Mercialys: 2021 First-half Results
PARIS–(BUSINESS WIRE)–Regulatory News:
Mercialys (Paris:MERY):
- Solid balance sheet and limited contraction in values. The loan to value ratio (LTV) is 38.3% excluding transfer taxes, and 36.0% including transfer taxes. The portfolio value is Euro 3,186 million including transfer taxes, down -2.2% over six months. The average appraisal yield rate came to 5.74% vs. 5.72% at end-December 2020. The EPRA NDV is down -6.8% over six months to Euro 17.17 per share, reflecting the adjustment of the portfolio value, the impact of the fair value recognition of fixed-rate debt, and the increase in the number of shares outstanding following the partial payment of the dividend in shares
- Business close to 2019 levels and positive trend for retailer sales. Footfall levels for Mercialys centers, between the reopening of stores on May 19 and June 30, 2021, reached 91% of the pre-crisis activity level from 2019. Retailer sales for May came in +8.4% higher than 2020, while June’s figures are up +5.6%, confirming the continued appeal of physical retail. Retailers are returning to robust development trends based on limited rent adjustments
- The rollout of the government support measures in the second half of 2021 is expected to normalize the rent collection levels. The gross collection rate1 for 2020 increased by Euro 7.0 million during the first half of 2021 to reach 88.3%, of which Euro 4.1 million for the 2nd and 3rd quarters of 2020. The rate for the first half of 2021 is 75.0%, negatively affected by the government-ordered closures and the timeframes for the French government to put in place the retailer support measures that it has committed to following the compulsory closures linked to the third lockdown. However, the French government has 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. As a result, no receivables were written off for the first half of 2021
- Funds from operations (FFO) at end-June 2021 reflect the impacts of the health crisis, the refinancing operation carried out in July 2020 and the asset sales completed in December 2020. Invoiced rents are down -4.0% like-for-like to Euro 83.4 million, including the impact of the relief granted to tenants for the 2020 closures and the impact of the government-ordered closures on business in 2021. Funds from operations are down -11.6% to Euro 55.7 million, including the full-year impact of the July 2020 refinancing and the asset sales finalized in December 2020
- 2021 objectives: excluding the impacts of a further deterioration in the health situation, including the potential impacts of the measures relating to the “health pass” (reduced footfall, further weakening of retailers, likely drop in variable rents and the contribution from Casual Leasing, and increase in additional operating expenses), Mercialys expects its funds from operations (FFO) per share to be at least stable in 2021 compared with 2020
|
| Jun 30, 2020 | Jun 30, 2021 | Change % |
| Organic growth in invoiced rents including indexation and Covid-19 impacts | -0.8% | -4.0% | – |
| Spread between the year-on-year change in footfall2 for Mercialys centers vs. the CNCC index3 (year to end-June) | +640bp | +60bp | – |
| Year-on-year change in sales2 for Mercialys retailers (month of June) | +0.6% | +5.6% | – |
| Funds from operations, FFO (€m) | 63.0 | 55.7 | -11.6% |
| ICR (EBITDA / net finance costs) | 10.6x | 5.6x | – |
| LTV (excluding transfer taxes) | 41.1% | 38.3% | – |
| LTV (including transfer taxes) | 38.6% | 36.0% | – |
| Portfolio value including transfer taxes (€m) | 3,522.6 | 3,185.6 | -9.6% |
| EPRA NDV (€ per share) | 19.90 | 17.17 | -13.7% |
|
|
|
|
I. Shopping centers significantly impacted by measures to tackle the health crisis during the first half of 2021, but operations have bounced back strongly since reopening
The first half of 2021 continued to be widely marked by the effects of the health crisis linked to Covid-19, impacting the activity of Mercialys’ shopping centers due to the measures set out by the public authorities as part of efforts to tackle the epidemic.
These measures were stricter for the shopping centers than those in force during the first lockdown in 2020.
On the one hand, due to the very long period of government-ordered closures affecting the centers, from January 31 to May 19, 2021, i.e. 3.5 months (compared with less than two months during the first half of 2020). This closure period was preceded by curfews, which had already had a major impact on store footfall levels from January 2, 2021.
