(8,194)

Capital increase and reduction

(1)

Other transactions with shareholders

Changes in treasury shares

264

(1,825)

Increase in borrowings and financial debt

230,000

1,097,167

Decrease in borrowings and financial debt

(526,700)

(901,800)

Repayment of lease liabilities

(985)

(959)

Interest received

16,359

23,447

Interest paid

(45,474)

(32,933)

Net cash flow from financing activities

(357,999)

130,947

Change in cash position

(207,529)

392,588

Net cash at beginning of year

464,600

72,012

Net cash at end of year

257,071

464,600

of which cash and cash equivalents

257,178

464,611

of which bank overdrafts

(108)

(11)

(1)

Depreciation and amortization exclude the impact of impairments on current assets

(2)

Other calculated expenses and income mainly comprise:

- discounting adjustments to construction leases

(318)

(340)

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

(1,848)

(2,472)

- financial expenses spread out

697

434

- interest on non-cash loans

(3)

The change in working capital requirements breaks down as follows:

- trade receivables

3,375

(31,420)

- trade payables

1,087

1,555

- other receivables and payables

(11,603)

35,561

Total working capital requirements

(7,141)

5,696

(4)

At December 31^st, 2020, the cash payments on acquisitions and the cash receipts on disposals amounts are presented
in gross values excluding the impact of the exchange between Mercialys and SCI AMR concerning the Gassin (sale),
Montauban and Valence 2 (acquisitions) real estate assets, which led to the payment of a Euro 37 million balance to Mercialys

2. Key developments in 2021

Impacts relating to the Covid-19 pandemic

The shopping center sector in France was significantly affected, from January 2021, by the government measures relating to the health crisis. First of all, local curfews were set from January 2, then extended nationwide. From January 31, all non-food stores with over 20,000 sq.m of gross leasable area, as well as non-food stores in shopping centers with a gross leasable area of over 20,000 sq.m, were closed. In addition, shopping centers were not authorized to offer click and collect services from this date until the sites reopened. The closure restrictions were ramped up from March 6, in all French departments under stronger supervision measures, reducing the limit for gross leasable area authorized to open to 10,000 sq.m. Lastly, on April 3, the French government introduced a third national lockdown and also ordered the closure of all stores considered to be non-essential, regardless of their size.

This scope for closures was more restrictive than in 2020 and, combined with the asset sales completed at the end of 2020 by Mercialys, including the sale of four Monoprix stores, was reflected in an open annualized rental base of 36% for the Company’s portfolio between April 3 and May 19, 2021, compared with 40% during the first lockdown from March to May 2020.

On May 19, the French government authorized the reopening of “non-essential” stores. Mercialys’ shopping centers were able to once again welcome members of the public across their entire retail space (excluding indoor sit-down dining), in accordance with strict health protocols and restrictions on minimum space ratios. Indoor restaurants were able to reopen from June 9, subject to various health measures and minimum space ratios. These restrictions on minimum space ratios were lifted on June 30, 2021 for venues open to the public, and France has not been subject to any curfew measures since June 20, 2021. However, the level of operational activity for nine Mercialys shopping centers was negatively affected for several weeks during the third quarter of 2021, primarily in August, due to the French State’s introduction of a requirement to show a “health pass” to access certain sites.

This latest order to close stores may have affected the profitability of retailers that were already impacted by these same measures in 2020, and affected the collection rate for rent, charges and work for the first half of 2021. However, the French government made a public commitment to put in place support packages, in addition to the solidarity fund, that will notably enable retailers that were ordered to close to honor their rent payments. A decree was published on November 16, 2021, introducing support for rent or fees and charges for certain retail and service activities that were forbidden from welcoming members of the public with a view to preventing the spread of the Covid-19 epidemic. These support measures aim to enable retailers to honor their payments for rent and charges for the period when shopping centers were closed during the first half of 2021, which will benefit the collection rate for retail property companies. As a result, Mercialys has not written off any receivables for the period of government-ordered closures.

Alongside this, Mercialys continued to formalize and put in place the support measures granted to its tenants in 2021 for the government-ordered closure periods in 2020.

Concerning the safety of the Company’s employees, the arrangements for working from home, which had already been strengthened in 2020, were maintained in 2021 and adapted in line with changes in the health situation and the recommendations issued by the French Ministry of Labor, Employment and Economic Inclusion.

