Hello and welcome to Eurocommercial Half Year Results 2022. My name is Suzanne, and I will be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you have the opportunity to ask questions. 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 will now hand over to your host, Luca Lucaroni, to begin today's conference. Thank you.
Good morning, everyone, and thank you for joining us this morning. My name is Luca Lucaroni, Investor Relations Director of Eurocommercial, and I would like to inform you that on this call we have Evert Jan van Garderen, our CEO, Roberto Fraticelli, our CFO, and Peter Mills, our CIO, to present Eurocommercial results for half year 2022.
Thank you, Luca, for introducing us, and thank you also for accepting your new role as Investor Relations Director, a role that you are combining with your position as Finance Director, Italy. After my introduction, Peter Mills will talk in more detail about the property portfolio and ESG, followed by Roberto Fraticelli, who will discuss in more detail the financial results. I will start with an overview of the operations of Eurocommercial during the first six months of the financial year, 2022. We'll finish this presentation with some closing remarks. We will then open the call for any questions and remarks you may have. The operational performance of the company was particularly strong in the second quarter of 2022 compared to the first quarter in which there was still some impact from the Omicron variant of the COVID-19 virus on the company's business.
The diversification over four countries and the quality of the almost EUR 4 billion retail property portfolio in each of these countries have again been key to the performance of the company in the first six months of 2022. After the sale of property in France, and on the basis of the external valuations of the entire property portfolio as per June 30, the portfolio spread changed slightly compared to December 2021. Italy went up from 40%- 42%, whereas Sweden and France went down with 2% each to 22% and 21% respectively. Sweden due to currency movements and France due to the sales. We have now 24 properties in our property portfolio, split between 45% allocated to our five flagship centers and 55% allocated to our suburban shopping centers, focused on everyday goods and anchored by hypermarkets and supermarkets.
62% of the space in these shopping centers is dedicated to essential and everyday goods. Our five flagship centers have more exposure to discretionary retail due to their different function, but still have 42% exposure to essential and everyday retail. Next to a good diversification over four countries, our shopping centers are again well spread in those countries and 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. These slides provide the maps of the four countries showing where our 24 shopping centers are.
The sales in the first half of 2022 have been very strong compared to the pre-pandemic period in 2019, with Belgium and France almost at the levels of 2019 and Italy already over its 2019 level. The star is Sweden with 10% growth of the turnovers for the first six months of the calendar year compared to 2019 for the first six months. We were very encouraged by the turnovers in our stores during the second quarter of 2022 compared to the 2019 levels. Each country showed strong growth so that the overall turnover growth of the shops reached 7.3% compared to the second quarter of 2019.
Next to star performer Sweden, we were very pleased to see the growth in Italy, 42% of our entire portfolio reaching 6.4%, which is a remarkable score. We just received the turnover numbers for the month of July 2022, and the growth continues with 5.7% for the group compared to July 2019. If we look at the various sectors and compare the turnovers for the second quarter of 2022 to the same period in 2019, we see that all sectors have at least achieved their 2019 levels with some clear winners, which are hypermarkets and supermarkets, the health and beauty sector, gifts and jewelry, sports, home goods, and books and toys.
We are very pleased to see that the fashion and shoe sector and the food and beverage sector recovered so well as these sectors had suffered most trading restrictions during the COVID-19 period. As all our shopping centers were generally open since May 2021, we're now able again to report a like-for-like rental growth for the portfolio and the four countries. As we have always calculated these growth percentages on the basis of 12-month data. We compare the tenancy schedules as per 30 June 2021 with the tenancy schedules as per 30 June 2022. Basically, we compare two photographs. The reported figures include the impact of indexation, turnover rent, vacancies, and the leasing activity, but excludes the impact of acquisitions, disposals, development projects, and COVID-19 rent concessions. You will not be surprised to hear that the driver for the rental growth was the indexation.
Let us have a closer look at the indexation for 2022. Over the past years, the word indexation was hardly mentioned as the indexation was very low, and this component of rental growth was almost non-existent. This has changed since the summer of 2021, when inflation started to appear, affecting the indices to be used for the 2022 indexation, mostly the consumer price index. Although the indexation difference among our countries, the average indexation for the entire portfolio is assessed at 3.6%. In Italy, the indexation was the highest with 3.8%, followed by France and Sweden at 2.8%. For Belgium, it is more difficult to calculate the indexation for 2022, 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 invoiced and to be invoiced was. The indexation is expected to contribute to the rental income for 2022 for an amount of EUR 7 million. So far, we have not received pushback from tenants on the indexation build, as you will see also later when we discuss the rent collection for the first half year of 2022. In principle, the company is a natural hedge against inflation, thanks to the indexation. We are proud to be able to report that on 268 relettings and renewals. Last year, there were 301 renewals and relettings, but still also more than the 245 in 2019, an average rental uplift of 4.3% was achieved.
These lease transactions reflect 13% of the minimum guaranteed rent of the portfolio, and we were able to attract new tenants with our 94 new lettings, achieving an uplift of 5.1%. These new deals were concluded under normal lease conditions and lease terms, so no short-term leases. Low vacancy is usually a good indicator for the quality of the portfolio of the properties. Over the last 10 years, we have reported vacancy rates for our property portfolio ranging between 0.5%-1.8%, and we continue to do so. The average for the last 10 years was around 0.9%. The EPRA vacancy rate remained very low at 1.5% in June 2022 for the entire portfolio.
