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Edited Transcript of IGD.MI earnings conference call or presentation 7-May-20 12:30pm GMT

Q1 2020 Immobiliare Grande Distribuzione SIIQ SpA Earnings Call

Bologna May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Immobiliare Grande Distribuzione SIIQ SpA earnings conference call or presentation Thursday, May 7, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrea Bonvicini

Immobiliare Grande Distribuzione SIIQ S.p.A. - Director of Finance Division

* Claudio Albertini

Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director

* Daniele Cabuli

Immobiliare Grande Distribuzione SIIQ S.p.A. - COO

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Conference Call Participants

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* Leonardo Coccia

* Simonetta Chiriotti

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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This is the Chorus Call operator. Welcome to IGD's Q1 2020 results and relevant impact of COVID-19 virus on the group's activities. (Operator Instructions) Let me now turn the conference over to Mr. Claudio Albertini, CEO of IGD.

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [2]

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Thank you very much. First of all, welcome to all of you. I'm connected from Bologna together with my colleagues from the headquarters and our Chairman, Mr. Elio Gasperoni, and we are fully available to take your questions.

The press release and the document that was sent out to you contains the essential data that were looked into by the Board this morning for Q1 and for what will happen after Q1. Let me walk you through the presentation and also because we would like to explain how we're going to tackle the presentation. We're on Page 2 now.

I'll briefly give you an overview of Q1 results, end of March 2020, and that's the first chapter in the presentation. Then, I will move on and dwell on the latest updates, what we have been unfolding activity-wise, actions taken, the possible evolution and the dividend outlook for the year. And then there is a section devoted to attachments.

Let's move on to Page 4 in the presentation. But let me say by way of introduction, and it's also highlighted on the page, is that this quarterly report is partially affected -- not fully but partially affected by the exceptional one of containment measures adopted in Italy, less in Romania because of -- end of February for Italy and later for Romania, but these containment measures, starting from end of February, as I said, and then in March and April, they gradually led to restrictions on the opening days and hours for our shopping centers. IGD has a franchise in 12 regions out of 20 in Italy, so we have a wide franchise. And so we were affected by the governmental initiatives and provisions.

Starting from highlights on Page 4. As you see, the rental income is slightly down, down 0.9%, and here, too, as you can see, we were affected -- partly affected in March by some slowing down of the sales. And net rental income is more affected, had a stronger decline. And let me say it straightaway because of some prudential provisions we have made end of March because, of course, there were no cash in, or we lost from cash in and that had already happened in the first quarter.

Core business from EBITDA is down 2.8% at EUR 30 million. And margin from freehold is 77.8% (sic) [77.7%], slightly in decline versus the same time in 2019. FFOs are flat, slightly up, 0.1% up, but again, this piece of information is the result of quarter that was at least partly affected by the incoming crisis.

Let's move on to Page 5. We have the detail of rental income -- a breakdown of rental income, gross rental income. On a like-for-like basis, there was a decline of 0.4%, and that was driven by a different result in Italy, down 0.7%; and Romania, up 3.5%. And that somehow reconfirms the trend we recorded last year because Romania started the lockdown on March 22 so the quarter was almost unaffected or marginally affected.

Unlike -- well, partly, the effects will be felt starting from April. The decline in Italy was a bit more marked in shopping center, 0.8%. And because, of course, there were different revenues and also the rental of temporary stages, but that has to be compared to a first quarter where the framework agreement with Coop Alleanza has not yet kicked in because it was supposed to kick in on the 1st of April, so it's a not homogenous comparison. Whilst this year, we have the first impact of the framework agreement.

Inflation impact was rather limited, 50, 5-0, bps, basis points. If you look at the chart, top right, the piechart, I mean, you see the breakdown of the rental income. So hypermarkets account for 25.2% of the rental income. And I'll go back to this in the next slide. But do bear this 25.2% in mind because this is one of the main activities that were still open despite the lockdown and, therefore, has been granting us income.

Let's move on to the next slide. Net rental income. We grow from 34.2% to 33%, 2019 and 2020. And Italy is down 3.6%, and Romania is up 1.2%. And we have put on the note at the bottom of the page we had higher condominium fees, and we have an increase in provision on receivables, about EUR 500 million in addition on -- sorry, EUR 500,000 on top of what we had already forecasted, otherwise, it would have been around 4%. I'm talking about direct costs only.

Let's move on to the next slide. We're on Page 7 of the presentation. Core business EBITDA went -- EBITDA went from EUR 31.2 million to EUR 30.3 million, driven by the higher provisions. And as to the financial management, as you can see, in absolute terms, it went up 10.2%. However, if we strip off the 2020 from -- the negative carry from the 2020 data and the nonrecurring charges due to the bond issuance, we have a decline of about 10%. This is what I wanted -- this is how I explain the 10% decline.

