Eurocommercial Properties : 25/08/2017 - Eurocommercial Properties N.V. year end results 2016/17

Highlights

Like-for-like rental growth over the 12 months has been strong across the portfolio at 4.1%, notwithstanding almost 0% inflation and, therefore, no rental indexation. Italy was best with 5.6%; then Sweden at 3.2%; and France at 2.3%.

Overall, property values rose by 5.0% over the year. In Italy, the increase was 6.7%; in France, 2.8%; and in Sweden, 5.5%.

Earnings, expressed as the direct investment result, rose by 3.7% to €2.23 per depositary receipt, a record level for the company.

The Adjusted Net Asset Value per depositary receipt increased 8.0%, an increase of €195 million.

The Board is recommending a dividend for the year of €2.10 per depositary receipt, an increase of 2.4% on the €2.05 paid in 2016.

Overall, retail sales decreased 1% for twelve months, but improved over the three months to 30 June to plus 0.7%.

Ch ief Ex ecu t iv e's commentary

2017 was one of our busiest and most successful years with strong increases in both rental income and property values. Earnings have reached record levels and we have extended the maturity of our loans and our swaps to lock in current low interest rates.

Property investment markets in France, Italy and Sweden continue to be strong, particularly in France where yields had reduced and remain firm with good demand from French and foreign institutions. We have signed a contract to sell 74 rue de Rivoli, Paris to a major institutional investor for a net price of €79.6 million and with a net yield of 3%. The property has produced a total return of 13% per annum since its purchase in 1998. Completion is expected to take place in October.

In Italy, valuations yields have declined for the larger properties, bringing them closer to French levels. I Gigli and Carosello are now valued at under five percent. The Swedish market has retained its strength, despite possible tax reforms now delayed until at least 2018.

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Eurocommercial's attractive and popular centres continue to perform well in 2017 with 99.5% occupancy levels, benefitting from continual upgrading and re-letting to such strong international names as Primark and Zara. In 2017, they generated €186 million in rental income. Our Occupancy Cost Ratio of 8.5% reflects our long-term commercial approach to building sustainable and close relationships with our tenants, resulting in the lowest levels of vacancy and arrears in our industry.

The shopping centre developments of Halmstad and Kristianstad are both on schedule for construction and lettings, with the former in line to deliver a 7% net return on cost. The exemplary expansion and refurbishment of our largest centre, I Gigli (95,241m² of which 12,192m² was refurbished/expanded), was completed in 2017 and we welcomed the first Primark store south of Milan, a much enlarged Zara and an exciting new restaurant concept - the Mercato Centrale 'Ai Banchi'. In France, the 5,000m² extension of the gallery in Amiens is scheduled for completion in October 2017.

The agreed sales of Rue de Rivoli (France) and Mellby (Sweden), which are examples of our asset rotation programme, will release nearly €100 million, which we will reinvest into further expansion projects.

With high occupancy levels throughout our attractive shopping centres, plus the completion of several exciting expansion projects in the coming months, we believe the outlook for Eurocommercial in the next 12 months is excellent.

* Excluding hypermarkets, Systembolaget and extensions

** On a proportional consolidated basis

*** Proposed, subject to shareholder approval

2017 Financial & operational review

Rental uplifts on lease renewals and relettings averaged 21% across the portfolio over the year, a positive reflection on tenant demand. Overall like-for-like rental growth for Eurocommercial's galleries for the 12 months to 30 June 2017 was, 4.1%, despite zero annual indexation of rents, all of which are tied to national inflation measures, usually CPI (consumer price index). The figures outlined below compare tenancy schedules (same floor area) at the balance dates. In addition, to renewals and relettings, rental growth components also include indexation and turnover rents but exclude entry premiums.

* Excluding extensions

Overall like-for-like (same floor area) retail sales in Eurocommercial's shopping centres for the 12 months to 30 June 2017 declined by 1%, but increased by 0.7% for the three months to 30 June 2017. Retail Sales Growth was strong in Sweden, increasing by 2.3% for the twelve months.

* Excluding hypermarkets, Systembolaget and extensions

* Excluding extensions

Total occupancy cost ratios (rent plus marketing contributions, service charges and tenant property taxes as a proportion of retail sales including VAT) for Eurocommercial galleries excluding hypermarkets and Systembolaget at the end of the year were 8.5% overall; 8.9% in France, 8.3% in Italy and 8.0% in Sweden.

Eurocommercial's retail vacancies represented 0.5% of rental income at June 2017. Eurocommercial will continue to ensure that its occupancy cost ratios are reasonable and that rents are, therefore, affordable for its tenants. This is reflected in the arrears of more than 90 days which remain less than 1% of rental income.

Out of a total of almost 1,750 units, there are eight tenants in administration, five of which are still paying rent.

Net property income, including joint ventures (on the basis of proportional consolidation), for the 12 month period to 30 June 2017 increased by 4.9% to €163.0 million from €155.4 million for the same period to 30 June 2016.

The direct investment result for the year to 30 June 2017 rose 5.1% to €108.0 million from €102.8 million for the year ended 30 June 2016, mainly due to a full year of income from Fiordaliso and Perugia, the additional income of Hyères and lower company expenses, despite the sale of Kronan during the year and slightly higher interest expenses. The direct investment result per depositary receipt for the year to 30 June 2017 increased by 3.7% to €2.23 from €2.15 for the year

to 30 June 2016 in spite of a 1.3% increase in the average number of depositary receipts in issue during the year.

The direct investment result is defined as net property income less net interest expenses and company expenses after taxation. In the view of the Board, this more accurately represents the underlying profitability of the Company than the IFRS "profit after tax" (which must include unrealised capital gains and losses).

The Board proposes increasing the annual dividend to €2.10 per depositary receipt (10 ordinary shares) from €2.05 per depositary receipt for the previous financial year, an increase of 2.4%.

Holders of depositary receipts will again be offered the option of taking new depositary receipts from the Company's share premium reserve, instead of the cash dividend payable, on 30 November 2017. The price of these depositary receipts will be announced on 3 November 2017.

As usual, all of Eurocommercial's properties were independently valued at 30 June 2017 by major international firms in accordance with the standards set out in the "Red Book" of The Royal Institution of Chartered Surveyors. The change in values of the properties since June and December 2016 are set out in the table below, together with their net yields.

The net yield figures are derived by dividing expected net income for the coming year by the valuation figure, to which has been added the relevant standardised market allowance for deemed purchaser's costs (usually notional transfer taxes) in the particular country. The objective is to replicate the calculations of a professional institutional investor.