For France, the rate, as expected, reduced to 2.4% as a result of new lettings, in particular in our shopping center, Les Atlantes in Tours. For Sweden, the rate increased to 2.2% due to our continuous work to keep the rent collection at 100% by replacing underperforming tenants by new ones. The Swedish vacancy level is expected to reduce again in the third quarter as a result of new lettings. Now that turnovers have normalized and rent concessions are not applicable anymore, we can also report the occupancy cost ratios for all countries and for the entire portfolio. The company has always been known for its low occupancy cost ratios, and we are therefore pleased that we can report 9.2% as occupancy cost ratio for our portfolio as per June 30, 2022.
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 2015, for example, 1.8% for the portfolio. Just before the pandemic started, we reported in 2019, 8.9%. Our current overall OCR is almost at pre-pandemic levels. During the COVID-19 period, the rent collection was certainly a very important metric and key performance indicator, closely followed by investors and analysts. We can now conclude that this difficult period caused by lockdowns and restrictions, strongly affecting the business of many of our tenants, is behind us. The rent collection is back to normal, which is evidenced by a rent collection at 96% of invoiced rent for the first six months of 2022.
Please also bear in mind that we returned, in most cases, back to enforcing quarterly in advance and using direct debits to collect the rents. Allowing monthly payments and payments in arrears to help struggling tenants is in principle history. 2022 has so far been another very active leasing year. We are still well positioned to lease our retail space to attractive tenants under sustainable conditions at affordable rents. Introducing new tenants and new concept 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. In Woluwe Shopping in Belgium, several new premium international brands have established stores, including Mango, Pandora, Xandres, and Guess.
During the early part of this summer, Fnac opened a flagship store in the former 2,600 sq m A.S. Adventure unit, who themselves have successfully relocated to a smaller store. In France, new merchandising has covered a broad range of sectors, including Dr. Martens, Naf Naf, and Devred, that is fashion. Bouygues Telecom, which is electrical. Comptoir de Mathilde, La Cure Gourmande, and Palais des Thés, which is food. Krys Audition and GrandOptical in the health and beauty sector. In Tours, the French team managed to relet the space vacated by toys retailer PicWicToys to fashion retailers Bonobo and Mango and to a gym operator, which reduced the vacancy rate in France. International brands establishing in Italy continue to take space in our centers with recent examples, including JD Sports, Nike, Adidas, Pepco, Starbucks, Dyson, Pull&Bear, and Bershka.
In Fiordaliso, the new 2,500 sq m food court, Fiordafood, was recently opened, adding nine new restaurants including Wagamama, Mexican restaurant Calavera, and craft brewery restaurant Giusto Spirito. In Sweden, new lettings included Cassels, Hemtex, Clas Ohlson, New Yorker, Rituals, and Normal, the expanding Danish value retailer who have now established in six of our shopping centers. IKEA have successfully opened their new planning studio concept in Grand Samarkand, Ingelsta Shopping, and Hallarna. Three new leases have been signed with the Bestseller group during the first half year and will open during the third quarter. Two VILA stores in C4 and Hallarna and Only in Hallarna. This is the moment to hand over to Peter Mills, who will discuss in more detail our property portfolio and will report on environmental, social, and governance strategy and performance.
Thank you, Evert Jan, and good morning. Overall, the valuations increased by 1.4% over six months and by 2.2% over 12 months, with each of our four markets showing a positive increase over both periods. Generally, these high valuations resulted from stable or even marginally higher initial or exit yields, depending on methodology, applied to higher net operating income generated from the rental uplifts achieved from the renewal and reletting program and higher than anticipated rental indexation. The overall EPRA net initial yield on the portfolio has increased to 5.3% due to the higher NOI, but also the sale of the much lower yielding office and residential property of Passage du Havre in central Paris.
In their reporting, the valuers identified strong property fundamentals, including low vacancy and a good outlook for income security and further growth, supported by consistent tenant demand and rent affordability, with our overall occupancy cost ratio remaining at its low pre-pandemic level at around 9.2%. We have again provided a valuation split, separating our five flagship shopping centers with their broad international tenant base and representing around 45% of the portfolio. Located in their respective country's capital or main economic cities, they are significantly larger assets with an average individual total value of over EUR 400 million and a lower yield at around 5% overall.
The remaining 19, mainly suburban hypermarket-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 and a range of services supporting their more local communities. These assets, comprising around 55% of the portfolio, are also much smaller, with an average value of around EUR 100 million and a higher yielding at 5.5% overall. Looking at our disposal program, we sold two low-yielding properties in France during the first half of 2022, both transactions completing in March. Les Grands Hommes in Bordeaux was sold for a price of EUR 22.5 million, and our 50% ownership of the office and residential parts of Passage du Havre in central Paris was sold to our joint venture partner, AXA, for a price of EUR 57 million.
We will remain the asset manager and owner of 50% of the retail gallery in the main building of Passage du Havre, with its GLA of 14,000 sq m, including the main anchor, Fnac, and around 40 retail tenants. These sales form the final parts of the company's EUR 200 million disposal program, first announced two years ago in August 2020. Comprising our only three standalone retail parks and three city center assets in France, leaving the company with a more homogeneous shopping center portfolio in its four markets. On the project front, in addition to the new food court at Fiordaliso, which Evert Jan van Garderen just referred to, we also completed a 1,600 sq m F&B development adjoining our Migros anchored shopping center at Shopping Etrembières in France.
