Mercialys: Business Model Continuing to Fare Well

Regulatory News: Mercialys (Paris:MERY): The first half of the year was characterised by strong growth on the basis of Mercialys's solid fundamentals > Rental revenues: +17.7% at Euro 57.0 million > Total cash flow: +15.8% at Euro 50.3 million > Recurring operating cash flow2: +17.2% at Euro 49.3 million > Net income: +14.5% at Euro 41.4 million Acquisitions and investments made or committed during the first half of the year amounted to Euro 74 million. > Acquisition of a portfolio of three shopping centres for Euro 39.2 million, representing an initial yield of 5.7% and a potential medium-term yield of around 7.5% > Options exercised on first Alcudia extensions: Valence Sud and Lanester The portfolio is valued at Euro 2,074 million (+8% over six months) > An average capitalisation rate of 5.5%, stable in relation to December 31, 2007 excluding the positive effect of restructurings under development at Besançon, Lanester, Le Puy and Brest. NAV equal to Euro 27.91 per share, up +9% over six months (increase of Euro 2.21 per share) > NAV increased by Euro 166 million, including Euro 125 million relating to the revaluation of rents An interim dividend of Euro 0.40 per share representing 50% of the 2007 dividend will be paid on 6 October 2008. "Consumers reacted strongly to fuel prices in the first half of the year and have been selective in their buying, resulting in acceleration in the fundamental trends such as preference given to shops that are accessible, local or in the immediate outlying area", comments Jacques Ehrmann, Chairman and Chief Executive Officer of Mercialys. "Against this backdrop, Mercialys's business model makes full sense and fits to the structural change in consumption modes. It allowed for strong organic growth in the first half of 2008 (as in 2007), with a favourable impact on cash flow and the company's value. The Alcudia programme, concerning the enhancement of our offering and modernisation of our shopping centres on a human scale and ensuring easy access, has allowed us to keep up with trends and the changing expectations of our customers, to the benefit of our retail partners and the company". BUSINESS PERFORMANCE Rental revenues up +17.7%: Aggregate rental revenues to end-June 2008 came to Euro 56,995 thousand, an increase of +17.7% compared with the same period in 2007.                         Euro thousands       1H07*       1H08*       % change   Invoiced rents 47,557 55,884 +17.5% Lease rights (IFRS) 881 1,111                         Rental revenues 48,438 56,995 +17.7%   (*) A limited review has been performed by auditors on these results Invoiced rents increased by +17.5% in the first half of 2008 as a result of organic growth and acquisitions in 2007 and 2008. On a like-for-like basis, invoiced rents increased by +8.0% (Euro +3.8 million). This organic growth relates to: > Renewals, relets and targeted efforts concerning short-term leases in malls: +4 points (Euro +1.9 million); > Indexation of rents representing +4 points (Euro +1.9 million). For the vast majority of leases, the indexation applied in 2008 was based on the change in the CC index3 between the second quarter of 2006 and second quarter of 2007. This change was particularly significant over the period, at +5.05%. Acquisitions in 2007 and 2008 - a large proportion of which were carried out in December 2007 (five shopping malls acquired in La Reunion and one mall in Béziers) - had a significant impact on growth in rents in the first half of 2008: +9.7 points (Euro +4.6 million). This growth was attenuated slightly by the effect of so-called "strategic" vacancies, which had an impact of -0.2 points on growth in rents in the first half of 2008. This effect relates to the implementation of the Alcudia programme, with the aim of renovating and restructuring all of Mercialys's shopping centres over a period of five years, resulting in deliberate vacancies at certain lots (stores due to be restructured or relocated). Lease rights received over the period totalled Euro 1.6 million, compared with Euro 0.8 million in the first half of 2007 and with a favourable impact on cash flow for the year. A total of 122 leases were processed in the first half of 2008: 37 "accepted for approval" leases were signed and 85 leases were renewed or relet, with increases in annualised rental values of +138% on relets and +26% on renewals. Earnings also up significantly in the first half of 2008 Euro thousands   1H07*   1H08*   % change       Invoiced rents 47,557 55,884 +17.5% Rental revenues 48,438 56,995 +17.7% Net rental income 45,654 53,909 +18.1%                 Operating costs -10,531 -12,858 Operating income 35,123 41,051 +16.9%   Net financial income 1,695 852   Tax -622 -468               Net income 36,196 41,435 +14.5% Net income, Group share 36,177 41,410 +14.5%                 Per share4 Earnings per share (EPS) 0.50 0.55 Net asset value (replacement NAV) 23.04 27.91                 Cash flow 43,453 50,300 +15.8% Recurring operating cash flow 42,059 49,297 +17.2%     (*) A limited review has been performed by auditors on these results Net rental income came to Euro 53.9 million to June 30, 2008, up +18.1%. This exceeded the rate of growth in rental revenues due to stabilisation in property operating