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

[Interpreted] Good afternoon. This is the Chorus Call operator. Welcome to IGD's Conference Call presenting full year 2024 results. [Operator Instructions] We now turn the conference over to Mr. Roberto Zoia, CEO of IGD. Sir, you have the floor.

[Interpreted] Welcome to all of you. Good afternoon. Despite the weather not being very, very nice, let me still share my optimism with you because the results we will be disclosing to you will hope, and I'm sure they are in line with what we promised in 2024. And even though we still have a long way to go, let me say that the results we achieved, I must say, I'm proud to present those results to you. Let's follow the presentation. And as you can see on Page 3, we have all numbers that are a positive sign of time before them, both tenant sales and malls and hypermarkets, they are all growing and all footfalls are also growing. And shopping mobile retailers are doing well so far also provided as a figure by the collection rate in 2024, 98.4% for Italy and 97% from Romania, it's definitely a positive one. If we move to Page 4, we see our results. We see our financial highlights. We have upside from either or remarketing up 4% to the upside up 4% in Romania is up 3.8%. Occupancy went up to and our world went up to and it's made in average lease break ever since the first call I had with you, I had already announced that it's one of the indicators we were going to work on. And you're again looking up same growth rates, both upside occupancy on the extension of our contract duration and of wall weighted average lease break, they're all growing. So we are fully in line with what the guidance we have provided to you when we disclose our business plan in November last year. So core business, both on tenant side and conferences side definitely positive net rental income on a like-for-like basis is up plus 4.6%. And also core business EBITDA is up 4.1%. And here, we have the first novelty compared to what we normally disclosed in the past. And this is the result of the work we made on our core business. because you will see that on the finance side of the business, there are also some weaknesses to be recorded. We've given you a EUR 34 million guidance. We are closing with FFOs landing at EUR 35.6 million, which is almost 5% more than the guidance we had given the market. And that, of course, is thanks to the results we achieved in our core business. If we look at amount that from a general perspective, we are on Page 6 of the presentation about the beyond fluctuations when it comes to PPPs or goes, retail versus other assets retail sale is still the one with the best or highest yield, and we've proven over the years that the Italian market has stayed stable than consistent also consistent occupancy-wise has been consistent. And this year, we're starting to see very interesting growth coming up on retail lot transactions for retail were about EUR 3 billion as was the #1 asset class, so more than offices and logistics, and we haven't had that kind of figure for many years now. And the result, you see meaning our portfolio, our core portfolio, so hypermarket markets in Italy, but also valuation-wise, is flat and why is that? And because they were until the end of last year 2024, there were no yield compressions. So it's flat because it's funding its ground, thanks to the way we managed our assets and thanks to the -- of course, the increase in net rental income and fees. Page 8, we reconfirm our guidance, 44.4% LTV a year ago, it was 1 of our attention points. After the disposal, we completed April 2024 we had a benefit of 370 basis points versus 2023. And then eventually, last but not least, as promised. I remember the first call we had to get the first quarterly report in May 2024, it was I said that it was my personal mission and the mission that I was entrusted with by the Board of Directors. The Board of Directors had appointed the mission was to go back to paying out dividends. And for us, as being a [indiscernible], this is something we have to client payout. It's a limited dividend payout. And I believe that, and I am confident that, our shareholders should see dividend feasibility in the medium long term, but I'm talking about sustainable dividend distribution and in line with the share price as well. So I am very pleased to be able to say how the Board of Directors resolved upon submitting to the AGM a -- well, EUR 0.10 dividend per share payout. As we went through a year of major changes. The result is what I've just announced. So in April, we had a new governance put in place. We disposed of our food portfolio, and it was a preliminary transaction to refinance our debt that we just completed the presentation of our guidelines and of our business plan. And I'll tell you more about it in a minute. And the growth in revenues, footfalls in the upfront coming from renewals and the of strength are the outcome of a very strong very hard work, leasing activity. In this company, we try and capture an tenants that can help and support the performance of all of our shopping malls and shopping centers. There are some examples new brands were added, and that means a very, very intense scouting work that we have performed. And we really captured brands and announced a lot of major importance of paramount importance to support 1 and revenues. We worked a lot -- and we were very committed to digital and innovation, and now I believe there's no clear clear-cut separation between physical trade and digital trade. Everything is omnichannel with invested a lot in digital solutions. We have 7 apps that were made available in our shopping malls. Week after