Hello, welcome to Mercialys' 2023 half year results meeting. During the call, you will be able to only listen. There will be a Q&A session. You will be able to press star one on your phone to ask a question during the Q&A. Over to Elizabeth Blaise and Vincent Ravat, CEO, to start our conference for today. Sir, over to you.
Hello, everyone, welcome to Mercialys' half year results meeting. To start our presentation, please go straight to slide three. Against a backdrop of macroeconomic turmoil in real estate and retail, and as well as for the Casino Group, one of our tenants, during the first half of the year, Mercialys has confirmed its strength in two areas.
Number one, on the left side of the slide, you will see that the solid fundamentals of our business model, based on affordable consumption for our customers, is clear in terms of our brand price positioning and our retail mix of rent and occupancy rates as well, below 11% at June 30th, and also in terms of accessibility of our retail sites. On the right-hand side of the slide, you will see that we have a balance sheet under control, thanks to our proven ability to find the right liquidity for our assets. This enables us not only to smoothly absorb rising interest rates, but also to have the leeway to buy selectively and profitably at the right market timing. We'll come back to these points in the course of our presentation this morning. Hello, everyone.
First of all, a word on the economic context, which makes Mercialys' positioning based on the accessibility of its offering, all the more relevant. On slide six, you'll see that since the first half of 2022, the return of inflation has been a key concern. Although it has not returned to a satisfactory level, inflation in France seems to have peaked at +6.3% in February 2023, before returning to +5.1% in May and +4.5% in June. The Banque de France expects inflation to reach +4% in Q4 2023, before slowing to +2.4% in 2024. While the outlook for normalization is positive, inflation has weighed on households' purchasing power and indirectly on their purchasing expectations.
This is all the more true in France, where our fellow citizens' perception of inflation is three times higher than its true measure, and where the index of confidence in the future has reached an all-time low, according to one survey. Despite this environment, consumption in France held steady at +0.2% in Q1 2023 and +0.1% in Q2 2023, and should remain stable over the year as a whole, according to the Banque de France, with an expected upturn of +1.5% in 2024, as you can see in slide seven. French households are still benefiting from the surplus savings built up during the health crisis of 2020 and 2021.
As you can see from the graph on the right, at 16.3%, the savings rate remains structurally amongst the highest in Europe and is still higher than the level recorded prior to 2020. Against this backdrop, we see on page eight, that shopping centers performed well in terms of footfall. We carried out a survey of almost 1,500 shoppers in our centers, and the survey shows us that our merchandising mix, anchored around everyday needs, responds well to this recurrent pattern of visits. Indeed, for almost half of our customers, these visits take place at least once a week.
Total footfall at Mercialys' sites in the first half of 2023 was down 2% on the same period in 2022, compared with the national Quantaflow index, up by 3.7%, as you can see on the left-hand side. This performance masks a significant difference between footfall at Mercialys shopping centers and the performance of hypermarkets anchoring these sites, with +2.3% for Mercialys shopping centers, in line with the market, whereas hypermarkets have experienced a significant drop in footfall, -8.9%. Such stark decorrelation is a good illustration of customers' distinct shopping itineraries, with shopping centers benefiting from their own non-food appeal. The Procos Federation of Specialized Non-Food Chains confirms that non-food sales are holding up well, with a half yearly growth of +3%.
The momentum of Mercialys' non-food tenants is also reflected in their sales, which rose by +3.5% in the first half of 2023, as illustrated in slide nine. At the end of May 2023, sales growth was +3.4% for national panel, with effect of shopping centers up by 5.2%. The national panel's high performance is essentially explained by a stronger kickback of major shopping centers within that national panel. They had been impacted by the vaccination mandates in restaurants until the end of Q1 2022. Behind such a sales performance also lie striking sectoral discrepancies, as confirmed per our recent consumer survey.
As shown in the graph on the right, the respondents pointed to their intra-category consumption choices, mainly to the detriment of textiles and, to a lesser extent, electronics and household equipment. As for the latter, this reflects a U-turn from the high level of equipment at the end of the COVID crisis. In slide 10, accessibility is a decisive element in Mercialys' offering, in the first place for tenants.
