Immobiliare Grande Distribuzione SIIQ SpA

MIL:IGD

Good afternoon, this is the chorus call operator. Welcome to IGD's conference call presenting Q1 2024 results. [Operator Instructions].Let me now turn the conference over to Mr. Roberto Zoia, CEO of IGD. Mr. Zoia, you have the floor.

Good afternoon to all of you. Before we start, I think I should -- as we've had a recent governance change, let me hand it over -- turn the conference over to our Chairman, Professor Antonio Rizzi, who will take a minute to give you a short summary of what happened and of the company's goals. Let me turn the conference over to our Chairman, Mr. Rizzi.

Good afternoon to all of you, and I am with this company. Because of a request for the majority shareholders for strengthening of the strategy -- of the corporate strategy and, of course, the wish to have a stronger and full valuation moving forward. And of course, we want to align our market performance with our ability to generate cash flow and to fully align our values, meaning stock price and actual market value.Let's move on to -- we'll try and move on to redefine our strategy, readdress our strategy moving forward. And in that respect this is how you will have to read the changes in the organization as we -- in the Board of Directors as we move forward. Let me remind you that the Board of Directors have a committee for strategy by [indiscernible] and to provide enough energy to move the company forward.So the main guidelines will be defined for our business plan as well. And let me also add that my presence is that of an independent director when it comes to the main shareholders to focus on the market so that we can, of course, meet the shareholders' desire and wish to play a more active role within the company. And we will have to have a very hands-on approach.And the CEO will tell you more about the business as we move through the presentation. Thank you very much.