week, they are contributing and helping us to profile our customers and therefore, being able to provide them with the best and is suited propositions. And it was a very, very interesting activity appreciated by retailers and they are increasing the potential of these apps. They give us exclusive products that can only -- that will only be given -- exclusively be given to the clients of our shopping centers. Do we have of course, work on tenant platforms, providing digital solutions for them to there's. There's a proprietary application for the shopping mall and channels to really exchange data about turnover and other types of data so that data can be easily tracked on our side ensuring us a much better visibility than we have in the past. And then more media, this is very much appreciated by our tenants, we have digital totems, and we enable them to propose the product promotions. And this becomes a revenue source, just as just like the physical kiosks that you have in shopping malls such as specialty leasing. And therefore, they can enhance income through media retail. Let's now move on to Page 14. It's very interesting to see the work we did on our like-for-like portfolio where we actually started in 2023 with EUR 119.6 million net rental income, and we lost about 10.2% over time. But at year-end, we lost less than 6%. So like-for-like data 4 point change the delta 4.1%, thanks also to the great work we did with Romania cost-wise, led to results. So we lost EUR 10 million that we recouped a good amount. And the same, I'm not going to bore you with our EBITDA figures, but it's the same dynamic that we have with net rental income was EUR 108 million, then it went down to EUR 102 million, but we got to EUR 110 million thanks to the but we lost some of it with the disposal. So on page then 16 we have financial management. So transactions we embarked in, in 2023, especially the bond we have we issued for 2023, really made our financial position a bit heavier somehow. And that led to an impact on despite growth in our guidance, it's still affected by what I just mentioned by -- and we will get back to the financials. If we look at IFRS 1, Page 17, it's very interesting to see that most of the advantage comes from the core business EBITDA delta. And then, of course, we are penalized is EUR 13.2 million of financial debt versus 2023. The group net results we've already looked at it in June. And of course, the one-off impairment we had was had a strong impact that was carried out after the disposal because there was a 40% stake in the front, we have a 30% stake in the fund that holds all these asset. As it was a one-shot impairment, it cannot be replicated in 2025. And then we have the weight of financial charges. But as I said before, we also have are a big benefit versus in terms of lower write-downs, lower impairments. So we start from a group net result of EUR 81.7 million despite the big impact of our financial position, we closed EUR 30 million, knowing that there was an impact of impairment, the impairment or write-down on the stake that was a one-off, and it will not be replicated in 2025. But the difference, the delta between a loss of EUR 81 million and instead a positive and profitable net result. Well, that pathway, I think, has been laid out pretty well. Let's have a look at our net financial position. Of course, we had our NFP net financial position improved to EUR 806 million, thanks to the proceeds from the disposals. And after the refinancing, well, I'll tell you about the duration in a minute. I'll advance one of the questions that may be asked. After we issued the press release on a refinancing project. The idea of refinancing was to expand duration to eliminate the cliff we have in 2027, and we confident again. So it was a month transaction, EUR 615 million with all banks to -- that had to find an agreement. So it was a bit of a headache, but we manage. We do not yet feel or have the benefit of it all because we still have to work on it. But as you can see, we have reduced our average cost of debt by 34 basis points. So the post refinancing, we've both focused on duration and we started to cut the cost of it. In order to be clear about figures, portfolio figures, I put this slide -- I put in this slide on Page 20. So you see the organizational structure of our companies. The 2 funds, juice and food funds have stake of about EUR 100 million that can be added to the freehold portfolio. And we have a small company, it's living and sport facilities here in [indiscernible] Campus. And we have IGD services [indiscernible], which right now is focusing both on services on both freehold and leasehold assets. And then it has -- we have the 2 main states in Romania. And what is that of the Livorno project or from [indiscernible], we still have a final notary for the selling of an apartment and entry areas that will be disposed of. And then also to note single as to the way we have to grow. We have set up in December, we have established a company called [ Alliance. ] And we asked to be established as it is a nonlisted read practically. Now it's an empty box, but we have 18 months to fill that box. And that will enable us starting from 2024, we already established in SPV, that is denominated as nonlisted retail or so. It we'll be able to exploit growth opportunities. We do not have anything yet, but just to be sure, we set it up to be ready to grasp opportunities. That's why I also put it in this organizational charge. The portfolio value includes stakes and it's [ EUR 1.810 ] billion and I gave you this organizational chart because in the next slide, where you see the portfolio market value is, EUR 1.537 million. And you will see