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

Good afternoon, this is the Chorus Call operator. Welcome to IGD's presentation of Q1 2021 results. [Operator Instructions] I may now turn the conference over to Mr. Claudio Albertini, CEO of IGD. Mr. Albertini, please go ahead.

Thank you very much. Good afternoon to all of you. I am connected from our headquarters. And together with me, as always, we have our new Chairman, Mrs. Rossella Saoncella, appointed Chairman on April 20, and today, she chaired the first operating Board meeting, and Mrs. Saoncella is available to you for any questions you may have. I'm sure you've already received both the press release and the handouts, the presentation, for Q1 2021 results. Let me walk you through the presentation, and I'm sure you've already had a look at it or you have it before you. Let's start from Page 3 in the presentation, and it's a slide that gives you a snapshot of those who from abroad, look at Italy. And Italian situation, I'm sure is well-known to Italians, to Italian analysts. And -- but this is a snapshot for those who log on from abroad. This is a snapshot of the situation we have in Italy, Q1 2021 versus Q1 2020. Let me remind you that Italy was the first European country that was deeply hit by the pandemic, starting from the last week in February last year and with a growing impact until the first half of March. So after 2 months, the beginning of 2020, where in our industry, we, as a company, had a positive performance -- operating performance. We went from there to a full national lockdown starting from May 10, and that went on until May 18, always 2020. So 76 days of closing -- of lockdown with a total closure of nonessential activities. And that meant that in the first half of 2020 to have about 1/4 of the days of closing were in the first half. So apart from the first 2 months and 10 days of March, as you can see, it was about 1 quarter or 25% of the total opening days. And then Q1 2021 was different. There was a drag on effect, a carryover effect from the lockdown after Christmas and until after January 6. And then they introduced a so-called traffic like mechanism with areas that were allocated, either green, amber or yellow or red depending on the level of lockdown. And as you can read, about 50% of potential days of operation were closed. So that already gives you an idea that it's not going to be a like-for-like comparison between Q1 2021 and 2020. While last year, the impact was quite limited. We did not yet have -- we were not yet aware of what was happening somehow. And we approved a first quarter report that was very much consistent with the previous years. Apart from EUR 500 million posted to our risk and charges fund or reserve. Whilst as you see bottom of the page, we had to make EUR 5.4 million worth of provisions as a one-off COVID impact because the company wants to expense -- for the 2020 and 2021, we want to expense all of the impacts in the relevant fiscal year with no carryovers to the following years -- fiscal years. Let's move to Page 4 now. Here, we introduced the financial highlights. So gross rental income is only down 3.9%, whilst 3 other indicators, net rental income, core business EBITDA and FFO, funds from operation. Here you feel the impact. We have the impact of the EUR 5.4 million. It's a one-off impact for the quarter. If we move on to the operating performance, and we move to Page 6 in the presentation. These are the main trends in the first 3 months of 2021. It's a comparison that's not consistent. It's not like-for-like between '20 and 2021. The first 2 months compared to 2020 where the shopping malls were fully open. So we have a minus sign, minus 38.1% tenant sales in January and a similar figure for footfalls, but it's by chance. It's -- and then February still declined, but tenant sales and footfalls did better. So footfalls down 21 points, 27.1%. And a better increase on the sales side. So the average ticket is increasing. So less footfalls, but more targeted visits, much is the opposite instead compared to 2020 in March. There was a full lockdown in 2020 with the lockdown of shopping malls. But then March 2021, although it was a stop and go situation towards orange and mainly orange and then red starting from March, although there were still closing days in -- over weekends, the holiday days. We hope the situation will be unlocked as soon as possible by the government. We can say that maybe they -- the block should be removed by the end of May, hopefully, and very interesting is also the comparison of the full quarter 2021 versus 2020. So if we -- you add up the trends for the 3 months versus 2020, as I said, it's a nonhomogeneous or it's not like-for-like. We have, as a full figure for the quarter, down 14.4% tenant sales and down 19.5% footfalls. But let's compare Q1 2021 with Q1 2019, which was an ordinary year. So there, you see that it was down 36.5% in footfalls, and we have down 38.1% in tenant sales. From January to March, there were regions that were allocated. The red color, for instance, Sicily was a red for a long time and the shopping malls were closed or even in other colors, the shopping malls will close over the weekend or in the day before a holiday. An interesting piece of information, and I'm still on Page 6 of the presentation. You see in the box top right on the screen. In the first 6 days, as soon as the restrictions