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Edited Transcript of CARD.PA earnings conference call or presentation 26-Jul-19 7:00am GMT

Half Year 2019 Carmila SA Earnings Call

Paris Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Carmila SA earnings conference call or presentation Friday, July 26, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alexandre De Palmas

Carmila S.A. - Chairman & CEO

* Géry Robert-Ambroix

Carmila S.A. - Deputy CEO

* Patrick Armand

Carmila S.A. - CFO

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Conference Call Participants

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* Michel Varaldo

Societe Generale Cross Asset Research - Head of the Real Estate Research Sector Team

* Valerie Guezi

Exane BNP Paribas, Research Division - Real Estate Analyst

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Presentation

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Unidentified Company Representative, [1]

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Good morning all. Welcome to our Financial Information Meeting. Alexandre De Palmas is the new CEO of Carmila for a few weeks now

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also all those of you who're in this room, and those who are connected by phone

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presented our Q2 results, and you probably have received the press release

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numbers that we have published for this half year that will present them in greater detail

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we have had a very

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commercial period, quite robust as concerns our financial results and also as concerns our very healthy financial structure. So in an introduction, I would like to share with you what could be a brief astonishment report, not because I was astonished, but in fact, the report of someone with franchise arriving in the group. And what are the highlights that have led their brand on me more than others.

So the first element here, Carmila, as you know, is a young company. It is hardly 5 years old and very quickly took a stand as a leader in Europe as regards the number of its assets. And there are 2 major characteristics here: one is that it is a tradesman group, and this means that it works very closely with its vendor partners in 3 countries close to the field, and our team is not centralized. It is decentralized amongst the different team members. And one of these major characteristics is a very strong local presence with the banners. And another characteristic of Carmila is the fact that we have 215 centers in the territory, some for a very long time already, and the surveys here point to the satisfaction of our clients as regards our local presence, which makes their shopping easy. So 3 major characteristics, which after a short month, seem to be very characteristic of Carmila. I also think that this involves its business model.

Carmila's business model is quite resilient and could be described according to 3 different angles: First of all, the resilience of the hypermarket in its food dimension. Carrefour also announced its half year results last night as well showing that the business model is changing. The numbers are improving quite significantly, even in France, and this means that we can, of course, use the Carrefour hypermarkets that are in fact drivers. So the profitability and the revenue in terms of square meters is very significant. And also 2.5x as concerns the footfall and the frequency of the footfall per month. And this, of course, is what brings the clients back. Also the economic model is, of course, here the revenue of our different banners and it has been gradually increasing on an average level now for 4 -- 3 years. And of course this, as regards our long-term stand here and what is most direct something that we have also published last night, is the results in our cash flow, which is plus 8% per year for our cash flow. And we'll go back to this in a few minutes. And of course, we have more visibility on future financial years.

Also here, a major lesson for me was the quality of the team in place when I arrived. Carmila is not a real estate fund. It's not just limited to collecting assets. It is, in fact, a firm with men and women, who maintain it alive every month. And we have in the field managers as well as digital experts, and all of these team members are recognized by the professionals they work with. And this team is also innovative as concerns digital marketing. Without being thoughtfully modest, I think that we are ahead of our competitors and counterparts in this area.

So we have this mindset how we, in fact, deal with our real estate target. And Gery will go into details on this a little bit later on, but these used to be called annex activities but, in fact, today, they are complementary and quite significant.

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So the quality and experience of the teams and the third major point is the robustness of -- to our portfolio centers, 215

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spread between major centers and local neighborhood stores. But their value is obviously here in the regional centers and in our larger commercial malls. So what is also quite striking is the fact that we are leader/co-leader on quality in 87% of our centers. What is most important for us is to be a leader in an area that brings in the client, and this is what counts. Being a leader in one's area is our trump card, and it is the strength of our heritage, and it is practical. It is easy. We find everything we need. We have easy parking slots available and so on. And of course, being a local presence is essential. And of course, we are working on making this even better. So these 3 major characteristics that I have brought to light since I have come to join the company and I am here to try to add to what Carmila has done over the past few years. I am -- I have a 19-year experience in food and non-food retail.

So this is a business that has gone through enormous change over the past few years. Carmila is, of course, a real estate company, but it is at least as much a retail company so far as the retail issues are our retail issues. We share the high times, the low times with our partner banners. And also, we try, of course, to imagine new activities over a long-term period. So retail is the heart of my experience, and I am still quite happy to be working in this area. So I have always had a career that has undergone digital transformation over and over again. And

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I have always been a witness to this transformation

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and maybe you belong to a group that believes that e-commerce will, of course, here do-away with the physical retail or vice versa. When you see that Amazon has purchased a long chain of stores in the U.S., you understand, I'm sure, that the leader of e-commerce isn't necessarily e-commerce. It's Alibaba in China, has just purchased the largest Chinese commercial mall chain. And why? Well, first of all, because hybridization is, of course, here something that will impact commerce as such.

