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

Good afternoon. This is the Chorus Call operator. Welcome to IGD's conference call presenting Q3 2024 results. [Operator Instructions] I will now turn the conference over to Mr. Roberto Zoia, CEO and General Manager of IGD. You go ahead, sir.

Good afternoon to all of you. We have just finished the Board meeting to approve the quarterly results as at the end of September and therefore, somehow will follow the presentation that was put on the website together with the press release, and then of course, there will be room for questions as well. Let me start from Page 3 of the presentation. We see that net rental income declined slightly, but basically, it's a decline stemming from the fact that 3 months and 23 days are missing from the portfolio that was disposed of on April 23. It was a huge fund and if we look at the results on a like-for-like basis without considering the disposed portfolio, we see an increase, a growth of 3.7% and a growth of net rental income on a like-for-like basis, which would be up 4.4%. The same applies to the core business EBITDA is a consequence of lower income due to the disposals that were made in April. In that case, too, restated EBITDA would have been up 3.9%. So we reconfirm our growing trend on a like-for-like basis without having the impact of the disposal factored in, and our priority, as you well know, is to improve and maximize our financial position, growing in the last 9 months, up 7.8%, landing [indiscernible], which again, is an impact of a higher net financial position lands at EUR 26.3 million and the group net result is down EUR 32 million, minus EUR 32 million, definitely improving versus the minus EUR 39 million for the first 9 months of 2023, considering that there are about an extra EUR 20 million of net financial position to be factored in. Let me tell you that this minus EUR 32 million of the group net result are basically driven by the EUR 29.1 million of the impairment on the food transaction. And we've extensively talked about the food transaction when we first presented our Q1 results. It's a write-down, it's a one-off impairment or write-down, if you wish, to adjust this pay because there are different rights. There are different rights, voting rights between the rights of the shares we own and the other 2 investors own. So that was a one-off transaction, that in the future may lead to a possible write-up the moment in which the funds business plan will achieve the results that were somehow agreed upon with the investors. And then we look at loan to value, again, this is a consequent of all the above is improved by 330 basis points, landing at 4.8%, mainly due to the disposal effect. If we move on to Page 4 instead, we see the operating highlights and I'm really very much attached to these results -- as we said, first time we talked to one another in May, we told you what the corporate goals were, what our weaknesses were and strengths were, and we are really working hard to improve our core business. We see to grow, Q1 we had a downside of 3.5%, we were down 3.5%, and we went to Q4 where renewals and turnovers led to a growth of 3.6%. And now we have Q3 where we land with upside for 8% -- so over the 9 months, we end up with a result of we're up 2.4% and you have to bear in mind that the fourth quarter the same effect we can see in Romania as well. So in the first 9 months of the year, we still achieved an upside, up 4.27% with renewals and resales. So as I said, up 4.27%, among the weaknesses that we have listed for our portfolios, I have mentioned -- the weighted average break -- and as you can see, we started from Q1 where we had 1.78 then moved to 1.82 in Q2, and now we land at 1.9. So it's a small growth indeed, but it's a constant growth that will be with us going forward because this is when we are. And then also a priority for us, as I said from the very beginning, I talked to you, we have to increase the occupancy, the financial occupancy of our malls and hypermarkets. So in Q1, we had 94.76 to 94.96%, and we land at 95.06% at the end of September 2024. So the major indicator and operating indicators that we have given you as a priority, we told you we would focus on them and as you see step by step, this is what we are actually doing. Let's move on to Page 5. Let’s see our performance. We really have footfalls picking up 1.4% versus 2023, and then tenant sales are basically flat. And very positive footfall and sales-wise was September the month of September and also October is -- so far, we've only looked at footfalls, but they are growing, which reconfirms our belief that our shopping mall format are standing the ground and collection rate, 95.2% in Italy and 97% in Romania. Very interesting. If you move on to Page 6, you see the new openings that we have had mainly Primark. It was opened at the Loro Port a Mare mall together with that opened just some time before that with the opening of Primark as a matter of fact, the