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

All right. So we are welcoming now our guests to share in the half year business review for 2021 for Carmila.

Good afternoon, all. Thank you for joining us for this business review. My name is Marie Cheval and the CFO for Carmila. And we, here, of course, are joining our partners in explaining. And we intend to explain that Carmila is the best way to accelerate the excel -- the retail sector. And the sanitary crisis has accelerated the transformation of the retail sector. And we have identified 4 major trends. The first is buying power. And 73% of the members of the French population expect a commercial supermarket to put attractive prices on ideal commercial states. And of course, the client wants both. Obviously, 88% of the brands that come from the web feel that a store could mean a hike in their online traffic. And also -- and [ practicity ] is also a third trend. The French have modified their usual purchasing habits and are turning to what is most convenient. Responsibility and local presence are essential, and in all of our centers are perfectly adapted to all of these trends. They know that we are present online also as well and that we here are at the service of the retail sector transformation. The different markets are on the move, customer-centric, restructuring and renovating pipeline for extension projects as well. Now our centers are maintained. We are still working on our expansion project pipeline. And we always intend to satisfy our clients. Our second pillar is that we want to be the best partner for all of the store and tenants. And we, of course, are completely aware that they intend to move ahead quickly. We believe that we can contribute a better strategy. The third pillar is 100% omnichannel, the knowledge and data of our clients, animation for digital communities as well, accompanying the transformation of our stores, boutiques as well and also independent store tenants. And this is born by innovation and agility. And we, of course, will be able to come back to this in a short while. And we, of course, here intend to maintain this approach. The robust fundamentals of Carmila has, of course, here 1 French and 1 Spanish person, who are close to under 20 minutes from a Carmila center. And second, fundamentals, 80% of our sites are important as well. And Carmila is 500-odd, and of course, is based on the intermediary metropolises around all of our stores. So our platform is the one I've just described. It is not passive. We have worked hard. And we, of course, have made it possible for us to serve our clients and to be customer-centric. We have also worked on becoming the best partner for all of our store owners or tenants. Also, we here also have worked on health. And what we have found to be able to implant this strategy in all of our centers. We were struck by how fast they actually leached onto e-commerce and physical commerce. And we are working with them as a business partner, to look for new banners. Also to improve how they can work better and how they can better communicate with their own clientele. We have also enlarged our digital presence. And of course, we also, in Spain, for example, have indeed now been spread to Spain and Italy. And this means, of course, that our strategy on Slide 8 and with renovations, and also 4 partner banners, we also have now partners that we have been working with to help them out of the crisis as it shaped the world that they knew before the COVID. And of course, here, urban mixed use, several projects, and also, we here are developing our Tower Company and Lou5G. And also, we will here be able to optimize capital equity allocation, and here at [indiscernible] and this will help us work on a share buyback. All of this, of course, is happening. And our slogan is here, we are acting in favor of the planet, the territories and our collaborators. And we have recently been rewarded for all of the work we've done during the year, where we also had to face closures. And we have, of course, here are looking to implement our CSR strategy as well. And activity, this activity will be...