again inside if you want the core portfolio of shoppingmalls and hypermarkets. And then we have Romania, a few small assets in addition to the Livorno areas. And then we have 2 holdings or to stay the 2 states. Unfortunately, in 2025, it will expire in 2026 firstly will expire in 2026. And yes, the Master lease will expire in 2027. The international principles will expire, and we will evaluate those 2 master leases, the value of those 2 master leases will have to be close to 0. So every 6 months, we have an impairment, we have a right down, and that has an impact on how leasing portfolio of EUR 6.7 million because of these 2 master leases ending between 2026 and 2027. And you will see in the Annex the details about the 2 master leases and the EPRA NAV indicators and we have an increase of FFO. And a lower total value of assets because of write-downs or impairments. So NRV lands at 8.94 for full year 2024, we're still hyper discounted versus the actual value. And the Board of Directors approved this morning approved our sustainability report, and it's one of the levers that we really want to rely on in our day-to-day business. because going forward, it will be very useful for us, not just to be sustainable and to respect the earth, but it will also lead to profitability. And the main effort is to focus on reducing energy consumption. As you see we have the sizable -- we have achieved sizeable savings in energy consumption. We're working a lot with our retailers on sorted collection, waste collection that can become another lever we can use from an economic perspective as well. And the new governance is really -- we have a special committee, the strategy committee of the new gaming strategy in with the CSR. So that the market will be aware of how we deem sustainability very important. And I've talked about the new bonds, I've talked about the fact that our shopping malls are very much tied to the geography where they are based. And of course, there we generate economies of scale provided by the shopping malls to have a social impact in the geography where they are located impact on jobs, do have an impact on the environment. And we think that shopping malls are water really providing the best possible social impact or in the local area, being a friend of the local area, having more loyal customers means having customers who come and see it more often. And I'm on Page 25. I think 2025 started in the best possible way because it was very important to have a good funding for based versus the setup we have. 11th of February, we signed the green secured facility agreement on February 14, we saw the first half set of our Romanian portfolio. And as we are a listed company, the news were reported by Romania Media as well. Right now, on Romania, there's a lot a very buoyant market you will shift. And if you remember, when you printed the business plan, we said EUR 20 million worth of disposals for Romania during this year, during 2025. And I think that with all in negotiations, we have started, we really will be able to hit that target the EUR 20 million target. We're already cash in the first transaction. And it went very well. And then March the repaid existing loan with the banks we had agreed differentiated drawing on February 11, we drove the first drawing of the tranche. Tranche A was done on the first cable not to have a negative carry. And on the fourth, we really repaid the 2 bonds at November 2023 bonds have had costs and constraints that were very strong for us. And on Page 25 now, and I think we -- I already said that the first time I talked to you, I think that 2026 and 2027 well, the 2027 was worrying everyone and the refinancing put us in a confident and comfortable place. That means we're not anxious to have to deal with maturities to close. And at the same time, however, I have to say that we're not going to stop there. And the part -- the cost part of the cost of debt part has to be addressed with other tools as well. And we retain 2 ratings, as you said, the 2 ratings were confirmed. And this is very important to our datamarket purposes because we will be able to address the market it's not useful. I mean it's to be in the mark too often, but we have to be very careful and monitor what is happening in the debt capital market. The target of a possible transaction or deal could be aimed at cutting the cost of debt if we have to somehow we shuffle our refinancing to have a few basis points of advantage versus the issuance. In that case, I would be quite old versus that vis-a-vis that transaction was if we have a strong reduction in the cost of debt, it will be very favorable. We have an issuance at a lower cost. We free up assets the refinancing of EUR 650 million you're well aware of what happened with that and restore dots between debt towards bank and debt towards the market. So this an objective, a goal we have. But of course, we need to have the right conditions, market conditions of that to happen. And I'm very happy to be able to say that I really put down a role of 2027. We really took it down and happy about that. We can go to the market with a different and if your maturities are too close, of course, you undergo difficulties. So I'm well, the 2027 wall came down. Having said that we want to carry on focusing on occupancy, on upside, on hold, on retaining assets and cutting costs. guidance we feel confident to provide for 2025 is EUR 38 million FFO, up 6.7% versus full year 2024. [Foreign Language] We -- and therefore, I'm always available 24 hours a day anytime. Also outside official institutional locations and therefore, feel free to ask and you will receive our answers. Now I leave the floor to you for any questions.