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When you are a consumer, you are reassured by the presence of the products that you buy regularly or that you can even share with your family. So -- and this can be done on a perhaps less illustrious e-commerce sites. And we all know that the cost of logistics going and coming is 50% of our [QLA]. So this is something that sometimes can be very difficult to overcome if it lasts too long. So here we have physical commercial centers and these are major responses to these issues and we are very well-established as regards physical stores and digital commerce. Of course, this has changed the level of expectations of our consumers and clients.

Whatever the type of commerce is involved, they no longer accept to wait, to never have the assurance that their favorite products will always be available to them. And the digital revolution is not in the distribution channel. It is at the level of the new client expectations. And this is where, as a banner, we need to set a higher standard to be able to satisfy these new expectations. And my business, fundamentally, if I were to summarize it in a few words, I would call myself a developer. We have phenomenal teams in the group. We have many projects that we'll share with you that are fantastic projects, and I'm delighted to be able to participate in this and there are many, many things to be imagined for tomorrow, and I think that we are in the right position to do it.

Our road map hasn't radically changed. What Patrick Armand has built over the past 5 years in Carmila is based on these 5 pillars. The quality of the teams, a practical convenient leader in its area portfolio and also holding a strategic partnership with Carrefour. Carrefour published its first half results last night and, of course, we will see that Carrefour is changing. And Carrefour isn't just a co-owner or a co-partner, but it is also someone involved in our new approach to the market. So of course, we're dealing here with the yield as we can see during this half year. And the 4 challenges, so commerce transformation, I call hybridization, and also when we have such huge centers, which were peri-urban a few years back and that now are urban again, then our CSR is also local. Our environmental engagements are local. They're also social, societal, and we, of course, live our CSR engagement.

Our mission, finally, to summarize everything I've just said. Our missions are 3 pronged. We have -- as concerns all of the stakeholders, we have to be a catalyst of transformation. We are not here to be subjected to the change. We are actors, and we accompany our partners in their transformation, which is probably what makes Carmila so different. And of course, we have a B2B2C approach. Obviously, we can accompany banners in their transformation by systematically here supporting them, also supporting a consumer client, who must always be made to feel welcome when they enter our stores.

We are now going to comment the activities of the first half year. As Alexandre has said, we post dynamic numbers. That confirm, once again, our resilience of the business model and that of our cash flow's 3 indicators: The first is, of course, the revenue of our banner partners. And you can see here that this has increased by 1%, if you accumulate the revenues of the 3 countries.

So we have here 3.1% and 6.2% and, of course, here beauty, health, culture and leisure activities as well. So here we have a growth of 3.1% as concerned

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rentals and a significant growth in cash flow as per our objectives with a recurrent dividend of EUR 0.82

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quarter because

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getting to me as a speaker.

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The first point is a business model. This is something that we emphasize robustness of our cash flow. This is something that we hear some observers or commentators express doubts. Once again, our cash flow are robust and solid.

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commercial dynamics, which is key for our business.

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is here an approach that is original at Carmila that participates

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to our objectives as Alexandre has said, we have local commercial teams in the region. Based on successful franchise masters well-established in their area, they know their people, they know the population that visits them. So a few examples that are fairly symbolic

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which is a typical western regional France banner.

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with high level performance.

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also we have just signed a partnership agreement with Fabien Pelous in the area already diversified in brasserie food. And -- so this is very important. It is the fact that in Toulouse, in the southwest, we will have something that is anchored in our territory.

Next example is Red Beef in Thionville, remarkable professional, EUR 3.5 million revenue in brasserie food and options.

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are convinced that this is a winning strategy.

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So of course

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beyond these local centers, we also welcome differentiating banners and some of you may be familiar with them, particularly, jobs in Calais, that is a remarkable banner.

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and it is a first to join our assets in this particular region. So of course

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to manage our heritage dynamically because commerce is evolving all the time, and we shouldn't, of course, adopt a rigid approach to commerce. By definition

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are capable of adapting to any situation as fast as possible, so we also believe that our assets now should be used to create value. And every once in a while we would like to return to very concrete cycle, what the reality of Carmila's portfolio is, in fact. So here we're showing you the Nevers-Marzy site. Nevers is an averagely populated city, but I think it is the perfect illustration of the dynamics of our team and the robustness of our heritage topology. Here you see, in blue, the supermarket access at the bottom of the map. And here we have a free parking, 1 Carrefour hypermarket; food, 2.5 visits per month. And this is an asset that we had purchased and Carmila had bought this back in 2014. Now it was on the left at the time, and we moved it to the exterior borders of this particular plot and to also be able to add Decathlon, and -- so Orchestra, Maxi Zoo, an extension of 7,000-odd square meters to strengthen our offer.

So here, value creation of Carmila, we had purchased this site originally for EUR 30.9 million and we had 6.41% of capitalization rate and EUR 15.6 million, and today, we have a site that is the leader in Nevers and the capitalization rate and you'll judge by on your own that we think is, of course, reasonable which is 5.66%. So value creation and here at [Henry,] we have a [site] of EUR 500,000 because we were able to transport Decathlon. So it is a result that is fantastic for an average city and all of -- the numbers I've just given point to that very strongly.

