MRM - 2018 Registration document

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Risk factors

Risks related to the business environment

(iii) a decrease in the rental value of property assets affecting the Company’s ability to negotiate new rental contracts, renew leases and increase or even maintain rents. • A downward revision in the valuations or a slowdown in the growth of the indices on which the rents paid by tenants of the Group’s property assets are indexed could also weigh on its rental revenues (invoiced rents and key money received). In addition to publishing the construction cost index (ICC), the INSEE launched the new ILC index in 2009. This index comprises the retail rent index (ICC) for 25%, the retail revenue index (ICAV) for 25% and the consumer price index (IPC) for 50%. The ICC stood at 1,703 in the fourth quarter of 2018, down from 1,733 the previous quarter. Over one year, the ICC increased by 2.16% in 2018 compared with 1.3% in 2017. The ILC stood at 114.06 in the fourth quarter of 2018 versus 113.45 the previous quarter. Over one year, the ILC increased by 2.45% in 2018 compared with 2.2% in 2017. • A substantial increase in interest rates could entail: (ii) higher investment costs for debt-financed investments (property asset acquisition or renovation),

(ii) a decline in the value of the Group’s property portfolio insofar as the valuation of a property depends mostly on how much the owner can sell it for which in turn depends on purchasers’financing capacity and ability to leverage. In addition, the economic environment, combined with a drying-up of finance from the banks, could have a significant impact on the Company’s business and consequently slow down its development needs. It could also have an effect on the occupancy rate of the property assets and on tenants’capacity to pay their rent. The capacity of Group companies to maintain or increase rents when leases are renewed is also affected by changes in both supply and demand, which are influenced by the general economic environment. The value of the Group’s property portfolio also depends on a number of factors including the level of market supply and demand, factors which themselves develop depending on the general economic environment. The level of the Group’s rental revenues and its results, the value of its asset base and its financial position, as well as its development prospects could therefore be negatively influenced by these factors.

Competition risk

In its property dealings, the Company is faced with stiff competition from other sector players. This competition occurs when seeking acquisition targets as well as on letting out properties and/or renewing expired leases. The Company can encounter competitors in the acquisition of property assets, who may have greater competitive advantages, mainly financial means at their disposal. In addition, seeking to acquire property assets could become difficult due to scarcity of supply and

the highly competitive property market. This could hinder the Company’s ability to pursue a growth strategy, which could adversely affect its future growth prospects and earnings. In the rental business, when leases expire, other players could offer tenants better terms, or properties which better meet their requirements at conditions more attractive than those proposed by the Company.

Risk of non-renewal of leases and vacation of properties

The Company’s business consists of letting its property assets to third parties and allowing them to set up commercial activities and/or offices therein. The tenant is entitled to vacate the premises as provided by law and regulations, or if applicable, according to the contract; in all cases, prior notice is mandatory. Upon expiry of the lease, the tenant may request its renewal or vacate the premises.

In certain cases, if the lessor refuses to renew, the lessee is entitled to an eviction indemnity, which can be a substantial amount. Whatever the reason for a tenant’s leaving the premises, the Company cannot guarantee that it can re-let the premises in question rapidly under terms which are as favourable as those of the present lease. The lack of income from vacated premises and the corresponding fixed costs must then be borne by the Company and this is liable to affect the Company’s revenue, operating income and profitability.

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M.R.M. 2018 REGISTRATION DOCUMENT