Carmila S.A. (CARM) Earnings Call Transcript & Summary

[Audio Gap] of the 2020 annual results of Carmila [Operator Instructions] Please note this conference will be recorded. [Operator Instructions]

Hello and good afternoon everyone. I'm delighted to present the 2020 Carmila results. My name is Marie Cheval, and I was appointed Chairman and Chief Executive Officer of Carmila. And before that, I spent over 3 years within Carrefour Group where I managed the French market. So I've been administrator of Carmila since 2018 and I'm familiar with the assets and the teams of Carmila. As you know, we published our annual results last night and will present along with Sebastien Vanhoove, our general director, as well as our CFO. We are hoping that this presentation will be an opportunity to exchange, communicate and take your questions, as well as answering them. 2020 has been marked by this unprecedented health crisis and which has deeply impacted our customers -- has revealed the commitment of the teams of Carmila, with the closing down, the reopenings -- was delivering and ensuring customers' safety, which has been our key priorities. In 2020, stores were closed for 3 months on average, i.e., 25% of the year. These closing downs had directly impacted the revenues of our retailers down 19.1%. On reopenings the resumption of business was fast paced and significant with almost return to normal. In France for instance, the revenues of retailers has gone up during reopening periods. And last year marked the essential character of the Carmila's shopping centers and in close proximity to the geographies we are present in. And we -- and delivering our plus 7 points as regards to national indexes. So first of all, we have a resilient core business with expertise containing the impact down [ 0.17 ] on a like for like basis related to the rates and stable leasing base versus 2019 with a 0.5% decrease. We've benefited from the support from dynamic leasing activities and reduced exposure of clothing and accessories. Secondly, Carmila has a solid financial structure. And with a tight rein on debt, 37% in net debt to EBITDA. And so we have managed to use -- thanks to this robust structure, Carmila supported its retailers and negotiating rent relief for the 2 periods, whether it's retail outlets were closed down. And benefiting from 1.9 months benefited from rent relief EUR 69.6 million impact. The rent relief explained the almost in total terms, the NRI at EUR 270.8 million, down 18.7%. As for the NTA per share, at 24.72% (sic) [ EUR 24.72 ]. So what needs to be highlighted is the stable rental base is solid and robust, and cash management. I shall now hand it over to Sebastien for the next part of our talk.