expenses. Structural costs net of fees received increased by +22% thanks to - the company's strong growth in relation to the Alcudia project, bringing the total number of Mercialys employees to 55 as at June 30, 2008 compared with 41 as at June 30, 2007, - a number of studies initiated in relation to this issue (marketing, research costs etc.), - an increase in depreciation of assets as a result of acquisitions carried out in the second half of 2007 in particular. Net financial income fell by -50%, mainly due to the reduction in cash and equivalents (net cash position of Euro +60.6 million at June 30, 2008 compared with Euro +99.4 million at June 30, 2007) relating to investments over the period. VALUE OF ASSETS AND BALANCE SHEET Acquisitions signed or under contract with a favourable average yield of 6.3% Acquisitions signed or under contract in 2008 totalled Euro 70.8 million, with an average yield of 6.3%. In addition to these acquisitions, committed renovation or restructuring works represented Euro 3.6 million. Therefore, investments carried out or committed over the period represented Euro 74.4 million. The main acquisition carried out in the first half of the year5 concerns a portfolio of three shopping malls attached to Casino hypermarkets located in Istres, Narbone and Pau, acquired from private investors for a total amount including transfer taxes of Euro 39.2 million, representing an initial average yield of 5.7%. These properties present opportunities for reversionary potential and extension (Alcudia projects under way in Istres and Narbonne). The average medium-term yield on these three properties excluding extensions is valued at around 7.5% (39 leases out of 79 renewable within five years). The acquisition of the first two Alcudia extensions in Valence Sud and Lanester was also committed in the first half of the year, representing a total investment of Euro 21.0 million including restructuring works at Lanester. In addition, various acquisitions were signed or under contract of co-ownership lots (Euro 4.3 million), individual lots or extensions of existing lots from Casino (Euro 6.3 million). Estimated asset value: Euro 2,074 million, up +8% over the first half of the year The value of the portfolio including transfer taxes, as estimated by the independent appraisers Atis Real and Galtier at June 30, 2008, amounted to Euro 2,074 million, up +8.4% compared with December 31, 2007. The average portfolio yield remained stable relative to December 31, 2007 at 5.5%. It also benefited from the positive effect of restructuring at the Besançon, Le Puy, Brest and Lanester sites. Including these items, the average portfolio yield on the basis of appraisal values is 5.4%. On a like-for-like basis, appraised values rose by +8.1% over the first half of the year, an increase of Euro +155 million, relating primarily to growth in the rental base representing Euro +125 million. Net asset value: up by Euro 2.21 per share over the first half of the year, mainly as a result of organic growth Mercialys's replacement NAV came to Euro 2,097 million or Euro 27.91 per share, compared with Euro 1,931 million or Euro 25.70 per share as at December 31, 2007. This increase in NAV relates to the significant impact of organic growth in rents: Euro +125 million in value out of a total increase in NAV of Euro +166 million. INTERIM DIVIDEND In 2007, the Board of Directors agreed in principle to the payment of an interim dividend representing half of the dividend for the previous financial year, in the absence of any specific situation that could result in the interim dividend being revised upwards or downwards. Thus, the Board of Directors has decided to pay an interim dividend of Euro 0.40 per share on October 6, 2008. OUTLOOK Mercialys is in a strong position to withstand the changes in economic conditions that prevailed in the first half of the year and which are expected to continue, thanks to: > solid fundamentals relating to the quality of its assets; > ongoing efforts to extract value from the portfolio through relets and renewals; > the implementation of the Alcudia programme, which aims to anticipate major changes in consumer trends in terms of both shopping centres offer and on an architectural basis, and developing in-depth knowledge of its customers. Changes observed in the first half of the year (inflation as a result of commodities costs, fuel prices etc.) are the result of acceleration in fundamental trends, to which we need to adapt. Mercialys has successfully shown that its business model fits in with the current climate. The company therefore benefits from a strong outlook for 2008-2009. Although the trends of the first half of 2008, which benefited from a favourable base effect (acquisitions at the end of 2007), cannot be extrapolated to the rest of the year, we should see strong growth in rental revenues and recurring operating cash flow over the full year in 2008, ahead of the original target of +12% announced at the start of the year. Furthermore, in view of the company's business performance in the first half of the year, management has set a two-year growth target (2009 compared with 2007) for rental revenues and recurring operating cash flow of approximately +25%. Next publications: October 20, 2008 Third-quarter 2008 revenues About Mercialys