Good day, and welcome to today's Eurocommercial Half Year Results 2023 Conference Call. Throughout today's recorded presentation, all participants will be in listen-only mode. Later, we will conduct a question and answer session. At any time, you may signal your question by pressing star one on your telephone keypad, or you may submit your questions via the webcast. At this time, I'd like to hand the call over to Luca Lucaroni, Investor Relations Director of Eurocommercial. Please go ahead, sir.
Good morning, everyone, and thank you for joining this morning. 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 Euro commercial results for the half year 2023. I give then the floor to Evert Jan to start with the presentation.
Good morning, everybody, and thank you, Luca, for introducing us. After my introduction, Peter Mills will talk in more detail about the property portfolio, the leasing 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 2023, and we'll finish this presentation with some closing remarks. We will then open the call for any questions and remarks you may have. 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 the first six months of 2023. There were no changes in our portfolio of 24 shopping centers.
On the basis of the external valuations of the entire property portfolio, as per 30 June 2023, the portfolio spread changed slightly compared to December 2022. Italy went up from 43% - 44%, whereas Sweden went down from 21% - 20% due to currency movements. France and Belgium remained the same at 21% and 15%, respectively. Next to a good country diversification, our shopping centers are again well spread in those four 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. This slide provides the maps of the four countries showing where our 24 shopping centers are.
In my introduction, I said that the company showed a strong operational performance, and here you see an overview of all the important operational metrics for the first six months of 2023, which underpin that statement. I will comment in more detail on each of these metrics in the remainder of this presentation. The sales in the first half of 2023 have been very strong compared to the same period in 2022. Belgium and Italy show even double-digit growth, which growth is more than the inflation in those countries. Compared to the pre-pandemic period in 2019, Italy and Sweden show in particular strong growth figures. It's clear that we have left the pre-pandemic levels behind us, and that inflation is passed on by retailers to the consumers. These consumers continue to shop despite the higher prices.
We are very encouraged by these turnovers in our stores during the first half year of 2023, and the growth is continuing. We just received the turnover numbers for the month of July 2023, and the growth continued with 7.6% for the group compared to July 2022. If we look at the various sectors and compare the turnovers for the first half year of 2023 to the same period in 2022, we see that all sectors show growth. Comparing the turnover figures to the same period in 2019, we see that all sectors have at least achieved their pre-pandemic 2019 levels, with some clear winners, such as sports, home goods, and the food and beverage sector.
The like-for-like rental growth for the portfolio and for the four countries was strong, resulting in an overall growth figure of 8.2%. We always calculate these growth %s on the basis of 12 months data. We compare the tenancy schedule as per 30 June 2022 with the tenancy schedule as per 30 June 2023. So basically, we compare two pictures. The reported figures include the impact of indexation, turnover rent, vacancies, and the leasing activity, but exclude the impact of acquisitions, disposals, development projects, and COVID-19 rent concession. You will not be surprised to hear that the main driver for the rental growth was the indexation, mostly based on the Consumer Price Index. The company is in principle a natural hedge against inflation, thanks to the automatic indexation clauses provided for in the leases.
Next to growth from renewals and re-lettings, there was also a small contribution of turnover rent in countries like Italy and France. We are proud to be able to report that on 235 re-lettings and renewals, which last year were 268, an average rental uplift of 6.7% was achieved. These lease transactions account for 11% of the minimum guaranteed rent of the portfolio. All countries showed good uplifts, in particular Belgium.... We also attracted many new tenants with our 62 new lettings, achieving an uplift of 7.9%. These new deals were concluded under normal lease conditions and lease terms, so no short-term leases. In the first six months of 2023, we entered into 112 leasing transactions, which produced a rental uplift of 7.1%.
Low vacancy is usually a good indicator for the quality of the properties. Over the last 10 years, we have reported very low vacancy rates for our property portfolio, ranging between 0.3% and 1.8%, and we continue to do so. The average vacancy rate for the last 10 years was 1%. The EPRA vacancy rate remained very low at 1.5% in June 2023 for the entire portfolio, which was the same percentage as in June 2022. For France, the rate, as expected, reduced to 2.4% as a result of new lettings, but vacancies reduced also in Italy and Sweden compared to March 2023.
The company has always been known for its low occupancy cost ratios, and we are therefore pleased that we can report a 9.5% overall occupancy cost ratio for our portfolio as per 30 June 2023. This percentage is still one of the lowest in the industry and implies that the rents are affordable for our tenants. The rent collection is going well, which is evidenced by a rent collection at 98% of invoice rent for the first six months of 2023. These strong rent collection figures are also evidence of the pass-through of indexation, and that there is no pushback from tenants on the indexation bill by paying late or not at all. It therefore remains an important metric for the sector to report.
This is the moment to hand over to Peter Mills, who will discuss in more detail our property portfolio, the leasing, and will also report on our environmental, social, and governance performance.