Thank you, Marie. Let's talk about this particular year with interesting recoveries but of course a crisis situation. There were 5 broad periods in 2020 with restrictions decided on the national level or on the regional level as in Spain and Italy, with variations in lockdowns and curfews and the closure of so-called nonessential shops, and also, the closing of shopping centers on the weekend notably in Spain. So these periods are important to understand. January, February, basically everything was open for business. And the trend before the first lockdown was pretty good. Footfall was up 3% versus the same period in 2019 and above the [ panel ] up 2 points. And then from March to May during the first lockdown, a very tough lockdown in all 3 countries where Carmila operates, France, Spain and Italy, 6% of shops remained open, so-called essential shops. Third period, reopening in France, which of course -- for which there was a lot of expectation and was well prepared in May. And then in May across all 3 countries. And again, the Footfall upon reopening was very good as Marie was just saying, plus 7% to plus 9% versus the market. And then November, the second lockdown in France, ongoing restrictions in Spain and Italy, but with 34% of stores open across the Carmila perimeter and the so called essential shops which could open -- nonessential shops that could open, remained open and 11% of shops that had to remain shut worked in click and collect. So adaptation for maximum opening and then December with a reopening in France and again, ongoing restrictions in Spain and Italy. But what is notable here is that the footfall has returned to 92%, very close to normal levels. So customers returned very quickly. So again, 3 months on average of closure across our 3 countries, meaning 1/4 of the year, 25% of the year. So even with this health crisis, Carmila's shopping centers very clearly revealed how indispensable they were. A drop in footfall of 20.9% over the year, which is much lower than the rest of the market and than our peer group. Plus 7.5 points in France and plus 6.4 points versus the market in Spain. So the gap shows that very clearly consumers were very much in favor of Carmila shopping centers as soon as they could return. This can be explained by 2 factors. The first one is the power, the sheer power of the Carrefour brand, the partnership with Carrefour. Carrefour was deemed during the first lockdown as being the most useful brand for the French population. And then you saw Carrefour's figures this morning, excellent figures, record growth for over 20 years. Plus 3.6% in revenues and hypermarkets returning to growth, they are of course the driver. Plus 1% like for like, even 3.9% in Q4. And another important point. This is of course also through the synergy with the shopping center markedly increased Net Promoter Score. And the second reason is of course, how we are rooted in the communities, in the local regions. 90% of centers are leaders in their catchment areas, or co-leaders. 45% of partners are independent retailers or franchisees, local people who know the community and who may -- who boost their loyalty -- and 92% of visitors consider that access to the Carmila shopping center is simple and practical. So of course the periods of restrictions have an impact on revenue for the customers but with a very strong rally when they reopen. On the whole, over the year, revenues were down 19.1%, excluding sitdown catering. If you focus on France, it's minus 16%, but of course great differences from one sector to another as you can see on the slide. Some sectors resisted very well such as home equipment, Household Furnishings, minus 3%; Culture, Gifts & Leisure, around 12% to 15%. But again, one should note the excellent performance of retailers when they reopen. It's more than a return to normal, it's actual growth, plus 2.6%. There is growth. So customers came back, but they purchased in Carmila shopping centers. So one of the key challenges for Carmila 2020, of course, was to support the attractiveness of retailers by boosting the omnichannel approach. So distributed marketing to drive to store at the service of these points of sale to create footfall in open shops. And digital marketing, of course is part of Carmila's DNA. And during this crisis, all of this was leveraged very powerfully, generating 3 million visits through drive to store campaigns. And likewise, our teams organized just under 9,000 [ le Kiosk ] digital operations with events, social media and emailing drives to go out there and find customers to help our retailers. And support and assistance for retailers, a major point, a major decision, very early on in the health crisis was that all of Carmila's teams would stay in contact with retailers, with brands. There are a large number of marketing webinars, WhatsApp groups. And importantly, we try to help our retailers with click and collect. We created special areas, local initiatives in some centers, the Spanish teams entered a partnership with Shopify in Spain to create online retail websites. So strong engagement alongside our retailers. But also closer links with our customers. That was another key priority for Carmila during the crisis. Especially by reassuring them about how all of the health protection, strict health protection measures would be implemented. We stated so very clearly, all of our customers should be in a position to visit in full compliance with health rules. And 87% of customers