The two restaurants shown on the slide successfully opened in June and are proving to be an ideal complement to the tenant mix, and also provides a popular rooftop terrace with exceptional views over the nearby Alps. During the COVID-19 period, we generally scaled back extension projects so that today we only have one small remaining ongoing commitment, which is in Sweden, where we are completing the final phase of a project at Valbo, located outside Gävle, the last of the seven Swedish shopping centers we acquired in 2018. The objective of the project 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 main entrance.
The project has been executed in three phases due to the complexity of keeping the center open and in full operation during the works. The first two phases are completed and provided new stores for tenants including H&M, New Yorker, Normal, Hemtex, Rituals, Intersport and Deichmann, while at the same time refurbishing the malls and public areas and upgrading the restaurants. The last committed phase is underway, illustrated in the artist's impression on the slide, and will provide the new entrance to the main car park, new facade, signage and an additional seven shops already pre-leased which will open next year.
The H&M at Valbo shown on the slide is the fifth full concept store that we have delivered for H&M in Sweden, where they have roughly doubled the size of their stores in our centers, taking them up to 3,000 sq m to provide their full assortment to include the very successful H&M Home, Health and Beauty and more recently, Sport. It has been interesting to see that in three of these locations, H&M have already closed their older, smaller city center units, leaving our shopping centers providing the only H&M store in catchment, serving up to 300,000 people. Very important, as H&M dominate their home fashion market where they face more limited international competition.
The existing portfolio continues to present excellent opportunities for future extensions that have the potential to provide enhanced investment returns while improving the commercial strength and market position of the shopping centers in their catchment. As extensions can also take considerable time to prepare and get planning consent, we have been continuing with the necessary and detailed project investigations and preparations, including planning, pre-letting, market and competition analysis, and cost studies.
One example is here at Val Thoiry, located just outside Geneva in the wealthy and growing Pays de Gex region of France, where after various applications and appeals, we finally achieved planning consent last December for an additional 23,000 square meters and have started the pre-letting with signed leases to Primark and Decathlon, while Leroy Merlin will be relocating to a new 10,000 sq m store on an adjoining site we acquired, thereby releasing space for the gallery extension. We are currently assessing the updated construction costs and the timing in order to take a decision on this project. At Woluwe Shopping in Brussels, a planning application for a 7,800 sq m retail extension and around 70 apartments above has recently been resubmitted.
The planning journey has been delayed by a year following a public consultation exercise towards the end of last year, which has resulted in some modifications to the scheme in consultation with the municipality and the region. The indications are that we should receive planning consent from the region during the first half of next year. There is considerable work still ahead, including detailed cost analysis and pre-letting. Although we anticipate strong tenant demand for the retail extension at Woluwe, which is so well located in one of the wealthiest municipalities of Brussels and is performing very well again post COVID-19 and where Fnac and Mango have been the latest retailers to open, further improving Woluwe's diversified and largely international tenant mix.
Our ESG and business strategies remain carefully aligned so that business decisions can be approached with a long-term view in order to evaluate both their environmental and socio-economic impact and the future demands and expectations of our customers, tenants and employees. Our approach is articulated around these three strategic pillars shown on the slide, be green, be engaged, and be responsible. Be Green forms the foundations of our operation and provides us with the opportunity to make changes that will reduce our footprint and operational costs as we focus on the transition to a low-carbon economy with the target to operate property carbon neutral by 2030. In order to reduce our carbon emissions, we have set reduction targets for our scope one and scope two emissions to achieve zero emissions by 2030.
To achieve this, we have developed a carbon pathway and we continue to improve the environmental quality of our shopping centers by implementing standards and technologies to improve energy and water efficiency and waste cycling. This includes reducing energy consumption, procuring renewable electricity, and where possible, generating energy on site through further solar panel installations, rock heating, and groundwater heating and cooling. In Sweden, we have completed solar panel installations on all seven shopping centers, and we are now progressing rapidly in Italy with the next installations due to commence shortly at Carosello and I Gigli. During 2022, we have continued to roll out our green lease documentation following constructive collaboration with our tenants, with whom we exchange ESG ambitions, targets, and responsibilities.
As part of its environmental policy, the company uses the comprehensive range of environmental criteria incorporated in the BREEAM certification process in order to standardize and improve the sustainable quality of its buildings and their management. In February this year, we completed our initial certification program with all our 24 shopping centers being BREEAM certified three years ahead of the original target date of 2025. 23 shopping centers received the scores very good or excellent. During the first half of the year, our shopping centers in our four markets became a focus for their communities in the support of Ukraine, collecting money, clothes, food, and medical and hygiene products in collaboration with United Nations, the Red Cross, and other charitable organizations. I will now hand over to Roberto Fraticelli for the financial review.
Thank you very much, Peter, and welcome everybody. Let's look at our performance. This slide gives you a quick overview of the most relevant financial data, income statement, financial position and valuations, and also per share. As you can see, both rental income and net property income increased significantly compared to H1 2021. This is mainly due to the effect of the COVID-19 concessions, which were granted in 2021. Net interest expenses were lower than 2021, mainly thanks to the sale program, which led to a reduction of the borrowings. These changes positively affected the direct investment result, as we will see later in more detail.
