Annual Report LA TORRE Palermo Opening 2010 Mall GLA sq.m 14,412 Food anchor GLA sq.m 11,217 3,709,156 visitors in 2013 2013 Annual Report IGD, spaces to be lived in CONTENTS 01 02 03 04 05 The IGD Group Directors’ report Report on Corporate IGD Group: IGD SIIQ S.P.A.: Glossary Governance and Consolidated Separate financial p. 3 p. 15 Ownership Structure financial statements statements for p. 280 for the year ended the year ended p. 91 31/12/2013 31/12/2013 p. 133 p. 199 2 CENTRO D'ABRUZZO San Giovanni Teatino - Chieti Opening 2001 Restyling 2013 Mall GLA sq.m 13,276 Food anchor GLA sq.m 114,127 3,677, 881 visitors in 2013 The IGD Group 01 C HAPTER CONTENTS 1.1 Letter to the Shareholders p. 4 1.2 Corporate and Supervisory Bodies p. 8 1.3 Highlights p. 10 4 01 The IGD Group 1.1 Letter to the Shareholders Dear Shareholders, Your Company closed 2013 with a net profit of €5 million and FFO – core business Funds from Operations – of €35.5 million. These results were obtained in a particularly challenging environment which sheds an even more positive light on both the strategic choices made, as well as the steps we took to implement them. Gilberto Coffari, IGD’s Chairman and Claudio Albertini, IGD’s Chief Executive Officer IGD SIIQ SPA Annual Report 2013 5 01 D Il Gruppo IG The annual results demonstrate that IGD was able to reflect the growing demand for personal services: medical limit the pressure on revenue and keep operating costs and dental offices, gyms and wellness centers. The ability to under control while also stabilizing the net financial interpret new trends was also facilitated by the introduction debt and maintaining our asset quality high and the value of local bodegas and temporary shops. largely stable. In 2013 the Company followed the strategic All of this, along with a series of other structural changes, guidelines of our 2012-2015 Business Plan which focuses made it possible to redesign the space distribution, group- on the medium/long term sustainability of revenue and the ing more stores in mid-size areas in order to introduce new cost of capital, as well as on the preservation of our assets’ merchandise and new brands. value over time. The restyling and expansions completed up until now, In the last year the crisis that persists in Italy since 2008 based on a precise strategy designed to maintain the qual- took on even more negative connotations for our business. ity of the assets high and revitalize profitability, delivered The significant drop in family spending (-2.5%), along with results (Centro d’Abruzzo is one example), which provide the high rate of unemployment (12%) and weak expecta- a pay back in terms of better sales for the tenants which, tions for disposable income moving forward, put pressure consequently, helps our rental income. on rental income and reflected in the declining sales post- The appraisals of the real estate portfolio at 31 ed by the retailers present in our shopping centers (-1.6%). December 2013 carried out by independent experts provide The latter figure, however, was more contained than the other reassuring signs. The fair value of IGD’s entire port- drop in consumption reported in Italy. folio amounted to €1,891,283,000 versus €1,906,560,000 at Careful reading of the trends in demand and the abil- 31 December 2012 with the hypermarket segment rising ity to interpret the needs of the tenants made it possible to 1.1% and the Italian malls and the Romanian subsidiary fall- develop effective commercial, as well as asset management, ing 3.2% and 2.5%, respectively. policies. In Italy, with more than 66 million visitors, footfalls The hypermarket valuations benefited from the step-ups in the year rose by around 0.9% with respect to 2012: this that took full effect in 2013 at the most recently opened dynamic reflects not only the valid format of our shop- centers. The valuations of the Italian malls were impacted ping centers, but also indicates that the Company made the not only by the temporary discounts granted to a few ten- right choices in 2013 as both an investor and as an asset ants, but also by the increased vacancies caused also by the manager. restyling and fit out work that was underway. The situation If the increase in the footfalls is basic confirmation of the in Romania was similar as a result of the vacancies needed efficacy of IGD’s role in this new environment, the commer- to accommodate high profile international tenants, including cial performance indicators – namely consolidated operat- food anchors; the Winmarkt assets were also influenced by ing revenue, which rose 3%, and the occupancy rate in increased competition following the opening of new genera- Italy which, despite the restyling and fit outs, reached 97.4% tion