Thank you, Evert-Jan. 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 on the slide, weighted by value. Italy remains our largest market, at 44% of the portfolio, a weighting that we are happy to maintain as 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, where our three Italian flagships and CremonaPo are located. 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 so 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 countries, capital or main economic cities, and are important centers in their national context and retail hierarchy. I Gigli, located outside Florence, remains one of Italy's largest 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. And these flagships attract a broad international tenant base and have a higher discretionary spend component, particularly fashion.
By contrast, our 19 suburban hypermarket anchored centers have different and more defensive characteristics, with over 60% of their floor spaces 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 their more local communities. Overall, the valuations declined by 0.2% compared to 31 December 2022. Generally, the valuations were the result of significantly higher net operating income, balanced by 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 significant shopping center transactions, 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 overall EPRA net initial yield has increased from 5.5% - 5.7% over six months. We have again provided this valuation split, separating our five flagships at the top of the slide, which together represent around 46% of the portfolio and are lower yielding at 5.3%. 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 54% of the portfolio and are much smaller assets with an average individual value of around EUR 100 million, and they are high yielding at 6% overall. Our only current committed project is in Sweden, where we are completing the final phase at Valbo, located outside Gävle, the last of the 7 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 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, and Deichmann, and included the refurbishment of the malls and public areas. The last phase will be completed this autumn and will provide new facades, signage, and seven shops, which are all pre-let to national brands in the food and beverage and consumer electronics sectors. 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. And I shall briefly look at three current retail trends that our leasing teams are focusing on.
The pandemic was the catalyst for the rapid growth in sportswear and goods, with outstanding trading performances from our traditional sport retailers, including Stadium, XXL, Intersport, and Decathlon. However, we also saw the rapid growth of new lifestyle fashion, branded sport fashion, leisure, and footwear. This has accelerated since the pandemic, with many existing and new brands establishing in our centers, including Adidas, Nike, JD Sports, Foot Locker, Courir, and Snipes. Having been severely impacted by government restrictions during the COVID period, the food and beverage sector has not only fully recovered, but is now rapidly expanding with a range of new brands, concepts, and formats. We've responded with a number of initiatives illustrated on this slide, including recently completed F&B projects in Italy, France, and Sweden.
And finally, another clear leasing trend has been the expansion in the low price value retail sector, which is not surprising with household budgets under pressure. 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 with over 100 stores, as a 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 sq m and perform very well in all our Swedish shopping centers, and have recently also opened in the Leclerc hypermarket anchored MoDo in Paris, a city where they also continue to trade very well in the lower ground floor of our prime city center gallery, Passage du Havre, in the busy pedestrian connection to the metro. In the fashion segment, Primark are important anchors in Fiordaliso and I Gigli. And in order to expand further, Primark are now also more flexible on unit size. And finally, in the young fashion arena, the German retailer, New Yorker, are performing well in three of our Swedish shopping centers, as well as Grand A in France and Fiordaliso in Italy.
Our commitment to our broad ESG vision and strategy has seen progress with a number of initiatives articulated around our three strategic pillars illustrated here: Be green, be engaged, be responsible. Having already fully utilized the roofs of all 7 of our Swedish shopping centers for solar panels, we are progressing with installations now in our other markets. In Italy, I Gigli and Carosello, both illustrated on this slide, will be connected to the grid during the autumn. The installation at I Gigli will cover 450 car spaces and provide around 40% of the shopping center's electrical requirements, while the Carosello installation on an adjoining site will cover 56% of the shopping center's electrical needs.
Elsewhere in Italy, Il Castello will be switching to geothermal heating during Q3, while major insulation work is being carried out in four centers, improving efficiency, reducing consumption, improving EPC labels, and mitigating climate change risks. Additional smart metering to monitor common parts as well as tenant consumptions is improving baseline data across the portfolio. In Belgium, recent investments at Woluwe have included the replacement of the building management system, the relamping of the parking and technical areas, and the introduction of motion detection sensors. These investments resulted in a reduction in electrical consumption of 18% during H1, 2023. Construction has also started on an additional 568 solar panels on the southern building at Woluwe, taking the total to 2,300.
The French team are converting all common areas and parking to LED lighting as they work together with our tenants in active green committees to put in place the provisions of the National Sobriety Plan, and have already achieved the initial goal of a 10% energy saving after only one year. Solar panels will shortly be installed on the roof of Shopping Etrembières, with the electricity generated to be used for the common parts. Having initiated the Eurocommercial Retail Academy across all our Swedish centers, with over 1,200 participants last year, we are rolling out the program across our other markets during 2023, starting with eight shopping centers, five in Italy and three in France, in order to strengthen our relationship with our retailer communities while improving sales techniques and customer service in the shopping centers.
And finally, Eurocommercial has also recently made further progress with its sustainable finance goals, formalizing its Green Finance Framework and entering into several recent green and sustainability-linked loans. And this is therefore the right moment to hand over to Roberto Fraticelli, who will cover this subject in more detail as part of the financial review.
