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Edited Transcript of MERY.PA earnings conference call or presentation 13-Feb-20 9:30am GMT

Full Year 2019 Mercialys SA Earnings Call

Paris Feb 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Mercialys SA earnings conference call or presentation Thursday, February 13, 2020 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Élizabeth Blaise

Mercialys - Deputy CEO, COO, CFO and Administrative & Financial Director

* Vincent Ravat

Mercialys - CEO

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Conference Call Participants

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* Benoît Faure-Jarrosson

Invest Securities, Research Division - Head of Real Estate Sector

* Florent Laroche-Joubert

ODDO BHF Corporate & Markets, Research Division - Analyst

* Jaap Kuin

Kempen & Co. N.V., Research Division - Deputy Head of Real Estate

* Pierre-Emmanuel Clouard

Kepler Cheuvreux, Research Division - Equity Research Analyst

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Presentation

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Vincent Ravat, Mercialys - CEO [1]

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Good morning, everyone. It is 10:30 sharp. Let us start though with this presentation for our to 2019 full year results. Welcome. You are very welcome indeed to this great auditorium. And thank you for being here with us.

As you know, the retail real estate is currently facing a number of new changes, 2 major trends more specifically. The first concerns a dual-polarization phenomenon in terms of population and well flows across the country, and that is particularly the case in France. And the second concerns the shifts in consumption patterns and societal expectations.

In spite of this context, we were able to close the year on excellent -- with excellent operational and financial results. This performance stems from our refocusing on master retail areas and also stems from our retail mix, which is enhanced -- which has been enhanced. And also thanks to our customer interactions which are more dynamic than ever, thanks to our proprietary digital ecosystem. And thanks to our very strong local anchoring.

In 2020, we will base ourselves further on these renewed key success factors by -- whilst accelerating our new strategy in order to keep on implementing tangible actions so that we may always adapt ourselves to the changing paradigm in our sector.

So here's our strong set of results. Our capacity to be fully in line with our customer expectations was, yet again, the basis for our very solid operational performance. In 2019, our organic growth of invoiced rents increased by 3.6%, so above our yearly objective for a like-for-like growth in invoiced rents of plus 3%. Our FFO amounted to EUR 124.2 million, plus 7.9%. So this is significantly above our 2019 yearly objective of plus 4%. And let me highlight that this is the strongest FFO increase for our company over a period of 12 months in the past 5 years.

On a like-for-like basis, our asset value decreased by 1.4%, over 12%, and our NNNAV decreased by 5.4% over 12 months. And Elizabeth will provide you with further details on this one, in particular. At the end of 2019, our ICR ratio increased by 7.4x, so very significant increase compared with 2018. And our residual bonds basis, reached maturity at EUR 479.7 million in March.

Also, our LTV ratio, excluding rights, observed a significant decrease. We've got our shopping centers. We have yet again outperformed the general level in France, both in terms of footfall, in terms of revenue for our retailers. Our portfolio benefited from a favorable situation compared with the fourth quarter of 2018, which had been strongly impacted by protest movements. And we also benefited from a dynamic underlying trend with regards to consumption, where -- in those areas where we operate. And this is something that we had anticipated last summer as part of our quarterly results announcement -- half year results announcement, sorry.

Footfall increased by 3% cumulatively at -- in -- as of December 2018, so an overperformance of plus 270 basis points. And we were able stabilize our performance in those positive areas. With regards to the revenue of our retailers, plus 3% on a like-for-like basis versus plus 0.8% for the CNCC, so we have a positive gap of 220 basis points. With regards to macroeconomic trends, we're able to see that the CNCC national index indicators were enhanced, thanks to an increase of underlying dynamics in the French economy.

The current world context is characterized by economic concerns. But -- and France was no stranger to this. However, French growth was able to achieve, on average, a level of 0.3% per quarter. Also, in 2019, unemployment levels kept on decreasing. And according to the INSEE French national statistics experts, we should reach an unemployment rate of 8.2% by the spring 2020 versus 8.5%, one year earlier.

