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

This is the Chorus Call operator. Welcome to the conference call presenting IGD's 2022 Full Year Results. [Operator Instructions] Let me now turn the conference over to Mr. Claudio Albertini, CEO of IGD.

Good afternoon to all of you. I am connected from IGD's headquarters. As always, I have colleagues with me, who will step in, in case we need them on specific questions so that we can provide you with the necessary answers. I am sure you've all received the documentation, the presentation and the press release. Let me start with the presentation, it's a 2022 full year. We start from Page 3. Here, we'll start with very important messages, especially as far as the headline is concerned, that is to say our business model is confirmed to be viable and up-to date. And this is proven by the results we have achieved. So the operating results, and then we'll give you more details about them in the following slides. So tenant sales in 2022 versus 2021, grew strongly in excess of 13%. And we have ran a strong leasing activity with new stores open, 173 new stores opened and that's for Italy and Romania, respectively, 1.1% in Italy and 1.8% for Romania and a higher occupancy rate, slightly higher in Italy, 95.7% versus full year 2021 and Romania, 98%. What we see stronger increase in excess of 5 basis points versus June 30. Let's now move on to Page 4 of the presentation. You see financial highlights for the year are as follows. So net rental income is growing versus the restated figure. As you can see, as we did before, over the year, we give a comparison with full year 2021 and also versus 2021, but net of the disposed portfolio stripping off the disposed portfolio. As you know, we disposed of a hyper and supermarket portfolio that had an impact. So net rental income declined in absolute terms, but grow with restated figures and also on a like-for-like basis. Core business EBITDA, EUR 103.4 million, down 3.6% full year, but up 6.5% restated. Optimal operation landed at EUR 67.2 million, up 3.8% and higher than the higher part of the guidance. In August, if you remember, we gave you a guidance that was reconfirmed in the press release January, 26 a couple of months ago, the guidance was 2% to 3%, and the final figure is 3.8%. So again, we're giving you the restated figure and the restated figure will be up 18.9%. The real estate portfolio market value was EUR 2.81 billion, down 2.8%. And there again, we give you ample disclosure on the 26th of January in our press release as we advanced the fair value valuation data as at end of December 2021. EPRA NRV landed at EUR 10.2 per share, down 5.3%, mainly driven -- the decline mainly driven by the change in fair value. Going back to tenant sales or tenant performance, it's up 13.3%, 2022 versus '21. It's up 0.7% versus 2019. And if we take into account the time span between June and December, the tenant sales went up 2.1%. It's 2022 versus 2019. So in Q1 2022, we did not do very well. Our tenant sales were down 7.8% versus 2019, but then it recovered quite nicely in the following quarters, up to 0.7% per year versus 2019 with a more marked growth in the second half of the year. Let me give you more pieces of information. This growth trend went on in January this year as well where we can reconfirm this growth in tenant sales. January, the turnover was up 80%. So the year was started -- well started really nicely. Footfalls always a comparison with 2021 were roughly up 7%, but they were declining versus 2019, down 17.1% versus 2019. So hypermarkets and shopping malls. So people tend to go less, but they have more targeted visits and maybe they buy more. So hypermarkets again, they went up 2.5% between 2022 and 2021. They reconfirm the attractiveness of our business model, the way our shopping malls are set up with both shopping mall and hypermarket. Let me move on to Page 7 in the presentation. All product categories have grown in different ways, of course, versus 2021 and sometimes also versus 2019. Very positive result -- a very positive outcome with the performance of restaurants, which during the pandemic had a very negative performance. And then personal and health care, household goods, they are performing well. And this is a confirmation of things going well throughout 2022. And then let me stress the performance of clothing, which for us still accounts for about 50% of our total merchandising mix. Electronics, apparently, they are last in the queue, but please remember that in 2020 and 2021, they grew very, very strongly because people used to buy, if they have to stay at home or smart work or work remotely, they have to buy electronics. It's still growing, but not at the same pace as it did over the previous 2 years. And let me now move on to Page 8, occupancy is up 50 basis points in Italy. There's an upside of 1.1% with just over 170 renewed or turnover