Port a Mare Waterfront mall is the project that is growing most is growing sizably day after day, month after month. Very interesting also to underline that for Primark, it was the first small-sized point of sale store. The first stores they opened were 6,000 square meters. This is 2,500 square meters of sales is doing really well and we believe that this is a replicable format also in other shopping. Let's move on to Page 7 in our presentation, and here we look into net rental income and its growth over time. On the one hand, you see there is a decline because of the change in the real estate consolidation scope. We disposed of the disposal of EUR 2.2 million. But on a like-for-like basis, we go from EUR 82.2 million in the first 9 months of 2023, we land at EUR 85.2 million in the first 9 months. So on a like-for-like basis, the growth would be 4% in Italy and 9.9% in Romania with the average of 4.5% in the highlights, the total consolidated, and then core business EBITDA down EUR 6.3 million and then a growth of revenues both for the Port a Mare waterfall and also thanks to some minor items that take us to EUR 77.7 million EBITDA for the first 9 months of 2024. On Page 9, you see our financial position, what I mentioned before, we have witnessed a growth of our financial position, the total figure and the adjusted one taking us to a delta of EUR 14.8 million, which means -- more and I'm not going to repeat that. But of course we have the 2022 and 2023 on the bank side. But what is weighing most despite the repayment we made in May is very high cost of the bond issued in 2023 as a whole, of course, we have a net FFO which net of change in real estate perimeter and which is down due to million change in NFP, which only partly offset by higher revenues and higher EBITDA delta in our core business. -- and to say that the guidance we provided the market when we presented our Q1 results, that guidance definitely confirmed I can say that in the last quarter, slightly improved thanks to the core business results will help us improve the guidance. We -- as I mentioned before, we have EUR 32 million, which is the group net results for first 9 months of 2024 and we have lower write-downs or impairments and fair value changes and the EUR 29 million impairment write-down, which is the impact of the write-down we have a net result of 32. We not had that impairment for a write-down, we would practically have been in equilibrium more substantially than equilibrium in forbearance. The financial position, if we compare it to the results we achieved in Q1, we see an improvement both on the LTV side going from 44.9% to 44.8%, the average cost of debt going from 2.05% to 6.03%, and there again, thanks to reduction of the lowering of the most -- the part of the debt that was most expensive and then interest cover ratio for covenant of 2.1x to 1.94x, interest cover ratio 1.7x and phase in 1.7. But by also -- on the interest cover, we should be around again 2.1x again. And in my job over the last month, especially talking about our debt maturity profile, we are consulting with banks, we are consulting with investors to reshape our maturity profile, especially the 2027 maturities, as we all know, its EUR 570 million. And we are trying to move forward with these consultations. And the -- is that we can put on the table when it comes to negotiating is the EUR 1.1 billion of unencumbered assets. And therefore, over the last few weeks, have been, as I said, working hard to negotiate our debt. There won't be major differences in charges, but there will be a very, very long extension and lowering of the 2027 maturity profile, which I think you probably see as it's the utmost priority and are all focusing upon so far. Let me wrap up by focusing on our agenda. We have decided to -- well, the Board meeting decided that we are going to present our new business plan on November 21. It's going to be the business planning 2021 and 2025 to 2027, we presented on November 21. It's the first business plan presented with the new corporate governance and for whatever happened over the last 3 years, instead of having a call as we have today, we came up with the idea of having creating a chance and opportunity to meet you in person. And on our side, we give you all the instructions. It's certainly still be possible indeed to both take part in the event both in person or from a remote connection, both from Italy and from abroad. And therefore, the presentation of our business plan will have the same features as today. But for those of you who want to be there in person, we will be very happy to welcome you and present the plan in presence. The event will be in Milan and then by the end of the afternoon, we will send you all the details if you want to actually attend the business plan presentation directly and in person. So reading out the --, I would like to take this opportunity to listen to your suggestions, your questions, and I'm here ready to take them and answer them. Thank you.

