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

[Interpreted] Good afternoon. This is the Chorus Call operator. Welcome to the Conference Call Presenting IGD Q1 2023 Results. [Operator Instructions] Let me now turn the conference over to Mr. Claudio Albertini, CEO of IGD. You have the floor, Mr. Albertini.

[Interpreted] Very well. Thank you. Good afternoon to all of you. A warm welcome to all of you to this conference call presenting Q1 2023 results. And the results were approved this morning by our Board meeting as you could actually read in our press release and the presentation you probably downloaded from our website. Let me start by walking you through the presentation. Let's move to Page 4. We start with highlights, the financial highlights. And as you can see, the first 3 carry a positive sign and then we have a negative sign before funds from operations, FFO. And then we'll tell you also why we have a minus sign before that item. Rental income, gross rental income is up 2.3%, landing at EUR 34.7 million. Net rental income, EUR 29.1 million, up EUR 1.3 million, but like-for-like, up 4.9%, whilst core business EBITDA runs at EUR 26.8 million, up 2.5%. And these results were expected. This is what we expected when we gave you guidance for 2023 and we discussed full year results. And of course, we told you how we were faring versus quarterly budget. We have a minus sign before funds from operation, minus 5.6%, landing at EUR 15.8 million, and that was also expected because in 2023, we're going to feel the higher cost of financial management. We will feel the burden of that, but we'll give you more details about it as we move through the presentation. Let's now talk about the operating performance. Here, we have good news. Excellent operating performance in our shopping malls in Italy. As you can see on the screen, we have the monthly performance, January, February and March. And it's broken down between footfall and tenant sales. And this is compared, of course, versus Q1 2022. We started -- we had a strong, strong start in January and a double-digit growth of tenant sales also in February. And then also March was good performance-wise, as you can see on the slide, the first quarter closed with an increase of 9.4% in footfalls and tenant sales up 12.7%, completing the entire network. And then hypermarkets and supermarkets we own also did very well. They went up 5.2% in Q1 2023 versus Q1 2022. In the following slide, we're on Page 6 now, you can see a breakdown of tenant sales for the different merchandizing category. First of all, it's tenant sales Q1 2023 versus Q1 2022. And clothing and household goods are probably the most meaningful items. They account for all 50% of our total rents. 48.6% is clothing. And it was -- growth was 20.4%. And also households goods are doing well. Culture measure and gift items are doing well, up 14%. And Personal & Healthcare, up 18.8%, a negative number that it outperformed over the last couple of the pandemic. And so many consumers adopt new pieces of electronic equipment at home and at work be it a printer, a notebook or smart book. And so that happened mainly during COVID and the phenomenon has now slowed down starting from Q1 2022 and this goes on in Q1 2023 as well. Excellent performance in restaurants, it's picking up again, this business, especially fast food, 25.4%. So people are definitely going back to restaurants and eating in shopping malls in the first quarter of 2023. Fairly well also for services up 10.1% -- 10% in the quarter. And at the bottom of the slide, you see some of the brands in IGD's portfolio and they are primary brands. In the following slide starting from Page 7, we'd like to introduce to virtuous examples. Sorry, I skipped Page 7 and 8. I still talk about the sales performance. We talk about marketing in the first quarter. It's only 2.4% of the total rent for the group. It's 54 contracts out of 1,400 contracts overall. There was a total downside of 4.5%, but if we compare it with the following sales, we are around 2.2% with the negotiations in progress. And we adjusted rent for inflation, Italian inflation and that had an impact of about 9%. So when it came to negotiating the renewal, the indexation, so the [indiscernible] increase on rents had this type of impact, even due to a phenomenon that is slowly declining. Occupancy quite flat versus 2022. We land at 95.3%, slightly growing versus Q1 2022. Collection rate is roughly 90%. Similar results are to be recorded in Romania, even slightly better, where renewals are flat. There's no minus sign before that. EUR 180 million between renewals and turnover. The flat occupancy lands at 97%, slightly lower than Q1 2022 -- sorry, full year 2022 and collection rate here to 90%. I was mentioning before 2 virtuous examples that we would like to show you. And this shows you how we are remodeling our shopping malls. We are talking about the Punta di Ferro and Forlì, and they are slightly big shopping mall of course, a big for IGD standards. So 17 shops opened, new shops opened and we are using a strategy the last -- over the last year, we've applied a very effective strategy. We opened new 17 new shops in Punta di Ferro with a rotation rate of 13.8%. And of course, we made -- we are offering more brands in our food court. We have more high-level brands and [indiscernible]. We have more services being offered to consumers. And then I'm moving to Page 10. That led us to have our occupancy move from 85% at the end of 2021 to 97% in Q1 2023 with tenant sales that are absolutely