The Chief Executive Officer’s point of view on the first nine months of 2020
Dear Shareholders,
throughout these months of 2020 marked by the Covid-19 pandemic, IGD has dealt with new and unforeseeable complexities stemming from the need to ensure business continuity while, at the same time, guaranteeing safety inside its properties.
Not only were we able to protect the health of those who visit our shopping centers, but we also found ways to work with the tenants informed by the idea of mutual sustainability and granted a series of payment deferrals and temporary discounts on rents for the 12 March- 18 May lockdown period.
A few important certainties also materialized. One of the first is that the shopping center, at least with regard to our portfolio, is still an indispensable local point of reference, where you can make purchases at the right price, find a vast range of products, in an environment where sanitization and social distancing are carefully planned and applied.
From the time the spring lockdown restrictions were lifted, we have seen a gradual increase in footfalls and an even greater recovery in the sales of the retailers in our shopping centers. In September 2020, almost 87% of the September 2019 footfalls were recovered, while tenant sales reached 97% of the 2019 level with double-digit growth in the average ticket: what has become abundantly clear is that during this period people enter the shopping center when they know precisely what they want or need.
In the meantime, occupancy of our Italian portfolio remained high at 95.7%: basically unchanged with respect to last June, thanks also to a series of new openings in both Italy and Romania.
In this context, to date IGD’s sales team has succeeded in concluding around 90% of the negotiations with Italian tenants and 100% of the ones with Romanian tenants. The one-off impact of Covid-19 was estimated to have totaled €8.1 million at 30 September 2020, explained for €3.7 million by lower rental income and for €4.4 million by higher costs linked mainly to the measures implemented to contain the spread of the virus. In addition to this, the decrease in fair value also reflects the roughly €9 million in higher temporary discounts assumed by the appraisers.
A more meaningful picture of the percentages of rent actually collected will not be available before year-end, given the deferred payments granted. In the meantime, however, it is already very comforting to know that we can count on the 88% (net of deferrals) of turnover that has already been collected for the nine-month period.
The results for the first nine months of 2020 reflect the operating dynamics which were just examined. Net rental income, therefore, fell 12.2% to €89.7 million: this figure is explained by both the drop in rental income and the higher costs incurred to manage the Covid crisis, in addition to increased condominium fees.
FFO, which includes the one-off provisions made for Covid-19, was 15.0% lower, coming in at €53.4 million.
On 6 August we announced a 2020 FFO guidance that was between 25 and 28% lower than in 2019.
The encouraging operating results recorded between May and the early part of October then suggested that there was room for an improved outlook. The surge in the contagion in recent weeks and the restrictions implemented by the Italian government and a few regions have changed the reference scenario. We, therefore, prefer to leave the 2020 FFO guidance unchanged with respect to the guidance provided in August.
We have two priorities at the moment: on the one hand, protect the safe operation of our shopping centers; on the other, stabilize IGD’s financial/balance sheet structure and guarantee coverage of the next financial maturities.
Taking into account the €36.3 million loan guaranteed by SACE disbursed early October by Banca Monte dei Paschi di Siena, today IGD has cash on hand of roughly €123 million, in addition to more than €210 million in committed and uncommitted credit lines, which allows us to state that the financial needs for 2021 are fully covered.
The extent to which our financial needs are covered, along with the good operating results and the percentage of rent collected, were also appreciated by Fitch Ratings which on 1 October confirmed the BBB-investment grade rating for IGD’s debt which made it possible to leave the economic conditions of outstanding bonds unchanged.
Over the next few months we will be focusing on achieving our top two objectives. After the experience of the first wave of the pandemic, we are certain that the shopping center can be successfully managed, in terms of safety and satisfying all parties involved: the shopping needs of visitors, the sales goals of the tenants, and of IGD which has a social responsibility to ensure the safety of the people using their properties, an operating responsibility with business partners and, lastly, an economic responsibility with lenders and shareholders.
Reconciling and satisfying the interests of the various stakeholders is a very demanding task: I can say that it has, actually, never been as demanding as it is now. But I am confident that we will know how to stay on course, leveraging on the wealth of expertise and professionalism we have built over the years.
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