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 Q1 2025 results [Operator Instructions]. Let me now turn the conference over to Mr. Roberto Zoia, CEO of IGD.

Good afternoon to all of you. Thank you so much for joining us today. Let's start with the presentation first. It was published just after the Board meeting. Let me start with a few highlights and a few figures to crunch. As you can see on Page 2, the quarter from the operating viewpoint was a good quarter. And you have to bear in mind there was a calendar effect, which was unfavorable versus last year because last year was a leap year, so this year, we had 1 less day. And then last year, Easter was in March and this year, it was in April. But despite the calendar effect, we see that footfall still bear positive sign and tenant sales are basically flat and those of hypermarkets are down 1.7%, but you have to, again, bear in mind that there was no Easter shopping included. So I can say that they are definitely satisfactory. They are satisfactory and also core KPIs are also satisfactory. You find them on Page 3. On a like-for-like basis, we have a net rental income that are up 2.4% versus the previous quarter, the same quarter in 2024. And then always on a like-for-like basis, core business EBITDA is up 2.1%. So generally, definitely, our core business is very sound and is giving positive signs. And FFO, let me remind you that we gave you a guidance when we presented full year 2024 results. We gave you a EUR 38 million guidance. But thanks to this first quarter, we stood at EUR 10.2 million, and you compare it to EUR 10.3 million that we recorded in last year in 2024, but we have the full food portfolio, hypermarkets and shopping malls. And as we move on, they had a strong impact. But despite that our net financial position had a positive impact, and our FFO is landing at EUR 10.2 million. I confirm the EUR 38 million guidance we gave you before. At the interim report, the 6 monthly report, we'll see if it's possible to even improve our guidance. So far, we are very confident and satisfied from a financial perspective. And that was indeed a point of attention ever since I was appointed slightly more than a year ago. We are on Page 4 of the presentation. You see we are -- of course, loan-to-value is further down. It's 44.2%, down 20 basis points versus the full year where we were at 44.4%, but the weighted average interest rate or cost of debt went from 6.04% to 5.6%. And we were at 5.7% when we have the financial statement report. So it's a long pathway we are following, but we are constantly reducing our cost of debt, and that is reflected in our results. We move on to Page 5. Let me remind you that finally, we are back to paying out dividends and the actual payment of EUR 0.10 per share will happen on May 14. From an operating perspective, from a business perspective, if you move on to Page 6, you'll be able to see the pathway we've been following so far, the pathway we have announced last year, and quarter after quarter, we are moving along that pathway. We started with Q1 2024 with a 3.5% downside for Italy. And then every quarter, you see a steady growth of renewals with the same tenants or with new tenants with new or remarketed assets. It's slightly -- well, it's weaker. This is up 0.7% versus 4.10% in last quarter of 2024, but it still is a positive sign that makes us think for the best occupancy. We gave us a goal for 2027 to reach to 98% of occupancy in Italy. And when we first disclosed our business plan, we were below 95% and now we are very close to 96%. So in less than a year, we've already recovered 1% on the 3 percentage points we have given ourselves as a target, as a goal for 2027. And as you can see, quarter after quarter, our occupancy levels are improving with a favorable impact on our core business. We have been working hard to extend our debt maturities. And we confirm 2% of our [indiscernible] for shopping malls, and we are extending the new contracts. But as we move along the pathway, we get to short-term maturities for the older contract and retaining 2% at this time, it's definitely a positive sign. If we move to Page 7, you can see some major openings we had in the quarter. Let's focus on 2 very important shopping centers in Romania, [indiscernible] Romania, Ravenna and Forli, very important tenant openings. The first store of Courier is French footwear chain, and we keep on working because it's a very important center of attraction for our shopping centers at JD Sport. At La Favorita Shopping Center, we've completed a restyling project that was started soon after the end of the pandemic. La Favorita is a shopping center that we acquired in 2018. We've refurbished it. We have photovoltaic plants installed. Now it has full occupancy. And we have introduced IKEA. On the first plan and order point they are practically assisting customers on their online