Thank you very much, Marie. Let's share our comments on the business in the first half year 2021, received by the very pandemic wave, which really established a number of restrictions mostly where Carmila operates. These restrictions, depending on the territories and the centers, we will not delve into the explanations of these. It is in this context, retail stores have opened up, that have been shut for 2.8 months over the first quarter of 2021, i.e., a greater length of time, greater than the length of closing down in 2020, where Carmila shops have remained closed for 2 months. So Carmila shops were closed for an average of 2.2 months in France in the first half year 2021, cumulated -- cumulatively, we are looking at -- so it's down, and so [ 0.2% ], we are looking at assumption and the reopening of the centers. And the footfall, so we're coming back to levels close to those of July '20 . You can see on the curves here, you can see the footfall that has the easing of restrictions occurred. So we're looking 105% in France, 90% in Spain and -- 93% in Spain. So we're overperforming, we're exceeding the levels of 2020. And those for -- and even those of 2019, you can see this on the red curve, we have a plus 5% in June 2021 against June 2019. So clients have come back to Carmila centers. So we are -- this is what we're seeing now. As Marie stated, omnichannel plays a key role and is a key pillar for Carmila. During periods of resumptions and reopenings, the good results have notably linked to digital in the logic for omnichannel initiatives. So B2C, to start with, with a drive-to-store approach where Carmila strengthened its visibility online, engaging and developing a geolocated client database with 3.6 million of contract in opt-in, with points and something that is essential with this, obviously, presence on Google and Facebook. And then developing communities, digital communities, raising rapport with the local influencers, which numbers of subscribers have significantly increased. You can see the evolution of all of these indicators on Slide 13. And here on the B2B approach as well, Carmila develops an omnichannel approach for its partners, retailers to support them with their digital transformation, EBITDA independent and franchisees accounted for 40% of the retailers of Carmila's. And it is important to support those. And we've had them developing Internet websites amongst many other steps. So when it comes to reopening of new retailers, well, Carmila has strengthened its synergies. We're careful. We're resting upon the strength of a couple of our partners. And in Spain, we've put a disposal, the Carrefour marketplace, to some of the retailers. So major point, a strong point of this half year, there's been a moment -- an exceptional momentum, leasing with an unparalleled number of -- 541 leases have been signed in the first half 2021, accounting for 9% of the rental base of Carmila, with rental levels higher by 3.9% against the ERVs. So I'd like to highlight these -- the -- have been taking place with the traditional lease contract centers and with the traditional duration, traditional or classic or standard level. So to insist on this, unparalleled level, unprecedented level. This is a plus [ 50 ]%. So it is plus 40% versus H1 2019, plus 140% versus H1 2020. So that's 261 renewals. So we're talking plus 100 signed contracts on -- and pop-up stores, an upturn in specialty leasing. The reversion on renewals stands at plus 3%. So we're confident on the continuation of these conversion dynamic because we have a high level of -- and signed contracts. And the review of upturn and efficiency leasing and -- are 3% across all 3 countries. And the month of May, as you can see, we're 38% -- plus 38%, reflects a very good level of resumption. So these reflect the interest of retailers for Carmila and the quality of the partnerships with all the shops and retailers. So we capitalized on strengthening the links with -- between Carmila and retailers in the wake of COVID. Now beyond these, Carmila teams are fully engaged in looking at innovative types of partnerships and for things to -- branding and our operations that remain relevant across all segments. So we have the retail brands that are historic, the likes of Primark, Kiabi. And actually, it is really important to have these so -- because this is what clients expect. We have the new and up and coming leaders upside, the normal virtual leases. So this allows us to conquer a new generation, expecting new generation of new technological products. We also wanted to capture new concepts. As you can see here, examples, the likes of Culture Vélo and Les Canons, we'll talk about this retail brand specifically at a later point in time. We have Happy Cash Eco. We have locally rooted retailers so as for them to operate in our commercial centers. And you can see such examples of the local retailers here. Let's take a look at some of the key elements of activities. The rental base is on a like-for-like basis, so down 0.6% and versus 31st of December 2020. Robust financial occupancy at 95.7%. We thought the crisis was going to generate some number of collective layoff plans. And significant so with lease of the base -- the rental base in H1 stands at down 1.3% in -- so limited impact on lease terminations. And the impact of an export to fashion is limited. The impact of insolvency proceedings is limited at 0.5%. When it comes to the mixed merchandising economy, as you can see, we've continued to bring down our -- to reduce our exposure to