said they were satisfied with our centers in France and Spain, and 93% felt safe when visiting Carmila centers, thanks to the health measures implemented by our teams. So based on that, and in view of the perfect execution and delivery of this in the field, the net promoter score for Carmila was up 7%. Which means plus 2%, 2 points versus 2019. So excellent operational work very much focused, of course, on our customers. And then also support for the initiatives of retailers, for local communities. The qualified contact database, more than 3.5 million contacts was used, was leveraged. And we also leveraged 100 local influencers who, of course, on social media can attract a younger clientele. So after revoking the operational management in the health period, we would also like to very much insist on the fact that this special year really shone light on how resilient Carmila's core business is. First of all, we have a very robust rental base, with a number of key indicators: a solid rental base, minus 0.5%, thanks to a very dynamic sales and commercialization. New lease signings, markedly above ERV, plus 3.6%. Positive reversions when leases are renewed, plus 2.2%. Financial occupancy rate that is robust at 95.7%, slightly down, 60 basis points compared to end 2019, but we would like to insist on the fact that the increase in vacancies was particularly well contained. And we want to insist on that because if you look at the circumstances, a lot of people expected vacancies to increase significantly, but that was not the case through this very but that was not the case through this very dynamic lease policy. And then a few, relatively few businesses entering administration, 1.4% of rental base, which is just slightly higher than last year, than the previous year. And in fact when these receiverships or administrations happened, particularly in apparel, those who decided to stay, decided to stay within these Carmila shopping centers. That's a very important point because it means that these brands are confident in Carmila's install base. Another point that explains the resilience of this core business is the dynamic leasing activity in 2020, as I said. 684 leases signed in 2020, 11% of the rental base, with rent that is in line with the portfolio's average. You can see a number of brands here, big brand names: Nespresso, Mango. National, independent brands too, some with whom we're working through Carmila retail development, who selected Carmila. Thanks. To the links we get with them during the various lockdown periods. And evidence of their confidence in our shopping centers. Another interesting example, page 14. New concepts combining quality and an omnichannel approach. All of our lease actions are there to strengthen merchandising, to create novelty, and to have complementary activities and to go out there and find new customers. First example, the Marquette concept in Tolouse Labège, where the teams worked with a partner to set up within a store. We were involved in the design of the store, DNVB brands. Just pure players with well-known brands, well-known with young people who really enjoy these products. That was a true innovation. And then [ pattertam ] was first physical center in the BAB2 center. A pure player in second hand apparel. And another expression of the relevance of this partnership with So Bio organic food brand in Reims Tinqueux, another important point in terms of the relevance of merchandising. And then the resilience of core business through the effectiveness of specialty leasing and pop-up stores. You know that we have dedicated teams on these 2 business lines, and we can see that both now account for 4.7% of Carmila's NRI. There are a few examples here. Road shows by La Banque Postale, or a well known shops of a -- merchandising of a well known film franchise, very successful also. So of course our project pipeline is something that we would qualify as being activatable as soon as the circumstances return to normal. 5 high potential projects. We have Terrassa outside of Barcelona, Montesson in Paris, Antibes, Tolouse Labège and Venissieux. And interesting progress also in Nice Lingostiere with a 50-shop extension with one of the largest Carrefour hypermarkets in France. Very important point. This opening, which we're expecting for the spring, will happen with a 100% of shops leased. It's a great satisfaction to open with everything in there open. And all other brands are leaders and they are all highly respected. Look at Kiabi, H&M, Cultura. Or Greek food chain, Mavromatis. Another example of the Carmila team's know-how and proves the resilience of the core business: the transformation of Calais-Coquelles. It's a regional destination with 120 shops. A lot of work has been done since it was acquired in 2014. Restructuring was undertaken, in-depth restructuring to bring in Primark. With Primark, we opened the shop in January, last January. And we also worked very much on our catering offer, in the Cité Gourmande. And we're of course eager to see it open. Thirty new retail brands since 2019. Another important point is that this shopping center is a true socioeconomic player, creating 1,250 jobs. Another example of the agility of our teams in Spain are restructuring projects, highly agile restructuring with new catering brands, medium sized. But you will note on this slide that all of these restructuring operations were conducted with higher GRI, significant increases in GRI. Marie, back to you.