On the other hand, due to its scale, with stronger restrictions than in 2020 concerning the scope of stores authorized to open and the gradual ban on click and collect activities between January 31 and May 19, 2021. Only 36% of Mercialys’ rental base was able to continue trading during the strict lockdown period in 2021 (i.e. from April 3 to May 19), compared with 40% and 50% respectively during the first and second lockdowns in 2020.
On May 19, 2021, 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 have been able to reopen since June 9, 2021, 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.
As in 2020, a significant upturn was seen when “non-essential” stores reopened, reflecting French consumers’ strong expectations for a return to physical consumption at sites offering, through this relationship’s inherent human contact, a wide selection of products that are available immediately.
Mercialys’ very strong performance at this time also reflects its commercial expertise, and notably illustrates its understanding of the stakes involved with providing reassurance, visibility and a welcoming environment for these reopening phases.
From May 19, 2021, the Company rolled out an extensive communications plan in order to support a preferential return for its end customers within its centers. In addition to communicating on the high level of standards applied regarding health aspects, Mercialys has shared a clear, identifiable message about opening up, as well as the retail selection, the services available and the human relationship provided by its sites.
Supporting this dynamic approach, the Company has also rolled out a major operation through Prim’Prim’, its proprietary and 100% digital loyalty program. Built around a drive-to-store approach from May 19 to June 22, 2021, and a stronger volume of loyalty cashbacks, adapted vouchers and a retailer challenge, this operation has directly benefited the transformation rate and sales for the 920 retailers in the 24 centers that are part of the loyalty program. Mercialys has observed that, on average, more than Euro 8 of sales are generated for each euro of vouchers spent at its centers. The digitalization of the loyalty program also enables the Company to collect and analyze transaction details, with Euro 2.5 million of sales generated for its retailers by Prim’Prim’ customers through this operation. Combined with the ramping up of recruitment for loyalty program members during this period (+30% more qualified contacts recorded since reopening), it is further strengthening the increasingly fine-grained understanding of end customers’ specific needs and habits, supporting the performance of both Mercialys and its tenants.
II. The accounts at end-June 2021 reflect the impact of the support measures for 2020 and the closures in 2021
Impacts of the support measures granted to tenants for the two lockdowns from 2020 on the accounts at end-June 2021
The continued health crisis linked to Covid-19 in 2021 impacted the operational indicators for the first half of 2021, as detailed in Point III of this press release.
The retailer support measures put in place by Mercialys in connection with the two lockdown phases in 2020 also had impacts on the accounts at June 30, 2021.
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 – May 11). Euro 9.4 million had been agreed by end-2020, with the remaining Euro 4.1 million corresponding to negotiations that had not been completed by the end of the year. The accounts at end-June 2021 reflect the progress made with these negotiations as follows:
– Euro 1.7 million of new relief granted and to be awarded, with 100% recognized in the accounts at June 30, 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, representing Euro 2.4 million, will be subject to the same treatment if negotiations with the remaining retailers are finalized;
– Euro 0.7 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 were spread in the accounts over the remaining term of the leases, with Euro 1.1 million already recognized in the accounts at end-December 2020. The recognition of the remaining Euro 4.5 million will be spread over the second half of 2021 and then 2022 to 2026, with Euro 0.7 million, 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 – 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 the first half of 2021, the negotiations with retailers resulted in an effective amount of relief granted or to be awarded of Euro 5.4 million, lower than initially estimated by Mercialys. The reversal of provisions for relief to be granted therefore led to Euro 0.9 million of net income under invoiced rents at end-June 2021 for the section of these provisions that were no longer applicable;
– As it was 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 the first half of 2021 came to Euro 0.4 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 the first half of 2021 for the second lockdown in 2020, the Company recorded Euro 0.5 million of income reflecting this tax credit under net rental income in its accounts at June 30, 2021. Further income is expected to be recorded over the coming months as applications are received from tenants and rent relief is awarded.
As the effects of the health crisis spread to 2021, they are reflected in a slowdown in the normalization of the collection rate for FY 2020. For reference, the residual risk concerning the previous year was covered in the accounts at December 31, 2020 with Euro 13.2 million of exceptional provisions recorded for arrears relating to rent and charges from the second and third quarters of 2020 (therefore including the
Euro 4.1 million balance from the support budget not yet awarded at the time in connection with the first lockdown).
