The capital increase successfully completed, IGD finalizes the acquisition of a strategic portfolio in northern Italy for €195.5 million.
IGD’s real estate portfolio is now worth almost €2.5 billion
IGD’s Chief Executive Officer, Claudio Albertini, walks us through the steps which in the last five months led to the gathering of €150 million on the stock market and to increasing the Company’s size thanks to the addition of a portfolio comprising four shopping malls and a retail park which have a premium position in their respective catchment areas.
A long road, but completed successfully …
More than four months passed between the time the preliminary agreement for the purchase of a portfolio of assets from ECP was signed on 5 December 2017 and the closing on 18 April. We were aware that the period close to the end of the year was not the ideal time to be launching a capital transaction and that in Italy regulations can cause this process to last for months, but we pursued our goal with determination. It was important for us to purchase this real estate portfolio and, at the same time, maintain a healthy financial balance. After the capital increase was completed on 18 April, when the unexercised options were sold and fully exercised, we immediately closed the acquisition. The new assets that were added to the portfolio began, therefore, to contribute to cash flow generation as of that date.
Why was the acquisition of these assets so strategic?
The portfolio acquired has a gross yield of 6.8%, including transfer costs. The properties already generate interesting revenue streams, but as part of the IGD portfolio they provide a further advantage: they allow us to strengthen our Italian leadership in the management of shopping centers with a dominant position in the respective catchment areas of midsize Italian cities with significant spending power. This acquisition also allowed use to regain full ownership of the two shopping centers where we already owned the hypermarkets. The operating synergies with Coop, present in all four of the shopping centers, were also enhanced as a result of the acquisition. Overall, therefore, the value of the transaction was considerable in absolute terms, including growth opportunities, as well as relative terms, as these new freehold properties that are now part of our portfolio will provide us with greater flexibility and efficiency in asset management. During a period like the present one, in which extensions and restyling can change the profitability of a portfolio, having greater room for maneuvering is essential.
Why was it essential that these 150 million be gathered through a capital increase?
Overall this acquisition would have absorbed about €200 million, including transaction costs. In our Business Plan we committed to maintaining a Loan-to-Value of between 45 and 50%, which is also key to maintaining the investment grade rating granted in May 2016 by Moody’s. Gathering investment capital of €150 million, therefore, was the only way to finance the growth without compromising financial solidity and without increasing the financial costs recognized in the income statement. A successful capital increase was not a given as it was launched at the end of March, at a time which was not particularly favorable for the equity markets and post-election uncertainties were weighing on Italy. That said, the strong fundamentals of IGD – which in the meantime had presented convincing results for FY 2017 with a 21% increase in FFO, better than the guidance – and the possibility of creating additional value, given the characteristics of the portfolio we wanted to buy, made a decisive contribution to allowing us to gather new capital resources. The first one to come forward in support of the increase was our largest shareholder, Coop Alleanza 3.0, who immediately undertook to subscribe its portion of the capital increase or about 41% of the total issue.
How did you present the transaction to the financial community?
We had a number of meetings, went on roadshows and held conferences, which allowed us to describe in detail the opportunities tied to this transaction in Milan, London and Paris. Investors demonstrated to appreciate the business logic of the transaction and the related improvement of the Company’s financial profile in terms of LTV, as well as the positive impact that a bigger float would have on the stock’s liquidity. We also verified that the market is aware of the fact that IGD, including because it is a SIIQ, continues to have a very high payout: if on the one hand this allows for attractive returns through the distribution of earnings, on the other, it makes the use of capital increases to finance external growth imperative.
The company is growing constantly, but the story is also interesting becasue of the dividend, therefore …
Our focus on providing shareholders with interesting returns was confirmed once again by the Board of Directors’ decision to pay the 2017 dividend also on the newly issued shares. If the proposed dividend of €0.50 is approved during the Annual General Meeting, based on the price on 4 May 2018, the dividend yield will reach 6.4%: a very attractive level. .
The offer was entirely subscribed, without the intervention of the guarantor banks: what helped IGD?
I believe, above and beyond the specific characteristics of the acquisition, we were helped by the solid reputation we have built over time. We have always presented results which were in line with the Business Plan, meaning that our credibility is based on a real track record; over the last 4 years the dividend paid has increased significantly. We have also always provided very clear and detailed plans of action relative to our operations: investors, therefore, trust that we will also do a good job enhancing these new assets.
Thanks so much for the interview and buon lavoro.
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