Mercialys SA (MERY) Earnings Call Transcript & Summary

Hello, and welcome to this Conference on the 2024 Half Year Results for Mercialys. For your information, today's conference is recorded. [Operator Instructions] Over to you, Mr. Vincent Ravat, CEO of Mercialys. The floor is yours, sir.

Hello, everyone, and welcome to this presentation of Mercialys' half year results. You've heard us talk a lot about change and transition in recent years. This half year is important in this sense as it truly turns the page on the company's significant rental exposure to the casino group. And our property portfolio is now completely multi-anchored with major French food retailers. The improvement in our rental profile is, therefore, now a fact. What remains unchanged, however, as you will see, is that the sequence of operating and financial results is in line with Mercialys' long-term upward trajectory in keeping with its role as a French REIT as a leader in affordable retail. To start with my presentation, I suggest we start with Slide 5 directly. And here, I'd like to go back to the fundamentals of our business in so doing, especially in the uncertain economic climate that has prevailed for several years now. So that's why I'd like to highlight some of the key factors driving the French shopping center market here, starting with the influence of regional demographics on our business. As you will see on the left-hand side, with this chart, 28% of the French population live in large densely populated cities, 7% in rural areas and with the remaining 65% living in the outer areas of towns and cities of all sizes. And that's where 88% of Mercialys properties are located We therefore benefit from very attractive catchment areas in terms of potential consumers. Now beyond such geographic considerations, the key feature shared by the vast majority of consumers that we've access to lives in their attention paid to price, as you can see in the graph on the right-hand side; this pivotal element has become increasingly important over the last few years since the inflation uptick. There are 3 drivers that enter into play here. On the one hand, you have the appetite for choice and the advantages of physical retailing. Secondly, people want to buy more responsibly and spend better. And finally, hypermarkets are the leading food retailing model. Slide 6 illustrates the first aspect of this paradigm that I just described for you with the notion of shopping for personal enjoyment. This need to accumulate is illustrated by the fact that over 70% of people surveyed in France. As you can see in this survey, say that they feel, they enjoy the act of shopping. Interestingly, this includes their day-to-day grocery run, and this appeal has not been affected by the inflation uptick. However, 85% of consumers say they have changed the way they buy due to inflation, for example, by buying less or by opting for private labels or discounts. And so the visitors of our shopping centers are cut between this desire to shop and the need to control their spending. And so they're adapting, in particular, by placing brands with a clearly identified price positioning in their preferred stores. In order to be at the heart of these concerns, Mercialys merchandising mix is constantly adapting to offer affordable brands. This is illustrated here with Action [indiscernible] favorite brand whose opening contributed to a 29% increase in footfall at our shopping center in Aix-en-Provence. Same with Normal, the opening of a Normal store in our shopping center of Annecy contributed to a 26% increase in footfall. And the same happens with casual retailing with our affordable plant sales operations, which generate high footfall in the shopping centers where they are held. You can see in Slide 7 that while 95% of French people want to buy more responsibly, only 13% have actually changed their habits in this sense, mainly because of financial constraints, as I just said. This is the second defining aspect of purchasing patterns. French people aspire to buy better, and this trend is also largely impacted by the attention paid to prices. Among these changes in habits or secondhand purchases with 72% of French people buying a secondhand products in the last 12 months. And here again, 60% of them said that they bought secondhand due to price considerations. Here again, Mercialys is taking into account this change in behavior into its merchandising mix by bringing onboard brands at the crossroads of price and sustainability. Here are a few examples with Besancon and the second life for secondhand clothing, Grama for vintage clothing in Grenoble, Les Hauts-de-Seine in Marseille and OhMyFrip in Toulouse. All of these were highly successful operations. The final key area of consumption is the Food segment. As you can see from Slide 8, the hypermarket remains the ultra-dominant retail model in France, particularly