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

Welcome to the Carmila First Half 2026 Results Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, Marie Cheval, Chair and CEO; Sebastien Vanhoove, Deputy CEO; and Pierre-Yves Thirion, CFO. Please go ahead.

Good morning, everyone, and welcome to our first half results presentation. Operational performance this semester continued to be very strong, both in terms of growth and profitability. As a consequence, we are in a position to upgrade the full year guidance and report an increase in the value of our portfolio. Today, I will start with the key takeaways, Sebastien will deep dive into our 3 growth engines and Pierre-Yves will take you through the financials. Let me begin with the key messages. This was a very strong first half, but I want to be clear, it is not a one-off. It is a continuation of the track record we have built year-after-year. And behind is the same engine, our ability to transform our assets. First, we are upgrading our '26 guidance on the back of operational outperformance and our new acquisition. Second, momentum was strong across our 3 growth engines, organic growth with net rental income up 1.4%, boosted by record tenant demand and by strong momentum in Spain. Investment growth with the immediately accretive acquisition of Grand Quetigny and innovation growth contributing EUR 14 million with our new retail media offering now being deployed. Third, asset transformation is driving excellent operational performance, record leasing activity, strong retailer sales and rising portfolio valuation. Fourth, the strength of our balance sheet provides efficiency and opportunity with net debt at 7.3x EBITDA and an EPRA LTV of 49.3%. And fifth, we continue to create value for shareholders through disciplined capital allocation. We completed EUR 20 million of buybacks in the first half and EPRA NTA per share rose 3.3%. So in short, a very strong half, but above all, the continuation of a proven model powered by asset transformation. These takeaways are grounded in strong operational and financial performance. We signed 530 leases. This is our highest ever volume of leasing activity with reversion of 2.8% above indexation and occupancy held at a high 96%. That fed directly into financial performance and EBITDA margin of 80.8%, up 80 basis points on last year and gross asset value up 2.6% like-for-like. Strong operations translating into strong returns. As you know, our performance is powered by 3 engines: organic growth, net rental income up 1.4%, driven by strong retailer demand, asset transformation, and once again, 100 basis points above indexation. Investment growth. This half was marked by the acquisition of Grand Quetigny, adding 1% to recurring earnings on an annualized basis and innovation growth, EUR 13.7 million of recurring earnings, up 13% year-on-year with Retail Media now live and high demand for specialty leasing. 3 engines all firing. Why do retailers choose our centers? Because shopping centers are winning share. They outperform overall consumption and that is because they convert. In a world where the cost of acquiring a customer online has more than doubled, a store is the most efficient channel. Add to that, genius scarcity. No new greenfield supply is being built and consumers, who are looking for experience and social interaction. That combination is exactly what our leading shopping centers offer. We operate a European platform of 250 assets across France, Spain and Italy worth nearly EUR 7 billion. At its core are 80 leading shopping centers. They make up 80% of that total value and are the primary driver of our performance. Alongside them, a resilient network of 170 convenience centers anchors us in an everyday local life. I want to insist on these leading shopping centers. These 80 leading shopping centers are perfectly positioned to capture retail growth. They sit in the most dynamic region of our 3 countries, in attractive catchment areas with strong economic and demographic growth. They host around 70 top-tier brands. Occupancy is above 97%. And they are where we scale our innovations, Specialty Leasing, Retail Media and Next Tower. In short, we lead in the regions with the strongest growth, delivering highly scalable performance right across the portfolio. And this performance is not accidental. It is built through asset transformation. How do we do that? Merchandising mix, 50 restructuring projects a year and reinforcing the customer experience. We consistently grow organic rental income above indexation. As the chart shows, we have done this year-after-year. And in the first half, again, 100 basis points ahead of inflation. The same transformation drivers lifted our portfolio value by 2.6%. The operational picture is strong across all 3 countries. Group footfall was up nearly 1% and retailer sales up 2.3%. The standout is Spain, where retailer sales rose 6.6% and the occupancy cost ratio remains healthy at around 11%, which means our tenants are profitable and there is room for further rental growth. On investment growth, we acquired Grand Quetigny for EUR 45 million. It's a deal that ticks every box. First, it's a leading asset with strong fundamentals and a natural fit for our leading shopping centers portfolio. 4.2 million visitors a year, 66 stores and a dominant position in its local market. And second, we have identified exactly where the Carmila platform can add value through higher occupancy, reversion and asset transformation. The result is immediately accretive, adding 1% to recurring earnings. On innovation, our third engine. This is where Retail Media stands out, and it rests on something advertisers truly value, data. We are unlocking Europe's deepest transactional data. We are pairing over 600 million annual visits with Carrefour first-party data and JCDecaux expertise. So we give advertisers something they can't find anywhere else, which is the ability to target precisely and to measure real impact all the way through to sales. That's exactly why our first clients, brands like Ferrero and Heineken are already advertising across our 900 new digital screens. For Carmila, it's high value, high margin, and we expect Retail Media to contribute up to 2% of EBITDA. All this leads to our guidance upgrade. Organic outperformance and cost efficiency are expanding our EBITDA margin. Our net buyer strategy is accretive and innovation is accelerating. Together, that take our '26 recurring EPS guidance to EUR 1.87, up 3% on last year and above our initial guidance of EUR 1.84. With that, I'll hand over to Sebastien to take you through the detail.

