ALTAREA : CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023

ALTAREA

CONSOLIDATED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31 DECEMBER 2023

AddressOfRegisteredOfficeOfEntity: 87, rue de Richelieu, Paris (France) 

CountryOfIncorporation: France 

DateOfEndOfReportingPeriod2013: Note 1

DescriptionOfNatureOfEntitysOperationsAndPrincipalActivities: Note 1

DescriptionOfPresentationCurrency: euros 

DomicileOfEntity: 87, rue de Richelieu, Paris, France

LegalFormOfEntity: Note 1

LevelOfRoundingUsedInFinancialStatements: millions of euros, with a decimal point.

NameOfParentEntity: none 

NameOfReportingEntityOrOtherMeansOfIdentification: Note 1

NameOfUltimateParentOfGroup: Not applicable 

PeriodCoveredByFinancialStatements, 01/01/2022 - 31/12/2022

PrincipalPlaceOfBusiness. Note 844

ExplanationOfChangeInNameOfReportingEntityOrOtherMeansOfIdentificationFromEndOfPrecedingReportingPeriod: The Altarea Group operates mainly in France, Italy and Spain

CONTENTS

1  FINANCIAL STATEMENTS....................................................................................................................... 3

2  NOTES – CONSOLIDATED INCOME STATEMENT BY SEGMENT...................................................... 8

3  OTHER INFORMATION ATTACHED TO THE CONSOLIDATED FINANCIAL STATEMENTS............. 9

1      Financial statements

Consolidated balance sheet

Statement of consolidated comprehensive income

Share in earnings of equity affiliates                                                                                                4.5                  (68.8)                   71.0

OPERATING INCOME AFTER THE SHARE OF NET INCOME OF EQUITY AFFILIATES                                 (476.0)                 381.4

Net borrowing costs                                                                                                                         5.2                  (38.2)                (23.8)

  Financial expenses                                                                                                                                                (78.1)                (41.4)

  Financial income                                                                                                                                                     39.9                   17.5

Other financial results                                                                                                                      5.2                  (33.5)                (26.3)

Discounting of payables and receivables                                                                                                                    0.4                        -

Change in value and income from disposal of financial instruments                                                5.2                  (72.8)                 123.0

Net gain/(loss) on disposal of investments                                                                                                                (2.8)                   38.5

Profit before tax                                                                                                                                                   (622.9)                 492.8

Corporate income tax                                                                                                                       5.3                   114.4                (68.3)

Other comprehensive income

Consolidated cash flows statement

(a)     Proceeds on disposals included in the calculation of net cash flow are presented net of transaction costs. Likewise, disposals of property assets are presented net of transaction costs in the cash flow from investment activities.

(b)     See Changes in consolidated equity.

(c)     In 2022, the Crédit Agricole Assurance group also bought into several stations via a reserved capital increase and sale of shares.

Changes in consolidated equity

Others                                                                                                                                                  (0.0)                       -                         -                      0.4                           0.4                             (0.3)                        0.1

(b): Capital increase related to the employee savings fund (FCPE) and scrip dividend option.

The notes constitute an integral part of the consolidated financial statements. 

2 Notes – Consolidated income statement by segment

In accordance with the principles described in note 2.3.22 "Operating Segments" of the accounting principles and in line with internal reporting, certain expenses, deemed exceptional due to their nature and amount, have been reclassified under the column "Changes in values, calculated charges, transaction fees (VV)." These expenses are detailed in note 4.1 « Significant Events ».

3    Other information attached to the consolidated financial statements

Detailed summary of the notes to the consolidated financial statements

Note 1         Company information .................................................................................................................................... 10

Note 2         Accounting principles and methods .............................................................................................................. 10

           2.1     The Company’s accounting framework and presentation of the financial statements ............................................. 10

           2.2      Main estimations and judgements .......................................................................................................................... 11

Note 3        Information on operating segments ............................................................................................................... 23

           3.1     Balance sheet items by operating segment ............................................................................................................ 23

           3.2     Consolidated income statement by operating segment .......................................................................................... 23

           3.3      Reconciliation of the statement of consolidated comprehensive income and of the consolidated income statement

by segment ........................................................................................................................................................................ 24

           3.4     Revenue by geographical region and operating segment ...................................................................................... 25

Note 4        Major events and changes in the scope of consolidation .............................................................................. 26

           4.1      Major events26

           4.2       Scope of consolidation .......................................................................................................................................... 28

           4.3     Changes in consolidation scope ............................................................................................................................. 30

           4.4      Business combinations .......................................................................................................................................... 30

           4.5     Securities and investments in equity affiliates ........................................................................................................ 31

           4.6     Current and non-current financial assets ................................................................................................................ 32

Note 5         Net income .................................................................................................................................................... 33

           5.1      Operating income ................................................................................................................................................... 33

           5.2     Cost of net financial debt and other financial items ................................................................................................ 33

           5.3       Corporate income tax ............................................................................................................................................ 34

           5.4      Earnings per share ................................................................................................................................................. 35

Note 6          Liabilities ...................................................................................................................................................... 36

           6.1      Equity ..................................................................................................................................................................... 36

           6.2     Net financial debt and guarantees .......................................................................................................................... 38

           6.3       Provisions ............................................................................................................................................................. 39

Note 7         Assets and impairment tests ......................................................................................................................... 41

           7.1      Investment properties ............................................................................................................................................. 41

           7.2     Goodwill and other intangible assets ...................................................................................................................... 43

           7.3     Right-of-use on tangible and intangible fixed assets .............................................................................................. 43

           7.4     Operational working capital requirement ................................................................................................................ 44

Note 8        Management of financial risks ....................................................................................................................... 47

           8.1     Carrying amount of financial instruments by category ............................................................................................ 47

           8.2      Interest rate risk ..................................................................................................................................................... 48

           8.3      Liquidity risk ........................................................................................................................................................... 50

Note 9         Related party transactions ............................................................................................................................ 51

Note 10       Group commitments and contingent liabilities ............................................................................................... 53

           10.1       Off-balance sheet commitments ......................................................................................................................... 53

           10.2       Contingent liabilities ........................................................................................................................................... 54

Note 11       Post-closing events ....................................................................................................................................... 54

Note 12       Appointment of statutory auditors ................................................................................................................. 55

NOTE 1 COMPANY INFORMATION 

Altarea is a Société en Commandite par Actions (a French partnership limited by shares), the shares of which are traded on the Euronext Paris regulated market, Compartment A. The registered office is located at 87 rue de Richelieu in Paris (France).

Altarea chose the SIIC corporate form (Société d'Investissement Immobilier Cotée) as of 1 January 2005.

As both a developer and investor, the Group is present in the three main real estate markets (Retail, Residential and Business property), making it the leader in major mixed-use urban renewal projects in France. The Group has the required expertise in each sector to design, develop, market, manage and exploit made-to-measure property products. 

The Altarea Group operates mainly in France, Italy and Spain.

Altarea controls the company Altareit, whose shares are admitted to trading on the regulated market Euronext Paris, Compartment A.

Altarea controls the company NR21, whose shares are admitted to trading on the regulated market Euronext Paris, Compartment C.

The consolidated financial statements for the year ended 31 December 2023 were approved by the Management on 27 February 2024 having been examined by the Audit Committee and the Supervisory Board.

NOTE 2 ACCOUNTING PRINCIPLES

AND METHODS

2.1          The Company’s accounting

framework and presentation of the financial statements

2.1.1      Accounting standards

The accounting principles used in the preparation of the consolidated financial statements for the year are compliant with the IASB’s (International Accounting Standards Board) IFRS standards and interpretations as adopted by the European Union as at 31 December 2023 and available on the website of the European Commission.

The accounting principles adopted on 31 December 2023 are the same as those used for the consolidated fifinancial statements at 31 December 2022, with the exception of changes to the standards and interpretations adopted by the European Union applicable at 1 January 2023.

Accounting standards, interpretations and amendments applicable as from the financial year beginning on 1 January 2023:

•     IFRS 17 - Insurance contracts (replacing IFRS 4) and amendments to IFRS 17 - Initial application of IFRS 17 and IFRS 9, Comparative Information.

IFRS 17 and its amendments are not applicable to the Group; 

•     Amendments to IAS 1 – Disclosure of material accounting policy information; 

•     Amendments to IAS 8 – Definition of accounting estimates;

•     amendments to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction;

These amendments have no significant impact on the Group.

•     Amendments to IAS 12 - International Tax Reform - Pillar 2 Model Rules

The Altarea Group falls within the scope of application of the new GLOBE rules and the global minimum tax of 15% (Pillar 2) transposed, via a European Union directive (2022/2523) of 14 December 2022, into French law in the French General Tax Code by Article 33 of the Finance Act for 2024. These new rules came into force on 1 January 2024. Preparatory work is under way, in particular to define the legal scope of the new Pillar 2 rules and identify the necessary data points. The Group does not expect any significant impact.