Thank you, Mr. Chairman. And I would like to change somehow the way we deliver the presentation. I'll try and be briefer when it comes to making a comment to the presentation slides, especially today because we're talking about the Q1 results and then leave as much room as possible to you and your questions and your comments or statements you'd like to make.If we look at the presentation that was circulated a couple of years ago -- sorry, couple of hours ago, in the first few months of 2024 on the business side, so core business, somehow it showed a good health state. Both footfalls and tenant sales were positive. And also when it comes to revenues, we -- it was a satisfactory performance. Also satisfactory was a transaction that was announced in February and whose effects are to be felt by the company starting April this year date of the closing of the transaction. So we finalized -- on the 23rd of April, we finalized our portfolio disposal.And of course, we have a new governance the Chairman mentioned beforehand and it's a governance that is going back to a past line to enhance the value of our company. And this really will lead to a change in pace in speed to try and get to the results, where you're all expecting, the market is expecting to deliver those results.Going back to numbers and on Page 4 of the presentation, net rental income is growing and also on a like-for-like basis, they're up 6.5%. And therefore, net rental income lands at EUR 31.1 million. Core business EBITDA goes up 6.6%, EUR 28.6 million. And as we said over the last quarter report, we were somehow penalized by the, well, financial management and somehow that affects the funds from operation results. As you can see, financial management with a negative delta of EUR 18.5 million, going up to 100%. The expected performance, the expected results, especially on the financial side, we did a bit better on the core business side, so rental income and also core business EBITDA.If we talk about footfalls and tenant sales, the quarter was a good quarter. We performed well. There was the Easter effect because Easter was in March, whilst a year before it was in April. And we have the first footfall data, [ actual ] footfall data as we expected in the quarter, has a negative sign performed for first 4 months. They're still 3.8% which is a good and reassuring figure. Same applies to hypermarkets and supermarkets and where sales went up and did well.Almost all product categories are growing electronic, and we will see that. Unfortunately, also in the next quarters, electronics is suffering, especially when you compare electronics sales with years such as 2021 and 2022 where because of COVID, because of all of that somehow build our own office at home, so electronics went really well in those years.So we are trying -- with the electronics operation we are trying to re-size the [indiscernible] purposes because operation tenants want to somehow cut down or downsize the services to have made more room to storage and therefore, reinforce the click-and-collect business so that people can order online and then pick up at the store.The expectation is for 2024 is to still have a minus time before the electronics performance, but what's very positive is, for instance, the clothing, despite this -- the interest rate growth and other macroeconomic factors, would lead us to think of a different performance. So they're still growing 1.1%, which is very interesting for a product category, which accounts for almost 50% of our rent pool.We renewed about 55 -- 52 contracts. We have a downside, which is mainly driven by the fact that we renewed contracts that were affected by inflation indexation and that was last year. And therefore in the leasing activities, we lost something. But those contracts represent a very small amount, about 3%, of our total leasehold rent pool. Occupancy in the malls is 94.2%.We've always given you an average occupancy figure, but as the disposal is mainly affecting hyper and supermarket, which has 100% of occupancy, starting from this quarter we will have to focus on more core occupancy, which is still a very interesting piece of information. We are talking about 94.2%.But that is one of the levers while leading us to try and improve occupancy. This is what we're focusing on, we've been focusing on over the last 2 weeks. Collection rent is 91.5%. It's quite cyclical. First quarter is slightly lower than the other quarters on average. But generally speaking, we are in line with expectations.And in Romania, we are doing a lot of work, especially in revising costs that are not recoverable, the condominium costs that are actually paid by [indiscernible]. And then the net rental income of Romania was positively affected not so much on rent, but last on the effect of non-recoverable costs. Collection rent in Romania is about 90%.Then if we move on to the net rental income, we can see an improvement there. And here we talk about on a like-for-like basis because the disposals were not included -- were not factored in in the first quarter. So we go from EUR 31.9 million in Q1 -- we land at EUR 31.1 million in Q1 2024.We have a debt of EUR 1.4 million of revenues and the change in net rental income, with a cost delta of 0.5, delta in rental costs, had a net rental income of EUR 31.1 million, up to 7.1% as we said at the beginning. And you can see 6.1% on a like-for-like basis in 13.9% on Romania, which is basically driven by lower costs -- condominium costs.Going down to EBITDA, there too we have an improvement and net rental income and EBITDA in Q1 2023 is EUR 2 million, and it's all in the positive, it's a benefit. And it took us to EUR 28.6 million in the first quarter of 2024 and also our margin -- the EBITDA margin in freehold will be -- these will be fully over and not affected by the 2 massive leases that we still have. But it's 77.3%. And if you remember, if you've been following us over the years, in the best years we were close to 80%. So we're not very far from our best years -- the best performance we had in EBITDA margin in the past.If we move to Slide #13, as I've already said in advance, this is what we've got to work, is 15.8 million worth of -- EUR 18.5 million worth of financial management, and that has an impact on our both EBITDA and profitability. So they are penalized by this, but we are working on it.Hence the target which is given by financial management, and this is Page 14 in the presentation. So our FFO, funds from operation, goes from EUR 15.8 million in Q1 2023 with this financial management delta down 7.2, we land at EUR 10.2 million FFO in the first quarter of 2024.Of course, let me say that by way of introduction, this EUR 10.3 million, it won't be multiplied by 4 because as we said, the disposal on one hand leads to the improvement on our LTV, a reduction of financial charges, but also we would also miss us on the NOI contributed by the disposal of assets. So the guidance was EUR 34 million, slightly and less than EUR 10 million multiplied