26 February 2019 13:45
Price Sensitive annual economic-financial results

The Board of Directors approves the draft separate and consolidated financial statements, as well as the corporate sustainability report at 31 December 2018

Results at 31 December 2018

  • Recurring net income (FFO): €7 million (+21.4%);
  • Rental income: €8 million, +9.2% (LFL Italy +1.3%, Romania +2.9%)
  • Net rental income: €124 million, +10.9%
  • Sales of retailers in Italian malls + 2.2%; financial occupancy Italy 97.2%; Romania 97.1%
  • Further improvement in financial indicators: Loan to Value 45.8%; average cost of debt 2.7%
  • Market value of the portfolio €2,412.2 million (+8.3%);
  • EPRA NNNAV per share: €45 (+0.4%)
  • Dividend: the Board of Directors will propose that shareholders approve a dividend of 50 euro cents per share
  • The ninth corporate sustainability report approved

 

Bologna, 26 February 2019. Today, in a meeting chaired by Elio Gasperoni, the Board of Directors of IGD – Immobiliare Grande Distribuzione SIIQ S.p.A. (“IGD” or the “Company”), a major player in Italy’s retail property market and listed on the STAR segment of the Italian Stock Exchange, examined and approved the draft separate and consolidated financial statements at 31 December 2018.

 

“2018 marks both an end and a starting point as we reach the last year of the Business Plan 2016-2018 and embark on the Strategic Plan 2019-2021 approved in November. The results shown in the Annual Report 2018 enabled execution of the Business Plan 2016-2018 which had challenging targets. More in detail, with regard to FFO, once again in 2018 IGD beat the +20% target announced and achieved growth of 21.4%. The operating margins exceeded targets, as did financial management” stated Claudio Albertini, IGD’s Chief Executive Officer. “In an environment of constant change, IGD is proving that it has a structure capable of responding quickly and concretely to new consumption models, giving increasingly more space to services, restaurants, technology and sustainability. All of this, along with the projects presented and approved together with the Strategic Plan, allow us to be confident about continuing along the Group’s growth path over the coming years”

 

OPERATING PERFORMANCE

Sales for retailers in the Group’s Italian malls rose 2.2% (+0.7% excluding the ESP extension inaugurated on 1 June 2017); growth was recorded in the second and fourth quarters. The fourth quarter, in particular, was boosted by the positive impact of the sales posted during the week of Black Friday (footfalls +3.1%, testimony to the fact that e-commerce did not have a substitution effect), in addition to a particularly good December (sales rose +1.6% in the month). In terms of merchandise, Electronics (+8.2%), Services (+23.2%) and Restaurants (+2.2%) grew across the network. Footfalls were down slightly compared to the prior year.

During the year 184 contracts were signed, 109 renewals and 75 new leases with rents stable (but +1.2% excluding the only renewal completed in December).

In Romania, the economy continues to perform brilliantly, in terms of consumption and regional retail trends; this dynamic, along with careful and effective portfolio management fueled a further increase in the occupancy rate (97.1%) and the upside on renewals (+3.9%).

 

FINANCIAL – ECONOMIC RESULTS (FFO +21.4%) 

Rental income rose 9.2% to €151.8 million explained by:

  • for around €7 million, like-for-like growth (+1.3%) in Italy. Malls (+1.5%) and hypermarkets (+0.9% ) were up;
  • for around €9 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 and a retail park in April 2018
  • for around €27 million, higher revenue like-for-like in Romania (+2.9%)

Net rental income amounted to €124.0 million, an increase of 10.9% against the same period of the prior year.

Revenue from services came to €6.3 million and net revenue from services was €0.8 million higher than in the previous year.

The Porta a Mare project generated revenue from trading (around €4.4 million) as a result of the sale of 14 residential units, 14 garages and 1 parking place (the total of the units sold/committed, therefore, now represents 90.7% of the total saleable area).