fashion. So across all of the activities, this stood at 36% in December 2017. It has been brought down to 32.4%. So this first half year 2021 was also shaped by 2 major projects of extensions. And so the day of the reopening of the commercial centers in France, we see the expansion of Nice Lingostière, so still articulating the commercial dynamic. It's open to 100% occupancy rate. These centers has plus 50 units. So today, we're talking about 100 shops there. So with leader brands, H&M, Kiabi, Cultura, this is their first shops in the Nice area. Strategic stores for this brand, Mango, new concepts the likes of La Barbe de Papa, [indiscernible]. And so more recent brands expected by clients. This has been a tremendous result of a successful opening. So with a footfall of plus 30% between its opening and to 30th of June 2021. And furthermore, Carmila has finalized in Calais-Coquelles the transformation of Cité Gourmande. And so we've seen June '21, one, the Primark new opening. And we've developed a Cité Gourmande with leisure and restaurant facilities complex. And so this center has renewed the -- its second now as a shopping destination. And as -- with the 31 shops opening since 2018, amongst which 7 openings, first quarter 2021. Another -- so the key success there as we can see, we've seen footfall increasing by 65% from the 19th of May to 30th of June 2021 versus 2020. Two words on the exit pipeline of retail extension projects. Our pipeline comprises 5 major projects: Montesson; Antibes; Toulouse Labège; Vénissieux; and Terrassa, is Barcelona in Spain. So these projects, as we noted, they're all back to very powerful hypermarkets or very powerful in their local areas. So Carmila has launched a new development clearance for Montesson, with the clearance issued by the Committee for Commercial Development in May 2021. We know how complex it is to obtain such permits. And it has been a long road, but Carmila has indeed the initiative on permits. So we can see just -- we're talking about plus 60 units and restaurants, so between now and 2025 with the framework of the residential units and urban development projects. So the first quarter 2021 is the -- is shaped by the accelerating expansion of Carmila Retail Development, as a subsidiary of Carmila to invest on the side of innovative and promising retailers. So the 4 major partners of Carmila, so far: La Barbe de Papa; the timeless fashion, indémodable; and Cigusto and Ideal in Spain, opened 37 stores in H1 and has planned 44 store openings in H2. And so we're continuing to develop a partnership with new brands. And you can see Dicapo. Dicapo is a restaurant investment and Les Canons is a wine specialist that was set to open in the very near future. So I'd like to insist on health care center openings. And we've already mentioned that in the past, but H1 2021 was a key milestone for this activity because we'll open our first dental practices under the virtual brand in Athis-Mons, Sartrouville, Perpignan Claira and Nantes Beaujoire. 5 new openings are scheduled for H2 2021. And in Spain, we have the opening of 2 DentalStar center in the first quarter of 2021 in Montigalá and Cabrera de Mar. So in total, rolling to, as you can see the right-hand side of the Slide 21 (sic) [ Slide 19 ] and to end 2021, all the partners of the company like Carmila Retail Development will account for nearly 248 stores and dental practices in France and Spain. At end 2021, of which 118 in the Carmila portfolio, generating EUR 5 million in rental income. And another key point for 2021 is, one, has been marked by the capitalization rates that have stabilized the average capitalization rates. It's stable at 6.20%, cap rate has the same rate as of the 31st of December 2020. So this is the first time that we can see a stabilization of capital rate. So the strong points have been reported with regards to Carmila in terms of the -- what analysts have reported is the core strength of Carmila, the attractive-priced rents and fully renovated portfolio, stable occupancy, dynamic leasing activities and positive reversions, sort of these points reflect and explain the core strengths of Carmila. And Slide 23, stable appraisal values underscoring solidity of the portfolio at EUR 6.135 billion. That is market value. So 0.2%, and again, as of the 30th of June 2021 versus 31st of December 2020. And like-for-like change, point -- minus 0.2%. So let's take a look at the first half year results now. These financial results show that the fundamentals of Carmila are well under control thanks to the proactive management of crisis by the teams and the solidity of the platform. They include -- so temporary impacts of the crisis. Why temporary? Because they are reversible once the restrictions will be eased, as this -- the basis is sound. Net rental income of EUR 147.5 million in H1, down 13.2%, so that articulates to organic growth. The impact of the health crisis at 12.2%. Organic growth for the rental base, plus 1.0%, which is the contribution of Nice Lingostière. In our extensions and other impacts, so down -- so minus 1.2%. They notably include the implementation of the strategic vacancies to put in place our strategic operations and development projection. On Slide 26 (sic) [ Slide 24 ], we've -- we're looking at the estimated impacts of closures in the first half as recognized in H1 2021. 