22 February 2018 13:17
Price Sensitive economic-financial results

The Board of Directors approves the draft separate and consolidated financial statement, as well as the corporate sustainability report at 31 December 2017

2017: ANOTHER YEAR OF GREAT RESULTS

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  • Group net profit: €86.5 million (+26.5%)
  • Recurring net income (FFO): €65.6 million (+21.7%); above guidance (+20%)
  • Core business revenue: €1 million, +6.0% (LFL Italy +1.5%, Romania +5.4%)
  • Sales of retailers in Italian malls +4.3%; significant upside on renewed leases (Italy +4.9%; Romania +2.1%)
  • Further significant drop in the average cost of debt (2.8% vs. 3.3%); Loan to Value 47.4%
  • Market value of the portfolio: €2,228.2 million (+2.3%); LFL +1.3%
  • EPRA NNNAV per share: €13.7 (+6.3%)
  • Dividend: Board of Directors intends to propose a dividend of around 50-52 euro cents (including the new shares issued as a result of the capital increase currently underway), upon definition of the final terms of the capital increase
  • Approval of the eighth Corporate Sustainability Report (introducing the new approach “becoming GREAT”), certified for the first time

 

 

Bologna, 22 February 2018. 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 2017.

 

 “2017 was the second year of the Business Plan 2016-2018 and the excellent results that we approved today show that we are delivering on the guidance we disclosed to the market as we are in line, and in some cases exceeding, the targets set for the end of Plan. Each area of the Group made a positive contribution, beginning with the active management of our assets which continue to post high occupancy rates, positive commercial performances along with significant upside on lease renewals.  The focus on the quality and appeal of our properties, including through continuous investments and new openings like the ESP extension in Ravenna, along with the consistently balanced financial structure, allowed us to increase FFO per share by 21.7% and the EPRA NNNAV per share by 6.3%. In 2018, in addition to continuing with the execution of the Plan, we will concentrate on completing the acquisition currently underway in order to strengthen IGD’s Italian leadership as a retail property company and further increase returns for our shareholders” stated Claudio Albertini, IGD’s Chief Executive Officer.

 

 

OPERATING PERFORMANCE

In 2017, for the fourth year in a row, sales of retailers in Italian malls increased, testimony to the positive global market conditions, but also to the portfolio’s appeal.

Sales of retailers in the Italian shopping galleries of the Group rose 4.3% (+1.3% excluding the impact of the extension of the ESP mall, inaugurated on 1 June 2017), with a significant increase in sales posted in December, the best since 2011. Footfalls fell slightly by 0.5% compared to the prior year explained primarily by the first two months of the year.  In terms of merchandise, the best performing categories were Services and Culture – Leisure Time –Gifts.

Consistent with this context, the results for the pre-letting activities were significant: 194 contracts, renewals and turnover, were signed with an average upside of +4.9%; while the average occupancy (malls and hyper) came to 96.8%, basically unchanged.

The fundamentals of the Romanian economy, in terms of consumption and regional retail trends, also continue to be particularly buoyant which fueled a further increase in the occupancy rate (96.4%) and the upside on renewals (+2.1%).

 

The many asset management activities continued as planned in 2017.

The most important event for the IGD Group was the opening in June of the extension of the gallery in the ESP Shopping Center in Ravenna:  more than 19,000 m2 was added (11 midsize stores and 42 shops of which only one unit is vacant) for a total investment of around €51 million, which determined a gross yield on cost above 8%. The benefits of this opening are clear: footfalls rose 34.5% between June and December while sales of retailers in the already existing part of the mall increased 7.2%.

In November the new area of 4,200 m2 at the Città delle Stelle Shopping Center in Ascoli Piceno was inaugurated, developed as a result of the Coop’s decision to downsize the hypermarket in order to develop a new concept which reflects the latest market trends and consumer needs. The shopping mall now covers 21,000 m2 and includes 13 new shops.  Internal restyling was also done in order to render the shopping center even more attractive to visitors.  The net yield on cost at capacity is about 6.5%.  The benefits in this instance were also quite significant: from the inauguration date through year-end 2017, footfalls rose 17.8% while sales of retailers in the already existing part of the mall increased 10.1%. Of note is the strong improvement in the gallery’s occupancy which reached 97% (99% at the extension).

 

 

FINANCIAL – ECONOMIC RESULTS (FFO +21.7%) 

Total consolidated revenue amounted to around €150.2 million, up 8.2% compared to the same period of the prior year.

