Eurocommercial Properties : 26/08/2016 - Eurocommercial Properties N.V. year end results 2015/16

Summary of Results

€102.8 million, primarily due to property acquisitions and a reduction in interest expenses. The direct investment result per depositary receipt increased by 5.4% to €2.15.

Extensions and Refurbishments: The 5,500m2extension of Chasse Sud opened in June 2016, fully let. The €10.2 million project delivered a net return on cost of 8%. Refurbishments were also completed at Val Thoiry and Bergvik. Construction of the 16,000m2extension in Halmstad began during the year and is progressing well, with 90% of the space pre-let ahead of the planned opening at the end of 2017.

€42.2 million on 1 March 2016 and a contract was signed shortly after the year end to sell Kronan in Karlskrona for SEK 185 million (€19.6 million).

Ch ief Ex ecu t iv e's Commentary

This year we celebrated 25 years since Eurocommercial's quotation on the Amsterdam Stock Exchange in June 1991. The Company has since grown from one with property assets of approximately €140 million then to €3.5 billion today, including joint ventures. Dividends have risen steadily and our shop occupancy levels at 99% have consistently been the best in the industry.

Our senior management team has been extraordinarily committed and loyal with senior directors serving an average of around 20 years. They in turn have passed on their spirit of dedication to their teams in Amsterdam, Milan, Paris and Stockholm. We think that there really is a family feeling within Eurocommercial and, like all good families, we are doing our best to encourage the younger members to learn the business and develop professionally so they can ensure that the Company continues to thrive in the future.

The challenges for a property company like ours constantly change but certain fundamental criteria remain; the most important being the location of the properties, the suitability of the buildings for their purposes and a profound understanding of the needs of our tenants and their customers. The internet is one of the more recent challenges but seems to have resulted in demand for larger, not smaller, shops from the successful, omni-channel retailers, helping to maintain our low vacancy levels.

In the end, our job is to provide our shareholders with predictable, steadily rising dividends and a solid, growing asset base which we have achieved over the last 25 years through our considered investment strategy and highly professional teams, with their open and collegial culture.

Appropriately for our anniversary, 2015/16 has been one of our best years. Our asset values, income and earnings have all grown strongly and exciting property expansion and improvement projects are progressing in all our countries. The lack of inflation has held back our annually indexed rents but average retail sales growth in our centres over the year to 30 June of 2.7% is encouraging. Property values have benefitted from strong investor demand pushing down yields so that our portfolio is worth 5.4% more than it was a year ago on a like for like basis.

Commercial property markets have been strong in France, Italy and Sweden with prices rising as yields reduce, reflecting the extreme shortage of good investments. This situation is unlikely to change for the foreseeable future as long as interest rates remain so low. Relatively low GDP growth in France and Italy is balanced in our portfolio by very strong growth in Sweden. The Italian economy is recovering steadily with around 1% GDP growth but consumer spending is robust, reflecting the sound financial situation of Italian families.

The exit of Britain from the European Union is unlikely to have a significant effect on our markets because very little has been directly invested in European property by British organisations, although many major international investors operate from London. Whether they will continue to do so remains to be seen.

Our investment strategy remains one of cautious expansion in our existing markets, focussing as ever on the sustainability of rental income.

Results in Detail

Rental uplifts on lease renewals and relettings averaged 10% 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 2016 was, however, only 1.0%, largely because of 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 2016 increased by 2.7% compared with the 12 months to 30 June 2015. Retail sales growth was particularly strong in both Italy and Sweden, increasing 3.7% and 5.4% respectively. French retail sales fell by 0.5% over the period, impacted by strikes, weather (floods) and terrorism concerns. Excluding the Paris city centre properties, which were particularly badly affected by these factors, French turnover would have increased by 1.3%.

* 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 8.2% overall; 8.7% in France, 8.1% in Italy and 7.8% in Sweden.

Eurocommercial's retail vacancies represented 0.8% of rental income at June 2016. 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 1,630 tenants, there are 11 tenants in administration, nine 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 2016 increased by 6.8% to €155.4 million from €145.5 million for the same period to 30 June 2015, primarily due to the four acquisitions which were completed during the period.

The direct investment result for the year to 30 June 2016 rose 17.6% to €102.8 million from €87.4 million for the year ended 30 June 2015, mainly due to the aforementioned acquisitions and lower interest expenses. The direct investment result per depositary receipt for the year to 30 June 2016 increased by 5.4% to €2.15 from €2.04 for the year to 30 June 2015 in spite of an 11.2% 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 and in the view of the Board 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 €2.05 per depositary receipt (10 ordinary shares) from €1.98 per depositary receipt for the previous financial year. Approximately €4.4 million of the direct investment result will be added to the retained profit reserve, in part to cover the expected temporary loss of income during the rebuilding and extensions at Amiens, Carosello, I Gigli and Halmstad during the 2016/17 financial year.

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 2016. The price of these depositary receipts will be announced on 28 October 2016.

As usual, all of Eurocommercial's properties were independently valued at 30 June 2016 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 2015 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.