Accounting standards and interpretations adopted early at 31 December 2023, whose application is mandatory for periods starting on or after 1 January 2024 or later:

None

Accounting standards and interpretations published and mandatory after 31 December 2023: 

•     Amendment to IAS 1 – Classification of liabilities as current or non-current. Non-current liabilities with covenants; 

•     Amendments to IAS 7 and IFRS 7 - Supplier finance arrangements; 

•     Amendments to IFRS 16 – Lease liability in a sale and leaseback.

These amendments are currently being analysed.

Other essential standards and interpretations adopted by the IASB approved in 2023 or not yet approved by the European Union:

•     Amendments to IAS 21 - Effects of Changes in Foreign Exchange Rates.

In the absence of foreign currency transactions within the Group, this amendment will have no impact on the Group.

2.1.2      Other principles for presenting the financial statements

Altarea presents its financial statements and accompanying notes in millions of euros, to one decimal point.

Transactions eliminated in the consolidated financial statements

Balance sheet balances and income and expenses arising from intragroup transactions are eliminated when the consolidated financial statements are prepared.

Balance sheet classification

In accordance with IAS 1, the Company presents its assets and liabilities by distinguishing between current and noncurrent items.

Assets which must be realised, consumed or disposed of within the scope of the normal operating cycle or within 12 months following closure, are classed as “current assets”, as well as the assets held with a view to disposal and cash or cash equivalents. All other assets are classified as “noncurrent assets”.

Liabilities which have to be paid within the scope of the normal operating cycle or within 12 months following closure are classified as “current liabilities”, as well as the share of provisions arising from the normal operating cycle of the activity concerned due in less than one year.

Deferred taxes are always shown as  non-current assets or liabilities.

2.2          Main estimations and judgements

The preparation of the consolidated financial statements requires the use of estimates and assumptions by the

Group’s management to determine the value of certain assets and liabilities, and of certain income and expenses, as well as concerning the information given in the notes to the financial statements.

Management reviews its estimates and assumptions on a regular basis using its past experience and various other factors deemed reasonable in the circumstances.  The actual results may differ significantly from these estimates depending on changes in the various assumptions and performance conditions.

The accounting estimates made by the Group were made in the context of the real estate crisis. This crisis triggered by the rise in interest rates marks the end of a cycle that lasted nearly 15 years. 

The main estimates made by the Group concerned the following measurements: 

•       measurement of investment properties (see Notes 2.3.5

“Investment    properties”              and          7.1           “Investment properties”). 

The methodologies used by the appraisers are identical to those used for the previous financial year and take into account changes in market data, in a complex and volatile economic environment marked by persistent inflation, rising interest rates, a continuing rise in raw materials prices and problems with supply.

Their reports make clear that the environment described above is a source of uncertainty for real estate investment markets.

•       measurement of trade receivables (see Notes 2.3.10

“Financial assets and liabilities” and 7.4.2 “Trade and other receivables”);

•       measurement of net property income and services using the percentage-of-completion method (see Note 2.3.17 “Revenue and revenue-related expenses”); 

•       the valuation of inventories and work-in-progress (see notes 2.3.8 "Inventories" and 7.4.1 "Inventories and work-in-progress"),

Since June 2022, the rapid rise in interest rates combined with more restrictive policies by banks have radically undermined buyers' solvency. This crisis in demand exacerbated a pre-existing crisis of inflation in costs and regulations, creating the conditions for a major real estate crisis.  

2023 saw intense operational activity in Property Development: accelerated sales to rundown the existing offer, drastic reduction in land acquisitions, in-depth review of the portfolio of options on land and balance sheet values. 

An exhaustive review of the land bank led to the expensing of almost all research costs carried on the balance sheet and adjustments to the value of the land bank. 

The Group has, taken into account the reliable information available to it at the date of preparation of the consolidated financial statements regarding the impacts of these situations reflecting its vision of the market.

•       measurement of goodwill and brands (please see Note

2.3.7 “Monitoring the value of non-current assets

(excluding financial assets and investment properties) and losses of value” and 7.2 “Goodwill and other

intangible assets”),

In 2023, the Group reorganised its brand portfolio to strengthen their respective positioning.

And less significantly: 

•       measurement of share-based payments (see Notes 2.3.12 “Share-based payments” and 6.1 “Equity”), 

•       measurement of financial instruments (see Note 8 “Financial risk management”).

In addition to the use of estimates, the Group’s management has applied its judgement in the following cases: 

•       measurement of rights of use, lease liabilities and contractual fees on investment property (see notes 2.3.18 “Leases”, 7.3 “Right-of-use on tangible and intangible fixed assets” and 7.1 “Investment properties”),

•       measurement and use of deferred tax assets (see Notes 2.3.16 “Taxes” and 5.3 “Corporate income tax”), 

•       measurement                 of             provisions               (see         Notes      2.3.15

        “Provisions     and     contingent    liabilities”     and       6.3

“Provisions”),

•       whether or not the criteria to identify an asset or group of assets as held for sale or whether an operation is intended to be discontinued in accordance with IFRS 5 (see Note 2.3.6 “Non-current assets held for sale and discontinued operations” and 7.1 “Investment properties”).

The Group’s financial statements also take into account, based on current knowledge and practices, the issues of climate change and sustainable development.

In the Retail business, the analysis of key indicators, through data collected on all our assets, is used to manage CSR performance and to define action plans aimed at achieving ambitious energy targets. These actions have been translated into precise operational measures  integrated, at portfolio level, into shopping centres’ work and renovation budgets and by appraisers into the value of the assets. Since 2011, investments in sites in the portfolio take account of issues related to climate change, with energy consumption targets that meet the requirements of the tertiary decree. 

For the valuation exercise that led to the valuation of the investment properties at 31 December 2023, the Group provided the experts with information on energy consumption, Breeam in use certifications, exposure of the assets to climate risks and the presence of renewable energy production facilities at the various sites, all of which were taken into account in the valuations. 

Based on their knowledge of the market, the independent valuers have not identified any evidence for 2023 (that sustainability criteria have had a significant impact on transaction prices). However, they are keeping a close eye on developments in the property market in this area. Therefore, at 31 December 2023, taking into account the effects of climate change had no significant impact on the judgements and main estimates required to prepare the financial statements.

In the Property Development business, the budgets used to determine the revenue per percentage-of-completion systematically include the costs related to the improvement of their energy performance in accordance with the regulations in force at the time of filing of the building permits (in particular RE2020). 

Regarding the adaptation of constructions to climate change, in 2018, the Group commissioned a study to analyze the exposure of its activities to the effects of climate change, including one dedicated to real estate promotion of housing in France. Several risks were analyzed: Heatwaves, Droughts, Land movements, Floods, Intense precipitation, Storms, and Marine submersion for all regional locations. The conclusions of this study allowed each brand to take specific actions to secure and address the most systematic risks (heat, droughts, intense precipitation & floods, and Clay Shrink-Swell). The costs related to these actions are included in the operation budgets.

Additionally, the Group is also working on constructing buildings that are either more resource-efficient, adaptable, or flexible, or more easily dismantled to facilitate reuse and recycling. The associated costs are also integrated into the real estate margin of the operations.

In addition, all new financing arrangements put in place by the Group in 2023 include a Taxonomy alignment clause.

2.3 Accounting principles and methods of the Company

2.3.1      Equity investments of the Company and consolidation methods 

For consolidation, the following standards apply:

•     IFRS 10 – Consolidated financial statements

•     IFRS 11 – Joint arrangements

•     IFRS 12 – Disclosure of interests in other entities

•     IAS 28 – Investments in associates and joint ventures IFRS 10 defines control as follows: “An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee”. The Company has power over an investee when it has existing substantive rights that give it the current ability to direct the relevant activities, defined as activities that significantly affect the investee’s returns.

As the assessment of control in accordance with IFRS 10 requires a significant amount of judgement, the Company has developed a framework for analysing the governance of entities related to the Company, particularly when there are partnership situations governed by broad contractual arrangements including, where applicable, the shareholding structure, Articles of Association, shareholder pacts, purchase and sale agreements, the regulatory governance framework, etc. The facts and circumstances of each entity are also taken into account to assess the Company’s ability to direct the relevant activities of these entities. 

In this regard, within the limit of the protective rights granted to the JV partners,

•     Altablue and Aldeta, jointly held along with two other institutional partners, are considered to be controlled by the Group. These companies hold the CAP3000 shopping centre located near Nice.

•     Alta Crp Gennevilliers, Alta Crp La Valette, Alta Gramont, Toulouse Gramont, Bercy Village and Société d’Aménagement de la Gare de l’Est, jointly held with another institutional partner, are considered to be controlled by the Group.

