Carmila: 2018 Annual Results

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A successful year for Carmila

Gross rental income increases by +13.1% to €340.3m.
Recurring earnings for 2018 total €207.5m, up +13.5%

Strong growth of the local digital marketing activity

BOULOGNE-BILLANCOURT, France--(BUSINESS WIRE)-- Regulatory News:

Carmila (Paris: CARM) has proven the strength of its business model and the dynamism of its teams. The results for this year highlight the company's ability to transform and enhance the value of its shopping centres, through the implementation of a retailer approach. Locally-deployed teams, retailer support with powerful digital marketing tools, and an entrepreneurial spirit applied to all areas of its business provide Carmila with unique potential for growth.

Gross rental income increased by +13.1% to €340.3m, including organic growth of +2.8%.
Recurring earnings amounted to €207.5m, an increase of +13.5% compared with 2017. Recurring earnings per share remained stable at €1.53 per share. The dilutive effect of the capital increase carried out in 20171 was offset in full.
The Gross asset value, including transfer taxes, of Carmila's shopping centres totalled €6.4bn, up +10.3% over 12 months. At comparable scope2, this figure rose by +2.2%, stable in France and increasing in Spain and Italy. The France portfolio saw a marginal increase in average market capitalisation rates (+12 bps), offset by the positive effects of the Carmila teams' dynamic approach to asset management. The average capitalisation rate for the portfolio rose by +7 bps over the 12 months from 5.70% a year ago to 5.77%.
EPRA NAV per share grew by +3.3% over 2018, to €28.39. Restated for the interim dividend of €0.75 paid in November 2017 on 2017 EPRA NAV, NAV rose by +0.6% over the 12 months.
Over the course of 2018, Carmila delivered seven extension projects, thus increasing the leadership of these sites. Retail brands proved to be pursuing a selective development in France in these assets were the letting rate is above 96% and activity already looks promising for the first few months of opening.
In 2018, Carmila signed acquisitions worth €417m and as such boosted its future potential for growth by increasing its presence in the dynamic Spanish market and acquiring assets with significant potential for value creation.

2018 Rental activity

Gross rental income for 2018 totalled €340.3m, an increase of +13.1% as a result of organic growth combined with acquisitions and extension projects completed in 2017 and 2018.

Organic growth of +2.8% was recorded over 2018, including an impact of indexation of 1.1 points.
Reversion recognised in relation to renewals over the period averaged at +6.9%. Following Carmila's decision to make them a priority for development, specialty leasing and pop up stores enjoyed significant growth (+22.4%) and represented €10.7m in gross rents.
Acquisitions completed in 2018 represented 6.2% of the growth in rental income (+€18.6m) and the extension projects delivered in 2017 and 2018 are responsible for 3.8 points of this growth (€11.4m).

The financial occupancy rate of the portfolio3 stood at 96.2% at 31 December 2018. This rate has remained stable over the past three years (96.4% at the end of 2017 and 96.0% at the end of 2016).

Net rental income for 2018 stood at €313.7m, an increase of +13.4%.

In addition to the increase in gross rental income, growth in net rental income benefited from an improvement in the net to gross rental income conversion rate (92.2% versus 91.9% in 2017). This was due in part to rental and landlord costs rising slower than rents (cost control).

2018 Income

Operating costs net of other operating income and expenses for 2018 totalled €52.0m, versus €49.7m in 20174, an increase of +4.5%. This growth was mainly linked to variable expenses indexed to income or activity.

EBITDA for 2018 stood at €264.3m, up +15.2% compared with 2017 EBITDA restated for the costs associated with the 2017 merger.

The net financial expense for 2018 was -€58.6m. In 2017, this expense was -€45.3m and included €6.5m of badwill linked to the Cardety merger. Restated for this non-recurring item and for non-cash elements (fair value adjustments on financial instruments and hedges, IFRS 9, etc.), the net financial expense was -€4.9m lower, primarily due to the financial expenses of the new €350m bond issued in March 2018 (€6.1m). The average cost of debt stood at 2.02%.