 Core business Ebitda amounted to €113.7 million, an increase of 12.4% compared to 31 December 2017. Core business revenue increased (including as a result of the larger real estate portfolio), offset by a less than proportional increase in operating costs. The core business Ebitda Margin came to 71.9%, an increase of 220 bps compared to the prior year (69.7%). The freehold core business Ebitda (relative to freehold properties) came to 80.3%, an increase of 110 basis points against December 2017.

Financial expense decreased (-5.4%) to €32.5 million, despite the increase in the net financial positon: the downward trend in the average cost of debt, which came to 2.7% (vs 2.8% in December 2017), was, therefore, confirmed.

The Group’s portion of net profit, therefore, amounted to €46.4 million in the year, down with respect to  2017 (-46.3%) which reflects the difference in writedowns and fair value adjustments which were negative, versus positive (for around €23.9 million) in 2017.

 Funds from Operations (FFO) rose 21.4% compared to 31 December 2017 to €79.7 million, exceeding the growth target announced in August 2018 (at least +20%).

 

ASSET MANAGEMENT AND DEVELOPMENT PIPELINE

During the year IGD continued with its asset management activities: in addition to the acquisition, which closed in April, of 4 assets in located in northern Italy that are part of important shopping centers in their respective catchment areas, in May a new midsize store was opened in the Gran Rondò Shopping Center in Crema and the restyling of the mall façade, as well as the multi-level parking garage, were also completed.

On 21 December the building permit was received (issued pursuant to the agreement signed on  15 November) relating to the Officine Storiche section of the “Porta a Mare” Project in Livorno, which will make it possible resume work on the completion of 43 residential units and the area of around 15,600 m2 which will be dedicated to retail, the biggest and most attractive portion of the entire project.

Two significant restyling and remodeling projects are also currently underway at the Casilino Shopping Center in Rome the Fonti del Corallo Shopping Center in Livorno. Both projects call for the downsizing of the hypermarket 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. Work on both projects is expected to be completed in 2019.

On 7 November a strategic agreement was signed with COOP Alleanza 3.0 relative to 18 hypermarkets with a fair value of around €520 million which calls for:

  • revision of the lease terms, namely a lengthening of the expiration of all the leases covered under the agreement through 2037 and the adjustment of a few rents with a view to increased stability and sustainability;
  • remodeling of 5 assets which could benefit from increasing the number of stores/services in the malls by downsizing the hypermarket in order to increase the center’s appeal.

 

PORTFOLIO AND ASSET VALUATION

The market value of the IGD Group’s real estate portfolio reached €2,412.2 million, an increase of 8.3% compared to December 2017. The main changes relate to the acquisition of the portfolio comprising 4 shopping malls and a retail park in April 2018 and the impact of the strategic agreement signed with Coop Alleanza 3.0., along with the downsizing of the hypermarket in the Fonti del Corallo shopping center which is not part of the Agreement.

The like-for-like portfolio in Italy (excluding the shopping centers subject to remodeling) was up slightly:

  • malls rose +0.43% (+€4.5 million) and the gross initial yield came to 6.23%;
  • hypermarkets were also up by +1.6% (+€7.5 million) and the gross initial yield came to 6.07%.

Looking at the entire perimeter (like-for-like plus the shopping centers that will be remodeled and, therefore, reclassified as smaller hypermarkets and larger malls) the following change took place:

  • malls rose +18.19% (+€2 million) and the gross initial yield came to 6.41%;
  • hypermarkets  were 9.51% lower (-€61.6 million) and the gross initial yield came to 6.08%.

In Romania the value of the real estate portfolio reached €154.8 million at 31 December 2018, lower than the €159.5 million posted at 31 December 2017, with a gross initial yield of 6.8%.

 The Net Initial Yield, calculated using EPRA criteria, reached 5.3% for the Italian portfolio (5.4% topped up) and  5.8% for the Romanian portfolio (6.2% topped up).

 The EPRA NNNAV reached €1,263 million or €11.45 per share.  The figure is 0.4% higher versus 31 December 2017 (€11.40 per share, recalculated to take into account the capital increase completed on 23 April 2018) [1].

