ello, and welcome to the Eurocommercial full year results for 2023. My name is George. I'll be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be in listen-only mode. However, you will have the opportunity to ask questions towards the end of the presentation, and this can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I'd like to turn the call over to your host today, Mr. Luca Lucaroni, Investor Relations Director, to begin today's conference. Please go ahead, sir.
Thank you very much, and good morning to everybody, and thank you to be here. My name is Luca Lucaroni, Investor Relations Director. I'm happy to be on this call with Evert Jan van Garderen, our CEO, Roberto Fraticelli, our CFO, and Peter Mills, our CIO, to present Eurocommercial result for the year 2023. The agenda for this conference call is presented on the slide. Evert Jan van Garderen will talk about the operational result of the company, including the leasing activity during the year. Peter Mills will talk in more detail about the property portfolio in Italy, followed by Roberto Fraticelli, who will discuss in detail the financial result. At the end, we will open the call for any question and suggestion you may have. Now, I leave the floor to Evert Jan van Garderen.
Thank you, Luca, for introducing us and presenting the agenda for today. Good morning, everyone, and thank you for joining us this morning. I will start with an overview of the operations of Eurocommercial during the financial year 2023, and we'll finish this presentation later with some remarks on the dividend proposal and the guidance for 2024. The diversification over four countries and the quality of the almost EUR 3.8 billion retail property portfolio in each of these countries have again been key to the performance of the company in 2023. There were no changes in our portfolio of 24 shopping centers. As a consequence of the external valuations as per the 31st December 2023, the portfolio spread changed slightly compared to December 2022. Italy went up from 43%-44%.
Sweden and France remained the same, both at 21%, whereas Belgium went down from 15%- 14%. Next to a good country diversification, our shopping centers are again well spread in those four countries, and in all in wealthy areas, like for example, Northern Italy or close to the Swiss border near Geneva or in the wealthy catchment of Woluwe Shopping in Brussels. This slide provides the maps of the four countries showing where our 24 shopping centers are located. The company showed a strong operational performance in 2023. On the slide, you see an overview of all the important operational metrics for the year, which underpin that statement. I will comment in more detail on each of these metrics in the remainder of this presentation. 2023 was the year of high rental growth. The growth was mainly driven by high indexation.
The overall indexation for the portfolio was 7.9%. This high indexation resulted in a record like-for-like rental growth figure for the entire portfolio of 9.7%. Italy and Sweden shows the highest rental growth, countries which cover together more than half of our property portfolio. Also, turnover rent, relettings, and renewals, as well as local vacancies, contributed to the rental growth. You can see from the 10-year like-for-like rental growth overview that 2023 was a record year, as over the last 10 years, rental growth was more modest due to low inflation and the pandemic. The like-for-like rental growth for the portfolio and the four countries is always calculated on the basis of 12 months data. We compare the tenancy schedules as per the 31st December 2023 with the tenancy schedules as per the 31st December 2022.
So basically, we compare two photographs. We already have a clear idea of the indexation for 2024 for most countries. In the presented table, you'll find these indexation figures. We are, in principle, applying these indexation figures to all our lease contracts. The 2024 indexation differs among our four countries, and for Italy and Sweden also differs significantly compared to 2023. For Belgium, it's more difficult to calculate the indexation for 2024, as every month, those leases which started in that particular month are indexed using the index for that month. In that case, we only know by the end of the year what the indexation invoice was. Therefore, we used an estimate of 3.1% based on our expectations about what the index will be for the rest of 2024.
In France, the indexation is also somewhat regulated, as the government decided to keep also for 2024 the cap at 3.5% for small-sized companies, which cap was applicable for 2023. This cap will be applicable for about 10% of the tenants of our French portfolio. We therefore expect to apply a blended 6.1% for indexation in France. Last year, the indexation in Italy was the highest compared to the other countries in our portfolio, whereas for 2024, Italy is the lowest. Sweden has the highest indexation for 2024, with 6.5%, albeit lower than the 10.9% applied for 2023. As the occupancy cost ratios for our tenants are low for the industry, on average, well below 10%, the rents will remain affordable, also including the 2024 indexation.
For France and Sweden, the indexation for the first quarter 2024 has already been invoiced and collected, and in Italy, most of the billing of the indexation for the first quarter will take place in the second quarter of 2024. We do not expect any problems with the collection, as the indexation is very low this time. So far, we have not received any pushback from tenants on the indexation bill in Sweden and France, but we cannot exclude that there may be cases later this year. As you can see, the company is in principle a natural hedge against inflation due to indexation.
The sales in the stores of our shopping centers in 2023 have been strong compared to 2022, but also compared to the pre-pandemic period in 2019, which is not a surprise, as there was considerable inflation during 2022 and 2023. I suspect this is the last time we will compare turnovers with pre-pandemic levels, as that is now 5 years ago, and 2023 is fully comparable, as it has not been affected by the COVID-19 pandemic. We are encouraged by the latest available turnover numbers in our stores, which are the January and February 2024 numbers, showing an overall increase of 3% for the portfolio compared to the January and February numbers for 2023. Footfall increased with 2.4% compared to the same period last year.
If we look at the various sectors and compare the turnovers for 2023- 2022 and also to 2019, we see that nearly all sectors have at least achieved their 2019 levels, with some clear winners, which are food and beverage, health and beauty, gifts and jewelry, sports, home goods, and hypermarkets, supermarkets. We are pleased to see that all sectors increased their turnovers compared to last year. We are still well-positioned to lease our retail space to attractive tenants under sustainable conditions at affordable rent levels. Introducing new tenants and new concepts of existing tenants will ensure that our shopping centers remain attractive for their customers and continue to have their purpose and stay relevant in their catchments.
We are proud to be able to report that on 214 relettings and renewals, an average rental uplift of 2.8% was achieved on top of indexation. The slide provides you with an overview of the various brands which were included in the leasing deals we did in 2023, with a breakdown in percentages of the sectors in which the transactions took place. These leasing transactions reflect 14% of the minimum guaranteed rent of the portfolio. We were able to attract new tenants with our 74 new lettings, achieving an uplift of 6.2%, and these new deals were concluded under normal lease conditions and lease terms, so no short-term leases. This leasing activity is continuing, with already 47 new leases signed in the first two months of 2024, achieving an average uplift of around 3.2%.