Mercialys, one of France's leading real estate companies, is solely active in retail property. Rental revenue in 2007 came to Euro 99.5 million and net income, Group share, to Euro 71.5 million. It owns 167 properties with an estimated value of over Euro 2.0 billion at June 30, 2008. Mercialys has benefited from "SIIC" tax status (REIT) since November 1, 2005 and has been listed on compartment A of Euronext Paris, symbol MERY, since its initial public offering on October 12, 2005. The number of outstanding shares as at June 30, 2008, was 75,149,959. CAUTIONARY STATEMENT This press release contains forward-looking statements about 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 shelf registration document available at www.mercialys.com for the year to December 31, 2007 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 circumstance that might cause these statements to be revised. Business report (Financial statements for the period ending June 30, 2008) Financial report – 2008 first half Accounting rules and methods In accordance with EU regulation 1606/2002 of July 19, 2002 on international accounting standards, consolidated financial statements for the period to June 30, 2008 have been prepared under IAS/IFRS as applicable at this date and as approved by the European Union at the time of the closure of accounts. The consolidated half-year financial statements have been prepared in accordance with IAS 34 ("Interim financial reporting”). The consolidated half-year financial statements, presented in summary form, do not contain all of the information and appendices provided in the full-year financial statements. They should therefore be read in parallel with the Group’s consolidated financial statements to December 31, 2007. CONSOLIDATED INCOME STATEMENT For the period to June 30, 2008 (six months) and to June 30, 2007 (six months)         Euro thousands     1H08*     1H07*   Rental revenues 56,995 48,438 Non-recovered property taxes -84 -56 Non-recovered rental costs -1,147 -873 Property operating expenses -1,855 -1,855 Net rental income 53,909 45,654 Revenue from management, administration and other activities 1,159 1,101 External costs -2,475 -1,825 Depreciation, amortization and impairment of assets -8,325 -7,540 Provisions for contingencies and charges -180 -105 Staff costs -3,037 -2,162 Other operating income and costs - - Operating income 41,051 35,123 Revenues from cash and cash equivalents 1,527 2,125 Cost of debt -618 -406 Net cost of debt 909 1,719 Other financial income and costs -57 -24 Net financial income 852 1,695 Tax -468 -622 Net income 41,435 36,196   Minority interests 25 20 Group share 41,410 36,177   Earnings per share (Euro per share) (1)               Net income, Group share 0.55 0.50 Diluted net income, Group share 0.55 0.50   (1) Based on the weighted average number of outstanding shares over the period.   (*) A limited review has been performed by auditors on these results CONSOLIDATED BALANCE SHEET               ASSETS                 Euro thousands       06/2008*       12/2007   Intangible fixed assets 42 26 Tangible fixed assets 910 925 Investment property 1,165,767 1,165,204 Non-current financial assets 11,812 10,989                   Total fixed assets       1,178,532       1,177,144   Trade receivables 4,215 3,886 Other receivables 5,288 8,613   Casino current account 59,419 67,615 Cash and cash equivalents 2,193 3,064                   Current assets       71,115       83,177 TOTAL ASSETS       1,249,647       1,260,322   SHAREHOLDERS’ EQUITY AND LIABILITIES   Euro thousands       06/2008*       12/2007   Share capital 75,150 75,150 Share premiums 1,045,169 1,045,169 Treasury shares and reserves 35,186 24,927 Net income, Group share 41,410 71,549 Interim dividend payments 0 -26,226                   Shareholders’ equity, Group share       1,196,915       1,190,569   Minority interests 597 651                   Shareholders’ equity       1,197,511       1,191,221   Long-term provisions 68 55 Non-current financial liabilities 29,915 32,352 Non-current tax liabilities 2,076 3,102                   Non-current liabilities       32,059       35,509   Trade payables 3,848 4,143 Current financial liabilities 4,585 2,924 Short term provisions 441 286 Other current payables 10,094 25,968 Current tax liabilities 1,109 271                   Current liabilities       20,077       33,592 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES       1,249,647       1,260,322   (*) A limited review has been performed by auditors on these results CONSOLIDATED CASH FLOW STATEMENT           Euro thousands     06/2008*     06/2007*   Net income, Group share 41,410 36,177 Minority interests 25 20   Net income from consolidated companies 41,435 36,196   Depreciation, amortization and impairment of assets 8,480 7,544 Calculated income and charges relating to stock options 187 114 Calculated income and charges including discount 198 -401               Depreciation, amortization, provisions and other non-cash items     8,865     7,257               Cash flow     50,300     43,453   Net cost of debt -909 -1,719 Tax charge 468 622               Cash flow before cost of debt and tax charge     49,859     42,356   Tax payments 293 -1,869 Change in working capital requirement relating to operations (1) 2,379 15,444               