Immobiliare Grande Distribuzione SIIQ S.p.A. (IF81.F) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call operator. Welcome to the conference call presenting IGD's H1 2025 results. [Operator Instructions] Let me now turn the conference over to Mr. Roberto Zoia, CEO and General Manager of IGD. Mr. Zoia, you have the floor. Please go ahead.

Good afternoon to all of you. Thank you very much. I am sure you received or downloaded the presentation summarizing this first half of the year and results were approved this morning by our Board of Directors. I will walk you through the presentation. And then, of course, we leave as much room as possible to you for your questions. And as we all know, it's been a very intense half year, the one we've just completed, that it was a turning point for the company after the disclosure of our business plan. The key points of this semester of this half year were the refinancing we underwrote in February of EUR 615 million secured green loan. We repaid the existing -- we redeemed the existing bond, which was the most expensive instrument both price-wise and term-wise. Then we are back into paying dividends out. And on the business side, we started -- we launched our new strategy of disposals in Romania. 2 assets were disposed of in the first half and a third one was disposed of in July. So as you will notice, the outline we gave -- the guideline we gave, although difficult, it's starting to produce satisfactory results. Let's move to Page 3 of the presentation, the main KPIs. The business is performing well, I should say, because we experienced growth in net rental income on a like-for-like basis of 2.9%. EBITDA went up 1.4%, but first and foremost, our FFO lands at EUR 19.8 million, up 8.2% versus H1 2024. And at last, and we're very proud and satisfied with it, we are back to being profitable, a net profit for the group of EUR 10.6 million. And of course, it can be compared with the minus EUR 32.5 million of H1 2024. So after 3 years, it's definitely a satisfactory result. When it comes to our operating performance, here too we produced excellent results despite the first quarter where we had experienced a slowdown in growth. And then Q2 picked up and recouped the first 3 months. Tenant sales are up 1%. Footfalls for Italian malls are up 3.9%. And a very interesting result is for our hypermarkets freehold owned by IGD and the turnover went up 2.5% for those hypermarkets. And all that is indeed the outcome of a very efficient and effective leasing activity. As you know, we provided a guideline of 98% level of occupancy. We are now at 95.99%, almost 96%. So that means that in 1 year and 3 months, we managed to achieve occupancy for an additional occupancy of 1.3% in our shopping malls. Our WALB, 2 years WALB, is still there despite the old options -- the old contracts, sorry, that had options favorable for tenants. That means that new contracts are being signed with -- it's very long-term contracts we are entering into. And as you can see, we have either remarket or relet 4.3% of our total malls rent with a 1.6% upside in the first 6 months of the year. And the most important thing here is this 2.2% in Q2 2025 and on the one hand, our operating performance and tenant sales were very positive. And therefore, the return for us, the reward for us is to be able to grow rents. We have new very important openings, meaningful openings for the group. The strategy is to attract meaningful again, anchor tenants. And there, again, we did an excellent job in most of our malls you see from -- again, for leasing contracts. On Page 7, I'm very pleased to show you this slide. And just to show you our ability to respond to whatever happens, asset management on the one hand and the way we lease out our assets. If you remember, in 2023 there was a big flooding in Emilia-Romagna. You see a picture on the left, a picture of what happened to our malls. And we've refurbished and redone almost the entire mall, and we've relet everything by also changing internal layout for that very mall. And as you can see, the results are one of a kind, are exceptionally good. Hypermarkets increased their sales by 10%. Tenant sales went up 3% and footfalls went up 8.5%. Always talking about asset management, we are still selling the last apartments in Livorno. And out of 115 apartments, we've managed to sell 110 that are still to be sold, of which 2 already have a preliminary contract signed with the notary deeds that will be -- that are expected to be completed in the next few months. So from the sales side has been completed, the apartment sale has been completed. And now we are focusing on the permits and authorizations to actually modify as many years have the lasted in the meantime, ever since we got to Livorno. We are looking for the nice -- right -- sorry, right final permits to work on 3 main prestigious areas to then sell the 3 plots of land that are still there available. Already in our business plan and in the previous quarters, we already provided a guidance stating that IGD is to be turned into an ecosystem. What do we mean by that? It's not having just a relationship with tenants based on spaces and rent, but on how to enrich the offering. And that means you have to enter the digital world in order to be able to offer that. And we have launched -- successfully launched some loyalty apps that are helping us get our customers better to profile them, build profiles and come up with promotions, events that are perfectly tailored to the profile of our