Low vacancy is usually a good indicator of the quality of the properties. Over the last 10 years, we have reported vacancy rates in our property portfolio, ranging between 0.3%-1.8%, and we continue to do so. The average for the last 10 years was 1%. The EPRA vacancy rate remained very low at 1.5% in December 2023 for the entire portfolio, the same vacancy rate as in June 2023. The company has always been known for its low occupancy cost ratios, and we are therefore pleased to report a 9.5% occupancy cost ratio for our portfolio as per the 31st December 2023. This percentage is still one of the lowest in the industry and implies that the rents are affordable for our tenants.
If we look back some years before the pandemic, we reported in 2014, 8.1% for the portfolio, and just before the pandemic started in 2019, we reported 8.9%. So our current overall OCR has not dramatically increased, bearing in mind that prior to 2019, our property portfolio also included retail parks, which by nature have much lower OCRs than galleries in shopping centers. Despite the high indexation and therefore much higher rents invoiced, the rent collection is back to normal, with a rent collection rate of 99% of invoiced rents for 2023, compared to a 98% rent collection for 2022. The rent collection for the first quarter of 2024, which already stands at 95% of the invoiced rents, is also evidencing that the rent collection is back to normal.
Bearing in mind, we're still in the first quarter, so additional rent will be collected. This is the moment to hand over to Peter Mills, who will discuss in more detail our property portfolio and will report on our environmental, social, and governance strategy and performance.
Thank you, Evert. The current portfolio comprises 24 shopping centers and provides diversification in terms of geography, size, and type. Our four countries, Italy, France, Sweden, and Belgium, are shown here, weighted by value. Italy remains our largest market at 44% of the portfolio, a weighting that we are happy to maintain as all the positive economic and retail indicators that initially attracted us to the Italian market remain, namely extremely high wealth levels in Northern Italy, and particularly in Lombardy, very low online penetration, which has only just reached 10%, low levels of household debt, and very low shopping center density, and therefore competition. Partly because shopping center development started relatively late in Italy from the early 1990s, meaning that even today, retail density in our Italian catchments is well below half French levels.
The existing portfolio also provides asset diversification, with its five flagship shopping centers, balanced by the remaining nineteen suburban hypermarket-anchored shopping centers. The five flagships are located in their respective country's capital or main economic cities and are important shopping centers in their national context and retail hierarchy. I Gigli, located outside Florence, remains one of Italy's largest shopping centers by footfall, while Fiordaliso and Carosello are two of Milan's three regional shopping centers. Passage du Havre is a prime established central Paris gallery, while Woluwe Shopping in Brussels is still regarded as the benchmark for shopping centers in Belgium, as it has been over the last fifty years since it first opened. These flagships attract a broad international tenant base and have a higher discretionary spend component, particularly fashion.
By contrast, our 19 suburban hypermarket anchors, anchored shopping centers have different and more defensive characteristics, with over 60% of their floor space devoted to a broad range of essential and everyday retail, including groceries. Most were strategically sited and originally developed by the hypermarkets themselves in the wealthy catchments of important provincial towns and cities, and these types of shopping centers provide a broad mix of both national and regional tenants and an increasing range of services for our more local communities. Overall, the property valuations declined by 2% compared to June 2023, when the properties were last independently valued, and by 2.2% compared to a year ago. Despite higher net operating income, the overall decrease in value was due to the adoption by the valuers of higher initial or exit yields, depending on methodology and higher discount rates.
The higher yields were a reflection of an uncertain economic outlook, higher inflation and interest rates, which together resulted in a quiet investment market. Although there were a few notable shopping center transactions early in the year, particularly in France and Germany, which were relevant reference points for the valuers, who, in their reporting, identified the portfolio's sound property fundamentals and solid outlook for income security and growth, supported by rent affordability and steady tenant demand. The most significant decrease in value was Woluwe Shopping in Belgium, which has declined by 7.6% since the last valuation, due to a combination of an increase in the capitalization rate, together with the exclusion of the value previously ascribed to the extension projects following our decision to withdraw the permit application at the end of 2023.
The overall EPRA net initial yield on the portfolio has decreased by 30 basis points, increased by 30 basis points from 5.5%- 5.8% over 12 months. We've again provided the valuation split, separating our 5 flagships at the top of the slide, which together represent around 45% of the portfolio and are lower yielding at 5.4%. With an average individual value of over EUR 400 million, the flagships are large enough to accommodate a joint venture partner, as we currently have at Passage du Havre in Paris with AXA and at Fiordaliso in Milan with Finiper.
The remaining 19, mainly suburban hypermarket anchored shopping centers, comprise 55% of the portfolio and are smaller assets with an average individual value of around EUR 100 million, and they are higher yielding at 6.2% overall. During the last year, we completed the final phase of our project at Valbo, located outside Gävle, the last of the seven Swedish shopping centers we acquired in 2018. The objective has been to improve and broaden the tenant mix, upgrade the property to a modern standard while improving customer flow by creating a single loop from a new entrance. The project was executed in three phases due to the complexity of keeping the center open and in full operation during the works.
The first two phases provided new stores for tenants including H&M, New Yorker, Normal, Hemtex, Rituals, and Deichmann, and included the refurbishment of the malls and the public areas. The last phase, which was completed during the autumn last year and opened on the twenty-eighth of October, provides the new entrance, facades, and seven shops, which were all pre-let to national brands in the food and beverage, fashion, and consumer electronic sectors... This slide illustrates the remerchandising currently underway at Woluwe Shopping, following the completion last year of negotiations with several anchor stores. Next month, we'll see Zara open an enlarged store of 3,300 square meters in a new central mall location, which will shortly be followed by C&A, who are relocating to a new 1,450 square meter store previously occupied by Zara.
Meanwhile, Inno recently started the refurbishment of their 12,000 square meter department store, while Carrefour are taking over Woluwe's supermarket, introducing the latest version of its Carrefour Market concept that is more aligned to Woluwe's wealthy primary catchment. Indeed, leasing remains the core activity in Eurocommercial's business model. Building and developing professional relationships and partnerships with our tenants allows us to adapt our retail mix to changing consumer behavior and preferences. Working together with our retailers as they also respond to these changes by rationalizing their estate, resizing and reorganizing stores, and innovating to provide an integrated omni-channel experience.