contracts. Collection rate is 96%. We have 104 new stores, of which 35 with new brands, and this is the highest figure in the last 5 years. In Romania, we did even better. Occupancy landed at 98% starting from below 95% end of 2021. Here again, they recovered nicely versus each one because, of course, they have fit out going on. So they landed at 98%. Upside is slightly better than when we have Napoli is up 1.8%, and also the collection rate is better landing at 97%. We have 69 new stores, of which 42 are new brands. As to the hypermarket remodeling project or downsizing of hypermarket services, you know this is a topic we have at heart and we've done so -- it has been for a few years now. During 2022, we engaged in 3 remodeling projects, and they are shown on the slide. All 3, we have the hypermarket aftermarkets are open in Panama and Catania, there was a change in the brand name in the signage and for medium surfaces coming from the hypermarket downsides were fully let in Napoli while for the La Torre and Palermo and Catania, we are still marketing the medium-sized surfaces that we got from the downsizing, and we have about 70% pre-letting done already. And on Page 11, we are at the Porta a Mare project, Livorno. We focus on leasing activities. We've achieved more than 80% pre-letting and we had a venous initiative in October last year. We organized an open day the lotto institutions and citizens of Livorno. And I think a lot of interest was raised when it comes to this location. And let's move on to Page 12 and 13. We keep on focusing on our digital strategy as well that we started in 2020 with a digital market plan -- marketing plan that was then followed up in 2021 with a CRM, customer relationship management system, that was implemented. In 2022, we have a new touch point, LED walls, more contacts in our CRM system. And we're also witnessing a very positive trend, a very positive performance in our innovative co-marketing project that is running between Compliance and IGD in shopping malls where we have a hypermarket managed by Coop Alleanza. And in 12 of these shopping centers, in the months after the initiative, we have witnessed a strong increase in sales, much higher than in the 17 shopping centers that were not involved in the co-marketing project, as Coop Alleanza was not -- did have functions, not available to have a franchise in the shopping mall. And then in March, we finally had new events in presence. Here, you see pictures. These are in personal events we organized 531 of them. And we really focus on this because they attract visitors, and we are back to levels that are in line with the pre-COVID one. So more than 520 in our portfolio is really a major commitment. As to the sustainability report, I'll quickly run through it. In the next few days, you will see published on our website our sustainability report. And here you see some of the objectives, some of the targets we have achieved in 2022 in the 5 pillars, green, responsible, pipe attractive and together. So in 2022, our sustainability report is 3 years in a row that it's also approved. It's approved by the Board. I think it's the fourth -- third full year in a row or maybe more the 13th sustainability report, we have issued. We started in 2010 and every year, we've raised the bar, so to say. So here some of the results we have achieved. They were mentioned all in the business plan. We mentioned 41 different goals and objectives were -- that -- where we've almost implemented 50%. Page 16, some more figures our sustainability report. Emissions, greenhouse gas emissions. Over the last 5 years, starting from 2018, we have decreased emissions coming from fuels, distributing, electricity, we declined them by 26.2%. In Romania, again, we are pursuing our sustainability policy. We have -- it's one of the largest shopping malls employee TBC. And in 2023, we're going to install 4 more plants together with this one, which is a photovoltaic energy system. And so we have the same focus in Romania to our portfolio. We've provided board disclosure in our press release following our extraordinary Board on January 26, 2023. And here, we have a breakdown between malls Italy, Romania, the [indiscernible] project and further development. Total IGD's portfolio went down 2.78%. And together with the leasehold properties and our minority stakes in the juice real estate fund takes our portfolio to EUR 2.131 billion versus EUR 2.198 billion we had last year. And so the decline is mainly driven by the change in fair value. As you see in -- on Page 20, we start from EUR 2.140 billion to 2.80 billion. And then we have leases, we have real estate stakes. And then CapEx were accounted for in a P&L, we have change in fair value for the Italian portfolio. We have CapEx for Porta Medicea is EUR 13.5 million, change in market value Porta Medicea down EUR 27 million. And then projects and CapEx in Romania, EUR 1.4 million today, the