were loosened a bit, and I'm talking -- I mean starting from April 26, there was a loosening through a hoc -- a law decree, where frictions were lightened somehow. And after the restrictions on the 26th until May 4, as soon as the restrictions were lifted, we had accumulated figure for footfalls versus 2019, an ordinary year. So footfalls recovered 94%. So they went up 94%, with only a 6% decrease versus 2019. But those 6 days, of course, were -- that was in between -- there were 3 full days of lockdown between April 30 and May 1 and May 2. The shopping malls were closed. And so the sales were spread over the other days. Very recent piece of information. Up until yesterday footfalls were -- as of yesterday, footfalls are still declining versus 2019, but only declining 3.8%. And that's, therefore, definitely a positive trend that testify -- that bears witness to the fact that we are resilient as a company, and we can recover quickly. As soon as the restrictions will be lifted further, we are confident we can recover what we lost in the previous month. Page 7. Here, you see some data on occupancy for both Italy and Romania and contract renewals. Occupancy, financial occupancy, the situation was different. In Italy, we have the situation, as I've just described, whilst in Romania, the COVID emergency had a lower impact because shopping malls were left open with some restrictions, but only limited ones for very large shopping malls and for food and beverage services. So Romania, saw an increase in financial occupancy to 94.4%. And in Italy instead, there was a limited decline, 0.9%. And compared to -- in some cases, a 2-digit decrease in financial occupancy for other players. And this year, we did not change existing contracts. Those EUR 4.4 million worth of provisions, COVID provision will not lead to any contract modifications. There will be one-off and there'll be a next to the existing contracts. Let's move to Page a -- 8, sorry. Another very interesting slide, and it's the rent collection rate. So it's the collected turnover. We compared full year 2020, and we did an excellent job there. You see we've already highlighted it when we presented our full year results, we collected 95% in Italy and the same amount in Romania. So we have a delay versus normal that is almost close to 0. The delay in payment is very, very low. That is the effect net of discounts and reductions that were granted. But indeed, that is a very positive outcome -- and if we take Q1 2021 collected amounts. And mind you, the invoicing is now done monthly. And this is also good as a result because most of our tenants are waiting for the government to release a law decree in support of shops and stores through tax credits as they already did in 2020. Collected for Q1 is about 75%, whilst in Romania, collected is higher than 88%. So in both cases, given the backdrop in the 2 countries, the outcome was positive. We're not standing still. We don't -- we'll not only manage emergencies, we try to move forward to think ahead. And we, of course, we're working on facility management. There are 2 virtuous examples, new brands that opened their stores over the last few months. One is performing particularly well in Ravenna, for instance, Mondo Convenienza in Ravenna ESP. That's the shopping mall. It's the Italian IKEA, so to say. It's a company that does low-cost furniture and furnishing. They have very interesting propositions. They opened their medium-sized surface in Ravenna. And another positive experiences under the PEPCO brand, it's a Polish retailer. They've already opened in 4 of our shopping malls with excellent results, and they are planning to open more so in other locations. And it's true on the one hand, as I said before, that closure during weekends and pre-holiday days is affecting us. But many of the lost tenant sales were shifted to the days before the close in practically or immediately after the closing, it's still a negative balance. But there was some kind of improvement. Let's move to Page 10, food and beverage services starting from April 26, at least people can eat outdoors, so they didn't stop performing. We are introducing new brands and here you see a couple of them, one is Italian. It's a typical Italian product, La Piadineria, which was -- which opened in the Centro Lame and Bologna. And a new brand with a special product. It's Hawaiian food, and it's called Pokè Kal. And then starting from April 26, food and beverage services can only take place outdoor. So we're trying to create space wherever possible. It's not possible in every mall, but wherever we can, we try and make open space or outdoor space available. So that people can buy food and then eat outside in dedicated areas, eat and drink outside. Page 11, you see the leasing activities. We have brands being introduced, both in Italy and Romania. And then you see in Tiburtino, Roma, it's key asset. It's called MiEyeStore, but also, it was -- it's a Chinese operator, telephone operators selling their own -- and also kick scooters, as you can see in the window. So they did not stop. We are still working with more brands, and we hope we can gradually recover the occupancy levels in Q2 and also in the second half of 2021. And of course, our shopping centers serve the local communities. Page 12 in the presentation. You see we have offered space to be used as vaccinal hubs. Palermo will be a hub for vaccinations