We continue to see several fast-expanding retail sectors which are currently driving tenant demand, and on this slide, we illustrate some of the retailers behind the rapid growth of lifestyle and branded sport and leisure fashion, and who have recently established in several of our centers, including Adidas, Nike, JD Sports, Foot Locker, Courir, and Snipes. The health and beauty sector is increasing its presence in all our markets, with the expansion of several international brands illustrated on the slide. The food and beverage sector also continues its post-pandemic growth with a range of new brands, concepts, and formats. We have responded with a number of initiatives, including recently completed F&B projects in Italy, France, and Sweden, illustrated on this slide. Finally, with household budgets under pressure, we continue to see the expansion of the low-price value retail sector.
These destination retailers are capable of generating high levels of footfall and comprise an increasingly important component in our tenant mix, spread over a number of retail sectors. In the home goods segment, Clas Ohlson continue their expansion, as do Flying Tiger with their interesting and diversified assortment. In the health and beauty sector, the Danish retailer Normal are taking bigger units of up to 600 square meters and perform very well in all our Swedish shopping centers, and have also recently opened in MoDo in the Paris suburbs, a city where they also continue to trade very well in our prime city center gallery, Passage du Havre. In the fashion segment, Primark are important anchors in Fiordaliso and I Gigli, and in order to expand further, they are now almost, also more flexible on unit size.
In the young fashion arena, the German retailer New Yorker are performing well in three of our Swedish centers, as well as Grand A in France and Fiordaliso in Italy. Our commitment to a broad ESG vision and strategy has seen progress with a number of initiatives articulated around these three strategic pillars: be green, be engaged, and be responsible. During 2023, we completed three solar panel installation projects at I Gigli, Carosello, and Etrembières, which are already contributing towards the electricity requirements of their common areas. Collectively, our shopping centers increased their energy production by 14% last year, while energy consumption decreased by 15%.
Continuing with our decarbonization targets, we achieved a reduction of 24% in our Scope 1 and Scope 2 emissions, and after decommissioning several gas plants, we reduced our gas consumption by 31%, while waste to landfill also decreased by 38%. Last year, climate change risk assessments were performed in all countries, providing us with the necessary data and information to prepare climate change risk mitigation plans. Our shopping centers are increasingly acting as vibrant hubs of social interaction and community development, providing many amenities such as entertainment, fitness, and health facilities, and hosting cultural and charitable events. During 2023, we worked closely with and strengthened our relationship with our tenant communities, developing the Eurocommercial Retail Academy in a further eight shopping centers in France and Italy to improve customer service.
While in November, we also launched the ECP tenant app in our Italian and French shopping centers to improve communication and collaboration with our tenants, providing them with better support and service. We also carried out 13,000 face-to-face customer interviews in 14 shopping centers, supplemented by additional online surveys and focus groups to acquire additional data from our communities, while we continue to make further progress with our sustainable finance goals, entering into additional green and sustainability-linked loans. This is therefore the right moment for me to hand over to Roberto Fraticelli, who will cover this subject in more detail as part of the financial review.
Thank you, Peter. Hello, everybody there. Let's start with the latest update. As you can see from the slide, all long-term loans maturing in 2024 has been refinanced.
The loan with Banca Popolare di Milano and the retail park in Fiordaliso has been refinanced for 3 years, so they can be included in the negotiations for the refinancing of the whole loan on the Fiordaliso shopping center, which matures in 2026. The other two loans, respectively, for EUR 100 million with ABN AMRO, and for SEK 700 million, which is around EUR 62 million, with SEB AB, have been extended for a period of 5 years. We have already started negotiations with our financing banks on the loans expiring in 2025. Next, here you see an overview of the most important financial data. The total value of the net borrowings at the thirty-first of December 2023 was at EUR 1.6 billion, a slight increase compared to the 1.55 billion at the thirty-first of December 2022.
That's mainly due to the acquisition of the minority stake in Valbo. As you can see, our loans are spread among more than fifteen banks in different countries, with Dutch, German, and Italian banks' shares all above 20% each. What have we done in 2023? In March, the EUR 159 million loan financing the shopping center in Fiordaliso, Italy, was qualified as a green loan. In March and September, we also extended the green loan for an amount of SEK 1.2 billion, which is slightly above EUR 100 million, with Nordea Bank on three properties in Sweden for a period of four years, and also refinanced the loan on the Bergvik Shopping Center in Sweden for an amount of SEK 675 million, which is around EUR 60 million.
Also for 4 years, and it also qualifies as a green loan. The overall interest rates, including margins, at 31st of December 2023, increased to 3.2% from the 2.4% at the end of May of 2022, sorry. That's mainly due to the strong increase in the EURIBOR and STIBOR rates during the year, which impacted on the 90% floating part of the loan book, as 81% is hedged in line with our interest rate hedging policy. As we will see more in detail in the next slide.
Yeah, when we have a closer look at the movement in interest rates, we can see how the in the last years, now we stand in the strong increase of the official ECB interest rates from around -50% to around -0.5%, to around +4%. Our average interest rate went up from around 2% to the 3.2% at the end of 2023. You can also see how our hedging policy remains quite conservative around our hedging target level of 80%. In this slide, it's also interesting to note how the EURIBOR three-month interest rate is expected to decrease from the current high levels to around 2.5%, with a positive impact on the unhedged part of our loan portfolio. This slide gives you a quick overview of our performance this year.
Property investments were down by 2.2%, mainly due to the increase in the net initial yields, which went up from 5.5%- 5.8%, as Peter already illustrated, which were partially compensated by the increase in the net rental income. Therefore, the EPRA NTA was slightly lower than last year. The net borrowings were slightly up, as discussed, mainly due to the acquisition of the minority stake in Woluwe. In the next slide, here we see the higher initial yields, and therefore the lower value of the properties, which contributed, together with the higher debt, to a slightly higher loan-to-value ratio. Which on the basis of the proportional consolidation at the thirty-first of December increased to 42.5% from the 40.4% at December 2022.
Please remember that the group covenant loan-to-value ratio agreed with the financing bank is still 60%. If we look at the NTA, yeah, this slide gives you a quick look at the relative changes in the EPRA NTA, net tangible assets per share, from the EUR 39.82 at the end of 2022 to the current EUR 39.59. The two major movements, besides, of course, the direct and indirect investment results, are related to the EUR 1.39 dividend per share in cash, and to the 0.45 euro effect of the increase in the number of shares derived from the stock dividends in January and July 2023.