Thank you, Marie. Let me take you deeper into our 3 growth engines and the record leasing activity behind it. This was our busiest ever half year for leasing, 530 leases signed. That reflects real record demand from retailers with reversion up 2.8% and occupancy at 96%. And the default rate of 10.9% tells us tenants remain healthy and profitable. Just as important is the quality of demand. We are welcoming the leaders in the most dynamic categories that are health and beauty, sports, fashion, food, leisure and the fast-growing Asian wave concepts. When the best brand choose us, it's the clearest signal of how centers appeal. This demand is what lets us do what Carmila does best, transform our assets. Through restructuring projects, we drive incremental rental growth. In the first half, we approved 39 projects at a 9% yield on cost. Let me now show you 3 examples that capture what we do. In Toulouse Labege, Zara floor space grew to 3x its original size, creating a 3,400 square meter flagship. The impact was immediate. Footfall up 7%, that's 130,000 additional visits versus last year. A stronger anchor makes the whole center stronger. In Rennes Cesson, we did something different. We turned an underused parking area into a 7,000 square meter leisure complex with Speed Park and Fort Boyard. The result, footfall up 22% with 50,000 new visitors in June alone. This is how we densify our existing footprint and create value from space we already own. And in Talavera in Spain, we opened a new Primark. Since it opened in mid-June, footfall is up 19% with 77,000 additional visitors. It has repositioned the center as a shopping destination for its region. 3 projects, one pattern. This is asset transformation in action. The right brands in the right places lifts the entire asset. Beyond bricks and mortar, the customer experience is central to what we do. Customer experience is critical because it keeps people coming back, driving sustainable repeat footfall. And across our 620 million visits a year, that translates into stronger sales conversion. We enrich it constantly through events, for example, like Panini card trading during the World Cup, specialty leasing concept surfing the Asian wave and during the heat waves, turning our centers into cool, welcoming places to spend time. Finally, on innovation, we are building recurring income streams beyond traditional leasing. Together, they contributed EUR 13.7 million in H1, up 13% year-on-year. Specialty Leasing leads at EUR 7.4 million, complemented by marketing services, Carmila Retail Development and the ramp-up of Retail Media. I would single out Next Tower. By monetizing 5G and Wi-Fi connectivity across our sites, we are turning our physical footprint into a new recurring revenue stream, already contributing EUR 1.8 million with substantial investment plan through 2030. It's a perfect example of how we extract fresh value from assets we already own. Taken together, high margin, low capital and a structural driver of our future growth. With that, I'll pass to Pierre-Yves to turn this growth into earnings.