purchases, and it really generates a lot of traffic. Same applies to Romania. We still keep the level of assets very high with very, very high premium brands. On Page 8, we have the hypermarket -- the Le Porte di Napoli shopping center we had a tone of vacancy because one of the tenants had left and instead, now we got solid 365. We are starting to see the first results in March and April at Le Porte di Napoli, the footfall are much higher than the ones we had in 2019 and onwards. And we have a full restyling project at the Katane Ipercoop in Catania. We have the master franchisee [indiscernible]. They have fully refurbished it and it opened again on March 6, but the turnover levels are very, very interesting so far. Let's move on to Page 10, where we have the figures to crunch. If we start from net rental income from freehold, we were at EUR 28.8 million. To give you a like-for-like bridge to see the growth IGD has witnessed in the shopping centers we removed the EUR 4.2 million, that's the change in income scope that was net income from the leasehold portfolio that was disposed of. And then 0.1 is the Romanian asset we sold on February 14. And then again, to offer a like-for-like basis, we have a like-for-like delta of 0.6% in the net rental income that takes us to 25.1%. That is to say the 2.4% I mentioned in the highlights at the beginning of the presentation. We have more or less the same effect in the following slide, Page 11, we see it with core business EBITDA following the same flow of our net rental income. And here, too, we give you a like-for-like figures. We see that from 24.3% EBITDA with net rental income going up and net income from the service business unit, we get -- well, we found at 24.8 million with a 2.1% growth on a like-for-like basis. But for all of you who are listening to us and following us now, the most important thing is where we see that the recurring financial management and financial position with the refinancing transaction, early repayment of our bonds and a further cost reduction policy we [indiscernible] at EUR 12.1 million against EUR 15.8 million we had in Q4. The overall financial management is also declining that was affected by costs to bear for the early repayment of the early redemption of our bonds as we have to make sacrifices on our P&L. But indeed, we generated with the foundation for our company to grow by reducing cost of debt. So the FFO results takes 2 things into account, the growth of our like-for-like core business and the cutting of financial costs that lead to an increase in FFO. If you move to Page 13, you'll be able to see clearly how much ground we recovered despite selling the EUR 250 million worth of portfolio with a net cash in of EUR 160 million. The full transaction, the full deal was very important because, as you remember, we were at 49% [indiscernible] now we stand at 44.2%. As it already cut it over the last 3 months, we need net income, the [indiscernible] we have benefit from the management of position. We started from 10.3%. We are now at 10.2%. And we can further improve both core business and further reducing our cost of debt. And the effect of the disposal can be seen on 3 main indicators: lowering of our LTV, the second, the reduction of our NFP and then everything supported by a growth in our, of course, financial management or financial position. On Page 14, you can clearly see higher cost, ancillary costs stemming from the early repayment of our bond. It was EUR 310 million, if you remember, in November 2023. So we kept it going just from the time of having enough resources or enough money to repay it. And of course, we have ancillary costs for this early repayment. But the net profit, the net result is as a positive sign before it, and it's [indiscernible] as a net income. Page 15, you see our net financial position. Wed already lightened it in 2024 with the disposals we completed. Our net financial position was EUR 806 million at the end of 2024. And now with the Romanian disposal and some other transactions, we managed to land at EUR 797 million. And so on a like-for-like basis and excluding the Clodi disposal to land at 44.2% loan-to-value, an average cost of debt, which is down from 6.04 we are now at 5.5. ICR is also increasing going from 1.8x at year-end 2024 to 2x at the end of March 2025. Moving on to Page 16, where you can see the group's maturity profile and how it changed over time. Let me remind you that exactly a year ago, we had a cliff that was EUR 570 million cliff considering the food transaction already embedded. They were -- now we have maturities that have been really extended. And when we talk about 2029, we talk about December 2029 and 2031, December 2031. The average maturity at the end of 2024 was 2.6 years. Now the average maturity is 5.1 years. We have ratings confirmed by both Fitch and S&P, but we are not standing still, meaning today, our