Moreover, we have a positive variance of EUR 0.81 per share, which is related to the adjustment of the fair value of the financial instruments, which is included in the indirect investment result, but has to be excluded from the EPRA NTA calculation. A positive variance of EUR 1.27 per share related to the acquisition of the Valbo minorities share. Quickly, the net debt to EBITDA ratio remains stable at 8.9 in 2023, which is the same level as 2022, while the interest cover ratio decreased from 4.1 in 2022 to 3.7 in 2023. This slide gives you a quick overview of our income statement.
As you can see, both IFRS net property income by EUR 60 million, and the direct investment result by EUR 3.6 million, increased compared to 2022. This is mainly due to the increase in rental income from indexation and the renewals and reletting, and also the elimination of the COVID-19 rent concessions, which were granted in 2022. IFRS net interest expenses were EUR 8.2 million higher than in 2022, with the increase in the interest rates, which was mitigated as discussed by our hedging policy. The results per share show how, notwithstanding the 1.1% increase in the number of shares, the direct investment results per share went up from EUR 2.28 in 2022 to EUR 2.32 in 2023.
The negative indirect investment result is instead related to the lower market value of the derivatives due to the changes in the EURIBOR and STIBOR curve. EUR 44 million negative in 2023, versus EUR 131.6 million positive in 2022. To the lower market value of the properties, EUR 95 million negative in 2023, compared to EUR 13.2 million negative in 2022, partially compensated by a decrease in the deferred tax, EUR 5.5 million negative in 2023, compared to EUR 43.6 million negative in 2022. Last but not least, and as a bridge to our dividend policy, the direct investment result for the twelve months to December increased by 3% to EUR 123.1 million, compared to EUR 119.5 million for the same period in 2022.
The higher net property income compared to 2022 is mainly related to higher rental income from the properties due to an indexation and the renewals in leasings, EUR 10.5 million. The absence of the COVID-19 rate concession related to IFRS 16, EUR 5.5 million, and the acquisition of the minority stake in Woluwe, EUR 2.7 million, which more than compensated the increase in interest expenses, EUR 10.2 million, and the higher current tax, mainly in Italy, of EUR 1.2 million, which is derived from the strong increase in rental income. Thank you very much, and now back to Evert.
Thank you, Roberto, for presenting all the figures. In the press release, we included the dividend proposal, which we will table at the general meeting scheduled for Tuesday, the 11th of June, 2024, for approval by the shareholders. In 2022, we introduced a new dividend policy for the company, which implies the payment of an interim dividend in January and the payment of a final dividend in July. For the interim dividend per share, we aim to pay 40% of the total cash dividend per share paid in the previous financial year. The new dividend policy also has a clear payout ratio range and payout ratio target for the cash dividend. The company's payout ratio for cash dividends will range between 65% and 85% of the direct investment result, but with a target of 75%.
Today, the company's results are not directly affected by the wars in Ukraine and Gaza, but that could still change would the conflicts escalate further. Indexation for 2024 is much lower than for 2023, which will impact rental growth. We also cannot exclude that some tenants may have a hard time due to competition in their sectors and could become insolvent. However, short-term interest rates seem to have plateaued, although we have not yet seen rate cuts by central bankers. These cuts are now expected by the markets to take place in the summer, and that may have a positive effect on property values as funding costs will come down.
So on balance, we are optimistic about 2024, and therefore propose to increase the total dividend per share from EUR 1.60, paid in 2023, to a total dividend per share to be paid in 2024, amounting to EUR 1.70. This is an increase of 6.5% and translates into a 73% payout ratio, close to our payout ratio target of 75%. This proposal implies a final cash dividend of EUR 1.06 per share. We will also offer shareholders the option to elect for a dividend in shares, instead of the cash dividend of EUR 1.06.
As these shares will be charged to the fiscal share premium reserve, there is no Dutch dividend withholding tax due, which may be attractive for those shareholders who cannot obtain a reduction or a credit for the 15% Dutch dividend withholding tax. The ex-dividend date will be Thursday, 13th June, 2024, and the dividend distribution date will be Friday, the 5th of July, 2024. Assuming no major deterioration of the macroeconomic environment, we expect the direct investment result for the year 2024 to be between EUR 2.30 and EUR 2.40 per share. I would like to conclude this presentation with the statement that as management board, we are truly thankful to all our teams in the various countries for their hard work and their continuing commitment to Eurocommercial. I will now hand over to the operator for questions.
Thank you very much, sir. Ladies and gentlemen, once again, as a reminder, please press star one on your telephone keypad to register your question. Our first question today is coming from Valérie Jacob, calling from Société Générale. Please go ahead. Your line is open.
Everyone, thank you very much for the Yeah. I have a quick question, if I may. My first question is about your cost of debt. You show a very clear slide about your cover and everything, and I was wondering if you could give us some guidance on where you see your cost of debt in 2024. My second question is about Woluwe. I saw in the press release that the extension is not happening anymore, and I was wondering if you could give us a bit of context and, you know, what are the next step, and what could, you know, make you change your mind on the extension? And my last question is about the asset values in Italy.
They are up this year by 1%, and I was wondering if you could tell us if there are transactions, you know, happening in Italy or, you know, what is the base of this uplift? Thank you very much.
Well, thank you, Valérie, for your very clear questions. I think you managed to give three questions, which will be answered by three different persons. So I invite Roberto to take your question number one about the cost of debt,
Yeah. Now, thanks a lot, Valérie. I mean, we're already at 3.2%. So let's say if we look at the future, let's say our hedging policy is still the same, so around 80%. So we do expect more or less the cost of debt to remain around the 3.2, 3.3, 3.4 something around that. It all depends a lot also from the European Central Bank. If they decide to keep interest rates at 4%, or they want to move it to 5%, of course, it's a different story, but we all hope that they will, you know, start at a certain point with the interest rate cuts. Does that answer your question, Valérie?
Thank you.
Yeah. Okay, well, Valérie, then on Woluwe, I'll do that together with Peter, because I will give some context on, let's say, why did we, in the end, decided to withdraw our application? And that obviously was the result of a long process. We started with the extension plans and the ideas already when we actually bought Woluwe, so also before the pandemic. And it was a project which we teamed up with the municipality and the region. The region obviously liked the mixed use in that project. But it's fair to say that sort of halfway the process, the municipality changed their mind and had more concerns about that project, particularly the height, but also flooding was an issue, design.