Company’s financing and balance sheet

Mercialys has extended the maturity of its undrawn financing facilities. On the one hand, through the Euro 225 million revolving bank credit facility, with 80% extended to December 2024, compared with December 2022 previously. On the other hand, through the one-year extension of an undrawn Euro 25 million bilateral bank line. In addition, through the determination of new firm maturities of five years and three years respectively on one and two undrawn bilateral facilities, two of which saw their amounts increased, for a combined total of Euro 115 million, versus Euro 90 million previously. Lastly, through a new undrawn bilateral line set up for Euro 50 million. The Company launched work to set up a more environmentally responsible financing structure, with environmental clauses incorporated into four undrawn bilateral lines representing a combined total of Euro 165 million.

The Company’s undrawn financial resources totaled Euro 480 million at December 31, 2021, compared with Euro 405 million at end-December 2020. This change will enable the Company to extinguish various lines due to mature with a banking partner that now has only a limited presence in France for a total of Euro 75 million, and, from the first quarter of 2022, to terminate the current account advance made available by the Casino group for Euro 35 million before it was due to mature in December 2022. The Company has also continued to optimize the management of its bond maturities and, in 2021, redeemed Euro 99.2 million of the bond issue maturing in March 2023. These bonds are canceled in the Company’s books. The outstanding amount of the bond issue maturing in March 2023 therefore represented Euro 469.5 million at end-2021.

Lastly, to contribute to its strong balance sheet positions, Mercialys’ General Shareholders’ Meeting on April 22, 2021 decided to offer each shareholder an option for the full dividend of Euro 0.43 per share for the year ended December 31, 2020 to be paid in cash or in new Company shares. This operation enabled Mercialys to further strengthen its equity by Euro 17.1 million with the creation of 1,837,332 new ordinary shares, representing nearly 2% of the capital based on the capital at April 30, 2021. Following this operation, Mercialys’ share capital on May 21, 2021 was increased to Euro 93,886,501, split into 93,886,501 ordinary shares with a par value of Euro 1, fully paid-up and all of the same category.

Following the exercising of this option for payment in shares, the Casino Group dropped below the threshold representing 20% of Mercialys’ capital and voting rights, and indicated on May 31, 2021 that it held 18,559,506 Mercialys shares, representing 19.77% of the Company’s capital and 19.82% of its voting rights. In December 2021, the Casino Group indicated that it had sold 3% of Mercialys’ capital through a total return swap (TRS) maturing in March 2022, taking the Group’s interest in Mercialys to 16.77% of the capital and 16.86% of voting rights.

Sales operations

During the fourth quarter of 2021, Mercialys completed the sale of two assets: the Marseille Canebière Monoprix store and the Carré Duparc retail park in Sainte-Marie (Reunion Island). The Company also signed preliminary sales agreements without financing conditions for the Annecy and Saint-Etienne hypermarkets. These assets illustrate Mercialys’ value creation strategy. They had been transformed since their acquisition in 2014. In addition, Mercialys has sold or signed sales commitments for various plots at non-strategic and fragmented sites. Lastly, the Bordeaux Pessac shopping center, held by the OPCI fund UIR2, in which Mercialys has a 20% interest (this OPCI real estate investment fund is recorded in Mercialys’ accounts under non-consolidated securities in non-current assets), was also subject to a preliminary sales agreement in 2021 and the corresponding condition precedent was lifted in January 2022.

Overall, the transaction values for the sales and preliminary sales agreements secured by Mercialys (excluding UIR2) are slightly higher than the end-June 2021 appraisals.

3. Summary of the main key indicators for the period

Dec 31, 2021

Organic growth in invoiced rents

+3.0%

EBITDA²⁷

Euro 144.7 million

EBITDA / rental revenues

84.0%

Funds from operations (FFO²⁸)

Euro 101.8 million

Funds from operations²⁹ (FFO) per share

Euro 1.10

Fair value of the portfolio (including transfer taxes)

Euro 3,138.2 million

Change vs. Dec 31, 2020 (current basis)

-3.7%

Change vs. Dec 31, 2020 (like-for-like)

-2.8%

EPRA NDV per share

Euro 17.60

Change vs. Dec 31, 2020

-4.5%

Loan to Value (LTV) – excluding transfer taxes

36.7%

4. Review of activity

4.1. Main management indicators

The following table presents details of the lease schedule:

At January 31, 2022

Number of leases

Annual MGR* + variable rents
(€m)

Share of leases expiring
(% annual MGR + variable)

Expired at December 31, 2021

328

18.1

10.7%

2022

159

8.3

4.9%

2023

110

7.8

4.6%

2024

150

9.2

5.5%

2025

129

7.6

4.5%

2026

196

20.7

12.2%

2027

218

38.2

22.6%

2028

211

14.9

8.8%

2029

183

11.2

6.6%

2030

262

23.2

13.7%

2031 and beyond

188

9.6

5.7%

Total

2,134

168.8

100.0%

* MGR: minimum guaranteed rent

The stock of expired leases at end-2021 reflects the negotiations underway, refusals to renew leases with the payment of compensation for eviction, global negotiations for each retailer, tactical delays, etc.

