7 August 2020 10:00

The Chief Executive Officer’s point of view on the first six months of 2020

Dear Shareholders,

in the first half of 2020 IGD was faced with one of the most difficult situations in its history, as the shopping center management business was one of the businesses hit the hardest by the health crisis that developed with the spread of Covid-19.

The results that we are presenting today, that reflect a half which in March, April and May was profoundly affected by the restrictions imposed to stem the spread of the virus, provide us with some very clear indications.

The 17.9% drop in net rental income and the 21.4% one of FFO, which equates to our recurring net income, allow us to understand that IGD knew how to steer a straight course during the height of the crisis and is managing the post-lockdown phase and the gradual return to normalcy with equally effective results. 

These findings also provide visibility as to the level of FFO we can achieve at year-end. In light to of the work done to manage the new situation, we believe, in fact, that we can limit the decline in our FFO 2020, against FY 2019, to a range of between approximately -25 and -28%.

Our approach during the crisis was to live up to our mission, to rediscover its most authentic and profound sense. We, therefore, worked hard to provide our stakeholders with the value that we committed to creating for them.

We wanted to be the local point of reference for the customers of our shopping centers, where they went to do their shopping not only because they could rely on a vast range of merchandise, but also on the highest standards possible in terms of sanitization of the centers, health checks and regulated traffic flows. All our shopping centers, in fact, remained open, even during the most intense lockdown period, as they house essential services like the sale of food and healthcare products.

During these weeks we maintained a dialogue with our tenants that was even more intense than usual. Clearly, a very important part of this dialogue are the negotiations we have conducted to define deferrals and temporary discounts that are acceptable to them as sales return to pre-Covid levels, with a view to mutual sustainability. These negotiations were facilitated also by the tax relief measures introduced by the Italian government based on which tax credits for rents paid in March, April and May 2020 were provided.  We supported the sales of our retailers also by ramping-up the communication with shopping center visitors with new promotional initiatives in all the shopping centers beginning at the end of June.

The results we achieved testify to the validity our choices. At the end of June the portfolio’s financial occupancy was still at a good level, coming in at 95.6%. While footfalls recovered roughly 80% of the pre-lockdown level, with a trend showing constant growth, the drop in June tenant sales was relatively small at around 13.6%, despite the limitations still in place affecting  the organization of special events, as well as food&beverage and entertainment. Meanwhile, there was an 18% increase in the average ticket.

In Romania also, thanks to a merchandise mix comprised of, for 29% of the rental fees, essential businesses, (which, therefore, never closed) and being able to leverage on consolidated relationships with high profile tenants, occupancy came to 94.6% at the end of June 2020, while footfalls fell 25% in the post-lockdown phase.

During this troubled time, we also focused on the shareholders. We did everything possible to stem the impact of the Covid-19 crisis on our accounts. The drop of €9 million in FFO, against the first half of 2019, is broadly attributable (for €8.5 million out of the total €9 million) to the impact of the unforeseen situation caused by Covid, while the change in adjusted core business EBITDA , which was negative for €2.1 million, was largely offset by the €1.5 million drop in adjusted financial charges. While waiting to finalize the agreements with the tenants, we deemed it opportune to allocate €8.5 million, roughly one month of rental income, to a specific reserve. This provision refers entirely to the estimated impact that the tenant negotiations will have on the current year, without any carry over in subsequent years.

In the meantime, we continued to remunerate our shareholders with a dividend of 22.8152 euro cents per share, paid on 22 July, which corresponds to 70% of the income generated by the SIIQ perimeter in 2019.

In terms of financial management, we renewed €60 million in committed credit lines, extending the expiration to 2023. This amount is in addition to roughly €160 million in available uncommitted facilities. A 6-year government guaranteed loan of around €37 million is in also in the process of being finalized with SACE SpA. If we consider, lastly, the €103 million in cash on hand, we can confirm that, in the next few months, we will be able to meet our foreseeable financial needs.

As a result, also, of the “investment grade” rating confirmed by Fitch, IGD was able to leave the economic terms and conditions of the bond issues unchanged, with an average cost of debt that came to 2.30% in the first half of 2020.

Based on the independent appraisals, the market value of our real estate portfolio came to €2,322.62 million at 30 June 2020, 2.47% lower than at 31 December 2019.

The new EPRA indicator that we adopted, Net Tangible Assets, or NTA, came to €10.70 per share. The average target price of the analysts covering the stock is €4.88 per share before the half-year results were published. Two points of reference which tell us that based on recent prices, just above €3, IGD’s shares are trading at a strong discount.

We are confident that the recent publication of the half-year results, the new 2020 guidance and the updates that we will publish in the coming months will give further visibility to the efficacy of the steps we are taking to guide IGD out of this difficult situation.

As demonstrated by the initiatives carried out in the last few months, we are perfectly aware that the limitations imposed by Covid-19, that are still partially impacting the life of the shopping center, call for a huge effort to be made to adapt and change our commercial strategy and real estate portfolio management. The difficulties faced even during the peak months of the crisis, however, did not suggest that there was any need to change the model we have always used to manage our shopping centers. To the contrary, when dominant in its catchment area, the shopping center demonstrated its vital nature.  

If we hadn’t had this strong conviction, that derives from the leadership position we have built over the years in Italy thanks to our ability to understand local, regional needs, we would not have dealt with this complex period with the same strength and readiness. Above all, today we would not have these solid results and encouraging prospects to share with you.


Claudio Albertini

Chief Executive Officer of IGD