Net cash flow from operations     52,530     55,931   Cash payments on acquisition of investment property and other fixed assets -9,113 -59,200 Cash payments on acquisition of financial assets -455 -35 Cash receipts on disposals of investment property and other fixed assets 16 Impact of changes in the scope of consolidation (2) -16,907 0 Change in loans and advances given 0 0 Receipts relating to disposals of financial assets 0 7               Net cash flow from investment operations     -26,459     -59,228   Dividend payments to shareholders -34,591 -27,678 Interim dividends Dividend payments to minority interests -80 -42   Capital increase or decrease Repurchase/resale of own shares -600 -814 Increase in borrowing and debts 1,068 9,238 Reduction in borrowing and debts -2,840 -7,995 Net interest income 909 1,719               Net cash flow from financing operations     -36,134     -25,572               Change in cash position     -10,063     -28,869   Opening cash 70,676 128,290 Closing cash 60,613 99,421               Closing cash     60,613     99,421 Of which: Casino SA current account 59,419 99,159 Balance sheet cash 2,193 877 Bank facilities -999 -615                 (1) The change in working capital requirement is as follows (Euro thousands): 1H08   1H07 Trade receivables -329   -1,044 Trade payables -295   -1,136 Other payables and receivables 2,792   17,623   (2) Changes in the scope of consolidation include at June 30, 2008 the amount paid for the acquisition of SCI La Diane which settlement occurred in January 3, 2008.   (*) A limited review has been performed by auditors on these results Rental revenues Rental revenues mainly consist of rents invoiced by the Company, plus a limited portion of the lease rights paid by tenants. In the first half of 2008, invoiced rents amounted to Euro 55.9 million, an increase of +17.5% compared with Euro 47.6 million in the same period in 2007. (Euro million)       06/2008       06/2007 Invoiced rents       55,884       47,557   Lease rights 1,111 881 Rental revenues 56,995 48,438 Non-recovered rental costs and property taxes -1,231 -929 Building costs -1,855 -1,855 Net rental income       53,909       45,654 Invoiced rents increased by +17.5% in the first half of 2008 due to the combined effect of organic growth (+8.0 points) and acquisitions in 2007 and 2008 (+9.7 points). On a like for like basis, invoiced rents increased by Euro 3.7 million (+8.0 points). This growth was driven by: Renewals, relets and targeted efforts on short-term leases in malls: Euro +1.9 million (+4.0 points) Indexation of rents representing Euro +1.9 million (+4.0 points). In 2008, for the majority of leases, rents were indexed to the change in the construction cost index between the second quarter of 2006 and the second quarter of 2007. The index rose strongly during this period (+5.05%). Acquisitions in 2007, a large proportion of which were completed in December 2007 (5 shopping centers in La Reunion and one in Beziers), had a significant impact on rental income growth in the first half of 2008: Euro +4.6 million (+9.7 points). This growth was slightly mitigated by the effect of so-called ‘strategic’ vacancies, which had a negative impact on rental income growth in the first half of 2008 of Euro -0.1 million (–0.2 point). This effect was due to the implementation of the Alcudia programme to renovate and restructure all Mercialys shopping centers over five years, resulting in deliberate vacancies in some lots (shops due to be restructured or relocated). In the first half of 2008, the company's business included the renewal or reletting of 85 leases, generating Euro +1.9 million growth in rental income on an annualized basis.     Annualized growthin rental base (Euro million)   Change 2008/2007 47 leases relet   +1.3   +138% 38 leases renewed +0.4 +26% Specialty leasing   +0.2   +33% Euro +1.9 million Over the next few years, Mercialys will enjoy considerable potential to increase rent levels. The cost of occupancy6 of our tenants came to 7.9% for the major shopping centers (rent + charges gross of taxes/sales gross of taxes). This constitutes a slight decrease on December 31, 2007, at a fairly low level in comparison with Mercialys’s peers one. This figure reflects both the reasonable level of real estate costs in retailers' operating accounts and the potential for increase in rent levels at the time of lease renewals or as part of redevelopment. Lease expiry schedule       Guaranteedminimum rent   Share of leases expiringGuaranteed minimum rent Expired   336 leases   8,964   8.4% 2008 140 leases 5,810 5.5% 2009 122 leases 4,394 4.1% 2010 169 leases 4,342 4.1% 2011 276 leases 10,530 9.9% 2012 274 leases 15,706 14.8% 2013 154 leases 6,586 6.2% 2014 149 leases 4,835 4.6% 2015 228 leases 10,709 10.1% 2016 283 leases 14,120 13.3% 2017 127 leases 6,371 6.0% 2018 145 leases 12,042 11.4% Beyond 34 leases 1,683 1.6% Total   2,437 leases   106,092   100.0% Thus, Mercialys has a significant stock of expired leases. This is due to ongoing negotiations, disputes (some negotiations result in a hearing by a rents tribunal), renewal refusals for reasons of redevelopment with payment of eviction compensation, global negotiations for retail brands and tactical delays. Rents received by Mercialys come from a very wide range