Also, household purchasing power. They are slightly less sustained than in 2019, but they remain significant. And by -- in 2020, household consumption should be the main leverage for France's economic activity. However, due to the -- in the current context, we are not able to foresee the potential repercussions related to the coronavirus on our retailer production chain. So on average, there is a bit of a lag between production and delivering -- and delivery for these retailers, usually 2 months. So we'll know soon enough what the case will be. And this crisis could also have a negative impact on household confidence and, more globally speaking, on household consumption.

Elizabeth, over to you.

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Élizabeth Blaise, Mercialys - Deputy CEO, COO, CFO and Administrative & Financial Director [2]

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Slide 8. So in context and our position, we get the best movement. Revealed a significant divide within French society, with regards to income and with regards to expectations, too. So French society is no longer moving towards that trend in terms of a rise in the middle-income families. And this has led number of impact in terms of consumption practices.

So on the one hand, you have those households which are doing well financially speaking, and they live in large cities. And more often than not, they will no longer consume in traditional hypermarkets. And on the other hand, you have consumers that are not living in urban areas as much. They're more modest with regards to their income. They are facing budget constraints. But they want to keep on consuming just like others.

So for Mercialys, there are 2 challenges here. First of all, further developing our operations on those -- in those master areas that benefit from the most promising socioeconomic trends and also responding on a case-by-case basis to saturation and polarization of physical consumption. Here are 2 examples of this.

First of all, in Besançon on Slide 9. So for this city, the clients -- the customers of our Chateaufarine shopping center are not urban and they drive everywhere. And this is in line with the majority of French people, 80% of them drive on a daily basis. And they are particularly attracted to those shopping centers on the outskirts of cities. And the Mercialys site was extended in 2014. There was a number of redevelopments also with the old restaurant there. And the hypermarket was -- its surface was reduced. So thanks to these investments, we're able to consolidate our strong position with retail as I decided to open up for the very first time in this city, such as Snack, Héma, Adidas and IKKS. However, the city center was negatively impacted by these changes in consumption habits.

Here's another example on Slide 10 in Angers, 2 -- almost 300,000 inhabitants. And here, again, we -- Mercialys significantly reinforced its Espace Anjou center. There is another shopping center at all, which will mainly focus -- primarily focus on those flows located in the western part of the city. Yet again, in order to consolidate its operations in this master area, Mercialys regularly invested in this center by extending it in 2014, reducing hypermarket services and transforming the cafeteria. So New Yorker, Mango and also a pharmacy and a food hall -- food court were created.

Now at the heart of these new consumption modes, you have the hypermarket. The hypermarket is doing very strongly in court. 94% of French people still go to a hypermarket at least once a year. And between 2008 and 2017, hypermarkets strengthened their weight in the share of food product expenses. However, in the meantime, the share of revenue generated by nonfood products decreased by 30%, and specialized retailers benefited from this. Moreover, within food distribution and retail, decentralized operator models, such as Leclerc, Intermarché, Grenoble strongly benefited from new market shares. They were able to gain new market shares.

Now due to these trends, in Slide 12, you will see our Mercialys exposition into invoices related to hypermarkets. Of the 47 shopping centers that we have at Mercialys, we own 22 hypermarkets, 10 hypermarkets are owned in partnership with BNPP, 4 hypermarkets are owned via partnership with a stake of 6% with Corsica investors, and 8 hypermarkets are wholly owned by Mercialys. Also 6 Monoprix and 2 supermarkets. Mercialys, since 2015, has undertaken a number of projects in order to reduce hypermarket service. And they were -- thereby able to free up -- we were thereby able to free up space that was further rented to other tenants. We are still under discussions with Casino to further reduce hypermarket service.

In parallel, of these 23 hypermarkets with Mercialys sites, which we do not own, Casino has proceeded to wall disposals. So for example, Carrefour, Systemé U and Intermarché.

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Vincent Ravat, Mercialys - CEO [3]

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As Elizabeth just illustrated, 70% of consumption expenses of French people are dedicated to shopping centers in the outskirts of cities where we have most of our assets. So -- and yet, these areas are faced with new consumption trends. This is why as early as 2018, we defined 4 strategic guidelines for -- in order to transform these sites. Here, they are on Slide 13.

First of all, customizing customer relationship. The aim here is to get to know better the consumers on our catchment areas, to better know their needs and adapt our offer accordingly. Second, retail mix modularity. And here, we aim to improve the way that we welcome visitors and customers, and also in order to better adapt our sites and to have the best operators possible to respond to these 2018 needs of our customers.