So we have re-actualized things. This is a very interesting slide for you, I'm sure. It seeks to respond to the question, what is the impact of banners in jeopardy over the past 5 years and difficulties, whose troubles have been published in the press. MIM, Brice, Jules and so on, what has been the impact of these banners in jeopardy on the Carmila portfolio. So we have all read in the press. It was very embarrassing, over 50 stores, EUR 5-odd million in rentals that were not coming in, and 14 units and MIM and so on, and of course, if we look at things with a cold eye, in June 2019, all of these banners, 3,500 in France. This concerned 5% only and vacancies on these plots in June 2019 are still vacant. If we analyze this in terms of the rentals out of our French rentals, this involved EUR 17.8 million and is today EUR 0.9 million that were impacted by these times in troubled waters.

So you have all seen this in the press. A very limited impact, which once again points to our portfolio, in general, and all of our centers. We understand the skepticism that may arise from different other aspects. So as regards our local digital presence, as you know, it is one of our major focuses is that we need to use this as a major differentiator, and very strongly via 3 pillars.

Information on the centers. How we are considered? We have accrued the mechanisms that help us better understand how our clients see us. Second pillar, which is retention -- client retention. When the client has found how to get to us, how can we retain this client? And there is another very important concept that is something that is also the fuel for our presence in the field.

And we have local influencers and [glove] and all of the social media. And also, this is part of a local community that we are trying to build around the centers that we opened.

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Now the marketing

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approaches to attract the clients, to retain the clients and so also a driver of business. And we, of course, here have worked on 1,600 operations this year. We've multiplied them by 7.8 points this year versus last year. So we here are showing you just Bruges as an example. And we can count to 8 points differential between a banner that is in one of Carmila's commercial malls and those that are not in those centers. So this is our kiosk as well. It is our toolbox that we offer and that we provide to our banner partners. And this, of course, means that we can measure a gap in performance at 7.8 points during the year and one that is not, once again, in one of our commercial malls. So here, of course, on brand content, the capacity to give our partners, not just information on their products, but also to attach values to this and if you came a little bit earlier in the field in this room this morning, you can see this video that demonstrates to our clients, consumers, how we can share this on social media and the experience that the client had.

And so as concerns CSR, this is something of importance to us, majorly important, is that a fact. And it is 50% of local CSR operations, over 676 (sic) [673] operations versus last year. And of course, there's a social, societal charity-based and environmental approach. This environmental approach is very, very strong. And this first year involves everything that happened during this first half year. And 3/4 of our fleet should be certified as we expect.

Beyond digital innovations,

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something we are convinced that growth drivers can easily be identified. Being a real estate developer such as Carmila, and this is not part of any financial models of those analysts who look at our evolutions and developments. But we've been talking about this for quite a while now. We wanted to share with you a few figures just to show you that we walk the talk.

In terms of this growth model, just I wanted to give you a few examples of what we call the side business. And we heavily [count] on this. And so we have LOUWIFI, this is a subsidiary. This is LOU5G, in actual fact. It is a mobile telephone towers subsidiary, imagine that with 200 shopping malls in France, 215 sites. Overall, this is a major and highly diversified real estate, and we -- nobody would have said like a few years down the line -- a few years ago that we would have engaged in mobile telecom operations, but we've engaged into a partnership with 3 out of the 4 French operators and we're negotiating with the fourth operator. This will be moving along in 2020. So we signed a letting agreement to the tune of EUR 1.2 million, which was signed at the end of 2019. So that's quite a large sum of money here.

And now LOUWIFI is another subsidiary we've created. Why? We've launched it as part of our digital strategy to install in our shopping malls a broadband Wi-Fi service. An expert team has developed in record time, in a matter of 9 months, an on-site Wi-Fi system. We'll apply this to logic to retail environments. And from that, we started developing this activity as a network integrator. And we've developed low current type of activities. So this is -- these activities will contribute in 2019 to our EBITDA for -- between EUR 1.2 million and EUR 1.4 million. So quite a nice sum of money.

And the third example, third and last example is Carmila Ventures. This has been an important strategic priority of importance to us with likes of -- with retailers like La Barbe de Papa or Cigusto in electronic cigarettes. So as at end of June, these 30 stores have been opened in our centers, for EUR 0.9 million worth of rents signed at the end of May 2019 with the likes of -- with retailers like La Barbe de Papa. But watch this space. But we are really turning all these initiatives into realities and ideas into realities.

So from a business standpoint in terms of the growth in net rental income, Carmila is growing in terms of its organic growth. And in terms of its net rental income, plus 7.7%. So the growth as we've mentioned, we have a 3.1% organic growth, with contribution of extensions in 2019 -- 1.5% of this growth. And our acquisitions of Q1 2018, contributing to the tune of 3.7% to our growth.

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if we distribute the, if we look at the distribution over -- across all 3 countries, we have 2.3% organic growth in France, 5.4% in Spain, fantastic dynamic, fantastic momentum, and 3.3% in Italy. And when we look at the reversion and renewal rate, on a par with the past year, 7.3% in France, 5.2% in Spain, while in Italy this is not significant. So this is not a figure that we have -- not published.