of retailers. With the exception of Cafétérias Casino (11%), Feu Vert (4%) and Casino (8%, particularly in Corsica), no tenant represents more than 2% of total revenue. The breakdown between national and local brands of annualized rents is as follows:     Number of leases     Annual GMR +variable 06/30/08 (Euro million)     % of total National brands   1,334     65,275     60% Local brands 873 23,334 21% Casino Cafétérias 100 12,134 11% Other Casino Group brands 130 8,642 8% Total   2,437     109,386     100% * GMR = Guaranteed minimum rent Breakdown of rental income by business sector% of rental income     06/30/2008     12/31/2007 Personal items     27.4%     26.6% Food and catering 17.5% 17.6% Household equipment 15.4% 16.0% Beauty and healthcare 13.8% 13.7% Culture, gifts and leisure 14.2% 13.8% Services 5.4% 5.4% Large food stores 6.5% 6.8% Total     100%     100% The structure of rental revenue as at June 30, 2008 confirmed the dominant share, in terms of rent, of leases with a variable component.       Number of leases     Euro million     % of total Leases with variable component     1,102     65.5     60% - of which Guaranteed Minimum Rent 62.2 57% - of which Variable Rent 3.3 3% Leases without variable element 1,335 43.9 40% Total     2,437     109.4     100% Excluding strategic vacancies for the purpose of the restructuring plans initiated by the Alcudia project teams, the financial occupancy rate7 came to 98.2% at June 30, 2008, a +0.3 point rise compared with December 31, 2007. The total cost of occupancy came to 96.8%, compared with 97.1% at December 31, 2007. This -0.3 point decline was mainly due to strategic vacancies. Rental revenues also include lease rights and despecialization indemnities made over and above rent payments by tenants on signing a new lease or on changing business while a lease is in force. Rental revenues in the first half of 2008 were +17.7% higher than in the first half of 2007. Lease rights and despecialization indemnities received totaled Euro 1.6 million, double the first half 2007 level of Euro 0.8 million. This is mainly due to 4 major relets in the first half of 2008 on sites in Brest, Toulouse, Massena (Paris 12) and Quimper. After the impact of deferring lease rights over the firm period of the lease - as required by IFRS norms - lease rights and despecialization indemnities booked as rental revenues in the first half of 2008 came to Euro 1.1 million, an increase of Euro +0.2 million compared with the same period in 2007. Net rental income Net rental income consists of rental revenue less costs directly allocated to real estate assets. These costs include real estate taxes and rental charges that are not re-billed to tenants, together with other costs, most notably fees paid to the property manager and not rebilled, and various charges relating directly to the operation of sites. Costs included in the calculation of net rental income came to Euro 3.1 million in the first half of 2008 compared with Euro 2.8 million in the first half of 2007. This +11% increase was mainly a result of growth in the portfolio due to acquisitions completed in 2007. The non recovered building costs / invoiced rents ratio improved to 5.7% in the first half of 2008 compared with 5.9% in the first half of 2007. As a result, rental income net of expenses directly allocated to buildings increased more rapidly than invoiced rents. In the first half of 2008, net rental income amounted to Euro 53.9 million compared with Euro 45.7 million in the first half of 2007, an increase of +18.1% (compared with 17.5% for invoiced rents). Staff costs Staff costs include all costs relating to Mercialys executive and management teams of 55 employees at June 30, 2008 (compared with 41 at June 30, 2007 and 47 at December 31, 2007). This increase in staff numbers is mainly due to strengthening of the reletting teams, Alcudia asset management teams and communication/marketing teams, in particular in relation to rolling out the Alcudia programme. As a result, staff costs increased sharply in the first half of 2008 (+33%), to Euro 2.9 million compared with Euro 2.2 million in the first half of 2007. Part of these staff costs are billed back to the Casino Group for consultancy services provided by the Alcudia project team, which works in a cross-disciplinary manner for Mercialys and Casino Group. Fees billed to Casino Group by Mercialys, in respect of the 2007 consultancy services agreement, came to Euro 1.2 million in the first half of 2008 compared with Euro 1.1 million in the first half of 2007. Other costs Other costs relate mainly to central structural costs. These structural costs included mainly investor relations costs, directors' remuneration, fees paid to the Casino Group for work covered by the Services Agreement (accounting, financial management, human resources, management, IT), miscellaneous fees (audit, consultancy, studies) and real estate asset valuation fees. Over the course of the first half of 2008, these costs came to Euro 2.5 million, from Euro 1.8 million in 2007. This increase in costs was primarily due to the expansion of the company (marketing campaigns, project studies, recruitment etc.), as well as one-off effects that had a positive impact on the first half of 2007 (rent-free period for the first six months of 