•     the companies Alta Crp Aubergenville, Alta Crp

Guipavas, Limoges Invest, Retail Park les Vignobles, Alta Crp Ruaudin, Centre Commercial de Thiais, TECI et Compagnie, Alta Pierrelaye, have been jointly held with an institutional partner and are still considered to be controlled by the Group

•     the companies Alta Montparnasse, and Altagares (holding companies for the shops in Paris-Montparnasse station and five stations in Italy, respectively) have been owned since the 1st quarter 2022 with an institutional partner and are still considered to be controlled by the Group.

In accordance with IFRS 10, ad hoc entitiesare consolidated when, in substance, the relation between the Company and the entity is such that the Company is considered to exercise control over the latter.

Controlled entities 

Controlled subsidiaries are fully consolidated. All intragroup balances and transactions as well as income and expense from internal transactions and dividends are eliminated. 

Any modification in the Company’s interest in a subsidiary not resulting in a loss of control is recognised in equity. If the Company loses the control over a subsidiary, the assets and liabilities and equity of this former subsidiary are derecognised. Any gain or loss resulting from this loss of control is recognised in profit or loss. Any Interest retained in the former subsidiary is recognised at fair value on the date of loss of control according to the recognition method required under IFRS 11, IAS 28 or IFRS 9.

Entities subject to joint control

According to IFRS 11, companies are subject to joint control when important decisions about the relevant activities require the unanimous consent of the parties sharing control. 

Joint control may be exercised through joint operation or a joint venture. According to IFRS 11, the joint operation is distinguished by the existence of directly held rights to certain assets and direct obligations for certain liabilities of the entity, whereas the joint venture confers a right to the entity’s net assets. For joint operations, the Company records, in its accounts, the assets, liabilities, income and expenses relating to its interests in the joint operation. For joint ventures, the Company’s interest in the entity’s net assets is recognised according to the equity method described in IAS 28.

Investments in joint operations or joint ventures are presented in accordance with IFRS 12.

Entities subject to significant influence

In accordance with IAS 28, the equity method also applies to all associates in which the Company exercises a significant influence without possessing control, which is considered to exist when the percentage of voting rights held is greater than or equal to 20%. Each investment is analysed, regardless of the percentage of interest held, taking into account the facts and circumstances in order to determine if the Company has a significant influence, including, when appropriate, Articles of Association, shareholder pacts, commitments to buy and to sell, and other relevant matters.

According to the equity method, the Company’s interest in the associate is initially recognised at the acquisition cost of its proportionate share of the investee’s net assets, which is then increased or decreased to reflect changes subsequent to the acquisition. Goodwill arising on an associate, if unimpaired, is included in the carrying amount of the investment. The Group’s proportionate share of the entity’s profit or loss for the period is shown under the “Share in earnings of equity-method affiliates” line item in the income statement. These investments are presented in the balance sheet under “Securities and investments in equity-method affiliates and non-consolidated interests” with the corresponding investment-related receivables.

The financial statements of associates are prepared for the same accounting period as those for the parent company. If necessary, corrections are made to achieve consistency with the Group’s accounting policies.

Investments in associates are presented in accordance with IFRS 12. 

2.3.2      Business combinations and goodwill

Business combinations are accounted for in accordance with the acquisition method of IFRS 3 as amended: upon initial consolidation of an entity of which the Group has acquired control, the assets and liabilities as well as identifiable contingent liabilities are recognised at their fair value at the acquisition date. Intangible assets are specifically identified whenever they are separable from the acquired entity or result from legal or contractual rights. Therefore, when control of an entity is acquired, the difference between the acquisition cost and the acquirer’s proportionate interest in the fair value of the entity’s identifiable assets, liabilities and contingent liabilities at the acquisition date is classified as goodwill representing future economic benefits resulting from assets that are not individually identified and separately recognised. The acquisition cost is the amount of the consideration transferred including, where applicable, any price supplements at their fair value. Costs directly related to the acquisition are recorded as an expense for the period they were incurred. 

Goodwill:

•     goodwill is recognised on the balance sheet and must be tested for impairment at least once a year,

•     negative goodwill is recognised directly in income.

The standard allows a period of 12 months from the acquisition date for final measurement of the acquisition; any adjustments and measurements made must reflect facts and circumstances that existed as of the acquisition date. As such, after the measurement period, any contingent consideration is recognised in net income for the year unless it is in the form of an equity instrument.

Acquisitions or disposals of securities in an entity that remains controlled before and after these transactions are now considered as transactions between shareholders recognised directly in equity: they have no effect on either goodwill or income. In the event of loss of control, the residual interest is measured at fair value and the gain or loss on disposal is recognised in the income statement.

On an exceptional basis, acquisitions of isolated assets carried out through the purchase of shares in a company, the sole purpose of which is to hold assets are recognised in accordance with IAS 40 – Investment Property, or IAS 2 – Inventories.

2.3.3      Intangible assets

The Group’s intangible assets consist essentially of software, brands and customer relationships. 

In accordance with IAS 38:

•     acquired or created software is recognised at cost and amortised over its useful life, which is generally between 1 and 5 years,

•     brands that meet the definition of intangible assets and were acquired separately or as a result of business combination are valued and their useful life estimated. Once they reach the end of this life they are amortised over its duration. If the useful life cannot be determined, they are tested for impairment where evidence of such impairment exists.

•     customer relationship assets, which result from the identification of intangible assets acquired from property developers, are subject to amortisation at the rate at which the acquired order backlog is filled or, for the portion relating to acquired purchase options or those that can be amortised on a straight-line basis (i.e. duration relative to the normative operating cycle of the realization of a real estate program), at the rate at which development programmes are launched.

Other customer relationships (customer relationships on regular contracts, contractual relationships) can also be identified during business combinations and their value and estimated life are analysed on a case-by-case basis.

2.3.4       Property plant and equipment

Property, plant and equipment correspond primarily to general plant, transport equipment, office equipment and IT equipment. In accordance with IAS 16, these items are recognised at cost and depreciated over their useful life, estimated to be between 5 and 10 years. No other significant component of these assets has been identified.

2.3.5       Investment properties

According to IAS 40, investment properties are held to earn rentals or for capital appreciation or both.

The investment properties held by the Group are primarily shopping centres and, to a lesser extent, offices. The Group’s investment properties portfolio consists of properties in operation and properties under development or construction on a proprietary basis.

In accordance with IAS 40, the Group has opted for the fair value model. On that basis, investment properties are measured at fair value in accordance with IFRS 13 “Fair value measurement” whenever this can be reliably determined. Otherwise, they are recorded at cost and are tested for impairment at least once per year and where evidence of impairment exists.

The fair value of investment properties used by Management is based on the facts and circumstances taking into account their purpose. With this objective, Management uses external appraisals giving values inclusive of duties less duties corresponding to transfer taxes and expenses. These duties have been estimated at 6.9% in France (except in the Paris Region where they are set at 7.5%), 3.25% in Spain.

During the fiscal year, the Group launched a call for tenders for property appraisals. External appraisal of Group assets has therefore been entrusted to Cushman & Wakefield, CBRE and Jones Lang Lasalle (in France and Spain). Their term of office for the consolidated financial statements began on 30 June and will run for a period of four years. Assets in Italy have been appraised by Kroll since 2022.  

All sites are visited by the appraisers first when assets enter the portfolio and subsequently every few years in rotation or when a specific event affecting an asset requires it.

The appraisers use two methods:

•     a method based on discounting projected cash flows over ten years, taking into account the resale value at the end of the period determined by capitalising net rental income. The appraisers have often preferred results obtained using this method,

•     a method based on capitalising net rental income: the appraiser applies a yield rate reflecting the characteristics of the site (area, competition, rental potential, etc.) to the rental income (comprising the guaranteed minimum rental, the variable rental and the market rental of the vacant units) restated for all the charges borne by the owner. The second method is used to validate the results obtained from the first method.

Rental income takes into account:

•     the changes in rentals that should be applied on renewals

(lease expiries, change of tenants, etc.),

•     the normative vacancy rate,

•     the impact of future rental gains resulting from the letting of vacant units, 

•     the increase in rental income from stepped rents, and

•     a delinquency rate.

The valuation of investment properties at fair value is in line with the COB/AMF “Barthès de Ruyter working group” and complies fully with the instructions of the Appraisal Charter of Real Estate Valuation (Charte de l'Expertise en Évaluation Immobilière) updated in 2017. In addition, appraisers refer to the RICS Appraisal and Valuation Standards published by the Royal Institute of Chartered Surveyors Red Book.

Investment properties at fair value

Investment properties in operation are systematically measured at fair value.