Number 3, go beyond traditional uses so as to develop multifunctional spaces; number 4, last-mile logistics. We aim to be a local integrator here; and number 5, we aim to have a strong local anchoring as a service hub. And we are convinced that retail real estate will not involve a model -- a disruption in terms of its model, but rather, it will involve a major U-turn.

So a number of achievements are to be highlighted in 2019 with regards to all of these guidelines. On Slide 14, as you can see, we enhanced our customized interactions with final clients and retailers. We have a proprietary ecosystem with a database of that went above the 1 million mark in terms of qualified clients in 2019. And this helps fine-tune our analysis of needs and consumption habits. And also it helps us create offers that are best suited for each visitor.

This strategy that aims for additional purchases for each customer visit has been successful, with a very little dependence on capital. These tools will be further refined in 2020, and the objective will be to increase and boost our interactions within our sites, retails and final customers.

Slide 15 now, digitalization of stores and shopping centers. As you know, consumers now are ever more pragmatic contrary to what the press might say sometimes. LSA specialized magazine, 40% of respondents in France, say -- imagine that they will buy in shops in the future in the very same way that they do today. Delivery prices is the main obstacle to the development of their e-commerce habits. However, omnichannel services are now part and parcel of a French customer habits. And at Mercialys, we are hereby betting on 3 B2C digital development access.

First of all, significant development of data collection. Thanks to our ecosystem by crossing data and boosting predictive analytics of increasing our range of services, especially with regards to logistics. Click & Collect, for example, is making more and more progress in terms of people's habits and also by further developing home delivery from our sites. And last, we are striving to develop interactions between our retailers and consumers. Thanks to our digital loyalty program, which is currently being deployed under its new format across our sites.

Slide 16. We -- thanks to this enhanced knowledge of our customers, we were able to enhance our retail mix across our sites thereby further integrating retailers and making sure that they are fully in line with the characteristics of each of our catchment areas. First of all, we want operators that are able to respond to daily needs in terms of consumption at the best possible price. For example, in Annecy, we opened an Action shop or we opened also a Chen Market in Massena in Paris in 2019.

Number 2, we want operators that are able to answer to the needs of our customers with regards to unique experiences. So for example, there was a Nespresso store that was opened in Sainte Marie, Nature & Découvertes in Saint-Etienne, or Rituals in Besançon. And also, we want to have more and more operators that offer services and food courts. For example, Big Fernand was -- Big Fernand restaurant was opened in Le Port.

As you can see on the right-hand side of the slide there are certain market segments which are decreasing, for example, the textile industry. But those retailers that have the best combined -- a large choice of item, price accessibility and strong local anchoring. For example, H&M, Celio, Kiabi or Decathlon, and these would be the leaders. And in fact, the FEVAD, the Federation of French E-commerce, estimates that more than half of online sales are done by physical retail sites. And these powerful multichannel brands are cherrypicked by Mercialys.

As you can see on the picture here on the slide, we have already started to work on the development of nonretail scenarios for the pleasure of our consumers. So we've been working with a designer who's created movable elements that would have a visual impact with very little CapEx. Thanks to these new design elements, we boost and enhance the customer journey, so that they have this feel-at-home sentiment. And as you can see on these pictures, this is our Toulouse site. These images illustrate how spontaneously the consumers have made these new facilities as their own.

And there was dedicated communication on our digital tools. There should be another 2 to 3 sites this year, which will benefit from this new design. Also in the past few years, elected reps have had a strong interest in multifunctionality, and this is something that we strongly believe in, too. We have been working on a number of projects. Thanks to our Monoprix supermarkets. We've worked in Bastia Furiani with a health center. It's the first of its kind in Corsica. This has generated value for Mercialys, with a yield on cost of 8.3% for this operation, 12 practitioners set up their practice and are now fully active in our shopping center. There should be another 3 projects of medical centers for Brest, Clermont and Grenoble.

Multifunctionality, again, we inaugurated in 2019, our first coworking space called Cap Cowork, as you can see on Slide '19, and this was in Angers. In the first quarter of 2020, we will now create another site in Grenoble. And this one -- these ones will be deployed on offices and spaces that were not meant to be rented out to retailers. And this generates further income, whilst offering an adapted and differentiating service. The management for this space will be done by the Mercialys team, thereby allowing us to internalize margins for this new business and thereby making it particularly profitable.