100% of its major impacts have been accounted for. That was not the case in H1 2021, where only part of the first wave had been accounted for, which was the nonimpact of the first wave, which was for the best part, linked to the aid, state aid of EUR 41 million. Impact of first wave of May 2020 was partly accounted for in the second half of 2020, but also was [ frozen ] out over -- so pursuant to the application of the IFRS 16 standard, the variation is not directly comparable. And as a result of realistic provisions for rent-free period to Carmila, did not submit any additional provisions in the first half year 2021, which is highly satisfactory. It demonstrated we've attained the targets when it comes to these rents and charges. Impacts on IFRS are down EUR 2 million, minus EUR 2 million. In full year, that will be -- that will translate into EUR 6 million, so minus EUR 6 million. So we have the provisions for rent-free periods, for rents and charges, for closure periods in France, minus 17.3% for provisions. For rents and charges will allow us to carry out targeted negotiations to allow us to boost the recovery period in Spain and Italy. Franchises were granted for [ EUR 6.7 million ]. And so for rent-free periods, so the adjustment of variable income stands at EUR 7.7 million. The rental base, various impacts on the rental base stands at EUR 1.5 million, which demonstrates the stability of this base. And the other impact and extensions contribute for EUR 1.7 million. And other impacts related to strategic vacancies, minus EUR 1.8 million. Slide -- next slide, 27 (sic) [ 25 ] here, the collection rate at 69.3% as of the 19th of July 2021. It should be noted, the strong acceleration of collection rate against the 31st -- the 30th of June -- which we're starting -- we're standing at 63.6% on June 30. Since Spain has reached is 90 -- 86% in the first quarter, and we can see a good trend, positive trends, where these reaches the 60%. This is -- so again, we'll have the impact of the governmental aid. And so this rate, after deduction of franchises that we've mentioned, we're talking about 16% will be collected, which is a key priority for Carmila in the second half year. A plan of action has already been put in place, with the first encouraging results as illustrated by the increase between the 30th of June and the 19th of July. We are confident in our capacity to recover these. And as a result of the fixed cost and state aid, and the state taking care of the charges and rents, this will allow us to buy the franchise to -- this will accelerate these collection rate of these 16.1%. Slide 26 is -- and I suggest we look at the various -- I suggest we focus on the recurring results, recurring earnings. So in terms of equity accounted, we're talking a EUR 0.9 million of savings is a substantial economy, reflecting the healthy management and reasonable measurement of the CapEx by Carmila. EBITDA, EUR 104.7 million in the period, not directly comparable to the EBITDA of the same quarter 2021. The financial results is the impact of increase in interest rate expense on bonds at the end of 2020 by Carmila and the start of 2021 to extend the [indiscernible], to which we'll look at later on the specific impact of IFRS COVID impact. So [ EUR 117.1 million ], plus 2%. So we -- and it builds in 100% of the impact of first half year related to the health crisis, in fact related to the first half year. In terms of the earnings per share, recurring earnings, out of extra IFRS COVID impacts, recurring impacts at EUR 17.2 million. So minus 18.9%. Recurring earnings per share are EUR 0.52 per share, including the IFRS 16 impacts and $0.53 per share, excluding IFRS COVID impact. So the changing in half and dividend in 2021 has been remained at -- it remains at EUR 1 per share, same as 2020. And so with the dilutive impact of dividend, point -- minus [ 0.16% ]. So the EPRA NTA, 30th of June 2021, at 23.60% -- 23.69%. EPRA NTA, fully diluted at EUR 23.69 per share, down 4.2%. So net debt and LTV ratios are temporary hit from the collection situation related to the first half year. Dividend was paid out on the 15th of June and came to increase the financial debt by EUR 94 million. Investments are EUR 110 million. Notably for the Nice Lingostière, EUR 74 million for Nice Lingostière. We'll continue to invest. Net collections contribute to the tune -- to reduce the financial debt for EUR 60 million. So we can see the balance of the ratio for Carmila, between the annual dividend of EUR 94 million and the net collection of half year, impacted by EUR 60 million, Carmila has well expected itself. So balance equilibrium, and we can see the -- so we can see EUR 40 million of net collections between May and June. And this brings down the LTV significantly by 38.9%, although it was 39.4% versus June. To wrap up the financial report, so I wanted to focus on the significant work carried out by the team on the financial positions. We've repaid EUR 600 million of bond and bank loans and to be paid in 2023, 2024. Issued 2 bond issues at the end of 2020 and March 2021 with -- so we're looking out to 2027, 2028, 2029 and '30. We've maintained the average cost of debt at 2%, with average remaining maturity at 4.6 years. So -- and historically, with a curve that was -- with a maturity that was -- [ 2023 ], we've managed to bring this down significantly. There's no major borrowings falling due before 2023. BBB rating with a negative outlook has been confirmed by NSP (sic) [ S&P ] in May 2021. We have significant liquidity greater than EUR 951 million. There's no risk in terms of the banking covenants as published, which are the covenants of our banking loans. Over to Marie for closing remarks.