As I said before, I move on to Page 8, FFOs, funds from operations, are flat practically with a decline of 0.7% change in core business EBITDA and a similar change in the -- an improvement in financial management adjusted, net of nonrecurring charges and of negative carry of 0.8%. So that leads to a 0.1% growth, so we are flat in our FFOs in the first quarter.

Always talking about the financial structure, Page 9. Our indicators are improving as it always happens in Q1, where there's no dividend payout and all the profit is improving the net equity and other financial indicators. The loan-to-value is slightly down 47.2%. ICR is better, 4.2x, and for the first time, we are over the 4.2x, and the average cost of debt is marginally declining from 2.35% to 2.30% because of the improved conditions of the bond we issued in November.

And at the bottom of the slide, we show the breakdown of our net financial position: market is 56.1%. Source is, of course, banking system is about 44%, and more than 2/3 of our debt stock is unsecured debt, about 72%. And in the further breakdown of

(technical difficulty)

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Operator [3]

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This is your Chorus Call operator. Please bear with us, the conference call will be resumed shortly.

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [4]

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Thank you very much. Sorry, but there was a line problem. I hope you're still connected both on the Italian and English side of the call. Can the Chorus Call operator tell me whether I can...

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Operator [5]

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Yes, you may go ahead, Mr. Albertini, yes.

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [6]

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So I will start again from Page 9. I do apologize, again, I was looking -- I've already completed the slide, but I'll start, and I do apologize if I'll repeat.

So this is our financial structure end of March 2020. We've seen some improvement versus start of December 2019. Loan-to-value is down to 47.2%. ICR is in excess of 4.2x, and the average cost of debt, that is further adjusted thanks to the commissions on the bond issuance at the end of last year where the demand was 3x the supply. So that allowed us to increase in the size of the issuance from EUR 300 million to EUR 400 million. The debt breakdown between market and banking system and unsecured and secured debt is seen in the piechart at the bottom of the page.

Our debt [is to] the market for 56.1%, its bonds. And the unsecured is more than 2/3, accounts for 72% of the total financial provision. Before the line of cutoff, I looked at our net financial position. Most of it is consisting of long-term debt, and about EUR 50 million is short-term debt. And you see in the square, in the red square, the cash position is EUR 130 million positive. And that is the outcome of -- or the result of the bond issuance in November last year.

Let's now move on to Page 10. This is -- of course, it's not a headline breaker, but somehow, it's a good signal, and it was kept on working, and we were awarded (inaudible) IGD had gotten UNI ISO37001 certification for antibribery -- for our antibribery management system. We started the pathway a few months ago, and now this is the outcome. Both our subsidiary in Romania that had already gotten the certification 2 years ago, it means that now the entire group is certified for UNI ISO37001.

Let's now move on to the (inaudible) so to say, of the presentation. Page 12. 2020 started well. As you can see, these are the January data, where footfalls were growing and sales -- tenant sales were also growing. And that also, in March, we went from 1.72%, so it was growing nicely, and they were flat. And this is a snapshot end of February that was making us think of a good 2020. And then, of course, at the end of February, the COVID-19 started to spread, restriction measures were applied in Northern Italy at first and then throughout Italy. And then, of course, in March 12, where we have the almost entire or full lockdown of our -- of all commercial activities apart from what were defined as essential services.

Page 12, again, compared to the previous quarterly results, our quarter is invoiced in advance. So we've already cashed in the vast -- the largest portion. We are talking about 85% of the quarter has already been cashed in -- more than 85%. And in Romania, we've practically cashed in the entire quarterly turnover because the restrictive measures in Romania were introduced at a later stage toward the end of the month -- end of March, I mean.

Page 14 now of the presentation. This is a -- the breakdown of our revenues. And here, I'm telling you how the measures were affecting our revenues. 25% of rents are flat. And guaranteed, I could almost say, because these are the operations that are still ongoing. There was another potential -- 8% potentially operational, but not all tenants or, better said, the vast majority of them, especially the larger ones, consumer electronics, hobbies, they willingly decided to close. So 1/3 of our revenues is 8% is -- was potential, but it's a much lower percentage.

And then after the first containment measures were applied and unfolded, IGD's shopping centers are still open because we still have a number of essential activities, hypermarkets, for instance. Of course, they were open with limited time schedule, limited opening hours, but still they were open. And we also kept open a number of operations, though, that were really essential: pharmacies, tobacconists were kept on, newsstands were kept open, and some of us instead only recently decided to reopen. That's as far as Italy is concerned.