Thanks a lot, Peter, and welcome, everybody. Let's start with the financial performance. Yeah, if you look at the slide, you get a quick overview of the most relevant financial data, the income statement, and the financial positions in values and also per share. As you can see, both rental income and net property income increased significantly compared to H1 2022. The increase in rental growth was mainly due to the indexation and to the renewals and relittings, and Peter and I mentioned. Net interest expenses, on the other hand, were higher than 2022, the due to the significant increase in interest rates, both the EURIBOR and the STIBOR. As we will see later, the increase in interest expenses has been limited, thanks to our high hedging ratio. We'll also look more in detail at the increase in the direct investment results in the next slides.
The negative value for the indirect investment results is mainly related to a EUR 58 million difference in the investment evaluation of the properties. We have under them, -EUR 100.3 million for the first six months, 2023, compared to a +EUR 46.7 million for the first six months in 2022, and to a EUR 98 million negative difference in the fair value of the derivative financial instruments. It's - EUR 5.2 million for the first six months, 2023, compared to + EUR 92.8 million in the first six months, 2022. These amounts are partially offset by EUR 26.9 million decrease in the deferred tax provision. Moving to our financial position, property investment has decreased slightly, mainly due to a weaker Swedish krona.
While the EUR 36 million increase in net borrowings is mainly related to the EUR 69.6 million acquisition of the 25.63 minority in the Belgian subsidiary holding, the Woluwe Shopping Center. And then the EPRA NTA was basically unchanged. We will analyze this more in detail in the next slides. While the Adjusted NAV reduction is mainly due to the accounting of the 2022 dividend, which was paid out in July 2023. To look at the financial summary, fantastic. The slides gives you a quick overview of the most important financial data. The total nominal value of the net borrowings at 30 June increased, as we said, by EUR 36 million, to EUR 1.58 billion from the EUR 1.55 billion at 31 December 2022.
That's due to the acquisition of the minority stake in Belgium, as we said, and this was partly offset by lower net borrowings as a consequence of a weaker Swedish krona. As you can see, our loans are still spread among more than 15 banks in different countries, with Dutch, German, and Italian banks, with shares between 20% and 30%. Okay, what did we do this year? Well, in March 2023, the existing EUR 159 million loan, which is with Fiordaliso, so 50%, EUR 79.5 million group share, financing the shopping centers and Retail Park Fiordaliso in Italy, was qualified as a green loan. In March and June 2023, the company extended the existing their green loan with Nordea Bank for an amount of SEK 1.2 billion. That's around EUR 101 million until July 2027.
In June 2023, the company also agreed with Nordea that the financing of the Bergvik Shopping Center in Sweden for an amount of SEK 675 million, which is around EUR 57 million for 4 years. The final closing of this new financing is actually scheduled for next week, and all these loans qualify as green loans. Considering these new loans, the average term of the loan book is now three years, with most repayments foreseen, as you can see, in 2025 and 2026. If you now move at the hot topic, the interest rate hedging. The overall interest rate, including margins at June 2023, increased to 2.9%, compared to 2.4% at December 2022.
The increase in interest rate expenses have, has been limited, notwithstanding, as we said, the strong increase in both the EURIBOR and the STIBOR rates, and it was thanks to our conservative hedging policy. As of June 30, 78% of interest costs are hedged, mostly to interest rate swaps, but also by a number of fixed interest coupon loans. The average interest rates, hedging, term, is over five years. We therefore expect the interest expenses to further increase slightly during the year, but to remain at acceptable levels, with an average overall interest rate for the portfolio slightly above 3%. And if we look at the loan-to-value ratio on the basis of proportional consolidation at June 30, after using deducting purchases cost, increased slightly to 41.8% compared to December 2022, when it was 40.4%.
We already talked about the reasons behind this increase, but also please remember that the group covenant loan-to-value ratio agreed with the financing bank is 60%. And then for comparison purposes, our loan to, our loan-to-value, ratio, adding back purchases costs, becomes 40.8, and adding, purchases costs and using the IFRS consolidated balance sheet, it was 39.3%. So more ratio. Let's say, the net debt to EBITDA ratio decreased from 8.9 in December 2022 to 8.1 in June. But please consider that this ratio is an approximation, as the six-month EBITDA values have been annualized, while the interest cover ratio has remained stable at 3.9. Then, two last bridges that will bring us then to everyone.
The direct investment result for the six months of June increased to EUR 64.5 million. That's compared to EUR 62.7 million for the same period in 2022. So it's an increase of EUR 1.8 million or almost 3%. The main reasons being the EUR 6.3 million higher rental income related to an indexation and the acquisition of the remaining 25.63 shares in Woluwe, and the absence of COVID-19 concessions to tenants, which was partially offset by the lower income related to the properties sold and to the weaker Swedish krona.
These increases were offsets mainly by higher bad debt provision in France and Italy for prudence, EUR 1.8 million , and by an increase in net interest expenses from bank loans, around EUR 3.4 million . Then last but not least, a quick view of the relative changes in the EPRA NTA, Net Tangible Assets per share, which substantially remains stable from EUR 38.64 - EUR 38.65 .