At 31 December 2023, an external appraisal was performed on all assets in operation. 

Each time an exchange value exists for one of the Group’s buildings, set in connection with a potential transaction between knowledgeable and willing parties in an arm’s length transaction, the Company will use its own judgement to choose between this value and that of the appraiser.

Investment properties under construction (IPUC) have been included within the scope of IAS 40. They are measured at fair value in accordance with the IFRS 13 guide when the criteria predefined by the Company are met.

The Company believes that a property under construction can be reliably measured at fair value if most of the uncertainties affecting the determination of fair value have been lifted or if the project delivery date is in the near future.

All three of the following conditions must be met to ensure a reliable estimate of the fair value of a property under construction:

•     all administrative authorisations needed to carry out the development project have been obtained,

•     construction contracts have been signed and work has begun, and

•     the letting rate is high and allows for a reasonable assessment of the value creation attached to the property under construction.

Accordingly, investment properties under development and construction are measured either at cost or at fair value:

•     properties under development before land is purchased are measured at cost,

•     land which has not yet been built on is measured at cost,

•     And properties under construction are measured at cost or at fair value in accordance with the above criteria; if the delivery date for a property is close to the closing date, the property is measured at fair value, unless otherwise estimated.

The fair value of properties under construction measured at fair value is determined on the basis of independent appraisals. The appraiser values the asset as if it were fully complete, taking account of market conditions at the date of valuation and the specific characteristics of the property. Expenses not yet incurred at the account closing date are deducted from this value.

The difference between the fair value of investment properties measured at fair value from one period to the next is recognised in the income statement under the heading “Change in value of investment properties”.

Investment properties valued at cost

In addition to the acquisition price of the land, the costs incurred for the development and construction of properties are capitalised from the start of the programme, as of the development phase (prospecting, preparation: replying to tenders and pre-letting prior to the signing of preliminary property sales agreements; administrative phase: obtaining authorisations, if necessary with the signing of preliminary property purchase agreements), once there is reasonable assurance that administrative authorisations will be obtained.

These relate to capitalisable expenses, including initial marketing fees, internal Group fees, early termination fees, financial vacancy and interest expenses.

In accordance with IAS 23, interest expenses are treated by including borrowing costs directly attributable to the construction of qualifying assets in the cost of these assets. Interest expenses remain attributable to buildings under development and construction during the construction period of the asset if they meet the definition of “qualifying assets”. Note that if there is a delay in starting construction or an unusually long construction period, management assesses whether to pause the capitalisation of interest expenses on a case-by-case basis.

For the investment properties recorded at cost, an impairment test is carried out at least once a year or as soon as there are signs of impairment.

Their projected value is determined on the basis of internal five-year business plans that are reviewed by management at regular intervals. The methods used are rental income capitalisation or discounted cash flow.

The recoverable amount of these assets, which are still recognised at cost, is assessed by comparison with the cost price on completion and with the calculate value of expected future cash flows for the Company. If the recoverable amount is lower than the cost price on completion, an impairment loss in the form of a provision for impairment is recognised in the income statement under “Impairment losses on investment properties measured at cost” and in the consolidated income statement by segment under “Income/loss on the value of investment property”.

2.3.6      Non-current assets held for sale and discontinued operations

In accordance with IFRS 5, a non-current asset is classified as “held for sale” if its carrying amount is to be recovered primarily through a sale transaction rather than through ongoing use. 

This is the case if the asset is available for immediate sale in its current state, subject only to the usual and customary conditions for the sale of such an asset, and if its sale is highly probable.

Indications of a high probability of sale include the existence of a plan by Group management to sell the asset and an active programme to find a buyer and close a sale within the following 12 months. The management assesses the situations. When at the closing date there is a preliminary sales agreement or a firm commitment, the property is systematically included in assets held for sale.

The asset is measured at the lower of their net carrying amount and their fair value. The agreed amount is reduced by the costs of disposal. 

For an operation to be considered discontinued, the Company determines, according to the facts and circumstances, whether or not there exists a single and coordinated plan to dispose of a major line of business or geographical area of operations.

2.3.7      Remeasurement of non-current assets (other than financial assets and investment properties) and impairment losses

In accordance with IAS 36, depreciable property, plant and equipment and amortisable intangible assets are tested for impairment whenever an internal or external indication of impairment is detected.

Goodwill and other intangible assets with an indeterminate life (such as brands) are tested for impairment at least once a year or more frequently if internal or external events or circumstances indicate that their value may have declined. 

Goodwill is tested for impairment at each cash-generating units (CGUs) or, where applicable, groups of CGUs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. 

To carry out this test, the net carrying amount of the assets directly related or allocated to the CGUs or groups of CGUs, including intangible assets and goodwill, is compared with the recoverable amount of these same CGUs or groups of CGUs, defined as the higher of the fair value (sale price net of costs likely to be incurred to make the sale) and their value in use.

The value in use of the CGU or the grouping of several CGUs is determined using a multi-criteria method (which uses the higher of value in use and fair value) which is mainly based on the discounted cash flow method (DCF) supported by stock-market comparison and transaction multiple methods.

The basic principles of the DCF method are:

•     estimated cash flow (before tax) is derived from business plans generally covering five-year periods drawn up by Group management,

•     the discount rate is determined on the basis of weighted average cost of capital, and

•     terminal value is calculated as the sum to infinity of the discounted cash flows, which are determined on the basis of a normalised cash flow and a growth rate for the business line concerned. This assumed growth rate must be consistent with the growth potential of the markets in which the activity is conducted, as well as with the entity’s competitive position in those markets.

The multiples approach via market comparables is based on determining a sample of comparable listed companies, for which a multiple is calculated and reapplied to those aggregates considered relevant. 

The multiples approach via comparable transactions is based on selecting a panel of transactions in comparable companies and reapplying these to the aggregates considered relevant.

An impairment loss is recognised, if applicable, if the net carrying amount of the assets directly related to or attributable to the CGUs or groups of CGUs is higher than the recoverable amount of the CGU or group of CGUs and is written off in priority against goodwill (irreversible loss), then against other intangible assets and property, plant and equipment on a pro rata basis for their carrying amount (reversible loss).

Brands are tested individually. Their recoverable amount is determined using the royalty method. An impairment loss is recognised, if applicable, if the net book value of the brand is greater than its recoverable amount (reversible).

Sensitivity tables are created for all impairment tests carried out.

2.3.8      Inventories

Inventories relate to:

•       Programmes of property development projects (i) on behalf of third parties and (ii) to develop parts of shopping centres not intended to be held in the managed portfolio (hypermarket building shells, parking facilities, etc.), and

•       programmes where their nature or specific administrative situation prompts a decision to classify them as inventory

(dealer’s stock) or where a final decision to hold them in the portfolio has not been made.

In accordance with the clarification of IAS 23 (in 2019) for the financial year, the interest expenses which can be allocated to programmes are no longer incorporated into inventories connected with off-plan sales (VEFA) transactions or with property development contract (PDC) transactions. These inventories are in a position to be sold quickly and therefore no time is necessary for its development; the stored asset is therefore in saleable condition. Allocated interest expenses are recognised directly as expenses.

Inventories are carried at cost price, less the portion of the cost price recognised on a percentage-of-completion basis for off-plan sales or property development contract transactions. The cost price includes:

•       the acquisition cost of land,

•       construction costs (including roads and infrastructure work),

•       all technical and programme management fees, whether internal or external to the Group, and

•       related expenses associated directly with the construction programme.

Generally speaking, whenever the net realisable value of inventories and work in progress is less than the cost price, impairment losses are recognised.

2.3.9       Contract assets or liabilities

Further to the application of IFRS 15, the Group records a contract asset or liability in the statement of financial position in the context of the recording of contracts in the accounts on the percentage-of-completion method. The asset or liability corresponds to the amount generated by the ordinary activities based on off-plan sales or property development contracts, aggregated to date, for which the obligation to provide a service is fulfilled on a progressive basis, net of any client payments received to date. These are to a certain extent receivables not yet due, corresponding to any advances between collected calls for funds and the actual percentage of completion at the closing date. Within the statement of the financial position, the service is as follows: 

•     “Contract assets”, if the receivables calculated on percentage of completion are greater than collected calls for funds, 

•     “Contract liabilities”, if the receivables calculated on percentage of completion are less than collected calls for funds.

2.3.10 Financial assets and liabilities

The Group has chosen not to apply hedge accounting: the provisions of IAS 39 therefore apply in accordance with the transitional provisions of IFRS 9.

Application principles for IAS 32, IFRS 9 and IFRS 7 are as follows: 

Measurement and recognition of financial assets and liabilities

•     Trade and other receivables are measured at face value less any allowances for impairment. In accordance with IFRS 9, with regard to impairment, the Group applies a model based on expected losses, (expected credit losses based on the useful life of the receivables, itself based on the experience of the Group’s historic credit losses) to its trade receivables (mainly Retail business).