in the inflationary context that we're experiencing with 76% of the French running their weekly events there. Hypermarkets does play a key role in limiting the share of food in household budgets, thanks, in particular to private labels. The chart on the left shows a sharp price in the private label market share to 28% in 2023, close to its highest level of 30% that was reached during the 2008 crisis. This momentum is also illustrated on the right with the major food retailers, Leclerc, Muy Mucho, Super U, Carrefour, Lidl, Auchan, Aldi and Monoprix being amongst the top 15 retailers in France in terms of sales, along with [indiscernible], Action and Decathlon with Amazon as the only retailer. And as such, 89% of Mercialys shopping centers are now anchored by one of various of these leading retailers, except for Amazon, of course. Let me now move on to Slide 9, again, on the food sector. And here, I'd like to show you the very sharp improvement in Mercialys' risk profile. Up until last year, Casino hypermarkets were Mercialys' main tenant, and they represented its main anchor. But now our rental base is diversified considerably with the sale of casinos, retail assets to Intermarche, Auchan and Carrefour. These are now almost complete. The trend is set to continue with the Auchan and Rocca groups acquiring the Casino subsidiary that operates Mercialys own stores in Corsica. This transaction is yet to be finalized. And here, you have a pro forma projection on the map. In anticipation of this move in Corsica and to contribute to the balance of the rental mix, at the beginning of July 2024, 4 hypermarkets have joined the run as Elizabeth will go on to explain. This slide, therefore, shows Mercialys' pro forma rental exposure to both changes at the end of June 2024 with excellent dispersion among tenants that are both operationally and financially strong. Now in addition to food, on Slide 10, you will find details of Mercialys' rental exposure by segment. Our letting strategy has always been driven by a desire to pivot our retail mix towards recognized affordable brands that are essential to consumers, as I have just described. And now we have largely deleveraged ourselves away from ready to wear, which only accounts for 28% of rents compared with 31% at the end of 2018. But we have increased at the same time, the share of 3 particularly high-performing sectors within retail, the culture, gifts, leisure sector, restaurants and beauty health, and this is exactly what I'll focus on in the next 3 slides. First of all, Slide 11, on health and beauty. Mercialys' rental exposure rose from 10.6% at the end of 2018 to 13.6% at the end of June 2024. Over the half year, sales by the company's tenants in this sector outperformed the market trend at plus 9.3%. On the right-hand side of the slide, you can see examples of developments with the opening of 6 ritual stores since 2019, actually. And these are brands that are clearly positioned on affordable prices. These health and beauty brands have notably replaced a number of clothing brands such as Camaieu, which, as you know, went through a challenging period as we explained in past presentations. In Slide 12, you will see the solid performance achieved by the Culture Gifts and Sports sector with Mercialys' rental exposure rising from 13.4% at end of 2018 to 17.7% at end of June 2024. This sector is notably underpinned by a very positive trend in sneakers, which now account for 60% of the footwear market in France and whose brands are enjoying strong sales growth on Mercialys' assets plus 12.6% for Foot Locker and plus 4.7% for Courir at the end of May 24. This slide shows examples of leases recently signed in Lanester [to lose Marseille] and La Reunion. Here, again, these popular consumer brands are replacing ready-to-wear brands with significant increases in sales for the shopping centers concerned. For example, Cultura and Darty in Anjou achieved twice the sales of H&M and Calliope, which they have replaced. Lastly, again, on the same topic, with restaurants in Slide 13. Well, Mercialys' rental exposure in the restaurant sector has risen from 7.4% in 2018 to 8.7% in June of 2024. Here again, Mercialys retailer sales in this sector have significantly outperformed the market with an increase of 6.6% to the end of May of 2024. Here are a few examples of recent operations in Annecy with the deployment of several outdoor restaurants, which complete the leisure offer which includes a movie theater. And in Toulouse as well, we opened 2 new restaurants in the dedicated court. New developments are also underway at the Sacre Coeur Shopping Center in La Porte, La Reunion. Developing a retail offer that's affordable, adapted and attractive across comfortable and convenient sites is all very well and good, but you also want people to know about it at a time when both physical and digital retail offers compete