But the three major movements, beside of course, the direct and indirect investment results, are, are relative to the EUR 1.60 dividend per share, which was paid out in January and in July 2023, to the positive EUR 1.29 variance, related to the acquisition of the minority stake in the Belgian subsidiary, and to a -EUR 0.47 , which is linked to the valuation of the Swedish krona. Now, thank you very much, and now back to Evert Jan.
Thank you, Roberto, for presenting all the figures. Then I would like to make two closing remarks, one about our direct investment result going forward, and one about the interim dividend for January 2024. Assuming no major deterioration of the macroeconomic environment, in particular, further spikes in interest rates, we confirm the guidance provided with the publication of the 2022 annual results in March 2023, and expect the direct investment result for the financial year 2023 to be between EUR 2.25 and EUR 2.35 per share. The direct investment result is the basis for the applicable dividend policy, providing for a cash dividend payout ratio ranging between 65% and 85%, but with a target of 75% of the direct investment result per share. An interim dividend will be payable in January 2024, and a final dividend will be payable in July 2024.
According to the applicable dividend policy, the cash interim dividend is expected to be 40% of the total cash dividend paid in the previous financial year, which was EUR 1.60 per share. So for January 2024, the cash interim dividend is expected to be EUR 0.64 per share. We will then also intend to offer shareholders again the option of taking a stock dividend instead of a cash interim dividend, which option was offered in July 2023, when we paid the final dividend. At that time, almost 20% of the shareholders took up the stock dividend, showing that there is an appetite for this alternative to cash, and on which stock dividend, the company does not have to withhold 15% Dutch dividend withholding tax.
This enabled the company to raise capital for an amount of EUR 10.4 million by issuing 432,000 new shares at an issue price of EUR 24 per share. This slide shows the dates of the next two company publications, the third quarter results and the 2023 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, sir. As a reminder, to ask a question over the phone, please signal by pressing star one on your telephone keypad. You may also submit your question via the webcast. Again, please press star one to ask a question over the phone. My first question comes from Steven Boumans from ABN AMRO Oddo. Please go ahead.
Hi, good morning, and, of course, thank you for taking the questions and presentation. I've got some questions on the operations. First, could you please provide more color on why rent renewals have been so strong for a while now, and how long this could last going forward? So do you expect mid- to high-single-digit renewals for H2 or maybe 2024, too?
Yeah, Steven, that is... You had more questions, or shall we take this one first?
Yeah, let's start with this, and then I have a question on Belgium and on Sweden, but maybe start with this.
Okay. Okay, okay. No, I mean, let's say, had the rent renewals and re-lettings again, we think a strong figure. Leasing activity is just continuing. We added a quarter, we lost a quarter. That's how it works with the renewal to reletting. It's 12 months rolling forward period. We haven't yet seen, you know, particular cases where we say, "Oh, gosh, that is going to lead to different sort of levels." We continue to see, you know, the similar deals and uplifts as in the past. I'm also conscious, of course, that at some point, have we said it before, the indexation has been strong for this financial year.
We collected it so far, and still every quarter, that we might expect that, you know, when you do, you know, a renewal of existing lease, that at some point, yeah, let's say the indexation and the level is playing a role in how much uplift you can achieve on top of a renewal. But, I think, I mean, after I look, Peter, I'm just making a general comment, but I think what we are seeing in the countries that it's-
Yes, I think certain sectors have been driving it, health and beauty, we talked about food and beverage, gifts and jewelry, sports have been perhaps a higher rent, higher rent contributors in the renewal program. I think generally, if I look at. We have a graph that shows our last 10 years, the average was 10%, or we're 7% now. So I think, and if I look at the graph, it has marginally declined over the last two or three years, over the last two years in particular, as obviously the inflation has kicked in. But no, I think it's still very steady.
We gave the figure for the last six months, particularly just to show that, even though we give a twelve-month number and report on a twelve-month basis, the last six months has been very active. 112 transactions, uplifts 7.1%, I think we said, so actually even higher than the twelve years, the twelve months. So no, I think it's, it still looks very, very positive, Steven.
Okay, clear. Maybe one follow-up on this one. Is there a certain OCR level, for example, per country, that you say from that moment, renewals are likely to be more flat, or is that not how you look at it?
I think the OCRs are at the right level. I mean, obviously, overall, we give a 9.5% OCR figure. And it depends a little bit. It's lower in Sweden because we have a higher grocery component in that number, because we own them. We own all the hypermarkets. It's higher. It looks higher in Belgium because it's Woluwe at 14%. But those rents are not pushed in Woluwe.
If I tell you that the rents in Passage du Havre, which is probably our closest comparable property, are much higher than Woluwe, and yet the OCR in France is lower, because overall it's mixed with our hypermarket centers. But no, I think for each type of center, and I think I'd look at it rather than by country. I think the OCRs are at the right level.