Through their local leadership, our assets help to sustain the sales of our retailers, as Vincent mentioned. What's more, since consumers use them on a very regular basis for everyday needs, their technical features can remain relatively simple, with few vertical links, no costly architectural developments, and few silo parking lots. In our last publication, we indicated the share of charges billed to our tenants, EUR 40 per square meter on average, excluding property tax.
Reasonable rents and charges, combined with our ability to generate sustained sales, have resulted in a sustainable occupancy rate of 10.9% for the first half of 2023. Reflecting changes in the market mix, this rate is slightly lower than that observed in 2022, despite the effects of indexation and charges due to energy, mainly. On the graph on the right, you will also find a breakdown of OCR by tenant segment. Structurally, OCR for textile is top end of the range, standing at 16.1% in our portfolio. Services and catering are in line with the average, and other sectors oscillate between 8% and 9%. Mercialys' business model is, thus, instrumental to the economic health of retailers, which also contributes to controlling the vacancy rate.
This model also responds to the sustainability of end consumer spending and is focused on satisfying essential needs at affordable prices for as many people as possible. Slide 11 shows that Mercialys' retail mix is highly concentrated on essential needs, so food, retailing, and restaurants, which account for almost 30% of the rental base. The everyday sectors of beauty and health, sports and leisure, and services account for 34% of rents, while discretionary spending, concentrated on personal and household goods, represents 36.8% of rents. You will also note that over the last five years, the average customer basket within Mercialys' scope has increased by almost 25% or +5.8% per year on average.
This illustrates both the attractiveness of the retail mix and the greater efficiency of each visit for customers prepared in advance and with smaller parties of people and, of course, more recently, yeah, we've had the effect of inflation. As widely reported in the press over the past few months, iconic ready-to-wear brands have shut down in France. This is a new development, other sectors, such as sports, toys, and accessories, have also followed suit. On slide 12, you'll find a list of some of the brands in a difficult situation in France in the first half of the year.
In addition to factors linked to the pandemic and to the end of associated subsidies, these closures are mainly the result of vulnerable capital structures with high levels of debt, and they're also the result of ill-adapted strategic choices vis-a-vis consumer expectations in terms of unsuccessful omni-channel approaches, unsuitable customer experiences, and not enough emphasis placed on eco-responsibility. A stark contrast, indeed, also reinforced by the fact that some mid-range textile brands have not sufficiently clarified their positioning. But just because this market is in a challenging position on average, does not mean that there's no room for recovery or growth. The takeovers of Kaporal, Pimkie, Camaïeu, Go Sport, and La Grande Récré bear witness to this.
With 0.9% of Mercialys' rental base, Camaïeu represented the largest impact for Mercialys among the brands not taken over. I will describe the progress of the associated relets in a little more detail further down the line. None of the other brands in receivership or liquidation and without a recovery plan, represented more than 0.3% of our rental base. This is largely due to the constant attention we pay to balancing our merchandising mix, as Elizabeth reminded us. This constant attention to the market mix of our sites is the focus of slide 13. You can see our overall rental exposure at June 30th, 2023.
Over the past three years, we have significantly reduced our exposure to the troubled personal goods sector, with a substantial drop of minus 196 basis points, and our exposure rate is now below 30% at 29%. As a result, Mercialys' textile exposure is much lower than that of most of our peers in the European real estate sector. This constant quest to diversify our merchandising mix is reflected in the diversity of brands targeted for relettings of the former Camaïeu stores.
They range from the optical and beauty and health sectors to more upmarket textile brands, such as Lacoste. Faced with increasing polarization, a significant reduction in market depth, particularly in the textile sector, we consider Mercialys' balanced merchandising mix and the average size of our assets, which do not exceed 135 stores, to be highly appropriate indeed.
