Earnings call transcript: IGD reports steady Q1 2025 growth amid strategic updates

Immobiliare Grande Distribuzione SIIQ SpA (IGD) showcased a consistent performance in Q1 2025, with net rental income reaching 28.8 million euros, marking a 2.4% growth in like-for-like terms. Despite a minor decline in funds from operations (FFO) compared to the previous year, the company confirmed its FFO guidance of 38 million euros for 2025. The stock, currently trading at $5.57 and near its 52-week high of $5.77, offers an attractive dividend yield of 10.75%. According to InvestingPro metrics. The occupancy rate has improved significantly, nearing 96%, with a target of 98% by 2027.

Financial Highlights

• Net Rental Income: 28.8 million euros, 2.4% growth like-for-like.
• Core Business EBITDA: 2.1% growth.
• Funds From Operations (FFO): 10.2 million euros, down from 10.3 million euros.
• Loan to Value (LTV): 44.2%, a decrease of 20 basis points.
• Weighted Average Interest Rate: Reduced to 5.6% from 6.04%.

Outlook & Guidance

IGD confirmed its FFO guidance of 38 million euros for 2025, with potential for improvement as the company continues to implement cost-reduction measures and strategic initiatives. The disposal plan targets 100 million euros over 2025-2027, and a potential SIINC strategy is being considered for portfolio expansion.

Executive Commentary

Roberto Zoia, CEO of IGD, expressed confidence in the company's strategic direction, stating, "We confirm our guidance of 38 million, but you understand that for what we are doing now, lowering costs and all the actions we're undertaking, we can do better." He emphasized the company's commitment to steady progress, adding, "It's a long march. It's a long pathway we are working on, and we confirm our efforts quarter after quarter with a lot of patience."

Risks and Challenges

• Economic Uncertainty: Potential macroeconomic pressures could impact consumer spending.
• Real Estate Market Volatility: Fluctuations in the real estate market may affect asset valuations.
• Interest Rate Changes: Variability in interest rates could influence financial costs.
• Competitive Pressures: Increased competition in the retail sector may affect market share.
• Regulatory Changes: Changes in regulations could impact operational strategies.

IGD's strategic focus on asset enhancement and cost management positions it well for future growth, despite minor setbacks in FFO. The company's robust plans for portfolio expansion and improved financial metrics signal a positive outlook for the remainder of the year.

Full transcript - Immobiliare Grande Distribuzione SIIQ SpA (IGD) Q1 2025:

Chorus Call Operator, Conference Moderator: Good afternoon. This is the Chorus Call operator. Welcome to IGD's conference call presenting q one twenty twenty five results. Let me remind you that all participants are in listen only mode. After the presentation, a q and a session will be held.

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To be assisted by an operator during the conference call, please press and 0 on your phone handset. I will now turn the conference over to mister Roberto Zoia, CEO of IGD. Good afternoon to all of you. Thank you so much for joining us today. Let's start with the presentation first.

It was published just after the board meeting. Let me start with a few highlights and a few figures to crunch. As you can see on page two, the quarter from the operating viewpoint was a good quarter. And you have to bear in mind there was a calendar effect, which is was the unfavorable versus last year because last year was a leap year. So this year, we had one less day.

And then Easter, last year, Easter was in March, and this year, it was in April. But despite that, despite the calendar effect, we see that footfall still did a positive sign. And tenants set up basically flat and those of hypermarkets are down 1.7%, but you have to again, bear in mind that there was no Easter shopping included. So I can't say that they are definitely satisfactory. And yeah.

It's satisfactory. And also, core KPIs are also satisfactory. You find them on page three. On a like for like basis, we have a net rental income and that are up 2.4% versus the previous quarter of the quarter of June quarter in 2024. And then always on a like for like basis, core business EBITDA is up 2.1%.

So generally, definitely, our core business is very sound and is giving positive time. And FFO, let me remind you that we gave you a guidance when we presented full year 2024 results. We gave you a 38,000,000 guidance, but thanks to this first quarter, we stood at 10,200,000.0. And you compare it to a 10.3 that we recorded in last year in 2024, but we have the full purchase portfolio, hypermarkets, and shopping malls. And as we move on, they had a strong impact.