Now let us look at EBITDA. Let's start with EBITDA up 8%,

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EUR 140.8 million. I'd like to draw your attention to the structural cost, EUR 25.3 million. And in H1 2018, 27.5% (sic) [EUR 27.5 million] in H1 2019 -- should be stable as cost year-on-year. This quarterly effect, which means that we're announcing ending at between EUR 50 million and EUR 52 million between, well by the end of the year.

And this is kind of the cash flow growth. This is a major parameter here, and the forecast is indeed, this is a kind of [adjustment of the piece.] So EUR 0.83 -- EUR 0.82 in terms of recurring earnings per share. So we're close to our objective here.

When it comes to the valuation and portfolio, the experts

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So we

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recent publication of our

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of the market, I think the valuation and portfolio stands as of today, the current value of our asset stands at EUR 6,377 million at constant scope -- which is at comparable scope, which is a bit more interesting here as we are talking minus 1.1%. So once we give you much details as to, for everybody to understand, situation over the past quarter. Spain is going up, and France has gone down 1.9%. It's interesting to break down the effect as kind of 1.9%. It's a result of decompression of the cap rate, 3%; and a plus 1%, which is the rent effect. So up 1 point, and this cap rate is minus 3% is, in fact, a minus 4%, which is market effect; plus 1%, which is the assets and management effect contributed to improve the value of our portfolio.

And if we look at the average cap rate of Carmila, we have a decompression of 44 basis points. And this is the average of our geographies, 14 basis points for an average cap rate of 5.91%. In France, in this number that I was indicating is both in terms of the market impact of 22 basis points and work related to the restructuring of our asset managers that has led to a gain in some ways of 5 basis points. I wanted to underline by way of a comment is that this decompression is very limited, evolution of the real estate, doesn't come as a surprise. And [though the] most that with very objectively, the real state of Carmila is characterized by a level of refurbishing of -- a very high level of refurbishing of our real estate, very high rental level, which is very well [conformed] -- very reasonable by the appreciation of the rental values, the vacancies, which is very realistic. And with the highly sustainable cash flow and rental model. So in fact, the cash flow is counter-buffed by the effect and the efforts of our team and this is leading us to this average cap rate of 5.91%, in line with the evolution of this sector.

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We want to draw your attention to the high-risk of premiums related to the portfolio of Carmila compared with the risk of 10-year OAT, risk premium in 10-year OAT, and we wanted to draw your attention with the other classes of assets. Already developers have demonstrated these to you, but we have a risk premium of nearly 600 basis points. This is considerable. It's never been that high. If we look at this curve, since the evolution of this curve since 2006, here we do think that those who think that values have not been properly adjusted, then it seems that this is highly debatable as a comment.

And second comment, the experts come up with these and this is where the analysis hasn't really been adjusted to this first half year, that we compare very favorably with other classes of real estate assets. And indeed, we've seen a number of [highest risk prime suites] with a risk premium of 6% and with central offices and business districts, we're talking about a 3.25% (sic) [3.5%] cap rate and the logistics at 5.5% (sic) [4.5%] And we're talking about 4.5% in terms of the risk premium. So it come from the shopping malls are far more robust than some might think they are. And it means that the buyers, especially in France and in Spain this is another case, a few buyers, a few sellers as well. And we want to insist on the fact that shopping mall as a business area is -- and our model is a very robust one indeed.

Now we've been reiterating this message for you. This is -- that's a snapshot of our business. So we're trying to prove half year on half year -- half year that we're a very robust business. And the market likes this kind of aggregate and even with the stock exchange rate, we're seeing that our EPRA and NAV increased slightly at EUR 27.14, distributed in EUR 28.39 in the NAV at the end of 2018. So 150 plus [26%] share growth, so reach -- as to achieve this EUR 27.14 per share, which is the EPRA of net asset value.

So with Carmila, we have lots and lots of business to develop. We have a core business, which we need to develop. And we have established projects ahead of us which we now in 2024, we have a pipeline comprising 24 (sic) [25] projects and 8 project being accounting for -- 7 major projects accounting for 79% of the pipeline. So the value creation

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and tremendous extension pipeline, source of additional rental income, which is extremely significant for Carmila in the coming years.

These projects -- as you know you've heard about recently. They are about the most beautiful site of Carrefour in France and which Carmila has developed with Carrefour. Marseille-Vitrolles, this is a major shopping mall in the Marseille -- in the Greater Marseille. Interesting for Carmila and really in line in keeping with Carmila's DNA. We buy the shopping mall and then once we do that, we refurbish it, we improve it to provide optimal facilities and amenities for our clients and we have nice potential to improve our attractiveness in Marseille-Vitrolles Center.

Montesson, this is a major site for Carmila and Carrefour. Second largest Carrefour hypermarket in France, a very dense and exceptional catchment area, given its quality, this is really highly -- high income and Montesson high income families and this is really an important catchment area here. The Montesson site, we have a fabulous project to deliver. We've initiated the process and we're looking forward to delivering this project on time.