in line with the figures I showed in the previous slide. And Tiburtino here close to [indiscernible] is even better. It's a big shopping mall for again IGD standards. And here, again, a sales strategy that led to improving our food offering. We introduced new nonfood category pillars. We have more restaurants. And we have 16 new shops opened and 27% of new openings on the shopping mall total GLA, positive results indeed versus the full year in 2021 with an occupancy rate of 89.1%. The occupancy rates both for Puntadiferro and Tiburtino were affected by COVID, but we took the opportunity to relaunch the new malls. So here, Tiburtino went from 89.1% to 97% occupancy in Q1 2022 with very good operating performance and present footfalls. Another example of sustainability we provide to Page 31. This is how we are somehow rolling out sustainability in our shopping centers. This is a very good initiative that we run at our Bologna shopping center called Centro Nova. And we used food waste from [indiscernible] and well, food scrap, and somehow we've used -- we've reused food waste. That's why we called it waste value. Let's get -- let's now deep dive into the figures. Page 15. Net rental income grows from EUR 28.7 million to EUR 29.1 million, up 1.3% with a growth on a like-for-like basis of 4.9%. And all that is driven by revenue rental income growth of 0.8% and an increase of 0.4% that leads us to 29.1%. On a like-for-like basis, we would have a 4.7% growth and EUR 1.1 million that was -- and hypermarket, shopping malls is EUR 1.1 million, net of the applied discounts. It was EUR 0.4 million -- temporary discount EUR 0.4 million versus last year. And hypermarkets up 4.5% with a similar trend also in Romania. So an average growth of 4.5% on a like-for-like basis. Let's move on to Page 16. Core business EBITDA will go from EUR 26.1 million to EUR 26.8 million. And here, the deltas are all positive. Increase in net rental income, EUR 0.4 million. Net services income increased EUR 0.1 million and change in G&A expenses, meaning expenses were reduced. And we have EUR 0.2 million, landing at EUR 26.8 million with a 2.5% growth that is perfectly in line with our expectations when we provided with 2023 guidance. EBITDA margin is flat, as you can see 73.2% in 2022 versus 73.2% in Q1 2023. EBITDA margin from freehold same, that is shopping malls we fully own and it's 75.6% versus 75.5% in 2023. We see an opposite sign for financial management that that was also expected. We have a EUR 1.6 million growth of our financial charges from EUR 7.6 million to EUR 9.2 million and that was mainly driven by the coming on stream starting from Q1 this year, something that didn't happen last year of the 2 financing, we have agreed upon the first one, EUR 215 million in August 2022. The first green -- unsecured green loan in the history of IGD with higher rates, of course, on the one we have early repaid. And then the one we had on 15th of December 2022 to about EUR 21 million with Monte dei Paschi with a public -- 90% public guarantee provided by [indiscernible]. These 2 financings, especially the first one that came on stream as of January, the first lead to an increase in financial management. And then that leads us to Page 18. We see a decline in FFO from 15.7% to 15.8%, but the decline, the reduction is mainly due by the delta caused by the higher cost of financial managed by change in core business is up 0.5% and changes in tax are up 0.1%. So it's mainly the delta in financial management, the negative delta that causes the difference. We reconfirm the guidance for 2023, EUR 53 million guidance for FFO, as we said at the end of February, if you do 15.8 times 4, we will have a much higher guidance in excess of EUR 60 million. But of course, in the next months, we expect an increase in financial management costs. Net financial position on loan to value, net debt loan to value. And Page 19, as you can see, generated cash for about EUR 10.6 million going from an NFP of EUR 976 million roughly to EUR 966 million in the first quarter of 2023. Loan-to-value has decreased at the end of March to 45.3%, down from 45.7% at the beginning of the year thanks to the new reduction of net financial position. Interest cover ratio is 3x is declining and average cost of debt grows from 2.26 at the end of 2022 to 3.18 for the first quarter of 2023. Let me wrap up with an update on asset liability management exercise that is currently underway. It's a liability management exercise. As announced, we are currently finalizing a pool financing with primary Italian and foreign banks. Most of these banks have already given their positive clearing in positive long-term amount between EUR 220 million to EUR 250 million. With this new loan, we will refinance maturities up to the first half of 2024. And below, you see in the dotted red box, you can see maturities covered with the next loan. It's about EUR 70 million in 2023, 7-0 and EUR 160 million, 1-6-0, as a matter of fact from 2024. So with this deal, with this loan, we cover these requirements. And then yes, for EUR 400 million bond that is outstanding. We're going to [indiscernible] November 2024 for 16, 17 months down the line. For 2024 and 2027, we have the green loan I mentioned before, 2027 unsecured in a green loan and other financial maturities in between. That split from my part, of course, there are a number of attachments that can look at that are attached to the presentation. And I'm here with other IGD colleagues and we are ready to take your questions or clarifications.