But despite that, we our net financial position has a positive impact, and our FFO is landing at 10,200,000.0. I confirm the guidance, the 38,000,000 guidance we gave you before, and we'll see the interim report, the six monthly report. We'll see if it's possible to even improve our guidance. And so far, we are very confident satisfied from a financial perspective. And that was indeed a point of attention ever since I was appointed slightly more than a year ago.

We're on page four of the presentation. You see, we are, of course, loan to value is further down. It's 44.2% down 20 basis points versus versus the full year where we were at 44.4. But the weighted average interest rate or cost of debt went from 6.04 to 5.6. And we were at 5.7 when we have the financial statement report.

So it's a long pathway we're following, but we are constantly reducing our cost of debt, and that is reflected in our results. We move on to page five. Let me remind you that finally we are back to paying out dividend And the actual payment of €10 cents per share will happen on May. From an operating perspective, from a business perspective, if you move on to page six, you'll be able to see the pathway we've been following so far. The pathway we have announced last year and quarter after quarter, we are moving along that pathway.

We started with q one twenty twenty four with a 3.5 downside for Italy. And then every quarter, you see a steady growth of renewals with the same tenants or with new tenants with new or remarketed assets. It's slightly well, it's weaker. This is up point seven versus 4.1 in last quarter of twenty twenty four, but it still is the positive sign that makes us think for the best occupancy. We gave us a goal for 2027 to reach to 98% of occupancy in Italy.

And when we first disclosed our business plan, we were below 95%, and now we are very close to 96%. So less than a year, we've all already recovered 1% on the three percentage points we have given ourselves as a target as a goal for 2027. And as you can see, quarter after quarter, our occupancy levels are improving with a favorable impact on our core business. We are the we're working hard to extend our debt maturities, and we confirm our 2% of of our world for shopping malls. And we are extending the new contract, but as we move along the pathway, as we we get to shorter maturities for the older contract, and retaining 2% at this time, it's definitely a positive sign.

If we move it to page seven, you can see some major openings we had in the quarter. And let's focus on two very informative shopping centers in Aromana, Romania, Ravenna and Forli. Very important tenant opening. The first store of courier is French footwear chain. We keep on working because it's very important for us because it's very important center of attraction for our shopping centers at 80 stores.

At least La shopping center, we've completed the project, recycling project that was started soon after the end of the pandemic. La Zaporita is a shopping center we acquired in 2018. We've refurbished it. We have photovoltaic plants installed. Now it's it has full occupancy, and we have introduced IKEA.

It is the first plan and order point as they are practically assisting customers on their online So, okay, it's and it really generates a lot of traffic. Same applies to Romania. We still keep the level of assets very high with very, very well, high premium brands. On page eight, we have the hyper market side at the let's talk to the network. So think that we had time of vacancy because one of the tenants had left.

And instead, now we got four zero three six five. And we are starting to see the first results in March and April at the top of the last three footfall, much higher than the ones we have in 2019 and upwards. And we have a full restyling project of the customer hyper copper in Catania. We have the master franchisee, Copa Lealta. They've fully refurbished it after it opened again on March, but the turnover levels are very, very interesting so far.

Let's move on to page 10 where we have to take this account. If we start from net rental income from freehold, we were at 28,800,000.0 to be well, to give you a like for like bridge to see the growth IGD has witnessed in the shopping center. We removed the 4,200,000.0. That's the change in income scope. That was net income from the leasehold portfolio that was disposed off.

And then point one is the asset with the remaining asset we sold on February. And then to, again, to offer a like for like basis, we have a like for like delta of point six in the net rental income that takes us to 25.1. That is to say the 2.4% I mentioned in the highlights at the beginning of the presentation. We have more or less the same effect in the following slide, page 11. You see it with corporate EBITDA following the same flow of our net rental income.