Okay, clear. And a specific question on Sweden, if I may. How much renewals are high, highest there, while retail sales growth is relatively weak? Is it a risk of affordability or just a result of shifting, the mix?
I don't think it's a shifting of the mix. I think it's fair to say that in terms of the market generally, I mean, we're probably going to see some tougher times. Our retail sales growth was slightly lower. If I look at... But having said that, if I look at the July, it's the same sort of level, 6%. Yeah, it's not been as high as it has been. And maybe there's some worries in terms of household debt exposure to mortgages, which are mainly, as you know, on variable rather than fixed rates.
The housing market in some cities has tipped at maybe 15%-20%, but that tends to be in the big capital areas. The big capital is Gothenburg, I think in Stockholm in particular. So it's not been as high as some of our other markets, but I don't think there are danger signals out there yet, no.
Yeah, I think, Steven, and to add to that, what is an important moment in time in the near future, obviously, is what will be the next indexation first of January, which we know more about in November. So we're carefully monitoring the inflation in Sweden. I have to say, inflation is still, you know, if you compare it with other European countries, at the higher end. There are some higher rates in European countries, but Sweden is still at the higher end. So, yeah, we sort of have in mind that, you know, if it would be around the 6% level, then, you know, you look at next year at a re-indexation of that level, that's probably, you know, okay.
But if it is higher, yeah, you can see that, maybe, you know, also tenants who just to digest the over 10% indexation in January and then another, if it would be 7%-8%, that's, it's quite high. So I think that's a point to monitor. Obviously, the Swedish Central Bank is doing a lot to get this inflation down, but the difficulty is also a little bit the weak Swedish krona, because most of the inflation is actually imported. On the other hand, I think it's fair to say that, let's say, the energy prices in Sweden have come down dramatically, and in a funny way, they had, of course, quite some trouble recently with a lot of water in Sweden, but that actually helped their energy prices.
But, because I think about 50% of what they produce in energy is via, you know, these water installations, where they basically create the electricity. So yeah, Sweden will be interesting to monitor during the autumn.
Okay, makes a lot of sense. Last one is on Belgium.
Yeah.
There, the valuations are somewhat weaker, while rental growth was good. Is that due to higher yields or are valuators more cautious, on estimated rental values?
Well, I think they have Sweden, sorry, Stephen. What we can say is that you know, obviously, Woluwe has Passage, you know, they have flagships, which were at lower yields and are still at relatively lower yields. Yeah, any move in a yield, an exit yield, or whether you do an initial yield, obviously has a big impact in money terms. Yeah, I mean, Peter, I think it's, it's-
Well, the point you just made, it was a 10 basis point move, and it-
Yeah
... and it can make a material impact. I don't think it's been a change in terms of a view from the
Of the ERVs.
The ERVs, which was your question, though. I think it's purely yields, which has ticked up to 4.7%.
Okay. Okay, clear. Thank you very much.
Our next question. Our next question comes from Francesca Ferragina, from ING. Please go ahead.
Hello, good morning, everybody, and many compliments for the numbers. A few questions. The first one is on the market. It's common thinking that new assets will come to the market as of September. Can you elaborate a bit on this? What are your feelings, and it's fair to expect some more dynamic in H2? The second question is on the portfolio. I saw a more positive portfolio revaluation in Italy and France. Can you make a little comment on this? Are the valuators becoming more positive, considering the inflation has been passed through effectively? Third, can you give us a little update on the expansion projects in Italy and Belgium? I saw that Woluwe, the Brussels region, gave the approval for Woluwe.
Can you also provide an update on this? Many thanks.
Well, thank you, Francesca, for your, your three questions. Maybe, maybe if I may, and then I'll also pass on to, to Roberto and, and, and to Peter. But maybe to start with the last one about Woluwe and, and the project there, just to, to, to give that update, and we, we also refer to that in the press release. So the situation today is that, yes, the Brussels region has granted a permit, and yes, the municipality, as they, also announced, earlier in the year and, and expressed on their website, they have now submitted, an appeal.
So that means that at the moment, we're a little bit in the hands of, let's say, the two authorities, and there's a procedure which is now which has started by this appeal, which means that there is a 75-day period in which basically a committee, which will be established soon, will then take another view on the permit of the Brussels region, whether they confirm it or whether they say, you know, there is indeed a reason to change things.
So we're first waiting that decision, and if that decision would then be that, you know, they confirm the permit as it is today, then there is another 60 days for, for example, the municipality, but also neighbors to appeal against that decision at the Conseil d'État, which, of course, is the overall supreme body. And if that procedure is started, yeah, then obviously, again, there will be a certain delay because that procedure can take some time. So basically, we're at the moment where we are at the moment is, look and see, there's not a lot we can do.
And meanwhile, obviously, we're focusing very much on the existing mall of Woluwe, where we think we can do quite some interesting new leasing. Getting, you know, trying to get the latest concepts there and making sure that the existing mall is performing well and will continue to perform well. Actually, what we see in Woluwe is very good numbers. I mean, also the turnover numbers we showed, if you compare that to, for example, the current Belgian inflation number, which is the lowest in Europe, it's below 2%. So you know, it's really encouraging that people are spending in the Woluwe center.