for consumers' attention. Mercialys has a loyalty program for this purpose, which has been developed for almost 10 years, which also contributes to adapting the marketing strategy locally. As you can see in Slide 14, while traditional means of communications, such as signs and posters remain effective, Mercialys is adapting to changing visitor habits. And that's why in May of 2024, 80% of meta users in Mercialys catchment areas, basically 6 million people were able to receive messages from our loyalty program. Now to fully take advantage of this digital channel, Mercialys has widely developed its video marketing communications via video also to share our retailers' offers and vouchers, and the results have been conclusive with 43% of merchants associated with a video created by Mercialys noting a positive impact on their sales with more than 20 million views of these videos in the first half of 2024, and this momentum is growing. Similarly, the EUR 700,000 in customer vouchers generated EUR 3.5 million in sales for merchants over the period. And the discount vouchers promoted on social platforms resulted in a 51 conversion rate in store. And so our marketing is very profitable. Let us now turn to the operational performance generated by this very solid asset base. Firstly, in Slide 15, you can see that footfall at Mercialys shopping centers is up by a cumulative 2% at the end of June 2024, thereby outperforming the national Quantaflow index by 70 basis points, which is up by 1.3%. This trend is all the more satisfying given the multiple disruptions that have impacted footfall over the period. A few examples spring to mind here. The attrition of supplies to hypermarkets operated by casino ahead of the sale of goodwill, the organization of clearance sales and the hypermarket closures, which lasted 2 to 3 weeks. At the same time, cumulative sales for Mercialys shopping centers, as of the end of May of '24 were up by 3.4%. So that was 170 basis points above the National FACT Index, which was up by 1.7%. Also for your information, I'd like to remind you that the sales of our merchants exclude the sales of the hypermarkets that we own. Otherwise, the growth would have been much higher than that if we were to take into account the excellent performance of these hypermarkets in our calculations. As you'll see in Slide 16 and 17, there are a number of examples on our rebranded hypermarkets in Quimper and Marseille, for example. Here, again, there was a significant increase in footfall. And clearly, the takeover of the goodwill of a large number of hypermarkets has contributed to an improvement in the perception of shopping centers by visitors and retailers alike. And this has been extremely positive for the brands across these sites. As you can see in Slide 16, there has been an increase in footfall by 36% since these have been opened with Intermarche in Quimper. And on Slide 17, you'll see plus 37% with Auchan Narbonne and plus 50% with Auchan again opening in Annecy time. Now if we look at Slide 18, we can see the current financial vacancy rate across our portfolio. You can see that the current financial vacancy rate, excluding strategy vacancy stands at 3% on June 30, 2024. This is an almost stable level compared to the end of 2023, and it represents a significant improvement on the high of 3.3% at the end of June 2023. The stability in the current financial vacancy rate is particularly satisfying given the large number of brands, mainly in the ready-to-wear sector, which filed for receivership or liquidation in 2023. So our reversion rate associated with rental activity in the first half of 2024, was again virtually stable at minus 0.2%, in line with the sustained indexation applied to rents. We should note that this reversion rate does not take into account the impact of the remarketing of a medium-sized store previously leased to H&M in Marseille by Intersport. And this meant that we had to reorganize the plot and also reposition this towards the sports sector. This is a very buoyant sector, which contains various brands, Foot Locker, Intersport, so lots of sporting brands in Marseille then. Now turning to Slide 19, which shows that accessibility is a decisive factor in Mercialys proposition, particularly with regard to its tenants. Through the local leadership charges, reasonable rents compared with the ability to generate sustained sales have resulted in an OCR, which is sustainable at 10.9% end of June 2024. So that represents 20 basis points above the December 2023 level, reflecting the effect of rent indexation. So unlike some of our peers, the OEC excludes from its calculations the large food retailers, which, of course, would significantly bring down the OCR if they were included. You can also see on the right-hand slide recovery rates in first half year of 2024 are very satisfactory. Now I will hand over to Elizabeth Blaise.