by 4.So disposal -- the disposal was described in our press releases, but let me go back to it. It enabled us to cash in EUR 155 million. That will reduce to repay debt in addition to mortgages and banking debt, EUR 62.5 million. But EUR 90 million was used to repay the last one that was the most costly one. And for bondholders, the fact that in a few months, we repaid about EUR 90 million on that bond was a big surprise somehow, let me mention it that way.And also very important, and I wanted to stress that time and again in the press release as well, when we talk about disposals, this really gives us another business opportunity, meaning that I directly managed this disposal transaction as we did in 2021 with ICG on the so-called juice portfolio. But what did we say? We said let's have some IGDs stay in the Food Fund. But we did not put, as a condition, to stay as margins.So the SGR Prelios gain as a mandate for asset facility and property management. So -- and how we manage to retain our most valuable resources and also to have a profitability to have that margin and keep on working on those assets to extract utmost value from them as we are doing with our own freehold assets.And the contract with Prelios and the contract we already have with [ average ] SGR on the juice portfolio plus other assets that we manage on behalf of third parties and it's 25 of them. So this is a good line, is a good way above and beyond numbers that are not so huge. It's not investments, but still they enable us to stay in the market to remain with our assets and to keep a vision as an entrepreneur to retain an entrepreneurial vision with these assets and to enhance their value, to value them the best because once the fund will be closed, it will be important to rely on the results IGD will have achieved for those assets once the fund is closed.We are really finalizing and improving all the -- maximizing all this, but as a natural fact going forward, there are companies we own I think on the German [indiscernible] and many others. We own assets -- real estate assets and offer asset management services to third parties. And that is a business line that is interesting and appealing.Going back to the disposal, we've already said that the NOI annualized was going to go down EUR 17 million versus EUR 11 million in 2024. Of course, there is an imbalance, but the idea is to reduce the bridges and financial charges and costs. And the Chairman said that at the beginning, the goal is not just for the sake of selling. Those were tactical disposals, so the one we engaged in because the market was asking for them, but IGD wants to go and go back growing. And therefore reducing this -- let's say, buffering this minus EUR 17 million effect.We are rated. We are a rated company. Also LTV is one of the main indicators. The fact that we go from 48% to -- at the end of 2023, and it was 42.1%, and with this transaction, we go to 44.4%, which starts to be more appealing for whoever wants to look at our company. And then the average cost of debt went up from 3.86%, we are now about 6%. And as many of the covenants, we are within the average, let's say, within the norm.If we move to Page 17, [indiscernible] #17, you can look at our debt maturity profile. 2027 you see where we have the ability to call back the loans net of the disposal EUR 570 million. So -- and that's including the early repayment of the EUR 90 million bond and also repaid EUR 62.5 million of the green secured loan, again partial repayment after 2027. So we started our pathways. The disposal, as I said before, it's a tactical disposal to get to an LTV that is better than the current one.And of course, it has a cost that somehow quantifies the effort we are making on the core business. It can still improve, but the main objective is to reduce our debt and extend the maturity and reduce the debt size over the years because we've seen that before. When you have too many maturities in one single year, then of course you are at risk.And then among the attachments, you have an overview of our new governance. And with myself, and I was appointed as a CEO and General Manager. And now we will somehow to send out a message we want to have utmost attention on our core business. We want to have utmost focus in somehow reuniting -- unifying most of the farmers to actually run the business.And our mission, I was -- the mission I was given was very simple that I summarized it before in 3 main ideas. And I think that having the opportunity to play a role as an executive and CEO of the company, but also dealing with the day-to-day running of the business can help us achieve the mission we are pursuing. And also after the directors in addition to the Chairman, we have non-executive directors and independent directors, and those are the directors who run the Board committees.And we have non-executive and non-independent Board who, of course, report to the main shareholders accounting for about 50% of the shareholding between [indiscernible] and they wanted to have the Board Members who were also managers. And through me also, they wanted to have visibility through the Board Members to have a visibility as to what is worth good doing -- what is worth doing and appropriate doing.I'm going to skip the different annexes. If you look at gearing, is the slightly declining net assets that shows [indiscernible] in excess of EUR 1 billion. And as I think I've said everything about IGD.On Page 23 of the presentation, you see a breakdown of our gearing of our debt. And also obviously in the annexes. There are questions, we can go back to them. And you can see that we are trying to provide you a visibility on our [indiscernible] to the type of contracts, rates, potential rates, and merchandising mix. And then of course you have some -- or our agenda as a company.Before we move on to the Q&A, let me give you a message. First of all is that personally I am fully available to you to together with Mirella Pellegrini and Mirella Pellegrini will manage any question you might have, and you wish to get it through to me from Logistics key point of course. I'm often in Milan. On Thursdays and Fridays, I'm normally in Milan. So we have the opportunity for those of you who want to connect to me most of you based in Milan. So in case if you want to meet in person, I'm willing to do that. So don't hold back. Somehow I am more than willing to meet you or talk to you. I would like this company to give this message of transparency, willingness to live them up to you. And whenever you ask questions, they've always been very appropriate questions and very interesting questions.So starting from now, absolutely as I said I don't go back. I'm here 24x7 for any question you may have or any meeting you may want to organize. So you can count on my availability. Thank you so much.I think I should wrap up here as far as the presentation is concerned, and we can start the Q&A so that we can go into details as to what you are most interested in. Thank you very much.