More in detail, rental income rose 5.8% to €138.9 million explained by:

  • for around €5.6 million, higher revenue not like-for-like
  • for around €1.8 million, like-for-like growth (+1.5%) in Italy. Malls were up (+2.0%) and hypermarkets were in line
  • for around €0.5 million, higher revenue like-for-like in Romania (+5.4%)

 

Growth was also recorded in revenue from services (+11.7%) which amounted to €6.2 million. The Porta a Mare project generated revenue from trading of around €5.1 million as a result of the sale of 18 residential units and appurtenances. At the approval date of the annual report preliminary agreements for an additional 15 residential units had been signed; the total of the units sold or for which there are commitments, therefore, has now reached 90.7% of the total saleable area.

 

Core business Ebitda came to €101.2 million, an increase of 6.7 % compared to 31 December 2016. Operating costs fell further as a percentage of core business revenue and, consequently, the core business Ebitda Margin rose 40 basis points against the prior year to 69.7%. The freehold Ebitda margin came to 79.2%, an increase of 50 basis points.

 

The incidence of financial expense is decreasing (18.2%) to €34.3 million, despite the higher average NFP linked to the investments made in the period (including the ESP extension). The result is attributable to the recent liability management activities, as well as the decrease in the notional amount and termination of a few IRS.  In line with the Business Plan, the downward path of the average cost of debt is confirmed. As of the end of 2017, the average cost of debt is equal to 2.8% (vs 3.3% in December 2016).

 

The Group’s portion of net profit amounted to €86.5 million, higher than the €68.3 million recorded in 2016 (+26.5%)

 

Funds from Operations (FFO) rose 21.7% against 31 December 2016 to €65.6 million. The growth target for FFO (+20%) was largely exceeded at the half year financial report 2017.

 

 

 

PORTFOLIO AND ASSET VALUE CREATED  

The EPRA NNNAV reached €1,111 million or €13.67 per share.  The figure shows a noticeable increase of 6.3% compared to the €12.85 per share recorded as of 31 December 2016. The market value of the IGD Group’s real estate portfolio reached €2,228.2 million, an increase of 2.3% compared to 31 December 2016. The main change is linked to the extension of the ESP Shopping Center in Ravenna.

Value also rose on a like-for-like basis in Italy (+1.3%):

  • malls were 1.3% higher (+€3 million, around €9 million of which pertains to the 7 key malls) and the gross initial yield came to 6.3%;
  • hypermarkets also increased by 1.3% (+€7.3 million) and the gross initial yield came to 6.2%;
  • in Romania the value of the real estate portfolio reached €5 million at 31 December 2017, lower than the €164.9 million posted at 31 December 2016, while the gross initial yield came to 6.5%.

The Net Initial Yield, calculated using EPRA criteria, reached 5.4% for the Italian portfolio (5.5% topped up) and 5.5% for the Romanian portfolio (5.7% topped up)

 

 

FINANCIAL STRUCTURE

The IGD Group has a negative net financial debt, equal to €1,059.6 million at 31 December 2017, basically in line with December 2016, while financial indicators such as the gearing ratio (0.94x as of the end of 2017 compared to 0.97x as of the end of 2016) and the loan-to-value (47.4% as of the end of 2017 compared to 48.3% as of the end of 2016) improved.

The Interest Cover Ratio (ICR) increased noticeably, coming in at 2.93x (compared to 2.24x as of the end of 2016).

Please note that, in January a private placement was completed on the US market and in December Moody’s confirmed the investment grade rating of Baa3 with a stable outlook.

 

 

PROJECTS AND NEW OPENINGS

Pipeline

In 2018 work will continue on the Gran Rondò mall in Crema where the construction of an additional midsize area (already pre-let) and external restyling are underway; the work is expected to be completed in the first half of the year.

Work will also continue on the Porta a Mare project in Livorno for which a variance was requested with a view to optimizing the space at Officine Storiche; this variance will result in new urban works and administrative procedures, as well as a delay in completion which is slotted for the second half of 2019. About 4,500 m2 out of a total of 15,000 m2 have already been pre-let and significant manifestations of interest have been received.

 

 

Acquisitions

On 15 December 2017, IGD signed a preliminary agreement for the acquisition from the Eurocommercial Properties Group of a portfolio of 4 shopping malls and a retail park found in northern Italy which are part of important shopping centers in their respective catchment areas, for a total of €187 million (in addition to ancillary costs and transfer taxes for a total of ca. €9.3 million). More in detail, the Portfolio comprises the following business units:

  • Mall of the Leonardo Shopping Center (Imola)
  • Mall of the Lame Shopping Center (Bologna)
  • Shopping Center mall and a portion of the La Favorita retail park (Mantua)
  • Mall of the CentroLuna Shopping Center (Sarzana)

The shopping malls and the retail park to be acquired have a total leasable area of 37,500 m2 and are part of four shopping centers and a retail park which have a total leasable area of around 91,000 m2. Based on the lease agreements for the business units and the stabilized and annualized non-recoverable costs, the acquisition has a net accretive yield of 6.4% and a gross accretive yield of 6.8%. As per the preliminary agreement, the acquisition is expected to close in the first half of 2018.