Thank you, Pierre. So we've seen that this crisis, of course, has had a strong impact on the retail sector transformation strategy that we have described. And also in a very demanding context, Carmila was able to here, deploy in record time, the necessary adjustments for its platform. And this, of course, means that we will not, for the moment, give guidance for this particular -- the commercialization and also the growth relays also that are enriching our growth and for the months and years to come. So investors -- and the meeting of investors in the fall will be the time to take questions.

[Foreign Language]

Right. So thank you very much. And the rotation of assets and for us is, in fact, deals with mature -- and we are also envisaging within 18 months to be extremely poised to understand and also to give you more explanation perhaps on the depth of share buyback. Now as regards the rotation of our assets, we have voted in our General Assembly, the -- now the major project and -- we can't, for the moment, give you more information because we need to work on this further. And I'm talking about the 5 projects. Montesson is one that should become reality in 2025

Okay. So we will now take questions online.

[Foreign Language] Okay, this should take about 1.5 months. And as regards other questions, Carmila is in [ SIC ] and so of course, it will be exonerated as regards -- and of course, it's -- Carmila itself is in an SIC. And also this, of course, involves the taxation of our financial strategy as described and essentially associated with the Italian partner. Any other questions online?

We have no other questions.

At this time, we have a question on the English line. [Operator Instructions]

[Foreign Language]

In the meantime, I -- it seems to me that the -- what the government had proposed to maintain the steadiness and stability of Carmila. And for the moment, this does not seem to have yet been published. So we haven't yet commented on this particular in amount of franchises for France, and as we had seen during the preceding negotiations of insolvability.

[Foreign Language] We would like to know about the financing plan, and in terms of sales -- up and coming obligations in terms of acquisitions and sales. Now, as I stated, I said that we would be opportunistic. And if these opportunities, if acquisitions come along post acquisitions, we'll be able to finance those. So we are fully maintaining our dynamic, our momentum and our wish to look at for acquisitions maybe into new assets. What is the maximum level that you're setting yourself at today? In terms of level of acquisitions, level of investments, we don't want to communicate on an LTV maximum level. And we've talked about our banking covenants. And as Pierre stated, we have some room to maneuver, some leeway. So we have another question from [indiscernible] what can we expect for H2 in terms of the collection efforts, in view of those collection efforts? Well, to take this question, so we -- I believe we're very explicit on the past half year, which include the EUR 33 million of the impact of the health crisis in the first half year. And for the second half year, we don't know yet the impact of -- what the impact of this health crisis will be in H2. That's why we didn't give any guidance, but I'd like to recall the fundamental behind all these. The rental base is robust. These effects are temporary and reversible, if there's no crisis, have crisis or restrictions stay in H2, we can find -- we'll be able to go back to levels that don't build in these temporary impacts. So we don't have any questions on the call or online. We have one question in the room.

As given the strategy described by Carrefour of shop in-shop, this is -- will this be a competitor for you over the new -- some of your retailers that's gone to shop in-shop. So will these be the first crowd of Carmila, which will become the second crowd around the Carrefour centers?

We are not in competition with Carrefour. We are in partnership with Carrefour and the dynamic is highly promising. And this shop in-shop dynamic is not at all a competitor of Carmila. And if there's room, and if there's room around hypermarkets, there's room in our shopping centers and anything that can run in the hyper. So the ecosystem around shopping centers is extremely good for Carmila. So today, there's no retailers would have, "Well, I'm quitting Carmila, I'm leaving Carmila to go elsewhere and to shop in-shop. To the contrary, so we're mutually strengthening each other.

Just to understand, I realize that you have mentioned the extension projects and today, we have clearly understood that there may not be more room perhaps for a strategy and perhaps an urban sprawl or -- and my second question is, how do you see the climate change law arriving today as we can see? And we ask questions on, are we still allowed to construct or build in France today? And of course, in Spain and Italy? And there is a third point, which means that we are also tending towards recharging the [indiscernible] city.

And -- will not oppose the center of town and the -- with the intermediary cities where the supermarkets are not -- and now -- as concerns the new commercial malls in France. We here are facing the recreation of another form of our shopping centers. And of course, this will allow us to strengthen them to be able to modernize them. And of course, we need here to take into account the climate change law, and this is what we intend to do on our 5 extension projects. So in fact, there are, here, strategies that could be very interesting. And also, there are opportunities, so we're talking about the restructuration of what we call the shoeboxes, the entrance of some cities. And we are now trying to find how we can rehabilitate these particular boutiques or stores. And this should be present in the centers of town or also on -- in the suburbs, surrounding the cities. So of course, this means more rentals. And now as concerns Spain and Italy, and -- I think that the evolutions are in front of us right now, but there will not be another major project for such commercial malls in Spain. Thank you very much for your attention. And to see here, all of you who came here to share this with us today. Thank you very much.