2007 for renting Mercialys’s head office premises). Depreciation, amortization and impairment of assets Depreciation and amortization totaled Euro 8.3 million in the first half of 2008, from Euro 7.5 million in the first half of 2007. The increase in amortization relates to acquisitions carried out in 2007, representing a gross amount of Euro 183 million. The majority of these acquisitions took place in the first and fourth quarters of 2007. Operating income Operating income for the first half of 2008 came to Euro 41.1 million, from Euro 35.1 million in the first half of 2007, an increase of 16.9% as a result of the growth of net rental income. Financial income Financial items include financial expenses relating to lease contracts (Tours La Riche Soleil, Porto-Vecchio, Toga, Furiani and Sainte-Marie-Duparc on La Reunion), and interest income from cash generated in the course of operations and deposits from tenants. At June 30, 2008, Mercialys's net cash balance stood at Euro 60.6 million compared with Euro 70.7 million at December 31, 2007. In the first half of 2008, net financial income came to Euro 0.9 million compared with Euro 1.7 million in the first half of 2007, down as a result of the gradual use of cash to finance Mercialys's investments. Tax The tax regime for French 'SIIC' (REIT) companies exempts them from paying tax on the income from real estate activities provided that at least 85% of net income from rental activities and 50% of gains on the disposal of real estate assets are distributed to shareholders. The tax charge recorded in the income statement corresponds to tax payable on financial income on cash holdings less a share of the company's central costs allocated to its taxable income. The tax charge for the first half of 2008 was Euro 0.5 million compared with Euro 0.6 million in the first half of 2007. Net income Net income came to Euro 41.4 million in the first half of 2008, from Euro 36.2 million the previous year, an increase of +14.5%. Minority interests were not significant. Thus for the first half of 2008 financial, the Net income, Group share, was Euro 41.4 million, from Euro 36.2 million in the first half of 2007, an increase of +14.5%. Cash flow Cash flow is calculated by adding net income and the charge for depreciation, amortization and provisions and by eliminating other non cash items. Cash flow rose +15.8%, from Euro 43.5 million in 2007 to Euro 50.3 million in the first half of 2008. Recurring operating cash flow, being cash flow excluding interest income from positive cash position net of tax and non recurring items (none in 1H07 and 1H08) was up 17.2% to Euro 49.3 million. Balance sheet structure At June 30, 2008, the Group had cash of Euro 60.6 million, compared with Euro 70.7 million at December 31, 2007. After deduction of financial debts, net cash was Euro 27.1 million at June 30, 2008, from Euro 35.4 million at December 31, 2007. Consolidated shareholders' equity was Euro 1,197.5 million at June 30, 2008, from Euro 1,191.2 million at December 31, 2007. The balance of the dividend for 2007, paid on May 13, 2008, came to Euro 0.45 per share – Euro 0.81 per share for the 2,231,041 shares created in December 2007 to pay for Vindémia’s transfer of four shopping centers (ie the whole of the 2007 dividend) – which amounts to a total of Euro 34.6 million paid in dividends in May 2008. The Board of Directors has decided to ensure the durability of the policy of half-yearly dividends by paying an interim dividend representing half the dividend of the previous financial year excluding any specific situations that may result in the interim dividend being increased or decreased. Thus, the Board of Directors decided on July 23, 2008 to pay an interim dividend of Euro 0.40 per share on October 6, 2008. Distribution of tax-exempt income represents 100% of this interim dividend of Euro 0.40 per share. Valuation of the asset portfolio In the first half of 2008, Mercialys acquired Euro 4.5 million of assets: - 2 mid-size units on the Sables d’Olonne site for Euro 2.5 million - 1 mid-size unit (Feu Vert) on the Quimper site for Euro 1.2 million - 1 co-ownership lot in the Monceau Les Mines shopping center for Euro 0.7 million - 1 co-ownership lot in the Valence 2 site for Euro 0.2 million Atis Real and Galtier updated the valuation of Mercialys’s portfolio at June 30, 2008. During the first half of 2008, Atis Real (hypermarket sites) and Galtier (the rest) updated the second half 2007 valuations for 160 sites, and valued the assets on 4 sites, two of which were acquired at the end of 2007 (the Arcal’oz retail park and the Béziers shopping center). 3 sites located at La Reunion were updated internally by Mercialys teams. The sites acquired in the first half of 2008 were valued as follows: At the acquisition price, pending valuation reports, for the assets in Sables d’Olonne, Quimper and Valence 2 At Atis Real’s appraisal value for the co-ownership lot in Montceau Les Mines as part of the overall site valuation. On the basis of these valuations, the portfolio was valued at Euro 2,073.9 million including transfer taxes at June 30, 2008, compared with Euro 1,913.8 million at December 31, 2007. Thus, the value of the portfolio increased by +8.4% over six months (or +8.1% on a like-for-like basis). The average yield on the appraised value was unchanged at 5.5%8. The increase in the appraised value of the portfolio on a like-for-like basis (8.1%) was mainly due to a +6.5 point or Euro +125 million increase in the rental value of assets owned at December 31, 2007.     