In terms of the market mix, Mercialys strongly believes in diversifying its rental risk by focusing on food anm g. While the health crisis has reestablished the central role of hypermarkets in French food retailing in the eyes of observers, in the discussions we have with all of you, the theme of these models running out of steam comes up regularly. While some operators are in a difficult position with hypermarkets that are too big or with an ill-adapted
offering, the success of decentralized formats, in particular, demonstrates this inescapable role. Slide 14 shows that hypermarkets and supermarkets are still the main shopping channels in France, according to a 2023 survey on channel-related choice criteria. Not only for the best prices, a decisive advantage in times of inflation, but also for access to new products, a wide range, and more responsible consumption.
Mercialys, therefore, intends to maintain an exposure to market hypermarkets, a tenant category with a recurring index-linked revenue profile and very little exposure to competition from online sales, as recently demonstrated by the disappearance of almost Quick Commerce players. Our strong belief in food retailing goes hand in hand with a desire to diversify our rental risk. Cue slide 15, with Mercialys' exposure to the Casino Group. The map shows the distribution of hypermarkets owned by Mercialys within our portfolio. You have five food superstores, including one Monoprix, operated by Casino and 100% owned by Mercialys.
Five food superstores operated by Casino and 60% owned by Mercialys in Corsica, then superstores operated by Casino and owned 51% by Mercialys and 49% by BNP Paribas, and finally, three Monoprix stores and two hypermarkets operated by Casino and owned 25% by Mercialys and 75% by Amundi. Mercialys' economic exposure to Casino was therefore 18.3% at the end of June 2023.
Via Casino's communications, you've been able to follow both the conciliation procedures opened with the financial creditors, as well as the equity contribution offer filed, and which will be the subject of negotiations. In this respect, I would like to point out that Mercialys is not part of the conciliation procedure, and that the Casino Group is up to date with its rent and service charge payments, including for the third quarter of 2023.
You will also note that a memorandum of understanding has been signed with Les Mousquetaires group, so the Intermarché chain. Under this agreement, Géant stores will be transferred to Intermarché within the next three years. According to the press, seven Mercialys sites are concerned, including five, where we do not own the hypermarket: Tours, Albertville, Montpellier, Millau, and Valence, and two, where Mercialys owns 51% of the hypermarket, Le Puy, and 25% in Besançon. Those stores transfers will help to diversify Mercialys' rental base at the two sites, as well as the overall diversification of the food anchoring of its portfolio slide, already well underway in La Réunion, Rennes, Rodez, and Montauban. At the same time, consumption patterns have evolved towards greater specialization, often making hypermarkets' non-food offerings less relevant.
As a result, surface areas are becoming too large, offering opportunities to restructure and rehaul with the benefit of the shopping arcade by creating new store locations or medium-sized stores to reinforce site leadership. This transformation and reletting process is one of Mercialys' long-standing areas of expertise and offers potential for positive reversion in the long term. Slide 16 gives a few examples of what has been achieved in Nîmes, Besançon, and Annecy.
The average surface area of hypermarkets owned by Mercialys is over 12,000 square meters, so restructuring to a more optimized 9,000 square meters would result in the conversion of around 90,000 square meters into shopping mall space. Slide 17. The current financial vacancy rate, excluding strategic vacancies to facilitate the implementation of expansion and restructuring plans, stands at 3.3% for the first half of 2023.
In line with the expectations, communications in February 2023, following the liquidation of Camaïeu, this vacancy rate is up on the 2.9% recorded at end June 2022 and 31st of December, 2022. Camaïeu represented 0.9% of Mercialys' rental base. At the end of June, seven stores were leased, so almost 45% of the rents concerned, and an initial agreement has also been signed for two stores,
accounting for 15% of the rents concerned. It should also be noted that relets had an average positive reversion of +9%. Excluding the 30 basis point impact of vacancies linked to Camaïeu, the current financial vacancy rate was virtually stable at the end of June 2023. Leasing momentum is illustrated by the signing of 65 lease renewals or relets in the first half of 2023.[crosstalk]
The reversion rate associated with these negotiations was +1.1% in a stark reversion rate context. Against this general backdrop, our ability to evolve in line with our customers' expectations once again underpinned our robust performance, which is summarized in slide 18. In the first half, our organic growth in invoiced rents was +4.2%. Our EBITDA was down compared with the first half of 2022, due to a strong base effect last year of non-recurring items linked to the management of the Covid crisis, and indeed, last year it stood at 87%. We're returning now to a more normal EBITDA level. Recurring earnings per share, FFO per share, came to EUR 0.62.