With -- by capitalizing on our digital expertise, Mercialys also inaugurated in November 2019 a proprietary delivery -- home delivery service called Ocitô. There's a pilot test in Angers, as you can see on Slide 20, and this should be extended to another 2 sites in 2020. This is a Click & Collect platform and delivery platform, so home, food delivery service from the restaurants of the center provides yet another growth leverage. And it will also be extended in the future to nonfood retailers. And thanks to this service, we want to consolidate our position as a last-mile logistics experts.

Also, we have launched the one-stop service and partnership with Colissimo. So here, we are offering pooling management services for retailers with regards to their stock and delivery. So this helps them control their costs and delivery times. This should be extended to other sites in 2020. Thanks to all of these initiatives, Mercialys is, more than ever, a multi-local actor. And to further consolidate our legitimacy in local anchoring, we have integrated all of this as part of an overall and overarching sustainable development approach.

For example, we were granted a certification by the Science Based Targets, SBTI, an international scientific initiative. And also, this is just on top of another -- of a number of extra financial awards that we got in 2018. For example, GRESB, CDP, Ethifinance Gaïa, Vigeo Eiris, Sustainalytics, to name but a few. And in 2019, we also reduced energy intensity by 6% compared with 2018. And our BREEAM certification was extended to almost 70% of our assets.

Slide 22, pipeline up to today. And here, you have a detailed analysis of the dynamics of our catchment areas. At -- as of the end of December 2019, project pipeline amounted to EUR 468.6 million by 2026, with a potential for additional invoices of EUR 26.7 million. And with regards to the minus EUR 89 million variation compared with the 30th of June 2019, this primarily reflects the redimensioning of certain projects, i.e., we rescoped them to make them more relevant.

On Slide 23, you can see some exceptional sites of Sainte Marie in La Reunion. Great visibility and accessibility. It's very close to the international airport of Saint-Denis. Already 5 million visitors on a -- yearly. Great retail potential, with 5,000 square meters for stores, restaurants and services. And we will further invest here EUR 25 million, maybe.

And on Slide 24, you can see the visual for another project in our pipeline, the Gassin La Foux shopping center located in Saint-Tropez. The aim here is to increase the size profile. Invested -- investment should stand at EUR 26 million to generate a tenancy mass of -- rent -- sorry, mass of EUR 1.8 million with a provisional yield of 7%.

Slide 25 for the site of Nîmes. We already have the largest shopping center in [Le Galerie] department. In a very polarized area indeed. Similarly to what we saw in Besancon, for example. Very large catchment area, more than 500,000 people. And we already have a GLA of 35,000 square meters. Our project would be rolled out as part of our partnership covenant with Casino, and we would be extending the site by 7,443 square meters in GLA, with the creation of a new food court of the new silo parking lot as well. Total investment could amount to EUR 28 million, with a yield on cost that's expected to reach 7%.

Slide 26 on the Saint-Denis site north of Paris. This is a perfect example of mix to use from the evident functional point of view. Here, we have a leader price store of 3,000 square meters at the present moment on 3 levels. In partnership with the Panhard society, we have just presented a request for a permit for the requalification of the leader price store to create restaurant and development of 14,000 square meters, including 174 apartments and a student residence with 91 rooms. And this is an emblematic site close to the Stade de France.

Mercialys will remain the owner of the commercial assets, whereas the promoter, Panhard, will develop the operation superstructure through a promotion entity, co-owned by Mercialys at 30%. We are talking about an investment of EUR 17 million for Mercialys with a target yield of 8%.

And next slide, in the Hauts-de-Seine part of the region of Paris. We have in Puteaux, Chaville and Asnieres, several requalification projects to develop either flat apartments or pension homes jointly with other partners. And we have, in particular, signed with Puteaux, and we have a programming of 11,000 square meters for a total number of apartments of 150 to 180. Depending on the technical aspects and whether we can purchase the adjacent land, we could lead to a Mercialys investment of about EUR 20 million with an 8% yield.

And I give the floor to Elizabeth for the financial part of the presentation.