During the first half of 2021, Mercialys continued moving forward with negotiations with its retailers and its collection actions for rent and charges billed in 2020, with retailers paying Euro 4.1 million of rent and charges from 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 3.7 million in the accounts at end-June 2021. This amount is in addition to the accounting impacts mentioned previously, reducing the remaining amount of the exceptional provisions to Euro 7.8 million in the accounts at end-June 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 | Collection rate including the rent | |
|
| At Dec 31, 2020 | At Jun 30, 2021 | At Jun 30, 2021 | At Jun 30, 2021 |
| 1st quarter of 2020 | 97.4% | 97.8% | 97.8% | 99.0% |
| 2nd quarter of 2020 | 63.9% | 69.4% | 84.0% | 100.0% |
| 3rd quarter of 2020 | 93.4% | 95.5% | 95.5% | 100.0% |
| 4th quarter of 2020 | 86.2% | 90.1% | 97.5% | 98.9% |
| 2020 full year | 85.3% | 88.3% | 94.2% | 99.5% |
Since June 30, 2021, the closing date for these half-year accounts, an additional Euro 0.6 million of rent and charges have been collected, taking the total gross collection rate for 2020 up to 88.6%.
No arrangements for landlords to provide rent relief in connection with the government-ordered closures in 2021, as the French government has made a commitment to support retailers to cover their rent and charges
As mentioned above, the shopping center sector in France has been significantly affected, since January 2021, by the government measures relating to the health crisis. Meanwhile, the French government has 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. However, there have been delays with rolling out these support measures, impacting the collection rates for rent and charges for the first half of 2021. Considering the public commitments made by the French government, Mercialys has not determined any additional support measures relating to the government-ordered closures for the first half of 2021.
The collection rate for the first half of 2021 is presented in detail 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.
|
| Gross collection rate | Residual arrears for rent and charges excluding tax (€m) |
| At Jun 30, 2021 | At Jun 30, 2021 | |
| 1st quarter of 2021 | 81.0% | 10.3 |
| 2nd quarter of 2021 | 68.6% | 16.3 |
| 1st half of 2021 | 75.0% | 26.6 |
Since June 30, 2021, the closing date for these half-year accounts, an additional Euro 2.3 million of rent and charges have been collected, taking the total collection rate for the first half of 2021 up to 76.9%.
The overall impacts of the health crisis presented above can be broken down as follows:
| Impacts | Corresponding | Profit and loss | Jun 30, 2020 | Dec 31, 2020 | Jun 30, 2021 | |||
| Amount | Treatment | Amount | Treatment in | Amount | Treatment in | |||
| Negotiations finalized | 1st | Invoiced rents / | -4.7 | -1.2 | -9.4 | -4.1 | -1.7 | -2.4(1) |
| Negotiations finalized | 2nd | Invoiced rents / | na | na | -6.3 | -6.3 | +0.5 | +0.5(2) |
| Subtotal |
|
| -4.7 | -1.2 | -15.7 | -10.4 | -1.2 | -2.0 |
| Arrears relating to the 2nd | 1st | Provisions for | 0.0 | 0.0 | -13.2 | -13.2 | +5.4 | +5.4(3) |
| Arrears for November 2020 | 2nd | Provisions for | na | na | -0.5 | -0.5 | +0.5 | +0.5(4) |
| Subtotal |
|
| 0.0 | 0.0 | -13.7 | -13.7 | +5.9 | +5.9 |
| Tax credit | 2nd | Net rental | 2nd lockdown not yet | Positive impact not | +0.5 | +0.5(5) | ||
| TOTAL |
|
| -4.7 | -1.2 | -29.4 | -24.1 | +5.2 | +4.5 |
(1) Euro -2.4 million comprising Euro -1.7 million for new relief granted for the first lockdown from 2020, with 100% recognized in the accounts at June 30, 2021 and Euro -0.7 million for amounts spread in the accounts for the 2020 negotiations relating to the same lockdown;
(2) Euro +0.5 million comprising Euro -5.4 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 +0.9 million of net income for the section that was no longer applicable) and Euro -0.4 million for the relief granted and to be awarded for the month of November 2020 for sit-down restaurants;
(3) Euro +5.4 million comprising Euro +1.7 million for the reversal of provisions for doubtful receivables resulting from the new relief granted for the first lockdown in 2020, and Euro +3.7 million for the reversal of provisions for doubtful receivables relating to the additional collection for 2020;
(4) Euro +0.5 million comprising 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);
(5) Euro +0.5 million comprising Euro +0.5 million for the tax credit recognized to date in connection with the documentation to be provided by retailers that have benefited from rent relief for the second lockdown in 2020.