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

[Interpreted] I have a few questions. The first one is about guidance. The guidance you gave us for 2023 FFO guidance, what is the headroom you have for the bond refinancing?

[Interpreted] What is -- sorry, I didn't understand.

[Interpreted] The rate on your EUR 400 million bond, are you already refinancing it? Or is it something that's not included? And then could you remind me of the cost of your green loan -- about the EUR 220 million green loan?

[Interpreted] Okay. In the guidance we provided, we're not including any cost to refinance the bond. The refinancing should happen between Q3 -- sorry, Q4 2022 and Q1 2024. The rate at which it will be, there are -- still has to be determined. We're still focusing on the negotiations for the funding of the loan between EUR 225 million and EUR 250 million. But we are not envisaging a refinancing by year-end although we are going to work with that objective in mind. The markets now are not particularly receptive and not particularly welcoming when it comes to fixed assets. And after the green loan, Andrea Bonvicini, CFO, can take the question.

[Interpreted] We have a thread that is higher than the one we got in June around 3.5% spread. And I'm talking about the August green loan.

[Interpreted] The old one, Andrea, the EUR 220 million.

[Interpreted] No, for that one, the one of August, it was -- sorry, the spread was 3. And on the new one, so the 3.5 was referred to -- now the current one is slightly higher than 3. Yes. Even though the August one was unsecured, this instead is -- we have different conditions from last year until today for the green loans, slightly higher the spread now.

[Interpreted] Next question comes from the line of Dario Michi with BNP Paribas Exane.

[Interpreted] First question is about the discount you apply on your tenants. Can you elaborate on it? Is there an improvement versus what we saw last year, given the good sales performance tenants are showing? And then another question. Are there any novelties after disposal of -- the disposal for you in Italy and Romania, what is the market like if we think of disposal for you for both Italy and Romania.