customer base. And we also enhanced our proprietary relationship with tenants with our IGD Connect platform. It is a platform that is aimed at providing a digital tool to build relationships between IGD, our people who manage malls and tenants of course. We collect data and data that are then exchanged in a traceable way. And we want to strengthen, of course, the very concept of relationship with our clients and tenants. On the marketing side, we wanted to enhance our cooperations with retailers for marketing purposes. And to date, we launched YOU BRIDGE, which is a new way to build a relationship well or enhance our relationship with tenants and do things together. We've been experimenting with this format and successfully so, I should say. We've launched initiatives that help tenants, whenever they have a promotion or a new opening, to build a preshow with a number of events that could provide either notoriety or brand awareness for the retailers or enhance the fact that there are discounts being offered or alike. And that indeed has been a very -- we were very passionate about, and it's been providing excellent results and very much appreciated by retailers. And we also have 6 months of very strong interest or investors going back to showing a strong interest for retail real estate because in the past, if you remember, there were other preferred asset classes; logistics, hotels, living, you name it. But in this quarter, more specifically, retail real estate traded for about EUR 2.2 billion, well -- and for instance, the Grandi Stazioni retail deal for about EUR 6.7 billion. And that is indeed a record figure for retail real estate. That means that investors are back and more specifically, they are back in the retail estate -- real estate arena. Grandi Stazioni, I'm very happy to mention it because for those of you who really had the opportunity to approach that business or all you have to do is travel around to see it, it's exactly like our business. It's a concession. It's a long-term license. It's expiring. It's EUR 1.3 billion. But the underlying cash flow is being provided by rents and revenues from retail media. This is exactly what we are doing. So really enhancing footfalls means having better returns and revenues for retail medias and also somehow enhanced sales for them. And therefore, retail is back in the game, so to say, and under the focus of investors. Let's have a look at IGD's core portfolio, which is growing 0.48% versus full year 2024. It may just look like just a point-something growth, but it's very important. And this half year, this up -- this plus 0.48% in IGD's portfolio was only stemming from core business, from our core business, was produced by our core business. And in the data we have in June, we do not yet have the normalization rate and the exit cap rate is not -- has not yet been -- these figures have not yet been embedded. This growth has not yet been embedded. So it's a limited growth. It's a small growth, but it was specifically generated by our core business. So that means this is consistent. Tenant sales are up and tenant side saw positive performance and valuations are also positive appraisal valuations. We also had an increase. On Page 13, you see an increase from 0.53% in malls and hypermarkets, they are long-term contracts. So you do not see an abrupt increase. So this 0.48% is substantially provided by the benefit produced by malls in Italy without any decompression of cash-ins. Main financial indicators or ratios, LTV, loan-to-value, is flat at 44.4%. But let me remind you that we paid out a dividend in May and we've started the long journey of reducing our cost of debt. So we have a full year 2024, which was slightly more than 6%. Today, we stand at 5.3%. So we are already seeing the benefits, thanks to the transactions that we have performed. But after the cashing in of the first installment of the refinancing of August, so the idea is to further reduce it to 5.3% going forward. And if you look at our operating performance, you will see that -- I'm sure you'll remember that in 2024 until April, we have had a food portfolio that had a EUR 5.2 million impact. And then we also disposed of 2 Romanian assets for about EUR 0.4 million of net rental. So on a like-for-like basis, you see we end up with a EUR 1.4 million, all representing an upside for greater revenues and therefore, leading to a net rental income for about EUR 50 million. EBITDA has a very similar performance, exception made for the fact that we further strengthened our team to focus on net rental or net revenues from services. They had gone down last year, but this year we have a slight change for the better. And that leads us to having a core business EBITDA that is very close to last year's EBITDA. And again, with an increase of -- a slight increase of EUR 0.7 million. Positive news or on a positive note for everyone is that we are finally starting to see a financial management -- financial position that's less cumbersome. So if we look at the total for financial management in the first 6 months, we saved about EUR 5 million and EUR 6.4 million for our core business. That's the savings net of nonrecurring charges and IFRS16. And that leads us to start having an FFO that is indeed more in line with expectations. And our FFO, Page 18, FFO -- well here too, we have a change in income scope. From EUR 18.3 million first half 2024, we land at EUR 19.8 million first half of 2025. But that entails 8.2% -- a growth of 8.2%, and that's not trivial. But if we