Good morning, everyone. [Non-English content ] Jean-Michel and myself, we are happy to present to you today the full year earnings for 2018. As some of you have been able to read yesterday when we posted our press release, we have done what we think is a very good year with good results. We are going to go quickly through the presentation and take some of your questions. All of your questions. I think the outcome of 2018 is the evidence that the strategy of Klépierre is paying off, to concentrate our portfolio on the big cities in continental Europe. More importantly, I think it's also the evidence that we have a fantastic team, and I would like to say thank you to all the Klépierre team members who are the people in charge of making that company better for our shareholders.
To make that our properties are not only better, but are places where the customers can come to shop, meet, and connect. It's a lot of work, but it's also a lot of enthusiasm and initiatives, and I would like really to thank you them for their fantastic job. I will go very quickly to the heart, not the disclaimer, but to the heart of our business. The core of our business. 2018 has been a very dynamic leasing activity. We have signed almost 1,800 leases, which is very comparable to what we have done last year. As you can see, the uplift on each and every lease renegotiation is double digits, 11.1%. As you can read, it distributes positively in all the countries, almost double digit everywhere, with only one exception, which is Germany, which is still, as we know, lagging behind.
We will see that on the NI side, Germany is doing quite well. The uplift is very strong in Iberia, you will see that Central Europe and Iberia are pushing very fast and very strong in our results. Behind the numbers, what I think it's interesting is to see that what makes Klépierre unique compared to some of our peers is that we have a very large leasing platform. A leasing platform is our capacity to sign leases with retailers that are really expanding in Europe. You can see on that chart that the number of stores we are opening with some of our brands is quite significant. On top of the list, you will have Sephora. We have signed 15 leases this year, three new ones.
We have also newcomers like Action, like Normal, they are all opening massively in Europe and in many countries. The platform really helps us to serve our clients. Sorry. When we look at the mall level, we are also rotating, quite significantly, the commercial offer. This is a few examples. Our malls are between 80 shops and 200 shops for the big ones. In Alexandrium, we have 16 new stores. In Field's, 12 stores, new. The number of stores that we are rotating in each and every asset is also, year by year, very significant. We are also opening flagship stores. As we said in the past, the capacity of our retailers to invest into their stores is crucial. It's a question sometimes of right-sizing the stores, it's also a question of making the store more experiential for the customers.
We have put a few names that illustrate what has been done by the team. Victoria's Secret has been a fantastic achievement because this was the first one in continental Europe to open full size, and the performance, cannot reveal the numbers, but the performance is just skyrocketing. It's probably five times or six times the initial expectation. We are continuously with our most important client to do exceptional stores. I would like also to mention with H&M that we are also expanding their brands all over the places. Not only H&M, but ARKET, Monki, and & Other Stories. In Copenhagen, we were the first Scandinavian mall hosting all the brands of H&M. When we look at the tenant mix and the retail mix, as we indicated in the past, and quite recently during our investors day, there is different evolution in the retail mix.
The first one is that when we look at fashion, we see more big stores than small stores. We continue to do flagship stores with large fashion retailers, but we also reduce some other segments like the toy segment. We have, this year, replaced 101 fashion shops, which is a significant number, and they have been replaced by health and beauty, food and beverage, household equipment. The tenant mix is also evolving year after year, positively. This is probably why our energy and the quality of our team makes that our KPIs are still very good. If we look at the EPRA vacancy rate, it's still at 3.2%, no big change in that number. The occupancy cost ratio of our clients stay at a very low level compared to some of our peers, 12.3%. Still a very wealthy situation for us, looking forward.
The bad debt, it's how much we collect. You can see that this is still below 2%, very solid KPIs for the portfolio. It translate into what we think are still very impressive numbers in terms of NRI growth, outperforming indexation significantly by more than 220 basis points. As you can see, it distributes positively everywhere. Some of the countries are doing extremely well. Look at Iberia, but also Central Europe and the Netherlands is picking up significantly. These are positive signs that our strategy is paying off. We also have a significant boost of the specialty leasing and pop-up stores, which are bringing new revenues to the platform. This has been done in a very contrasted retail sales environment, with some countries doing very well, some being more flattish, and some being slightly negative.
I think we have stressed all over the years that the strategy of Klépierre is to be pan-European, we can benefit from the fact that the macroeconomies in Europe are never synchronized. That we can take the best of the best countries and be a little bit on a wait and see mode when it's less favorable. Scandinavia, it's probably going through a period where the Norwegian economy is slowing down, and that the reason why the sales in Scandinavia are a little bit negative. Iberia and Central Europe are still very positive. This is, as I just mentioned at the beginning of my presentation, this is not by chance that it happens. It's a clear evidence that the strategy pay off. It's a capital allocation that we have been very careful to improve year after year over the last six years.