So that became really in the process a problem, because in the end, they also appealed when we got the permit last summer, and next to neighbors, et cetera. So we ended up with a situation where it could take quite some years to really maybe in a final stage obtain the permit or not. So a lot of uncertainty. Meanwhile, building costs, et cetera, had changed. And we said, "We want to make Woluwe also a very strong mall today." And as you've seen on one of the slides, we are doing a lot of new leasing activity. We're very excited about it, and that means that you also need to cooperate with the municipality when it boils down to small permits, authorizations, approvals.
Therefore, we said, "Let's no longer almost fight about this extension in this format, but let's focus on the mall. Let's make sure that we're all aligned," and that's why we took the initiative just before Christmas, allowing us to do these wonderful lettings with our anchors on nice, new long leases. And yeah, I think that's a bit about the process. Peter, on
Yeah, no
Maybe on that leasing, and
Yeah, no, no, I was gonna say, I mean it, Valérie, it, it. In terms of the leasing, that the extension was, you know, I'd use the word getting in the way a little bit, not only just in terms of those anchors, but certainly the C&A, it would, it would have complicated matters. But also, we had up to 20 tenants who were sitting there holding over, that we weren't able to ever move into, in, into new commercial terms or, or, or, or if they wanted to change their, their, their stores. So it, it. There was a, there was increasingly a conflict. And what I would say, just in terms of the project, to finish with this, it's not over, because, of course, we, we, we still have the rights. We would need a permit.
I think when we look forward to when revisiting the subject, which it will be revisited, it will be, I think with the experience we've had, a much simpler single level extension. Without that would exclude the need for basement parking, which will deal with the flooding, probably without residential, which was not particularly profitable, but it was a requirement of the region who wanted a mixed-use scheme initially. And that will remove a number of the objections we were getting from neighbors. The rights are not lost, and it will be revisited, but the focus now is very much on the re-merchandising of the existing mall.
Yeah, and then maybe Roberto on Italy.
I'll take the one on Italy.
I’m absolutely right, Valérie, as always, as always. I’d say the +1% is mainly related to the increased rental income, which was significant in Italy, so that compensated more than compensated for the increase in the yields, which we’re seeing in Italy as well, quite significant. About transactions, there’s plenty boiling. Of course, you never know when it comes to fruition, but there’s at least 4 assets which are on sale in Lombardy. One is a bit of a mix between a shopping center and a retail park. Another one is another shopping center, which is undergoing some refurbishment.
Then, of course, you have a nice asset in Palermo, a couple of assets in Campania, near Naples, a retail park in Bologna, several small assets in Tuscany, and two in, important assets in Rome. So those are all negotiations which are going on. You know, it's not been finalized yet. And there's always, rumors, about another transaction which could take place. But, so far, let's say, we have not seen clear transactions taking place in Italy. If that answer your questions, Valérie.
Thank you, Peter, very much. Just one more follow-up, if I may, on Valbo. Are you still committed to finding a partner for Valbo, or is it not the priority anymore if the extension is not happening? Thank you.
Thank you, Valérie. No, we're not committed to find a partner. We mentioned a joint venture possibility of Woluwe, because it is our largest asset. We had, at that time, the project, which could be of interest as well, because at that time, we thought it could still enlarge the center in the way it was set up. But I think, today, you know, we're very happy with Woluwe. It's still, I think, a great asset, and of course, you can look for a joint venture part. But it's not the priority right now, because we first want to really have Woluwe in the shape with all those new lettings.
And then, of course, it is also an asset which gives a tenancy mix with new, very long leases. I mean, we're making now brand-new leases with Zara, H&M, Inditex, C&A. You know, is going to be also a new lease and also now with Match becoming a Carrefour, again, a very new lease, long lease there as well. So I think also from a, yeah, let's say, an attractiveness, it could still be for a JV partner, you know, an interesting exercise, and that's something which we will not exclude. But for now, we're not committed or pressed or under pressure to find a JV partner.
Thank you.
Okay. Thank you.
Thank you, Valérie. Ladies and gentlemen, as a reminder, please press star one to ask a question, and if your question has been answered and you wish to remove yourself from a queue, please press star two. We'll now move to Francesca Ferragina of ING. Please go ahead.
Hello, good morning, everybody. I have a few questions. The first is on guidance. Can you tell us what are the assumptions behind the top line for 2024, so in terms of organic growth? And still on top line, I saw that the average rents on uplift, renewals and the letting is overall very, very good, with the exception of Woluwe and France. Can you elaborate a little bit on this? And I escalate a bit the questions on Woluwe. I understood the ambition on Woluwe has been withdrawn. Does it mean that you see some more interesting opportunity and maybe easier investment opportunity somewhere else? Do you see any new assets coming to the market, for example, something that might have a good fit with your existing portfolio?
On JV, I'm fine with the answer on Woluwe, but in the past, you mentioned to be open to JV as a way to recycle capital. Is there something that is still interesting for you and might involve some other assets or a portion of the portfolio? Many thanks.
Thank you, Francesca. I listed four questions. And maybe we should take the last one first and work back to your number one question about guidance, because that's all about the future, and maybe some of the answers to the other questions will help you to get a bit more color on the future. So, yeah, the joint venture idea is still alive. Let's say we have always talked about Woluwe because it is the largest asset, but we have more flagships. We currently have two JVs, one in France and one in Italy, and we're simply not excluding other JVs to happen. And then, of course, Italy is an obvious one. But I'm still also not excluding Woluwe,
But it is just a matter of now getting it in such a shape that it can be also very clear for a partner. It will be a passive partner, because obviously we want to do the asset management. But if you have a very clear view on the new tenancy mix with all those anchor tenants being committed for many years. And don't forget, what is happening is, actually quite extraordinary, because all these new stores with the latest concept means that all these tenants invest heavily in their stores, which is not coming with a couple of hundred thousand. So these big names are really committed to make long-term investments in our mall with their latest concept. So I think we can be rather proud of that. Coming to your next question, are there any opportunities else?