Moving to our financial position, property investments have not changed that much, as slower investment values caused by the sales and by a weaker Swedish krona have been partially compensated by the increases in the valuation that Peter mentioned. While you can see a substantial reduction in net borrowings due to the property sales as discussed before. The results per share now shows how, notwithstanding the 5.6% increase in the number of shares, values have held up pretty well. The significant uplift in the total investment results going up from EUR 0.36 per share to EUUR 3.30 per share is attributable to an increase in both the direct and indirect results.
The positive increase in the indirect investment result is related to a EUR 47 million positive revaluation of the properties compared to a EUR 42 million devaluation for the same period in 2021, by a EUR 72 million increase in the value of the derivatives compared to the same period last year. These values were partially offset by a EUR 32 million increase in the deferred tax provision over the same period. The NTA and adjusted NAV reductions are mainly due to the accounting of the 2021 dividend, which was then paid in July 2022. Now, if you look at the summary. Yeah. This slide gives you a quick overview of the most important financial data.
Total nominal value of the net borrowings at 30 June decreased by over EUR 150 million to EUR 1.52 billion from EUR 1.68 billion at the 31st of December 2021. Thanks mainly still to the property sales and a weaker Swedish krona. As you can see, our loans are spread among more than 15 banks in different countries, with Dutch, German, and Italian banks shares still at around 30% each. What did we do this year? Well, in April, the company entered into a new five-year loan of EUR 66 .5 million with ING to refinance two existing loans on the Curno Shopping Center in Italy. In June, the company entered into a new three-year loan of EUR 50 million with ABN AMRO Bank to refinance an existing loan on the Cremona Shopping Center in Italy.
These new loans qualify as green loans as the relevant proceeds are used to refinance two green assets and also sustainability-linked loans since the margins are linked to sustainable KPIs. In May 2022, the Italian joint venture Galleria Verde, which is 50% owned by Eurocommercial, signed a new five-year mortgage loan of EUR 21.5 million with Banca Popolare di Milano to finance the recently completed gallery extension at the Fiordaliso Shopping Center in Milan. As a result of these actions, the average term of the loan book is now almost four years with most repayments foreseen in the years 2025 and 2026. As you can see, in 2023 and 2024, we have maturities for respectively EUR 176 million and EUR 169 million.
The available resources at 30 June were EUR 126 million in cash and EUR 161 million in available facilities. We go to the hedging. The overall interest rate, including margins at June, was stable at 2%. This is also thanks to our conservative hedging policies, as 84% of interest costs are hedged, mostly by interest rate swaps, but also by a number of fixed interest coupon loans. The average interest rate swap hedging term is almost six years, and an increase of 100 basis points in interest rates would therefore only cause a limited increase of around EUR 2.5 million in interest expenses.
Now, I'll start the loan to value ratio on the basis of proportional consolidation at June 30, after deducting purchase costs, further decreased to 38.9% compared to December 2021, when it was 42.3%. We have therefore achieved our 40% loan to value ratio target. Please also remember that the group covenant loan to value ratio agreed with the financing banks is 60%. Still for comparators, for comparison purposes, our loan to value ratio adding back purchase costs as per June 30 was 38%, and our loan to value ratio adding back purchase costs and using the IFRS consolidated balance sheet was 36.5. Now, a little bridge on the NTA.
This slide gives a quick look at the relative changes in EPRA NTA per share from EUR 40.1 at the end of 2021 to the current 39.5. The two major movements, besides of course the direct and indirect results, are related to the dividend accrual of EUR 1.50 per share, which was paid out in July, and the variance of EUR 2.1 related to the negative adjustments of the fair value of the financial instruments. Last but not least, the direct result. The direct investment result for the 12 months to June increased significantly to EUR 62.8 million, compared to EUR 46.8 million for the same period in 2021.
The main reason being the EUR 10.8 million lower COVID-19 rent concessions to retailers, and the EUR 4.1 million lower bad debt provision. Please remember that the residual COVID-19 rent concessions still to be straight lined in the future as a result of the application of the IFRS 16 amounts to EUR 5.5 million. The net property income compared to 2021 is mainly related to high rental income from the properties. Also, thanks to the indexations and the acquisitions of the remaining 50% share of Etrembières, which more than compensated the loss of rents derived from the asset disposal program. Lastly, the decrease in net interest expenses is mainly related to the partial repayment of borrowings as a consequence of the disposal program. Thank you very much. Now back to Evert Jan van Garderen.
Thank you, Roberto, for presenting all the figures. I would like to make one closing remark about our direct investment result going forward. We have decided to provide guidance for the remaining period of this calendar year in respect of the direct investment result and also to give some color on the dividend. Assuming no major COVID-19 related restrictions or further impact of the war in Ukraine and assuming no major deterioration of the macroeconomic environment, we expect the direct investment result for the year 2022 to be between EUR 2.20 and EUR 2.30 per share. The direct investment result is the basis for the applicable dividend policy, providing for a cash dividend payout ratio ranging between 65% - 85%, but with a clear target of 75% of the direct investment result per share.
An interim dividend will be payable in January 2023, and a final dividend payable in July 2023. According to the applicable dividend policy, the interim dividend is expected to be 40% of the total cash dividend paid in the previous financial year, which was €1.50 per share. For January 2023, the interim dividend is expected to be €0.60 per share. The last slide shows the dates of the next two company publications, the third quarter results and the 2022 year-end results. 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 our company. I will now hand over to the operator for questions.