(inaudible) this is the largest Carrefour hypermarket in France. If you go down to the -- on the riviera or the A8 -- Antibes is (inaudible) away from the highway and an exceptional catchment area, exceptional location and remarkable -- this is a remarkable project of extension, which is being considered -- contemplated.

Now next project Toulouse Labège, a major site. It's part of the Toulouse greater area. And obviously, we have to stand out, and we stand out simply because the Toulouse Metro will bridge with service Labège, meaning within -- the station will be -- sit within the shopping mall. So when we talk about the mix-use of real estate and innovations of fantastic and fully urbanized framework, a very complex project, but a great value creation opportunity.

Closer to us, Nice Lingostière. This is the third largest Carrefour hypermarket in France. This is trinity -- Antibes, Montesson, Nice Lingostière. The kind of holy trinity of Carrefour and located in Nice in a nice area. So we started off the building works, commercialization phase is doing very, very well. We're sitting very well. This will be the third major project to be delivered.

A major project in Tarrasa, in the Barcelona area, a strategically located shopping center, we have the possibility of developing a significant shopping mall in a sector, which works well in Spain. And which is ready-to-wear, namely.

And then in the Lyon greater area, big urban area, Venissieux. This is fifth largest Carrefour hypermarket in France. This is a very strong -- this site has a very strong history to the south of the greater Lyon area, and we'll be able to deliver a shopping mall as well as the opening of an Ikea and the Leroy Merlin, which will further strengthen the attractiveness of this area.

Now talking about Carrefour hypermarket, talking about global partnerships with Carrefour, and this partnership is [strategically] important

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so far Carmila is interested. Carrefour has announced the reduction of some of the units, some of their hypermarkets because of food retail. It doesn't work that well -- well, food retailers, food retail works well, which is not the case for non-food retail. And so -- but this opens up fantastic opportunities because these sites -- these free up shopping centers can be used by Carrefour for drive, for urban logistics. And the potential is there, can be great expansion drivers and not towards the outside, but towards the inside as a result of the surface areas gained. And this is obviously with the agreement, and this is the [debt] to the interest of the -- Carmila's interest for this in terms of the awesome commercial potential in finding centers to turn towards the inside of the [REIT] with view to improving the center's leadership. This is an additional growth driver, obviously, which you have across all of your models since the creation of Carmila.

This is something that you know, you don't necessarily have it in your financial models, and you will need to get used to build this in, which is this side business. And this has turned into reality to 2019. This contributes to our good and positive results. And this will contribute. And this will be and become real priorities and real growth drivers. So we are in fact talking about LOU5G. We're talking about a strongly growing business. A coverage of blackspots in the next 2 years with 20,000 towers, so Carrefour has a strong infrastructure in France. And this is about going to the 5G -- moving to the 5G towers, plus 20,000 towers and the improvement of speed broadband. And this one is about adding towers to already covered areas. So we've identified EUR 2 million in rents, rental income. And in this -- with this 194 towers. So this is the deployment of the 5 -- the LOU5G project. And then we'll have a fourth operators, namely Orange, and we're hoping to sign with them, to sign them up by the end of the year. And we are -- we think that all the other sites, over 900-plus Carrefour sites will enable us to develop this activity further.

LOUWIFI in its operations as network integrators, applied to retail. This is a business we're offering strong margin -- strong margins and large knowledge with a very strong expertise knowledge in terms of digital marketing because if we develop these activities, the fact that for clients to walk into a shopping mall, connecting to the network. We think that this kind of models can be -- can have potential and this is our Wi-Fi expert teams. They are very creative, young teams, and they will contribute, they will drive their company forward.

And finally, Carmila Ventures. With Carmila Ventures, we want to have within our portfolio at all times, 15 to 20 partner retailers as part of this partnership, at full speed development. These are pretty limited development, so this about retailing La Barbe de Papa, so Hair Salons, so we're talking to EUR 4 million worth of investments. So these are limited investments, some a bit more substantial. These are fully controlled, fully managed investments. We're developing these retailers. If they don't weather, well, then we can discontinue their development. And we have a call/put mechanism after 5 years of partnership and development with support developments. They have developed leveraging our surface areas, we have average multiples after 5 years of 5x to 7x the EBITDA standards.

So we've also mentioned in the 2018 results report our projects to boost the value of our common assets with Carrefour. We will not give you more input on this point in terms of the first half year, in terms of this priority. [I think] we have 7 hectares per site. And with sometimes parking lots, the [two large], covering a total service area of 15 million square meters. So it will be Carrefour and Carmila's real estate, and with Carrefour we have been working on as well as with other partners to boost the value of these properties. So this is work in progress today, so we cannot -- we're not in a position to communicate any figures, but you will realize, this is a growth relay for Carmila, which we have -- which we do have ambitions. And this is another specificity of Carmila

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with the likes of Unibail, our competitors, with 26 -- 2 [Carrefour] sites in France. They can't really have this -- deploy this rollout strategy. We have 250 shopping centers in France, 125 in France, so this is a specificity of Carmila. This isn't -- as a result of the number of -- thanks to the number of sites we operate in France, we can have this breadth and width of vision.