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Élizabeth Blaise, Mercialys - Deputy CEO, COO, CFO and Administrative & Financial Director [4]

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Now let's just begin with organic growth, so this is on Slide 29. Organic growth has increased by 1.7% without including indexation. This is better than our objective by at least 1% as -- since last year. We have a reversion of plus 9.2% associated with this growth. The effect of indexation is plus 1.9%, and this is in conformity with what was stated at quarterly results at the beginning of the year. So the total organic growth is plus 3.6%. Again, this is beyond our objective of plus 3%. Let me remind you. The extension of the Le Port site in La Reunion is, of course, not included within the perimeter of organic growth.

On Slide 30, you can see that the vacancy rate has remained a very moderate 2.5%. The rate does not integrate, as usual, the convention the -- relating to casual lease. We have the total vacancy -- or strategic vacancy created for development projects at 3.2%. This is a comparable result to the 2 previous half years. So the effort rate is comparable as compared to 2018 -- end of 2018, end of June 2019, 10.4%.

Detailed evolution of rentals. On the next slide, disposals of 2018 and 2019 for us is minus EUR 3.4 million, and this is partly compensated by the effect of deliveries to the tune of EUR 1 million. Strategic vacancy and other effects of EUR 0.6 million. And the impact of organic growth, as I mentioned a moment ago, is also included for a total of EUR 6.6 million. So rentals are increasing by plus 2%, EUR 188.8 million with -- right at the beginning of the year, a strong increase, particularly relating to the Le Port site in La Reunion. Because of this effect, the total is plus 2.4%, EUR 191.9 million.

Now we have on the next slide, Slide 32, FFO with an increase of rentals that we have just mentioned, EUR 4.6 million. Then we have EUR 0.7 million of rental margin, so we have 94.4% total. The structural cost plus EUR 1.4 million are well under control. And this leads to an EBITDA of 95% percent, which is quite high. We are also progressively taking over the back office that was under Casino, and this is leading to development of fund management by the end of 2019 and mid-2020.

Also for IT functions and aspects of control for real estate management and our RH support by the end of 2020, we have an increase -- a significant increase due to the refund, the maturity by a coupon of 4.4% of bond obligations. We also have a cautious position in terms of accountancy for legal risks. You can see on this slide, the impact of a provisioning of EUR 2.1 million for litigation on -- concerning the site in La Reunion, and also the loss due to feasibility studies for projects with less probable deliveries. So this accountancy is based on this realistic vision of our development portfolio.

Taxation. We have an increase over the period. Contribution of net minority companies minus EUR 0.7 million. SCI Rennes-Anglet, where we have 30%, has disposed in 2019 of 2 hypermarket site surfaces, therefore increasing by 7.9%, EUR 124 million.

Disposals. You can see on Slide 33, significant amount as compared to our portfolio, EUR 122 million of asset sales in 2019. We need to state that several categories of assets have been targeted by investors, small-sized galleries, which is one in Gap, hypermarkets in Rennes and Anglet, also central sites in La Garenne and also shared sites. So we have a premium of 8.4% on average for all of these disposals as compared to appraisal values.

All of these lead to a structure, financial structure. On the next slide with 39.5% LTV as compared to 40% end of 2018. We have 7.5x ICR. We have same trend for debt, 8.4x as compared to 9.4x end of the previous year. If you look at the end of 2019 in terms of debt coverage, we have 86% at the end of 2019, fixed versus floating, as compared to 63% end of 2018.

Next slide, breakdown of bond debt. So Mercialys, EUR 1.2 billion for bond debt and EUR 250 million for commercial paper. Mercialys also has credit lines undrawn for EUR 410 million. The cost of debt has dropped 1.3%, particularly with the refund of the bond debt that we had mentioned previously. So our debt maturity is stable.

If you look at portfolio in the next slide, the value of our portfolio, EUR 3.420 billion excluding transfer taxes. Like-for-like, the value is minus 3.1% over 6 months, minus 3.9% over 12 months. So like-for-like, there's a slight drop of 1.4% over 12 months value, and this includes minus 3% rate effect, partially compensated by the positive yield of rentals. You can see that the expertise level is slightly increasing, 5.26% as compared to 5.10% end of 2018 and 5.2% at the end of June 2019.