Hello, everyone. Marie and Sebastien have shown you the strengths of our top line growth. I will now show you how we convert it into earnings through cost discipline, a rising portfolio value and a strong balance sheet. Demonstrated ability to grow revenues with stable operating costs. This is the essence of our model. Net rental income rose to EUR 204 million, up 1.4% like-for-like. EBITDA reached EUR 178 million, up 1.9% like-for-like, growing faster than rental income. That operating leverage lifted our EBITDA margin by 80 basis points to 80.8% and took recurring EPS to EUR 0.97, up 3.5%. Beyond operating leverage, we have 2 additional levers to optimize our cost base, AI and ESG. The first is technology. AI has enabled us to build the suite of tools that deliver tangible efficiency gains. AI-driven building management system to optimize energy consumption in real time. A new data lake centralizes our operation to unlock further savings. And by automating high-impact workflows, our AI agents are delivering a return on investment above 20%. The second is ESG. Our decarbonization strategy lowers energy cost structurally through lower consumption renewable energy usage, while keeping us on track for net zero by 2030 with emissions already down 78% versus 2019. Together, these 2 levers reduced our cost base and directly supports profitability. On Slide 26, our portfolio appraisal value continued to rise. They were up 2.6% like-for-like to EUR 6.8 billion. That is EUR 170 million increase since December '25. Growth was broad-based, led by France up 2.9%. This growth is underpinned by rental growth, green certifications, scarcity value and above all, the transformation of our assets, which accounts for more than half of the value increase. This is value we are actively creating, not just market movements. We believe these valuations make a turning point. On the left, you can see that net initial yields have started to compress down 12 basis points since 2024. On the right, we detail the main drivers behind the increase in our portfolio value. Out of the EUR 170 million like-for-like increase in gross asset value, EUR 60 million came from rental income growth. Around EUR 100 million came from asset transformation. This is nearly 60% of the increase. And EUR 12 million came from the strong momentum of yields in Spain. In short, our valuation growth is driven by operational performance not sentiment. On Slide 28, our debt structure is a real competitive advantage. We have a well-spread maturity profile with no major refinancing needs before '27. Our cost of debt is fixed and low at 3% and expected at just 3.15% next year. In a higher environment rate, this visibility gives us the firepower to keep investing in growth. On Slide 29, rising values and controlled debt reduced our leverage further. Net debt was broadly stable. This increase simply reflects our buybacks, while gross asset value continued to grow. As a result, EPRA LTV improved by 40 basis points to 39.3%. Here is the balance sheet at a glance. Leverage at 7.3x, maturity at 4.2 years. This is reflected in our earnings, BBB stable from S&P and Fitch and BBB+ from Fitch on senior unsecured debt, efficient and ready for opportunity. On Slide 31, our value creation flows through net asset value per share. EPRA NTA rose 3.3% year-on-year to EUR 26.75 with NAV and NDV up similarly, consistent growth value per share. On Slide 32, put together, this is an attractive well-positioned return profile, cash flow growth, an NTA revaluation of 3.3%, high earnings visibility above 96% occupancy and a strong balance sheet. I would draw particular attention to shares liquidity where we have made a real step change. Average daily number in our shares doubled in the year at EUR 3 million and has now tripled since 2019. This deeper liquidity opens the stock to a whole new pool of institutional investors who applied strict liquidity thresholds, broadening our shareholder base. On Slide 33, this bridge shows how this strong first half performance flows through to an upgraded guidance. From EUR 1.81 last year, we initially guided to EUR 1.84. Now our strong H1 operational performance and the acquisition of Grand Quetigny, already accretive, take us to EUR 1.87 for a total EPS growth of 3.3%. I will hand back to Marie.

Thank you, Pierre-Yves. It has been a great first half of the year, and there is more to come. We will host a Capital Markets Day on November 19 to announce our new strategic plan to 2030. 5 key topics: our leading shopping centers portfolio, our asset transformation engine, growing revenues through innovation, balance sheet strength and sustainable earnings growth. We look forward to seeing you in person. This concludes the presentation. We will now be happy to take your questions.

[Operator Instructions] The next question comes from Aakanksha Anand from Citigroup.

I have 2 questions, and I'll go through them one by one. The first one is on the like-for-like portfolio value change. So it was 2.6% for the portfolio overall and 2.9% in France, which is actually higher than what your other European shopping center peers have reported. Is it reasonable for us to expect these trends to be more sticky in the future? As in, is that something that you expect to be outperforming going forward from here? And along with that, if you could also provide some color on the investment markets and the opportunities that you see for future accretive acquisitions? That's the first one.

Thank you for your question. As Pierre-Yves explained, the increase in the portfolio creation is driven by 2 main pillars. First, the robust rent growth; and second, the asset transformation. And importantly, appraiser did not change our methodology. We think that there are more to come on asset transformation. As you know, we have an objective of around 50 projects of transformation per year. We did 39 of them in the first half. So there are more to come. I think it's really the rollout of a very strong strategy of transforming our assets. As Pierre mentioned, 3 good examples in the first semester, the Zara in Labege, the Speed Park and Fort Boyard Park in Rennes Cesson and the Primark in Talavera, and there is more to come. So we are confident on our ability to continue to grow, to create value on our portfolio. On the acquisition, as you noticed, so we acquired Grand Quetigny. We have reached 50% of our objective of EUR 100 million of acquisition this year in the first half, meaning that we are on track. We have a pipeline of projects. And we are confident in our capacity to reach our targets depending, of course, this is subject to market conditions. So we will keep you posted on this important part of our strategy. And just to concept, we are clearly targeting -- sorry.