So 3 points which we've discussed at length over the past 60 minutes. The first one refers to our local presence that we have with Carrefour and customers. And this really is a key element in defining Carmila. As you can see on this slide, the number of criteria for a client is in terms of why do you opt for one shopping center as opposed to another? Well, the key elements, the key driver is proximity. And first and foremost, before pricing and you see the notion of practicality is becoming more and more obvious [than] prevailing over the notion of price, and this is a major asset for Carmila. And we -- I do think that we have the right portfolio of assets that really meet this proximity, we have a very strong network, a very nice coverage over the whole of the territory and so the proximity is not going to be defined from a geographical standpoint, but proximity is about -- is a value and is a way of being. We have this proximity with retailers. It's not about signing contracts and then retailers live their life and do whatever they want, but we interact with them day-in, day-out. Our managers are in the field day-in, day-out to support clients in rough patches as well as in positive patches. So proximity is about -- with our clients.

I was talking about CSR centers. Really, if you make yourself local jobs, and those local jobs and local sourcing, local coverage of the territories. And this is what proximity means. It is beyond the physical notion. It is also in terms of the way we are, in terms of our behavior. And I think we are in the right niche market.

And next point beyond that really is about a young and dynamic ecosystem of Carmila. Every pillar is an additional strength of nice density and that we're close to the clients, close to the retailers.

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an active, very dynamic & young teams, boosting these real estate properties and selling life in these networks day in/day out. And Carrefour is a strategic partner to our development. And Carrefour is the referenced shareholder-- is a key shareholder for Carmila. Carrefour is a co-owner and a cooperator across all of our sites, 100% of our sites, so we live with Carrefour day in/day out. This is quite a unique retailer, a unique brand and work with this brand day in/day out.

And then really is in line with the issue of mix. This is a fantastic -- we have a fantastic pipeline and mixed use. We have great properties. They used to be peripheral properties. They're now completely fully embedded in urban areas and the [distribution] of these properties and maybe about retail, a fantastic pipeline all the way up to 2024, and we have logical and natural partners to develop all of these projects.

I am convinced that Carmila is developing a business for the future. Because once again, when we survey our clients, that's the only truth, in my opinion. What would they like to find in these commercial centers? They say, "I want more convenient shopping. I don't want something that is anonymous, something where I feel at home. And let's say, something that has to do with the family. And I don't want something that is cold, without a face. I want to see the people I know, and when I come back to the same store, I expect to see the same people again."

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and the phenomenal work for our commercial team, pop-up stores, et cetera. All of this is something that contributes to growing the interest in our centers. I want to be able to shop online, to pick it up at the store. And then I'd rather try whatever it is I need to buy in the store, and then I go home, try it on, and if I don't like it, I can bring it back. I don't want anonymous centers that are international with major architects. I want something that's more like me, something where my parents used to go 30 years ago and it's my commercial center. And this is what I want. A local presence, a local reality, part of the region's history. And this is what our goal is based on. This is done locally. We don't work on major partnerships. What we work on are people who understand that our goal is to be local.

All of these characteristics are even stronger in the population under 20 years -- 25 years of age. I want to go there with my pals. I want to feel that we're part of a community. This is what we do in our centers. This is what we fuel, thanks to our influencers and bloggers. And of course, our daily marketing operations everywhere in our centers. All of this brings novelty that is a permanent aspect. And it is renovated, diverse in our centers. And I want value. I want a center that displays our values, that protects our conditions, that protects the environment, and this is precisely the DNA that Carmila seeks to work with.

So everything that was presented to you. We have -- we showed you our figures last night, but for all of these reasons, the quality of our teams, and I'm thinking about Sebastien, who must be very unhappy to not be with us right now, but for the quality of our teams, for the quality of our assets, of our heritage, we want to use all of these strengths to grow Carmila more. And as I did last night, we can confirm our guidance is between plus 5% to 6.5% for our shares. And also 90% on payout, which is something that we still do to add that the dividends in 2018 will be for a long time, at least equal to what it was in 2018. And this is a demonstration that we fully trust our cash flow, our dynamics, our approach to our local centers. And so we are at your disposal to answer questions. We will first ask -- answer the questions of the people in the room. Thank you very much for your attention.

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Questions and Answers

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Valerie Guezi, Exane BNP Paribas, Research Division - Real Estate Analyst [1]

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And I have a question as regards your development, the way in which you are thinking about the capital allocation that you described in an environment of this type. We don't really know how high the rates will go. So your approach, of course, can mechanically be eroded. How are you thinking to react to these particular issues, more or less profitable? That's the first question. And my second question, is that -- how do you plan to perhaps prepare other forms of capital allocation in the future?

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Alexandre De Palmas, Carmila S.A. - Chairman & CEO [2]

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Right. I'll start by answering, and then Gery will finish. As far as the pipeline is concerned, this is absolutely true. We have a pipeline that is exceptional in quality. The projects that we showed you are very high-quality-level projects, not just profitable and very profitable, but also projects that can be used as transformation assets and they're already major centers. So it is a pipeline that beyond the rental income that it will bring in, is something that also continues to change the profile of the portfolio.