•     Receivables relating to participating interests in equity affiliates are classified in the balance sheet under “Securities and receivables on equity-method affiliates”. For the Property Development transactions, receivables from companies accounted for by the equity method have a short collection period (in relation to the operating cycle of the Development). For Retail transactions, these receivables have a longer maturity in relation to the holding period of the underlying asset. 

•     Current financial assets mainly concern current account advances to minority shareholders of consolidated companies or deconsolidated companies. They are recognised at amortised cost. Non-current financial assets mainly concern securities not consolidated. They are recognised at fair value through profit or loss.

•     Equity instruments mainly comprise equity securities of non-consolidated companies. For the shares of listed companies, their fair value is determined on the basis of estimation including, where necessary, the market indicators on the closing date. They are recognised as at fair value through profit or loss if they are held for trading; optionally, they may also be recognised at fair value in non-recyclable other comprehensive income (changes in fair value are registered in a separate equity line item under “other comprehensive income”). For unlisted securities, if the fair value cannot be reliably determined at each closing, they remain in the balance sheet at their initial fair value, i.e. at purchase price increased by transaction costs, adjusted by any gains or losses of value determined by an analysis of the proportionate share of the equity held. 

At each acquisition of equity securities, a similar analysis will be carried out to determine the Group’s management intention. 

•     Deposits and securities paid concern deposits paid on projects. They are the offsetting amount of security deposits paid into escrow accounts by shopping centre tenants (deposits and securities not discounted) and/or, guarantee deposits paid for buildings occupied by the Group.

•     Derivative financial instruments (assets and liabilities) are considered as being held for trading. They are measured at fair value. The change in fair value of derivatives is recognised in the income statement (Line “Change in value and income from disposal of financial instruments”).

•     Cash as defined in IAS 7 includes liquid assets in bank current accounts and holdings in deposit accounts that are redeemable or tradable in the very short term (i.e. initial maturity of less than three months) and carry no significant risk of loss of value through fluctuations in interest rates. These deposits accounts are carried on the balance sheet at fair value. Their changes in the fair value are recognised in income, with a corresponding adjustment to cash. Cash must be available immediately for the needs of the Group or its subsidiaries. 

•     All borrowings and interest-bearing liabilities are initially recognised at fair value, less directly attributable transaction costs. Thereafter, they are carried at amortised cost using the effective interest rate method

(presented in the income statements, line “Net borrowing costs”). Initial effective interest rates are determined by an actuary. In the event of renegotiation of financial liability contracts recognised at amortised cost; a study is carried out on a case-by-case basis to determine whether the renegotiation leads to a substantial change in the financial liability and therefore its derecognition or, alternatively, the maintenance of the financial liability on the balance sheet and the adjustment of its amortised cost through profit or loss. 

Determination of the fair value of financial instruments (other than interest-bearing debt)

Financial assets and liabilities are initially recognised at the fair value of the price paid, including acquisition-related costs. After initial recognition, assets and liabilities are measured at fair value, estimated from the observable and unobservable inputs available. 

For financial assets and liabilities such as OTC derivatives, swaps, caps, etc. that are traded on active markets (market composed of numerous transactions, continuously displayed and traded prices), fair value is estimated by an actuary using commonly accepted models and in compliance with guidance from IFRS 13 “Fair value measurement.” A mathematical model is used to bring together calculation methods based on recognised financial theories. This takes into account the measurement of credit risk (or risk of default) of Altarea visà-vis its bank counterparties and the risk of its counterparties vis-à-vis Altarea (Credit Value Adjustment/Debit Value Adjustment). The Group applies the default probability calculation method used by the secondary market (according to estimated bond spreads of its counterparties).

Financial liabilities related to business combinations are measured at fair value at each reporting date based on the best estimate of the amounts to be paid discounted at the market rate. 

The realisable value of financial instruments may differ from the fair value calculated at the closing date of each financial year.

2.3.11 Equity

Equity represents the residual value of assets, after liabilities have been deducted.

Issuance costs for equity securities including merger-related costs are deducted from the proceeds of the issue. 

An instrument is an equity instrument if the instrument includes no contractual obligation to deliver cash or another financial asset, or to exchange assets or liabilities with another entity under conditions unfavourable to the issuer. On that basis, the Subordinated Perpetual Notes (TSDI) issued by Altarea SCA are equity instruments. 

Own equity instruments that have been bought back (treasury shares) are deducted from equity. No gain or loss is recognised in income when own equity instruments of the Company are purchased, sold, issued or cancelled.

2.3.12 Share-based payments

Share-based payments are transactions based on the value of the securities of the issuing company: stock options, free share allocation rights and company savings plans (PEE).

These rights may be settled in equity instruments or cash: in the Group, all plans concerning Altarea shares must be settled in equity instruments.

In accordance with the provisions of IFRS 2, share-based payments to corporate officers or employees of Altarea (in compensation for their roles as corporate officers or employees of Altarea) or Group companies are accounted for in the financial statements as follows: the fair value of the equity instrument awarded is recognised in the income statement as a personnel cost, with a corresponding increase in equity if the plan is to be settled in equity instruments, or in a liability if the plan is to be settled in cash.

This personnel cost representing the benefit granted (corresponding to the fair value of the services rendered by the employees in their role as employees) is valued by an actuary at the award date using the binomial Cox-RossRubinstein mathematical model and the Monte Carlo method calculated on the basis of a turnover determined over the last three years. This model is adapted to suit plans that provide for a vesting period and a lock-up period. The expense is spread over the vesting period. Share grant plans and employee investment plans are measured on the basis of market value.

2.3.13 Earnings per share

Undiluted net income per share (in €)

Undiluted net income per share is calculated by dividing net income (Group share) by the weighted average number of ordinary shares in issue during the period.

Diluted net income per share (in €)

Diluted net income per share is calculated by dividing net income (Group share) by the weighted average number of ordinary shares in issue adjusted for the dilutive effects of the options during the period.

The dilutive effect is calculated according to the “share buyback” method. Under this method, the funds received from the exercise of options are assumed to be applied first to repurchasing own shares at the market price. The market price is taken to be the volume-weighted average of average monthly prices of Altarea shares. The theoretical number of shares repurchased at this market price is subtracted from the total number of shares produced by the exercise of options. The number calculated using this method is then added to the average number of shares in issue to produce the denominator.

Potential ordinary shares shall be treated as dilutive if the conversion in ordinary share implies a reduction in the result per share.

2.3.14 Employee benefits

In accordance with IAS 19 and amendments, employee benefits are recognised under “Personnel costs” in the income statement, with the exception of liability (or asset) revaluations recognised directly in equity and recorded in “Other comprehensive income”.

Post-employment benefits

Benefits payable at retirement are paid to employees at the time of retirement based on length of service (capped according to the scales defined in the agreements applied by the Group) and their salary at retirement age. These benefits are part of the defined benefits plan, a plan to which the employer is formally or implicitly committed in an amount or a level of benefits and therefore bears the risk in the medium or long term.

A provision is recorded in the liabilities to cover all these pension commitments. It is regularly valued by independent actuaries according to the projected credit unit method and represents the probable present value of the vested rights taking into account salary increases until retirement, collective and Company agreements, the probability of retirement and the probability of survival.

The formula for the past service obligation can be broken down as follows:

Past service cost = (benefit rights acquired by the employee) X r(probability that the entity will pay the benefits) Xr (discounting to present value) X r(payroll tax coefficient) X r(length of service to date/length of service at retirement).

The provision is recognised and spread over the last few years of service of the employee until they reach the cap, taking into account any intermediate levels that apply.

The main assumptions used for estimating the pension obligation are as follows:

•       discount rate: Rate of return on AA-rated corporate bonds (euro zone) with maturities of more than 10 years. The Group uses the Iboxx rate which stands at 3.40%, • Mortality table: Women’s Table (TF) and Men’s Table (TH) 2000-2002,

•       Reason for departure: depending on local laws and for France, voluntary retirement on the date of eligibility for full pension benefits,

•       Turnover: annual average turnover observed over the last 3 years, standing at between 4.75% and 7.40% depending on branch and age group,

•       Long-term salary adjustment rate (including inflation):

2.70%.

Actuarial gains and losses and valuation adjustments are recorded directly in equity under “other comprehensive income”.

The amount of the obligation determined using this method is then reduced by the value of any assets held to cover it (not applicable in this case).

Other post-employment benefits

These benefits are offered under defined-contribution pension plans. As such, the Group has no obligation except to pay its share of contributions. The expense corresponding to contributions paid is recognised in the income statement as incurred.