shopping centers in a few urban areas, like Ploiesti. - are testimony to the Company’s ability to limit the impact The fair value of the Romanian portfolio fell with respect of the drop in consumption. to 2012 (-2.5%), albeit less than revenue (-10.7%): even the How did we manage to produce these results? independent appraisers recognize, therefore, that a better In general we realized that we needed to work with tenant portfolio undoubtedly has a positive impact on the increased flexibility, reaching a new balance with revenue streams over time. respect to “lower end” retailers, above and beyond the The most significant indicator of IGD’s operational per- trends in the business environment. In the new scenario, formance, namely the core business EBITDA, amounted to consumer trends are conditioned not only by reduced €82.8 million, a drop of 3.5% with respect to the prior year. available income but are also inspired, to a certain degree, EBITDA was impacted by a drop in operating income of by a new sense of moderation: we have found, in fact, that 2.1%, as well as by higher costs explained primarily by a rise visitors are paying more attention to not wasting time and in IMU as a result of the broader scope of the assets subject money, while also showing greater interest in protecting the to taxation following the completion of a few investments, environment. and increased property taxes in Romania; the increase in The contracts executed in 2013 feature little in terms condominium fees reflects the increased vacancies with of standard elements, but were rather adapted to fit each respect to 2012. single profile based on the tenant’s financial sustainability. The bottom line of the income statement shows a Group The more than 500 marketing events, an increase of net profit of €5 million, down with respect to the €11.3 mil- around 9% with respect to 2012, helped to achieve the objec- lion posted in the prior year, which reflects both the decline tives to both maximize footfalls and enhance customer of €2.8 million in consolidated EBITDA and the “property loyalty. writedowns and fair value adjustments” of €33.5 million Where possible, the merchandise mix was revised to which were about €2,9 million higher than in 2012. The net 6 01 The IGD Group 1.1 Letter to the Shareholders profit benefited, rather, from a drop in net financial charges have an even greater impact on the balanced financial and which fell by 2.5%. The steps taken to contain the cost of asset structure targeted in the 2014-2016 Business Plan. debt, which included the successful refinancing of €309 mil- The financial strategy calls for a commitment to providing lion in debt during the year, and maintain a stable level of shareholders with attractive returns through the payment debt (at year end the net financial position amounted to a of a dividend. The new business plan also calls for a more negative €1,085 million, in line with respect to the negative dynamic approach to asset management which includes €1,090 million posted at the end of 2012) made it possible to the rotation of working capital also through disposals. In reduce financial expenses. the second part of 2014 the global market conditions are In light of the quality of the results achieved and in expected to improve with regard, in particular, to consump- accordance with the payout policy outlined in the 2014-2016 tion which will directly impact IGD’s performance; in 2014 Business Plan which links the distribution of earnings to the the progress that is expected to be made on the “Porta a performance of the indicator, FFO, IGD’s Board of Directors Mare” multipurpose development project in Livorno will decided to propose a dividend of €0.065 per share, higher translate into increased rental and trading revenue, thanks than the mandatory payout under the SIIQ regime. to the opening of the retail section Piazza Mazzini and an The dividend yield for investors who purchased IGD increase in the sale of residential units with respect to the shares at the end of 2012 at a price of €0.82 amounts to 18 units already sold in 2013. 7.9%. The yield is even more attractive, at 8.7%, for the For the first time in the history of IGD, the 2014-2016 investor who exercised the Dividend Reinvestment Option Business Plan includes targets for sustainability which last June and used part of the 2012 dividend to subscribe will strive to establish mutually beneficial relationships with new shares issued at €0.75. the stakeholders and will make it possible to render the As this transaction was so well received by our share- results even more explicit and quantifiable including in holders both in 2012 and in 2013, this option will be terms of IGD’s ability to satisfy their needs.