Thank you Sebastien. Over and above a resilient core business. Carmila can leverage strong growth drivers. First of all, Carmila retail development in 2020, we accelerated the development of these high potential banners. This is an original idea driven by Carmila, which you will not find with any of our competitors. Its aim is to invest in capital amongst dynamic entrepreneurs to develop retail brands, mostly in our shopping centers. And we invest in activities complementary to those of our centers of bringing about novelty and innovation. For instance, Carmila is partner to La Barbe de Papa the French hairdressing salon and the [indiscernible] cigarette Cigusto or Ideal in Spain. The main development partners rented at the end of 2020. We've rented 111 of these shops for EUR 2.8 million annualized rent signed at the 31st of December 2020. And so we have very strong ambitions into 2021 to sign new partnerships with over 50 shops and plus EUR 1.2 million annualized rents. So high customers' expectations indeed. And with the acceleration of healthcare strategy centers for day-to-day services open and accessible with offering parking facilities. Carmila is resting upon -- the key partners resting upon 2 priority axis, developing dental centers with the framework of a joint venture with Vertuo joint venture in France and DentalStar in Spain. First opening took place in Athis-Mons last month with Vertuo, and 10 such openings already in the pipeline in France. The second axis is the development of pharmacies within PharmAlley, it is joint venture. And in the medium-sized center pharmacy is the third driving force of the center after the shopping -- the supermarket and the clothing brands. Beyond these, Carmila is developing 60 such units in [ 2021 ]. Then we have a number of real estate projects with strong value creation potential. For urban diversity, we have about 20 sites under review within the scope of the partnership with Carrefour. And Carmila will play an instrumental role in such projects in partnership with [indiscernible] on the sites of Flins, Nantes Beaujoire and Sartrouville. On these sites, we are co-owners. And then other important projects, partnership, to restrengthen the leadership of our centers, these are food park projects, 10 car park restaurant projects in the pipeline. So finally when we continue the development of the 5G, this is related to aerials in France. So owning the land on which telecom operators can install antennas and following the signing of a lease. So we have an additional 35 masts installations in the pipeline in 2021 with 67 masts to date. So on Slide 23, you'll see the broad range of development projects across France. We could have run the same exercise in Spain, reflecting our robust growth drivers for Carmila. So Carmila in 2020 is a resilient core business, robust, resilient and the strength is our strategy. Here we act for the planet, here we act for the territories, economy and solidarity, and here we act for our coworkers. In terms of environment, Carmila's approach has been marked by continuous improvement approach, so as to participate in combating the fight against climate change. So Carmila has delivered a 28% reduction in greenhouse gas emissions, 37% (sic) [ 36% ] reduction in energy intensity. We are BREEAM certified, to 87.7% of assets BREEAM certified. Our ambition is to reduce by 50% greenhouse gas emissions on scopes 1 and 2 between now and 2025. We act for territories focusing on youth and parliament since the health crisis. Our partnerships have allowed us to hire nearly 1000 students locally through the Student Pop. And we are choosing to partner with local players. 72% of works investments allocated to local businesses at EUR 50 million. And we also encourage community outreach actions. And finally, our coworkers, we want to encourage diversity of profiles and promoting workplace equality. And our workplace equality index has been rated to 84 out of 100, the aim being 90 out of 100 by 2022. And 17% of our apprentices amongst our total forces. Over to Pierre-Yves to delve into our financial results now.

