Mercialys: 2017 First-Quarter Activity

Regulatory News:

Eric Le Gentil, Mercialys' (Paris:MERY) Chairman and CEO, commented: "The first quarter of 2017 once again confirmed Mercialys' operational excellence, delivering +3.3% organic growth, consistent with the target for full-year growth of over 2%.

The single brand, the work carried out to adapt centers in line with the new concept, and the digital ecosystem are all powerful drivers to generate footfall and business for our retailers. They have enabled Mercialys’ shopping centers to continue to outperform the market, coming in +320 basis points higher for footfall and +300 basis points for retailer sales.

Lettings were also ramped up in the first quarter of 2017, with 90 leases signed, up 50% from the first quarter of 2016. Around 20 new retailers will be joining Mercialys' portfolio, further strengthening the appeal of our merchandising mix and securing our outperformance for the long term”.

I. Change in rental revenues

Mercialys' dynamic commercial development was confirmed in the first quarter of 2017, with like-for-like growth of +3.2% excluding indexation (+3.3% including it). Invoiced rents climbed to Euro 45.7 million, up +1.6% year-on-year.

Factoring in lease rights and despecialization indemnities, rental revenues came to Euro 46.2 million at March 31, 2017, up +1.4% from March 31, 2016.

The change in invoiced rents primarily reflects the following factors:
- Continued, very robust organic growth in invoiced rents: +3.3 points,
- Acquisitions in 2016: +5.7 points,
- Impact of assets sold in 2016 and 2017: -6.6 points,
- Other effects primarily including strategic vacancies linked to current redevelopment programs: -0.9 points.

Like-for-like, invoiced rents are up +3.3%, including:
+2.2% for actions carried out on the portfolio. Note that the impact of adjusting for rent-free periods and step-up rents over the fixed lease term (IAS 17), which had represented 0.6 points for the full year in 2016, came to just 0.2 points, back in line with historic levels.
+1.0% for the development of the Casual Leasing business, which generated nearly Euro 2.0 million of rental income, a very significant increase of +28% versus the first quarter of 2016.
+0.1% for indexation.

Lease rights and despecialization indemnities received over the period¹ are up Euro 0.3 million from March 31, 2016 to Euro 0.4 million. After factoring in the deferrals required under IFRS, lease rights at end-March 2017 came to Euro 0.5 million, compared with Euro 0.6 million for the first quarter of 2016.

II. Strong identity and range of initiatives effectively securing the sustainable outperformance by Mercialys centers

In 2015, Mercialys created the G La Galerie brand with a view to establishing a strong, differentiating identity for its entire portfolio.

The G La Galerie brand has now been rolled out across Mercialys' 55 centers (excluding high-street assets), and the red color and G La Galerie logo, the brand's iconic symbol, are now established as strong signs of recognition for Mercialys’ sites within France's retail landscape. Easily identifiable and recognizable, the centers are benefiting from new visibility. The concept's direct, impactful style has provided the sites with a vibrant, modern look and feel, while respecting each site’s heritage and historic structures. Recognizing this, the G La Galerie brand received the "Janus du Commerce 2016” award from the French design institute in 2016.

In addition, the graphic guidelines have been rolled out for all the directional communications media, with the signage renewed, to deploy even more effective markers for customer journeys and facilitate their visits. At more than 20 sites, the brand change has been combined with work to refurbish their interiors, with a strong focus on the offering’s visibility and commerciality, as well as a practical and welcoming customer experience.

A digital ecosystem has been deployed alongside these transformations, offering a wide range of services and benefits for customers across the various centers and grouping together practical information, local community news, shopping trends and events involving the centers' retailers. A digital loyalty program, the Challenge Fidélité, accessible with the G La Galerie application, has also been rolled out at 16 centers.

Capitalizing on the G La Galerie brand, Mercialys has also put in place a national B-to-C communications strategy. Several marketing campaigns have been carried out with Stéphane Plaza, a renowned French TV host, at key times in 2016 and 2017 (Christmas holidays, sales periods, etc.). Mercialys is benefiting from economies of scale and greater efficiency with its marketing policy, which is contributing to the good performances achieved by its sites in terms of footfall and retailer sales growth.