 

FINANCIAL STRUCTURE

The IGD Group’s net financial debt came to €1,107.9 million at 31 December 2018, a slight increase with respect to December 2017, including as result of the debt financed portion of the acquisition, while financial indicators like the gearing ratio (which came to 0.88x compared to 0.94x at year-end 2017) and the loan-to-value (which came to 45.8% vs 47.4% at year-end 2017) improved.

The Interest Cover Ratio (ICR) improved markedly, coming in at 3.47x (vs. 2.93x in 2017).

 

DIVIDEND

The Board of Directors proposed that shareholders approve, subject to the approval of the financial statements for the year ending 31 December 2018 and the Board of Directors’ Report, a dividend of 50 euro cents per share (the distribution of a total of €55.2 million or 69.3% of the FFO)

The dividend yield on the stock price recorded at 25 February 2018 would be equal to approx. 8%.

 

OUTLOOK 2019

The Company expects to continue along its growth path in line with the targets in the 2019-2021 Strategic Plan.

The Company estimates that FFO will grow in a range of between +6% and +7% in 2019.

 

THE NINTH CORPORATE SUSTAINABILITY REPORT APPROVED

The Board of Directors approved the Corporate Sustainability Report together with the Annual Report. As in 2017, the CSR approved was subject to Limited Assurance by PricewaterhouseCoopers which certified compliance with the most important international standards (the GRI Standards).

This report, which maintains the structure of the 2017 CSR, contains three additions:

  1. Reporting on the extent the targets found in the 2016-2018 Plan have been achieved;
  2. Specific reference to 10 (out of 17) UN Millennium Goals and reporting on the steps taken by IGD to achieve them;
  3. Elements to be used to assess the impact of 3 sustainability projects.

The performances of the company during the year are reported in the different chapters of the CSR, organized based on the acronym G.R.E.A.T. (Green, Responsible, Ethical, Attractive, Together):

  • Green: consumption of electricity was reduced, thanks also to the solar panels installed (active in 5 shopping centers) and the use of LED lighting (found in 16 shopping centers); another 2 key assets received BREEAM IN USE certification (Tiburtino in Rome and Katanè in Catania) and the UNI EN ISO 14001 environmental certification process continued (17 centers are certified, in addition to the headquarters or 74% of the centers IGD decided to certify); the use exclusively, as of 2017, of renewable energy.
  • Responsible: the second year of the Corporate Welfare Plan with the participation of almost all employees; a total of almost €5 million was spent between 2017 and 2018 on plans for volunteer measures at shopping centers focusing on shopping center safety involving earthquake proofing and the installation of anti-intrusion bollards.
  • Ethical: the 3-star legality rating (the highest achievable) obtained in 2016 was confirmed; UNI ISO 37001 anticorruption certification was obtained in Romania; changes were made to the privacy policy in order to protect the data that stakeholders entrust the company with.
  • Attractive: restyling begun at Centro Casilino in Rome and Fonti del Corallo in Livorno which focuses on increasing the sustainability of the buildings; the renewal of the tenant and merchandising mix continued resulting in the introduction of 27 new brands (15.1% of the total brands added during the year); 530 free events were organized in the year for a total investment by the shopping centers of €3.3 million; further work was done on the innovation project including the introduction of chatbots (virtual assistants active 24/7) in 3 shopping malls, the structured use of Instagram, as well as Poste Italiane lockers in 2 shopping centers; an agreement was entered into for the use of Amazon Lockers in 27 shopping centers.
  • Together: as part of stakeholder engagement a specific “Project Listen” or “Progetto Ascolto” was developed for visitors (and non) of the shopping centers; IGD’s social role in communities was confirmed by the more than 14,600 jobs offered, partnerships with around 800 local suppliers, the fact that local brands account for 40% of the brands found in the malls and involvement of 238 local associations.