EPRA Recurring Earnings, restated notably for 2017 merger-related items (badwill and costs) and expenses recognised in relation to refinancing arranged at the time of the merger as described below (amortisation of loan issue fees and residual costs relating to repaid debts and unwound hedges), amounted to €207.5m, up +13.5% on 2017, exceeding Carmila's target growth rate of +12%.

Net recurring earnings per share remained stable at €1.53 per share. The dilutive effect of the €618 million capital increase completed in July 2017 (creation of 26.2m shares) was fully absorbed by the growth of cash flows over the year.

Portfolio valuation and NAV

The portfolio valuation, including transfer taxes, stood at €6,405m at 31 December 2018, €599m higher (+10.3%) than at 31 December 2017 (€5,806m).

On a comparable scope, the valuation of the portfolio increased by +2.2% (+€126m).
Other variations included i) the recognition of seven completed extension projects in 2018 (+€76m), representing an additional 71,950 sq.m, annualised rental income of €11.0m, of which €3.9m in 2018, and ii) the addition to the perimeter of new assets, net of the sale of a medium-sized store in Italy (Turin-Grugliasco), representing a net increase of €399m in the market value of assets (acquisition of Marseille-Vitrolles, Madrid-Gran Via de Hortaleza, the Pradera portfolio in Spain and La Veronica in Malaga-Antequera).

The average capitalisation rate for the portfolio was 5.77% compared with 5.70% as at 31 December 2017. This rise is the result of a slight increase in the market capitalisation rate in France (+12 bps), combined with marginally lower rates applied by the experts to certain assets in France and to the Turin-Nichelino shopping centre in Italy given Nichelino's track record of the new extension opened in 2017 (-5 bps on the average Italian capitalisation rate). It is also due to an improvement in the intrinsic quality of these French assets, owing to the dynamic management approach of Carmila's teams, focusing on renovation, a better merchandising mix, lower vacancy rates, reversion recognised, and planned site extensions (-7 bps on the average capitalisation rate of French assets). Lastly, the experts revised the potential rental income from the vacant premises of certain Spanish assets upwards (+3 bps on the average capitalisation rate of Spanish assets).

EPRA NAV per share (fully diluted) at 31 December 2018 was €28.39 per share, compared with €27.48 per share at 31 December 2017, an increase of +3.3%. Following restatement of the 2017 NAV per share for the payment of an interim dividend of €0.75 per share in November 2017, the 12-month NAV growth rate was +0.6%.

EPRA triple net asset value (EPRA NNNAV) (fully diluted) was €27.14 per share, an increase of +2.3%.

NAV inclusive of transfer taxes per share (going concern NAV) (fully diluted) stood at €30.32, an increase of +3.9%.

Debt and balance sheet structure

In February 2018, Carmila issued a third bond with a maturity of 10 years a face value of €350m and a coupon of 2.125%.

At 31 December 2018, Carmila’s gross debt stood at €2,390m5 and its cash position amounted to €213m. Available facilities (RCF and net available cash) stood at €1.2bn. The average debt term was 5.5 years (stable compared with 31 December 2017).

At the end of December 2018, the consolidated net financial debt / fair value of property assets ratio (including transfer taxes) was 34.0%.

The EBITDA / net cost of financial debt ratio at 31 December 2018 was 4.9x, compared with 4.7x at 31 December 2017, well above the minimum contractually-agreed bank covenant threshold of 2.0x.

Extension pipeline and acquisitions

Seven extensions were delivered during the year, of which four during the second half of the year, with an average financial letting rate of 96%. These seven extensions represented an additional 71,950 sq.m, annualised rental income of €11.0 million, investment totalling €145 million and an average yield on cost of 7.6%6.

The main extensions delivered in 2018 were the Orléans-Cap Saran shopping centre, Evreux (phase 2), the Athis-Mons shopping centre (south of Paris) and the Malaga-Los Patios shopping centre in Spain. All are off to a good start and the entire shopping centres are already seeing the benefits.

For the 2019-2024 period, Carmila’s extension pipeline at 31 December 2018 includes 27 projects representing a total forecast investment of €1.4 billion. Carmila has seven major extension projects underway (Nice-Lingostière, Marseille-Vitrolles, Barcelone-Tarassa, Toulouse-Labège, Montesson (west of Paris), Lyon-Vénissieux and Antibes), which represent 80% of the value of this pipeline. The average developer yield on cost of the pipeline is 7.2%.