Consequently, and on the next slide, you will find the detail of evolution of NNNAV per share. We had, at the end of last year, EUR 21.14. There's been, of course, an impact of dividend payout of EUR 1.09, plus EUR 1.35 FFO. And then we have a change in value of assets with the yield effect and the additional effect of the rent for a total of EUR 0.58. And then we have minus EUR 0.55 change in fair value fixed debt -- fixed-value debt. We also had the issue of derivatives and other instruments, minus EUR 0.26. So that finally, well we have a drop by 1.9% for the total of the year, minus 1.6% over the last 6 months.

And, Vincent, you have the floor again.

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Vincent Ravat, Mercialys - CEO [5]

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As you see on Slide 40, we will suggest the general assembly the payment of a dividend of EUR 1.15 per share. This includes the EUR 0.47 already paid in -- cents already paid in October. We have an increase of 2.7% in the dividend proposed as compared to 2018, and the distribution corresponds to 85% of FFO 2019. And is an agreement where the objectives, as announced by Mercialys, of at least stable dividend, 85% to 95% of FFO, 5.7% yield as compared to NNNAV EPRA, and 9.3% on the final end-of-year-rate share price. We have of course, the fixed status of $0.85 per share. The distributable dividend, EUR 0.11 per share, $0.20 per share nontaxable as written down in the books.

And as a conclusion, which you'll find on Slide 40. 2020, we aim to continue with the evolution of our portfolio mix, use of our sites, improving their usage and capitalizing on our tools of customer knowledge in the context of polarization of sites and customer habits in France. Mercialys has a financial aim for 2020, organic growth in rentals per script is 2% at least including indexation.

We have a cautious approach because of the present uncertainty on growth and consumption, and we should not forget coronavirus and potential shock we are undergoing our third crisis in 2 years. So dividend policy, we aim to have -- to be at least stable as compared to 2019 to remain within a range of 85% to 95% of FFO, 2020. So that's at least stable as compared to 2019.

The presentation is now completed, and we will move on to questions. And we begin with questions in the room.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Florent Laroche-Joubert, ODDO BHF Corporate & Markets, Research Division - Analyst [2]

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Florent Joubert, BHF. I have several questions. First question, could you tell us more about your cautious prospect for 2020? You stated you were cautious and that is reasonable from the quantitative point of view. How have you included the coronavirus aspect? Is it a 1% organic growth? How have you included this in your forecast?

And in terms of the pipeline, you can see that the pipeline -- the committed pipeline is rather low. You are looking at projects that have longer-term development in 2020. Have you considered the possibility of a go/no-go in terms of the pipeline, as committed for this year or next year?

And my third question was over the short or medium term, have you looked to simplifying your portfolio with your main shareholders? This is a question that was put by independent experts.

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Vincent Ravat, Mercialys - CEO [3]

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Thank you. I will answer the questions in that order. And let me start with the impact of coronavirus. I do not believe that there is any expert in the world who can measure today the possible impact or to anticipate any timing or time frame for the resolution of this situation at present expanding or its possible consequences. To date, we do not have an answer. But it does seem that the crisis is intensifying. We have a -- an expansion of the number of cases. The Chinese economy is closing -- increasingly closing to the rest of the world.

To date, what we can say that our own assets has not been affected by any consequences of the virus since deliveries had happened previously. Now in terms of supplies from China -- and this may vary depending on outlets. Some people have strong outlet -- strong supplies from Northern Africa or Bangladesh, so there can be a mix for deliveries. But those that are mainly sourced from China are clearly worried as to the possible consequences for the summer collections, the textile, and for Q3 should the crisis continue. But we will only know that next month. It is very difficult to forecast today. So for the moment, it's an approximation. We don't really know. We cannot measure the overall impact of this coronavirus.

Now we do know that indexation will continue to be a factor for the coming year. We need to look to the effort rates of our stores. So we are trying to remain within acceptable limits to ensure that these outlets can continue to survive on our sites.

And now let me move on to your pipeline question. You did note, and we discussed this in 2019, that there was a pause. This was a conscious choice. We had questions of the market liquidity in terms of our assets. We didn't want to have an unbalanced approach for balance sheet-to-LTV ratio where we wanted to ensure that our disposal policy was reviewed with regard to 2018 and 2019. But we've been reassured by the situation on the market. We are more confident than we were in past years as to our disposal ability. So we do have a flexible pipeline, and it does have an inertia effect, which is why we are restarting our activity along these lines. It just take time.