Yes, of course, because the process would we have continued with this permit, and the extension would have taken further years, so uncertainty, you don't know what can you allocate in the end? And obviously, we always have to see where should we allocate our funds, our monies in the best interest of all our stakeholders. And yes, we do have opportunity elsewhere. Italy is working very hard to get further permits for future extensions. Not happening today, but certainly in the next years, we see potential there. But also, I think, if you look at timing, we still have a possibility in France with our Val Thoiry Shopping Center near the Geneva border, where we can extend, where we have a permit, and we're very.
Still very hopeful that we can sort of move things so that indeed there's something happening there. And that obviously will also require funds, limited funds, but still, we need to look very carefully at the allocations. So, opportunities elsewhere, as you asked, yes, there are certainly in Italy, in France with our existing buildings, and even in Sweden, you know, we can do things as we've done in the past, extending them. Then you had a question about the renewals and relettings, which I think Peter would like to say some words there on, on how we see that also going forward.
Yes. In terms of what we've just reported the last 12 months, I think the encouraging thing was to see the much higher uplift on the 72 new lettings we did as part of that package of relettings and renewals. So, 6.2% uplift on new lettings, I think is a good demonstration there's still plenty of demand out there for new tenants wanting space in our centers. I'm encouraged by the fact that this has continued in January and February this year. About the first quarter, we have shown gave an uplift of over 3% on some 40 transactions that have already taken place, so that is continuing.
In terms of the absolute amount, I mean, clearly, the percentage is down in terms of uplift of 2.8% overall. But of course, that comes on top of huge levels of indexation that we're collecting from the same tenants. So, I, I'm not discouraged by the fact that the lease spread has narrowed a bit, because I would expect the reverse to happen as the inflation comes down and we carry on our relettings and renewals, and it will form an increasingly important component of our overall rental growth. The, you mentioned disappointment of Woluwe. There were 22 deals in Woluwe. 21 of them were very good and produced an uplift of 6%.
We had one large legacy renewal we had to deal with, which we inherited and allowed for in the purchase because it was an overrented situation, a rather large Swedish fashion tenant in a difficult unit, but a very important one. It's a two-level store without an escalator, so it is now let at its market value. So we would expect to see, particularly with the effect of the remerchandising we illustrated, we would expect to see Woluwe performing very well in terms of its rental uplifts as well going forward.
Yeah, and then, Francesca, on the guidance, as Peter said, you know, we're still optimistic on these spreads. Obviously, we have to take into account for 2024, but we explained that's why we put in the table in the press release, indexation as such will be lower, much lower than for 2023, but also different in the countries. Whereas we see quite a stable situation, you could say, for France, Sweden still has some good indexation there. But Italy, there's a big difference. But then last year, when we had this incredible 11.3% indexation, and this year it is much lower, it's also the result of the way indexation is actually established in Italy.
Maybe a few words, Roberto, on how that works.
Yeah, no, that's true. I mean, almost all leases are indexed using the December indexation, so we just pick one month, and, on the basis of that month, over the year, then we fix the indexation for the coming year. And as we mentioned in the press release, of course, this indexation is then invoiced to the tenants, with the invoicing of the second quarter, because the number is known only at the end of January, so it's too late for the first round of indexation.
Yeah, and I think, Francesca, if you then look at 2024, that's why we gave a guidance which is higher than last year. We increased the dividend also, which we think is possible. We're optimistic about the overall year. But we also have to take into account that the rental growth, which we've shown over 2023, will be much lower in, let's say, the indexation column. That's very clear. People can calculate that. And at the same time, we still have to also accept that the interest expense, obviously, the lion's share by far the largest cost in our P&L, will go up further because, and it's not. It's probably you could say, is it marginal, not marginal, but it will go.
As all our peers, we'll see higher interest expense in 2024, but it heavily depends on short-term interest rates. And you know, if these come down, then obviously we have a better outlook for the interest expense. But we have been cautious there and said, you know, if everything stays the same as it is today, then obviously your floating part, it is the most expensive part in our portfolio, will stay where it is. Although we're doing a bit of forward-starting swaps, where in due course, we can kick in with a lower coupon. But so there are the uncertainties and that's where we are today, hence the guidance. I hope this all answers your questions, Francesca.
This is very clear. Many thanks, everybody.
Thank you much, Francesca. We'll now move to Steven Boumans of ABN AMRO. Please go ahead, your line is open.
Hi, good morning, and thank you for taking my questions, of course. I have several also bit of clarification of questions asked earlier. So you touched a bit on potential transactions, but to be clear, are you involved in any transaction processes today, so be in potential acquisitions, disposals, or joint venture discussions? And following up on that, could you please comment on the probability that you're doing a larger transaction in 2024? So that's my first question.
Yeah, well, let's see. Obviously, we have... we can only talk about things which are in the public domain. But you know, there's always talk. You always are talking to parties in the market, et cetera. So that's an ongoing process that I think it's our duty as management to stay connected. But you know, we all have seen what happened in 2023, where there was really a slowdown in the market in terms of transactions. And although I think there was the expectation for 2024 that that would change, I must say that, and this probably has to do with what happened to interest rates.
I think in December, markets were probably a bit too optimistic about rate cuts, et cetera. It's still going to happen, is my impression, but a bit later than earlier expected. And I think that could be the you know, the trigger really for transactions to start happening. But for now, I think everybody is sort of holding their horses a bit before the rates come down. And therefore, I don't. I cannot confirm nor do we, you know, looking at a particular transaction. We're monitoring very closely the market. Obviously, we also understand that, let's say we have a certain position with our balance sheet, so we don't have a you know, a pile of cash, which we can spend.
So for us, it's really, together with all our peers, I think, sitting on the fence and see what's happening. And possible deals, Peter, maybe a comment from your side.
Yeah, well, I mean, I think we certainly are seeing some deals happening in perhaps the high-yielding sectors and, but some good assets recently in France and the UK. And I think it's fair to say that there is property of reasonable, of reasonably good quality coming to the market. I mean, just this week, you've seen Xanadú, Zoetermeer, but Bromma Blocks in Stockholm, Liverpool ONE, Gropius Passagen in Berlin. I mean, there are things that are happening, and there's quite a lot of money in, I think, the private equity groups. I think the interesting thing will be to see is it when the in...
What really happens in the prime institutional lens, and that will be determined by the quality of centers, and are the sellers of that type, and are the buyers of that type? And are we going to see the big institutions, the life companies in Germany, France, Italy, the open-ended funds, come back and look seriously at retail? There is word it's happening, but I think the next six months will be very, very interesting.
