A turning year marked by numerous successes
Jacques Erhmann: 2010 was an eventful year for Mercialys, with solid financial results and intense operating activity. We also took another step forward with our strategy with the adoption of an asset sales policy.
In terms of results, we achieved double-digit growth in rental income and cash flow in 2010 for the fifth year in a row. The value of our portfolio increased by 5% year-on-year to Euro 2.6 billion at the end of 2010. This means that we have achieved a near three-fold increase in the value of our properties in the space of five years. In terms of operations, we completed more properties, launched more construction projects and signed more new leases than ever before. The rate of completions of Alcudia/"Esprit Voisin" development projects increased significantly in 2010 with no fewer than seven openings in Castres, Brest, Fontaine-les-Dijon, Sainte-Marie (La Réunion), Annecy, Paris and Lons-le-Saunier. Another point of note is the specialty leasing business, which also saw further strong growth thanks to the implementation of a dedicated team. These solid results were achieved thanks to the expertise of our staff and their day-to-day efforts to create value from our properties. More broadly speaking, they are also thanks to our innovative marketing approach centered on a local presence, which is a huge success with our customers and partners.
J.E.: Yes. With our tax commitment to keep hold of our properties contributed five years ago coming to an end, we were able to initiate an asset arbitration policy in 2010. At the end of 2010, we therefore sold 45 mature properties - representing around 5% of our portfolio - which allowed us to realize a capital gain of Euro 31 million. This means that our shareholders will benefit from a much higher dividend for 2010, as we will pay out 50% of the net capital gains realized in 2010. In addition to this policy of asset sales, we have continued invest, including in particular the acquisition of the new La Caserne de Bonne shopping center in late 2010. This impressive property is at the heart of a fast-growing eco-district in the center of Grenoble. It is exemplary in terms of environmental quality standards, winning Mercialys the "City and Future" Trophées des SIIC award and the "Shopping center creation" award from Procos.
J.E.: Having been around for just five years, Mercialys has already made great progress and successfully demonstrated the relevance of its business model. Our staff have worked remarkably hard to develop, enhance the value of and expand Mercialys's portfolio. Thanks to this ongoing work on our properties, a number have now reached maturity. It is therefore natural that we should sell them to long-term investors, as we are above all a company specializing in transforming retail premises, rather than a collector of properties. Selling these mature properties allows us to focus on our core business of enhancing the value of and converting properties with potential. In other words, our growth is now based on an ongoing cycle of acquiring properties presenting potential for value creation, extracting their reversionary potential, developing and restructuring our sites under controlled risk conditions and selling properties once they have been expanded and reached maturity.
J.E.: "Esprit Voisin" is Mercialys's trademark, representing our unique approach to our core activities of enhancing the value of and optimizing our properties, and converting and managing our shopping centers. We have inherited a fundamental value from our parent company, the Casino Group: that of local presence. This is in terms of both our geographical presence and on a personal level, and with the "Esprit Voisin" program this has become the key value in the relationship between Mercialys and its customers. We have a close relationship with our partner retailers, as well as with our customers in order to give them a shopping experience based on enjoyment, trust and loyalty. We also have a close relationship with the regions in which we operate, respecting the local environment and playing an involved role in the region's social fabric. In 2010, this commitment was reflected by the creation of "Label V", the first sustainable development quality indicator used for shopping centers. We also introduced a customer loyalty program, joining the S'Miles alliance alongside leading retailers. These two innovative and pro-active initiatives attest to our community-minded approach and constitute real proof of the "Esprit Voisin" concept.
J.E.: The program concerns the transformation of Mercialys's portfolio of shopping centers. It consists of creating growth by enhancing the performance of our properties on the basis of the unifying "Esprit Voisin" concept. At the end of 2010, 25% of our portfolio had already undergone redevelopment, renovation or extension works, and we are not stopping there. We have a large pipeline of extension projects. 2011 and 2012 will be peak years in terms of development projects, with 11 "Esprit Voisin" extensions due to be completed in 2011 and more than a dozen in preparation for 2012. Half of our sites will therefore have increased in value at the end of 2012, representing over 100,000 m² of space created or redeveloped, and annualized rental income of around Euro 35 million.
J.E.: 2011 will see the completion of symbolic projects such as Marseille La Valentine, Villefranche-sur-Saône, Annemasse, Ajaccio and Auxerre, to be followed by further projects in the coming years.
Mercialys plans to invest a total of Euro 100 to 150 million a year over the next few years. At the same time, we intend to continue with our asset turnover policy, looking to sell 3 to 5% of our properties each year, depending on market opportunities. Over the last five years, we have adopted a truly "industrialized" value creation process that should fuel our growth over the years ahead and benefit all of our partners, including retailers and customers, as well as our shareholders and employees. It is with this outlook in mind that we have set ourselves the ambitious target for 2011 of growth in funds from operations (FFO) per share of over 5% relative to 2010.
We want to continue to pursue our strategy with the same pursuit of excellence, taking a hard-working, bold and highly pro-active approach to developing properties, as well as a strong desire to undertake new projects and surprise people.