Thank you. As a reminder, if you'd like to ask a question on today's call, please press star one on your keypad. To withdraw your question, please press star two. The first question comes from Steven Boumans from ABN AMRO. Please go ahead.
Hi, good morning, and thank you for taking my questions. To start, I have two questions on extensions. First, in general, do you expect to announce new extensions that we have not heard before in H2, or are extensions not that economic anymore due to the increased development costs? Second, related to extensions, could you provide some idea or a range on total CapEx and expected yields on cost for Woluwe and Val Thoiry extensions?
Yeah, thank you, Steven, for your questions. I think in terms of your first part of the question, extensions in general to be announced. I think what we are doing anyhow with most of our properties in the portfolio is that we're working on obtaining permits for future extensions and further developments. That is still ongoing. That, of course, is a much longer-term approach. On the other hand, of course, we mentioned two extensions in the presentation. Maybe Roberto, because that's typically something which happens in Italy where
Yeah.
I think all properties are basically. Yeah, there we have possibility.
On the extension.
Yeah.
No, that's right, Steven. Let's say what we are doing is, of course, we are going through the applications to obtain the building permits. As you might remember, in Italy, there is a double step. There is the building permit, but it's also the licenses. So that complicates a bit the situation, not only for us, fortunately, but for everybody. So that, you know, if you look at possible potential increase in competition, they all have to go through these steps. Let's say the parts concerning the building permissions, then it's something which is usually done at a local level, while the licenses is something that goes to regional level.
What you have is we go back and forth between the region and the local municipalities in order to get an agreement, if you wish, on what the future extensions can be. That takes usually between three and five years. We are proceeding, let's say, on all these extensions. At the moment, we have not signed anything binding. We're not committed to any of these extensions. What we also do is, of course, as you know, maybe Evert Jan van Garderen already mentioned, we also look at the costs and the potential yield. Those are items which we always take into consideration when making the final decision, okay, we'll go for it.
That's, you know, as mentioned, we are in the preparatory stage for an extension in most of our shopping centers in Italy.
Yeah. I think, Steven, probably helpful for Peter to comment on your second question about Woluwe and Val Thoiry, which he already talked about in the presentation, and where we are there. I think as Peter may.
Well, Woluwe is probably the most advanced and the one we've had the closest eye on. It's our biggest asset. When we bought it was with the intention of doing this extension. It's on land that came with the property. It makes it very profitable. We've had a year delay on the planning. There's a lot of work being done on construction analysis at the moment. Pre-letting, as I mentioned, we've really yet to start. Until we have a firm timetable on the planning, it's a very difficult one to focus on.
If we get our planning in the middle of, let's say, by the latest middle of next year, you know, we'll proceed on the pre-letting. Because the return should, you know, the objective is to be well above the investment yields on the properties. You know, on Waterway, we always targeted something between 7%-8%. To give you some idea on the CapEx, it's a slightly smaller project now because we have had to reduce one floor of the residential, so it's reduced from 80- 70 fls, but something in the order of EUR 80 million on that one. Val Thoiry is, I would say, less certain.
It has various phases that we could look at, including just building the new Leroy Merlin alone. I think that's something we'll perhaps park at the moment on costs and returns. I've given you some sort of guidance on Waterway, which are figures we've mentioned before.
Okay. Just to be completely clear, the yield and cost guidance broadly, that is unchanged even with the rise in construction materials, et c.?
I think, as a general guide, we would hope to be at least 2%-3% above the return, the yield on the property. The costs are higher. We're achieving good rents. That EUR 80 million, it has yet to be completely verified, but something in that order. Starting with 7% would be our minimum sort of expectation when there's no land cost.
Yeah. Okay. Completely clear. Thank you very much. Also one question, if I may, regarding the debt. Do you expect to change your balance sheet approach by producing maturities or change the hedging ratio? That is one. Two, what LTV level would you consider appropriate in today's markets? Three, last, how do you expect the average cost of debt to develop for the rest of the year and later?
Okay. Well, thank you, Steven. That's quite some forward-looking information you try to get from us. I hand over to Roberto as he's of course always in the middle of what's happening there and the recent deals we've done, which we're very pleased with because we have locked in their margins and of course funding for the longer term. That's nice. There's always another loan there maturing, as we say internally. Roberto.
What was your exact question, Steven, on the loans? Sorry.
The first, do you expect to change your balance sheet approach? Maybe reducing maturities since that's cheaper or changing the hedging rati
The second is, what LTV level would you consider appropriate? Still the 40%?
Yeah.
Last, the average cost of debt, where that will go.
Yeah, yeah. Now, regarding the loans, let's say, it's always a hard negotiation with the banks. We try, of course, since we are long-term investors, we try and go for long-term loans. The policy hasn't changed. Of course, the market is changing. Sometimes, you know, we used to get 15-, 20-year loans, and this is no longer the case for quite some time, unfortunately. When we are in negotiation with the banks, it really depends on the banks and what we can achieve. I mean, what we're seeing at the moment is a preference for banks to go with loans between three, five, seven years. Let's say, those are the terms that they usually prefer to engage with.