Severance pay

Where applicable, payments for termination of an employment contract are provisioned on the basis of the collective agreement.

Short-term benefits

Short-term benefits include in particular an incentive agreement for employees to share in the profit recorded by their economic and social unit, signed by the service companies of the Group that are members of the economic and social unit, and the works council. Benefits also include an employee profit-sharing plan applicable to the profit of the economic and social unit as required under French common law.

Short-term employee benefits including those arising from these profit-sharing plans are expensed as incurred.

2.3.15 Provisions and contingent liabilities

In accordance with IAS 37, a provision is recognised when an obligation to a third party will result in a likely outflow of resources without any equivalent benefits being received in consideration, and when the amount required to settle the obligation can be reliably estimated. The provision is maintained as long as the timing and amount of the outflow of resources are not known with precision.

In general, these provisions are not linked to the Group’s normal operating cycle. Provisions are discounted when appropriate using a pre-tax yield on cost that reflects the risks specific to the liability.

Non-current provisions consist mainly of provisions arising from litigation between the Group and third parties or from rent guarantees.

Contingent liabilities correspond to:

•       a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company; or

•       a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or, because the amount of the obligation cannot be measured with sufficient reliability. 

These contingent liabilities are not recognised on the balance sheet. A disclosure is made in the notes unless the amounts at stake can reasonably be expected to be small.

2.3.16 Corporate income tax

Following its decision to adopt the retail REIT tax status, the Group is subject to a specific tax regime:

•     a retail REIT sector comprising the Group companies that have elected to adopt retail REIT tax status and are therefore exempt from income tax on their ordinary profits and gains on disposal,

•     a taxable sector comprising those companies that cannot elect to adopt SIIC status.

Income taxes are recognised in accordance with IAS 12.

From the time that SIIC (retail REIT) tax status was adopted, deferred taxes are calculated for companies without such status and on the taxable profits of companies in the REIT sector. They are recognised on all timing differences between the carrying amounts of assets and liabilities and their values for tax purposes, and on tax loss carry forwards, using the liability method.

Deferred tax assets and liabilities are measured using the liability method at the tax rates expected to apply when the asset will be realised or the liability settled, on the basis of known tax rates at the closing date.

Since 31 December 2016, the Group has applied the gradual and programmed reduction in the rate in its consolidated financial statements in accordance with the Finance Act in force.

Deferred tax assets are reassessed at each closing date and are recognised where it is likely that future taxable profits will allow their recovery based on a business plan for tax purposes prepared by management for a reasonable period.

Deferred taxes in the balance sheet are presented in a net position at the level of each tax consolidation group, as either an asset or a liability in the consolidated balance sheet.

Taxes on items recognised directly in equity are also recognised in equity, not in the income statement.

2.3.17 Revenue and revenue-related expenses

Net rental income comprises: rental income and other net rental income less land expenses, non-recovered service charges, other charges and net allowances to provisions for impairment for bad debts.

Rental income includes gross rental income, including the effects of spreading stepped rents over the non-cancellable lease term, rent holidays and other benefits granted by contract to the lessee by the lessor, and notably reductions granted during the lease term.

In accordance with IFRS 16: 

•     this rental income is recognised on a straight-line basis for the entire term of the lease. The Group therefore retains substantially all the risks and rewards incidental to ownership of its investment properties,

•     contingent rent amounts (stepped rents, rent holidays and other benefits granted to lessees) are recognised on a straight-line basis over the firm lease term, which is understood as the period during which the lessee has no right to cancel. These amounts therefore increase or reduce rental income for the period, 

•     initial lease payments received as a lump sum by the lessor are analysed as additional rent. As such, entry fees are spread on a straight-line basis over the fixed term of the lease, 

•     termination fees are charged to tenants when they terminate the lease before the end of the contract term. These fees are accounted for as part of the lease agreement that was terminated and are taken to income in the year they are recognised. 

When the lessor terminates a lease before its term, the lessor pays a termination fee to the tenant in place. 

If payment of an early termination fee enables performance of the asset to be enhanced (such as by replacing a tenant, increasing the rent and thereby the value of the asset), this expenditure may be capitalised. If not, this expenditure is expensed as incurred.

If an early termination fee is paid as part of major renovation or reconstruction work on a building that requires tenants to leave, this expenditure is capitalised and included in the cost price of the asset under development or redevelopment.

•     the reductions granted are of two types: 

-      assistance granted in the context of renegotiations, without any consideration, is recognised as an exceptional rent reduction in rental income, and 

-      assistance granted in the context of renegotiations, with modification of the contract (usually extensions of the lease term, etc.) are spread on a straight-line basis in accordance with IFRS 16 and deducted from rental income.

Land expenses correspond to the variable amounts of fees for temporary occupancy permits and construction leases. These variable amounts do not fall within the scope of IFRS 16.

Non-recovered rental expenses are expenses normally passed on to tenants (rental expenses, local taxes, etc.), but for which the owner is still liable due to their ceiling or the vacancy of rental floor areas.

Other expenses include the lessor’s contributions to the centres’ marketing, non-capitalised construction work not passed on to the tenants, rental management fees on certain leases.

Net property income is the difference between revenues and cost of sales, selling expenses and net allowances for impairment on bad debt and inventories.

It corresponds primarily to the net property income on the Residential and Business property sectors, plus the net property income on sales of projects related to the development business in the Retail sector. 

For property development activities, the net property income is recognised in the Group’s financial statements using the percentage-of-completion method.

All property development/off-plan sales and property development contract transactions are concerned by this method. 

For these programmes, revenue from notarised sales is recognised, in accordance with IFRS 15 “Revenue from contracts with customers”, in proportion to the percentage of completion of the programmes, measured by the total percentage of costs directly related to construction (including the cost of land) incurred in comparison to the total forecast budget (updated at each closing date) combined with the percentage of sales realised determined relative to budget total sales.

The event giving rise to recognition of percentage-ofcompletion revenue is thus the purchase of the land combined with the signature of deeds of sale (notarised sales).

Net property income on property development projects is measured according to the percentage-of-completion method based on the following criteria:

•     project recorded by the other party to the contract,

•     existence of documented projections reliable enough to provide a sound estimate of the overall economics of the transaction (selling price, stage of completion of construction work, no risk of noncompletion).

Losses on “new projects” are included in net property income.

Net overhead expenses correspond to income and expense items inherent in the business of the Group’s service companies.

For each operating segment, income includes payments for services provided to third parties, such as delegated project management fees related to Property Development activities, rental management fees (syndicate agent, co-ownership management), and fees for marketing and other services, internal management fees (after elimination of intercompany profit margins – see note on investment properties or inventories).

Expenses includes personnel costs, overhead costs (miscellaneous fees, operating expenses, etc. excluding fixed rent paid which has now been restated in accordance with IFRS 16), as well as depreciation of operating assets. Capitalised production and production held in inventory is deducted from this amount.

Other income and expenses relate to Group companies that are not service providers. They mainly correspond to overhead costs and miscellaneous management fee income. Amortisation of intangible assets and depreciation of property, plant and equipment other than assets in operation are included in this line item.

2.3.18 Leases

Since the 1 January 2019, the Group applies IFRS 16 – Leases.

Leases in the financial statements with the Company as lessor

For landlords, IFRS 16 maintains the distinction between finance and operating leases. Accordingly, in the consolidated financial statements where the Group acts as lessor: 

•     rental income generated by operating leases concerns rent paid on properties/centres in operation, and 

•     going forward, all expenses re-invoiced to tenants, excluded from the revenue, are presented as a specific item in the income statement.

Leases in the financial statements with the Company as lessee

Under IFRS 16, tenants will no longer distinguish between finance lease contracts and operating lease contracts.

For all leases defined as “rental contracts”, this standard requires to recognise a right-of-use asset in the balance sheet statement of the tenants (as non-current assets) and a corresponding lease liability (as financial liabilities).

Leases entered into by the Group lying within the field of application of the standard mainly concern two types of leases which are financially fundamentally different: 

•     property leases (the Group leases its offices in the majority of cities where it operates) and vehicle leases,

•     temporary Occupation Authorisations for stations and Construction Leases for some of its Retail assets.

Temporary Occupation Authorisations are covered by IFRS 16. The Group is the occupying party and, therefore, the agreement grants the Group certain rights regarding the work, constructions and real estate facilities. Under IFRS 16, fixed fees are restated over the term of the contracts.

The key assumptions used to calculate the debt and therefore the right of use are the term of the contracts and the rate: 

•     terms correspond to the fixed period of the commitment, taking into account any optional periods for which there is a reasonable expectation of these being exercised, 

•     discount rates applied when a contract comes into effect are based on the incremental debt ratio of each company carrying a contract. These rates are determined on the effective date of new contract.