[Interpreted] [Operator Instructions] The first question comes from Arianna Terazzi from Intesa Sanpaolo.

[Interpreted] I have a question concerning the guidance for 2025. If you can elaborate more on the increased debt cost? And can you confirm the perimeter because as far as I understand, you are confident with your targets to disposals Romania, and I would like to know whether the guidance is on a like-for-like basis or water. So please can you confirm the perimeter as well.

[Interpreted] Well, no, Arianna. Thank you for your question. This is consistent with our business plan assumptions. So on the 1 side, we have the disposal of EUR 10 million, EUR 12 million in Romania. And in that case, we would lose some net rental income, but -- and with growth and with less repayments as we would deduct the debt as we go along. And therefore, we will reach EUR 38 million. So it's based on the business plan, including also the disposal. In any case, the guidance today I give this guidance today, and I've already lost about EUR 700,000 of net rental with the disposal of fleet. So this is the strongest assumption. And then as to the cost of debt, we made some forecast in terms of revenue -- sorry, rate curves -- as you know, until recently a couple of weeks ago, the sentiment was that it would be already 50 basis points. But actually, now we know it's just 25. And I think that Well, what the price is and I didn't see significant answers on the part of the ECB. We expect a decline resulting from the 2 components, the decline of rates on the one side, actually, we put the little star this last risk floating rate. And then we will see if we can do something better. But it's the like-for-like growth that we intend to have with our assets -- we have some en progress, and we certainly hope to achieve some more upside.

[Interpreted] Next question is from Simonetta Chiriotti from Mediobanca.

[Interpreted] I have a question on asset disposal. In the second half compared with the first half, did you have any changes? Do you have any major changes because if we look at the supermarket full year it seems the value is worse than -- what was expected in the first 6 months, in the first half? And so what are expectations for 2025?

[Interpreted] Yes. Thank you for your question. Well, in the second half, we had no yield declines because actually the discount rate was flat, the net exit rate was flat to -- and actually, you noticed for hypermarkets, and particularly with the one in April, we had a reduction. We had a decline but this was because of the perimeter reduction because we opened it on Saturday, and we didn't make a clear distinction between the situation, like-for-like situation because actually, we hypermarket lost value, but this was offset by the increase in value of the mall. As far as rates are concerned, the assessment of the exports was particularly aggressive. And actually, our average discount rate went down by less than 5 points, considering the full portfolio and also the net exit went up 2 points. And what I expect, and I have to say that also in the with the auditors and the calls we had with the auditors because they wanted to have visibility about everything. We had finally, there was some optimistic sign that they could -- it depends on the estimate. The next one is in June. And so the assessment at the appraisal would be done in May perhaps let me say it once again. The fact we had EUR 3 billion of transactions is the first message. I remember 2014, 2010 and also previous years, when first, we have the volumes with some opportunistic transactions. And then -- and this is followed by the yields. And so it's important that we had some transactions were also of core tenants, like I feel to Milan and Palermo. So I think that -- and then I hear that every day. I think that there is quite a lot of serious appetite in the retail sector for the retail sector because we have to be ones. Over the last 4 years, we've had all sorts of things, we have COVID, we had hyperinflation and so on and so forth. And so we hold pretty well. The true element to be monitored is consumptions -- consumption trends. So as far as consumption is concerned, the situation is still unclear. But if we look at some commodities or some products, especially personal care products and also jewelry, fragrances. Well, they have very interesting results as far as restaurants, but also interesting to and closing is holding well. Therefore, I hope that the first 6 months of 2025 will bring some good signs. I don't expect the great results, but about EUR 1.8 billion for us. Also 25 and 30 points of decompression of 1 of the 2 rates. So that could be definitely a benefit.

