Hello, and welcome to the Vastned Half Year Results 2023. My name is Jess, and I'll 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. There will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero and you'll be connected to an operator. I will now hand over to your host, Reinier Walta, CEO of Vastned, to begin today's call. Thank you.
Dear attendees of this analyst meeting and webcast. My name is Reinier Walta. I am the CEO of Vastned, and I have the pleasure of hosting this meeting and talk you through our half year results. In addition to presenting the half year results, I will also dedicate time in this call to inform you of the outcome of our strategic reorientation. I will do this by going through the slides, which now also are made available on our website in the section Investor Relations Publications and Reports. After presenting my prepared slides to you, the line will be open to ask questions in a Q&A session. In the first half of 2023, Vastned has maintained a strong operational performance. We have a continued high occupancy rate that's currently at 98.2% and have been able to pass through the contracted indexation rents to our tenants.
The high level of new rents and rent renewals that on average have been executed against rents higher than market rents and on average 1.4% higher than previous rents, also indicate the health and resilience of the high street retail landscape for our properties. With a collection rate of 98.8% for the first half of 2023, we very well succeed in collecting our rents from our tenants. The stable, high occupancy rate, high like-for-like rental growth, and positive development of the rent on our new rents and rent renewals have been offset by higher interest expenses, which brings the direct result for the first half of 2023 at €0.95 per share, in line with our direct result of last year. The indirect result is impacted by a decreased value of the property portfolio of 1.8% and a lower valuation of the financial derivatives.
The increase in market interest rates eased, the time to maturity became shorter, and payouts have been received. Based on a maximum payout ratio of the first half of 2023 of 60%, as defined in the company's dividend policy, Vastned will pay out an interim dividend of €0.57 per share. Today, we also present the outcome of the strategic reorientation as announced in February of this year. With the presentation of our full year 2022 results, we announced a strategic reorientation in response to the combination of rising interest rates, increasing yields on real estate properties, and the expected abolishment of the FBI regime as of 2025. After a thorough and diligent process, we concluded that divesting specific parts of the real estate portfolio will create the most value for our stakeholders, including the shareholders.
Same time, we will also explore a new structure that fits the size and nature of Vastned on the one hand, and it will also mitigate the impact of the announced intention for the abolishment of the FBI regime in the Netherlands. I will get back to the strategic reorientation in more detail later in this presentation. Now, first like to take you through our key figures on the next slide. In summary, stable direct result in line with last year's half-year performance. This year, we see strong like-for-like rental growth across our portfolio with a negative indirect result based on lower valuation, which impact our net asset value and EPRA NTA. The increase of the average interest rate with 60 basis points from 1.9% to 2.5% is a result of the increase in market interest rates.
This impacted the part of the loan portfolio that has a floating interest rate. The remaining part of the loan portfolio, which represents 71.6% of the total loan portfolio, has a fixed interest rate. The increase in loan-to-value is driven by lower valuations of our portfolio. With an LTV of 44.7%, we operate well within our banking covenants. I will now take you into more detail on our operational and financial performance. The occupancy rate remains at a high level of 98.2%. For the Netherlands, there have been some new vacancies after Ziggo in Amsterdam and Vinted in Utrecht made strategic location changes. But we also have seen new lettings from some other units and, for example, Alpenwild in the Kalverstraat. In France, we have previously seen a temporary dip in the occupancy rate due to the timing of bankruptcies of some fashion retailers like Camaïeu.
The quality of the French portfolio has ensured that the properties were relet relatively quickly, and combined with new lettings to c and Lancôme on rue du Rocher in Paris, we have seen that the French occupancy rate has also picked up again to a level above 97%. In Belgium, the occupancy rate remains stable at a very high level of 99.3%. In the Spanish portfolio, we have seen a rotation on our asset, Calle Fuencarral 23 in Madrid. Our previous tenant left location, which drew significant interest from retailers and resulting in a new letting to New Balance. As a result, we have ensured that the Spanish portfolio continues to be fully let. Leasing activity was significantly higher than in the same period of the previous year, and already exceeding the number of new leases over the full year 2022, both in number and value.