As far as Romania is concerned instead, restrictive measures were introduced on March 22. And in Romania, the supermarket asset class, of course, supermarkets are smaller than the ones we have in Italy. And they represent -- they account for 11% of our revenues and a 10% of potentially operational tenants, but some of them decided not to stay open. As I said at the beginning during the introduction, the IGD's portfolio, in addition to owning both hypermarket and supermarket, has another special feature. We're talking about proximity stores that are easy to reach by the consumers, even though the restrictions were applied to the areas where consumers could go. And then there were Sunday closures, et cetera. So it would be impossible -- it would be very hard to sell other categories of then food.

Now moving on to Page 15, and here we have sort of broken down of the lockdown effects onto the 3 asset classes in our portfolio. On malls, we had negative trends in both footfalls and sales due to travel restrictions and operating hours and staggered entries. There were long lines at the entrances of our shopping centers largely due to staggered entries, again. And more or less, the same happened in Romania, although the effect on the quarter is less evident.

We hope that in -- that as it's been suggested by the Prime Minister of Italy that, on the 18th of May, we will start seeing most stores reopen while bars and restaurants won't open again until the 1st of June. This morning, news broke that there might be a few openings before then depending on how the situation goes. We still don't have the details, but we're already getting ready to a slow and gradual adaptation of new conditions, implementing some protective measures that we have planned for all from thermoscanners to social-distancing measures, increased sanitization of our shopping centers, amongst others.

Now moving on to the activities implemented over the period also in preparation of Phase 2. Again, as an entity, we have implemented a number of actions in line with our sustainability policies vis-à-vis all stakeholders. And we will start, obviously, with the actions that we have implemented with our most prominent stakeholders, i.e., the tenants. Here, you see the actions between Italy and Romania from the very first week, so let's say, mid-March, we have started the support initiative -- a voluntary support initiative to cash in the rent of the first quarter. And actually, in Italy, we billed and cashed in and collected over 85% of the rent.

The second quarter was subdivided into 3 monthly rents with payment date that will be all postponed to the end of the quarter, the 30th of June, and then -- for the first month, for April, and then the other 2 months in the quarter will be postponed to September 10.

In Romania, there was an extension for the payments of the rents or rental fees for April to the 15th of May. We would like to highlight that we are waiting for more specific indications from the government, especially the Italian government that will be released this month. It was expected to be issued last month, but it wasn't. So we're expecting it to be released this month, and it should contain measures and provisions covering rents and rentals.

And in order to provide such an answer to our tenants, there will be more support actions needed from the government, and we do expect that the government, we will -- that the government will implement the tax credit measures and will put in place resources that may cover up to 100% of rents, and we're waiting to see what the order of the Prime Minister contains in terms of measures and resources to make decisions on our side, and we expect to resume our activities to levels that will be predictably below pre-lockdown weeks but still very sustained.

Now we, at the headquarters, but also in the centers, there are health and safety people, health and safety experts who have focused very much on the safety of all stakeholders, beginning with the employees of the company as well as tenants and visitors. We have increased guarding and sanitization in the centers and the surfaces have been properly sanitized. And we have equipped our centers with all the necessary PPEs and other supplies for sanitization.

All the work sites have been secured. In fact, all work sites have been resumed. We are making different decisions depending on the site. Wherever we have sites that carry out essential activities, they -- sorry, inessential activities, we have discontinued their activity, and we don't have a date to reopen them. And we have written a protocol, which has been already implemented, as I have indicated. And that will be in coordination with our shareholders call for mark-to-markets management.

We have 13 places not working that resources are for people who work at the headquarters and also have remote work for people out in the network while preserving a minimum staffing and minimum manning at the site. And we have, again, put in place all the PPEs that the protocol provided for.

Another priority that we have adopted because the safety of our main stakeholders is very important was the sustainability of -- from a financial standpoint. It was clear to us from the very beginning that we had to create more security at the company from a financial standpoint, starting from our cash positions. We had EUR 130 million, so we were in a good position, but we did not estimate that this will be sufficient. That's why we have canceled CapEx and other investments that could be deferred.

And certainly, this year and our time horizon is the end of this year -- the end of 2020, we have been running simulations on 2021. We'll do so as soon as possible, hopefully soon, and then that will be part of what we'll be doing during Phase 2. So that should bring us a saving of EUR 34 million, and total savings will be -- and also, we have a reduction of nonessential expenses with savings for EUR 500 million this year, and social safety nets were provided for the employees with more savings.

We're also assessing the other options to reinforce our financial position. And this morning, the Board made an important deliberation -- important decision returning to apply for a bank loan provided for under the so-called Liquidity Decree to cover 25% of the Italian sales. I mean, this is something that -- I mean, we're pretty confident that we will get this big bank loan after all.