Romanian portfolio is about EUR 128 million. The shopping malls, Italy, and the hypermarket asset class is below 20%, slightly above EUR 400 million. And the malls were EUR 1.481 billion, 69.2%. And let's move on to Page 21, the main items in our pipeline our business plan envisaged EUR 82 million investments within the scope of the business plan. EUR 35 million were invested in 2022. EUR 32 million are expected for 2023. But here, we see both committed investments and noncommitted ones. The committed ones, we have work in progress. It's not deferrable. And we have the noncommitted ones theoretically, they could be deferrable. And so that gives us, as you see in the third bullet point, more flexibility in what we will do going forward. We will evaluate that on a project-by-project basis, and we'll see whether or not we shall engage in that noncommitted pipeline or not. The primary objective, of course, is to go ahead with it, but it will depend on market conditions as well. Other than the Porta Medicea project, IGD does not have, as you all know, any other development projects that are comparable. Here are some investments for restyling carried out in 2022. This is Mantua. The shopping center that has been completely restyled in terms of the hypermarket, which was remade, redone by Coop Alleanza as well as the mall where we implemented LED lighting, highly energy-efficient of the highly energy-efficient type portable-type panels and more. This is a center which is dominant in the Manoa province. The other project is the Porta a Mare project. Our focus on the flat on the apartments. We're pretty happy out of 42 total flats. Well, the 73 plots of the Martine part were sold entirely. The out of the 42 units here, 17 have been sold with a final deed. We're actually 32 and the cash flow in 2022 for 17 units sold to EUR 7 million approximately. Those with the underbidding proposals will be almost as high and other units will be sold in the course of the time and we will recover a good proportion of the capital invested. Now Page 24, 2 major restyling projects, one that will unfold during 2023 in Imola. This is the dominant, let's say, the incumbent center in the Imola area. It requires a farfetched restyling and the work is expected to happen by the end of 2024 at for PortoGrande. Construction work has already started, and it is forecasted to come to an end by the end of this year. Now let's fast forward in the coming slides, we'll find a comparison as with the highlights in absolute terms as well as net of the portfolio that was -- that we were been divested in. We disposed of, we stand at EUR 18.3 million for -- so we grew by 5.3%, while in absolute value that is restated, of course. And then in absolute terms, it's to see here. When it comes to EBITDA, the restated figures are 97.1%, which leads us to a closure at 103.4%, 6.5% growth -- percent growth. The core business growth is 0.8 percentage points, and the EBITDA margin freehold will grow as well. Financial management. We are on Page 28. You see the financial management, the cost declined by 12.2% at EUR 27.3 million, which is not going to happen in 2023, but this will be addressed later. So the funds from operation, the FFO, starting from 63.7% in 2021, taking out the EUR 8.2 million due to the footprint and now starting from 56.5% restated is growing in absolute value and percentage proportion, 18.9% in the restated in the case of the restated numbers. Compared to the guidance that we provided when we presented the interim report, we reconfirmed the numbers in the press release of January the 26 were slightly higher than the guidance, not by much, but I think that is already significant at 3.8% versus the top of the guidance. Page 30, EFRA indicators. Most important indicator is the NRV. We're going from EPRA NRV per share of 75.28%. We're growing by 0.61 per share with the FFO. The fair value change is minus 0.83 EPRA NRV. And also, we see a decline because of the dividend base last year by EUR 0.35 per share. The liability management activity. Here, we're talking about transactions that were completed in 2022. We issued in the first week of August 1, unsecured senior green loan in the history of IGD EUR 215 million. We've renewed our committed credit lines up to 2025 totaling EUR 60 million still fully available and undrawn. And we've closed in the month of December, an unsecured bank loan guaranteed by SAC, the primary [indiscernible] Bank for approximately EUR 21 million. In the bottom part of the slide, you'll find that the cash situation with the loans obtained and the repayments. Repayments amounting to EUR 381 million and the cash at the end of 2020 on the right-hand side. Page 32, you'll find the cash flow generated in each quarter from minus 10.7% first Q to 11.7% last quarter. We've indicated that the dividend distribution, EUR 0.35 per share, EUR 38.6 million. I would like to highlight that the