Of course, we try and go for longer terms, and there are some differences in margins, let's say, regarding the period selected, but I think the main issue is, you know, if the bank really wants to go for the longer term or not. Regarding the loan-to-value ratio, we're very happy with 40%, 'cause of course, it's nice that we achieved it. We'd love to keep it. Of course, you never know, as you know, Steven, what the markets will do in the future. I'd say for the moment, I think we're happy and that's also where we would like to stay.
If I look at the average cost of debt, I mean, thanks to the fact that we have this 84% coverage hedging, then, you know, as mentioned, we're not expecting a lot of change. Of course, we are looking with a lot of interest what's happening today, the Fed, with the interest rate markets. I mean, what you saw, of course, the main effect was in the market value of the financial derivatives which shot up. Average cost of debt, we think it would increase 'cause of course, interest rates are increasing. You know, the impact, for the moment, as we just said before, should be quite limited. Is that a good answer to your three questions or?
Yeah, yeah. Absolutely. Thank you very much. Much appreciated.
The next question comes from Inna Maslova from Degroof Petercam. Please go ahead.
Hi, good morning, everyone, and thank you for the presentation. Two questions from my side. The first one is on the indexation. Just to confirm the 3.6% that you have guided for, it's the full indexation that you plan to secure over 2022? There is no rollover into 2023. Then the follow-on question to that is, what would you expect it to be in 2023 given the partial renewal of leases at different terms? That's, I'll start with this one.
Well, thank you, Inna, for your very relevant questions about indexation, because that's, of course, quite a topic nowadays. The easy part of your question I will start with, which is the indexation for 2022. Indeed, what we have put in the presentation also in the interim report, that is really what we expect for 2022. To be honest, for three of the four countries, that's already pretty secure. That is the indexation because it has been built and is still built when we do the quarterly rent billing to our tenants. Basically we are collecting that.
Belgium, as you know, may be much better than we do, but Belgium is slightly different because there the indexation is depending on the month where a lease has started. We're still of course, for example, in September, October, November, we'll then have to index with the index for that month. That is still a bit uncertain. No, I think for 2022 the picture is very clear and we are collecting it. Of course, we still have to also bill a fourth quarter where there's also some indexation involved. So far, as I said in my speech, not really pushed back. We were quite happy getting this 2022 indexation. Going forward is a different question.
First of all, there's no sort of rollover effect, what you mentioned. We're really starting all over again on the first of January 2023 with the indexation. What will that be? All what we can do for now is monitor, of course, the consumer price index in the various countries. They vary, but are of course higher levels, much higher levels than what we saw for the indexation of 2022. It's probably too early to tell what it will be because the index, for example, in Sweden to apply, we know somewhere mid-November. Italy, we only know probably much later, Roberto, with the Istat end of December. For France, we will know a bit more mid-September, we expect, because
The second quarter indexation is relevant for some of the leases we have in our portfolio in France for January 1, 2023. There's also a part which is based on the third quarter index in France. Those two, we don't know yet, but mid-September, I think we will know the second quarter. There's one other element which is already then known, is that the French government has taken the decision that has now been approved in the Senate. That for, let's say the micro companies, the small companies, they have limited the index at a cap of 3.5%, which is still, you know, I think not at all a bad indexation number.
If, for example, the index would go to 6% or 7%, at least the small companies cannot be indexed more than the 3.5%, which of course we understand to protect actually the smaller businesses. This is in a nutshell what we can say so far about 2023.
Thank you, Evert Jan van Garderen. If I may, a couple of, just clarifications.
Yeah.
On the last point about the micro businesses, what would you estimate the impact to be, for you? Let's assume, of course, that the indexation goes beyond 3.5%. A second question on the indexation, more on the discussion so far, you've mentioned there has been no pushback on passing on the current levels of indexation. Do you see any potential difficulty, certainly with rising energy costs as well, that this could be an issue, going forward or over the course of 2023?
Well, maybe first answer the question about the impact for us on our portfolio. Obviously, we don't yet know what we are going to miss if we only have 3.5%, and it is more if the index is higher than of course that is then an amount you don't receive which we don't know. What we do know if we have a look at our portfolio and we take this group as small businesses which of course is also part of our portfolio in France.
It is around 25% of our rent roll in France, which would then be this group, and therefore we would then have a maximum of 3.5% indexation on the rent for those tenants. The rest is subject to whatever it will be, and that we know in the coming months. In terms of the pushback, yes, indeed, very small, but then we also have to be realistic. We're all looking of course what will happen in the coming months in terms of indexation. If you would see indexation 7%-8%, maybe even higher. We have to see what the response is.
Obviously we have a low occupancy cost ratio, so there are many tenants who in principle have low costs in terms of rent and service charges relative to what is happening elsewhere in the industry. I think it's also a matter of what we will see, consumer behavior, are tenants in a position to pass on inflation, the goods they have to buy at higher prices, can they sell it at higher prices? I think there are a lot of factors involved here. Then we'll see what happens. Last but not least, we cannot exclude it.
There are no signs to that extent, but there could even be in other countries that governments or regulators, you know, say, "Okay, but this is extreme." We're therefore again we introduce a cap or a maximum, which maybe just covers 2023. It's not that something will be there for a longer period. Or we may have to, in some individual cases where indeed you have another extreme case that you say, we have to sit down with the tenant to see whether we can find an amicable solution. Then you'll get in more and more back into sort of negotiations we had during the COVID period with real lockdowns. I don't see that happening.