Yeah, MIPIM.
Yeah, I mean, I would think MIPIM was the catalyst to quite a lot of that discussion, so, and as I said, the two properties that have been announced as being available this coming to the market this week, I think, is a knock on from that. And, you know, these are not distressed assets. These are good quality. So, where they land in terms of yield will be very interesting.
Okay, very clear. Then I have two other questions. So one is still on the outlook. Does it include any renewals or turnover- based rent? And maybe the last question, could you please provide an update on potential new competitions, so like near Geneva or maybe Milan?
That's all the questions from me.
Okay, so even that's competition in the Milan area of,
Okay,
Shopping centers, you mean?
Yeah, yeah. Yes. Yes, indeed.
So for extension or
Yeah.
Maybe more.
Sure. Yeah, yeah. No, I think, Roberto can take that one.
Yeah, sure.
He's regularly in Milan, so.
Let's say, I'll tell you, Steven, the
But what is known on the market, and the rumors, of course, we leave it for a beer. I'd say there's been no news, let's say, on the big project in the Milan area, in Segrate. So what we have seen is there's been a tender regarding a revised version of the project, much smaller than what it was, what the concept was. If that is the case and this new concept is approved, most probably will have to go through obtaining a new permit, so that would be important in terms of time, money, and effort. Regarding other projects in the Milan area, there's mainly one, which was Merlata Bloom, which opened.
Yeah, it was a nice opening, yeah. The other one, which is Milan ord 2, there's no official news on the market yet, but of course, the costs related to that project are also extremely important. If that answers your question, Steven, as much as I can.
Yeah. That was clear on Milan. For Geneva, so free?
Geneva?
Yes.
Geneva, you said Geneva? Okay, okay.
Yeah, yeah.
Yeah, yeah.
No, I think, so I.
Thanks, Steven. The competition in Geneva, I think it's fair to say is under, but probably not completely mothballed, but I think, yeah, partly through financial reasons, partly through environmental planning objections. We don't see any activity from the Altarea, the Frey, or the outlet malls that was discussed. As a result of that, I mean, we're focusing very heavily now in terms of getting on and doing our project in Val Thoiry, because there is definitely a window there in terms of the competition.
We think we have a very good opportunity with relocating Leroy Merlin onto the adjoining site, which we own, which will release the old store of 8,000 meters, which we can break up and relet, for which there's been very strong demand, and that demand itself is a demonstration of the lack of alternatives for some very major occupiers that we're focusing heavily on.
So, no, I think it's an opportunity for us now to move forward in Geneva, both because of the opportunity ourselves in terms of the space, but also the lack of competition under what is proving to be a very successful new legislative restriction on new shopping centers above 10,000 square meters in France. There's very little new development at all in France. So it's quiet on the development front.
Yeah, that's very clear. Thank you so much. And so the last one, are renewals or turnover-based rent in your 2024 outlook?
Yeah, I think, let's say, in our outlook for 2024, we have, as we said before, renewals, relettings. We still see similar sort of percentages, which we expect or have in mind. Turnover rent is still a component. I mean, it has been there, and I think we have a number of strong tenants, particularly in Italy. Roberto-
Yeah.
Maybe you.
Yeah.
Can call on turnover, and it does exist, Steve. It does exist.
As you've seen, things are going fine. In Italy, what we usually expect, I mean, that's from a statistical perspective, is last year we had a strong indexation, so renewals and reletting on the top of indexation was not 300%, uh? This year,
Okay
Of course, we have an indexation, which is 0.6, so that could be a nice surprise on the renewals and the reletting in Italy, you know?
The turnover rent.
The turnover rent.
Yeah. Yeah.
Okay, so to be clear, that is partly in your outlook, the 230- 240 outlook?
Yeah, let's say we have made an, of course, a very detailed budget, for all our 24 assets in terms of, rental income, other, also including turnover, vacancies, the usual elements in... These are quite detailed budgets. And then, of course, a further forecast for, up to 5 years even, but, but certainly for 2024. All the ingredients are in there because, 2024 will be a different year from 2023 because you have, you know, not that rental growth as is in 2023, but not that jump in, in interest, either.
But still, you have to to balance it and make sure that, you know, you're doing the right things, and also allocate the money properly, because now we have taken a decision on Woluwe, that's a debt extension, and therefore we can focus, as Peter said, on Val Thoiry, and we have some other things in mind as well, including even in Sweden. Yeah.
Okay, that is very clear. Thank you very much.
Thank you, Steven.
Thank you much, sir. We'll now move to Inna Maslova, calling from Bank Degroof Petercam. Please go ahead.
Good, good morning, gentlemen, and thank you for taking my question. I just have one, one last question. In relation to the valuation yield and how you see the current valuation of your portfolio, whether you would expect still any movements to come in, and certainly in the perspective of where the initial indication is on the transaction yields appearing in the market. I would be curious to know what your view is generally on the, yeah, on the opportunities that are there, and perhaps a wishful thinking, but to know at what levels you would feel comfortable to pull the trigger and invest. Thank you.
Yeah. Yeah. Thank you. Thank you, Inna. That's something which obviously we talk a lot about internally. No, but, Inna, your question is very relevant because we haven't seen really the transactions, the comparable transactions, which are, of course, leading also for valuations, and which valuers look at in order to arrive at their expert report. So that is had a big unknown. On the other hand, if you look at what happened to valuations in December, and particularly also on the cap rates, my personal view is that they're not so much connected anymore with the interest rate environment.
Obviously, when these valuations took place in the autumn, had we were still in a scenario where interest rates were ticking up, then the question was, well, you know, are we at the highest level, and will there now be a pause, which effectively was clear in December? That's why, obviously, a lot of the property stocks went up rapidly. But that was not included in valuations. If I see discount factors of, you know, what was it? Sometimes 8% or so, completely disconnected from ten-year interest rates, ten-year swap rates. So I think if you look at the next valuation round, I would hope that there is some more connection between interest rates and cap rates and what have you.
Having said that, of course, transactions could happen which show yields, and if that are really comparable deals, that you say, okay, that therefore it has an impact on valuations. But in principle, you know, if you now look at also our portfolio with the high yields coming out of the portfolio, also the EPRA yields we published, these are, I think, very defensive.
