ANNUAL REPORT Cover CENTRO SARCA MILAN Opening 2003 Restyling 2015 Mall GLA sq.m. 23,773 Food anchor GLA sq.m. 11,000 5,769,979 visitors in 2017 Environrmental Certifications: BREEAM UNI EN ISO 14001 IGD, spaces to be lived in 2017 ANNUAL REPORT 2 IGD SIIQ SPA - 2017 ANNUAL REPORT CHAPTER CHAPTER Contents 01 02 The Igd Group Directors’ Report 1.1 Letter to the Shareholders p.6 2.1 The IGD Group p.19 1.2 Corporate and Supervisory Bodies 2.2 Performance in 2017 p.25 – Summary p.11 2.2.1 Income statement review p.25 1.3 Group Highlights p.14 2.2.2 Statement of financial position and financial review p.31 2.3 EPRA Performance Indicators p.34 2.4 The Stock p.38 2.5 Significant eventsp. 43 2.6 The Real Estate Portfolio p.49 2.7 Appraisals of the independent experts p.63 2.8 The SIIQ Regulatory Environment p.105 2.9 Organization and human resources p.107 2.10 Outlook p.109 2.11 IGD SIIQ SPA’s and the Group’s Primary Risks and Uncertainties p.110 2.12 Intercompany and related party transactions p.116 2.13 Treasury shares p.116 2.14 Research and development p.116 2.15 Significant transactionsp. 116 2.16 Comment on the Parent Company’s financial and economic performance p.117 3 CHAPTER CHAPTER CHAPTER 03 04 05 Report on Corporate IGD Group: IGD SIIQ S.p.A.: Governance and Consolidated financial Separate financial Ownership Structure statements for the year statements for the year ended 31/12/2017 ended 31/12/2017 3.1 Company profile p.121 3.2 Information on Ownership Structure 4.1 Cosolidated income statement p.166 5.1 Income statement p.242 (pursuant to Art. 123-bis, par. 1, TUF) 4.2 Consolidated statement of 5.2 Statement of comprehensive as at 22/02/2018 p.122 comprehensive income p.167 income p.243 3.3 Compliance (pursuant to Art. 123-bis, 4.3 Consolidated statement of financial 5.3 Statement of financial position p.244 par. 2, lett. a), TUF) p.124 position p.168 5.4 Statement of changes in equity p.245 3.4 Board of Directors p.125 4.4 Consolidated statement 5.5 Statement of cash flow p.246 3.5 Treatment of Corporate of changes in equity p.169 5.6 Notes to the financial statementp. 247 Information p.136 4.5 Consolidated statement 5.7 Proposal to approve the financial 3.6 Board Committees (pursuant to Art. of cash flow p.170 statements, allocate the 2017 123-bis, par. 2, lett. d), TUF) p.137 4.6 Notes to the financial statement p.171 net profit and distribution 3.7 Nominations and Compensation 4.7 Management and coordination p.229 of dividends p.302 Committee p.138 4.8 List of significant equity 5.8 Management and coordination p.303 3.8 Directors’ remuneration p.139 investments p.230 5.9 Information pursuant to Art. 149 3.9 Chairman’s Committee p.139 4.9 Information pursuant to Art.149 duodecies of Consob’r regulations 3.10 Control and Risk Committee p.140 duodecies of Consob’s regulations for for issuers p.304 3.11 Internal Control and Risk issuers p.231 5.10 Certification of the separate Management System p.142 4.10 Certification of the consolidated financial statementsp. 305 3.11.01 Director in charge of the Internal financial statements p.232 5.11 Attachments p.306 Control and Risk Management 4.11 External Auditors’ Report p.233 5.12 External Auditors’ Report p.308 System p.146 5.13 Report of the Board of Statutory 3.11.02 Head of Internal Audit p.146 Auditors p.316 3.11.03 Decree 231/2001 Organizational Model p.147 3.11.04 External Auditors p.147 3.11.05 Financial reporting officerp. 148 3.11.06 Coordination of the Internal Control and Risk Management System personnel p.148 CHAPTER 3.12 Directors’ interests and transactions with Related Parties p.149 3.13 Appointment of the Statutory 06 Auditors p.151 3.14 Composition and role of the Board of Statutory Auditors Glossary (pursuant to Art. 123-bis, p. 334 paragraph 2 (d) of TUF) p.152 3.15 Relations with Shareholders p.154 3.16 Shareholders’ meetings (ex art. 123- bis, comma 2, lettera c) TUF) p.155 3.17 Additional Corporate Governance practices (pursuant to Art. 123-bis, par. 2, lett. a) TUF) p.156 3.18 Subsequent changes p.156 3.19 Comments on the letter dated 13 december 2017 received from the chairman of the italian corporate governance committee p.156 4 ESP RAVENNA Opening 1998 Extension 2017 Mall sq.m.30,071 Food anchor sq.m. 16,536 4,876,358 visitors in 2017 THE IGD GROUP 01 6 IGD SIIQ SPA - 2017 ANNUAL REPORT THE IGD GROUP 1.1 LETTER TO THE SHAREHOLDERS Dear Shareholders, The