[Operator Instruction] The first at come from the line of Simonetta Chiriotti with Mediobanca.

Congratulations and best of luck of course for your mandate -- for your appointment, Roberto. A couple of questions from my side. First one is about the business plan. If we want to -- if we were to somehow advance in a nutshell the guidelines of that business plan, could you elaborate on that? Could you give us some information in advance about the business plan? And then in the shorter term, how do you see valuations and more write-downs in June? There was a few millions in this quarter. We expect rates to go down. And there are a number of factors that can come into play. So what is your take? What is the trend according to you?

Thank you, Simonetta, and thank you for the congratulations and the good luck. I am really up and running and ready to take on the challenge. And business plan, we talked about it just -- during the Board Meeting this morning. The objective is very clear, and we have to do it by year-end. But we cannot lead you or the market or the stock price to be there [indiscernible] and waiting year-end. We gave deadlines, very, very precise on both us management and the Board to make sure the steps in the latest business plan. It's going to be at the end of the -- of Q3 or [indiscernible], but maybe it should be November maybe to try and provide you some more guidance and forecast, as I mentioned some advanced in -- before.On Page 17, I think it's -- here we have a very clear picture. Today, we really have to work to find alternative funding opportunities to try and cut costs. As you know that this alternate facility is [indiscernible] is not a wide mesh type of funding. Over the last few weeks, I've been looking at all the contracts, the latest loan contract and funding contracts we have been under [indiscernible] to see what we can do about it. For sure, we have to focus on our debt. And as I said before, according to me, we've been working so far and speeding up the pace [indiscernible] when it comes to our own in-house organizations. And also we have to gather as much energy as possible and focus it on the business, also on our core business, especially. There's still work to do.And the third leg of this whole picture is the services we can provide to third parties, not just because they can, of course, provide a profit without having to further invest, but also because they enable us to interact with interesting layers and operators that moving forward -- going forward could give us ideas for further integration or cooperation or you name it, that I see as a way to improve our relationship and the way we can prove to these third parties who we are and what we can do with IGD leases. Three different legs that are equally important.The guidance, we can give you the figures -- give you -- I'll need a bit more time to work on them, but we can say starting from today that first week of July [indiscernible] that we are going to try and provide you with some guidelines -- share guidelines with you so that you can get ready to welcome our business plan from this year to 2026.So valuations, as we all know, retail -- or in my assessment, retail did a lot in the previous years in the re-pricing we have, and we somehow were -- we were imposed on in '22 -- 2021, 2022 and 2023, it was really -- had a strong impact. We -- and then in 2023, retail did worse than the previous year transaction-wise, but it did a bit better than office rent. Actually outside Italy, outside Milan, are starting to cause some problems.Logistics, same thing. With interest rates that are so high, we can no longer bear the brunt with yields of 5.2%. Here we are planning [indiscernible] if we start [indiscernible] type transaction. Today, people have buildings out there for sale, been out there for sale for quite a while. They are afraid that we might sell at half rates -- with half rates [indiscernible] with sentiment when it comes to valuation.I took up a commitment vis-a-vis the Board this morning to provide some visibility at the end of May as what I can interpret in this moving of the last month now until end of May to see what we can gather and point out, argue with a further elaboration about the sentiment to go in depth -- maybe start going in depth before August 1st or early August. Unless there are transactions at super discount, what I can say is that the rate -- the interest rate curve and the discount rate curve underlying DCF should lead to a reduction.