We are here working on developing a new approach to our assets. We are going to take a strong look at all of our projects. We intend to be selective in this approach, but also remain faithful to who we are. We're not here to deal with empty centers. The reason for existing is to be able to buy them and renovate them and put them to work. As concerns the second part of your question, we're not going to prohibit anything. But as far as our capital is concerned, we need to create value. And when we buy these shares, we don't create value. Our reason for being is value creation. So we want to invest the money under the best conditions and particularly as concerns our assets.

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Géry Robert-Ambroix, Carmila S.A. - Deputy CEO [3]

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I would like to add something further saying that the promotional pipeline calendars

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seen that 2019 and 2020 after having delivered over 17 extension projects. We, in 2020, we're going to deliver Nice Lingostière and it means that you understand that we do not believe in the significant extension of rates. Which means that the margin of our assets that are above 6% on the assets that are the best will remain in our pipeline calendar. And must we launch Toulouse or not, we will have more elements to share in future projects. So we here are fairly at peace as concerns the issue of the potential margin. But once again, we do not believe in a significant expansion of rates.

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Operator [4]

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(Operator Instructions)

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Unidentified Analyst, [5]

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You have spoken about Carrefour at length, and you are also a member of this partnership. Concretely, what will change between Carmila and Carrefour with your arrival, Alexandre? And secondly, what about your reversion rates, and particularly in Spain, where last year, you strengthened your portfolio in Spain? Can we expect reversion rates that could grow more positively after your asset management work is done? And also, we also talk about the debt and the cost of the debt, and as concerns that question, the financial markets authority, of course, is also interested in knowing what this entails.

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Alexandre De Palmas, Carmila S.A. - Chairman & CEO [6]

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So on the first question, no, I don't think that my arrival will radically change either the profile or Carmila's DNA. Once again with its triple dimension, shareholding structure and so on and so forth, and I think that this partnership exists. It has continued to work until now, and it will continue to work. One of my objectives is to be the warrantor of the maintenance of the same approach in the future. So maybe inside or outside by unnecessary real estate plots, for example. And I can do this all much more easily that

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I have had no conflicts whatsoever as concerns our discussions with Carrefour.

As concerns the reversion rate in Spain, you have probably seen in Spain, we have a very specific number of sites, 78 of them. And we have 3 regional centers that are powerful, fun in Palma de Mallorca and also in Andalusia, [Asuelga] and of course, this represents 1/3 of our assets as far as value is concerned. Now small commercial malls are very strongly neighborhood anchored stores in Spain. And if you wish to compare it to our peers, this means that we had an occupancy rate of 68%, and today we are at 96.5% of occupancy rate in Spain. The travel -- the work that has been undertaken is considerable, and the organic growth that we display semester after semester in Spain is different from the one that we use in France, where we're focused on major sites. So you know that this is a robust approach. And that it is solid, and it has been commented very loudly and very significantly, that it is a portfolio for the future.

Now as concerns debt management, we have in this slide, a residual period of 4-5 years with hedging ratios as well, and this dates back to Carmila in 2014, where the interest rates were already low. So we didn't need to import bonds or other forms of funding that could be less interesting than those that we actually chose. So here, we see a profile of an amortization spreadsheet, which is beginning to look harmonious. Here, we can see that we perhaps can spread all of this. And also, we will continue to harmonize the structure of the debt. But we haven't really had to do it until now. And we don't really like to pay very high prices to get rid of swaps that are no longer of interest to us, and that involve a significant cash outflow.

So we have never chosen to work in this way. So we have a level of debt at minus 2%. When compared to our peers, we say, oh my gosh, it is not as good as your peers. But we can, in fact, if we had set up a debt in 2014, 2016, this is a choice that we are very proud to have made. And it is the cash when you also do away with a swap. So here, the NTM program is very good news. It's part of the many good news on our portfolio and S&P has confirmed Carmila BBB, so I would say that Carmila is appreciated with its financial structure. And again will help us refine our financial profile and our debt structure over the coming semesters. We're delighted to have set this up. Patrick, do you have anything more to add?

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Patrick Armand, Carmila S.A. - CFO [7]

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And so the NTM program gives us the possibility to reduce time to market [to Carmila's] bonds. I'm not speculating here on anything, but it is another fantastic idea. And as Gery said, we will be able to spread the debt payments more readily.

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Operator [8]

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(Operator Instructions)

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Unidentified Analyst, [9]

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You have a vacancy that size above 550. It's a bit higher than those of your peers. You've been talking about the 137, and the strategic kind of leading hedge that you have. Can you tell us about the 3 worst occupancy rates of your shopping mall, shopping centers and do tell us where they are, what are the rents of these centers? What about the overhead, what are the issues, what are the elements that make or the reasons that make people leave? And Q3 2019, from the retailer standpoint, I wanted to know the rate of renegotiations to have more of those, fewer of those or is it stable? And are you expecting any issues and incidents occurring into H2?

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Alexandre De Palmas, Carmila S.A. - Chairman & CEO [10]

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Now answer this first question, so it's about the -- the vacancy rate is really related to the upstream to a refurbishment operation. So we've neutralized the vacancy rates because this is something that is necessary to the projects that we have in progress. So these vacancy rates relate tightly to refurbishment project that was in answer to the first question.