This represents an increase of +0.3% compared with the first half of 2022, is in line with our target for the year. As of the end of June 2023, our LTV ratio, including transfer taxes, stood at 36.1%, up from 34.3% as of the 30th of June 2022. With regards to EPRA NAV net asset value per share, it came to EUR 18.8, down 4.3% year-on-year. It should be noted that this indicator was very positively impacted in the second half of 2022 due to the change in the fair value of fixed rate debt. More on this in the next few slides. Let us start with slide 19, with organic rental growth.
In the first half of 2023, it stood at +4.2%, including a 3.8% indexation effect. Given the continuing high inflation, the indexation cap for SMEs set by a law passed in August 2022, which was extended to the 31st of March, 2024. When considering requests from the tenants concerned, with regards to this cap, the impact of this cap will reduce the effect of published indexation by around 10 basis point over the first half of 2023. Actions taken on the portfolio had a negative impact of EUR 1.3 million on organic growth, notably through the impact of financial vacancies. However, our solid letting performance should support organic growth in the medium term.
Similarly, the contribution of variable rents rose by EUR 1.4 million, contributing 1.7 points to organic growth over the period. This testifies to the resilience of tenant activity. Changes in the scope of consolidation had a negative impact of EUR 1.7 million on first half rents, mainly due to the disposals completed in April 2022, with two hypermarkets, and in December 2022, with shopping malls, in two locations. Lease rights, on the other hand, did not vary significantly. Rental income came to EUR 88.2 million, up by 2% on the first half of 2022. Slide 20 now, with our recurring income, our FFO. Here, you'll find the EUR 1.7 million increase in rental income.
Rental expenses for the half year represented EUR 5.6 million at June 30, 2023, compared with EUR 1.4 million last year. In the first half of 2022, we benefited from non-recurring income of EUR 5.7 million in respect of the impacts of the health crisis, which reduced the level of expenses. At the end of June 2023, the impact of this exceptional situation was limited, very limited, at EUR 0.4 million, which largely explains the difference. Overheads rose modestly, reflecting, once again, Mercialys' efforts to control costs despite the impact of inflation on costs. Taking these factors into account, EBITDA came to EUR 72.3 million, down 3.9% on June 30, 2022.
EBITDA margin stood at 82% versus 83.2% in 2023, and 87% at June 30th, 2022. Net financial expenses stood at -EUR 13.7 million at June 30th, 2023, compared with -EUR 14.2 million at end June 2022, benefiting from financial restructuring operations carried out in Q1 2023. Other operating income and expenses, including capital gains on disposals and impairment, represented an income of EUR 3.4 million, compared with a net income of EUR 0.8 million in the first half of 2022, or EUR 2.5 million. This includes the effect of a EUR 2.1 million provision reversal relating to a property dispute in La Reunion.
Taxes represented an expense of -EUR 0.3 million at end June 2023, stable compared with the first half of 2022. Share of net income from associates is also stable compared with June 30, 2022, as are non-controlling interests as of the 30 of June, 2023, in line with the first half of 2022. Taking these items into account, FFO was stable, also compared with June 30, 2022, at EUR 57.5 million. It's up 0.3% per share to EUR 0.62, adjusted for exceptional items related to the health crisis. Recurring income would be up 10.3%.
Let's move on to slide 21, which shows changes in APRNV, which stands at EUR 18.8 per share, down 10.2% over six months and 4.3% over 12 months. The main variations are the dividend for 2022, for -EUR 0.96 per share, recurring earnings for +EUR 0.62 per share, the change in fair value of assets of EUR 0.89 per share, including a rent effect of EUR 1.24 per share, a yield effect of EUR 2.3 per share, and other effects of EUR 0.16 per share. The change in the fair value of fixed rate debt had an impact of EUR 0.63 per share.