with 900 vaccinations per day, and it's a lot. It's 1,800 square meters that were made available to the local national health unit. And this is something to really strengthen our relations -- our tight ties with the local communities. And in Ravenna, ESP shopping centers there will be another one, and we are going to find an agreement on that as well. And we always have to have a keen eye on the future. Page 13 and 14, you can see the first just suggestion, so to say, we are -- something we are working on. We have work in progress on a project called Next Steps. That is to say how we can innovate, ideas to support innovation. What IGD will be doing in the coming years in a market that has changed its face. Has changed because of the pandemic. Somehow, it's a way of advancing or telling you in advance something that will be embedded in our new business plan. We've closed the business plan -- planning until 2021. And the targets are no longer up to date, as we said during the full year presentation. We are going to come up with a new business plan, we're drafting a new business plan between the end of the summer and early autumn. So that we can submit it to the Board and then disclose it to the financial community, decide to call strategic or business plans, planning -- spanning, sorry 2022, 2024, and it's for 7 years in which the -- this new Board will be -- will have its term, so to say. Let's now dive into the final results, starting from Page 16, 1-6. And net rental income as always we make a comparison between Q1 2020 and Q1 2021, where the -- which was down EUR 1.5 million in the change in rental income. And we recovered some cost, EUR 31.6 million of net rental income in Q1 adjusted without embedding the EUR 5.4 million worth of provisions for COVID. So net rental income lands at EUR 26.2 million. Malls had reductions in rental income on a like-for-like basis of EUR 1.1 million, mostly Italy. Mainly or totally focused on the mall asset class whilst hypermarkets even experienced a slight growth if we apply or adjust for inflation. And in the next page, you see the core business EBITDA. EBITDA goes from EUR 30.3 million in Q1 2020 to EUR 23.8 million in Q1 2021. And here too, net of the EUR 5.4 million of COVID direct impact one-off. And then financial management. We are now on Page 18, 1-8. And we stripped off the nonrecurring charges, that is to say IFRS 16 items. Despite that, we see a slight improvement in financial management, and we've managed to further cut the cost deriving from financial management. So we'll see later, our average cost of debt, which is the same level of 2020 or even better. We are expecting it to reduce it about 10 basis points in the coming quarters. Page 19, FFOs, funds from operations, some EUR 20.8 million in 2020, with a decline of EUR 0.4 million change in core business EBITDA and a delta in financial management, and it was a negative carry worth EUR 1.6 million. So we get to EUR 19.3 million. If you strip off EUR 5.4 million, you end with EUR 13.8 million FFO. And the net profit for the period was EUR 10.3 million. And then I tie on with the next slide, it's the cash -- it's equal to the cash we produced during the quarter. We didn't burn cash. We generated cash, EUR 10 million worth of cash. So we reduced our NFP by the same amount. And so even for this first quarter, we generated cash, and we reduced our net financial position by EUR 10 million. And that led to a decrease in loan-to-value, although a limited one, now landing at 49.5%. ICR was retained with a cost of debt, which is very similar to that of last year, I bet you are well aware of it. And half market, slightly more market, 54%. And 45% banking system. 3 quarters of our debt is unsecured with an NFP of EUR 1.45 billion declining versus the EUR 1.155 billion of last year, and we still have EUR 46 million worth of cash that has declined versus the EUR 100 million at the beginning of the year. And here, I tie in with the next slide, as we redeemed on May -- we repaid on May 1, EUR 71 million of the bond that was expiring on March -- beginning of March, but exercising an option for early redemption because it was a more expensive bond than our cost of funding, which was 2.65%. So cash on hand, EUR 46 million. We have EUR 60 million worth of committed lines recently renewed with a 3-year duration renewed by primary banks and about EUR 150 million worth of uncommitted lines. So we definitely have the opportunity to cover our financial needs, financial maturities for all 2021 and first month of 2022. As you know, we are working on some disposals. I'm sure you'll have questions about the potential disposals. I can give you a few hints, but very, very little. We are at a stage where we hope we are right before the release of an exclusivity. We hopefully, will then be complied with the timetable halfway through the first and second half of the year to perform the disposal -- complete the disposal and have a full coverage of our financial needs from here to 2022 and partly on 2023. That's it for my part. And on Page 22, you see our agenda, August the 5th. We'll be disclosing results for the first half. And then in November, the first 3 months of the year. Also attending the Board, we have our new Chairman, Mrs. Saoncella. If you have any questions for her to, please feel free to ask them. Thank you very much. And here, we are ready to take your questions.