And next question come from the line of Francesco Sala with Banca Akros.

I have a question on loan to value which is 44%. Do you think this will improve a lot in the medium to long term? Or should rate very high, do you think you will have to further reduce LTV? And then the second question always siding with what I've just said. Should the rate start declining at a lower pace, what is plan B or what would plan B be? And can we imagine some actions having to be taken?

Yes, it's clear that staying below 44% or lesser would be better problem. But this 44.4% today, I have the same perception as you have unless rates go back down superfast. We have to be ready to tackle the situation. And of course, we want to go back to growing and disposing I think it's [indiscernible] growth signal. But maybe, if I may say so, today I am working a lot on Romania. I'm working on Romania. Yes, the strategy is a bit different from the past. And why is that? Because it's a complex and multifaceted portfolio. We go from an asset worth EUR 2 million, to 4 assets that are EUR 2 million. So it's a portfolio that is not easy to sell.We changed our strategy and we've tried to build 5 clusters or locations clusters and so there's some interest being shown in that. It doesn't mean that it's easy, but the way we will dispose of Romania asset by asset, it's more cumbersome, it's more difficult, more complex, it's slower, but at the end of the day, I think that it may lead to better results than renting or an optimistic opportunity or investor that may want this [ morphing ]. And it's the same thing in Eastern Europe and even more so for Romania, but there's still -- there are still family offices or private investors who might be interested in individual assets. They are chains used to have, for instance, only supermarkets or clothing or do-it-yourself centers, and then they like to have retail assets, and that would be an opportunity to dispose of them.So if I have to say to further cut down on Romania, this is, of course, in our focus, but the strategy -- the disposal strategy is different. And based on what we will be able to do, of course, we will see if everything runs as we did last time for recapping debt or we should start focusing and talking about potential, but let's start the strategy at least. What I can confirm is that Romania, it's a new wave of disposals that could lead to results. So far, we don't have any concrete, any possible in mind, but there might be better opportunity than in the past -- opportunities than in the past. If we keep on chasing LTV, and we keep selling to do that, disposing of things than FFO, funds from operations and whatever people are expecting it somehow negatively affected.Going back to the first question Simonetta asked, we're not talking about write-downs -- such margin write-down and -- but when it comes to the indicators you're all looking into, if we impair the gross asset value, you end up being in difficult to [indiscernible]. So we work along 2 lines. So we tackle debt and reduce cost, and we somehow restart to or reshuffle the maturities and also disposals in Romania, but why not also in Italy, tactical disposals, however, where the cash in, depending on how we are doing at that moment in time could be used to either fully cut that or maybe instead in favor of asset rotation. What I would like to say today, it's very good -- it would be very good to focus on asset rotation and also focusing on services. That could be a form to somehow put a foot through door. And as soon as we are more robust, that can become an asset to acquire.

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

Thank you for the presentation and best of luck to all of you. I have a few questions. Most of the questions were already asked, and so you've already answered them. But let me try and complete the picture. Could you elaborate on dividends? I understand it's a bit premature or somehow, but it's too early. There are different clauses [indiscernible] clause or whatever, but could you elaborate on dividends going forward as needed? Talking about downside on contract renewals, could you elaborate that -- on that?