No, you go on. I'm sorry.

No, just on acquisition, we -- our focus is on our 3 core markets. And clearly, we are targeting leading shopping centers when we can secure yields of at least 100 to 150 basis points above capitalization rates. That's what we are looking for.

That's very clear. The second question is on Spain actually because there seems to be a pretty strong momentum in that market. Could you just help us understand what's happening there? The 7% increase in retailer sales, obviously, is much higher than what France and Italy have performed? And is Spain kind of -- because of the attractiveness of the country, is that something that might become a bigger part of your portfolio going from here?

Thank you for your question. As you mentioned, the growth in sales in Spain is quite amazing, 6.6%. I think it reflects, first, the quality of our portfolio. And second, the fact that economy in Spain is booming more than in France and even Italy. So we are benefiting from this trend. Especially tourism is very high in Spain, and we are very well located in Spain on touristic area. And we think that there is more still to come in Spain, and we are ready to catch all the good impact on the Spanish economy. As I mentioned previously, we are in an acquisition mode in France, Spain and Italy. We are looking for assets to acquire in Spain. Spain is a very competitive market. So it's -- we need to find the right opportunity.

The next question comes from Florent Laroche-Joubert from ODDO BHF.

I would have maybe 1 or 2 questions, and I can ask one by one. The first one maybe is on the guidance on Slide 33. So actually, so we understand that in your guidance, you have maybe taken into account the impact of your acquisition in Dijon. But so should we expect maybe also some disposal to be taken into account in 2026 or maybe you are more to look for disposals in 2027?

Thank you, Florent, for this question. So yes, we have uplifted the guidance from EUR 1.84 to EUR 1.87. Part of it comes from Quetigny acquisition, around EUR 0.01 and EUR 0.02 come from operational performance which is very strong with the improvement of the EBITDA margin. Regarding the impact of potential disposal, we have already done around EUR 15 million disposal of this year and the objective -- the yearly objective is around EUR 50 million. So we are working on it. We have the capacity to do it as we have done it and we have disposed of more than 6% of the total portfolio in the last 3 years. That's really good condition. That won't impact the guidance for '26 as we are already starting the second semester. So the impact of potential guidance will be -- won't impact the guidance for '26.

Okay. And maybe my second question would be on your acquisition in Dijon. So you expect that it will be accretive by plus 1% on net earnings on an annual basis. So shall we consider this as a first conservative estimate? Or do you already include maybe some results regarding the transformation of the asset and upgrade of the operational performance?

Thank you for this question. So the 1% is the immediate accretive impact. As we have said, we are well above our target objective of 150 basis points above the cap rate for the net acquisition yield. On top of that, as Marie said, this center is really the kind of center that we are looking for, a leading shopping center. We have capacity to optimize the mix merchandising. We have the capacity to make restructuring and to optimize the customer journey. So on top of that, there will be additional value creation.

Okay. And maybe my last question. So in terms of -- you have spoken about implementation of cost efficiency, notably thanks to artificial intelligence. So shall we expect any further improvement in the future in terms of cost efficiency?

Yes. So artificial intelligence is starting to be really concrete within Carmila. It's not just a concept, but we are starting to develop really interesting solutions. By the way of example, we are currently developing an agent dedicated, for example, to automated reconciliations for cash resets with outstanding invoices. This is really important for us as we have more than 6,000 tenants, so many invoices. And it helps a lot the team to optimize the process and to be more efficient. So we have a good returns on it. As you have seen last year, we have improved the margin. We are continuing this semester with an improvement of 80 basis points, and there is more to come with efficiency around artificial intelligence solution deployments.

The next question comes from Benjamin Legrand from Kepler Cheuvreux.

I've got a few questions. I will go through them one by one. But the first one maybe is on the guidance. Just quickly, do we agree that there is no additional acquisitions or disposals in the guidance, meaning that if there is anything happening soon that could be impacting the guidance again?