The Chief Executive Officer’s point of view on the first six months of 2021
Dear Shareholders,
in the first part of 2021 IGD was faced with what was still a very complex operating environment given the anti-Covid-19 restrictions imposed on the non-essential activities present in shopping centers. In Italy, even though the Law Decree of 21 April 2021 allowed for certain activities to reopen, albeit with certain limitations for restaurants and movie theaters, until 17 May 2021 weekend closures were still mandatory: a substantial limitation given that most purchases are made on Saturday and Sunday.
The half-year results that we are presenting today, achieved in an environment still heavily impacted by the anti-Covid restrictions, provide us with some clear indications with respect to two key aspects: on the one hand, the validity of the shopping center format which confirmed its key role as part of the new consumer trends, on the other, IGD’s ability to manage its assets effectively, including when faced with severe limitations, while, at the same time, creating the foundation for adapting successfully to future scenarios in terms of both the layout and the commercial offering.
During the pandemic, including with the restrictions in effect, we maintained our commitment to customers, continuing to provide safe, practical and convenient places for making purchases. We also worked, thanks to the “Next Steps” project, on working to understand and satisfy the new needs and trends of the different types of shoppers that visit our shopping centers.
We started new negotiations with our tenants – after the cycle that we concluded at the end of summer 2020, before the second wave of the pandemic – in order to determine new, temporary payment terms and rent reductions for the businesses that were hit particularly hard by the new restrictions with a view to mutual sustainability. These negotiations, which are now coming to a close, were also facilitated by the measures enacted by the Italian governments in two decrees, Sostegni and Sostegni bis, passed in 2021. At the end of June, therefore, rent collection in Italy reached 83%.
Thanks to the intense pre-letting and marketing of the vacancies created as a result of the pandemic we succeeded in adding trendy and completely new brands to our portfolio, consistent with the needs of our shoppers: in the this way we posted a tenant turnover rate of around 3%. These activities, carried out with determination and without interruption, allowed us to reach a rate of occupancy at 30 June 2021 of 95.3% in Italy and of 94.3% in Romania, an improvement of 100 and 70 basis points, respectively, against year-end 2020.
The signals that we saw in June – the first full month of operation since the restrictions were lifted on 17 May – suggest that the retailers in our shopping centers are ready for business, posting strong growth in sales with the respect to the same period of the prior year of 17.4% which, moreover, is double the 8.2% increase in footfalls.
In this environment we were able to record net rental income of €55.5 million, only €0.8 million less than in the first half of 2020. We estimate that the one-off impact of the measures implemented in response to Covid – attributable largely to rebates – amounted to €7.8 million which is €1.5 million less than in first half 2020. On the other hand, we did have to absorb a drop of roughly €2 million in rental income, excluding the rebates granted, due largely to the 3.3% decrease in the revenue generated by the malls in Italy. The presence of food anchors in all of our shopping centers proved, once again, to be a winning strategy as the revenue for hypermarkets was 0.6% higher than in the first half of 2020.
In terms of FFO – which reached €30.6 million in the half – we again managed to limit the drop against the same period 2020 to around €2.3 million, of which €0.9 explained by lower core business EBITDA and €1.2 million by a decrease in financial charges.
These results also allowed us to update the FY 2021 guidance for FFO if, as we hope, the operating conditions are not subject to new limitations. In light of the positive signals seen since mid-May, in a context in which consumption is projected to rise, we expect that we will be able to increase range of FFO growth in 2021 from the 3-4% announced in February to 7-8%.
Based on the independent appraisals, our real estate portfolio held well with a fair value of €2,267.88 million at 30 June 2021, an increase of 0.1% compared to 31 December 2020.
The EPRA NRV at 30 June 2021 also came to €10.56 per share, 1.7% higher than at year-end 2020. At recent prices, slightly above €4, IGD’s stock, therefore, is still trading at a strong discount. Compared to the average target price of the analysts covering the stock of €4.44 per share before the publication of these half-year results, there is still ample room for potential upside.
We expect that the concrete signals revealed in these half-year results, the new guidance for FFO 2021, together with the further confirmation that the quarterly results will provide, will give even more credibility to the positive impact that our choices had, with a view to ensuring the sustainability of the business and create a foundation for the new initiatives which will allow us to remain at the center of the consumer landscape including in the future.
The new Board of Directors that took office after the Annual General Meeting held on 15 April, will approve the new Plan in the fall, which will allow us to resume our disciplined path with clear objectives and targeted actions consistent with the characteristics of the new scenario that lies ahead.
We will tackle the new goals with an even stronger awareness as to the validity of our business model and professionalism of our team, which was able to manage the critical situations of the present while keeping a careful eye on the needs of the future.
Claudio Albertini
Chief Executive Officer of IGD
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