In big cities, large catchment areas, and growing population. It's also, as I just said, it's a very focused, very customer centric, very retailer centric, operational strategy. That's probably what will make the difference in the future between the shopping center owners, the one who have the team to invest in their malls and the one who don't. This is the business. The business has been very strong in 2018. We have also continued to improve our risk profile and to streamline our portfolio. As you can see, we have sold assets and properties a little bit everywhere. We continue in order to finance our pipeline and our potential acquisitions. We are constantly selling assets, and this has been done everywhere.
The markets are open in many countries, and every time we went on the market, we have sold above book value at a net initial yield of 5.7%. In addition to disposing, we also invest in our properties and in our business. I think that's the most important. We are extending our shopping centers. This is our main focus when it comes to the pipeline. We are also investing in our malls quite significantly to make them better and more attractive, so we refurbish them, we maintain them well, and we do significant leasing actions, as you have indicated. We have also bought some shares to close the EUR 500 million program that we launched in 2017. A few highlights on the last deliveries. Oukaïran, it's almost the end of it, and as you can see on the picture, it's really great.
Today, 52,000 sq m have been opened. We still have 28,000 sq m to complete in terms of refurbishment. As of today, 95% of the mall is leased, and the footfall increased by almost 10%, reaching almost 28 million. It's a great achievement. We are very proud of it. When we move to the next one. Sorry, twice. Créteil Soleil, it's another example of what we focus on to make our properties stronger in their catchment area. The works are underway. We are at 81% leased. We open at the end of the year. The leasing targets have been increased. The yield increased from 5.7% to 6%. The numbers of tenants lining up to come, it's simply impressive. We are also very enthusiastic about the achievement of Créteil.
The next one on the list probably will be Gran Reno. We are almost ready to start. Pre-leasing is doing great. We are 43% pre-let. We have always been very conservative when we start a project, so we want to have a high level of preletting before starting. I think this is more and more important in the current environment. We should open now in two years' time after we have started. We do also, as we presented during our investor day, we do specific investment in each and every mall when we can, so we buy co-owners out. Most of the times they are hypermarket. We buy the stores, some of the space from them, and we release it. We have done that in Assago, which is in Milan. A fantastic achievement.
We have opened a 5,000 sq ms Zara, and we were very proud because when they did their Q3 release, they always put the picture of the best stores. Okay. They have few numbers, but a lot of pictures, and they put Shanghai, they put New York, and they put Milan. We were very proud that they mention it. This is a great achievement that we can replace, I would say, shrinking hypermarkets by fantastic retailers. We will do that in Campania, we'll do that in Le Gru. We already bought space back from the hypermarket. Rives d'Arcins, this is an additional anchoring with Decathlon and with a big Zara store. Step- by- step, we continue improving our properties. This has been the story for quite a while. Continuing increasing the cash flow.
This year, as you read, is 6.5%, keeping the leverage low and the net debt to EBITDA still decreasing. This is what we put on the graph, what we have done over the last few years. We are happy to say that we are probably the only company in our peer group that has done this, growing the cash flow and reducing the net debt to EBITDA. This has been made possible by the financial orthodoxy that we follow every year. That's the reason why we are happy to increase our dividends to our shareholders by 7.1% to EUR 2.10. Now I will ask Jean-Michel to go through the numbers and detail the specific financial performance of Klépierre.
Thank you, Jean-Marc. Good morning, everyone. Just let's see now in deeper detail how all these good operational achievement transfer into financial figures. The main growth driver into the cash flow is NRI like-for-like, for which the growth come mainly from indexation 1.2%, reversion +1.4%, and specialty leasing and parking revenues + 0.6%. Acquisition and development, Nueva Condomina, Orcatarrain, the second phase, but also the opening of Prado and the extension of Val d'Europe, were offset by the disposals of Gran Via and Vitrolles at the beginning of the year, and of the Italian and Hungarian asset more in September of the year, which, just to make it clear, will continue to impact negatively the cash flow of this year, in 2019.
In 2018, we continued to streamline our cost base, first on operating cost restated from non-recurring elements, we lower our G&A by EUR 4 million. This mostly reflect reduction in payroll, which were down by EUR 3.5 million. Combined with growing net rental income, this translate into a further decrease into the EPRA Cost Ratio, by 70 basis points, which reached 15.6% at the end of 2016, as you can see here. We continue to bring down our cost of net debt to 1.6%. This is a 20 basis points reduction, thanks to our refinancing initiatives, mainly on the banking facilities in 2017 and 2018. Our interest coverage ratio continues to improve at a very high 7x. Jean-Marc mentioned financial orthodoxy. Financial orthodoxy implies allocating recurrent sources, such as our net cash flow, to finance recurrent users, such as the dividend payments and maintenance CapEx.
