The Chief Executive Officer’s Point of View on the first three months of 2020

Dear Shareholders,

in the first quarter of 2020 we had to grapple with the government restrictions put into place to contain the spread of Covid-19, the virus that hit Italy particularly hard already beginning in February, but which did not spare Romania either where, however, containment measures did not take effect until March.

How did we react to this unprecedented situation? We sought to leverage on the expertise that derives from our role as a sector leader in Italy in order to rapidly define a series of effective measures which provided an adequate answer to the needs of our shopping centers.

We first worked to ensure the health and safety of the visitors, of those who work inside the hypermarkets and malls, as well as IGD’s personnel.

The adaptive capacity we have developed over time in order to ensure that our assets are always in line with consumers’ changing needs allowed us to quickly implement the necessary measures. We promptly set up safe paths inside our properties, controlled traffic flows and purchased devices to check the health of individuals upon entry.

Despite the restrictions that varied from region to region, the presence of food anchors and essential retail services, which were allowed to continue operating, ensured that all our portfolio properties always remained open. Once again, the fact that our portfolio is comprised of assets near urban centers, dominant in their region, proved to be decisive for IGD, even though – and this should be stressed – in some areas the restrictions significantly limited the mobility of the regular visitors.

Many of the retailers in our malls, beginning with food&beverage operators, were ordered to close; others, who could have remained open, decided to remain closed. The lack of revenue in this period for those who shut down or the drop in sales for those who stayed open, even with fewer customers, compromised the ability of tenants to pay rent.

With a view to maintaining the long-term partnerships that have always shaped our relationships with tenants and in order to maintain a high level of occupancy, we have already defined a few specific support measures, in addition to the deferred payments already granted for the second quarter. The measures enacted by the Italian government in the Relaunch Legislative Decree to support retail operations will have to be investigated further. We hope that they provide retailers with concrete support in the most difficult phase characterized by a lack of or substantial drop in sales. This scenario would allow us to then intervene with our initiatives in subsequent months during which a return to normalcy will hopefully have begun.

The work we did in these weeks was also very focused on ensuring IGD’s financial stability in order to maintain a solid balance sheet.

Thanks also to the liability management carried out last November, at 31/03/2020 we had cash on hand of €130.1 million, with access to a total of €221 million in credit lines, of which €60 million committed, expiring between the end of 2020 and the beginning of 2021. These committed lines – which are in the process of being renewed with longer expirations – may be utilized without notice and are, therefore, key in this time of uncertainty. We are also looking at other options in order to increase our liquidity including, for example, requesting a low interest-rate 6-year bank loan of €38 million partially guaranteed by the government in accordance with the terms of the “Liquidity Decree”.

Our financial stability for the next 18 months is, therefore, amply guaranteed, even in the face of the most negative scenarios.

We have also already taken steps to optimize cash flow. We redefined a few non-essential expenses, activated the social safety nets provided for employees by the Italian government for nine months and reduced general overhead. We also revised the capex and investments called for in 2020 which will allow us to save a total of around €34 million with respect to the budget as a result of the elimination or postponement of projects.

Between 23 March and 8 April all three of the agencies that have rated IGD’s debt published a review in light of the new context. The fact that the agency Fitch maintained IGD’s investment grade rating ensured that, for the moment, none of the ‘step up” clauses of the outstanding bonds were triggered.

The results for the first quarter of 2020 only marginally reflect the crisis caused by the health emergency. The results posted in the first two months of the year were, in fact, encouraging in terms of operating metrics, while the rents collected in the period January – March amounted to 100% of turnover in Romania and 85% in Italy.

In the first quarter of 2020 FFO was, therefore, basically unchanged with respect to the same period of 2019, rising slightly by 0.1%.

Despite the solid results posted in 2019 and the positive beginning to the current year, in order to reinforce IGD’s financial profile in what is an uncertain situation, the Board of the Directors decided to formulate a new proposal for the allocation of earnings to submit to the next Shareholders’ Meeting. By limiting the dividend per share to the amount that is required to be distributed in order to maintain SIIQ or REIT status of €0.228152 per share, it will be possible to save almost €30 million in unpaid dividends and preserve resources that strengthen our financial position. Limiting the dividend to the mandatory amount will also allow us to benefit from the favorable conditions offered on the €38 million loan guaranteed by SACE as the condition that SIIQs distribute no more than 70% of the exempt rental income will have been satisfied.

As we are waiting to understand the nature and extent of the measures adopted by the Italian government to support retail, we cannot currently predict if the exit from Phase 1 of the lockdown will actually happen on 18 May and if the last businesses will be able to open or not on 1 June. While waiting for the new framework to come together, we will, therefore, keep our FY 2020 FFO guidance suspended.

In the past few days, we have, however, begun the first discussions with our tenants which are geared toward individual needs, but always refer to the pre-existing lease. We believe that retailers’ sales will gradually return to previous levels: we want, therefore, to manage this temporary situation as best we can with solutions that meet the needs of the single tenant in order to guarantee our tenants’, as well as our own, stability.

We will likely have to wait as long as needed before we have a vaccine, but we are optimistic that over time we will return to experiencing the complete shopping center reality: as a real social center, and not just a shopping center.

In the meantime, we are convinced that we will be able to provide visitors with a safe and practical place to shop: actually, the most practical and safest place …

Claudio Albertini

Chief Executive Officer

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