Mercialys' bond debt is still trading below par, but has risen in value compared with the 31st of December, 2022, which explains this negative variation. Lastly, the fair value impact of derivatives and other items for -EUR 0.27 per share. If we look in detail at the value of our portfolio in slide 2022, you can see that it stands at 2.799 billion EUR, excluding transfer taxes, down -3.4% over six months and -4.3% over twelve months on a like-for-like basis. Over the past six months, the like-for-like increase in value was due to a rent effect for +5%, sorry, +4%, and a -7.4% yield effect.
The average appraisal yield was 6.21% at the end of June, up by 46 basis point, compared with the end of December 2022, and +50 basis point, compared with June 30th, 2022. The appraisers maintained a side-by-side approach to appraisal based on the intrinsic risk and marketability of each asset, and their assumptions did not fundamentally change from one half year to the next with regards to the long-term rental growth rate or the metric rent ratio. However, appraisers did pass on the impact of rising interest rates in their appraisal rates or adjusted risk premiums to take account of a perceived increased risk in rental income linked to the group, Casino. You have a few comparative data on slide 23.
You can see that Mercialys' appraisal rate is clearly higher than that of other real estate segments in France, whether it be logistics, shopping centers, retail parks, or offices. The same appraisal rate of 6.21% represents a spread of 330 basis points over the risk-free rate, i.e., the 10-year OAT, as it stood at the end of June 2023. These factors demonstrate the defensive nature of our asset appraisal parameters. This profile is not reflected in the discount on NAV, which remains at 46%, at a level comparable to that observed during the health crisis of 2020. Slide 25 shows that the refinancing operations of the company's debt in the first quarter of 2022 gave Mercialys a satisfactory maturity of 4.2 years at the end of June 2023.
No bonds mature before February 2026. Mercialys has also undrawn financing resources for a stable amount compared with EUR 385 million at the end of December 2022, 69% of which was extended during the first half of 2023. As a result, the average maturity of undrawn bank borrowings was at three years, an optimization of +0.9 years. Furthermore, at the end of June 2023, 100% of the undrawn bank credit lines included ESG criteria, compared with just over 53% at the end of 2022. Lastly, Mercialys's triple B financing rating with a stable outlook was reiterated by Standard & Poor's on the 24th of February 2023.
On slide 26, you can see the average real cost of debt drawn for the first half of 2023 was 2.1%, virtually unchanged from the previous year's level of 2% for the whole of 2022. Against a backdrop of sharply rising interest rates from the first half of 2022, Mercialys has strengthened its fixed rate debt coverage ratio, which stands at 96% for 2023, and 100% for 2024, compared with 87% at the end of June 2022.
The introduction of fixed rate instruments and the termination of variable rate instruments will result in an increase in the average cost of debt drawn, which will be close to the average cost of the bond debt by the end of 2023, i.e., 2.6%. Slide 27. Mercialys financial structure has remained very sound, as we said, with an LTV ratio excluding transfer duties of 38.6% of the 30th of June 2023, as compared with 35.3% of the 31st of December 2022, 36.6% at 30 of June 2022.
Including transfer taxes, these ratios stood at 36.1% at the end of the first half of the year, compared with 33.0% at December 31, 2021. The ICR ratio was 5.2x at June 30, 2023, compared with 5.9x at December 31, 2022. This is well above the minimum level, at least 2x set by the banking covenants. On slide 28, you can see the characteristics of investments that we may consider.
In the case of both projects and acquisitions, the aim is to strengthen the leadership of assets held by Mercialys, and boost the potential of rent reversion by diversifying their use through the development of health or co-working centers, but also to continue to establish medium-sized stores, if necessary, by optimizing the hypermarket floor space. We will also be able to reconfigure certain assets and continue to improve the customer experience with projects focusing on food, drink, and leisure. The recent acquisition of a stake in the DEPUR Group, which I'll mention in a moment, will give us more possibilities in this area. We're also looking at targeted asset acquisitions in our core retail business or in related diversification.
These investments will have to meet a strict quality criteria in terms of rental exposure and geographic location, and they must include resilient sectors, such as food. These acquisitions may be achieved directly by us or in partnership. In that case, Mercialys would be able to capitalize on its management expertise for third parties. Lastly, Mercialys participates in calls for projects to develop new real estate, once again, on its own behalf or in partnership.