If I may ask a question in this more liquid market. This company is that you set up this vehicle you set up. When do you think it will start really operating? Will it start soon? Or could you elaborate on this project and how it could be used how this vehicle could be used?

[Interpreted] Let's spend a minute to tell you what we mean by seeing is non-listed read practically. And it's -- and of course, in compliance with the law. The law was amended 3 years ago. In the past, you could have a retail you could have this SIIQ company if it was held by -- well, 95% was held by SIIQ. And now it's a different amount. So it has to be controlled by a SIIQ by 51% at a 49% partner can benefit from the same SIIQ regime, S-I-I-Q. And there too, there are dividend payout due to is both taxation is levered on dividend and not on the company. Why did I set up this scene vehicle because as I said, it could be an aggregative box somehow. What do we mean -- if we have an portfolios, if we see portfolios that are out there in SRLs or in funds that are about to be closed. If you contribute the portfolio to a company in since the contributor could have benefits. And it's an operative type of deal because IGD in addition to its own assets, will have to contributed by a third party. So they think will increase NAV and provided the portfolio, the contributed portfolio will be -- will go to the benefit of the contributor. And as I said at the beginning, we told you about this SIIQ thing vehicle, S-I-I-Q. And according to the law, there's 18 months, you have 18 months to actually a box with content. Should we not do anything within 18 months. It will stay a box as it is a vehicle as it is, but I'm very fast. I'm a fast mover. So maybe in 18 months, over these 18 months, we will get a nice opportunity to grasp. There's a will and it was reinforced by the Board this morning there's a will IGD to go back on to growing. And as I said, and let me reiterate it this morning, the Board really stressed the fact that we want to grow. And so this think is an opportunity. There's nothing in it now. But today, I'd like to restress the fact that we are looking forward, looking ahead, we set up a company we defined a regime for it, and it's a good opportunity. In other European countries, it's a tool that's used very often because it enables those who have regimes with a different tax regime to contribute them into the SPV and benefit from this tax regime that I've just mentioned, that is advantageous for the contributor beneficial for the contributor.

[Interpreted] The next question comes from the line of Francesco Sala with Banca Akros.

[Interpreted] For the presentation. I have 2, 3 questions. First one, is on the performance for the first 2, 3 weeks of the year. What have you seen for shopping malls, our tenant sales faring for the first few months of few months of 2025. CapEx plan for 2025, ever since the year started, can you reconfirm the guidance you gave in your business plan? And 1 more thing about tenants. What is the response you've had to -- in terms of renegotiating when what do you see when you interact with tenants?

