Results for the 1H 2018
- Recurring net income (FFO): €38.9 million (+22%); outlook for FY 2018 revised upward to the high end of the guidance range (at least +20%)
- Rental income: €74.1 million, +8.4 % (LFL Italy +1.4%, Romania +4.7%)
- Net rental income: €60.7 million, +9.9%
- Sales of retailers in Italian malls + 3.8%; upside on renewed leases (Italy +1.4%; Romania +1.1%)
- Further improvement in the financial ratios: Loan-to-Value 46.4%; average cost of debt 2.7%
- Market value of the portfolio: €2,428.8 million (+9%);
- EPRA NNNAV per share: €11.25
Today the Board of Directors of IGD – Immobiliare Grande Distribuzione SIIQ S.p.A. (“IGD” or the “Company”), one of the main players in Italy’s retail real estate market and listed on the STAR segment of the Italian Stock Exchange, examined and approved the Half-Year Financial Report at 30 June 2018 during a meeting chaired by Elio Gasperoni.
“Overall the first half results are in line with expectations and with regard, specifically, to FFO I can say that at year-end FFO will reach the high end of the guidance shared in February and increase, therefore, by at least 20%, consistent with the robust growth rates recorded over the last 4 years” stated Claudio Albertini, IGD’s Chief Executive Officer. “The asset management activities continued as scheduled and we completed the work at the Crema mall in the half and also obtained the green light for the Officine Storiche variance in Livorno which will make it possible to resume work on this section. In addition to these activities, in April we finalized the acquisition of the portfolio of assets from Eurocommercial Properties for around €200 million. All of this, along with the new projects presented and approved today by the Board, allows us to be confident in our ability to continue along the Group’s growth path in the coming quarters, as well”
OPERATING PERFORMANCE
Sales of retailers in the Group’s Italian malls increased +3.8% (+0.5% excluding the ESP extension inaugurated on 1 June 2017); growth was recorded in the second quarter alone, thanks also to the opening of new performing points of sale, the attention paid to understanding the retail trends and rebalancing the merchandising mix in the malls; In terms of merchandise, the best performing categories were Services and Culture – Leisure Time – Gifts. Footfalls were down slightly against the prior year.
Consistent with this context, the results for the pre-letting activities were significant: 101 contracts, 67 renewals and 34 new leases, were signed with an average upside of +1.4%; while the average occupancy (malls and hyper) came to 97.1%, higher compared to year-end 2017.
The fundamentals of the Romanian economy, in terms of consumption and regional retail trends, continue to be particularly buoyant which fueled a further increase in the occupancy rate (97.5%) and the upside on renewals (+1.1%).
FINANCIAL – ECONOMIC RESULTS (FFO +22%)
Rental income rose 8.4% to €74.1 million explained by:
- for around €0.9 million, like-for-like growth (+1.4%) in Italy. Malls were up +1.7% and hypermarkets +1.0%; inflation contributed 90 bps
- for around €4.6 million, higher revenue not like-for-like linked to the opening of the ESP extension on 1 June 2017 and the acquisition of 4 malls from Eurocommercial Properties on 18 April 2018
- for around €0.2 million, higher revenue like-for-like in Romania (+4.7%)
Net rental income amounted to €60.7 million, an increase of 9.9% against the same period of the prior year.
Revenue from services came to €3.1 million and net revenue from services was €0.3 million higher than in the previous year.
The Porta a Mare project generated revenue from trading of around €2.7 million as a result of the sale of 9 residential units. The preliminary sales agreements for an additional 6 units will close by the end of the year (the total of the units sold/committed, therefore, now represents 90.7% of the total saleable area).
Core business Ebitda amounted to €55.6 million, an increase of 11.3% compared to 30 June 2017. Operating costs fell even further as a percentage of core business revenue and, consequently, the core business Ebitda Margin rose 230 basis points against the prior year (69.8%) to 72.1%. The recurring freehold Ebitda margin (relative to freehold properties) came to 80.2%, an increase of 110 basis points against June 2017.