You saw my presentation and our choices sites, such Saint-Denis, Sainte Marie, Asnieres and Puteaux. we're also waiting for decisions of CNCC of choices that we decided to make in our -- before the administrative tribunal, in Lanester in particular.

You have a question as to a possible slowdown. Well, we have a reticence from local authorities to accept on their territories, new commercial development. And this is in a general context of a choice made by local authorities to control the development of real estate and artificialized territories. We are in -- on the eve of local elections, of course, and this affects decisions taken by local authorities in terms of allowing these projects to go ahead.

We've also been working on recharging our pipeline, but this is for the longer-term, for mixed projects, in terms of the diversity, diversification. With regard to our partnership convention with Casino, for instance, the new pipeline, which is underway, will not have an immediate effect. So it is for the medium and longer term.

The question as to possible simplification of our assets. This is something that we've been looking to in -- as from 2014, in fact, to simplify the understanding of our assets. And sometimes we had a complex interplay between our various assets, and we have a few sites that are still very much part of the assets under management with complex situations sometimes. So this is an exercise that has not been completed, but we're moving forward.

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Pierre-Emmanuel Clouard, Kepler Cheuvreux, Research Division - Equity Research Analyst [4]

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Pierre-Emmanuel, Kepler Cheuvreux. I have a couple of questions for you. Like-for-like, could we have some idea of a recession 2019 and especially your expectations and forecast for 2020. We have a lower like-for-like 2020 as compared to 2019 with the contribution of inflation, but it also might be lower. So could you tell us more about what your expectations are for 2020?

Let me move to disposals, you've identified EUR 200 million of potential disposals, do you have a timing or an ideal timing for these disposals planned? And do you -- have you already started discussions? Third question, which follows up on the third, the share has seen a drop. If you look at the results and then a EUR 200 million possible potential disposals this year, the LTV ratio will necessarily be lower. Are you considering a buyback of shares or shares put on market potentially, especially by Crédit Agricole? Also potential disposals in terms of hypermarkets. Do you have any possible negotiations between Leclerc and Casino today for disposals of hypermarket? Is there any discussions underway on the potential disposal of hypermarket that might be taken over by Leclerc?

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Unidentified Company Representative, [5]

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Your first question on organic growth. As I was saying earlier, reversion with regards to the 2019 organic growth is 9.2%. First half, I think was 9.7%. And some years back, we were about 10%. So yes, there is a continued decrease as long as rentals on the market are not progressing. So the aim for Mercialys is to continue to create reversion by ensuring that we bring in nonfood engines on our sites, increasing footfall, which I think that we have succeeded in doing over the past few years, including 2019. And this has, of course, affected sales positively. And this is also due to the new services we have set up to ensure that rentals continue to increase.

So for our forecast for 2020, we expect a positive reversion, but probably lower than it was in 2019 and the previous years. Indexation was very strong in 2019, plus 1.9%. We are expecting a drop to 1.3%, 1.4% approximately. So for the EUR 200 million assets identified for disposal, we are not at all forced to sell. That's not the situation.

As you've highlighted, we have a good situation for our ratios. We are not worried. We have no cause to be worried. And we don't have a particular problem, as we had stated previously, with regard to problematic assets. In terms of vacancy, the vacancy ratio -- financial vacancy ratio is good, as you've seen. So our assets are generating cash flow. So we have no intention at all selling at a loss. Discussions are underway. Many discussions. But we will only sign a transaction if the conditions are in line with what we consider to be the value of these sites.

Would we prefer things to move faster, yes. We have put forward a decision to simplify and streamline. So the sooner we can do this, the better. But there is no hurry. There's no pressure. There's no constraint. So I hope that the message here is clear a little bit.

Yes, buybacks for our shares. We aim for a balance between a solid balance sheet in a good position to implement projects or make acquisitions for interesting assets. And there are opportunities appearing in terms of succession of private investors or other investors with different priorities, for assets that could find a place in our portfolio. So again, we aim for a right balance, and that will be the priority for our investments, rather than buying back shares.