Negotiations with the retailers continued to move forward in 2021 with a view to securing Mercialys’ rental flows. Taking into account all of the lease renewals and relettings during the year, whereas at the end of 2020 the leases expired or due to expire at December 31, 2021 represented 20.9% of the Company’s total rental base, they were down to just 10.7% at end-January 2022.

As part of the negotiations with retailers concerning the store closures and lockdown phases, in exchange for the rent relief granted, Mercialys was often able to obtain extensions of the firm term of leases (tenants waiving or deferring their next three-year break, renewing their lease early or signing a new lease), achieving an extension of the average firm term of leases across its portfolio by 9.1 months at December 31, 2021, ensuring the sustainability of its rental flows.

The collection rate is still impacted by the health crisis. The shopping center sector in France was significantly affected, from January 2021, by the government measures relating to the health crisis. Meanwhile, the French government made a commitment to put in place support packages, in addition to the solidarity fund and the mechanism covering fixed costs, which should notably enable tenants that were ordered to close to honor their rent payments. Following the signing of the corresponding decree in November 2021, eligible retailers will receive compensation from the government in February 2022. The delays with rolling out these support measures impacted the collection rate for rent and charges for 2021. In view of the government arrangements intended to enable retailers to specifically pay their rent and charges for the periods when they were ordered to close in 2021, Mercialys has not determined any additional support measures. For all the rent and charges (excluding tax) billed by Mercialys, the collection rate came to 88.8% at end-December 2021.

The gross collection rate for 2020 was 90.1% at end-December 2021. Restated for the rent relief already granted or to be awarded and provisions for doubtful receivables, this rate came to 99.9%.

The current financial vacancy rate - which excludes “strategic” vacancies following decisions to facilitate the deployment of extension and redevelopment plans - came to 3.2%³⁰ at December 31, 2021, significantly lower than at end-December 2020 (3.8%), end-June 2021 (4.0%) and end-September 2021 (3.4%), highlighting the appeal of Mercialys’ sites.

The total vacancy rate³¹was 4.9% at December 31, 2021, once again showing a marked reduction compared with end-2020 (5.4%), end-June 2021 (5.7%) and end-September 2021 (5.0%).

The reversion achieved on renewals and relettings came to an average of -3.0% (-1.8% excluding the retailer Camaïeu, which was subject to liquidation proceedings and a takeover by a new investor). This shows a significant sequential improvement compared with -6.5% for the year to end-June 2021 (-5.4% excluding Camaïeu) and -3.6% for the year to end-September 2021 (-2.0% excluding Camaïeu).

The analysis of the occupancy cost ratio³² is ineffective for the full year in 2021 due to the periods when stores were ordered to close. Furthermore, as certain retailers’ activities may show strong seasonality during the year, especially in the fourth quarter, any analysis for periods of less than one year is even more complex and potentially not relevant. At December 31, 2019, this ratio showed a very moderate level of 10.4%.

The rents received by Mercialys come from a very diverse range of retailers: with the exception of retailers that are part of the Casino Group (details presented below) and H&M (2.5%), no other tenant represents more than 2% of total rental income.

Casino Group retailers accounted for 22.4% of total rental income at December 31, 2021, down slightly from June 30, 2021 (22.6%) and December 31, 2020 (22.7%). This change is linked in particular to the sale of the Marseille Monoprix store in the fourth quarter of 2021.

This consolidated accounting exposure is calculated factoring in all of the rent paid by Casino Group retailers. Adjusted downwards for the 49% minority interest held by BNP Paribas REIM in SAS Hyperthetis Participations and SAS Immosiris, which together own a total of 10 hypermarkets operating under the Géant Casino banner and adjusted upwards for Mercialys’ 25% minority interest in SCI AMR, which holds three Monoprix stores and two hypermarkets operating under the Géant Casino banner, Mercialys’ economic exposure to rent from retailers operated by the Casino Group is 19.6%.

Exposure to the Casino Group will continue to be scaled back in 2022 (20.7% proforma) through the completion of the sales of two hypermarkets (Saint Etienne and Annecy).

The lease schedule for these top two Mercialys tenants 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