To finance less committed or non-recurring items, such as our development pipeline, acquisition, if any, or share buyback program, we generate proceeds from disposals. In 2018, once again, our net current cash flow more than covered the 2017 dividend and distribution to minority partners, and maintenance CapEx also, which, as Jean-Marc mentioned earlier, amounted to EUR 127 million. Some cash flow was even available to finance part of our tender 205 development pipeline. The second source of cash come from disposal proceeds, which are mainly allocated to acquisition, share buyback, and deleveraging. We spend EUR 110 million on acquisition in 2018. This includes the acquisition of hypermarket spaces in Italy and the purchase of a minority stake in a partnership owning a shopping mall in Spain and more especially Meridiano in Tenerife. Our share buyback program was completed in 2018 with EUR 150 million investment.
The remaining EUR 103 million were used to repay our debt. As a result, we continue to bring down our net debt to EBITDA ratio, as we have seen before, to 8.3x since end 2015. This is almost a one-time decrease while our net current cash flow has grown by 22%. I believe this is a quite remarkable achievement. Our loan-to-value ratio is following the same trajectory with a further 30 basis points contraction to 36.3%. This is in the low end of our midterm target of 35%-40%, which anchors quite well, if not to say very well, our A-minus rating. Let's look now at Klépierre hedging policy. Klépierre hedging policy is to maintain very high portion of fixed rate debt or hedged at fixed rate for at least the next three years and at a minimum of 70% long term.
The hedging ratio at the end of 2018 stood at 96%, with 79% of pure fixed rate, fixed debt or hedged at fixed rate, and 17% of caps, with an average strike for the cap below 0.6%. The weighted average interest rate on the fixed rate position is quite low at 0.8%, excluding spread, of course. With EUR 2.2 billion, the group liquidity position is sizable and more than cover our 2019 and 2020 refinancing needs. Let's look now at the valuation of our portfolio at the end of 2018. In 2018, the retail investment market remained quite active with the level of transaction with an 8% decrease for the first nine months of the year, but which still 20% above the 10-year average. It is fair to say that like in previous years, a limited number of transaction took place in the main segment where Klépierre operate.
That is to say mainly leading shopping mall in leading cities of Europe. The market appears to be more active outside of France, the U.K., and Germany, favoring countries like Italy, Portugal or Central Europe, which offer smaller transaction sizes and higher returns. As a reminder, the valuation methodology, I'm sure you are aware of it, but is predominantly based on a discounted cash flow calculation. The outcome is then benchmarked by the appraiser with comparable property and recent market transaction, if any. It's worth emphasizing that Klépierre disposal in 2018 were in line with the latest appraisal valuation. Over the 12 months of 2018, the value of our portfolio increased by 1.5% and was broadly flat over the last six months. The market effect was slightly negative, -0.8%, as a result of a 10 basis point increase in the average discount rate.
It now stands at 6.6%, to be compared with a risk-free rate of 1.5%. In the meantime, the NRI CAGR, taken in consideration by the appraiser, was slightly increased from 2.5 coming from 2.3. All these changes reflect in an increase of the EPRA net initial yield of 10 basis points at 4.9%. Going from the valuation to the NAV, the EPRA NAV per share stood at EUR 40.5 per share at the end of December 2018. This represents a 2.3% increase compared to December 2017. The main drivers were the strong cash flow generation, EUR 265, and the asset revaluation, EUR 0.9, offset by the dividend payment of EUR 196. The EUR -0.66 are mostly related to Forex, EUR -0.52, indeed, and to a lesser extent, to other operating and financial costs, while the share buyback had a positive impact of EUR 0.10.
The EPRA NAV is at EUR 39 per share or a 3.6% increase. This is a slightly faster growth than the NAV and reflects the favorable evolution of the fair value of the fixed rate debt. Last but not least, the dividend. Jean-Marc told you already, what we are going to propose to the next general meeting will be EUR 2.10 per share, with an increase by 7.1%. This is consistent with Klépierre payout policy of distributing 80% of its net current cash flow. This significant increase demonstrates our confidence in our ability to keep delivering sustainable dividend growth going forward. EUR 0.0130 per share of the dividend will be SIIC related. For the first time, as you know, the dividend will be paid in two installments, one of EUR 1.05 in the 10 of March, and another EUR 1.05 in the 11th of July.