That's the comment on Woluwe and the other project, I mean, Peter talked about Valbo. And then in the portfolio, we have a number of possibilities in the future, but that concerns more, let's say, preparing for the years to come. For example, in Italy, Roberto, you may want to say a few words about what we're doing there in the various centers.
Yeah. Hi, Francesca. We are unfortunately producing a lot of paper. And it's always paper before you can actually start building. So, you know, getting all the various permits and the rest. I mean, we're progressing, but as you know, in Italy, it takes a while before you actually get through. One of the changes, if you wish, was in I Gigli, where we finally got the building permit for the new leisure village, which will strengthen also the position of the cinema next to I Gigli. So that's something that we can work on. So we are finalizing all the. We already have the tenants and the rest, so that's something that we can work on. And for concerns, the rest, let's say as a general remark, let's say the extensions can come from two sides.
One is the extension through, actually the extension process with the local municipality, the region and the rest. And the other one is, of course, the possible reduction of the other markets. So we are all looking at what's possible, but there is no news at the moment on this kind of development. Yeah.
Yeah, and then maybe Roberto, you can give some color on the other question, the other question Francesca had was about the valuation, particularly also in Italy, where we see an uplift and what values have done with, you know, the indexation, et cetera.
Yeah. Yeah, I mean, we really have a strong increase in NOI, as you, as you've seen, Francesca. So that was the main increase in the valuations. And if you look at them, I mean, the yields went up a little bit, basically for all the properties. And of course, there is a higher discount rate, which has been used because the increase in the EURIBOR. But overall, you know, we actually have a gain on the valuations compared to last year. So, but that's mainly, mainly driven from the NOI and also the expected rental value that the valuers, because of course, they're independent and they, they do the judgments, have on the properties.
Yeah, and then maybe some other countries, the valuation in France.
I mean, a quick word on France, which was stable, obviously on lower, not net operating income, because actually the inflation has been, has been lower. I think the yields generally were pretty stable, although we did see, overall they're up slightly, but we saw a decline actually, again, in our prime center gallery Passage. Quite similar comments to Woluwe. A small yield shift made a significant difference, but that was compensated actually by a big uplift we had on the Grand A in Amiens, our gallery, which we refurbished three or four years ago. Which has been a great success and has become the number one gallery now in Amiens.
And that's all a nice uplift and the board, and the yield came into what I would say is the average hypermarket yield of Havre, Taverny and MoDo here, too. And in Amiens, somewhere around 5.5%-5.75%, seems to be a little lower still in Val Thoiry and Etrembières, I think, reflecting the wealth levels of, particularly our Swiss customers there. And rental levels have been a bit higher there, too. But generally stable, I would say.
Francesca, you were referring your other question to the markets where we're in, but I didn't pick up exactly. Do you mean the investment market or more, let's say, the leasing market and how you see that going forward with tenants?
No, it was mainly referring to the, yes, to the transaction market.
The investment market. Okay. Yeah.
Yeah.
Yeah.
And the question was, are we expecting to see a change, I think, did you say in the second half of the year in terms-
Yeah.
- of supply of centers? I think, I think there may be one or two more. I mean, there were several transactions done, which we-- I referred to, but I was thinking of Passy Plaza, Italy, Paris, PEP in Munich. There were that, but we didn't see a large volume. I think most countries, the transactional volumes were significantly down in all sectors, including retail. We hear that there are one or two properties that will come to the market. I think with revaluations, what they call pricing discovery, may be easier to find.
I think the shop goods for good shopping centers, with the outlook of solid rental income, I think the retail sales has been a surprise for all of us in terms of how strong they've been. I think the sentiment is there, and hopefully that we'll see some more transactions. But I wouldn't expect to see a flood of them, and nor do we expect to see a flood of good quality assets coming to the market, which tend to be held by well-financed-
... companies, but I would certainly think there would be more than we saw in the first half.
Does that answer your question, sir, Francesca?
Yeah, that's fine. Many thanks.
You're welcome. Thank you.
Kai Klose of Berenberg, please go ahead. Your line is open.
Yes, good morning. I've got only two quick questions. The first one, could you indicate again what was the amortization, that amortization, in the first half, and what is the amortization rate in the newly signed loans and in the upcoming ones? And the second one, could you remind us again, what is the amount of investments for the leisure village, leisure village at I Gigli, and what are you going to spend there over the coming periods?
Yeah, Kai, if I understood you correctly, so the amortization in the loan book in the first-
Yep
Half year, oh, and Roberto is on it. He will take that question. And the second one, I, you-- there was a slight blip, so can you repeat your second question?
Yes. If, of course, if you could remind us how much you're going to spend for the leisure village in Italy, I Gigli?
Oh, okay. I Gigli. Yeah, yeah, yeah, sure. Sure. Well, I think, these both questions I will pass to Roberto.