Your 550 or above the 550, I'm not sure, I can identify what these 550 sits in these documents. But as to the vacancy rate, in fact, we've seen at [France] last year an evolution of flats. And the vacancy rate has an effect and impact on our average rate, i.e., we have fewer strategic vacancies in the first half year, in previous years. And that accounts for the delta difference in these vacancy rates. Now the [yellow vest effects] that we might have experienced we have and other property developers do have to see these phenomena in November and December, sometimes -- well, we went through rough patches as a result of the yellow vest, we've launched our revenues points.

And although we had a good 2018, however, we were impacted in November, December in terms of the revenues of retailers. And we -- this hasn't at the end of the day, generated any failures and since April, May, June, we've had good months, performance-wise, good footfall, good months revenue-wise. So for our retailers. Obviously, we need to remain cautious that there are ups and downs in terms of consumption, sometimes weather plays a part in that, good and bad ways. But we've had good -- 3 good months, and that has compensated this yellow vest impact. We haven't seen, at this stage, at this point in time, we haven't seen any yellow vest related impacts.

With the more failures in 2019 and 2018, we showed you these slides on -- either in big retailers and the administration or going bust. And well, we haven't seen that many of those and not much, not any sharp number of failures in terms of our retailers. And no yellow vest retail impact. So does that answer your question?

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Michel Varaldo, Societe Generale Cross Asset Research - Head of the Real Estate Research Sector Team [11]

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I have a question as to the financing of the pipeline. At some point, you will have to finance this pipeline when we will reach a 40% points and -- but in terms of the undervaluing of the markets, what I wanted to ask you is, is your asset policy -- is your policy related to managing of assets, will this change? Is this better to evolve, because from the start, there was hardly any objective of selling off properties? Will this -- or might -- is there a possibility that this will change?

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Alexandre De Palmas, Carmila S.A. - Chairman & CEO [12]

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Indeed, we will have a review process and this review process will look at selling off of our properties of assets. But the results of Carmila's is about creating values on the centers. If we deem that value has been created to maximum of what we know how to do, what we can do if the site is extremely mature, and it's only about yield and not growth. We cannot exclude the fact that this might -- this particular site, this particular center will exit our portfolio for us to invest in growth points, in growth centers. So this is something that we might entertain at some point.

So we've had an IPO in June 2018 -- in 2017. And we did our IPO in quite positive conditions. We wouldn't be doing an IPO today given the current market situation. But we did that in June, July 2017. We had -- we were fortunate in terms of the timing on those. So we have, for 2 years, we have an [SCVI] that is 36%, right after the capital increase at 30%, and we can roll out investment plans. Alexandre mentioned that we might be more selective. Some of the projects we might not go ahead with for commercial reasons as opposed to pure financial reasons. We have projects that we might not take forward. But until the end of 2021, we don't need money and we don't need cash, let's say. We've always been open to the fact that when we have commercial or shopping mall, once they are refurbished they are nice, the occupancy rate stands at 100%. Cash flow is sustainable and -- but selling just for the sake of selling is -- does not make sense because the market is going through upheaval. At times selling, although we don't my cash until 2021, doesn't make sense.

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Unidentified Analyst, [13]

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Just about the investments and the operations are and possible opportunities you're looking at in all 3 countries, France, Spain, Italy because it's always interesting to see what you're looking at?

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Unidentified Company Representative, [14]

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Regarding France, as you've just mentioned, acquisitions of shopping malls -- or shopping centers has been kind of put on the back burner and (technical difficulty)

somewhat different, more dynamic markets, and we have had an interesting and attractive operations in Spain, and this is a geography where the -- with a greater potential for new operations.

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realistic endpoint in France. We are still in this strange situation over the past 12, 18 months. There's no longer any buyers or sellers. So neither buyers nor sellers. So this impacts a number of transactions in 2018. With the transactions have been very far and few between and for reasonable modest amounts of money we have in (inaudible) in the vicinity of Carrefour, with about potential for 30 stores. Average size supermarkets and [BMP Zima] was the seller and this sold for 6 75. So it means that

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there is -- there are very few transactions, and that doesn't make a market. And so there's kind of a wait and see period right now. I don't know what it's going to be happening going forward. Maybe at some point, there will be panicking sellers, they might sell whatever the price. And -- but I can also

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scenarios where sellers might deem that logistic platforms, we do want to work with Carrefour with a minus 4%, minus 5% or will want to go for a (inaudible) fee with a 5 70 of net initial yield. That's not impossible that we might have a balance with these components in place, so time will tell.

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Unidentified Analyst, [15]

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Your original financial shareholders, did they tend to exceed? Did they want to cash out with an average price?

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Unidentified Company Representative, [16]

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Well, this is -- we've had a stable shareholding structure, Carrefour hasn't really budged, and they want to have a sustainable situation. So there's hardly any fluctuation. So this is highly stable.

Other questions? Knowing that there are no telephone questions. Well, thank you very much for your attention, and I wish you a wonderful summer.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]