Anyway, in the meanwhile, we have work -- if you have committed credit lines removed, we have EUR 220 million to EUR 221 million in credit lines, EUR 60 million committed that they will reach maturity between late 2020 and early 2021. And EUR 20 million of these EUR 60 million have already been renewed. We have a deliberation for renewing the remaining EUR 40 million, but we have over EUR 300 million in cash, plus EUR 220 million in credit lines, of which is EUR 60 million committed.

So after we -- seeing this cash availability and the renewal of credit lines, et cetera, we feel that, in the next 12 to 18 months, IGD will have a pretty safe situation even if the scenarios are not particularly positive. The first important maturity that we have is for the loans for the amortization. We have EUR 71 million for the residual parts of the bonds that we traded last year. And we have a -- the financial resources to refund at the end of May for this part of our bond issues.

Rating changes. I think you've read that in the news in the past few weeks. Our financial department has kept in touch all the time with rating agencies. We are rated by 3 agencies at Q3; S&P, Fitch and Moody's. And the only agency right now that still thinks we are investor grade with a BBB-, although with a negative rating watch is Fitch, Moody's. While S&P kept the rating unchanged on Italy, but 3 weeks ahead of time, it downgraded us. IGD needs no comment. While Moody's, we were already in non-investment-grade area, and this was confirmed without any further downgrade. So with Fitch was that they give us investment grade. We have not triggered any step-up clauses on bond loans.

Chapter 4. Chapter 4 configures the possible evolution. Again, this morning, during the Board meeting, we dwelled on the possibilities, and we have tried to develop a few forecasts, though that's very difficult, on what the future of shopping malls and shopping centers will be at the exit of Phase 1 and Phase 2. Habits will remain, especially smart working for our employees, we're still -- we're already wondering whether we should, at least, partly continue like this. And most importantly, the result of an acceleration coming from the e-commerce.

So Slide 26. Going back to -- what needs to be done in terms of safety, we have already implemented a few measures: we've ordered the thermoscanners, and there will be thermoscanners on all entry points of our shopping centers where visitors who are measured with bodily temperatures above 37.5 degrees C will be rejected, will not be allowed to enter the shopping center. There are cleaning and sanitization operations. There will be pathways that people will have to follow, and masks will also be put in place.

Visitors of shopping centers will be safer at our centers than in the main streets of the major towns. Not everybody will be able to apply all these measures and actions, especially the thermoscanners. In city centers, it will be very impracticable to do the same. While in shopping centers, you can rest assured that any alley will be safer than the centers of Italian historical cities.

Now we're starting to think already all the possible evolutions are moving forward of our shopping centers. We're not thinking of what's going on now, but the next 12 to 18 months. Certainly, we'll have to capitalize on many opportunities connected with the increase in e-commerce sales. In that respect, we'll have to create new promotional supporting activities with visitors increase. I think these things, we have already started doing them but for the COVID crisis.

And so we had already started to increase personalized and digital services and provide answers to the needs related to growth of smart working, online teaching and difficulties for restaurants. Unfortunately, restaurants are in a very dire condition.

Now this is not anything that we have not identified in our strategic plan and, certainly, what has happened in the meanwhile and is still going on has sort of sped up the process. Here are just a few examples of what we needed to go for, a rethinking and redesigning of food courts, layouts and external areas to cater for more social distancing. The click-and-collect [services] will be increased remarkable -- remarkably just like the dark stores. We will probably use spaces due to a reduction of hypermarket services or vacant stores where we will implement these dark stores. Here, we have a picture of our Amazon locker set that we have implemented in all our stores. That's to serve the tenants of the center.

And then the creation of virtual shops, digital catalogs, and all of this requires a closer cooperation with our tenants. And then talking about co-working, there is a possibility of reducing the spaces that are available today or that will be a renewal in the future to create co-working centers. This is not just a new strategy. It's simply an acceleration of a preexisting strategy that we had already started before.

With our comments, we have -- there's an understanding that, after this period, as soon as this -- as the vaccine is, well, very welcome in innovation will be introduced, we will go back to this. We had already sort of thinking of our shopping centers, no longer at shopping centers but social centers or social hubs.

Now of course, talking about this is like talking about another geological era that's the way it sounds now, but I think we're going back to that idea sooner or later.

Okay, I'll move on to Page 29. In the press release, we have sent in the -- this is because of the document that we have revised this morning during the BOD meeting with, again, this change on profit for 2019 has already proposed a dividend of EUR 0.5 per share, EUR 0.50 per share, we have to rebuy that. And I think this year, our net financial position will be lower than budget in the range between EUR 30 million to EUR 40 million as a result of deferred investments, a reduction of the dividend and other actions that were put in place. And this has been the case for many other listed and unlisted companies, public and nonpublic companies.