The Group applies one of the exemptions proposed by the standard, on short-term leases (less than 12 months) which are not restated.

The presentation in the Group’s financial statements is as follows:

•     on the balance sheet, an asset is recorded in the form of a right-of-use asset in exchange for a liability corresponding to the rent. The Group therefore acknowledges a right-of-use on tangible and intangible fixed assets (connected to its property and vehicle lease agreements) as consideration for its lease liabilities; and a right-of-use for investment properties (notably in relation to Temporary Occupation Authorisations) in exchange on the contractual fees on investment

properties, 

•     in the income statement, rents from office and vehicle leases (previously recorded under operating expenses) are replaced by charges for depreciation of the right-ofuse assets and by interest charges; land charges (AOT, BAC royalties), are replaced by changes in the value of investment properties and interest charges. Leases and rental fees entered at 31 December correspond mainly to variable rent due under certain lease agreements and to rental expenses (which, in accordance with the application of the standard, are not restated),

•     on the cash flow statement, cash flows related to financing activities are impacted by the repayment of lease obligations and contractual fees on investment properties (within a single item “Repayment of lease liabilities”) and interest expenses.

The change in amounts reflects new contracts or the end of contracts during the period. Moreover, during the lifetime of the agreement, lease liability and right-of-use asset may vary based on changes in the rent index defined in the leases. The main indexes are: the French national construction costs index, the French office rent index, the French commercial rent index and the French benchmark rent index.

⁽¹⁾ Funds from Operations.

2.3.19 Adjustment to value of investment properties

Adjustments to the value of each property measured at fair value are recognised in the income statement under “Change in value of investment properties” and are determined as follows:

Market value excluding transfer duties at the end of the period (taking into account the impact of stepped rents and rent holidays as measured by the appraiser) minus [Market value at the end of the previous period if the property was measured at fair value or cost of the property is marked to market for the first time + amount of construction work and expenses eligible for capitalisation during the year + effect of deferral period for stepped rents and rent holidays net of the deferral of initial lease payments].

Moreover, impairment losses on each property measured at cost are recognised in the income statement under “Net impairment of investment properties measured at cost”.

2.3.20 Borrowing costs or costs of interest-bearing liabilities

The cost of net financial debt includes interest incurred on borrowings including the amortisation of issuance expenses, and other financial liabilities, income from loans and advances to participating interests, gains on sale of marketable securities and the impact of interest-rate swaps used as interest-rate hedges.

Other financial results include expenses related to rental obligations and contractual fees on investment properties.

2.3.21 Cash flow statement

The cash flow statement is presented using the indirect method permitted under IAS 7. Tax expense is shown as a single item in cash flows from operating activities. Interest paid is shown in cash flows from financing activities, and interest received is shown in cash flows from investing activities. Dividends paid are classified as cash flows from financing activities.

2.3.22 Operating segments

IFRS 8 “Operating segments” requires the presentation of operating segments to reflect the Company’s organisation and internal reporting system. An operating segment represents an activity of the Company that incurs income and expenses and whose operating income is regularly reviewed by the Company’s Management on the one hand and its operational Managers on the other. Each segment prepares its own separate financial information.

The Company’s internal reporting is based on an analysis of the period’s results in accordance with:

•     funds from operations (FFO),⁽¹⁾

•     changes in value (unrealised or realised), estimated expenses, and transaction costs.

According to these analytical criteria, operating income, including earnings from equity affiliates, is monitored on an operating segment basis. 

In addition to operating income, asset book values (and certain related liabilities) are monitored by operating segment when they are directly related or can be allocated to a sector. They are considered economic assets of the sector in question.

The Company has the following operating segments:

•     Retail: shopping centres under management or under development,

•     Residential: residential property development,

•     Business property: the property development, services and investment business,

•     New businesses: real estate asset management (public funds and institutional club deals), small data centers and real estate infrastructures for the production and distribution of renewable energy in the framework of a “developer/asset manager model”,

•     Items under “Others (Corporate)” allow reconciliation of various reporting indicators with accounting indicators.

Borrowing costs, changes in the value of financial instruments and gains and losses from their disposal, taxes, and earnings from non-controlling interests are not allocated directly by sector. Balance-sheet items such as financial assets and liabilities cannot be allocated, nor can deferredtax assets corresponding to the recognition of tax losses.

As part of the Group’s current operations: 

1. Funds from operations (FFO)

FFO measures the creation of wealth available for distribution through net income (Group share of FFO). Funds from operations are defined as net income, Group share (i.e. attributable to equity holders of the parent company), exclusive of changes in value, estimated expenses, and transaction costs.

The main aggregates of the funds from operations monitored by the Group for internal reporting purposes are:

•     Net income of the segment, including impairment of current assets:

-          retail: net rental income,

-          Residential and Business property: net property income;

•     Net overhead expenses, which bring together all services that absorb part of the overheads and operating costs, including personnel costs, other operating expenses, other segment income and expenses and expenses covered by reversals of used provisions (including the restatement of fixed rents following application of IFRS 16 – Leases);

•     Share of funds from joint ventures or associates’ operations.

Net borrowing costs are the net borrowing costs excluding estimated expenses which correspond in particular to the spreading of bond issue costs (shown in changes in value, estimated expenses and transaction fees).

Other financial results mainly correspond to expenses related to rental obligations and contractual fees on investment properties.

Tax (FFO) is the tax due for the period excluding deferred taxes and excluding tax due relating to changes in value (exit tax, etc.).

2. Changes in value, estimated expenses, and transaction costs

These changes in value measure the value created or realised by the Company during the period. 

The relevant indicator for monitoring value is the change in going concern net asset value, to which funds from operations contribute. This management indicator is presented in detail in the business review.

The main aggregates of the funds from operations monitored by the Group in internal reports are:

•     Changes in value which concern gains and losses from the Retail sector: 

-          from asset disposals, and where applicable, extraordinary payments received and equivalent in economic terms to the value of the asset sold,

-          from the value of investment properties, including value adjustments for properties measured at fair value (including right-of-use assets) or held for sale as well as impairment losses of properties measured at cost,

•     Estimated expenses include:

-          expenses or net allowances for the period related to share-based payments or other benefits granted to employees,

-          allowances for depreciation and amortisation net of reversals for non-current assets other than investment properties, including allowances relating to intangible assets or goodwill identified during business combinations, and right-of-use relating to tangible and intangible assets,

-          allowances for non-current provisions net of used or unused reversals.

•     transaction costs include fees and other non-recurring expenses incurred from corporate development projects that are ineligible for capitalisation (e.g. expenses incurred from business combinations or equity investments, whether completed or not) or that are ineligible for inclusion under issuance costs (e.g. certain commissions incurred from capital management). Income and expenses outside the Company’s going concerns are also included.

Also presented are changes in value and income from disposal of financial instruments representing adjustments in the value of financial instruments measured at fair value as well as the effect of discounting debt and receivables. Results from the disposal of financial instruments represent the balance for amounts incurred in the period from restructuring or cancelling financial instruments.

3. Non-controlling interests 

The line relating to non-controlling interests corresponds to the share of net income attributable to minority shareholders of subsidiaries divided between the share of the funds from operations (FFO) and the share attributable to minority shareholders of subsidiaries of changes in value, estimated expenses, transaction costs and deferred tax.

In the case of exceptional transactions, the contracts are specifically analysed, and the indicators presented above may in some cases be adjusted, i.e. reclassified to match their internal reporting presentation for greater clarity.

         NOTE 3 INFORMATION ON OPERATING SEGMENTS

           3.1         Balance sheet items by operating segment

As of 31 December 2023

           3.2         Consolidated income statement by operating segment

See consolidated income statement by segment in the notes to the financial statements.

3.3         Reconciliation of the statement of consolidated comprehensive income and of the consolidated income statement by segment

3.3.1 Statement of comprehensive income with the same breakdown as the income statement by segment

                                                                                                                                                                                               31/12/2023                                                                    31/12/2022

(a) Gains or losses on disposals of equity interests have been reallocated to each of the activities concerned by the gains or losses when it relates to an investment previously fully consolidated or a share of the equity affiliates when the equity disposed of was previously in an equity-method company.

           3.3.2      Reconciliation of operating income between the two income statements

(1) BP: Business property.                                                                                                                                                                                                               

           3.4         Revenue by geographical region and operating segment

By geographical region

The Altarea Group operates mainly in France, Italy and Spain in 2023, as in 2022.

One client accounted for more than 10% of the group’s revenue in the Residential sector, i.e., €359.7 million in 2023 and €414.1 million in 2022.