Again, it's in the coming months in particular, an interesting period to see where we're going.
No, that's very clear. Thank you, Evert Jan van Garderen. If I may, one more question, more specifically on your operations in Belgium and Woluwe. I saw that on the new lease signs, there was a negative reversion. Of course, looking at the OCR levels, they're closer to 15%, so quite a bit above your average. How would you see, perhaps looking for a comment on the sustainability of leases and lease levels in Woluwe, and also if you would expect any future adjustments as well on the rental levels, and if that could also be reflected in the valuation. I appreciate the fact that the indexation is a very big supportive factor here as well.
Yeah. No, thank you. I know that is something which we reported on Woluwe. Well, let's say we reported on Belgium, but there's only one asset, so everybody knows it's Woluwe. There is a minus which we reported, which clearly has to do with the relettings we did and actually we sorted out what we call is a part in the middle of Woluwe, is quite a nice part, actually, where there were two fashion retailers which were there already when we bought the center, which clearly had over-rented units, and we reshuffled them. Peter, maybe you want to make some comments there also in relation actually to the valuation of Woluwe.
It was a one-off sort of game of musical chairs we did in what we call the Agora Executive part of the building, which was the change from A.S.Adventure going from a very large store, 2,500 sq m to do their normal assortment. They're very strong Belgian retailers, you know. To do their normal assortment, which they did in the Esprit unit almost adjoining. We put Fnac in the A.S.Adventure, which was actually an uplift in rent of some 60%. If you take them all together, we had two, the Mango and what was formerly the WE store.
Sorry, the WE store and the Esprit store. If you take them all together, then there was an overall reduction of rent on those three transactions of some 10%, but a very strong improvement in the commercial mix of the centers. We took the view that it was something we definitely wanted to do and introduce Fnac there and introduce Mango, albeit slightly lower rents. If we actually look at the other 12, those are three lettings of the 15. If we look at the other 12 signed in Waterway, we actually achieved an increase overall on those 12 relettings of 2.7%.
I would see it as a one-off commercial improvement and a decision to take a slight reduction on those significant lettings. Overall, the pattern of the rental levels is still very stable in Woluwe. There's good, very good, consistent tenant demand to be there. In terms of the OCR, I mean, the OCR is always going to be the highest. It's because the rents are so much higher there than the remainder of our portfolio. This is a very strong international shopping center and it commands high rents, and that tends to command slightly higher OCRs. The only other comparable property we probably have is Passage du Havre in Paris, where we probably see levels not far different.
They're still, I think, fairly normal in a property of that type. That is why the OCR in Waterway is slightly higher. Have I answered your question or is there a bit missing?
No, that was very clear. Thank you very much, Peter, and thank you for taking all my questions.
We currently have no questions coming through on the call. As a reminder, to ask a question, press star one. The next question comes from Steven Boumans. Please go ahead.
Hi. Maybe one final question from me, please. On the investment markets, could you please tell me if you are looking at different assets or are assets coming to the market and how yields are developing versus, let's say, half a year ago?
Yeah, well, Steven, you can imagine that we have just finished our disposal program of EUR 200 million end of the first quarter. We have a strong balance sheet. The liquidity is very good. You know, I think with the 24 properties we have now left, we're well positioned, very homogeneous portfolio. But I think for us now to get very adventurous and again, you know, already looking into acquisitions, et c, is probably a bit too much given the circumstances. I mean, we cannot ignore what's happening around us. I think we're very well positioned to, you know, together with our tenants to navigate again through.
I'm not upfront saying it all will be difficult, but you know we see the clouds ahead of us. We all read the newspaper. I think it's not the time to do anything spectacular and stick to your guns at the moment. You will not see us do, you know, very new steps, et c. Certainly not in the coming months where I think all we want to do now is await how this indexation develops, what the consumer behavior will be in the coming months. Yeah, it's all over the place, of course, the discussion around energy prices, et c, the war in Ukraine. No, I think we will and therefore I'm very glad where we are today, also financially.
We will first monitor and then see what is the best action or response.
Okay, clear. Do you have some feel on where market yields are developing in the past, let's say, six months?
Well, I think, let's say that the markets where we are, there was increased activity, but it slowed down quite a lot. We know that some transactions were put on hold or even pulled. Yeah, I think in that respect, we have to see what happens really. I mean, the holiday season is almost over whether in the second half.
There will be further activity, but yeah, I think a lot of parties will just see and wait. There's one or two deals, Peter, I think where we may see some further activity.
Well, to generalize, Steven, I think there has been more liquidity in the Nordics where we've seen fairly strong recent activity at the end of last year, particularly going into the early part of this year with sales, which has produced a lot of evidence. There's been fairly consistent liquidity in anything that touched groceries and the retail parks. In terms of the future, I think the market is expecting an announcement of a big shopping center sale soon in Germany, which has been a competitive open process, we understand.
has brought a number of the larger institutions, which is obviously the bit of the market that's perhaps been missing in the larger lot sizes. We understand there could be some transactions arising shortly, but I think that would give the market a lot of confidence if that happens.
Okay. Completely clear. Thank you very much.
We have no further questions in the queue. I will now hand over to your host for the webcast questions.