III. 2021 first-half business and results
Footfall at Mercialys’ sites4 has bounced back very strongly since the centers reopened on May 19, 2021, highlighting French consumers’ attachment to their retailers and more generally the appeal of physical retail. The number of visits recorded between May 19 and June 30, 2021 at Mercialys centers reached 91% of the pre-crisis level from 2019. During the first half of the year, footfall contracted by -12.2% compared with the first half of 2020, outperforming the CNCC national index by 60bp, despite this index benefiting from a favorable base effect as very large shopping centers were closed during the first half of 2020 until the start of July, whereas they were able to reopen on May 19 in 2021, at the same time as the other retail formats.
As a result of the many months when stores were closed, the assessment of the change in retail sales over the first half of 2021 is not relevant. Nevertheless, Mercialys has observed a very good performance by retailers in its centers since stores were able to reopen, with May 2021 showing average growth of +8.4% compared with May 2020, even though stores remained closed for an additional eight days in May 2021 versus May 2020. Compared with June 2020, retailer sales for the month of June 2021 are up +5.6%. For reference, retailer sales following the first lockdown in 2020 were already up +0.6% in June 2020 versus June 2019.
The analysis of the occupancy cost ratio5 is subject to the same limitations as the sales analysis due to the periods when stores were ordered to close. For reference, this ratio showed a very moderate level of 10.4% at December 31, 2019.
The current financial vacancy rate6 was 4.0% for the first half of 2021, slightly higher than the 3.8% recorded at end-2020. The tenants who left sites during the first half of 2021 account for 100bp, while more than half of the units are already at an advanced stage for reletting. Nevertheless, these departures impacted organic growth during the first half of 2021 and are presented under “Actions carried out on the portfolio” in the table on page 8.
The health crisis has occurred in a context in which the retail industry had already been weakened by the social protest movements and reduced consumer interest in certain retailers, particularly in the textiles sector. While this environment has led to pressure on Mercialys’ rents, this has remained limited in relation to the extreme nature of the economic and social situation faced, and does not reflect any fundamental paradigm shift in the relationship between retailers and landlords.
Mercialys recorded limited negative reversion of -6.5% on the leases that were subject to renewals or relettings during the first half of 2021, with a contraction of around Euro -0.7 million in the Euro 8.6 million rental base represented by the 149 leases signed (equivalent to 5% of the Company’s total rental base). These results include the specific negotiations with the retailer Camaïeu, which is one of the few chains in Mercialys’ portfolio to have been subject to liquidation proceedings and a takeover by a new investor. Excluding this specific situation, the reversion generated during the first half of 2021 came to -5.4%.
Negotiations with the retailers are continuing to move forward with a view to securing Mercialys’ rental flows, and cover a total of 12.4% of the rental base to date. Taking into account all of the lease renewals and relettings since January 1, 2021 to date, as well as the advanced negotiations (approvals), Mercialys would record a limited adjustment of Euro -1.2 million in its total rental base, representing -0.7%.
Since the start of the health crisis, 669 lease amendments have been signed, covering the relief measures granted in connection with the two lockdowns in 2020. Around 5% of them resulted in a negative impact on headline rent, showing that the vast majority of retailers have not opened fundamental negotiations concerning rent levels.
Moreover, in exchange for the relief granted in connection with the two lockdowns in 2020, Mercialys has achieved an average extension of 8.8 months for the firm term of leases across its portfolio, helping secure its rent profile. This initiative to ensure the sustainability of retailers within the centers, and therefore the corresponding rental flows, has been able to move forward by setting up early renewals, deferring three-year breaks, or waiving the next three-year break.
As a result of these encouraging commercial trends, whereas at the end of 2020 the leases expired or due to expire at December 31, 2021 represented 20.9% of the Group’s rental base, they are down to just 10.9% of the Company’s total rental base to date, taking into account all of the leases and the negotiations at an advanced stage.
Invoiced rents came to Euro 83.4 million, down -8.
Contacts
Analysts / investors / media contact:
Alexandre Leroy
Tel: +33 (0)1 82 82 75 63
Email: [email protected]