[Interpreted] Thank you very much for your questions. Let me try and answer them in the right order. Both January and February what basically showed basically the same performance we had last year, same trend we had last year. If I'm going to be really precise 2024 Q1, we did not perform really well all too well. We are slightly better than Q1 2024. So we are still seeing this improving trend. Last year, if you remember, both footfalls and revenues, we started seeing results in -- starting from Q2. But given what we saw in January, February with that and with our performance. Finally, we no longer have the weight of installation. What we have to do, we have done. And when faced with your opening or maturities that are very close, sometimes with the tenants, we say let's extend the contract by 3 year, but without break-option, and then maybe we have the first proposal with a 10% discount, but I then like over time. From a product category viewpoint, you also mentioned what kind of product categories. Personal Care was good. very interesting is that we are from leasing and renting on maybe no valuable areas. Low-cost is are being introduced everywhere that's good. And then there are some categories, product categories that we call out full oriented is from the brand action. In the past, they used to go to small isolated retail part. There was a discount maybe such as our question for a selling personal care product. Today, they want to enter shopping malls as well. And when they open the amount -- well, the footfall they generate is really incredible. So from this perspective, on Tuesday morning, I met with a yes, and we have a lot of stores with the -- and I told them, well, finally, we meet at a time of fees -- it was a very pleasant meeting. We didn't have to have a bargaining or strong negotiation with them. They are a strong customer, but the -- I was very happy the way the meeting went with them. It's clear that we have to work hard. They like the digital ideas, the ideas of co-marketing, we can do together. What we told them and what we told other big change is not so much saving on costs, but spending better from a marketing perspective, it's useless to have marketing for a on marketing or shopping mall and another marketing strategy for the 100 different stores I have in the shopping mall. But if we join forces and work in a more structured way, maybe we can do well. And today, we opened some very good channels as far as common activities are concerned of VS, [indiscernible], its hard work indeed, and our teams are working with their teams and they meet very often. And what I'm seeing is that we are building a new landlord tenant relationship. And that will indeed lead to resolve, mainly low cost, but also improved performance. So today, now retail is faring well. [Technical Difficulty] change that come from Eastern European countries, [indiscernible], for instance, and they are really helping us improving our occupancy levels because they are very aggressive in their policies and they really address the market. And now for instance, for restaurants and catering today, you know that front are acquiring a lot of stakes in restorating and catering restaurants and catering chains. So this is very helpful for us. And then we'll see. We have to wait and see a selection will have to be made eventually. But if you want to [indiscernible] CGR yesterday, we heard the news they will do a lot of development in that respect. And for our clients, for our tenants, it's very good to have that kind of deployment in the shopping malls and retailers are also -- I'm then trying to find investors who are willing to strengthen the supply chain and really end handset but that is really helpful to develop footfalls in our malls.

[Interpreted] [Operator Instructions] Next question comes from Giuseppe Grimaldi from BNP Paribas.

[Interpreted] I have a very question from not making news for in this year, I want to replicate the same net rent income you generated last year, maybe a single-digit growth, mid-single-digit growth as you did in 2004. And to what extent is that driven by occupancy or driven by less discount and maybe an indexation trend inflation indexation trend.

[Interpreted] Yes, you are right. Those are the 2 factors. On like-for-like, we expect to be up 4%. And then we want to fill in spaces. We want to increase occupancy because, of course, that generates a double benefit on you get rent on the 1 hand, and you have less expenses for unrented spaces. And -- in the EUR 38 million guidance, FFO guidance weighted, I think it's a good mix. We have occupancy upside and reduction -- cost of debt reduction. And maybe -- and of course, not maybe could lose revenues through disposals by disposing of assets to improve our debt -- our NFP is also important. And also with out of respect for all the funding banks for the banks in the pool, what we get it's also used to repay. In the previous question, I told asked about CapEx last year with slowed down on the CapEx side. Right now, we are only investing for sales purposes, for commercial purposes to, for instance, improve efficiency, it could be either equipment or photovoltaic systems. For -- on the remodeling side, we are trying to be cautious because every morning when we get up, there's a novelty to address. So we're trying to be conservative. I cannot give you the exact impact. But generally speaking, we should be below the EUR 23 million we included in our business plan.

[Interpreted] One more clarification on any guidance to be EUR 38 million FFO do they include the negative component do you expect to have from the disposals you will be completing this year.

[Interpreted] Yes, exactly. It does include that. More don't know what to do to make you happy. But I look at the share price and it's not really going up. But you yes, you are right, EUR 38 million FFO also and that in addition to the EUR 700,000 we lost in -- since 2014, we also embedded EUR 10 million, EUR 12 million worth of disposals, which means also a decline in net rental income. And also bear in mind that for 2025, the first quarter still included our -- we still have the disposed portfolio. So when we come up with the first quarter with Q1, you still see a minus sign because it's about EUR 10 million, roughly EUR 10 million over 3 quarters of Q1 2025, we will still have a comparison with 2024 with food portfolio.

[Interpreted] [Operator Instructions] Mr. Zoia, for the time being, there are no more questions in the queue.

[Interpreted] Very well. Thank you very much to all of you, and see you next time. Thank you.

[Interpreted] This is the Chorus call operator. The conference call has come to an end. You may disconnect your phones. Thank you very much.