2019 is set to be a year of consolidation for Carmila, with three projects delivered, representing net annualised rental income of €2.3 million and investment totalling €31 million.

It should be recalled that during the 2018 financial year, Carmila completed acquisitions worth €417 million with the aim of securing future growth on assets that present value creation potential in the most dynamic countries. Carmila thus acquired eight shopping centres in Spain and one shopping centre in Marseille-Vitrolles. Three extension projects and four restructuring projects are already under consideration for these centres with good short term reversionary potential. Carmila has thus increased its exposure in Spain which, at the end of 2018, represented 23% of its portfolio.

B2B2C Digital Strategy

In 2018, Carmila continued to ramp up its local digital marketing strategy, which aims to use digital levers to supply retail brands with digital tools and cutting-edge local marketing expertise.

Carmila’s customer database is growing rapidly. At the end of 2018, it comprised 1.95 million qualified contacts, an increase of 77% over 12 months.

Carmila’s digital offering for retailers is also expanding and is being increasingly used. We currently offer over 420 initiatives per month (200 per month in December 2017) to our retailers as part of the "Kiosque", which seeks to help them boost their business in our shopping centres. 2,750 retailers have already made use of these solutions. In 2018, 44.2 million emails and text messages were sent to targeted recipients, existing and potential customers, by our centre managers.

This strategy has proven to be effective. For example, the Boost initiatives designed to support certain retailers over a one-year period have seen the brands in question outperform in terms of turnover growth 11.2 points higher than the CNCC panel for their activity category.

Dividends and Outlook

Confident in the robustness and effectiveness of Carmila's business model, the Company's management will ask the General Meeting scheduled for 16 May 2019 to approve the payment of a 2018 dividend matching that of 2017, i.e. €1.50 per share.

This dividend amount represents a payout ratio (dividend/recurring earnings) of 98% for 2018, versus 110% for 2017. Linked to the closing price of Carmila shares on 12 February 2019, this dividend represents an exceptional return of 8,6%, more than 800 bps above the OAT 10-year rate.

Carmila's long-term growth prospects are sustainable. Carmila has excellent visibility for its income (long leases, indexation, highly stable occupancy rate), productivity gains that enable it to reduce its cost ratio, and a solid financial structure with stable and predictable cost of debt (S&P rating BBB / outlook positive, long maturity debt of which 88% on a fixed rate, good financial liquidity). Furthermore, Carmila has powerful growth drivers at its disposal, including sustained organic growth, a carefully managed pipeline comprising large-scale structural and value-creating projects, and a rapidly expanding, strong local digital marketing strategy.

In addition, Carmila's workforce is agile and dynamic, with vast expertise in digital technology and a passion for innovation. The teams research and develop promising drivers for growth, including:

asset enhancement: significant land reserves (approx. 1.5 million square meters) situated close to urban areas, at the heart of city life and on which it has joint development rights with the Carrefour group. These sites harbour revaluation potential which could be fulfilled through mixed-use construction projects or the reallocation of space;
a joint venture business with early stage retail and customer service start-ups, to support their development in Carmila's shopping centres. This activity will complement our range of established retailers but could also help boost Carmila's performance with double-digit IRR targets for the next five years;
LOUWIFI, a subsidiary created to capitalise on the technical and digital expertise relating to Wi-Fi, low voltage and the integrator network.

Consequently, Carmila's management team is confident in the sustainability and strength of the company's business model.

After the strong growth recorded last year, 2019 will be a year of consolidation:

three extension deliveries and a number of major projects to be launched;
we will be keeping a close eye on LTV and financial liquidity over the year, selecting our investments carefully to ensure flexibility in a changing environment.

In this context, Carmila's goal is to achieve recurring earnings per share growth between 5% and 6,5%.