The company's shopping centers have been delivering once again, since the beginning of 2017, significantly better performances than the national average.

The sales figures for retailers in Mercialys centers², over 12 cumulative months to end-February 2017, strongly outperformed the overall shopping center sector (CNCC³) by +300 basis points, with +0.9% growth.

Footfall in Mercialys shopping centers², in the first quarter of 2017, outperformed the national market (CNCC³) by +320 basis points, posting +0.4% growth versus the first quarter of 2016, compared with a significant contraction of -2.8% for the CNCC.

III. Outstanding commercial progress, with 90 new leases, including around 20 new retailers signed up in the first quarter of 2017

Building on its leading positions in its catchment areas, Mercialys confirmed its appeal and further accelerated its dynamic development in the first quarter of 2017, with 90 leases signed, up +50% from the first quarter of 2016.

Following a year, in 2016, when it welcomed around 40 new retailers in its centers, Mercialys has continued to diversify its retail offering and has already attracted so far around 20 new national and international retailers.

Both existing sites and ongoing projects are benefiting from this robust performance.

Sostrene Grene, the Danish affordable design and home accessories brand, will be opening, for instance, its first store in Mercialys' portfolio this summer, moving in to the La Galerie Espaces Fenouillet center in Toulouse. It will help further strengthen the attractive merchandising mix available at this iconic new asset.

At the La Galerie Espace Monthieu center in Saint-Etienne, with work underway on an extension for over 3,500 sq.m, Acuitis, the innovative optical and hearing brand, and Promovacances will be moving in, further enhancing this center's retail offering and performance.

New food brands such as Boréa or Sen’do Sushi will also diversify the range of dining options available at the various Mercialys centers, in line with the Group's strategic focus.

At end-December 2016, Mercialys had a balanced retailer mix, with 88% national and international retailers and 12% local retailers⁴.

At end-March 2017, the current financial vacancy rate⁵ was 2.3%, an improvement of 20 basis points compared with the end of December 2016.

IV. Payout of Euro 0.63 per share on May 4, 2017

On February 14, 2017, Mercialys' Board of Directors proposed, subject to approval by the general shareholders’ meeting on April 27, 2017, to set the dividend for 2016 at Euro 1.06 per share (including the interim dividend of Euro 0.43 per share already paid in October 2016).

This represents a yield of 5.2% in relation to Mercialys’ EPRA NNNAV from December 31, 2016 (Euro 20.22 per share) and 5.5% compared with the share price from the end of the year.

After deducting the interim dividend already paid out, the balance on this dividend represents Euro 0.63 per share. It will be paid in full in cash on May 4, 2017.

The ex-dividend date is May 2, 2017.

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This press release is available on www.mercialys.com

About Mercialys

Mercialys is one of France's leading real estate companies, focused exclusively on retail property.
At December 31, 2016, Mercialys had a portfolio of 2,229 leases, representing a rental value of Euro 181.9 million on an annualized basis.
At December 31, 2016, it owned properties with an estimated value of Euro 3.8 billion (including transfer taxes). Mercialys has had "SIIC” real estate investment trust (REIT) tax status since November 1, 2005 and has been listed on Euronext Paris Compartment A (ticker: MERY) since its initial public offering on October 12, 2005. At December 31, 2016, there were 92,049,169 shares outstanding.

IMPORTANT INFORMATION

This press release contains certain forward-looking statements regarding future events, trends, projects or targets.
These forward-looking statements are subject to identified and unidentified risks and uncertainties that could cause actual results to differ materially from the results anticipated in the forward-looking statements. Please refer to the Mercialys registration document available at www.mercialys.com for the year ended December 31, 2016 for more details regarding certain factors, risks and uncertainties that could affect Mercialys' business.
Mercialys makes no undertaking in any form to publish updates or adjustments to these forward-looking statements, nor to report new information, new future events or any other circumstances that might cause these statements to be revised.

¹ Lease rights received as cash before the impact of deferrals required under IFRS (deferral of lease rights over the firm period of leases)
² Mercialys’ large centers and main market-leading local-format centers based on a constant surface area
³ CNCC index – all centers, comparable scope
⁴ As a percentage of annualized rental income
⁵ Rate excluding "strategic” vacancies designed to facilitate the implementation of extension-redevelopment plans

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