look at it on a like-for-like basis, we end up with an increase of EUR 7.1 million, up 55.9%, mainly given by financial management with this EUR 6.4 million we managed to save. And then eventually or at last, I should say, as we have no longer nonrecurring items, that was the write-down of the food fund holding and a non-write-down or impairment to fair value on our real estate assets leads us to benefit from the financial perspective, but also benefits of having negative nonrecurring items. So we land with a net profit of EUR 10.6 million. Our net financial position is down, thanks to the disposals. And despite that, we still processed about EUR 6.2 million worth of CapEx. So with a declining net financial position despite the CapEx we spent tells you that you can start perceiving and seeing the positive results provided by the disposals we have engaged. In our maturities profile, we've talked about it several times. It's Page 21 in the presentation. And they were extended. The 2027 cliff was removed. And today, we are quite confident. yet we are not standing still. The main efforts we are doing today, we already have a team working on it. So we are closely monitoring the debt market to find a suitable window for a possible issuance at -- well, provided that or subject to the conditions are beneficial or more beneficial than the actual cost of debt. So we are only just starting to focus on that. Because of the volatility we have experienced over the last few months, it's still a time of uncertainty. We haven't yet found a very favorable time window or window, but we are getting ready for it because that would really further help us further declining our cost of debt. And at a business plan level, we are focusing on sustainability, and we keep on working on certifications that are very useful for markets, for banks and even for the slot funding, we being energy compliant, having assets that are energy compliant is very important. And we're working on the photovoltaic power to cut costs in -- energy costs in our shopping malls. We have 2 tests running with artificial intelligence to make our systems, energy systems more efficient. If that works, we will further increase it. And we are also still installing EV charging stations. It's a new approach. And according to me, it's very important to be also have fixed cost when it comes to utilities and consumption costs vis-a-vis our retailers. We have to be reassuring from that perspective. And then together with a purchasing group, we are purchasing energy. We have -- there are different -- there are industrial players, commercial players that are part of this consortium, Consorzio Esperienza Energia. We've already bought energy for 2025 with a 61% coverage. And first and foremost, we blocked prices for 2026 to cover up to 73% of the energy needs in our malls. So if you notice, we blocked the price at EUR 99.3 with a PUN price that, until a few days ago, it was 109. So we managed to cover our energy requirements and needs. And even if we don't know what the price of energy will be going forward, in our job being able to provide our retailers with safe data as to energy costs, fixed and state data is very important. When it comes to ESG, that's another goal in our business plan. This morning, our Board of Directors approved a new policy called Diversity, Equity & Inclusion. And it's the first step we have made to get by year-end a full certification as we've already certified all of our best -- almost all of our best practices. And I think this is of paramount importance. As you know, this year there was a lot of movement from the organizational viewpoint. And my idea or the idea we are pursuing is to set priorities for those who were already part of our business plan. So we managed to experience a growth across the Board and also in our Diversity, Equity & Inclusion Policy. I think that it's not just a matter of focusing on a gender equality policy, but also on diversity and fairness and equal pay. Especially when we talk about trade union agreements, we really need to be very inclusive, very transparent when it comes to our employees. A company like ours relies on people, on human resources. So the more they are engaged and passionate about their -- and loyal to the company, the better results you get. So I'm very happy that we managed to approve this policy. And in the coming hours, this will be published on our website. And I think this is a good policy indeed. And then we land at our guidance for 2025. If you remember, our FFO guidance was EUR 38 million in March for the full year 2024. Today, we feel confident to increase it and give you a EUR 39 million guidance, up 9.6% versus 2024. And that is driven by the results we have achieved and our will to try and produce the best possible FFO to then have a very good impact on our shares, share price and dividends, the dividends we pay out to our shareholders. Year-end will be full of events. We've already attended many events in the first half, but we'll attend even more in the second one. I met many potential investors, people who already are shareholders of IGD, people who -- well, investors who stepped out and are now getting back in. And this new deal somehow we are trying to provide within our company means that it's very important to have one-to-one also talks and meetings with all stakeholders. I think I'm going to stop here. In the annexes, you'll find even more details, but I'd rather give you room for your questions. Thank you very much for joining us.

