Leasing Momentum In Spain Will Drive Retail Income Despite Risks

Key Takeaways

• Experience-driven retail, urban growth, and mixed-use expansion are boosting Carmila's footfall, occupancy, and revenue resilience against e-commerce challenges.
  
• Digital transformation and sustainability initiatives are enhancing operational efficiency, tenant appeal, and long-term earnings while supporting asset value growth.
  
• Carmila faces pressures from digital retail growth, geographic risk, high leverage, dependence on Carrefour, and rising sustainability costs, all threatening long-term earnings and asset values.

Catalysts

As the third-largest listed owner of commercial property in Europe, Carmila was founded by Carrefour and large institutional investors in order to enhance the value of shopping centres adjoining Carrefour hypermarkets in France, Spain and Italy.

• The increasing appeal of physical shopping venues as social and experiential destinations is directly supporting Carmila's strong leasing momentum (467 new leases signed, significant footfall growth, introduction of experience-led retailers and pop-up concepts), which should drive higher rental income and recurring earnings in the coming years.
  
• Structural urbanization and demographic trends are deepening the catchment areas of Carmila's assets, especially in high-density and tourist regions like Spain, where GDP and tourism growth outpace the Eurozone-this favors rising footfall and occupancy, bolstering both revenue and the underlying asset values.
  
• Carmila's accelerated transition to a mixed-use model (healthcare, fitness, coworking, residential) is enhancing occupancy rates and diversifying revenue streams, supporting recurring revenue growth and offering resilience against e-commerce headwinds.
  
• Ongoing operational excellence and digital transformation (cost optimization, data analytics, AI-enabled processes) are improving margin efficiency and scalability, as shown by targeted uplift in EBITDA margin and sustained outperformance above indexation, which should expand net margins and long-term earnings.
  
• The company's ambitious sustainability initiatives (e.g., carbon neutrality by 2030, green investments like photovoltaic projects) are increasing the attractiveness of its centres for ESG-focused tenants and investors, supporting higher occupancy, rental growth, and access to competitive capital, positively impacting both revenues and asset values.

Carmila Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Carmila's revenue will decrease by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 61.8% today to 77.0% in 3 years time.
• Analysts expect earnings to reach €332.5 million (and earnings per share of €2.07) by about August 2028, down from €352.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €426 million in earnings, and the most bearish expecting €292 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, up from 7.1x today. This future PE is lower than the current PE for the FR Retail REITs industry at 15.0x.
• Analysts expect the number of shares outstanding to decline by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.58%, as per the Simply Wall St company report.

Carmila Future Earnings Per Share Growth

Risks

• Continued growth of e-commerce and digital retail channels may undercut long-term tenant demand and reduce foot traffic at Carmila's physical shopping centers, which could place sustained pressure on rental income and occupancy rates, ultimately impacting revenue growth.
  
• Heavy concentration of assets in France, Spain, and Italy-particularly in secondary and tertiary locations-exposes Carmila to heightened regional economic and demographic risks; any macroeconomic downturns or shifts in consumer preferences in these markets could adversely affect tenant demand and erode recurring revenues.
  
• High leverage (LTV ~40%, net debt/EBITDA 7.6x) relative to peers introduces refinancing risk, especially if interest rates rise again or lending conditions tighten, which could increase financial costs and constrain Carmila's ability to invest in asset transformation or growth, squeezing net margins and earnings.
  
• Heavy reliance on Carrefour as an anchor tenant increases vulnerability to Carrefour's financial performance and strategic decisions-if Carrefour were to close stores, reduce retail space, or experience difficulties (as alluded to by questions about Carrefour's presence in Italy), this could trigger co-tenancy clauses, lead to higher vacancies, and reduce Carmila's net operating income.
  
• Increasing regulatory and stakeholder demands for sustainability and decarbonization may require significant ongoing CapEx for property upgrades and renewable projects; if Carmila cannot meet these targets cost-effectively or if regulatory pressures intensify, profitability could be squeezed and asset values at risk, impacting long-term earnings and NAV growth.

Valuation

• The analysts have a consensus price target of €20.7 for Carmila based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €431.7 million, earnings will come to €332.5 million, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 8.6%.
• Given the current share price of €17.9, the analyst price target of €20.7 is 13.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.