net financial position of IGD, which was 987 at the end of 2021 by the end of 2022, went down by approximately EUR 10 million. The indicators loan-to-value brought to 45.7%, plus 0.9%, not so much because of the growth which went down of -- I mean, of the net financial position, but because of the changes in the market value, which went down. The interest cover ratio improved slightly at 3.6%, and the average cost of debt is in line with that of 2021 at 2.26%. We know that this is something that receives a lot of attention. The debt maturity, I mean. This is the debt maturity chart, and it's a complete one. In the first line, you see the maturities within 18 months, EUR 145 million approximately between 2023, EUR 70 million; and 2024, we have not included the EUR 400 million that will expire in November 2024, which stands beyond the 18-month horizon. We are working on it on refinancing and the idea is to refinance always well ahead of time of the maturity. And -- also in light of our ratings, we are investment to create a future with a stable outlook. S&P at low investment grade also with a stable outlook. We are defining an operation, which is still confidential with -- is a secured operation, a secure transaction with primary counterparts in the range of EUR 225 million to EUR 150 million, which will be completed ideally within the first quarter -- first 6 months of 2023 and ideally before that. This morning, the Board of Directors also approved the proposed dividend that was -- that is to be paid to the shareholders in the month of April. Now in November 2021, as I said, we freed up reserves that could be distributed. They could be entirely distributed in 2022 or entire in 2023 or part in 2022 and part in 2023. Part of the reserves were distributed in 2022. We still have EUR 0.09 per share that we have to pay approximately EUR 10 million, which will be distributed since we are obligated to do so with the 2022 dividends at the end of the period, which will be paid not in April, as I said, but in May, that will amount to EUR 230, which is slightly less than 50% of the FFO, which is sustainable. And it accounts for close to 11% of the dividend yield, and that's based on last night's closing price. The outlook for 2023. For 2023, this morning, the Board examined the budget for 2023. We estimate that the operating results will grow again in 2023. Net rental income is expected to rise in a 3% to 4% like-for-like fashion compared to 2022. Thanks also to the increase in occupancy, the contract inflation indexing that gives us an opportunity to adapted the contract rate, but also with a possibility to reduce the rentals in the event of the -- using our discount options, and then also income from new projects and the remodeling of some hypermarkets. But because of the increase in the rates and the spreads on the loans, especially for refinancing for the green loan in August for 215 and then the ones guaranteed by SAC, the cost of the financial management and the financial expenses will increase, and therefore, the FFO is expected to be around EUR 53 million, so down from 2022. Some final remarks and then I leave room for your request for clarification. There are 3 final remarks that we feel that the IGD's business model and more generally for the shopping centers in urban areas like is our case within the city's footprint, have totally recovered to the figures of before the pandemic and the operating results are expected to grow also in 2023. And that basically due to the trends in the sales season, end of season sales. IGD concerns to be a dividend company and I would like to remind everybody that for just one year, the dividend of 2020 was canceled and the one payable in 2021. And ever since we became listed, IGD has always paid a dividend. We expect this confirm to be once again a dividend company with an attractive remuneration to shareholders. And we've seen it was 11%, which is associated with the big discount that IGD still has. IGD is fully committed to maintaining rigorous financial discipline refinancing debt well in advance compared to maturity and reducing financial leverage by 2024. The goal is to stay within the range of 40% to 43% from 2024, and that will be made possible, especially because of the disposals that we have planned, and there is a disclosure in our business plan and our investor plan on 3 asset plans that would total between anywhere between EUR 180 million and EUR 200 million. We're fully committed to bringing some negotiations to bear. We do not have any exclusive negotiations at this point. But the idea is to go for these disposals within the planned framework, but we ideally would like to carry out business hotels before the end of 2023, but it doesn't only depend on us. You have to have a buyer not only a selling party. That's all with me. I'd like to thank you for listening so attentively and feel free to ask questions or make comment.