Good morning, everybody. Let's move to the changes in results at the end of June 2024. So in Slide 21, you can see Mercialys' ability to generate steady organic growth over the long-term, whether indexation is high or nonexistent. Average organic growth over the period 2015 to June 30, 2024, excluding the 2020 financial year marked by the health crisis at plus 3.6%. This long trajectory is achieved by the positive trend in retailer sales at Mercialys properties, generated by the attractiveness of the sites, which in turn leads to the concentration of rent increases, either through version or indexation while maintaining the sustainability of these rents for the retailers, as Vincent has just said. Slide 22 details rental trends for the first half of 2024, with organic growth in invoiced rents of plus 4.1 points, driven particularly by indexation, plus 4.4 points and variable rents plus 0.2 points, a sign of the buoyant activity of the tenant brands in our property portfolio. At the same time, the organic growth has been tempered by actions and the customer base with a drop of 0.2% contribution from casual leasing, which is slightly down 0.2 points. And this activity has not yet benefited from the increase in footfall generated by hypermarket rebranding. There were no significant changes in the scope of consolidation during the period. Overall, invoice rents amounted to EUR 91.4 million related to June 2024, up 4% on the first half year of 2023. Due to entry fees of EUR 0.2 million, rental income rose by plus 3.9% to EUR 91.6 million. Now if we turn to the analysis of net recurring earnings and the trends there in Slide 23, we find the rise in rental income that I've just commented on and an increase in rents net of expenses of 5.9% to EUR 87.4 million. EBITDA stood at EUR 76.1 million, up 5.2% on the first half year of 2023. EBITDA benefited from the rental growth and was supported by stringent controls of our structural costs. The EBITDA margin thus rose to 83.1% versus 82.0% in the first half of 2023 at a high level. This is a strong indicator of the efficiency of Mercialys operational management. Financial expenses included in the recurring income amounted to EUR 14.4 million compared with EUR 13.7 million at the end of June 2023. This limited increase was due to the disappearance of variabilization products, while the higher cost of commercial papers was more than offset by investment income. Other operating income and expenses and reversals of our charges to provisions varied by minus EUR 0.8 million. As a reminder, at June 30, 2023, a provision of EUR 2.1 million relative to a dispute of La Reunion had been reversed. Finally, income from companies accounted for by the equity method, which rose from EUR 1.8 million in the first half of 2024 to EUR 1.7 million in the first half of 2024 and minority interest which increased by EUR 0.3 million, reflect the growth in rental income from the corresponding companies. Overall, recurring net earnings came to EUR 59.3 million, up 3.3% on H1 2023, with recurring earnings per share of EUR 0.63, up 3.0%, outperforming the annual target of at least plus 2%. Now turning to the change in the value of the portfolio, excluding transfer duties for the first half of 2025. You can see this on Slide 24. You can see that this has bounced back on a like-for-like basis by 0.4% over 6 months. With regard to this variation, we know that the triple combination of our moderate average rent of EUR 251 per square meter, the low vacancy in our portfolio and positive indexation have supported the rental values highlighted by the appraisers, with a positive trend of plus 2.3% over the year. Appraisers continue to factor in rate rises, which had a minus 2.0% impact on asset values. In Slide 25, the various factors I've just mentioned led to a very slight increase of 7 basis points in the average yield on appraisals over the half year, i.e., 6.68% at the end of June 2024. You have to go back to the very beginning of Mercialys' stock-market history, i.e., 2005, 2006 to find a similar appraising rate of 6.99% and 6.30%, respectively. However, over this period of more than 15 years, it's important to remember that we have significantly altered the structure of our asset portfolio through massive and above all, selective refocusing and reducing the number of our sites from 157 to 47 and increase the average unit value from EUR 8.1 million in 2006 to EUR 61 million at the end of June 2024. As a result, I'm being more refocused and stronger. Our assets now offer a yield at their highest level ever with a spread of 340 basis points over the risk-free rate. That brings us to Slide 26 to the change in liquidation NAV, which stands at EUR 16.53 per share compared to EUR 17.1 per share at the end of 2023. This variation of EUR 0.57 over 6 months results mainly from the following impacts. A dividend payment of EUR 0.99, 0.63% change in recurring net earnings, variation of late unrealized capital gains of EUR 0.04 per share, and this is made up of the rate effect of EUR 0.57 per share, then a rent effect of EUR 0.67 and also other effects for minus EUR 0.14. And the last effect, the change in fair value of the fixed rate debt for EUR 0.13 per share and for EUR 0.04 for derivatives. As I said a moment ago, Mercialys assets are refocused and commercially strong, but they are also liquid. This characteristic, which is decisive for the valuation of