goal is to keep monitor the debt capital market. Over the last few weeks, markets are highly volatile. So that capital deals or transactions such as issuances -- well, this is not the most favorable time for issuances. But if it were to come down a bit and if there were interest to save on our cost of debt, if there was an opportunity to really save on our cost of debt, our goal is to issue free up assets that now -- well, theyre now used as collateral with the banking system. So we're being very, very careful and active in monitoring reports to try and see a good pricing for a possible issuance. We can have this kind of approach, wait and see so approach until we get the right window, the ideal window because we don't have short-term maturities coming up. So that really enables us to safely look ahead and wait and see what happens. If a window comes up, we'll be able to seize it in a very, very short time frame to be able to rebalance our net financial position between banking debt and market debt. I'm on Page 17 now. The real estate market over the quarter. So we've already talked about 2024 full year, which was indeed a record year, both for Italy, for the overall real estate, almost EUR 10 billion worth of exchange volumes and traded volumes with the retail. From our point of view, we see investors that are going back to real estate and retail. And that was reconfirmed in the first Q of 2025. The total traded assets were EUR 2.5 billion real estate, of which EUR 505 million were retail. That is up 619% versus Q1 2024. And the same applies -- and I'd like to tell you something about the interest that we've had on our disposal plan in Romania. It's a very, very small market, indeed, a very local market but you can see that already in 2024, retail had EUR 240 million traded versus a total of EUR 733 million. And in Q1 2025, so almost EUR 200 million worth of real estate investments, more than half of that was focused on small-sized retail with a local profile that is exactly in line with the strategy we gave ourselves for 2025. Let me remind you because I think it's important for all of us to remember that we have a disposal plan, you can see it on Page 18, we have a disposal plan of about EUR 100 million over 3 years, 2025 to 2027. We've sold EUR 8.3 million of the Clodi in Romania, which was in line with our book value. And right now, we have a lot underway, many negotiations underway, and we are confident that by year-end, we will have disposed of assets for approximately EUR 12 million. So to actually reach the EUR 20 million target we've given ourselves for fiscal year 2025. We keep working hard also on authorizations to then be able to sell the disposal of the 3 areas we have in Livorno. And what's helping us in this transaction is the fact that now we only have 4 flats to sell out of 125. So the residential part went really well. And with the opening of Primark in November 2023, also the commercial part and the sales part is witnessing increasing footfalls and excellent performance. Seeing the success of the first projects we've completed, also those areas are really appealing. [indiscernible] is not helping us, [indiscernible] is not helping us so far. We streamlined the deals, but we are working to actually focusing on certain noncore assets that we aim to dispose of. Page 19, we go back to Romania, where we are actually seeing that our strategy, the disposal strategy we put in place is a good one. We do sell assets on an asset-by-asset basis also with individual contracts for assets that are worth a few million only, but there is a very sound market for these assets. It's private family offices who are showing interest that have been satisfactory. The negotiations are very long. They are very complex. But we are very close to closing a few more deals on, again, individual assets. Page 20, as you can see, Port a mare Livorno project. It's one of the first examples, major example of really rejuvenating urban rejuvenation, if you wish that we've witnessed in our country. The tourist port is -- well, the works have started and on the different peers around the area, they have work in progress, so to say, they have building sites. And we are also going ahead with the disposal plan according to our agenda. We have a very strong agenda of meetings. We're going to take part in a lot of events as well. Just to give you an idea of how we are approaching the business, how -- we are working with figures as well so that our organization can grow further. And so it's a long march. It's a long pathway we are working on, and we confirm our efforts quarter after quarter with a lot of patience. And then in the presentation, you'll find a lot of attachments and annexes. But I'd rather leave room for your questions so that each and every one of you can ask for whatever you think is most interesting to hear. Thank you very much for your attention.