The second element is that we'd like it to have access to the liquidity decrease facilities. We'd like it to have funds in the light of that order for EUR 38 million, guaranteed by the SACE. One of the preconditions, though, for that to happen that we should not pay out dividends. We have received a confirmation that, if IGD pays a limited dividend, which is the one that we have calculated here, a maximum of EUR 0.228152 per share. If we do that, we can the entitled to receive the funding in this liquidity order.

We would lose our prerequisite if we didn't do this, as a REIT, that we need to comply at the same time with the REIT regulations. This is part of a legislation, which was much often priced for the much larger French REITs, R-E-I-T, which -- and therefore, it was made possible for REITs to pay out dividends, while complying with the prerequisite, provided for -- in the government order for funding, guaranteed or secured funding. So we'll be able to pay dividends of EUR 25 million approximately.

I will close with one final slide. At the moment, we have no certainty, that we'll exit Phase 1. Hopefully, it will be the 18th of May. But most importantly, what's going to happen and also in view of the governmental measures that might have an impact also on our 10 tenants, it could be tax credit or maybe not, and also the level of that tax credit might have a big impact. And so it is too early to revise the FFO guidance. And so with this being said, the guidance is that, we had said that 22% is no longer viable, and we needed to wait for things to happen, before we provide new indications.

So okay, next the forthcoming agenda: June 11 Annual General Meeting, first call; July 22, payment of dividends; August 6, first half results. At that point, I hope, we'll have a clearer idea of what needs to happen, moving forward. And that's all with me, and I'm waiting for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from the line of Simonetta Chiriotti with Mediobanca.

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Simonetta Chiriotti, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [2]

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My question is about the provisions you made during this quarter. And I was wondering, the EUR 500,000, you mentioned, that are -- have been factored into the results of this first quarter, why did you make this provision? Was it Prudential, was it tied in, with some kind of other item, that we're seeing during the lockdown? Or whether any specific requests, concerning the fees request from your tenant timing? Or what is it that determined this extra provisions?

And then another question on the forward-looking outlook. Could you give us some color, however, even if you're not giving actual guidance, but could you elaborate on the mood you're actually seeing? It might be very negative, but maybe could you give us, again, some more color on tenants, elaborate on whether or not you've already started talks with them? Have you talked about temporary reductions -- fee reduction, or what can you share with us about this? And then the impact for cost reduction, how can you reduce costs?

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [3]

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I didn't get your last question. Costs. For instance, all of these facilities and measures that could be introduced, the EUR 500,000. This is second time we probably have said EUR 500 million instead of EUR 500,000, but the EUR 500,000 provision on top of the already budgeted provisions. So we've made a decision a few days ago. It's an all-purpose provision. It's a general provision. Because of the 10%, 15% of operators of tenants who have not yet paid their quarterly fees or the March fees.

We do not have anything special to say about this. And we just thought it was cautionary to make this provision. We have very conservative provision percentages. We have an almost entire coverage of impaired loans and about 70% are all receivables. And I'm not talking about this, when we are talking about the EUR 500,000. I'm talking about China's performing tenant. But we just wanted to send a signal. We could have come up with a [EUR 40 million] without this EUR 500,000 provisions. But we thought, this was fair because we might have had higher FFOs, but we thought it was fair and cautionary to have this provision tenant. I cannot tell you much about that because I know, we've had a number of requests from them. So far, cancellations have been very, very few. We're talking about 20 of them and, especially, from small tenants.

So far, we have no cancellations from the big tenants. Of course, we are currently talking to them. And also the government decision in the May decree will also have an impact on this. Whether or not they will cover corporate length, for instance, the so-called cura Italia, logically, 40% to 60% coverage only on rents. Most of our contracts are actual rents, corporate rents, rental fees. So there, we are not fully -- we are not covered. We've talked to the CMCC, together with the government. We are fairly optimistic, or moderately optimistic. One day we are more optimistic, the next day we are less, but should this provision -- sorry, this decree be passed, where the coverage would be extended from 60% to 100%, we would have 3 months covered by this tax credit. And if this tax credit can then be transferred to the landlord, it would be even better.

We don't think, these measures are enough, however, for our tenants' sustainability, more will have to be made. The Board of Directors, this morning, made a very important and sizable resolution. I'm not saying how much, but it's a sizable resolution to support tenants for the coming months and until the end of August, and we are clustering our tenant types. One thing is to talk to international large tenant, another thing is to talk to medium tenants, another thing, again, is to talk to smaller tenants. And so we have to have a tailored approach.