         NOTE 4            MAJOR EVENTS AND CHANGES IN THE SCOPE OF CONSOLIDATION

4.1          Major events

The real estate crisis triggered by the rise in interest rates in 2022 marks the end of a cycle that will have lasted nearly 15 years. As expected, this has impacted the 2023 results, which were determined by:

• a lack of major Business property developments;

• a limited contribution from Residential, which had rolled out a policy of accelerated and proactive adaptation to the environment;

• a strong performance from the Retail REIT, which is more than ever the Group’s financial base, with net rental income rising.

On the strength of a solid financial structure (highly capitalised balance sheet, high-performing Retail business), the Group decided to close the previous cycle in its 2023 financial statements and to record as a change in value an exceptional accounting charge due to its nature and amount following a comprehensive and thorough review of all Promotion accounting values by its Management.

This charge, totalling -€448.8 million before tax, breaks down as follows:• -192.9 million euros for study fees and land depreciation charges resulting from the review of the Housing project portfolio (refer to note 5.1 "Operating Result"); 

• -119.3 million euros for the decrease in value of assets under construction or on offer (refer to note 5.1 "Operating Result");

• -37.4 million euros for projects in partnerships deemed at risk (refer to note 6.3 "Provisions");

• -14.7 million euros for intangible assets related to brand reorganization (refer to note 7.2 "Intangible Assets and Goodwill"); and to note 5.1 "Operating Result");

• -84.5 million euros mainly concentrated on two Office operations in Ile-de-France (Landscape in La Défense and PRD project in Montparnasse) (refer to note 4.5 "Equity securities and loans to companies accounted for by the equity method"). 

Net income Group share amounts to -€472.9 million.

Retail 

The REIT is back to performance levels that have not been seen for more than a decade: all operational indicators are very favourable (tenants' revenue, footfall, occupancy rate, rents). The high quality of the assets managed by the Group meant they could make the most of an inflationary environment.

The Group has made significant progress on several of these developments. 

In early September, Altarea opened the new extension to the Strasbourg - La Vigie centre, doubling the size of this retail park, which is particularly high-performing and attractive to tenants.

After the successful transformation of the ParisMontparnasse station, Altarea began work on the shops for

Paris-Austerlitz station for which marketing will begin in 2024.

Altarea and Gares & Connexions also signed the agreements to renovate and develop the commercial offering in Paris-Est station, which will be completely transformed.

Residential 

Since June 2022, the rapid rise in interest rates combined with more restrictive policies by banks have radically undermined buyers' solvency. This crisis in demand exacerbated a pre-existing crisis of inflation in construction costs and regulations, creating the conditions for a major real estate crisis. 

2023 saw intense operational activity in Residential with: 

•               the accelerated sell-off of offer under construction land acquired during the previous cycle in blocks and retail deals;

•               land purchases restricted to projects that matched the environment, resulting in a drastic reduction in the number of land acquired. In 2023, the Group only bought land corresponding to “on-market” projects. Land acquisitions were significantly reduced with 63 sites acquired in 2023, compared to 167 in 2022. Combined with the sale of land already acquired at the end of 2022, the slowdown in land acquisitions in 2023 made it possible to reduce the Group’s commitments.

•               a review of the entire land portfolio leading to the massive abandonment of projects (including the dropping of some land options) or their repositioning, and ultimately to the abandonment of the corresponding study costs or land depreciation.

This strategy and its accounting consequences has enabled the Group to recover significant capital by reducing Residential WCR, to start again from new and to reorient the work of the teams towards the future. 

Housing design needs to be rethought to suit the new environment and, above all, the purchasing power of customers. Development teams have been refocused on developing an affordable, low-carbon and profitable “nextgeneration” offering, adapted to the new cycle (design and carbon performance, optimisation of plans and lot sizes, commercial strategy, local strategy, construction costs, land prices). Given the length of the production cycle⁽²⁾, this offering should only be ramped up from the end of 2024, depending on market conditions.

In 2023, Altarea restructured its brand portfolio to strengthen their respective positions, merging Woodeum and Pitch Immo to create the leader in low-carbon real estate development (timber CLT), launching the Nohée brand (formerly Cogedim Club) for senior residences and creating Jouvence, to renovate poorly insulated "thermal strainers".

Business Property

In Business property, the office development activity remained strong in the Regions and Altarea has continued to develop in logistics and on certain high-potential office sites in Paris. 

Office exposure from the previous cycle was drastically reduced in the Paris region and book values adjusted accordingly. In 2023, the Group revalued the Landscape (La

Défense) and PRD Montparnasse projects. Landscape’s residual risk has been reduced to zero and financial exposure to PRD Montparnasse is at a market level.

The Office market has entered a lasting crisis, particularly in the peripheral locations of the Paris region, even though rental demand remains strong in Paris and in certain regional cities. 

The Logistics market continues to be driven by strong demand from tenants and a scarcity effect, reflected in a sustained rise in rents. Shorter term, however, the rise in capitalisation rates is driving values downward.

In the property development business (off-plan sales, PDCs, DPMs), the Group focused on its portfolio of low-risk managed projects.

Activity of the year

In regional cities, Altarea is successfully developing in the field of education: after delivering the Emlyon business school campus in the Gerland district, the Group agreed the ESSCA campus project and launched the Alstom project in Aix-en-Provence. 

In Offices, the Services business remained strong in Paris, with several projects under construction (Madeleine, Louis le Grand) and the delivery of a training centre for L'Oréal in its historic headquarters at 14 rue Royale in Paris's 8th arrondissement. The Group has also acquired a real estate complex for renovation at 185 rue Saint-Honoré, Paris 1st arrondissement. 

In Great logistics, the Group acts as a developer with limited risk-taking. At 31 December 2023, the sites under construction or delivered were already fully let on long-term leases to leading tenants at rents that ensure the Group an above-market yield for this type of product.

⁽²⁾                     Signature of the land option, design of the programme, filing/obtaining of building permits, commercial launch, land acquisition, construction and delivery.

⁽³⁾                     260,000 m² developed in five tranches of which the Group took full control in 2023.

Further progress was made on the Bollène megahub⁽³⁾ during the year, with the delivery of warehouse No. 2 to Intermarché and the full marketing of warehouse No. 3, on which work has begun. The Group’s other great platform projects also made favourable progress with the leasing of the EcoParc Cotière in the Ain department and the delivery of the Béziers and Puceul platforms near Nantes.

The Group also continues to develop in Urban Logistics with the acquisition for transformation of a platform leased and operated by DHL located in Vitry-sur-Seine near the southern Paris ring road.

New businesses

During the year, the Group made significant progress in the deployment of new activities: asset management, data centres and photovoltaics: 

•               Asset management: launch of a first retail SCPI (Alta Convictions) and ATREC, a real estate credit fund launched in partnership with Tikehau Capital⁽⁴⁾;

•               Photovoltaics: creation of a pipeline, signature of a first strategic partnership with an agricultural cooperative, which may eventually lead to several dozen projects;

•               Data Center: launch of work on the first projects developed by the Group in Val de Rueil near Rouen and Roazhon near Rennes.

Primonial 

On 2 March 2022, Altarea informed the public that the acquisition of the Primonial Group could not be completed on the terms agreed. Altarea considers that the Vendors failed to comply with the provisions of the acquisition protocol signed in July 2021, which has now lapsed. 

Following the non-completion of the acquisition of Primonial, the Sellers (various groups of shareholders of Primonial (investment funds and Managers) summoned the Company and its indirect subsidiary, Alta Percier, before the Commercial Court of Paris, in order to obtain compensation for the damage they allegedly suffered. Altarea and Alta Percier challenge such claims, which they believe are groundless. On the contrary, Altarea and Alta Percier consider that the Sellers are responsible for the failure to complete the transaction. Altarea is asking that they be ordered to pay damages in respect of the losses suffered by the Group. To this end, on 20 June 2022, Altarea and Alta Percier filed claims in response in a voluntary intervention before the Paris Commercial Court.

In their claims in response of 21 November 2022 and 16 January 2023, the Primonial shareholder groups revised their pleadings, claiming damages of €119 for the Manager vendors and €588 for the investment funds.

Altarea, having studied all the counter-claims, maintains its position that it has no liability as, it argues, the failure to complete the transaction was attributable to the vendors, and

⁽⁴⁾ Tikehau Capital is a long-standing partner of Altarea and one of

France's leading asset managers of private debt with €38 billion under management, including €15 billion in this segment.

that they therefore cannot claim for damages that are wholly unfounded and without merit in fact and in law. 

Altarea filed new claims in response in July 2023, developing its arguments and increasing the amount of its claim against Primonial’s vendors to approximately €330 million. The Primonial vendors have not yet replied and no hearing on the merits of the case has been scheduled.

At the publication date of the Group’s annual financial statements, the case is ongoing and, in agreement with its legal advisors, no provision has been recorded by the Group.

4.2          Scope

The main companies within the scope of consolidation, selected by revenue and total assets criteria, are as follows: