The Chief Executive Officer’s point of view on the first three months of 2023
IGD’s Chief Executive Officer, Claudio Albertini, discusses the encouraging operating and financial performances achieved in the first few months of 2023 thanks to the work done by the Group which remained true to its management philosophy, inspired by long-term sustainability.
The results achieved in the quarter indicate that the good performance of the operational metrics was effectively translated into improvement in the adjusted EBITDA. The FFO, which was lower by €0.9 million, also reflects the negative impact of adjusted financial charges which were penalized by an increase in the average cost of debt as interest rates were higher than in the prior year. Based on these first results, IGD confirms the FFO guidance for FY 2023 of €53 million disclosed when the results for FY 2022 were announced.
While marketing and asset management continue in order to maintain the property portfolio’s high quality and appeal, management is now focused on finding new funding of around €225-250 million in order to refinance the next maturities and render the Group’s financial profile even more solid. The Loan-to-Value was lower at 31 March 2023, coming in at 45.3%.
In the meantime, on 10 May IGD’s shareholders will receive a dividend of €0.30 per share, approved during the Annual General Meeting held on 13 April 2023, which confirms the return of capital that the Company is able to provide, even in a difficult environment like the present one, thanks to a valid business model and disciplined management.
2023 began with a first quarter that provided encouraging signals relative to the performance of our portfolio’s main operating metrics and our fundamentals.
In general the format of the shopping center has shown that it still provides a valid answer to consumer’s shopping needs, even after crises and pandemics, with proven resilience including in the face of the more widespread presence of E-commerce. This trait, which is applicable across the shopping center business, is combined with the commercial and asset management skills specific to IGD. In this delicate post-pandemic phase, with high inflation and interest rates, IGD has confirmed its ability to understand the new trends and include them, through the continuous evolution of its assets, in its merchandising and tenant mix.
This is how we explain the improvement we recorded in footfalls which in Italy increased 9.4% against the first quarter of 2022. Traffic which created the premise for an even faster recovery in mall retailers’ sales which were, in fact, up by 12.7% in the quarter. In our malls sales increased across all categories of merchandise, as they did at the hypermarkets where sales rose 5.2% which confirmed the role that hypermarkets have as key attractors; the only exception was electronics which reported a 5.2% decrease in revenues due to a very challenging comparison with 2022 when the sector benefitted from incentives and the need to have adequate devices for remote working.
Behind these operating performances is the intense work carried out by IGD’s team to close new leases with retailers: 54 were signed in the quarter, including 39 renewals and 15 turnover for a total equal to 2.4% of total rents. If we consider that in 2022 rents for the Italian portfolio were already increased by around 9% as a result of indexing, the average downside of 4.5% on the new leases (a decrease which comes to 2.2% if the negotiations near completion are taken into account) is a good result. The rents of the 180 new leases signed in Romania were unchanged.
We also improved the rate of occupancy across all the malls with respect to 31 March of the prior year (while there was a slight decline against 31 December 2022), with occupancy reaching 95.3% in Italy and 97% in Romania. Rent collection had reached 90% in both Italy and Romania at 2 May 2023.
As a result of these operating performances, consolidated core business EBITDA was 2.5% higher than in the first quarter of 2022, coming in at €26.8 million. The improvement in EBITDA was driven by Net Rental Income, which reached €29.1 million, an increase of 1.3% overall and of 4.9% like-for-like. In Italy reletting and the indexing of rents made a positive contribution which more than offset the temporary discounts granted. In Romania rent indexing and lower discounts fueled an increase of 4.4%.
The core business EBITDA Margin for freehold properties reached 75.5%, largely stable with respect to the 75.6% recorded in the first quarter of 2022.
Financial charges went from €7.6 million in the first quarter of 2022 to €9.2 million. As interest rates were generally higher than in the prior year, there was an increase in mortgage costs linked to the €215 green loan that IGD received in August 2022, after extinguishing a €200 million loan, and the €20.9 million loan guaranteed by SACE taken out in December 2022. IGD’s average cost of debt was, in fact, higher than in the first quarter of 2023, coming in at 3.18% versus 2.26% in the same period of 2022.
The net financial position came to €966.34 million at 31 March 2023 with the Loan-to-Value at 45.3%, showing improvement compared to the 45.7% recorded at 31 December 2022. The positive cash flow generated in the quarter made it possible to lower net financial debt by €10.6 million.
In the past few weeks we have concentrated our efforts on obtaining a consortium loan of € 225-250 million which will allow us to refinance all financial maturities through the first half of 2024. Once this goal is achieved, we can focus on finding the best way to manage the €400 million bond expiring in November 2024.
In the first quarter of 2023 FFO was €0.9 million lower than in the same period of 2022, while adjusted core business EBITDA was up by €0.5 million and adjusted financial charges were €1.5 million higher. In the wake of the €15.8 million in FFO reported in the first quarter, we are confirming the guidance of €53 million for FY 2023.
The results for the first quarter of 2023 confirm that the approach taken in the current environment is producing the results we expected. The ongoing evolution of our assets ensures that retailers’ have access to shopping centers capable of attracting shoppers and that we have a sustainable financial profile.
As a result of this solid foundation, we can also guarantee future remuneration for our shareholders who, as of 10 May 2023, will receive the dividend for 2022 of €0.30 for each share held approved during the Annual General Meeting held on 13 April.Share