This is the operator. Let's now Q&A session. [Operator Instructions] The first comes from Arianna Terazzi from Intesa Sanpaolo go ahead madam.

I have a couple of questions, I would like to ask about your performance and tenant sales in September. Could you elaborate on that and give us some more color if I understand correctly, individual aggregate data -- and then the upside [indiscernible] could you elaborate on that, and will you give us an update also on the sales in Romania?

Perfect. Let me say that I'm talking about the [indiscernible] 60% of the -- there were comparison to 2023 where inflation was very high. And so in the first few months, we all suffered -- that everyone is saying that sales are no longer a big opportunity for buying. And July sales, the entire industry, not for shopping malls only, but for online and for city center shops as well. And then with the change of the season, it went well. And then October, I only saw if we just -- for the time being, we only doing well -- shopping malls, it's a national piece of information and then we have to be broken down, but going from minus 0.2% to plus 4% is fully in line with what was expected just footfall going from 0.7% and hypermarket is more or less the same. And again, the inflation has come to a stop. There was a repricing on many products, especially food products. So what I'm seeing, I mean the data above and beyond some of our shopping malls, we have -- sometimes we have in some centers. This is more or less a pattern. It's very much widespread as a pattern. I must say we are definitely with the average in the last 3 months, the next -- major issues. And we are -- talking about real estate interest transactions 9 months in the retail area. And honestly, EUR 3.2 billion of retail transactions are very much affected by the EUR 1.2 billion of the transaction we had in MonteNapoleone. [indiscernible] but retail is under the radar of the main investors -- we have a big remarketing work here, plus 8% means there's a lot of renewals. The fees is about 2% rental is about 2%, but we do not see it so much as plus 8% on a constant basis. I want to be very honest with you. What I want to give you the last piece of information is this minus 3.5%, plus 3.6%, plus 8%, showing you a trend there. So it's a long march, it's a long pathway, and we are moving consistently with what we have promised and what we have said. And the last question, thank you very much for asking. I have a lot of negotiations still open for disposals in Romania. We have already outlined the strategy to sell both either single assets or small portfolios. We are interactive, we are talking to many family offices, let's call them that way, a very wealthy Romanian family businesses who would be interested in buying real estate, retail, also normally, people these are families who started with 1 store and then went down to 2 or 10 stores. And very often, they sold their stores to large retailers, but they still have a passion for it. So it's negotiations that are still underway, they are complex, they are lengthy. But I must say that, honestly speaking, I found that they are very much interested. It's not institutional negotiations. I want to say that very clearly. It's not that we've been exchanging letters with prices. We have a due diligence, but very often, you have to have meetings in presence. I often go next Monday, I'll be in Bucharest all day. I have 7 meetings there, but we are confident that we can dispose of these assets within a couple of years, '25, '26, maybe not the entire portfolio, but to complete a good chunk of it, dispose of a good chunk of it. So far, the market seems to be quite reactive responsive when it comes to assets as we have, which are in the full center of these medium-sized Romanian cities.

The next question comes from the line of Simonetta Chiriotti with Mediobanca.

I have a couple of questions. The first one on asset valuations and appraisals. I think there were some impairments, and I would like to know more about it and write-downs. And then tenant sales versus renewals. On the one hand, renewals went really well and tenant sales not so well maybe. Could you elaborate on the sustainability of rents in view of 2025 where we don't know where consumption will be heading in 2025?