And here too, we give you a like for like figure. We see that from 24.3 EBITDA with the net rental income going up and net income from the service business unit, we get well, we found that twenty four point eight with a 2.1% growth on a like for like basis. For all of you who are listening to us and following us now, it's the most important thing is page 12. That's where we see that the recurring financial management and financial position with the refinancing transaction, early repayment of our bonds, and a policy of further cost of production policy. We'll allow at 12,100,000.0 against the 15.8 we had in q four.

And the overall management is also declining. That was affected by a cost we have to bear for early repayment on the early redemption of our bond. As we have to make sacrifices on our p and l, but indeed, we generated the foundation for our company to grow by reducing cost of debt. So the FFO result takes two things into account. The growth of our like for like core business and the cutting of financial costs.

That's the turning 50. If you move to page 13, you'll be able to see clearly how much we really how much ground we recovered despite selling the 250,000,000 worth of portfolio with the net cashing of a hundred and 60. The full transaction, the full deal was very important because as you remember, we were at 48 49% LTV now and at 43.2. I've already cut it over the last three months. We need a net income, the net net income be disposed of.

But we have some benefits from financial management of financial position. We started from 10.3. We are now at 10.2. And we can further improve those core business and further reducing our cost of debt. And the effect of the disposal can be seen on three main indicators.

Lowering of our FTE the second, the reduction of our NFP, and then everything here reported by a growth in our, of course, financial management or financial position. On page 14, you can clearly see higher cost, ancillary cost stemming from the early repayment on the of our bond. It was 310,000,000, if you remember, November 2023. So we kept it going the time of having enough resources or enough money to repay it. And, of course, we have ancillary cost for this early repayment.

But the net profit, the net result is at the positive sign before that it's $1.04 6 as the net income. Page 15 is my net financial position. We'd already lightened it in 2024 with the disposals we completed. Our net financial position was 806,000,000 at the end of twenty twenty four. And now with a a Romanian disposal and another transaction, we have to add that 797.

And so on a like for like basis and excluding the closure disposal to land at 44.2 loan to value, an average cost of debt which is down from 6.04. We're now at five point six zero five point sixty. And I see I is also increasing interest rate going from 1.8 times a year end 2024 to two times at the March 2025. I'm moving on to page 16 where you can see the growth maturity profile and how it changed over time. We let me remind you that exactly a year ago, we have a cliff a cliff that was a hundred and 570,000,000 cliffs considering the full transaction already embedded.

They were now we have maturities that have been really extended. And when we talk about twenty twenty nine, we talk about December 2029 and 2031, December '20 '30 '1. The average maturity was at the end of twenty twenty four was two point five six years. Now the average maturity is five point one years. We have ratings confirmed by both Fitch and S and P, but we're not standing still.

We today, our goal is to keep monitor the debt capital market over the last few weeks. Markets are highly volatile. So that capital deals or transactions such as issuances, well, this is not the most favorable time for issuances. But if if it were to calm down a bit and if there were interest to save on our cost of debt. If there was an opportunity to really save on our cost of debt, our our goal is to issue free up assets that are well, that are now used as collateral with the banking system.

So we are very being very, careful and active in monitoring records to try and see a good pricing for a possible issuance. We can have this kind of approach, wait and see so approach until we get the right window, the ideal window, because we don't have short term maturities coming up. So that really enables us to safely look ahead and wait and see what happens. If a window comes up, we will be able to seize it in a very, very short time frame to be able to rebalance our net financial position between banking debt and market debt. The real estate market and on page 17 now now, the real estate market over the quarter.

So we'd already talked about 2024 full year, which was indeed a record year both for Italy, for the overall real estate, almost 10,000,000,000 worth of exchange volumes and traded volumes with the retail from point of view. We see investors that are going back to real estate retail. And that was reconfirmed in the first two of twenty twenty five. The total traded assets were 2,500,000,000 real estate, of which 505,000,000 were retail. That is up 619% versus q four twenty twenty four.

The q one, sorry, q one twenty twenty twenty four. And the same applies, and I'd like to tell you something about the interest that we've had on our disposal plan in Romania. It's a very, very small market, indeed, very local market. But you can see that already in 2024, retail had 240,000,000 traded versus a total of 733,000,000. And in q one twenty twenty five, so almost 200,000,000 worth of real estate investment, more than half of that was focusing on retail.