real estate assets and of which you have had ample proof over the last decade, including during the COVID years is once again demonstrated, as you can see in Slide 27. In July 2024, Mercialys sold 4 hypermarkets, of which it owned 51%, the balance being held by a fund managed by BNP Paribas REIM. This sale was made at a price in line with the latest appraisal values. As part of this transaction, Mercialys also sold 2 fully owned ancillary lots. The total value of this transaction was EUR 117.5 million. As mentioned before, the decision concerning these hypermarkets operated by Auchan is in line with the company's policies of regular rotation of its portfolio and are constantly balancing its rental exposure ahead of the forthcoming transfer of the Auchan banner, the 5 casino stores owned by Mercialys in Corsica Kosice. Lastly, the sale contributes to an improvement of the debt-to-equity ratio, strengthening an already solid financial position and providing messes with increased resources for its growth strategy. So Mercialys development ambitions are based on solid fundamentals, combined with a prudent financial policy. Mercialys has first built up a development portfolio, which could be deployed over the medium term, amounting to EUR 432 million, as detailed in Slide 28. Mercialys development will remain focused on the retail sector, but its expertise will also enable it to expand into sites with concomitant activities, including health centers, leisure and catering. This potential for reorganizing sites will enable us to maintain their attractiveness through densification and profitable mix of uses adapted to the requirements of 0 net artificialization. A highly selective approach will be applied to these investments, both in terms of property fundamentals, i.e., location, rental exposure, potential for optimization in terms of the energy consumption and financial criteria with a minimum yield of 7%. The opportunity to implement these projects will be systematically balanced against opportunities to acquire existing assets. The synergies to be developed with the new food operators and you can see this in Slide 29, these synergies will concern both the operational and real estate aspects of the sites. So they will be created by optimizing the physical visibility of the brands, but also by boosting communication campaigns for both the hypermarket and the shopping mall, communication vectors, allowing us to stand-out in the catchment areas. Better cooperation between hypermarkets and the malls is also needed to highlight the offers of the retailers, product promotion, for example, price information for visitors, coordinated events, capitalizing on the shopping malls already powerful loyalty program, pooling promotional offers. These are the areas for optimization. Lastly, Mercialys will be able to apply its expertise in terms of the reconfiguration of food superstores adapting hypermarket floor space to operator needs, while at the same time, further strengthening shopping arcade through the creation of medium-sized stores and focusing reversion on rents. To conclude on development aspects, Slide 30 shows examples of progress on 4 pre-marketing projects that are currently being carried out by Mercialys. First in Saint-Andre, Reunion Island, for example, retail park of almost 13,000 square meters to be developed on Mercialys' land reserves is 63% presold, similarly in Sainte Marie, still in Reunion Island, premarketing of the 11,000 square meter extension to the shopping center has barely begun and already stands at 12% to which must be added advanced expressions of interest representing 35% of anticipated rents. The project of restructuring balance two mall is 47% presold. And lastly, the project to restructure the historic part of the Toulouse shopping center has also been launched. I'll end with a detailed look at the group's financial structure. First, the debt structure on Slide 31. Firstly, drawn debt, which stood at EUR 1,192 million at the end of June 2024, comprises 3 bond issues and 1 private investment for residual nominal amount of EUR 1,150 million and EUR 42 million in commercial papers. The average maturity of debt drawn was 3.3 years on June 30, 2024. With the exception of EUR 42 million in commercial papers, Mercialys has no drawn debt maturing before February 2026. Mercialys also has undrawn financing resources of EUR 385 million, stable compared to the end of December 2023. 57% of these lines have been extended at the half year 2024. It should be noted that at the end of 2023, 100% of undrawn bank lines included ESG criteria. At the same time, our cash position stood at EUR 88.2 million at the end of June after the payment of dividends and before the receipt of the proceeds from the sale of 4 hypermarkets. In Slide 32, we can see that Mercialys' financial structure remains solid with a loan-to-value ratio, excluding transport duties of 40% at June 30, 2024, and a 39.4% pro forma for the sale of the 4 hypermarkets completed in July. This level is well below the bank covenant of 55%, impacting 92% of our undrawn lines. The ICR ratio stood at 5.5 times at June 30, 2024, again, well above the minimum level of at least 2 times set by the banking covenants. In its latest review, October 2023 Standards & Poor's reiterated the company's BBB rating and maintained a stable outlook. I'm going to now hand over to Vincent to end this presentation.