We negotiated 44 leases with annual rent income of nine million EUR, compared with 19 leases in the same period last year with EUR 2.1 million annual rental income. In line with the numbers that we have reported of Q1 2023, we continued to secure new rents and lease renewals at higher rents. Therefore, we see a positive rental change on average of 1.4%. Given the high occupancy rate, most of the leasing activity are lease renewals. Among these deals, we see, for example, Jimmy Choo on Calle Ortega y Gasset in Madrid, and Pull&Bear on the Kalverstraat in, to renew early and extend the rental period for at least another five years. In some cases, we had to give away some of the over rent. In the case of H&M on Bondgenotenlaan in Leuven, we have agreed an extension for a lower rent, but still above market rent.
The high amount of activity with 11.7% of our theoretical annual rent renewed, indicates that the retail market still shows a high level of activity for rent transactions in the attractively located properties of Vastned. The like-for-like rental growth continues at a high level of 7.4% on average for our full portfolio. This is mainly the result of contracted indexation rents that we can pass through to the tenants. In general, we are able to pass on the contracted indexation. In all the countries in which we operate, we have seen high levels of inflation. The effect of indexation on rents might vary per country based on accepted marketing practices in that country, as well as government regulation in place. The impact of the indexation of the rent is based on the inflation in the previous period, and is usually adjusted once per year.
The timing of the indexation dates is spread out throughout the year in our portfolio, there's a lagging effect on the rental growth. New lettings and rent renewals against higher rents than previous rents have also contributed to the growth of our like-for-like rents and will have a lasting effect for the coming years. Increasing yields continue to put pressure on valuations in the first half of 2023. We saw lower valuations of EUR 25 million in total, or 1.8% on the total portfolio. That amounts to almost EUR 1.4 billion at the end of the first half of 2023. Although Vastned is able to pass on the contracted indexation rates and we see a significant rental growth, this is not always translated into higher market rents, which are used by the appraisers for the determination of the values.
Whereas one effect of the current high inflation environment indexation is not so much considered, the effect of the European Central Bank increasing the benchmark interest rate is taken into account by the appraisers. The higher interest rates are reflected in higher yields used in the calculation for determining the valuations. It is too early to say where valuations are likely to go next, as the market interest rates increase appear to ease, while Vastned is still successful in increasing rents by applying contractual indexations. On this slide, the direct result development is shown, including its major components. The like-for-like rental growth has been very strong but is offset by the increase in cost of debt as the market interest rate increased and impacted the part of our portfolio that has a floating interest rate.
The increase in general expenses is mainly due to higher consultancy, legal, and audit costs, amongst other matters related to the strategic reorientation, price indexations, governance matters, and the consequences of the possible abolishment of the FBI regime of 2025. We would like to note that part of the general expenses are one-off costs. The loan-to-value ratio slightly increased to 44.7% as a result of the lower valuations and a final dividend payment on the 4th of May 2023. This compares to 43.4% at the end of the first half of 2022. The average interest rate increased significantly with 60 basis points from 1.9% to 2.5%. The increase is related to the floating part of our loan portfolio. Over the past few years, the low interest rates enabled us to reduce our average cost of debt.
Since the ECB has started battling inflation by increasing interest rates from −0.5% exactly one year ago to 3.5% today, the floating part of our loan portfolio has seen an increase in interest charged. We are currently working on a financing plan for refinancing our credit facilities. The discussions with lenders on refinancing the outstanding debt will be done in parallel to the strategic actions that come forward from the outcome of the strategic reorientation. We will now go to the strategic reorientation for more details. With the presentation of our full year 2020 results, we announced a strategic reorientation due to the combination of rising interest rates, increasing yields on the retail real estate properties, and the expected abolishment of the FBI regime as of 2025. Since February 23, we have gone through a thorough and diligent process of analyzing and evaluating the different strategic options.
As a first step, we mapped out the different options to realize our objectives within the context of the current portfolio. Together with our financial advisors and in consultation with external experts, we analyzed the impact and feasibility of the strategic options. Included in this process were a wide variety of strategic alternatives, which we have grouped in the following categories. The first is continuing as is. Secondly, divesting parts of the real estate portfolio. 3, a significant financial transaction with other real estate companies. And 4, adapting the structure of Vastned, considering the dual listing and the intention of abolishing the Dutch FBI regime. Subsequently, the different options have been scored against criteria such as value creation for Vastned and its stakeholders, including shareholders, improvements of the balance sheet of the company, and feasibility of execution.