We're focused on retail, small size retail with a local profile that is exactly in line with the strategy we gave ourselves for 2025. And let me remind you because I think it's important for all of us to remember that we have a disposal plan. You can see it on page 18. We have a disposal plan of a hundred million over three years, twenty twenty five to 2027, with all sold 8,300,000.0 of the Clujie in Romania, which was in line with our book value. And right now, we have a lot underway, many negotiations underway, and we are confident that by year end, we will have disposed of assets for approximately 12,000,000.

So to actually reach the 20,000,000 target within ourselves for fiscal year twenty twenty five, We keep working hard also on authorization to then be able to settle the also the three areas we have in Livorno. And what's helping us in this transaction is the fact that now we only have four flats to sell out of a 25. So the residential part went really well. And with the opening of Primark in November 2023, also the commercial part or the sales part is witnessing increasing footfall and excellent performance. Seeing the success of the first projects we've completed, also those areas are really appealing.

Blocker fee is not helping us. That tape is not helping us so far. We streamlined the deals, but we are working to actually focusing on certain non core assets that we are aiming to dispose off. I mean, page 19, we go back to Romania where we are actually seeing that our strategy, the disposal strategy we put in place is a good one. We do so assets on an asset by asset basis.

Also, within the big contract, assets that are worth a few million of weight, but there is a very sound market for these assets. It's a private family offices who are showing interest at a base of a flat rate. The negotiations are very long. They are very complex. We are very close to closing a few more deals on, again, individual app.

And 20, as you can see, the Porta Mauro Del Moro deal and project is one of the first example, major example of really rejuvenating, urban rejuvenation, if you wish, that that was witnessed in our country. The tourist port is well, the works have started and the different peers around the area, they have work in progress, so to say. They have building sites and we so we are also going ahead with the disposal plan according to our agenda. And we have a very strong agenda of meetings, sir. We're gonna take part in a lot of events as well.

Just to give you an idea of how we are approaching the business, how we are working with figures as well so that our organization can grow further. So it's a long march. It's a long pathway we are working on, and we confirm our efforts quarter after quarter with a lot of patience. And then in the presentation, you'll find a lot of attachment analysis. But I'd rather leave room for your questions so that each and every one of you can ask for whatever you think is most interesting to hear.

Thank you very much for your attention. Well, this is the Chorus Call operator. We are now starting the q and a session. If you want to ask a question, press star and one on your phone handset. To be removed from the q and a queue, press star and two on your phone handset.

Use your handset to ask your questions. If you want to ask a question, press and one now. First question comes from the line of Andrea Torotovsky with Bank of Akron. Good afternoon to all of you. Thank you very much for your presentation.

Could we have a bit more color on trend for the different types of merchandising? And for Italy, personal care, electronics, how are they doing? And then a follow-up question on the sync alliance you've created. Is there any member who could contribute part of their in into the control company? You could partly contribute their assets in the subsidiary.

Well, let me start by saying that the results by product mix or product type, 2025 over 2024, so it's just three months, we still have they account for 10% in our GDS portfolio is health and personal care. So they put this an 8.7% growth on a like for like basis. Electronic. If I remember collect correctly, they went through a crisis in 2023, especially due to to what happened in 2022 where they had a very strong growth. And now it's flat.

And that's an excellent result, by the way, just like clothing is flat. Restaurants and catering are with standing their ground and services are also standing their ground. So first quarter of twenty twenty five, from a product category viewpoint, it's very similar to 2024 full year. If we move on well, if you drill down into a greater level of detail, we will see that when we talk about clusters. Careful care for instance.

You have perfumes, the eyewear that went really well. Jewels are doing well. Jewelry stores alone are up 5.1, and we're only talking about the first quarter. So we've had excellent results in q four twenty twenty four. And among us, we said maybe it was Christmas present, blah blah blah.

But that was not the case because even in q one, they are doing really well. March was very good for fall for on large services. So everything is very much in line with what had already happened in 2024. Going to alliance, right now, there's a loss of interest, meaning that many portfolios that are around. Seeing this opportunity, I'll give you more details about it.