Financial expense decreased (-8.6%) to €16.0 million: the result is attributable also to the recent liability management activities carried out in 2017, as well as the termination of or decrease in the notional amount of a few IRS. The downward trend in the average cost of debt, which came to 2.7% (vs 2.9% in June 2017), was, therefore, confirmed.
The Group’s portion of net profit amounted to €34.8 million, down with respect to the €48.9 million posted in the same period 2017 (-28.9%). The result reflects the difference in the write-downs and fair value adjustments recorded in the period, which were basically flat, versus a positive €18.9 million in the first half of 2017.
Funds from Operations (FFO) came to €38.9 million, an increase of 22% compared to 30 June 2017.
ASSET MANAGEMENT ACTIVITIES AND DEVELOPMENT PIPELINE
The asset management activities continued as planned in the first half of 2018. On 3 April the variant for the Officine Storiche section of the Porta a Mare project was finally approved by the Livorno City Council which will make it possible to resume work on the section.
On 18 April the final closing of the acquisition of the portfolio comprising 4 shopping malls and a retail park from Eurocommercial Properties for a total investment of €195.5[1] million was signed.
On 3 May the new 2,850 m2 midsize store adjacent to the mall in the Gran Rondò Shopping Center in Crema was opened and the complete restyling of the mall façade, as well as the multi-level parking garage, were also completed.
Today the Board also approved two new projects which aim to modernize and requalify the Group’s existing portfolio:
- the restyling of the mall, facades and exterior of the Casilino Shopping Center in Rome;
- the downsizing of the hypermarket at the Fonti del Corallo Shopping Center in Livorno and the creation of new spaces inside the mall: work is being done, specifically, on including services which will make the shopping center more attractive to returning and first time visitors. Unicoop Tirreno will also sign an integration of the lease which will expire in 2037. A project for the restyling of the mall was also presented.
Both projects are expected to be completed in 2019.
PORTFOLIO AND ASSET VALUATION
The market value of the IGD Group’s real estate portfolio reached €2,428.8 million, an increase of 9% compared to December 2017. The main change is explained by the acquisition of the portfolio comprising 4 shopping malls and a retail park from Eurocommercial Properties in April 2018.
The like-for-like portfolio in Italy was down slightly (-0.4%):
- malls dropped -0.26% (-€3.5 million) and the gross initial yield came to 6.3%;
- hypermarkets were also down by -0.32% (-€2.1 million) and the gross initial yield came to 6.2%;
In Romania the value of the real estate portfolio reached €157.2 million at 30 June 2018, lower than the €159.5 million posted at 31 December 2017, while the gross initial yield came to 6.62%.
The Net Initial Yield, calculated using EPRA criteria, reached 5.5% for the Italian portfolio (5.6% topped up) and 5.5% for the Romanian portfolio (5.9% topped up).
The EPRA NNNAV reached €1,242 million or €11.25 per share. The figure is 1.3% lower versus 30 June 2017 (€11.4 per share, recalculated to take into account the capital increase completed on 23 April 2018) [2] . The result recorded at 30 June 2018 includes the dividend of 50 euro cents per share (€55 million in total) also paid on the shares issued as a result of the capital increase.
FINANCIAL STRUCTURE
The IGD Group’s net financial debt came to €1,132.1 million at 30 June 2018, a slight increase with respect to December 2016, including as result of the debt financed portion of the acquisition, while financial indicators like the gearing ratio (which came to 0.90x compared to 0.94x at year-end 2017) and the loan-to-value (which came to 46.4% vs 47.4% at year-end 2017) improved in the wake of the capital increase.
The Interest Cover Ratio (ICR) improved markedly, coming in at 3.44x (vs. 2.93x in 2017).
OUTLOOK 2018
The Group has revised the guidance for FY 2018 upward to the high end of the range (at least +20%) disclosed in February (+18/20%).
[1] This amount refers to the total value of the portfolio of €187 million, in addition to transfer tax and ancillary charges of €8.5 million.
[2] Gross cash in of around €151 million and 110,341,903 shares issued.
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