Thank you Marie. We're now going to comment the 2020 results with the aggregates of the balance sheet. So of course an atypical year shaped by the impacts of the health crisis. Main impacts are linked with the manner in which renegotiated rentals are accounted. The accounting rules for concessions with counterparts, the IFRS 16 standard applies. And the impacts are smooth across the full length of the lease. For concessions without counterparts, the IFRS 16 standard applies and the impacts are smoothed across the full length of the lease. For concessions without counterpart including with measures imposed by the public authorities, the loss falls within the NRI, meaning that net rental income is down 18.4% at EUR 270.8 million. Organic growth is minus 18.4%, including 16.9% in France, 18.4% in Spain and 33.2% in Italy. The specific impact of the health crisis included in organic growth is minus 17%. So re-treated of these specific impact, it would have been minus 1.4%, which shows the resilience of the rental base. What was delivered in 2019 contributes 0.3% and strategic vacancy 0.6%. Carmila granted lease renegotiations in a win-win spirit to allow them to face the health crisis. And what was conceded for across the 2 waves was minus EUR 69.6 million, accounting for 1.9 months of invoicing of rent. First wave had an impact of EUR 52.2 million, of which EUR 9.6 million to small businesses. Second wave, the cost was EUR 17.3 million, including tax credits of EUR 4 million, acknowledged in the 2020 results. If we look at the processing evoked before, they are not 100% in IFRS 16. The impact in 2020 of the negotiated leases was minus EUR 51 million of which EUR 49.8 million written off without counterparts, EUR 53.8 million and EUR 4 million in tax credits. Renegotiation with concessions deferred against GRI, IFRS 16, EUR 1.3 million. My EUR 18.5 million will have an impact on future reporting periods across the 5 next periods. 70% of negotiations, COVID negotiations, now finalized, of which 55% include concessions. For the remainder, a conservative approach has been adopted with depreciations based on the advancement of negotiations. Let me remind you that there are 6200 lines, rental lines for which negotiations were conducted on a case by case basis and all should be signed by Q1 2021. Out of 100% of leases, 77.3% of leases were collected at December 31, 2020. It varies from one quarter to another. First quarter was almost normal, 95%; Q3, 85%; Q2 and Q4 were more affected by the health restrictions, 18% were waived or provisioned. The impact of COVID-19 waivers, EUR 69.6 million including provisions for onside negotiations of EUR 22.3 million. 4.7% were in default at December 31. 3% have been recovered to date, meaning that the recovery rate is 80.3% to date. So rental revenue, EUR 349.7 million, including IFRS impact of EUR 1.3 million, minus EUR 4 million for variable rents, and EUR 1.7 million to the decrease in Specialty Leasing revenues. The effect can be explained by the difficulty in recovering debt and including exceptional items. The COVID negotiations without concessions. 49.8% impact, so down 18.7%. Carmila made a certain great savings on structural costs because lease management costs were down, and the cost reduction plan resulted in EUR 2 million savings across the period. As you can see, the other items include dropping extension plans such as [indiscernible] and Laval. The EBITDA has reached EUR 220.2 million, down 22.1%, integrating EUR 18.5 million connected to the application of IFRS 16 which will be reflected in future fiscal years. As for the recurring results. Let's look at the financial results. Up EUR 1.5 million after the optimization of the financial structure in 2020, notably through optimization of the hedging policy of 2019 and early 2020. Refinancing, described in the following slides, had a very limited effect on financial results because they were done in very favorable conditions. Tax was down significantly. Carmila Espania opted in January 2021 for a new tax regime, which is comparable to the SIC regime. And through redistribution it creates tax incentives. And the recurring result was down 24.7% at 167.6%. It was higher but remains contained in view of the importance of the health crisis. Let me remind you that centers remained closed for 3 months in 2020. The recurring earnings, EUR 1.20 per share, down 26.7%. Let's now move on to the portfolio valuation, EUR 6.148 billion -- contained drop, 4.3%, 4.7% like for like, which is lower than what you can actually see for our peer. This drop is an exit rate impact, 4.6% while the rent impact is insignificant which shows how our rental base is resilient. And the valuation of the portfolio is EUR 4.442 billion. Valuation is EUR 1.362 billion, down 6% like for like. And in Italy, EUR 352 million, down 1.4%. Experts have -- have taken account of the health crisis by 30 basis points and in fact, the average exit rate is 6.20%. The risk premium for assets, the spread between the capitalization rate and the [indiscernible] for 10 years is at a historical high at 650 bps. And they were downgraded. Capitalization rates were downgraded versus the historical low of 2018. EPRA created new indicators of net tangible assets. EPRA net tangible assets is something quite significant to the EPRA NAV. And the difference between 2 indicators can be explained by the exclusion of goodwill in the NTA, which has a nonsignificant effect for Carmila. The EPRA NTA can be established at EUR 24.72 per share, down 11.1%. Thid drop versus last year can essentially be explained by the drop in the valuation of assets, minus EUR 2.47 per share. And the sum of the impacts of the dividend, recurring earnings is actually balances out over the period. And the dilution through the part payment of the dividend of 2019 and 2020 resulted in the issue of 5.4 million shares being issued. So the Carmila balance sheet remains robust. Net debt has remained stable over the period. Slightly up, 1.4%. EUR 2.274 billion, which evidences the balance management of the distribution policy and of reasonable investments made in view of lower revenues in 2020. The loan-to-value ratio, rights included, 37%, up 210 bps versus 2019, a consequence of a drop in asset value. While the financial debt remained stable over the period. The net debt-EBITDA ratio is 10.3x, while EBITDA was impacted by the health crisis. The ICR ratio is 3.9x, well above the banking covenant ratios and thresholds. The term loan and RCF only. As the bonds are not covered by LTV or ICR covenants. Liquidity reserves are EUR 1.070 billion. And cash was significantly strengthened at EUR 311 million at end 2020, allowing Carmila to face the health crisis with great tranquility. To finish on the financial aspect, let's comment the financial structure, which has further strengthened in 2020 through dynamic management around 2 major liability management deals. Two public buyout, bond offers 2023, 2024; a buyback of EUR 110 million of bonds bought. New bonds were issued. One in private format with maturity in 2029 and one in 2027 in public format. An issue made in November, public format, EUR 300 million went on in excellent conditions. It was oversubcribed 1.5x And the coupon was attractive at 1.625% with a new issue -- a negative new issue premium, which shows the capacity of Carmila to raise funds. To restrict the excess cash, Carmila partially repaid its term loan to the amount -- in the amount of EUR 200 million. End December 2020, average cost of debt is 1.9%. Average maturity is 4.5 years. And there are no major maturities before 2023. And then back to Marie to tell you about the outlook for 2021.