Yes. Thank you very much, and thanks for saying good luck to that. And as I said answering the previous questions, I would like to have a disposal to actually engage in an asset location exercise. And also in recent disposals, [indiscernible] that we have engaged in, this is a major goal for us, major objective. If I have to say what the company thinks about dividends, of course, the company has to try and go back to being a dividend paying company. But from here to actually getting there, as you said, there's a lock-up clause and we have to work on it and fix it. And if we have other resources or ideas, we should use them to somehow repay shareholders.As to dividends, indeed it is a priority for our company and most likely as soon as we -- as soon as I have a clearer picture, it will be one of the answers we will provide in our guidelines that will be given end of June, early July, so that you have a great visibility of our business. The minus 3.7% is a typical of this quarter and it's due to the fact that in some renewals, last year we have put them off. We put off some of the contracts because if you remember, in November 2022 the [indiscernible] index for contract renewal was 100%, and it was 11.5%. So at the time, tenants themselves were under a lot of pressure. So if we go back, revise 14 months before, then you could see be plus 11.5%. In next year, it's another plus 10%. In 2 years, I'm going to pay 20% increase. So that's why we tried to put off and extend the old contract, this is what we have to do.Now we have renewed them with a small benefit for them with 3.7%. But we've seen the new leasing for these last few days and we think we can go back to up [indiscernible], of course, simpler than they were in the past because with a 2% inflation. Of course, if you renew a contract and you get 2% more, but now it's a difficult situation at the time by 2022 and 2023 during this time. There's a lot of pressure on consumption and contracts. So we accepted some of their requests like the 3%. We talk about 3% of our rent to [indiscernible] and we want to be fully transparent in [indiscernible] have a minus sign before your core business trend. We provided it because we want to be fair, we want to be transparent. But our like-for-like years are growing, and we have to focus on the 6 percentage points of [indiscernible], and we have to go back for having a period upside on the new contracts. So I see it more than non-recurring quarter this one.So cost occupancy is below [indiscernible] more than sustainable. And of course, we have ups and downs. We have product categories that can go up to 17 and other products with low added value that are around 6%, 7%. So the big average of the portfolio is 11.9%. And the fact that rates are going up, the tenant sales are going up, there are contracts that should no longer go up 11% or 8% on average as they are over the last couple of years. This is one of the levers we can use so that it stays sustainable.

Next question comes from the line of Giuseppe Grimaldi with BNP Paribas.

Again, my best to you for your mandate to the Board as a whole. And I have a couple of questions. The first one on the occupancy rate and the new tenants. Do you see any room to improve the occupancy rate also and start the merchandising mix? What are the initiatives you have in place or in mind to improve the occupancy rate. And then another question, do you have a plan -- a so-called plan on the cost side to get the EBITDA margin up to higher level? You mentioned before 80% that was your all-time high. Is there room to improve the current levels of EBITDA margins?

Thank you very much. On the occupancy side, I said that several times, 3 times, if I'm going to say now a fourth time, it's a priority for us starting from this year, and we've seen it in like-for-like figures. We have leasing, we had activities with major vacancies on the -- when the hypermarkets were downside and those were filled. Today, there are a lot of product categories that currently do not have very high rents, but that are interesting for us, set of reasons. As I said, services, gym experiences, we are building a lot of them and they are [indiscernible] is an exception. It's 500 square meters and it was made for them practically adhoc. But there's a world behind [indiscernible] and are very interesting too with good pictures up.We're going to lot of brands. You say we didn't have that. Many of them were out there, good benefits on the restaurants because there are rent restaurants that are quite interesting. Restaurants at national level, they did plus 15% revenue-wise. And there are a lot of new brands that are quite appealing. So health and wellness, clothing, there's still a lot there. And those who come from outside. It's Pepco, for instance, we're actually working. With children as well, we have some new brands as well, and this is the target we have to re-price.As to cost cutting, as I said before, if we fill up the gap, the occupancy gap in all -- as in all condominiums, if you have a flat that's not rented, you have to pay for expenses. Maybe you may have a small discount on the rent, but you fill that flat up and you'll cut your cost, you'll cut your expenses right away and you're not having a higher profitability because today you discount out 6% of vacancy. That vacancy such as the -- not only we did not get rent, but also it has a cost. So we have to have utmost attention and focus on filling these vacancies.And then on core assets, we need to go back to improving renewals, to improving the leasing activities with upsides and we will be held if inflation stabilizes to around 2% or whatever that is, which will be an acceptable level for all of our retailers.

[Operator Instruction]. Mr. Zoia, so far there are no more questions in the queue.

Very well. Thank you very much to all you. And as I said before, anything you want to know or just ask, I'm here 24 hours a day, 24x7. Thank you very much for joining us.

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