We have tenants who voluntarily decided to shutdown, when they could have kept their stores open. And there, they have a less bargaining power, when it comes to negotiating with us, but still, we'll have some attention for them, too.

And then costs. We have 2 hours. Anyway, if you want to stop, we have reserved 2 hours for this quarterly results. So operating costs we've deferred whatever was deferrable, nonessential costs. For employees, we have applied 9 weeks. And then for -- and then we have some savings, not sizable ones, but they are meaningful signals because we want to send out positive results to our coworkers as well. Because then the activity will pick up again, and we want everyone. Everyone is looking at us, here, in the room as well, we all want to actually be rolling in the same direction somehow. And we're trying to motivate all of our coworkers and employees.

All -- almost all of the employees who are here today, and I'd like to thank them. Most of them -- almost all of them are working from home, what we call smart working. And the fund -- going to working -- still -- I -- try a redundancy fund for 9 weeks, and it could be further extended. It's an additional fund.

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Daniele Cabuli, Immobiliare Grande Distribuzione SIIQ S.p.A. - COO [4]

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We are starting to have a first grasp of how to behave with our tenants. And it's clear, as our CEO was just saying that the government initiative for tenants -- or in favor of tenants are somehow affecting the lever, where we we'll be able to enact for them. But we are aware that the situation is not solved during the lockdown, it's the following months that will make a difference in recovering or making things right. This is when tenants will need our support, and we'll be able to interact with them at best. And of course, as our CEO was also saying in -- during the Board meeting in the morning, we've made a resolution to support. And so that our tenants can recover gradually step wise. We know it won't be an abrupt recovery as soon as the lockdown is removed. It will take time, indeed, and we're giving them time. So that they can maybe not go back to normal because it's going to be hard to go back to normal, we'll have to change the paradigm of what we call being normal or going back to normal because of this -- the forsaken virus. But we will have to be able to -- so that they can carry on without changing or adjusting or modifying the contract. So that they can still be in the market and in a sustainable way. Because at the end of the day, this is also ensuring our sustainability.

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Simonetta Chiriotti, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [5]

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When you talk about resources, you've allocated for tenants, is it a temporary discount plan?

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [6]

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Yes. Temporary reduction or discount plan, as you rightly said. They will be somehow tuned. They won't be one shot, they'll be tuned over the months, and they won't be the same for everyone. If we can go on a case by case basis, it won't -- we will have to manage our contract office. Our sales office will have to manage that. It's not going to be an intervention, where you have an overflow or what we call raining or flooding our tenants with support, as we say, where rain droplets are in one go. No, we are somehow tuning them, modulating them over 2-3 months. So they'll be staggered over the month.

And let's hope that the government will provide support also for the next 6 to 7 months. So it's a plan that will come into force between August and September, but that's the -- for the time being.

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Operator [7]

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(Operator Instructions)

We have a follow-up of Simonetta Chiriotti with Mediobanca.

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Simonetta Chiriotti, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [8]

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I took advantage of this opportunity to clarify one more doubt. It's not clear to me, if right now, shopping centers will all be reopened on the 18th of May, or if it will be treated differently from other stores?

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [9]

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Problem is it's not clear to us either. Prime Minister, Mr. Conte, over the last -- during the last press conference, he said the 18th of March (sic) [May] retailers and then June 1, bars and restaurants and beauty salons, et cetera, and hairdressers. This is what we heard. It was just an announcement, but we will have to wait and see, whether a new law decree, issued by the Prime Minister will be issued because these type of law decrees are of increasing size lately, but the latest, we'll say, that maybe it's going to be 18th of May.

This morning, I was reading that in some regions, Mr. Boccia, the Minister for Regional Affairs, said that in the most virtuous regions, quite a number of them in Central and Southern Italy, the opening should be ahead of time versus this 18th of May deadline. Even the June 1 openings could be made ahead of time. But we'll have to wait and see whether it's going to be 18th of March (sic) May and if the shopping centers will be allowed to open.

Italians who are connected know that CMCC have already issued quite a few pages put on the main gainers -- printed in the main gainers in Italy. They sent out messages, saying that, shopping centers are closed environment, it's safer than other environments because then through the pooling together of the different operators, thermoscanners can be used at entry as well as consumer access can be checked. So we have -- we think, we have all the necessary requirements to open on March -- May 18, but he said some virologists then -- and immunologists the other -- virologists, I don't remember what her qualification was, but this maybe works in the U.S. Fed, that shopping centers enhance the virus spreading because cooling systems are not sanitized. But that is not true because virologists would just say what comes to mind as the soccer stars.