[Operator Instructions] The first question is from Dario Michi, BNP Paribas.

I have a few questions, actually. We don't -- we can't hear you well. Could you please speak closer to the microphone? Now in light of the rate dynamics, do you expect any further write-downs in the first half of this year? My second question is the following. Since for distributing dividends, we've had to get money from the reserves. How much are the reserves that are available for further distributions in the course of 2023 and then what the dynamics of the financial charges expected in 2023 that there is a basis -- that provide a basis for the FFO guidance that you've provided. What are the implicit implied financial charges in your guidance, FFO guidance for 2023, '24.

Now the fair value appraisal, we do not expect upside or write-ups in the first half year. We're still looking at the rates, the appraisers are very cautious. It would be a good thing to have some stability in the appraisals as at December 31. But that is just a goal. At present, we've just received the appraisals as at December 31, a few weeks back. I don't think I can make any particular forecast. If we had stable fair value appraisals that would be a very nice result to begin with and probably we'll see. When it comes to our results, we have available results for pretty large and I don't have any specific figures about that, but they are pretty large reserves. And when it comes to the financial management, I will ask our CFO to take the question. Andrea Bonvicini, please, the floor is yours.

For 2023, we can anticipate charges for approximately EUR 41 million. Of course, a lot will depend on the transactions and the types of transactions that we are in the process of closing that are subject to many variables and that is a financial management total. Well for 2024, we cannot make any forecast because we expect, as I said, decline in the spreads and financial indicators in the second half of the year, and we intend to refinance the bond between late 2023 and beginning of 2024, but a lot will depend on where the indicators were positioned by then. Let's bear in mind that, as I said before, we intend to move forward with a number of disposals. I'm not saying that all the EUR 180 million to EUR 200 million that we have included in the plan will be collected before the end of the year, but most of it, at least, we hope, will. We have -- this is certainly not the most favorable moment for the market, by the way. Not even in '21 were the right moment. People were less skeptical about the actual transaction we completed in November 2021, where the -- an incoming cash flow with an inflow of EUR 115 million, if I don't -- if I remember correctly. And that was not the right or a very favorable moment in time, but -- and -- but the assets we put on the market seems to be quite palatable. It's not a matter. It doesn't -- it's not -- we don't have -- we do not make the decisions; the buyers make the decisions. It's the industry that's not particularly appealing right now in the market.

Next question comes from the line of Davide Candela with Intesa Sanpaolo.

I have a couple of questions as to what also the colleague said. One is about dividends. Why did you propose a dividend on the upper range of the guidance? Waiting for an outlook on 2023 and the uncertainties you probably have ahead, why did you pick the top range of the guidance? And what could be the dividend level a sustainable dividend level that the company is looking into also taking the FFO into account, a dividend level that could be sustainable for your company going forward, looking at next year versus refinancing and interest rates? Considering the answer, you gave as to you don't expect your portfolio to be written up, what would be the best case should the portfolio value remain flat or should there be write-downs because of interest rates? What would be the impact on your targets for 2024, 40%, 43%, even with the disposals seem to be pretty challenging. Are there any levers that you may want to resort to maybe the issuance of new debt instruments? What could be the solutions? And you said that very often, but do you think you're still ruling out a rights issue, a capital increase, should things get worse?

Let me start from the end, we'll start from the last question. There's no intention whatsoever to have any transaction or activities on our equity on our capital. That's not foreseen. No capital increase is foreseen. As to the question on dividends, it's lower than last year. Last year, it was EUR 0.35. So it's down. We gave a guidance between EUR 25 million and EUR 30 million. The difference between EUR 25 million and EUR 30 million, it's about 5 million -- 5.5 million. It's not -- well, it's an amount that we can manage quite well with our NFP and it's less than 50% or we should say, 50% of the generated FFO. If make I comparison with our peers with our comparables, you will see that dividend is between 2/3 and upwards, 2/3 of the FFO higher. And I was somebody suggesting that this is what we've done in the past, we've had as a target in the past, 2/3 or higher 2/3 of the FFO or higher. So it's a totally sustainable dividend. The difference between the EUR 25 million or EUR 0.30 to EUR 5.5 million. And I don't think this will make a big difference for us. And our forecast for 2023 is to retain our NSP as it is or slightly improve it. And then loan to value may decline, but we rule out -- definitely rule out a capital increase. We've not taken that into account. With the disposals, disposals, we -- even if -- well, we have a couple of packages that we are going to dispose off. With just one, we could get to 43%. So we would be in line with the business plan target that we're in a range between 40% and 43%. But still, as I said, you still have to give us some time because we are working on it. People are always skeptical about our ability to close the transaction in 2021 in the previous business plan. And then even at the last minute, but we did manage to close the transaction, and we cut our loan-to-value by 5 percentage points. And in 2021, it was around 44.8%, just below EUR 45 million. Of course, we've had an increase of growth because of write-downs and impairments, but we are working on it, as I said, and I cannot say more on this. We are very committed to work on this and to complete the disposals. If not this year, in 2024, but anyway within the business plan time framework. Would you like to add something, Raffaele?