Ultimately, this process resulted in the outcome that divesting specific parts of the portfolio at the right price will create most value for Vastned and all its stakeholders. At the same time, we will also continue to explore how to create a structure that fits the size and nature of Vastned on the one hand, for the preferred single listing, and will also mitigate the impact of the announced intention for the abolishment of the FBI regime in the Netherlands. What will be the impact of these strategic actions? On the one hand, this will unlock immediate value and at the same time improve the balance sheet and financial ratios, which will then create flexibility to size future opportunities in the market, while on the other hand, making Vastned future-proof, delivering stable and predictable returns to its shareholders.
The executive board has decided that it will start a divestment process in the coming period with a tailored and pragmatic approach. We have already identified properties that can be considered for divestment across our portfolio and across the countries where we operate. As a next step, we have started the selection process of brokers in the various markets to explore the divestment opportunities. I would like to add here that we don't have specific targets regarding the total amount of properties to be divested, neither an exact timeline. It goes without saying that this should not take years. In the meantime, we will continue to explore how to create a structure that prepares itself for the future.
That means we expect the structure to fit the size and nature of Vastned, moves us to a single listing, and can also mitigate the impact of the announced intention for the abolishment of the FBI regime in the Netherlands, which is currently intended to come into effect as from 2025 onwards. Notwithstanding the uncertainty that has been caused over this intention by the recent collapse of the Dutch government, we believe it is prudent to prepare ourselves for the legislation to be enacted in the future. In parallel to these strategic actions, we are in discussion with lenders on refinancing the outstanding debt, taking into account the potential strategic scenarios. I will now discuss the outlook and the interim dividend. Vastned will pay an interim dividend of EUR 0.57 per share.
This is in line with the dividend policy, and this interim dividend is equal to 60% of direct result in the first half of 2023. Our stock will quote ex-dividend on the 1st of August, and the dividend will be paid on the 16th of August. With respect to the outlook, we expect the strong operational performance to continue this year, and therefore, barring unforeseen circumstances, we reiterate the expected direct full year 2023 result of between €1.95 to €2.5 per share. Vastned's focus is firmly on maintaining excellent operational performance and executing the actions that have come forward as the outcome of the strategic reorientation, being starting the divestment process for specific parts of our portfolio and exploring a new structure. When these actions will result in specific transactions and/or structure changes, we will inform the market at that time. This will now bring us to Q&A.
Thank you.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you'll be advised when to ask your question. Once again, that's star one if you'd like to ask a question. The first question comes from the line of Steven Boumans from ABN AMRO-ODDO BHF. Please go ahead.
Hi. Good morning, and thank you for taking my questions. Obviously, you got a lot of questions on the strategic reorientation. I was hoping for a bit more color. Maybe to start with, what can we expect you to divest? Are you looking to divest lower-yielding prime assets like Madrid, maybe assets that do not fit the high street strategy like Wijnegem or maybe Dutch assets given the FBI regime abolishment? Maybe to start with that.
Steven, thank you for the question. I think we have looked at different criteria to see what we would sell. What is really important for us is that we sell assets that directly create value and also make sure that our balance sheet and the financial ratios are being improved. That's, I think, the way we create flexibility. We have already selected assets which we could sell, and we are now in the process of selecting brokers to see how we could do that and what the process should be. As you are used from us, is that we will do it in a pragmatic and in a rational way. If and when we sell something, we will, of course, bring that to the market and inform the market.
Okay, clear. Can you please give me a bit more, as a second question, provide a bit more idea of the size that you're looking at so we also have an idea where LTVs, for example, can go after these deals are done.
We have not really set a certain amount. It is also, I think, too quick, too early to say that. We were really focused on getting the process started to sell assets and maybe also because I think this also reflects to the other point is, in the same time, in parallel, we look at refinancing, and that's a parallel track where we aim to refinance everything. If we would sell, then we would, of course, take that into consideration with what we have to refi. We have, on purpose, made it two different tracks, and so at this stage, it's difficult to say what the total amount is going to be.
Okay, clear. Maybe one follow-up on that.