Average     Average     Average yield yield yield       06/30/2008     12/31/2007     06/30/2007 Large shopping centers 5.0% 5.1% 5.5% Neighborhood shopping centers 6.1% 6.1% 6.3% Total portfolio*     5.5%**     5.5%     5.8%   *Including other assets (large food stores, large specialty stores, independent cafeterias and other individual sites) **Excluding the positive impact of redevelopments under way at Besançon, Lanester, Le Puy and Brest sites The following table shows the breakdown of Mercialys's real estate portfolio by market value and gross leasable area by type of site as at June 30, 2008, as well as rents generated over the periods indicated:                       Number of assets at 06/30/08   Appraisal value at 06/30/08 inc. TT   Gross leasable area at 06/30/08   Appraised net rental income Type of property     (Euro million)   (%)   (m2)   (%)   (Euro million)   (%) Large shopping centers 29 1,288 62 319,700 48 63.9 57 Neighborhood shopping centers 68 568 27 222,400 33 34.5 31 Large food stores 12 24 1 31,000 5 1.4 1 Large specialty stores 8 50 2 28,400 4 2.8 2 Independent cafeterias 23 62 3 32,700 5 3.6 3 Other(1) 27 82 4 30,800 5 5.3 5 Total   167   2,074   100   665,000   100   111.5   100   (1) Primarily service outlets and convenience stores   NB: Large food stores: gross leasable area of over 750 m2 Large specialty stores: gross leasable area of over 750 m2 Net asset value calculation The calculation of net asset value (NAV) consists of adding to consolidated shareholders' equity the unrealized capital gains or losses on the asset portfolio and charges and revenues to be recorded over several years. NAV is calculated in two ways: excluding transfer taxes (liquidation NAV) or including transfer taxes (replacement NAV). NAV at June 30, 2008 (Euro million)         NAV at 12/31/07 Consolidated shareholders' equity 1,197.5 1,191.2 Add back deferred income and charges 3.5 2.4 Unrealized gains on assets 896.3 737.6 Updated market value 2,073.9 1,913.8 Consolidated net book value -1,177.6 -1,176.2 Replacement NAV     2,097.4     1,931.3 Per share (Euro)     27.91     25.70   Transfer taxes and disposal costs -120.1 -111.7 Liquidation NAV     1,977.3     1,819.5 Per share (Euro)     26.31     24.21 Investment outlook – risks and uncertainties over next six months Acquisitions signed or under contract since January 1st 2008 Acquisitions signed or under contract in 2008 totaled Euro 70.8 million, with an average gross yield of 6.3%. The breakdown of acquisitions is as follows: > A portfolio of 3 shopping centers (Istres, Narbonne, Pau) for a total of Euro 39.2 million9 > 5 assets from the Casino development pipeline for a total of Euro 12.5 million, including: * An Alcudia extension at Valence Sud for Euro 8.9 million * 2 mid-size units at Sables d'Olonne for Euro 2.5 million * Various lot extensions at Dijon Chenove, Agen Boe and Quimper Ergué for Euro 1.1 million > Acquisition from Casino of an area of Lanester hypermarket, plus restructuring, for Euro 12.1 million > 2 Feu Vert units to be built at Brest and Quimper for Euro 2.8 million > Various co-ownership lots at Monceau Les Mines, Villenave d’Ornon, Montélimar, Exincourt, Tarbes Laloubère, Poitiers, Bourg en Bresse, Valence and St Didier for Euro 4.3 million First Alcudia programme deliveries Alcudia is a project to develop and restructure Mercialys’s portfolio of shopping centers. It involves raising this estate to match the Group’s standards and neighborhood culture, developing the theme of ‘Esprit voisin’, and taking every opportunity available to create architectural value (renovation, restructuring, extension). In 2007, the asset management teams assigned to this project finalized the systematic review of all assets initiated in 2006, with the aim of devising an ambitious strategic plan to enhance the value of each site concerned. Following this year of design, in 2008 the project entered the active implementation phase with the delivery of the first completed extensions. Work is currently in progress on 9 sites for deliveries ranging from 2008 to 2010. 4 extensions should be delivered in the second half of 2008 (Valence Sud, Lanester, Le Puy and Besançon). The Alcudia program is therefore entering the phase of the rolling out of plans, which should be completed in 2012. The development pipeline of Casino Casino’s total pipeline, including new projects and Alcudia extensions, was valued at Euro 710 million (Valuation of investment programs weighted by the probability of completion project by project) at June 30, 2008, compared with Euro 775 million at December 31, 2007. Mercialys has exclusive purchase options on all these investment opportunities. Euro million   Vision October 2005 (IPO)   Vision December 2007   Vision June 2008 Renovation and restructuring of existing centers*   100   78   50 Acquisition of new developments or of extensions on existing sites (Alcudia)   200   775   710   * Excluding current maintenance work This information presents an outlook which the Group deems based on reasonable assumptions. It