I'll elaborate a bit on it. So they made a move and showed their interest. So it means the opportunity they can contribute. If you contribute your portfolio into Alliance Inc, you can benefit from the CQ regime. That means almost no taxes and to really and as a guarantee from the parent company as the mandatory dividend just like we have on the CQ company.

So you have a portfolio and whatever that portfolio is generating, you get back as a dividend, practically. Of course, we are selecting. We are picking because the SIM so a third party can contribute up to 49%. And a maximum contribution to the sync up to 51%. But we want consistent portfolios.

It's not a dustbin. It's an opportunity of growth. So on a like for like basis, portfolio wise, we look at a return in NOI for our portfolio a third party portfolio. We make an assessment with one single appraiser or assessor or auditor. You define NAV and then you make the slate.

But to be partner of a sync, control has to be in the hands of the sync. There should be no special shareholders agreement or special governance agreement. It's it must be clear that if you contribute to your portfolio, you become a minority. The control has to stay within the hands of the c inc because otherwise, you lose the benefit of the c inc regime. That's an opportunity as I I and we are cashing out and as we we would have a grown portfolio.

It's a replicable exercise, meaning that today, it's alliance sync. Tomorrow, it could be alliance two or alliance three. But it's a matter of having portfolios that are consistent with one another, that are performing, that have a level of occupancy and natural income that is similar to the portfolio we're contributing to the alliance. And then in the future, going forward, once we do a business plan, three to five years, we either the same becomes a full ownership of IGD or it may become the ownership of a third party starting from the top as an umbrella. But the the pricing level we're now, we now have the stock price.

It's very hard to think of a merger of now and having a 64% discount applied as you would have now on the stock. But we have a company like ours who is well capable of managing its own assets. A system that is all the kind and the certainty that to protect the authorities, the the company has to pay out dividends. It's mandatory for it to pay dividends. So we have a lot of potential partners there that have shown interest to this kind of transaction.

But now it's the matter of finding the right focus on the portfolio we like and on the portfolio that can be easily comparable with ours from all perspectives. Alright. From that perspective, even at the level of debt has to be such that would lead to a further reduction of IGD's LTV. So on the one hand, we have the larger IGD with the lower gearing but retaining the same yield. And it would be a first word to move on with this from to go further because this is it's not the first time that I say this.

I said that it's the very beginning. I didn't miss you. It will grow. I'm gonna think this is an excellent opportunity for growth. Perfect.

Thank you so much. Next question comes from the line of Mariana Pierassi with Ediza from Paolo. Afternoon to all of you. Thank you, Roberto, for the presentation. I would like to ask for common valuation and your expectation accordingly given the transaction fee you shared with us?

That's my question. Thank you, Ariana. I do not have data yet. It's a bit early still. The feeling I have is that volumes, as they were important and meaningful, are a good way to well, focusing on volumes are a way to get valuations that are or assessment that that were different.

That are different from the ones we have in the previous years. From the mac macroeconomic viewpoint, rates are going down and that should lead to a decline in capitalization rates as well. We have a like for like growth having upside in our renewals also makes those who have to appraise the assets to be more to have more comfort and confidence in doing so. We don't have any special event right now or last year already, our core portfolio our g's core portfolio was in line, but we've written on written down we had a one off impairment of the food food from state. This year, it was just one, so then we'll go back to it at the end of the business plan.

We will have the last one. I don't think they'll have we have we have no specific impairment. I don't expect any specific write ups. But it's true that volumes are sizable, but we don't have yet transactions that could support to support a reduction of the net exit yield. But my impression is that valuations will be in line with last year in a portfolio that or, you know, that we had for our portfolio smart better.

But it's still too early. We've just closed the first quarter by well, around May. We'll start to ask we'll set we'll send independent experts of the old data for to have a full valuation at the June. Next question comes from the line of Simone Akirioski with Mediobanca. Go ahead, madam.