Yeah. Thank you very much. We have a few questions, also, coming in via the webcast. I see that there are two questions which also relate to the rental situation on Woluwe in Belgium. I think we provided some color there on what happened. You did, particularly Peter. Also on what kind of rent in extensions we could expect. I think we could talk a bit about Woluwe to a lesser extent, Val Thoiry, because there we're again in the middle of obtaining quotes for construction. Indexation for 2023, again, I do hope that I explained what is the situation. It's very difficult to assess now what it will be for 2023.
We will know much more, I think, by the time we publish our third quarter results. At least for France, I would then think we have some better view. For Italy and Sweden, we have to wait until the end of the year.
Yeah
I'm afraid. Let me see. There is a question, and I will read it out to you. What do you expect for consumer confidence next year on your commercial results? Again, I think a difficult question because it's all forward-looking and, you know, almost, you have to speculate how the consumer will behave. The answer is, we simply don't know, of course. We do know that there is a lot of, let's say low confidence at the moment if we read the newspapers and the statistics. It probably will depend which country you're looking at, particularly how hard consumers are maybe hit in that country.
For example, due to energy prices, I think we clearly have difference in France where it may be less dependent on import, whereas Italy maybe is more dependent. It's also, I think, probably not only about spending, but also maybe a shift in spending. Yeah, we could clearly maybe see that consumers go for low price. Purchasers may decide to not buy the next television or maybe furniture or other bigger items, which doesn't necessarily mean that, you know, we therefore would be impacted. I think it's also important how we see this consumer maybe shift among certain categories. I don't think we can say much more. Roberto, any feeling or any.
I mean, we've been monitoring this, of course, as you can imagine, for quite some time now, and we are looking at signs in the turnovers. So far, the turnovers have performed very well. Of course, you know, with all these questions about, you know, what's going to happen in the coming months, we are looking at consumer confidence, I think, going down. How does that reflect on our turnovers? I think that also needs to be seen. I agree fully with Evert Jan. That also needs to be seen. Yeah.
Okay. Are there more questions in the webcast?
Yeah.
Hold on. We have here a question. The direct investment result for the first half year is EUR 1.21, and the outlook is EUR 2.20-EUR 2.30. What is the difference in half year one against half year two? I think, let's say, of course, this is an outlook. It's not that it's carved in stone. There are a few elements to consider when you look at the six-month result and then the outlook for the full year. It's not simply multiplying the first half year direct investment result by two to get to the year number. There are a few effects which I would like to highlight. First of all, we sold property in the first quarter.
That's also not, let's say, a major amount, but it was still a substantial amount, so we missed that income. There's also an effect of, actually, a better bad debt provision where we are now today than year-end. We could reverse some of the bad debt, which of course was a positive effect. The Swedish krona remains to be seen how that will work out. It's quite volatile. At the moment, it's much weaker than at some time earlier in the year, but it can bounce back. Of course, we have a quarter of the portfolio in the Swedish krona. When you prepare an outlook, you have to take these things into account and do some stress testing.
Of course, we will also carefully look at the fourth quarter to be invoiced and see what is happening there. These are a few elements which we have to take into account in order to arrive at our outlook. I hope that answered the question.
Yeah.
Let me see. Okay, another question, would you at some point consider buying back shares? Buying back shares is a theme which we have seen already for many years. It is of course something always mentioned in particular when you look at share price and the net asset value of the share. If there is a large discount, there's of course always this question which comes up. But for now, we're very happy with our balance sheet. Roberto just explained on that and also the sort of level we have in mind for the future. Yeah, we rather stay cautious and we have of course our dividend policy now announced.
We think still, you know, that the company is certainly attractive for those who are looking for yield and therefore a dividend. We can never exclude it, buying back shares. We do have some authority to do so up to 10%. For now, I think it's not really on the agenda. Would we have a loan to value ratio of 20% or 25%?
Yeah. That'd be different.
I think then we would have a different view. For now, we stick to where we are. Let me see.
That's personal.
There is a question about footfall in July or August. Peter, can you maybe say something about that?
Yeah. No, I mean, we get our footfall numbers slightly quicker than our turnover numbers, which we tend to get in the middle of the following month. We've just been able to mention this morning that our July turnover anyway is the same as June, roughly at 5.5%+ compared to the months of 2019 comparable months. Footfall in July and August has maintained the same rate. Just under 90%, very little variance between the countries. Actually, there's been strong staycations. The footfall's looking pretty settled. The Swedish numbers have been the strongest where, and that has sort of followed the turnover numbers as well.
They have easily reached the pre-pandemic levels. Perhaps the big change in the seven weeks of say July and the first few weeks of August has been the marked improvement in Woluwe, which we've seen, which very often is trading at the pre-pandemic levels on certain days, but overall is around about 95%. A big improvement there. There is no sort of indications of any slackening in the footfall. In fact, if anything, it is slowly improving.
Okay. Well, I think we have answered that question as well. I think that was the list. Or maybe operator, is there a question you received meanwhile when we were discussing the webcast questions?
There are no further questions on the line.
Okay. Well, thank you very much. I would like to thank everybody attending this conference call, both via the webcast and on the call directly for their participation and their questions, which were very nice to have. Hopefully, we have answered them to full satisfaction or at least some satisfaction. Yeah, let's see what the coming months are going to bring also for the markets, but certainly also for Eurocommercial. I think we're still well-positioned, but let's see. For now, I would like to thank everybody and say goodbye.
Thanks.
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