Yeah, I mean, around 6%, which is what we are now overall. And looking forward, I mean, we're gonna see. I mean, our best estimate on the indexation is 3.3-3.4% overall. But I think we should expect at least a contribution of 2%-3% from the lease spreads and turnover rent. So we could be looking at, again, rental growth of 5% or 6%. So there's a little bit of cushion there, even if yields were to move out. But I think from 6%, that looks pretty stable. And from here, speaking early to some of our valuers, that's what I'd expect.
So, yields may move up a little bit, but I think that'll again be compensated by the rental growth, is my best guess. Because the properties we're expecting to see aren't necessarily in the market, aren't necessarily going to be directly comparable to our centers. But we need to obviously watch the market very carefully and see where some of the centers I mentioned earlier land.
Yeah. And if you compare to other asset classes in, I mean, retail is much higher yields than all the other asset classes in the real estate. And also, maybe a bit from the discussions we had, the meeting, what you've seen, what we see still, let's say, investors looking at double digits hovering on the retail market? But we still but we're already seeing some other investors, you know, the more long-term investors, which are actually interested in yields, which are not double digit. And they started looking back at retail, because of course, at certain point, offices became a bad word, like it was retail for many years. So, I mean, we need to see, look at the cycle as always.
Very clear. Thank you so much.
Answer your question? Yeah.
It does, absolutely. Thank you.
Okay, okay.
Thank you much, Inna. Ladies and gentlemen, as a final reminder, if you have any questions, please press star one at this time. We'll now move to Kai Klose, Berenberg. Please go ahead.
Hey, yes, good morning. It's Kai from Berenberg. Just two quick questions from my side. The first one, the increase in property expenses by 11% in the last year, was that to some extent driven by high inflation, or were there some other items, maybe in the context of the extension in Sweden? And what kind of uptick you are planning or you're budgeting for in 2024? And the second question would be, on the recent debt extensions, could you indicate how much of additional debt or how much you were tapping up, so to say, the existing mortgage, and the, and existing mortgages? And the last question, one mortgage or one loan in Sweden only was 70% hedged. Just out of just being curious, why not 100% and only 70%? Thank you.
Yeah. Thank you. Thank you very much, Kai. You're always spot on on everything. That's, that's unfair. Let's start from the property expenses. Let's say, there are two things to include. Of course, one, as you correctly pointed out, is inflation. You know, we had a strong increase in the income side, but that also affected, of course, the property expenses.
On the other hand, and I'd say there was an effect on the Italian tax. Because, of course, rental income in Italy, which if you remember, is one of the two countries where we are subject to taxation.
Yep.
So the rental income went up so much in Italy that we were not able to compensate it fully. So our taxes went up there with EUR 1 million. And what you also have is a correction, let's say, of bad debts, which we had in 2022, which we're not having in 2023. So that explains that more or less the EUR 4 million difference that you see, if that helps.
Yep. Thank you.
What concerns the future, let's say, we're looking at the inflation at the moment, you know, and the costs and the rest. We do not foresee any reason for a very strong increase in property expenses in the coming year. But let's see how it goes this year, because, of course, the interest expenses are still high, so, you know, that might affect the costs. What concerns the debt extension, let's say we have one loan in Sweden, which we swapped, sorry, hedged at 70%. Is that correct? And that's because, let's say the interest. We believe that the curve of the STIBOR can go down still a little bit.
So we're monitoring the moment where it might be more interesting for us to enter into a hedging situation for that part of the loan. On the debt extensions, I wasn't quick enough to note it. Kai, if you can repeat it.
Yeah. The question was if it was just the, let's say, pure extension, or if you were also tapping up, meaning taking up more debt based on the-
More debt.
Assessment. Yeah.
Now, let's say we at the moment, let's say we are happy with the loan to values that we have on our financing. I think the only case would be Valbo, which expires in 2025, where we actually made a good extension, huh?
Mm-hmm.
So that you could see a case whereby it would be still interesting to increase the loan, but keeping the loan to value still, let's say, below or around the 50%. On the other assets, let's say, which are expiring next year, that is Woluwe. We believe, you know, we will keep more or less the same values as we currently have. And the other loans are quite small that we need to renew, so that does not really make a big difference. If that answers your question, Kai?
Yes, perfect. Thanks so much.
Thank you.
Thank you very much, Kai. As we have no further questions at this time from the audio audience, we'd like to now turn the call over to any questions submitted by webcast. Thank you.
Yeah, thank you, operator. We have some questions via webcast, but I see two of these have actually been already answered because the analyst also had those questions. So I will read out the one which we haven't seen so far, and the following question was asked: Could you please remind us, which was the additional value related to the extension of Woluwe included in your previous evaluation? Well, what we can say there, and I think we also made that clear in the press release, that the big movement we had over the year in terms of evaluation for Woluwe was caused by the increase in the cap rate, 40 basis points over that period.
Which means that, then you can see that actually there wasn't that much left for the extension project. If I have to say, you know, what was that sort of in the valuation, that was less than 2% of the value in the various reports. So, the majority of the movement was really caused by the movement in the cap rates, so not so much the extension. And as we said, this extension project is no longer on the table, but we still have the possibility to extend Woluwe. There is in Belgium a rule where every 20 years you can extend a retail property with 20%, so that is still available to us, but it has to be in a different format.
Peter has already alluded to that a little bit, how that could look like. Probably more simple and more straightforward to only retail, but we'll see. So I think that answers that question. And then we also see another question on the trade and other payables, which is a bit higher in our balance sheet compared to last year.
Yep.
I'm looking at Roberto, who is-
Yeah.
But he can also maybe say we can come back on that.
Yeah, but it's
Yeah.
Let's say mainly about interest expenses, because you know that we pay our interest on the, in Italy on the seventeenth of January, in the other countries on the thirtieth of January. So the balance due to the increase of interest expenses went up. Then what you also have, let's say, a bit of increase in the trade creditors and the other tax payables, of course. Those are, if you wish, the main components of the increase in the creditors. But there's nothing particularly worrying that we're seeing in any possible way.
Okay. Okay. Well, thank you, Roberto. I don't think there are any other questions. I don't see them. So I think this concludes our conference call and the Q&A session. So thank you very much for all of you who are participating, and hopefully, we see a number of you asking the questions very soon for further discussions about the results. Thank you so much.
Thank you very much.
Thank you.
Thank you. That will conclude today's conference. Thank you much for your attendance. We are disconnected. Have a good day, and goodbye.