[Operator Instructions] First question comes from the line of Andrea [indiscernible] with Banca Akros.

Could we have a bit more color on trends for the different types of merchandising for Italy, personal care, electronics, how are they doing? And then a follow-up question on the SIIQ alliance you've created. Is there any member who could contribute part of their -- into the control company, could partly contribute their assets in the subsidiary?

Well, let me start by saying that the results by product mix or product type, 2025 over 2024 through first 3 months, we still have -- they account for 10% in IGD's portfolio is Health and Personal Care. They witnessed an 8.7% growth on a like-for-like basis. Electronics, if I remember correctly, they went through a crisis in 2023, especially due to what happened in 2022, where they had a very strong growth. And now it's flat. And that's an excellent result, by the way, just like clothing, it's flat. Restaurants and catering are withstanding their ground and services are also standing ground. So first quarter of 2025 from a product category viewpoint, it's very similar to 2024 full year. If you drill down into a greater level of detail, we will see that when we talk about clusters, Personal care, for instance, you have perfumes, eyewear, they're doing really well. Jewels are doing well. Jewelry stores alone are up 5.1%, and we're only talking about the first quarter. So we have excellent results in Q4 2024. And among us, we said maybe it was Christmas present, blah, blah, blah, but that was not the case because even in Q1, they are doing really well. March was very good for sports for enlarge services. So everything is very much in line with what had already happened in 2024. Going to Alliance. Right now, there's a lot of interest, meaning that many portfolios that are around seeing this opportunity -- I'll give you more details about it. I'll elaborate a bit on it. So they made a move and showed their interest. So it's an easy opportunity. They can contribute. If you contribute your portfolio into Alliance SIIQ, you can benefit from the SIIQ regime. That means almost no taxes. And as a guarantee from the parent company, the mandatory dividends just like we have on the SIIQ company, so you have a portfolio and whatever that portfolio is generating, you get back as a dividend practically. Of course, we are selecting. We are picking because the SIM, so a third party can contribute up to 49% and a maximum contribution to the SIIQ up to 51%. But we want consistent portfolios. It's not a dustbin. It's an opportunity of growth. So on a like-for-like basis, portfolio-wise, we look at return in NOI for our portfolio and the third-party portfolio, we make an assessment with one single appraiser or assess auditor, you define NAV and then you make the split. But to be partner of a SIIQ, control has to be in the hands of the SIIQ. there should be no special shareholders' agreements or special governance agreement. It must be clear that if you contribute to your portfolio, you become a minority. The control has to stay within the hands of the SIIQ because otherwise, you lose the benefit of the SIIQ regime. [indiscernible] opportunity SIIQ without cashing out anything we would have a growing portfolio. It's a replicable exercise, meaning that today, it's Alliance SIIQ, tomorrow, it could be Alliance 2 or Alliance 3, but it's a matter of having portfolios that are consistent with one another, that are performing and that have a level of occupancy and net rental income that is similar to the portfolio we're contributing to the alliance. And then in the future, going forward, once we do a business plan 3 to 5 years, either the thing becomes a full ownership of IGD or it may become the ownership of a third party, starting from the top as an umbrella. But the pricing levels we now have with stock price, it's very hard to think of merger of NAV and having a 64% discount applied as you would have now on the stock. But we have a company like ours who is well capable of managing its own assets, a system that is all of the kind and the certainty that to protect the minorities, the company has to pay out dividends. It is mandatory for it to pay dividends. So we have a lot of potential partners that have shown interest in this kind of transaction. But now it's a matter of finding the right focus on the portfolio we like and on the portfolio that can be easily comparable with ours from all perspectives. From that perspective, even the level of debt has to be such that would lead to a further reduction of IGD's LTV. So on the one hand, we have the larger IGD with a lower gearing, but retaining the same yield, and it would be a first one to move on with [indiscernible] to grow further because this is not the first time that I say this. I said that since the very beginning. IGD's mission is to grow, and we think this is an excellent opportunity for growth.

Next question comes from the line of Arianna Terazzi with Intesa Sanpaolo.

I would like to ask for comments on valuations and your expectations accordingly, given the transaction you shared with us. That's my question.

I do not have data yet. Because it's a bit early still. The feeling I have is that volumes as they were important and meaningful are a good way to -- well, focusing on volumes are a way to get valuations that are our assessment that are different from the ones we had in the previous years. From a macroeconomic viewpoint, rates are going down, and that should lead to a decline in capitalization rates as well. We have a like-for-like growth having upside in our renewals also makes those who have to appraise the assets to have more comfort and confidence in doing so. We don't have any special event right now or last year already, our core portfolio, IGDs core portfolio was in line, but we had a one-off impairment of the food fund stake. This year, it was just once, and then we'll go back to it at the end of the business plan. We will have the last one, I don't think they'll have -- we'll have no specific impairments. I don't expect any specific write-offs. It's true that volumes are sizable, but we don't have yet transactions to support a reduction of the net exit yield. But my impression is that valuations will be in line with last year, in a portfolio or that we had for our portfolio, if not better, but it's still too early. We've just closed the first quarter. Around 20, 25th of May, we'll send independent experts, all data to have a full valuation at the end of June.