Main results and financial indicators

In thousands of euros	31 Dec. 2018	31 Dec. 2017	% change 2018/2017
Gross rental income Net rental income	340,250 313,658	300,911 276,655	+13.1% +13.4%
Overhead costs and other operating income and expense7	(50,574)	(47,433)
Provisions	(1,117)	174
Other operating income and expenses	(277)	(7,160)
Share of equity affiliates (recurring earnings)	2,657	2,439
EBITDA Adjusted EBITDA8	264,347 264,347	224,675 229,390	+17.7% +15.2%
Net financial income/(expense) (excl. change in FV of financial derivatives)	(59,326)	(45,543)
Corporate income tax9	(2,747)	(1,910)
Funds from operations (FFO) Adjusted FFO	202,274 202,274	177,222 181,937	+14.1% +11.2%
Depreciation and amortisation	(1,141)	(983)
Provisions	(1,250)
Change in fair value of assets and liabilities, net of tax	(36,666)	132,240
Change in fair value of assets owned by equity affiliates	1,225	(8,628)
Gains (losses) on sales of investment properties	(2,443)	(2,803)
Other income and expenses	1,610
Consolidated net income Consolidated income, Group share EPRA earnings Recurring EPRA earnings	163,609 163,557 202,447 207,521	314,304 313,787 179,809 182,896	-47.9% -48.0% +12.6% +13.5%
Fully diluted per share data (in â¬)
Earnings Per Share (EPS)	1.20	2.63	-54.3%
Adjusted FFO	1.49	1.52	-2.4%
Recurring EPRA earnings	1.53	1.53	-


In millions of euros	31 Dec. 2018	31 Dec. 2017	% change 2017/2016
Portfolio valuation (including transfer taxes)	6,405	5,806	+10.3%
EPRA NAV (â¬ per share) - (fully diluted)	28.29	27.48	+3.3%
EPRA NNNAV (â¬ per share) - (fully diluted)	27.14	26.53	+2.3%

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Next events and publications:

14 July 2019 (14:30 Paris time): Investors and Analysts Meeting
18 April 2019 (After market close): Q1 2019 activity
16 May 2019 (14:30 Paris time): Shareholdersâ Annual General Meeting
25 July 2019 (After market close): 2019 Half Year Results
26 July 2019 (9:00 Paris time): Investors and Analysts Meeting
23 October 2019 (After market close): Q3 2019 activity

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About Carmila

Carmila was founded by Carrefour and large institutional investors in order to develop the value of shopping centres anchored by Carrefour stores in France, Spain and Italy. At 31 December 2018, its portfolio comprised 215 shopping centres in France, Spain and Italy, leaders in their catchment areas, and with a total value of â¬6.4 billion. Inspired by a genuine retail culture, Carmila's teams include all of the expertise dedicated to retail attractiveness: leasing, digital marketing, specialty leasing, shopping centre management and portfolio management.
Carmila is listed in compartment A of Euronext Paris under ticker CARM. It benefits from SIIC (âsociÃ©tÃ©s dâinvestissements immobiliers cotÃ©esâ) tax status (French REIT regime).
On 18 September 2017, Carmila joined the FTSE EPRA/NAREIT Global Real Estate (EMEA Region) indices.
On 24 September 2018, Carmila joined the Euronext CAC Small, CAC Mid & Small and CAC All-tradable indices.

1 Together with the dilutive effect of the final 2017 dividend for which a proposal has been submitted to the shareholders for the option of share-based payment. 1,501,666 shares were created for this purpose on 14 June 2018.
2 Excluding the impact of acquisitions of new shopping malls and extension deliveries completed in 2018.
3 Excluding 1.9% of strategic vacancy at year- end of 2018 and 1.7% at year-end 2017 and 2016
4 2017 expenses restated for costs relating to the 2017 merger between Carmila and Cardety in the amount of â¬4.7 million.
5 Of which â¬5 million in bank facilities, i.e. a net cash position of â¬207 million.
6 Investment and yield on cost including the share of the margin paid to Carrefour for the 50% that it is co-developing.
7 In 2017, this included costs of â¬4,715 thousand relating to the Carmila/Cardety merger.
8 Restated for costs of â¬4,715 thousand relating to the Carmila/Cardety merger.
9 Excluding deferred taxes on change in fair value of properties and other deferred taxes.