I conclude the presentation on Slide 34 by reiterating the objective set for 2024, i.e. recurring earnings per share growth of at least 2% compared to 2023, a dividend ranging from 75% to 95% of 2024 recurring net income and the continuation of our CSR strategy 2020 to 2030 in terms of its 4 dimensions around which it was structured. I'd like to thank you for your attention, and we'll be happy to take any questions you may have.

Thank you very much. [Operator Instructions] So first question comes from [indiscernible] from Invest Securities. Over to you.

I have 2 questions. First of all, on the balance sheet, have the appraisers taken into account the transfer of the casino and to what extent? And moreover, in terms of the solid balance sheet and stabilization of values, will there be an acceleration of the investment strategy over the next half year, particularly in terms of what's already been identified.

In order to answer your first question, the rebound in terms of the asset value at constant scope that I mentioned before, 0.4%, excluding our duties, doesn't take into account the evolutions calculated by appraisals. So hypermarkets, for example, and transfer of stores as -- those are very recent -- most of our stores reopened in April and in May. And we think that the appraisers are waiting for more information, extra information, especially in terms of footfall and performance of these stores in order to be able to define the valuation. And this is something that we are waiting to receive over the next half year. We don't have any specific date, the appraisals. The appraisers do their own valuation.

So there's a risk premium for casino 34 basis points. So can you tell us a bit more about that.

So once again, we had detailed this and included that discount that was established by the appraisers. This was the first half of 2023 when Casino expressed its need to go under transformation. And before our agreement was reached with the food retailers, first of all, into Intermarche, so once again, it would be logical to see this discount over the coming half year. So in terms of investments, as I've just said and as you've noted as well, we have a financial structure, which remains extremely robust. We have ambitions in terms of investment. And once again, as I described, either through the pipeline, that's the development pipeline or through acquisitions by existing assets on the markets which are quite attractive, we have already started investing last year through the acquisition of Intermarche. So today, the Mercialys ambition does exist, but we have to make sure that we maintain a solid financial structure. That's one of our main characteristics.

And perhaps the last question, and concerning casino. And what about the performance of the hypermarkets. How does this reflect in your turnover? Is it possible to calculate the impact of that and in terms of the operational effects on your shopping malls.

There isn't a direct effect as we said previously, in previous years when the anchoring was quite different. The hypermarket based on the size of the mall has an influence, which can be strong or not on the footfall. So the hypermarkets, for example, so the reduction in footfall have been very slight. So the positive effect basically concerns the morale, the atmosphere and the general proposal made by the shopping malls to consumers to their tenants and their sales forces. When you have a hypermarket, which is slightly down, which is lacking products, lacking footfall. So of course, this creates a certain type of dynamic, which is negative on others. So currently, what we've seen is that there's a kind of extra essence, which is filtering down to all the different stores, perspectives of renewing the same hypermarkets, which encourages the tenants themselves to envisage renovation of their own stores. And in terms of the consumers, we've seen a return in terms of food shopping. So we've seen the effect of this on casual leases where we have a stronger relationship, more immediate relationship there. So we can see an approval of the ecosystem in general terms, but we're expecting to see performance from other tenants, which will improve regularly over-time. And it's the experience from these transformations that we had in La Reunion over the last 4 years, which allowed us to believe that the profit will remain stable. So that is a mathematic correlation, but we can't actually do that at that moment.

Next question by Florent Laroche-Joubert from ODDO BHF.