 

DIVIDEND

The Board of Directors proposed, subject to the approval of the financial statements for the year ending 31 December 2017 and the Board of Directors’ Report, to allocate a total of around at least €49.3 million for dividends.

Please note that, as of today, a cash capital increase is currently underway, via a pre-emptive rights issue, for a maximum amount of €150 million through the issue of new ordinary shares with no par value and regular entitlement (1 January 2017), as approved by the Extraordinary Shareholders’ Meeting held on 12 February 2018. Therefore, currently, it is not possible to determine the exact number of shares to be issued and entitled to receive a dividend on the ex-date (28 May 2018).

 

The Board of Directors intends – once the terms of the capital increase are defined along with, more specifically, the subscription price and the maximum number of shares to be issued – to propose during the Annual General Meeting, in the event of successful completion of the capital increase, a per share dividend of around €50-52 cents, increasing the total distributable dividends[1].

This dividend would be about +11% / +15 % higher compared to the dividend paid for 2016 (45 euro cents). The dividend yield on the stock price recorded at year-end 2017 would reach 5.2/5.4% and 6,1/6,4% compared to the closing price recorded on 21 February 2018.

 

 

OUTLOOK 2018

The Company expects to continue along its growth path in line with the Business Plan, with higher revenue driven by the like-for-like perimeter and the full year contribution of the ESP extension in Ravenna.

We also expect the acquisition and the capital increase, announced on December 2017, to be completed in the first half of 2018. Consequently the Company estimates growth in FFO in a range of between + 18% to + 20%.

 

APPROVAL OF THE EIGHTH CORPORATE SUSTAINABILITY REPORT, CERTIFIED FOR THE FIRST TIME

The Board of Directors approved the Corporate Sustainability Report (CSR) together with the Annual Report.  The CSR, for the first time, received a certification from PricewaterhouseCoopers.  The firm certified compliance with the most important international standards (the GRI Standards).

This report was prepared based on a new format which emerged following the revision of the materiality matrix.  The 13 new material issues (namely issues which impact both the company and its stakeholders) were grouped together under the acronym GREAT, which testifies to IGD’s commitment to growing constantly with a view to being “Green, Responsible, Ethical, Attractive, Together”.

The performances achieved by the company during the year are reported in each chapter of the CSR Report, which follow this format:

  • Green: the procedure leading to Breeam in Use certification for Key Assets was begun and the UNI EN ISO 14001 certification process continued (roll out plan calls for certification of 90% of the Italian malls in 2018); installation of solar panels continued (now in 5 centers) and the use of LED lighting was confirmed (in 13 freehold properties); as of 2017 only renewable energy is used
  • Responsible: Corporate Welfare Plan was launched, with the participation of almost all employees; plans for volunteer work at shopping centers developed with a view to supporting earthquake related measures, installation of dissuaders and life line systems.
  • Ethical: project begun to obtain anticorruption certification in Italy and Romania; the first benefits to the company’s reputation linked to the three-star legality rating obtained in 2016 (the highest score) were observed.
  • Attractive: focus on sustainability and innovation at the ESP extension and the remodeled Città delle Stelle which were inaugurated in 2017; constant change of the tenant and merchandising mix (27 new brands introduced which corresponds to 40% of the turnover) and great attention paid to solutions and the innovative events offered in malls with a view to O2O (online to offline).
  • Together: structured involvement of the stakeholders (almost 6,000 visitors involved in the satisfaction surveys); IGD’s social role in communities confirmed by the more than 14,600 jobs offered, partnerships with around 800 local suppliers, presence of 260 local brands in its malls and involvement of 234 local associations.

Other resolutions:

  • Assessment of independent status

IGD’s Board of Directors verified,  based on the information provided by the interested parties to the Company that all the independent directors (Milva Carletti, Matteo Cidonio, Luca Dondi dall’Orologio, Elisabetta Gualandri, Andrea Parenti, Livia Salvini and Rossella Saoncella) 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.

 

The documents will be made available to the general public on IGD’s website, https://www.gruppoigd.it/Governance, as well as at the company’s registered office, Borsa Italiana S.p.A. and  on the authorized storage mechanism provided through www.emarketstorage.com in accordance with applicable laws and regulations.

[1] Using retained earnings