Thank you very much Pierr-Yves. With regards to the dividend, and the annual general meeting is to be held on May 18, 2021. And will be asked to approve the payment of a dividend of EUR 1 per share in respect of 2020, including a stock dividend option, which means maintaining the level of dividend against or in comparison to last year. With regards to the outlook into 2021, as a result of the lack of visibility over the reopening date of the shopping centers and on the lifting of government-imposed restrictions adversely impacting trading in France, Spain and Italy, at this stage Carmila is unable to provide guidance for its 2021 results and at this point in time 25 shopping centers are closed, looking at opening again. So Carmila remains firmly confident in a vital role played by its shopping centers and the effectiveness of its business model and in the solidity of its balance sheet. In addition to partnership with Carrefour, dynamic leasing activity, strengthened growth drivers and the operational excellence of its teams will enable Carmila to emerge from the crisis on a solid footing. Thank you very much for your attention. I suggest we now open for questions via chat or dial in.

[Operator Instructions] Pierre Clouard from [ KPH Management ], over to you sir.

I have several questions for you with regards to your financial reporting. So I understand that the situation is contained and [indiscernible] stable. And I'd like to get more insights into the elements impacting Carmila from a financial terms. You mentioned 18%. I'd like to get some clear understanding in terms of this decrease of 18% on a reported basis and 18% on a like-for-like basis. Could you possibly clarify these? So my first question refers to the acquisition strategy. And if we could clarify your acquisition strategy, given that maybe some of the shopping centers will emerge as available on the market. As well as are you contemplating any selling off of some of your assets? And with regards to maybe a selling off of EUR 300 million of your real estate assets? But could you possibly clarify your acquisition and selling off strategy?

Thank you very much. I'll start with the first 2 questions, which are of technical nature, before handing it over to Marie on organic growth. So down 0.4%, so this includes -- so down 4.7%. This includes variable lease settlements, specialty leasing going down, and the organic. And the portfolio referring to including elements that are pre-COVID which are in direct impacts of the COVID, so in these we isolated those and is down 4.7%. These are mostly element -- indirect elements related to COVID, being in mind. Well, we're down 0.5% on the rental base. I can confirm that in this 18%, we've included a 22.3% of debt for -- related to the ongoing COVID negotiations. And we wanted to take the entirety of the impact in 2020. And while IFRS 16 did not allow us so we wanted to have a progressive approach so we've included the depreciation and the impairment impacts for COVID related impacts. So over to Marie now.

On acquisitions and selling offs. As you've seen in our results, we have a robust financial basis. And we can work forward on an opportunistic basis acquisitions in view of opportunities that may arise. And we're very much engaged in at this point in time in the management of the crisis. And same goes when it comes to selling offs. And with regards to this morning's announcement by Carrefour, we will not comment on these announcements referring to selling offs of some of their real estate assets.

We have a question on the chat.

Regarding the current closing down in Spain and Italy. What is the percentage of the number of retail brands? And what is the percentage of the total GRI within the portfolio that this accounts for?