[Operator Instructions] First question comes from the line of Arianna Terazzi, Intesa Sanpaolo.

Congratulations for the results you achieved and thank you for the presentation. First of all, a good operating performance of your own -- of the hypermarkets you own. So could you give us more color on that? And maybe could you give us a market comparison between your performance -- I mean, the performance of your hypermarkets and the peers, hypermarkets, disposals in Romania? You sold the assets at book value. They have 100% occupancy. How do you see the negotiations with other assets? So how are the negotiations faring for the other assets in Romania? What can we expect? Can we expect a difference, a gap between the book value and the value disposed at?

Well, thank you, Arianna. The hypermarket topic, according to me, it's a combination of 2 factors. First of all, we -- over time, we've already performed some disposals and now you're starting to see the fruits -- well, we started to cut costs so as to be able to enable tenants in hypermarkets to have a more aggressive sales policy. And we see that they are starting to have some very interesting promotions. And also we have a lot of shopping malls that are very close to cities. So if you compare it to the idea of out-of-town hypermarkets, we have many hypermarkets that are very much urban hypermarkets in town. And those hypermarkets performed well because the people get good prices. And so they -- people go there almost on a daily basis, visitors go there on a daily basis. And then we have -- well, footfalls are showing very good results in the south of Italy as well. Catania, which is a coop master franchising, they did a restyling that is doing really, really well with the hypermarket. And then at the Arena Group with SuperConveniente in Palermo, they are doing really well too. And then we get to Naples, and there too, in Naples, they are having excellent performance. As you saw in Cesena, the hypermarket in Cesena that did a growth of 10%. And it did that because it's practically in town, and it's being used as urban shopping center. And in some areas, in some geographies in Italy where the shopping mall is -- it's like the town piazza or it's a place where people can gather and at the same time, they can go shopping. So if you offer hypermarket at interesting prices, appealing prices, it could be very beneficial. So proximity right now is what helps us, the proximity to the city center. And then Romania. Romania, you said -- you rightly said that, well, the first assets had a very high occupancy rate. But on average, it's about 95% of these assets, the occupancy rate. My goal is to dispose off another EUR 9 million to EUR 10 million in 2025. And here too, we have negotiations that are at a very advanced stage where occupancy received the right amount of attention because out of 3 assets, we have expressions of interest with just small or minor modifications in the higher floors to turn them into multifunction buildings. And I'm very confident because in less than 6 months or almost 6 months, we managed to dispose off 3 assets. And let me tell you, it's quite complex because these negotiations normally go on a long time. It's private counterparties. So -- and then it's not that you have lawyers talking to lawyers. It's one-to-one dialogues we have to have with these private investors. But then you see the results because we are lucky enough that our Romanian portfolio is made up of very centrally located buildings or malls. Normally, they are on 2 floors in the main square of the city. So that really makes them more attractive above and beyond the retail usage. It's -- they are interesting from a real estate perspective. And also in the press releases, we've disclosed -- if you look at the sales price versus the gross lettable area, the GLA, we are around EUR 1,000 in [ Klus ], slightly more than EUR 500 for the last sale. And that means that we really managed to market -- and for a real estate investor buying at EUR 500, EUR 600 per square meter, it's very interesting indeed as a price.

The next question comes from the line of Federico Pezzetti with Intermonte.

I have a couple of questions. First, valuations or appraisals. You've already said that they are slightly higher, all driven by your core business. But from a quality perspective, were appraisers conservative in their work? I see that even rounding up, the exit yield goes from 7.1% to 7.2%, the exit for the Italian core portfolio. What can we expect from here to year-end, from now to year-end? And also for the net yield, what should happen in order to see a possible decline considering that the market, when it comes to trading in the real estate retail, is -- well, market has been picking up. So -- and one curiosity, when it comes to Porta a Mare, the 3 areas -- the 3 plots that you want to dispose of, if I'm not mistaken, you still have to get some permits. You mentioned before that you're still waiting to get permits between 2024 and early 2025. So what can we reasonably expect from now to year-end?