But most negative scenario would be -- worst-case scenario would be on the 18th of May only retailers will open, but retailers outside the shopping centers. In France, for instance, they decided that shopping centers up to 40,000 square meters, GLA would open, but maybe, there are more than 60, 6-0, centers, shopping centers that have GLA and when we think that the rationale behind the resolution is that, those shopping centers have a very large cover, very wide catchment area. And so people feel entitled to move around. That's why they are not opening them. I'm talking about France. Maybe shopping centers between 400 and 800 meter GLA will be open and the larger ones, they won't. But an average size between 1,500 and 2,000 square meter GLA. People -- while, it's more difficult to people or to gather and for the shopping center to be overcrowded.

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Daniele Cabuli, Immobiliare Grande Distribuzione SIIQ S.p.A. - COO [10]

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I would like to say that shopping centers are never actually closed. So talking about reopening, it's not correct, it's not the right definition. They were kept open to preserve essential -- to preserve Prudential activities. So mass retailers in the food, consumer electronics, opticians, et cetera. So what -- it would be strange, if retailers can open that -- shopping centers cannot open. Because so far they granted because hypermarkets, even the smallest ones are 4,000, 5,000, 5,500 square meters. We have hypermarkets with 10,000 square meters GLA.

Of course, until now, food was the only thing they could sell. They couldn't sell other items, it would be paradoxical, if other stores could open and not shopping centers. Why can -- why did they open parks? And why can't you walk on a beach, for instance. I -- it's out of my grasp. Maybe somebody can explain that.

Then obviously, we have several orders and provisions. I think, the most perfect thing, which should be that the government have provided a general framework for individual regional authorities with decisions. And that will be adapted, based on the spread of the contagion the regional level, where you have no problems, such as in certain areas in Southern Italy, you could just remain within the broadest framework and be more relaxed. While the regions that experience the most problems might be -- might have drastic measures. But sometimes I don't see the rationale between -- behind certain decisions and certain measures that are passed. Any other questions?

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Unidentified Analyst, [11]

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(inaudible) Banca IMI. I have a question on the rating. Have you run any simulations on the economic possibilities, following the implementation of this step-up clause?

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [12]

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I will ask Andrea Bonvicini, our CFO, to answer that question.

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Andrea Bonvicini, Immobiliare Grande Distribuzione SIIQ S.p.A. - Director of Finance Division [13]

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Yes. We are trying all possible simulations because any instrument that you see out in the market is implemented in different ways. So the instruments that allow for a step-up clause to be implemented is the EUR 100 million bond that will expire in 2024, the EUR 300 million bond, that we have traded in, but (inaudible) outstanding for EUR 71 million, expiring in May 2021. And the EUR 400 million bond, that we have issued on the 28th of November of last year.

A lot depends on when the downgrade is happening, if it is. Now if -- we've run simulations that the later is the better. But if the downgrade should happen now between now and the end of the month of May, when the maturity of the 2 funds has not been reached, certainly, if there could be EUR 2.5 million for this year. While, for next year, it would be EUR 6.6 million. The further out in time, the more the numbers should go down.

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Operator [14]

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Next question from Leonardo Coccia of Clearance Capital.

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Leonardo Coccia, [15]

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I have two questions. First question is, can you give us some background on the situation of rents and rentals in the second quarter, based on what you've seen in April? And then, what you see, in terms of portfolio valuations? Have you had any conversations yet, in view of the semi-annual results in June?

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [16]

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Now as for the second quarter, Q2, we're waiting for the measures to be passed by the government, pretty soon. We'll see, if the rentals will be part of that order, if there's anything specific about them. If so, then there might be some positive effects, if the rents are supported.

Anyway, we will put in place the actions that we've announced. But that would be a big benefit, if the government orders encompass that, too.

As of today, we don't have much visibility on what's going to happen in the coming days and weeks. So hopefully, in the next few days, the government will pass that order, that will clarify a lot of things. As much so that we are waiting, whereas, some sort of -- and some sort of standstill because we're waiting for these decisions to make our own. It's different, if you know that you can go to a negotiation with or without a coverage from the government for what you're going to do, if you're not backed by the government, it's a much more uncomfortable situation. So we've already tried to depict a few scenarios in the Board meeting.

Now let's begin from this. IGD, unlike other European players, have one strength. In the past, it's been regarded as a weakness, but now, it's a strength. 25% at least of our revenues come from the food anchors or hypermarkets. These revenues are, so to speak, guaranteed, even though in April, the performance was not particularly good because of prescriptions and a lot of other effects.

But we believe that hypermarkets in the future will be, once again, one of the attractions of viewers appealing point of a shopping center. Also, thanks to the framework agreement in November 2018 with Coop Alleanza, that expanded -- extended the contract until, ultimately 2043, gives us some assurance in terms of this asset class in the shrinking of the results is that till [2030] That's 20-30 centimeters, but then we have 11% in Romania between (inaudible) and (inaudible).