In addition to consolidating development margins, Mercialys aims to retain retail property it develops. As we mentioned in February, the economic and interest rate context means that a highly selective approach to projects and acquisitions, which must meet demanding criteria of a 250 basis points return above the refinancing costs, must be applied.
This will help us to boost the yield on the asset portfolio ahead of the refinancing of bond issues, due to mature from 2026. Investments will also be made, while maintaining the company's major balance sheet ratios. Mercialys continues to strengthen its know-how, and with a view to reinforcing its expertise in consumer trends, the company took part, a couple of days ago, in an event
organized by the DEPUR Group, which specializes in design and execution of large-scale food and beverage and entertainment projects, or the F&B & E, as you can see on slide 29. Mercialys played a major role in this fundraising event, alongside Bouygues Immobilier and the Tourism Leisure Fund of the Banque Publique d'Investissement, becoming a major shareholder of the DEPUR Group.
DEPUR's offer consists of structuring a range of food and drink, and entertainment, leisure activities also, is in a single location, combined with a complete customer experience. This offer is designed to enhance the appeal generated by the real estate and commercial mix of the retail outlets in order to develop footfall and sales for retail chains, once again, with a view to supporting the potential for rent reversion. Finally, in addition to what I was saying about the development of portfolio, you can see a breakdown of this on slide 30. The end of June 2023, the company's project portfolio stood at EUR 471 million for 2027 and beyond.
As I was saying a moment ago, we will be analyzing the launch of these projects on a case-by-case basis, based on a positive spread that will be determined by the group of 250 basis points over the refinancing cost. This is why, in a volatile environment, for construction costs, particularly over the long term, we have removed the notion of a target yield that was normally presented. This portfolio consists almost half of Mercialys sites.
Around 30% of the projects involved restaurants, leisure, and service activities, illustrating Mercialys' expertise in multi-use facilities beyond its core retail property business. This potential for reconfiguring sites will help to maintain their attractiveness beyond local retailing alone. This ensures their long-term viability in the catchment area, as well as their cashflow profile.
Having access to an asset base of almost 800,000 square meters on a portfolio of projects as extensive as this, is invaluable in the context of a restrictive regulatory environment for commercial property developments. You may recall that the Climate and Resilience Law enacted in 2021 with the objective of Zéro Artificialisation Nette, will make it considerably harder to build a new capacity from now on. You can see in slide 31, this will only reinforce an already well-established trend of declining administrative rents in the commercial property sector. The development portfolio naturally takes these regulatory aspects into account. This context should provide support for the value of retail property in France over the medium term, including the value of Mercialys assets.
In conclusion, the events of the first half year may have appeared to some observers to be relatively unfavorable to Mercialys, yet the company's operating activity, based on a business model that's particularly well suited to the current economic climate, has performed very well and resiliently. Mercialys also showed over the first half of the year that its solid balance sheets and its historically
cautious approach, have enabled it to adapt to the persistently unfavorable trend in interest rates, while maintaining its capacity to invest selectively for future growth. In an environment where interest rates and possibly inflation look set to remain persistently high, the company is approaching the next phase of its strategy with confidence. Our performance over the first half year, which is represented, allows us to confirm our targets for 2023.
Namely, as you can see on the slide, growth in recurring earnings, that's the FFO per share of at least +2.2% versus 2022, and a dividend in the range of 85% to 95% of the FFO for 2023. We have finished the presentation. Now, I suggest that we move to the traditional Q&A session. Ladies and gentlemen, just to remind you, if you'd like to ask a question, please press star one on your keypad, and we will tell you when to ask your question. Just to remind you, it's star one if you would like to ask a question. Thank you.[crosstalk]
Last reminder, if you'd like to ask a question and you want to participate in today's conference, please press star one on the keypad of your phone. Well, I think this period of the year is very heavy in terms of the different publications, or we've been crystal clear. Whatever the situation, we are available with the team to answer any questions you may have later on. On that note, I suggest that we close this presentation for the half year results. Well, I'd like to wish you a very nice summer.