They cover his.
Yeah
... part.
Yeah.
I mean, if you look at the Sorry, thank you, Kai. If you look at the financial summary, I mean, there you have the view of the financial, the amortization of the loan. So you see, let's say, it's around EUR 10 million every year. So EUR 8, EUR 17, EUR 15, EUR 13, EUR 13, EUR 10. So those are, let's say, let's call it EUR 15 million per annum, which is a sort of amortization of the long-term loans. And then, of course, you have the short-term loans, which we renew, which are there for also cash purposes and the rest. So I mean, if you look at until the end of the year, let's say we have no long-term loans to renew.
If you look at 2024, there is a line of around EUR 20 million in Fiordaliso, so that's for us, EUR 10 million, which are already, I think, finalizing the renewal or the negotiations, which is foreseen in January 2024. Then we have a little bit in Sweden with SEB, which we also start a discussion for the negotiation. And then we have the EUR 100 million with ABN AMRO in Italy, which, you know, where we also already started the negotiation for the extension. And there's nothing particularly exciting, I mean, touching whatever needs to be touched, that we are seeing in the coming period.
Is that an answer to your question or, Kai, or?
Yes, yes. Many thanks.
Okay. And then if you look at I Gigli, so that's the second question on the Retail Park, on the leisure park. I'd say we expect costs to be in the range of EUR 6 million-EUR 8 million. So that's also not a huge investment, and that's thanks to the fact that it's basically the land is already owned, all the works, the paperwork, for the building permits and the rest, that's already done. So it's really a matter of building these structures. And then, you know, renting it, it's also already done. So that's not a big cash outflow that we have related to this leisure park.
Understood. Many thanks.
You're welcome. Thank you, Kai.
Thank you, Kai.
Yeah.
As a reminder, to ask a question over the phone, please signal by pressing star one. You may also submit a question via the webcast. Our next question comes from Inna Maslova, from Bank Degroof Petercam. Please go ahead.
Thank you. Good morning, everyone, and thank you very much for the update and the presentation. Just to come back on the Woluwe extension, given that it's a rather difficult, tedious process, what would be your feeling, let's say, if the outcomes on these rulings are negative? Would you be open to resubmitting another proposal for extension for a different permit? And then also a follow-up question on the level of OCRs. Would it be possible to get the level of OCRs excluding the hypermarket component? And then the last question, I would be very curious to hear your comments in general on the market outlook, the level of tenants in administration.
I appreciate the fact that the rents are still coming in, but more specifically on how the proportion of 1.5% of your GLA is split geographically for tenants in administration. And if you think that the potential economic slowdown could accelerate the situation in that regard. Thank you very much.
Thank you, Ina, for your questions. And maybe start then with the question, which is about the Woluwe, where you are very close to, physically. Yeah, are you open for amendments? I think all what we can say now, it's far too early to tell, obviously. The permit was received in, well, it's dated seventh July, so it was received first two weeks of July. And the appeal of the municipality was made a few weeks after that, so it's pretty fresh, obviously, in the holiday season. So, therefore, we now have to see in the coming weeks what exactly will happen first at the region, in this procedure.
And then to see again what this special committee will decide, and then to see again what is the response of the municipality. So I think for us it is prudent to, as I said before, wait and see because we're not really in this part of the procedure party. Obviously, we are an interested party. So I think we have to wait what the outcome of that and what that means to the existing permit. So also fair to say, you can appreciate, Ina, that we haven't been able to speak to the region or nor to the municipality, as they were all on holiday. So this is all I can say for now.
But I think it will take some time in terms of months to really see where we are going to in this process. And yeah, let's say we are already for a number of years busy with this extension, but this is all in the game, yeah. This, we know that this could happen. On the other hand, as I said before, it doesn't stop us from, you know, making sure that Woluwe as a shopping center is today an attractive center and also tomorrow and also next year. And I think in that respect, I'm quite optimistic and encouraged, really, what we see on the ground with the leasing and what we're doing with also the main tenants.
We do hope that later in the year, we can make a nice announcement about all what will happen in the mall. So that is very clear, you know, that that Woluwe today and tomorrow is a first-class, very attractive prime shopping center. Maybe on the level of the OCRs, I can pass on to Peter.
The question was, I think, whether without the hypermarket.
Yeah.
That probably makes a difference, as I mentioned in answering an earlier question, in Sweden, where we own them. Overall, it takes our OCR from 9.5% - 10.3% if we just look at the gallery tenants. The change is roughly 7.6%-9.5% in Sweden, and that's making the difference to the overall number. I think Roberto is having a look at the-
Yeah.
The tenant administration.
Yeah, yeah.
Um.
Yeah, let's say-
Which countries and-
Yeah, which countries. So Roberto will
Yeah
... talk about that.