[Operator Instructions] First question comes from the line of Simonetta Chiriotti with Mediobanca.

I wanted to ask whether following this first quarter, do you confirm the guidance you gave and also considering how the general situation is evolving with restrictions that are coming and going or that are lasting more than we expected. Do you confirm the guidance you gave on COVID impact also for the full year. And generally speaking, also, do you confirm the guidance on your performance for full year. And then I did not get the amount of the 3 line, credit lines, uncommitted lines. Could you repeat it for me?

Very well, and the answer guidance is confirmed. Normally, we update our guidance after the first half report. We gave guidance with a growth in the range of 3%, 4%, net of the disposal deal. If we complete the disposal deal, mirroring rent will have a much sounder, even sounder financial situation going forward. That will mean we'll lack the rents of the disposed portfolio. Guidance so far -- our guidance so far is confirmed. There are no major changes versus the scenario we conjured up or assumed in our budget. We assumed a still complex first half of the year. We were expecting a reopening over the weekends, starting from mid-May. It should be allowed by the government together with the extension of the curfew time, there should be a law degree that will regulate those, must be a law degree. So we're working together with our trade association to -- and we're not alone on that. And people were very much aware of that. And almost all political forces were understanding in that respect so that we can go back to normal. Our assumptions were first off "difficult", and it has been so far, if we can say so. And the system, if we compare what we have it as the color system we have in Italy, if we compare it to other countries, enabled us to be open from Monday to Friday apart from the Friday before May 1, which was a pretty holiday closure. Whilst in other countries such as Germany, Germany is to fully lockdown most of it, harsh lockdown, strict lockdown. So the scenario we have assumed is more or less the same. And therefore, the guidance. So on the credit line, EUR 60 billion is committed. 3 years -- 3-year credit line and not yet drawn, recently renewed and therefore, with a good time horizon going forward whilst uncommitted lines. So theoretically, revocable are EUR 150 million, the ones we rely more on our committed lines. But even in the uncommitted ones, I don't think banks would revoke them overnight, so to say. Historically, we've always had an excellent relation with the Italian banking system, and they have been supporting us. It's all Italian banks. So I don't see any major issues there.

[Operator Instructions] Mr. Albertini, for the time being, there are no booked questions.

There are no more questions. We say goodbye. And we will talk to you again early August for the 6-monthly report, hopefully, before, to disclose positive info to you, positive news to you. Thank you so much for attending, and have a great afternoon. Also on behalf of my colleagues and our Chairman, thank you very much for joining us today.

This is the Chorus Call operator. The conference call has come to an end. You may disconnect your phones. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]