Finally, concerning the rumors around Leclerc and Casino. I would direct you to Casino or even Leclerc to ask the question. We don't have any further information on the issue, and therefore, we cannot comment.

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Benoît Faure-Jarrosson, Invest Securities, Research Division - Head of Real Estate Sector [6]

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Benoît Faure-Jarrosson, Invest Securities. Two questions. CapEx, EUR 9 million, 2019. That is good but a little weak. Could you tell us perhaps about a figure that you may be expecting for 2020? And disposals, could you tell us more about the type of assets? You're talking about Monoprix hypermarkets with the difference of 5% to 7%.

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Vincent Ravat, Mercialys - CEO [7]

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Okay. So CapEx, yes, we have limited substantially the level of CapEx in 2019. In the equity history, we looked to the abilities of Mercialys to have some stop and go in the pipeline, and we consider this a strength. So very few committed investments, so we can restart things quickly. And project by project, we can restart health project, leisure project, to more or less ambitious. And depending on the situation, we can select priorities.

This year, development CapEx has to do with finalizing the Le Puy project and the delivery of the extension. And we are looking at CapEx starting in 2020, we don't have a figure. We are between the figure in 2019 and over EUR 100 million.

Yes, that's what I was about to say, anticipating on that.

This is also a very good year 2019 to see quite clearly that the frugal model of our company in terms of types of centers. We didn't want to go over the top on CapEx. We want to be attractive and we managed to prove in 2019. We had a number of questions also as to the use of nonproductive CapEx, participation in works or organic growth. This is a practice that is very, very, very limited in our company, participating in works for our stores with very limited quantities.

And our approach is that positioning 2080 (sic) [2018] with traditional stores, without any difficulty in terms of attractiveness, should lead us not have to pay enormous sums to attract operators. And I think with the figure of 2019, I should prove this.

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Élizabeth Blaise, Mercialys - Deputy CEO, COO, CFO and Administrative & Financial Director [8]

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As a complement or compliment out of these EUR 9 million in 2019, actually, that was a bit of a peak for Mercialys because we had a bit of a broad vision with regards to maintenance CapEx, which includes those amounts of money for the sites directly. And also IT, as we said, we are reinternalizing IT services as opposed to the past years, where you would have had between EUR 5 million to EUR 8 million for those maintenance CapEx, in the strict sense of the term.

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Vincent Ravat, Mercialys - CEO [9]

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With regards to the disposals, no specific comments, further specific comments to be made. I mean, again, we would be looking -- do you have a bit of a mix between pragmatism and appetite by taking advantage of opportunities. And then there would be arbitrage for that part of our assets that we want to simplify. No constraints were set because this might be negative for our company, and we don't need that.

We have a question on the phone.

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Operator [10]

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Our question comes from the line of Jaap Kuin from Kempen.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [11]

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Can you hear me? Can you hear me?

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Vincent Ravat, Mercialys - CEO [12]

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Yes.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [13]

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Okay, great. Great. So on the disposals executed in 2019. You gave a number, 8% above book. Could you also maybe detail the average yield on which you sold those assets? And then maybe also describe your level of comfort with the current appraisal yields in your portfolio, also taking into account, for example, one of your peers selling a portfolio at 4.8% net initial going forward.

And then maybe just because I'm missing through translation, could you maybe just confirm that I understood correctly, if you believe that the kind of running maintenance CapEx level is EUR 5 million to EUR 8 million per year?

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Élizabeth Blaise, Mercialys - Deputy CEO, COO, CFO and Administrative & Financial Director [14]

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With regards to your second question, yes, I will confirm that our CapEx maintenance was between EUR 5 million to EUR 8 million. With regards to the appraisal value, we do not provide the average rate of disposals. We have sold significantly above appraisal values. Now there were great variations between Monoprix city center sites and small shopping centers, such as Gap.

This being said, with regards to the overall appraisal value for the company, the best evidence of appraisal fairness is illustrated by the fact that over the '18 months, we were always able to sell and dispose at the right value. For the moment, we have no specific data with regards to these asset levels.

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Vincent Ravat, Mercialys - CEO [15]

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Do we have any other questions on the phone or in the room? No other questions. Well, we are available, and we'll be very happy to answer further questions if you have any.

Thank you very much, and have a...

[Statements in English on this transcript were spoken by an interpreter present on the live call.]