The Chief Executive Officer’s point of view of the first nine months of 2022
IGD’s Chief Executive Officer, Claudio Albertini, provides us with an interpretation of the results we are maturing in the current year based on the performance reported at September 30th.
Despite a very complex environment, the Group has proven successful in achieving good performances by leveraging on indexed rents and careful operational, asset and financial management, consistent with the strategic guidelines included in the Business Plan.
Thanks to progressive improvement in the operating performances and a timely refinancing of debt maturities, IGD reported an increase in FFO of almost 20% compared to the €50.4 million recorded in the first nine months of 2021 (adjusted to reflect the sale of a few assets last November). The trend in FFO was also driven by an improved core business EBITDA and a decrease in financial charges.
The results reported in the first nine months of 2022, which confirm the validity of the business model and effectiveness of the work done in the face of a difficult scenario, fuel IGD’s conviction to stay on the disciplined path it has undertaken.
Dear Shareholders,
Looking at the operating metrics recorded by our shopping center portfolio in the first nine months of 2022 provided some reassuring signals.
As Covid-19 contagion declined, the validity of our business model was confirmed, including in the face of new consumer behaviors, despite the fact that the post-pandemic phase coincided with a significant energy crisis, high inflation and a rapidly rising cost of money. The measures that we decided to adopt in IGD in the wake of this new scenario were entirely consistent with the operational philosophy that has always distinguished us. We, therefore, nurtured the relationship with the retailers by being flexible and sharing objectives, as well as supporting the launch of new commercial initiatives, while also working on even more efficient property management, above all in response to the rising energy costs.
This approach proved to be the winning approach, as demonstrated by the main indicators.
Footfalls continue to improve: at the end of September the increase YoY reached 9.7%, even though there is still a gap with respect to pre-Covid levels of 17.5%. The trend in footfalls should, in any case, be interpreted in the context of the 19.5% increase in the average ticket compared to September 2021 which confirms that while shopping has become less frequent, more is being spent per visit.
Tenants’ sales did, in fact, return to pre-pandemic levels: in the first nine months of 2022 they were only 0.3% lower than in the first nine months of 2019, while there was a significant increase of 19.1% against the first nine months of 2021. We began to see a gradual increase in the positive contribution made by the retailers in the spaces created as a result of recent remodeling. Sales for clothing improved gradually, particularly of the brands with larger stores.
In this backdrop, the average upside on rents in the 128 new leases (renewals and turnover) signed with retailers as of the beginning of 2022 reached 1.6%.
Sales for the food anchors were 2.9% higher than in the first nine months of 2021: an even more comforting result if you consider that, contrary to malls, hypermarkets and supermarkets were never closed during the pandemic. This improvement clearly reflects the steps taken by Coop Alleanza 3.0 to revisit its format and give a new boost to revenues, including through the important co-marketing plan we are implementing together.
We also improved the rate of occupancy across the entire portfolio of malls, reaching 95.3% in Italy and 95.1% in Romania. At the same time, we also increased rent collection, net of the discounts granted, which reached a reassuring level of around 93% in Italy and around 95% in Romania.
In the wake of these operating performances, the consolidated core business EBITDA reached €76.0 million, 6.5% higher than in the first nine months of 2021, restated to take into account the impact of the portfolio of hypermarkets and supermarkets sold in November of last year. The positive performance in EBITDA was driven by an improvement in Net Rental Income, which reached €83.6 million, an increase of 6.3% compared to the first nine months of 2021 restated and 7.8% like-for-like. If on the one hand, Net Rental Income benefitted from a decrease in the direct costs attributable to Covid-19, on the other, it also reflects the increase in IGD’s portion of condominium fees, explained also by higher energy costs, as well as the costs associated with the co-marketing project underway with Coop Alleanza 3.0.
The core business EBITDA Margin for freehold properties came to 72.5%, versus 70.4% in the first nine months of 2021.
Adjusted financial charges, namely net of the accounting impact of IFRS 16 and non-recurring expenses, were 18.1% lower than in the first nine months of 2021, coming in at €22.1 million. The decrease of €4.2 million in net financial charges reflects the decrease in the average cost of debt which was 2.11% versus 2.20% at the end of 2021, as well as the improved interest cover ratio which rose from 3.3x at year-end 2021 to 3.74x.
The net financial debt came to €988.7 million at 30 September 2022, while the Loan- to-Value reached 44.8%, lower – moreover as we had predicted – than the 45.5% recorded at the end of June 2022.
Similar to operational management, we also achieved important results in terms of financial management. On 1 August 2022 we obtained a 3-year €215 million Green Loan with an extension option in our favor of up to 5 years which falls within the scope of the Green Financing Framework published in March. We used the proceeds for the advance repayment of a €200 million bank loan, expiring in 2023. If we consider the €60 million in available, unutilized committed credit lines, we have basically covered the financial maturities not only for 2022, but also for 2023.
In the meantime, in September Fitch and S&P confirmed their ratings of our debt. We are, therefore, already working on the refinancing of the first significant maturities which are mainly in 2024.
Looking at FFO, in the first nine months of 2022 it reached €50.4 million, an improvement of €8.3 million like-for-like and 19.9% higher restated to take into account the change in the perimeter attributable to the disposal made last November. The increase in FFO was driven, on the one hand, by the €4.8 million increase in adjusted core business EBITDA and, on the other, the decrease of €3.8 million in adjusted financial charges: two positive factors which offset the drop of €0.2 million in leasehold rents explained by rebates granted last year due to the pandemic.
The results at 30 September attest, therefore, to the validity of the operational approach we have chosen in a delicate context like the current one. We continue, in fact, to enhance the appeal of our shopping centers and to work with our tenants as partners, as we believe that this will allow us to deliver healthy operating performances and have a sustainable financial profile: two elements that are key to the remuneration we will be able to offer our shareholders.
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