Yeah.
You always had the target to have an LTV below 40%, that target remains in place, right?
Absolutely.
Okay, clear. Maybe my last question on the strategic changes. I leave the floor to someone else. You mentioned looking at the new structure to optimize for the post-FBI regime. What can we expect there? Can we expect the early indicated 5%-10% impact on EPS to be materially lower due to this?
I think that's a little bit too early to say. What we are doing is really exploring that and seeing, of course, whether we can optimize and have a lower impact than what we have indicated so far.
Okay, clear. Thank you.
The next question comes from the line of Ventsi Iliev from Kempen. Please go ahead.
Good morning. Thank you for taking my questions. First question is on the strategic reorientation. You highlight four different options to address the current environment, One of them is a significant financial transaction. Based on the outcomes, I understand that you have ruled that one out. Could you please highlight why and whether it's because you didn't find a suitable peer, or is it something else?
We have looked at all the options, We did a thorough process, The outcome was that selling specific parts of the portfolio would create the most value. That's why we are focusing on that part of the strategic reorientation. The other ones, we have looked at that, This one seems to be the best for us.
Okay, thanks. Should we consider that the strategic reorientation is finalized and no further options will be considered at any point in the future?
At this moment, we will focus on what we have announced today. We will start the divestment process. We will focus on divesting parts of our portfolio. In the meantime, we will also focus on the to look at the structure that we see whether we could get a new structure. That's more still an investigation. We will really focus on the divestment process. That's where we are now, and that's what we are going to do.
Okay, thank you. Just last one. Despite disposals, there's still potential downsides from financial costs of the refinancings. How do you plan to address this?
We are confident that we will be able to sell parts of our portfolio. We have a great portfolio. It's a unique portfolio with really great assets. We are confident that we will succeed, in the meantime, also, we will in parallel, also focus on that we could refinance the whole portfolio if necessary. It's really a dual track, focusing on one side on our great portfolio, on the other side, on refinancing everything.
Okay, thank you. That's it.
We currently have no questions in the queue. As a reminder, please press star one if you'd like to ask a question. The next question, it comes from the line of Steven Boelmans from ABN AMRO-ODDO BHF. Please go ahead.
Hi, good morning. Maybe besides the strategic orientation, also some questions on operations. We've seen-
Absolutely.
-positive renewals, in H1. I think that's really strong. Is this something we can expect also going forward, first? Second, just to be sure, that's after indexation, the numbers that you mentioned, right?
Sorry. Let's start with the first question. I think that's we're going ahead. We have given our outlook in which we take everything into account. Yeah, that's a question I cannot really focus on, but the other question I don't understand. What do you mean with the last part of your question, with indexation?
Yes, sorry. What was it? A bit above 1% ahead of previous rents, that is if that rental contract would be continued and therefore would be indexed this year as well, right? Let's say it is 100, 10% inflation. Then it's not 110, but 111 because it's 1% more. Is that correct?
Yeah, I think there's a lot of the different things. The rent renewals is also quite some, which we already have renewed, for example, for next year. In a lot of our instances, a tenant has one year to say that they want to leave. Before then they come to us, then we have a new negotiation. We do a rent renewal, that only will start next year. The indexation is just as in the contract. There are different things. At the same time, we can pass through all our indexations so far, although in some instances, we have made deals, where we got a way longer contract and have given a little bit on the indexation.
Okay. Clear.
You understand that?
Yes, I think I understand that. Maybe a second question on the operations. Vacancy went up a bit, but it's still very good. We see some macro headwinds if we just read the newspapers. What do you expect there? Are there some tenants in financial difficulties? Are there some pockets within your portfolio that you say, "There are the risks for us"?
I think if you look at the portfolio, the portfolio is doing quite well. We had some bankruptcies already, but then we also have shown that we can relet those assets quite quickly. We had, for example, the Camaïeu in Paris, and we found a tenant quite quickly afterwards. We had a bankruptcy in a unit in the Netherlands where they did a restart, and we could renegotiate a good contract. Of course, there will always be tenants which are in a more difficult situation, but I think the quality of our portfolio is that we can really find new tenants.
Okay, clear. That's also what you showed, obviously, in France. Thank you very much.
Thank you.