[Interpreted] Well, [indiscernible] speaking discounts, I can say that we are in line with the -- what we have assumed for the full year, [indiscernible] discounts always we are talking, no changes in contracts. We are looking at discounts on a case-by-case where the cost occupancy ratio is above given thresholds that we cannot check. So in that case, we are assuming for the full year around EUR 3 million we put together in Q1, we are more less in line with that. Now I must say that despite the good performance tenants showing, there are very many requests to get discounts or the offsetting of the indexation of the inflation indexation that we are quickly applying as per contract. But you see in renewals, when you have renewals that have a slightly negative sign before. The one we, of course, have renewals, as we've already applied to the inflation indexation, which is 8%, 9% or some cases 10%. Of course, they can't complain about that, this is what we mean by discount. Something interesting that I haven't mentioned because I was maybe presenting in a hurry, but we run an in-house exercise the impact of inflation on the increase in tenant sales, we witnessed over the first quarter. That is to say, 12.7%. And that indeed is a -- is an inflated growth somehow because it factors inflation and we've made some calculations for the different merchandise categories. It's not a scientific method, but we try to be as scientific as possible. But that still takes us to -- leads us to an increase for the quarter of about 7 percentage points. And that is reassuring, is comforting, because we try to not to give into all the requests we get. We do have made a provision for that now. But so far, we are trying to stick to what we have assumed and foreseen and that is already net of inflation. And the second question is on disposals. I'm sure you read yesterday, [ JLL ] report on sales and Italy is down 70% quarter-on-quarter, if I'm not mistaken, transaction-wise. And retail you know is a very small amount indeed, 1.7%, below 2% annually. So right now the market is blocked when it comes to sales and the asset class could -- for the most appealing asset class is hypermarket theoretically. And so we are exploring that. We're looking into the possibility of performing these disposals as we'd already foreseen in our business line. It's not going to be transactions that will take place over the next few months. We're taking some time because the yields customers quote for are not exactly what they could get. Even though for the hypermarket, there was a deal on that. Can you help me? I think it was in Spain -- in Spain with a net 6 in a year, which is not far from what we have. Roberto Zoiayou, would you like to add something?

[Interpreted] Yes. Let's say that we are working on 2 fronts somehow because in your question, you also mentioned Romania. And right now we have some open negotiations both for [ Hypera ] supermarkets, as Claudio definitely was saying in Italy and both in Italy and also for Romania. Hypermarkets and supermarkets right now seem to be more appealing for potential buyers also because they have long-term contracts. And you probably remember that our average contract duration for hypermarkets and supermarkets is close to 14 years, 1-4. So it's still very long. And for Romania, we have been working on it for quite a while now and we are looking and talking to a number of investors who have come up in those countries and the effort we're going to make in the coming weeks and months is on both portfolios, Italy and Romania, hypermarkets and supermarkets for Italy and the full portfolio for Romania.

[Interpreted] [Operator Instructions] The next question comes from the English line and is [ Marcelo ], Golden Tree Asset Management.

Okay. I am going to ask about occupancy, which is down a bit both in Italy and Romania versus [indiscernible]. If you can give a bit more color on these -- reasons for this? Second question would be on collections. It seems like a 90% as of May 2 is a little bit low than is a normal number. And so there isn't a reason for this as well? And then last question is, if you can give us a bit more detail on the timing of this EUR 225 million to EUR 250 million loan that you expect to close, if we can have a detailed timing on this.

[Interpreted] With the first 2 question, occupancy and credit collection, we will have Laura Poggi answering, who is the person in-charge of that. And then I'll start and I'll answer on the time frame after the financing.

[Interpreted] When it comes to the slight decline in occupancy, it is mainly driven by repositioning work with [indiscernible], for instance, with that and with Tiburtino. So strategic vacancy that is used to reposition the shopping mall and make sure they are in line with the new merchandise mix trends. As to the collection, we are definitely in line with whatever we've done so far. Credit collection, please bear in mind that these are the first days in the second month. When we present the full year, we normally give figures at the end of the second month. So it's still normally in excess of 90%, whilst now it's the first month of the first days of the second month. So we expected the collection from now to the end of the month will improve. So we go back to the levels we normally have, let's say, by the end of May, we should go back to the levels between 95% and 97%.