Next question comes from the line of Simonetta Chiriotti with Mediobanca.

I have a question on FFO. Roberto, you said that there's room for improvement on the level you reached in Q1. What are the drivers for this improvement that you mentioned? Is it coming from a further reduction of your financial charges? Or what are the drivers? I was also wondering about your exposure to interest rates. How much of your debt is floating rate and how much is fixed rate? And then about rent, on a like-for-like basis, it's up 2.4%. Is it quarter-on-quarter or year-on-year? Or could we have a breakdown between how Italian is performing and how Romania is performing and the level of the indexation rate?

Let me follow the order of your questions you asked. FFO has 2 levers, 2 drivers for improvement to grow further as we did -- so you mentioned that 2.4% is quarter-on-quarter, you have a 2.4% growth quarter-on-quarter, and if you apply it to all quarters, it becomes an essential driver. And here, we can really work hard on it, and I'm confident we'll be able to improve our performance. So upside growth. Porta a mare Livorno, for instance we are getting close to being fully up and running. So growth is according to plan. And of course, declining rates will also help. Today, we are engaging in a very, very careful hedging policy. Every day, there is a window to hedge. And so far, it's 50-50 between hedged, so fixed rate and 50% is floating rate. Staying with 50% of floating is a bit risky. But over last few days, we've seen that the rates are going up 10 points or going up or down 10 basis points. So core business on the one hand is a driver, but we still have more drivers to cut our cost of debt. Today, it's 5.6%. But if we manage to lock with lower level yields, I think in June, we'll be able to further reduce it. The average level of hedging with fixed rate should be 65 -- we should reach 65, 70 fixed rate. I mean that would be a limit fixed rate debt because we still have a few things to dispose of, a few assets to dispose of. We are still looking at bonds, but having a 70% fixed rate and 30% that could benefit from declining rates is more or less the balance we would be looking for or looking at. So on a like-for-like basis, the growth, if it goes on at a pace of 2.4%, revenues going up on a like-for-like basis in the first 3 months. So as of the next quarter, April, June, we won't have the full effect to factor in. So it's a real like-for-like basis. So increasing our core business every 10 basis points of occupancy, it doesn't seem much, but it's less expenses and more rents and then a further decline or the fact that we could benefit from a further decline in rates. So EUR 10.2 million, which means that we have fully minimized EUR 4.2 million of net rental income, which was the food portfolio we disposed of. We are at 10.2% against 10.3 million last year. Indeed, there's room for improvement. But today, even during the Board meeting, the Board asked the same question. And I told them, Today, we confirm our guidance of EUR 38 million, but you understand that for what we are doing now, lowering costs and all the actions we're undertaking, we can do better, we think. On Page 10, if we look at Romania, Romania is flat, meaning that we are keeping it where it is. We're keeping it flat. We have to retain a good revenue level because it has to be a good asset, a good project to sell. And then in Italy, net rental income is growing in Italy. So it's in our Italian portfolio.

[Operator Instructions] Next question is a follow-up from Simonetta Chiriotti with Mediobanca.

I would like to know if you could have data from the impact of indexation.

It's 0.7 because inflation has to be calculated over the course of the entire year and in the reference month. And so when we have a table with the different levels, the impact of the inflation is 0 in the first year and then, of course, you move on. What we did with this 2.7% Italy, 2%, we said is a real growth of rents and 0.7% is the inflation indexation effect. On some contracts, rentals and services for hypermarkets, inflation is calculated at 75% of the index, where for the other contracts is 100%. So out of 2.7%, 2% is really a rent increase and 0.7% is the actual impact of inflation that adds to 2.7%.

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

I would like to thank you very much for joining us today, and we'll talk to you soon on the 6th month of our dreamlike 6 monthly report. Thank you very much. See you the next time. Thank you.

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