 

OTHER RESOLUTIONS

Calling of the Annual General Meeting in ordinary session

IGD’s Board of Directors also resolved to convene the Company’s Annual General Meeting in ordinary session on 10 April 2019, in first call and, if necessary, in second call on 11 April 2019, to resolve on the following agenda:

  1. Separate financial statements at 31.12.2018; Directors’ report on operations; External auditors’ report; Report of the Board of Statutory Auditors; Presentation of the consolidated financial statements at 31.12.2018;related and consequent resolutions;
  2. Allocation of the net earnings for the year and distribution of the dividend to Shareholders; related and consequent resolutions;
  3. Report on compensation in accordance with Art. 123-ter, paragraph 6, of Legislative Decree n. 58/98; related and consequent resolutions;
  4. Authorization to buy and sell treasury shares; related and consequent resolutions.

IGD’s Board of Directors will propose that the shareholders, meeting in ordinary session, approve the payment of a dividend of €0.50 per share which equates, based on the recent stock price of €6, to a dividend yield of approximately 8%.

The dividend will be payable as from 13 May 2019 , with shares going ex-div  n.  3 on 15 May 2019. Pursuant to Art. 83-terdecies of Legislative Decree n.58 of 24 February 1998 n. 58, the shareholders of IGD at the record date (14 May 2019) will be entitled to receive the dividend.

 

Approval of the Authorization to buy and sell treasury shares

The Shareholders will also be called upon to resolve on the authorization to purchase and dispose of treasury shares, after revoking the prior authorization granted by the shareholders on 1 June  2018, as follows:

Motivation: (i) trading and hedging transactions and (ii) invest liquidity; (iii) allow for the use of the treasury shares in transactions pertaining to operating activities and business projects consistent with the Company’s strategic guidelines, in relation to which it is beneficial to trade, swap, contribute, or otherwise dispose of the shares; (iv) fulfill obligations stemming from debt instruments convertible into or exchangeable for equity; and (v) fulfill obligations stemming from stock option or stock grant programs in place for employees or members of the Board of Directors of the Company and/or direct or indirect subsidiaries.

Maximum number of treasury shares which may be purchased: the purchases may be made on one or more occasions up to the maximum allowed under the law;

Expiration of the shareholders’ authorization: the authorization to purchase treasury shares is requested for a period of eighteen months as from the date of shareholders’ authorization; there is no time limit on the authorization to dispose of the shares;

Methods and purchase price of the treasury shares: the purchases shall be made in accordance with Art. 132 of the Uniform Finance Act and Art. 144-bis, first paragraph, letters b),  c) and d-ter), of the Regulations for Issuers, or any other applicable laws and regulations in effect at the time of the transactions, and must be purchased at prices satisfying the provisions of Art. 5(1) of European Commission Regulation EC n. 596/2014 of 16 April 2004 or any other applicable provisions in effect at the time of the transaction.

 

Assessment of independent status

IGD’s Board of Directors verified,  based on the information provided by the interested parties to the Company that the 7 (seven) independent directors (Luca Dondi dall’Orologio, Elisabetta Gualandri, Sergio Lugaresi, Livia Salvini, Rossella Saoncella, Timothy Guy Michele Santini and Eric Jean Véron) still qualify as independent in accordance with and pursuant to Art. 148, paragraph 3, of Legislative Decree n. 58/1998, the Corporate Governance Code promoted by the Italian Stock Exchange and Art. 16 of Consob Regulation n. 20249/2017 .

 

Approval of the Report on Corporate Governance and Ownership Structure and the Compensation Report

The Board of Directors approved the  Report on Corporate Governance and Ownership Structure, which forms an integral part of the annual report, as well as, in accordance with the recommendation of the Appointments and Compensation Committee, the Compensation Report, the first section of which, pursuant to Art. 123-ter, par. 6 of Legislative Decree. 58/98, will be voted on by shareholders during the next Shareholders’ Meeting.

 

Transfer of the registered office

The Board of Directors approved, pursuant to art. 2 of IGD’s bylaws, the transfer the company’s registered office to Via Trattati Comunitari Europei 1957-2007, n. 13 in Bologna.

 

[1] Taking into account cash and the new number of shares amounting to 110,341,903.