That's something we'd like to highlight and draw your attention to. It was the first item in our final remarks and it's the fact that nobody can foresee how rates will move and the impact that they will have on appraisals or valuations and in the coming months. But unlike what happened in the past, our fundamentals are much sounder -- and this is a message we really want to convey in a very strong way. The January performance has witnessed up a net initial yield of our portfolio based on write-downs have increased, and they are now higher than those of other asset classes that are below our levels will be lower levels, so not even comparable to the rates that are available on the financial markets. So if we couple that with the way the underlying factors are playing occupancy, tenant sales and -- which are their core business -- which is their core business, so we have more factors that will play in our favor in the coming months, and that has to be taken into account.

The next question comes from the English line [ Alvaro Mata ] with [indiscernible].

Page #33, if you can tell me a bit more on this transaction of between EUR 225 million and EUR 250 million. You say it's thoroughly being defined. What does it mean? I mean, how close are you to close something? Will this be secured, unsecured and what would be the proceeds of this? I guess, it will be to take out all the debt that matured in 2023 and 2024, but the bond that I want to confirm, please.

On that transaction, as the CEO said, it's a secured transaction because it refinances part of our debt, secured debt, that is coming to maturity. The overall of the amount of unencumbered assets stayed very high, and it's a 5-year transaction. There's nothing else I can tell you about it. We're right in the middle of it. And we would like to complete it by the first half, but probably we can close the transaction even much earlier, but to the present date, this is as much as we can say about it.

And then in regards to the bond, obviously, matures next year, EUR 400 million. I mean I would like to ask you what's the plan. And obviously, if the market is offering things to be much easier and you can come to market. How about if the market remains close for real estate companies, what's the plan? I don't know if you can tell me.

Very well. As to 2024, as the CEO said, we've discussed it during the Board meeting today. We cannot yet disclose anything as we need to refinance something that's in the market already, we would go in the same direction, maybe with an exchange with -- as we did in 2019, when we issued the bond that is now expiring in 2024. The market now is clearly a bit blocked. There were no issuances by real estate issuers apart from the one we had last year in the Bologna last year. Many of the companies will need to refinance themselves and they will go to the market. So probably you will see some deals, some transaction, and we'll see what kind of terms and conditions will be applied for sure. We rely on the fact of reducing our overall needs through the disposal, financial needs. So the transaction may be even lower than the EUR 400 million.

And remind me on disposal, did you give an amount that you expect to be selling this year or next year because I missed any amount.

On disposals, in the business plan, we have disposal for a total amount or a range of EUR 180 million to EUR 200 million. EUR 180 million to EUR 200 million. We are working on part of that amount. They are noncore assets, and we are working on them. We've worked on them for a few months now, and we are also working on the Romanian portfolio, and we are negotiating with some potential investors, but it's still too early. Let me reiterate that and let me say that again. We have no specific negotiations underway. We are aiming to achieve that, but there's nothing else I can say. Right now, I can just reconfirm that we are definitely willing to complete the disposals within the time frame of our business plan. The sooner, the better because, of course, loan-to-value, refinancing, these are topics that have to be dealt with and on which we want to improve in the next 18 to 24 months.

And last question on Page 19 in terms of the portfolio valuation now that you showed a decline to 28% year-on-year. This is not a like-for-like number, right? Do you have a like-for-like number?

Roberto Zoia is the person in charge of operations together with independent appraisals. On Page 19, on like -- the first part is like-for-like because hypermarkets were -- had been disposed of before the end of December 2021. Whatever we call the IGD portfolio is on a like-for-like basis. The only change is for Porta a Mare and it's about the 17 flats that have already been -- so which we already have a final bid by the [indiscernible] Republic. They're no longer in the portfolio. And that was disclosed at the end of January, 26th of January. There are 2 different amounts of write-downs, one on more one on hypermarkets. And a part of this write-down on hypermarkets, minus 5.35% is the fact that we have less hypermarkets than malls now. So like-for-like, excluding the 17-plus residential units that were sold in Livorno.

Mr. Albertini, ladies and gentlemen, there are no more questions in the queue. Very well. I would like to thank you very much for joining us today, and have a nice evening. This is the Chorus Call Operator. The conference call has come to end. You may disconnect your phones. Thank you very much.