Thank you very much. These impairments and write-downs basically what we do, what we engage in on a quarterly basis, many of the 2 master leases, which, as we know, we have revenues on the one side and cost -- rental costs on the other side. But for IFRS 13 -- 16, sorry, they are written down and as we have already stated, these 2 master leases that are --will be expiring in 2026 and the other one in 2027. So it's just the residual effects that we will have to drag on for some more time. But they are revised every 3 months. And then to them, we add the CapEx that were accrued over the 3 months. And if we don't have an appraisal or valuation at fair value of the freehold assets, firstly, we impair them and we write them down, and then once we have the appraisal, we write them up again. So it's a “technical effectâ€. Tenant sales, here we talk about very, very general trends in data, minus 0.2% is on 1,326 contracts, plus is on a limited number of contracts. But right now, we do not see any special tension as to the rental fees, the rents. The consumption, we know we're very careful and rather concerned, but the policy that was undertaken in the past and what we are now discussing with our tenants for a new way to somehow stick together is paying off because we are somehow improving our landlord tenant relationship by offering marketing activities, the opportunity to use our digital tools. And in some special cases, maybe this is not the time for attention indeed. In 2024, we did not have -- we neither have a weight of inflation because as you can see in revenues in our income, this is all organic growth and not driven by inflation. It was in some cases, inflation was even below 1% inflation rate that assumed for renewal of rents. So I don't -- for the time being, I don't see any issue from this perspective.

[Operator Instructions] The next question comes from the line of Giuseppe Grimaldi with BNP Paribas.

I have a question. I hope it wasn't asked before, but I -- answer the call a bit late. Could you give us an update on your the recently launched business unit, management for third parties, how the sales pipeline has been evolved and any other players or entities since you announced it at the beginning of the year?

Well, that was a question on the services to third party business unit. More than what we can say is what our 2 main customers say -- STR and they say that, well, their portfolio, their juice portfolio, which was the supermarket portfolio disposed of in 2021 is doing really well. We -- one of the assets have been affected by the flooding in 2023. It has been -- well, it's back to being up and running in a very, very short time. And the same applies to the food part. We have a -- whereby every week, we have a follow-up between clients. Sometimes we even have 2 investors, the investors log in and our investors they manage. They are clear about the fact that retail has to be followed in a different way and managed in a different way from other asset classes. And -- we already have 3 renewals of medium-sized services. We have remarketed other services, and we will see when we close the accounts at year-end, we'll see the variable fees because we have an asset management contract for property management that will get a fee. But then we have a variable fee that is tied in with the leasing activity that went really well. And we are getting set up to setting things up so that this business unit, this business unit has. We have the reference people to work with both locally and at the head office that work specifically for the business unit. And we are already talking to a number of potents to really widen this business unit to make it grow. And now we are talking about the first 9 months of 2024. But during the business plan presentation, we will devote a part of the presentation to this business unit in sides so that you have a feeling of how it's working. We're not talking about big figures, but it's an activity that requires 0 investments with very good margins and very good profitability, but it's also helping us to have a managed portfolio that is even bigger than the one we own. So this really unfolds synergies when it comes to building a network. If you build a network, you have more tenants, you have more opportunities offered to our tenants, more service providers because facilities if you have assets under management. We have 1 or 1.5 management change a lot. And that is also applicable to services and also to our internal --. It's an activity that where the growth of dedicated resources is not directly proportional to acquiring new contracts. So going forward, we could have more revenues with the same cost, so improves our profitability. But what is very important today and now is to keep on staying on the assets that we sold and keep managing those assets even if we've sold them. So we create value for our investors and for us too. We create value for us because we stay in those funds are invested and we prove to the market that there's a new operator, new player offering services to clients and more specifically to institutional clients.

[Operator Instructions] For the time being, there are no more questions in the queue.

Very well, then we'll see you on the 21st of November. I would be very happy to have the largest number of persons to really meet you and talk to you an opportunity for many one-to-one meetings during or after. And it's an excellent opportunity, at least on our side. And for me, it's an excellent opportunity to present our business plan to you. And I would like our business plan to really convey all the energy I have and we are putting into our operations so that it really can give its best. Thank you very much to all of you, and have a pleasant afternoon. Goodbye.

This is the Chorus Call operator. The conference call has come to an end. You may disconnect your phone. Thank you.