results presented in your Company’s 2017 Annual Report have never been achieved before. Not only have the record performances recorded in 2016 been surpas- sed, but it is clear that IGD is well on track to deliver on the Business Plan 2016-2018. A few targets for the end of the plan have basically already been reached. Elio Gasperoni, Claudio Albertini, IGD’s Chairman IGD’s CEO THE IGD GROUP 7 1.1 LETTER TO THE SHAREHOLDERS 01 The Group’s net profit reached €86.5 million, an increa- red substantial redistribution of the space, we increased se of 26.5% with respect to 2016. The key indicator for our focus on food courts and added services like gyms, understanding the efficiency of a real estate company, dental studios and cinemas which generate traffic that is the core business Funds from Operations (FFO), reached not necessarily linked to shopping needs. In the wake of €65.6 million in 2017, an increase of 21.7% against the the success of Le Porte di Napoli, at the Città delle Stelle prior year: we, therefore, exceeded the full year guidance shopping center we also created new value by downsi- for FFO of +20% announced in August in the wake of the zing the hypermarket and creating a new piazza that is encouraging results posted in the first half. connected to the newly expanded mall. In 2017 the big international brands also requested more space with a The 5.8% increase in rental income and revenue from the view to providing its customers with a richer shopping real estate business fueled an increase in core business EBI- experience and highlighting the role of the store as a TDA of 6.7%, attributable also to rigorous control of opera- show-room. ting costs. The core business EBITDA Margin came to 69.7%, 40 basis points higher than the 69.3% recorded in 2016. The operating indicators confirm the fact that this work was successful: in 2017 the occupancy continued to be IGD’s real estate portfolio had an appraised fair value at very high in Italy (coming in at 96.8%) and rose conside- year-end 2017 of about €2,228 million. This figure, around rably in Romania where it reached 96.4%. The average €50 million higher than the year-end 2016 appraisals, upside on the new leases signed with mall retailers in confirms IGD’s role as a key player in the Italian retail Italy came to 4.9% in 2017, while the average upside on real estate sector. Even though yield compression did not renewals in Romania reached 2.1%. Not only: we succe- help to sustain the fair value increase of our assets to the eded in making the most of the opportunity to redesign extent that it did in 2016, in 2017 the portfolio did bene- the merchandising mix and include tenants with the best fit from two of the factors driving its value. Firstly, the sales performances through rotation during the turnover expanded perimeter linked to the ESP extension, inau- phase which involved 5.4% of the tenants in Italy and gurated on 1 June 2017 after a total investment of €51 32.7% of the Winmarkt tenants. million, made over several years, and the Maremà center in Grosseto; secondly, the significant contribution of the The results posted in 2017 show that the strategic guide- like-for-like perimeter linked to the higher fair value of a lines for the second year of the three-year business plan few of IGD’s key malls which each were valued at more were adhered to and increase the visibility of achieving than €70 million. The biggest increases were reported the targets for 2018. The results for 2017 should, however, by the properties where restyling and new fit-outs, as not be taken for granted: they were achieved in what was well as extensions of the leasable space, were recently undoubtedly a favorable economic environment but, at completed. the same time, in a context which was much more compli- cated with respect to the past, given the challenges linked Our portfolio has always been characterized by its ba- to the emerging models of consumption, particularly with lanced structure, which allows us to have a very low the younger generation, and the new needs of the large risk profile: IGD’s shopping centers are, in fact, distributed omni-channel retailers who are increasingly more inte- throughout Italy, typically along main thoroughfares near rested in integrating the physical store experience with cities, and well positioned in their primary catchment online shopping.