Let's say we have, if you wish, some old one, huh? Which are still there, like, you know, Scarpe Scarpe and Queen and others, which are, let's say, we're looking at the, sorry, Scarpe Scarpe, of course, Celio. We're looking at the situation of this, the procedures are going on. If I look at the split, let's say we have a big component, which is France, so that's where you have also, for example, Go Sport, which is now being taken over. So the situations are changing. And the other major component is in Italy. And we have also some little stuff, let's say, in Sweden, which is especially related to Sushi Yama, which entered administration.
If you look at the balance sheet, of course. Sorry, the profit and loss, we also took some extra provision, EUR 1.8 million for those tenants in Italy and France. And that's, if I have to be fair, more out of a prudent perspective, because we believe that most of these tenants in receivership or administration will be able to pay. What we are looking at, and that I think was also an important question that you had, is if you look at the economic outlook, huh? Do we believe that, you know, the economic outlook is going to make the situation worse? I mean, of course, we -
Yeah, well, I think, Ina, there, and let's say what we've seen in France, where some of the mid-market fashion chains have trouble, and therefore, went into receivership or administration or were sold after a process of restructuring. We saw the heavy examples there with Camaieu, Jennyfer, and other fashion retailers. I think that's probably fair to say, a result also of the fierce competition there that, you know, strong brands like the Inditex group, Primark, you know, they, that's quite competition for those chains. So, that happened in France. But we asked the question very recently to the other country teams, you know, are we seeing that, expecting that?
Sweden, for example, you know, you have an old tenant in which is a local SMB tenant who is then not performing well, okay, we replace him or he's going into bankruptcy in a special case. But, it's not that we see that kind of or expect that kind of effect, what we have seen in France to happen in Sweden. And also fair to say that in Italy, where there's not that sort of mid-market fashion. I mean, I think the markets there are different. In Sweden, we have strong Nordic retailers who really dominate the market and will not be kicked out by Inditex or Primark. I mean, they're not even present there. So it's a and that's the beauty of being diversified over four countries.
It's not all the same. So, and that's in the end, of course, helping us in our overall performance. Does that answer your question, Inna?
Very much so. Thank you.
You're welcome.
Thank you. And as there are no further questions in the phone queue, I would like to hand the floor over to our host for any web questions. Thank you.
Now we are looking into the chat box. There are a question. And the question, I will read out the question: Thank you very much for the presentation. The company and indirect property expenses have increased. Can you comment on this? Are there plans to reduce costs? Well, all I can say is that, let's say in the company expenses, where we give a lot of detail on particularly the line items, I think there are some costs which have increased, some costs which have decreased. Overall, it has gone up. In particular, line items you would like to discuss, Roberto.
I mean, the salaries went up a bit, but that's also because, of course, we strengthened our teams. So to be able to improve further the quality of the service that we provide. So that was, let's say, one of the items that you saw increase in the company expenses. And what concerns the property expenses, there's always a bit of a mix. I mean, every once in a while, you have some extra consultancy, and sometimes, you know, you don't. If we expect them to decrease in the coming future, I would say that, you know, also taking into consideration the inflation levels, because that's also what needs to be looked at, because you're talking about an inflation around 10%, which we saw happening during...
For the year 2022. If we look at the current level of inflation, so I think, you know, property should also increase more or less in line with the inflation. So I'm not expecting anything particularly particular to happen in the coming months, to be fair.
Maybe to add to that is that if you look at the property expenses, where we have seen an increase over the period reported compared to last year, the major difference with last year are the bad debts, because this year, we report EUR 1.1 million for bad debts. We just talked about the improvement for EUR 1.8 extra. And in the previous period, actually, we had the reverse. There was a negative bad debt because we had a lot of extra provisions coming out of COVID, et cetera, which we reversed. So you're looking already at EUR 1.8 million, almost, well, a bit more, a difference on bad debts.
So if I then project that on the total property expenses, actually, the other items are not that different. Again, salaries and wages higher than last year, but not surprisingly, also, we had to deal with inflation in the countries, cost of living, et cetera. But I think it's fair to say that all the other line items are more or less in line. Some have reduced, some have increased, but it's not an overall, we think, you know, dramatic situation. And I think, again, the bad debts do make the big difference in the property expenses.
Let me see. Is there another question, Angelo?
Yeah. Why did you decide to let the hedge ratio drop by 8 percentage points versus year-end 2022, instead of rolling over expiring hedges?
Yeah, Roberto. Let's say we rolled over expiring hedges. Let's say what we have is, of course, also an increase in the loans, because we, of course, bought the 25% stake in Woluwe, which is, let's say, the EUR 70 million. And what we are doing is also, we got some forward starting interest rate swaps, which will kick in. But on average, I think, you know, we always said that we aim to hedge around 80% of our loan book value. So sometimes you are higher, sometimes you're lower.
But let's say for the future, of course, what we are trying to look, Angelo, and you know better than us, I mean, we look at the curve, and we try and see when we can get a good spot, for a good coverage of the interest expenses.
Let me see. Are there any other questions? I don't see any other.
Yep.
Chat box. So if there are no other questions, then, I would like to hand back to the operator.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.