may not be used for the preparation of earnings estimates. It is also subject to the risks and uncertainties inherent in the Group’s business, and the Group’s actual results may therefore differ from these targets and this outlook. For a more detailed description of the risks and uncertainties, please see the Group’s 2007 Reference Document. Outlook for Mercialys Mercialys is in a strong position to withstand the changes in economic conditions that prevailed in the first half of the year and which are expected to continue, thanks to: > solid fundamentals relating to the quality of its assets; > ongoing efforts to extract value from the portfolio through relets and renewals; > the implementation of the Alcudia programme, which aims to anticipate major changes in consumer trends in terms of both shopping centres offer and on an architectural basis, and developing in-depth knowledge of its customers. Changes observed in the first half of the year (inflation as a result of commodities costs, fuel prices etc.) are the result of acceleration in fundamental trends, to which we need to adapt. Mercialys has successfully shown that its business model fits in with the current climate. The company therefore benefits from a strong outlook for 2008-2009. Although the trends of the first half of 2008, which benefited from a favourable base effect (acquisitions at the end of 2007), cannot be extrapolated to the rest of the year, we should see strong growth in rental revenues and recurring operating cash flow over the full year in 2008, ahead of the original target of 12% announced at the start of the year. Furthermore, in view of the company's business performance in the first half of the year, management has set a two-year growth target (2009 compared with 2007) for rental revenues and recurring operating cash flow of approximately +25%. Events arising since the end of period No significant events occurred after the closing of the period. Notes to the parent company accounts for Mercialys SA Euro million     06/2008*     06/2007*         Rental revenues 54.9 46.9 Net income     42.1     36.3   * A limited review has been performed by auditors on these results Company operations Mercialys SA, the parent company of the Mercialys group, is a real estate company that has opted for the Sociétés d’Investissements Immobiliers Cotées (S.I.I.C - Real Estate Investment Trust) tax regime. It owns 161 of the 167 commercial assets owned by the Mercialys group and holdings in 7 companies, of which 5 are real estate companies (owning the remaining 6 assets) and 2 are management companies: Mercialys Gestion and Corin Asset Management. Revenues at Mercialys SA consist primarily of real estate revenues and, more marginally, returns earned on the company's cash under its current account agreement with Casino. Notes to the accounts In the first half of 2008, Mercialys SA recorded rental revenue of Euro 54.9 million and net income of Euro 42.1 million. As the Company owns 161 of the 167 sites owned by the Mercialys Group as a whole, information regarding the main events affecting 2008 performance for the Company is available in the notes on operations forming part of the consolidated financial statements for the Mercialys Group. Total assets at June 30, 2008 were Euro 1,228.5 million, including: net fixed assets of Euro 1,143.0 million and net cash of Euro 61.7 million, including a current account balance with Casino Guichard-Perrachon of Euro 59.4 million. In order to optimize the management of Mercialys's cash, a current account agreement has been entered into with Casino Guichard-Perrachon. The interest is set at Eonia plus 0.10%, and total interest received in the first half of 2008 was Euro 1.5 million. The company's shareholders' equity was Euro 1,194.8 million. The main changes to this item over the course of the year were: - Payment of the balance of the dividend in respect of the 2007 financial year: Euro -34.6 million - Income for the first half of 2008: Euro +42.1 million Main transactions with related parties The main related-party transactions are described in Note 15 to the interim consolidated financial statements. 1 Excluding the positive effect of restructurings under development at Besançon, Lanester, Le Puy and Brest. Including this effect, the total average yield is 5.4%. 2 Total cash flow excluding interest on cash and equivalents, net of income tax and non-recurring items (zero in the first half of 2007 and 2008) 3 Construction Cost Index 4 Based on the number of outstanding shares, i.e. 75,149,959 shares 5 Legal deed of sale due to be signed in the second half of 2008 6 The ratio of the rent and charges paid by a retailer to his sales (rent + charges gross of taxes/sales gross of taxes) 7 [Rental value of vacant units /(Rental value of vacant units + annualized guaranteed minimum rent on occupied units)] 8 Average yield before redevelopment under way at Besançon, Lanester, Le Puy and Brest sites 9 A firm offer was made by Mercialys on June 25, 2008 for the acquisition of 3 shopping centers located at Istres, Narbonne and Pau. This offer led to the signature of an outline agreement on July 22, 2008 in view to acquire assets valued at approximately Euro 39,155 thousand including transfer taxes. The definitive acquisition is scheduled on July 30, 2008.