So just in excess of one quarter has good opportunities to withstand the situation. What might happen to the balance, mostly in Italy and Romania, et cetera, well, via the application that represents us, also, Immobiliare have put forth one proposal.

The semi-annual results, half year results, and we have renewed it this very morning as the contract for the assessments and appraisals to our auditors for the next 4 years. I mean, we might not stay too confined to this emergency.

The assessments are based on a cash flow discount, whereas, the (inaudible) 30th of June, we will have the revenues from 1st of June, 2020 to 30th of June, 2030. I mean, the first year will be, but at least, by this situation, but as we move on, the effects of the pandemic, will be more and more limited in size. So certainly, we needed to take a negative attitude to the short-term situation, but perhaps the most appropriate thing would be to postpone certain actions and certain provisions. We should not be assessing mark-to-market securities. They needed to be frozen, their historical cost because if it doesn't happen, as has been the case in the past, we would have undergone hyper devaluations. And so the banks would ultimately need to increase their capital with a domino effect.

So in the real estate market, there are multiple companies, that the so-called SGRs, that will undergo valuation by the 30th of June. It will be very, very high that to obtain what we recommend because that the authorities they should take -- should make that decision, as they did in 2012.

And -- but if that doesn't happen, we might just rely, solely, on the judgment of the auditors, which might, by the way, have taken very different positions.

So we should wait and see, trying to be very cautious. And the appraisers should be more cautious and make a more decisive statement by the end of the year. When at that point, we'll be probably facing Phase 3. And Phase 1 and 2 will be over, and we'll have more visibility on what needs to happen. It's hard for me now to provide estimates. We've carried out sensitivity test, and if everything is confirmed as everything has been -- is going on by the 30th of June, we expect a significant write-down or write-off, sorry.

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Leonardo Coccia, [17]

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We expect approximately 10% rent on our portfolio. Just so my question was to have your own feedback on your expectations.

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [18]

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Well, you say 10%. Our portfolio has 2 major asset classes, hypermarkets and malls. So high-precision not be affected by the write-downs. The 10% is in the worst step case scenario, that we have produced. I don't think, that there should be -- I mean, it would be too much of an impact on the results of June 30. I think, it would be too much. Because the model takes as its reference -- I mean, the model used by the appraisers is a 10-year model. So for instance, it would be interesting to know what their forecast is for 2027. And I'm just taking it at random.

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Operator [19]

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Next question is by (inaudible) of [GWM] .

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Unidentified Analyst, [20]

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I have a question on the liquidity position, the cash position. The cash on hand, does it not include the dividend, that will be paid out, which is the gross amount. The EUR 130 million, that as at March 31?

So the -- if it's a -- pro forma has to subtract EUR 25 million. Now other than that, on the credit lines that are committed. Can you provide details? For instance, to what extent are they available? And are there impacts in terms of appraisals, impairments, write-downs or DCRs? What's the trend for the coming months that could doubt -- could anything limit the availability of those credit lines?

And then one final question on leveraging and debt. Perhaps the more complicated scenarios of the next few months. Perhaps include the elements that deserve a tight retention that could -- are there any specific elements that could become stressful from a financial standpoint?

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [21]

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Andre Bonvicini, the CFO, will take your question.

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Andrea Bonvicini, Immobiliare Grande Distribuzione SIIQ S.p.A. - Director of Finance Division [22]

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As for the committed lines, they have no covenants, and they have no marked draws. So they are immediately drawable at any time, without any previous certainty. Mr. Albertini said, that they are being renewed because they will come to an end by the end of the month. We have -- sorry, the end of the year. So we have renewed the one already in March. And then we will renew them for the next 2, 3 years.

As for debt, in general, in the most negative scenario, the unencumbered unsecured debt, we have a scenario, where we've reached the limit where we have also, at the same time, the highest opportunity to free up assets because in 2020, 2021, we will free up EUR 250 million to EUR 300 million in assets. And that will help us, that we recover also in the most adverse scenario, the MAC unencumbered on secured debt. Last question.

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Operator [23]

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(Operator Instructions)

Mr. Albertini, for the time being, there are no more questions in the queue, neither in the Italian nor in the English queue.

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Claudio Albertini, Immobiliare Grande Distribuzione SIIQ S.p.A. - CEO & Executive Director [24]

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Very well. I would like to thank you all on my behalf and on behalf of our Chairman and our coworkers. Till we talk again, goodbye.

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Operator [25]

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This is the Chorus Call operator, the conference call has come to an end. You may disconnect your phones. Thank you very much.