I have various questions. Number 1, on your guidance, you've insisted on the fact that the CFO per share has grown by 3% above the expected growth of minus 2% over the year. But when you look into and compare between what you could have done over the year and H1, are we to expect any specific costs across H2, which would bring us in line with your initial guidance. in 2023. Number 2, hypermarkets and lead change in operators. Have you already had any discussions with any operators? And if so, by when? And third, on the schedule, Page 30 in the time line, can you share more details on the criteria that you will be using to take your upcoming decisions.

First question on guidance. Well, for H2, no. You would want to take into account the impact of asset disposals as launched at the start of the second half of the year and also investments will have to be taken into consideration and there's the refinancing with the IMR company, which will take its full effect across H2 of '24. So all of this will enable us to land on an annual guidance, which will be fully in line with our initial forecast in February.

With regards to the re-letting of hypermarkets, that's something that we had anticipated. We had already addressed the topic in 2023. We've had a few preliminary discussions that we initiated as a matter of fact, to look into potential outlooks, especially given the current situation where we have a rather large number of medium-sized stores, which might be released and the operators that have taken over these sites, mainly Auchan, Intermarche has been very busy with the restocking of these new stores. Also, they've been very busy getting ready for the potential transformation that will be incurred by these projects. Also, they'll be very busy with their salespeople with the performance as well. They've performed rather well above their expectations. So they'll want to recruit more. All of this will accelerate across H2. One could have thought that perhaps they could have been a little quicker about this, but maybe they wanted to have a more detailed view of their actual performance before they took any decisions in this respect. Now with regards to the criteria that we use to launch our operations. Well, we base ourselves on 2 key thresholds. First of all, having an average operational yield that's relative with a target of at least 7%. So the closer we get to the actual launch of these operations, the more we can fine-tune the potential yields. And second, we do not want to take any risk, any major risk when it comes to launching such operations. So we will not be committing to any cost at all before we have any pre-letting levels that are considered as substantial. And for us, the 65% threshold of solid pre-letting is a minimum required level. And as Elizabeth described, we're actually going above these thresholds. So we'll be in the -- will be good to go for these projects very, very soon.

[Operator Instructions] Stephanie Dossmann from Jefferies. Over to you.

2 questions. Could you please remind us the share of hypermarkets following the disposal of the 4 hypermarkets that you did over the first half? And second, on acquisitions, what kind of assets would you be looking into for potential acquisitions, potentially abroad actually, because I know that you were interested in potential JVs with Imocom, for example. I know that you've also looked into other options in [indiscernible]. So what's your approach when it comes to acquisitions?

Okay. So first of all, on appraisal on the residual appraisal of hypermarkets, we do not have specific figures here with us. Well, actually we do not make any difference between the asset values according to their type. However, 1 thing that I can share with you, as you can see on Slide 9, hypermarkets in economic values account for 18.4% of rental revenues before the actual disposal of the hypermarkets that we own to the tune of 51%, 16% in disposal pro forma. And when it comes to your question about investment, here's what I can say. So the investments that we might be looking into abroad, we've always said that we would not opt for individual assets. In order for these operations to be successful to properly manage the country, you want to have a certain shopping center platform. So we would not be looking into acquiring any stand-alone assets outside of France. Now, as far as France is concerned, of course, we would be mainly focusing on the dilution aspect and we also be looking into focusing on locations in the outskirts of towns and cities in sites that are anchored by well-performing hypermarkets and food retailers. We also believe in the strength of retail parks. Our interest in Imocom Partners, for example, was based on this belief in the strength of these accessible outskirts. So that's what we'll stick to. As a matter of fact, we're at a bit of crossroads now. Our pipeline is becoming interesting in terms of yield again compared with external growth operations. So there will be a bit of a decision here for us. We'll have to either accelerate our pipeline on the basis of the criteria we described to Florent earlier or on the basis of acquisitions out of our regular pipeline, but we'll have to be very mindful about this and not diversify too much.

Valerie Jacob is calling up from Bernstein. The floor is yours.

I missed out on the first questions, but can you please share further details on the Marseille [Valentine] renegotiations? Why did it all turn out this way? Is this due to the specificities of this asset in this tenant or is there anything else that came into play?