Good afternoon. I have a question on FFO. Roberto, you said that there's room for improvement on the level of you reached in q one. What are the drivers for this improvement that you mentioned? Is it coming from a further reduction of your financial charges?

Or what are the drivers? And I was also wondering about your exposure to interest rate. How much of your debt is floating rate and how much is fixed rate? And then about rent, like for like on like for like basis, it's up 2.4. Is it quarter on quarter or year on year?

Or could we have a breakdown between how Italian is performing and how Romania is performing and the level of indexation the indexation rate? Let me follow the order of your questions you asked. FFO has two levers, two drivers for improvement. To grow further, as we did so you mentioned that 2.4% is quarter on quarter, and you have a 2.4% growth quarter on quarter. And if you apply to all quarters, it becomes an essential driver.

And here we can really work hard on it and I'm confident we'll be able to improve our performance. So upside growth for Tamar Livorno, for instance, we have we are getting close to being fully up and running. So we're gonna according to plans, growth is according to plan. And then and, of course, declining rates will also help. Today, we are engaging in a very, very careful hedging policy.

Every day, there's a window to hedge. And so far, it's fifty fifty between hedged for fixed rate and 50% is floating rate. Staying with the 50% all floating is a bit risky. And but over these few days last few days, we've taken we've seen that there are declines. Well, the rates are going up ten percent ten ten points or going up or down 10.8 points.

So core business on the one hand is the driver, but we still have more drivers to cut our cost of debt. Today, it's 5.6. But if we manage to lock with the lower level yields, I think in June, we'll be able to further reduce it. The level the average level of hedging with fixed rate should be 65. We should reach $65.70.

Fixed rate. I mean, that would be a limit fixed rate debt because we still have that that few things to dispose of your assets to dispose of. We are still looking at bonds, but having a 77 o fixed rate and 30 that could benefit from declining rate is more or less the balance we would be looking for or looking at. So on a like for like basis, the growth, if it goes on at a pace of 2.4%, revenue is going up on a like for like basis in the first three months. So as of the next next quarter, April, June, we won't have the full effect to factory.

So it's been a real like for like basis. So increasing our core business our occupancy rate every 10 basis points of occupancy, it doesn't seem much, but it's less expenses and more rents. And then a further decline or the fact that we could benefit from a further decline in rates. So 10,200,000, which means that we have fully minimized 4,200,000.0 of net rental income, which was the food portfolio we disposed off. And we have a 10.2 against 10.3 last year.

Indeed, there's room for improvement. But today, even during the board meeting, we the the board asked the same question. And I told them, today, we confirm our guidance of 38,000,000, but you understand that for what we are doing now, lowering costs and all the actions we're undertaking, we can do better, we think. And on page 10, if we look at Romania, Romania is flat. Meaning that we are keeping it where it is.

We're keeping it flat. We have to retain a good revenue level because it has to be a good asset, a good project to sell. And then in Italy, net rental income is growing. It's growing in Italy. So it's in our Italian portfolio.

Let me remind you that if you want to ask a question, you may press star and one on your phone handset. For further questions, please press star and one on your phone handset. Next question come is a follow-up from Simone Takimio. He was with Meglio Bank. I would like to know if you could have data from the impact of indexation.

Sorry. Ap apologies. It's point 7.7 because inflation has to be calculated over the course of the entire year and in the reference month. And so when you have when you have when we have a table with the different levels, impact of the inflation is zero in the first year and then, of course, you move on. What we did with this 2.7 Italy, two percent we said is a real growth of rents and point seven is the inflation indexation effect.

On some contracts, rentals and services for hypermarket inflation is calculated at 75% of the index. Whereas for the other contract, it's a % of the it's a %. So out of 2.7, two percent is really a rent increase, and point seven is the actual impact of inflation. That adds to 2.7%. So further questions, please ask a star and one on your phone handset.

Mister Zoya, there are no more questions in the queue for the time being. Very well. I would like to thank you very much for joining us today, and we'll talk to you soon at the six month for a dream like six monthly report. Thank you very much. See you the next time.

Thank you. This is a Chorus Call operator. The conference call has come to an end. You may disconnect your phone. Thank you very much.

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