That might be due to the significant increases over the past few years. Well, actually, this operation was quite specific in the sense that we want it, as I said, to make sure that this site would go all out on sports. H&M is actually undergoing a number of challenges right now. So we seized on that opportunity. And Intersport is a leading sports retailer in France, along with Decathlon. They really wanted to be part of that story, but they wanted to have the right conditions to do so, i.e., they wanted to offer a window within that shopping center that would be on a par with our ambitions for this site. So it meant that they would be taking over neighboring plots around H&M. But for these plots, usually, the rental levels are much higher than those for medium-sized stores. So if you add all of this up, medium-sized store plus batches of stores that were very attractive for Intersport, we had to make a number of efforts. So that's why we have this negative reversion rate, and that's why we decided to process it on a stand-alone basis.

We do not have any further questions on the French channel. We'll now take the questions from our English speaking channel. And we take a question from Alex Kolsteren from Kempen.

I have 2. First one on the [indiscernible] report. It's a solid number. And of course the casino rebranding to other banners that will play a role in that. Are the other former casino operated assets now rebranded and reopened under the new banners, excusing the ones in Corsica and the 3 on the mainland.

Thank you so much for this question. Actually, no. All of the ex-casino stores have not changed banners just yet. As we said for Corsica, indeed, an agreement was signed between Auchan with the local group Rocca and Auchan taken over the company in charge of all of the operations of the stores in Corsica. So that actual operation should happen during the second half of the year. Now we've got to our property portfolio on the French continent. As you can see on the map, Slide 9, there are still a couple of stores in [indiscernible] and these stores in [indiscernible] are casino stores that have not quite changed banners yet. So here there are ongoing discussions between casino and other operators that we do not participate in. And here again, we believe that all of this should be agreed on by the end of the second half of the year. Are there any other questions?

Yes, I do have that another one. On balancing developments [Technical Difficulty]. Can you hear me?

Yes.

It is a bit tricky with the English and French lines. I'll go ahead. You're going upon balancing developments with standing acquisitions [indiscernible] disposal and the stable valuations, there is bit some firepower it looks like in the business. Can you comment on the investment market for selling acquisitions currently in France?

So it's a rather paradoxical market. We get the impression there are quite a lot of assets which could come on to the market and which could represent opportunities with vendors who are non-constrained, so they'll be quite demanding in terms of the value. So that demand in terms of values gives yields, which are lower than what we have in our own pipeline. So that's not very of great interest to us. So it wouldn't strengthen our asset portfolio very much. So we're having discussions. This has been ongoing. We have a level of demand in terms of the use of our capital, which remains very high. And we don't want to move away from that. We've spent an awful lot of time strengthening the quality of our assets and our portfolio and doing our refocusing. So we're not going to rush into something that if it's not of the right quality. So it's a market which is rather strange, let's say, it's quite -- there's a hesitation between sales and purchasing. And so we're continuing on our path cruising along without any particular constraint.

All right. And maybe one final one then on the rental levels. You commented quite elaborately on the renegotiation in Marseille. Overall, it was a slight negative of reversion. How do you see it going forward if perhaps you get a lot of, some indexation in the rents?

Well, indexation will, I'm sure, will calm down somewhat, gradually appease over-time, and we are expecting the levels to fall. As you know, we said this, we've always been extremely attentive at Mercialys in terms of the affordability rate of our tenants. And in a context where we have strong indexation, then we have to remain measured in terms of relets. We think that this is the thing to do so that we have a stable trajectory with no obstacles. So we see other companies who are showing very high indexation levels and also high reversion level. So we think that this may destabilize things. So what you can see in terms of the slide on organic growth, Slide 21. When the levels of indexation are more modest, then we go back to strong reversion levels. This was the case between 2015 and 2018. And we think that we will go back to that particular trend, that historic trend. So reversion that will take over from indexation.

And as there are no further questions now, I'd like to hand the call back over to you, Mr. Ravat for any additional or closing remarks.

I'd like to thank you for all those questions, and thank you for your attention, and I would like to wish you a wonderful summer and a wonderful Olympic summer. Have a good day.