Thank you. Thank you very much. The outlook for next year, just as a wrap-up before doing the outlook, and to put that into perspective, 2018 has been an outstanding year for us. It's 3.4% net rental increase like-for-like. Net current cash flow is 6.5% up. We continue to significantly divest property, more than EUR 600 million over 12 months. We keep the net debt to EBITDA around 8.3x . As Jean-Michel just indicated, we raised the dividend significantly by 7.1%. For next year, taking into consideration the macroeconomic environment in Europe, which is slowing down but still positive in many countries, we have a guidance for next year between EUR 2.72 and EUR 2.75 per share of net current cash flow.
As we indicated in our press release, we have also put in place a share buyback program for EUR 400 million that we will use depending on the disposal pace we are going to do in 2019. Thank you very much for listening to us, and now we are happy to take your questions.
Good morning, Michel Varaldo, Societe Generale. Two question from me. The first one, it is retailer sales. We have a trend which is still positive but declining year by year. We have negative figures in Italy, in Scandinavian countries. Is it because we have a transfer, a kind of cannibalization from the sales in your shopping centers to internet sales? Is it possible to have a little more color about this? The second question is about the investment market. We have a lower activity last year. How is it in the beginning of this year in term of acquisition, disposal? Will you continue to sell at the same level for this year, for example? Thank you.
Thank you, Michel. The retailer sales, I don't have any crystal ball to look in the future. The way we look at it is, first of all, we are active in 12 countries. As you know, the macroeconomies are never synchronized. The most important element in that influence retailer sales is the GDP growth and the translation into the consumption. We see the slowdown of the economy at the end of 2018 as one element for the lukewarm retailer sales in some of the countries. Now if we want to be specific, I think Italy, this is probably a combination of many elements. Our Italian colleagues keep claiming that the climate was very unfavorable, but that's never an excuse. This has been a very difficult year for the fashion retailers.
As in Italy, we are just starting reducing the fashion segment in our malls. We still have a significant exposure of fashion compared to the rest of our portfolio. Just as a number, we have more than 42% of fashion retailers in our Italian malls, while in France it's more 35%. We still have a significant exposure. I don't know if significant is the right term, but we have a much larger exposure. If we look at the segment of fashion in Italy, it decreased by something like 5%, while for the group it decreased by 1%. I think the dynamic is to continue re-leasing to less fashion and a more dynamic segment. I think this is undergoing in Italy. When you look at the performance of Italy, NRI wise, it's excellent, and the reversion is also excellent.
The occupancy cost ratio for Italy is also pretty low. When it comes to Scandinavia, the GDP growth of Norway significantly reduced compared to the previous years. The same in Denmark, where it was almost divided by two compared to 2017. Still positive, but kind of slowed down. If you have some kind of memory, you will see that the retailer sales in 2014, 2015, and 2016 in Scandinavia were excellent. After a few years of GDP growth, it's not abnormal to see a plateau in terms of sales. Norway more specifically, we have some malls which are on the east coast of Norway, which has been impacted by the oil price decrease and more unemployment, even though the unemployment rate in Norway is below 3%.
At the end of the day, it will be too long to comment country by country, region by region, city by city, catchment to catchment. The way we see our business going forward for the retailer sales, I think we have a competition coming from online for our retailers. It is obvious. It is growing in each and every country, and it is going to continue like this. We think that the segment of the shopping centers, which is only 25% of the retailer volume in Continental Europe, while in the U.S., it is a little bit the opposite. I think the shopping center segment will be the winning format in the next 10 years. I think as you can see in the small cities, secondary retail, high street retail is shrinking massively.
When I look at the malls we own and some of our peers, I have to say that the occupancy and the demand is still very high. I think we are going to benefit in the future in that everything equal to repatriation of the sales of the shops which are going to close. In each and every catchment area where we are, we are seeing shops closing. Our strategy to work with the retailers so that they invest their money in our stores to make them more appealing and when they close other stores, I think this is a winning strategy for the next 5-10 years. That is the way we see the sales to evolve, even though the global environment in retailer sales is almost slightly positive.
Okay.
My name is Simon Boutonnier. You have mentioned on page 45, in the highlights, you spoke about the French retailers, the +0.6% positive number, which is not bad, which is quite close to your European average. Would you be able to precisely quantify the impact of the two months of the Yellow Vests movement, which had a big negative hit on the Christmas season, and to restate its impact on the 2018 full year figures? Yes, we know 2.2% is the negative impact of the Yellow Vests movement of the social unrest. I will speak English.
The impact was 2.2% on the French. The impact of the Yellow Vests was November and December, not full November, not full December. Approximately 15%-20% of our malls have been impacted because the movement were not national, and the impact was mainly on Saturdays. Some of the Saturdays were very bad, but most of the consumption has been transferred to the other days of the week. The impact is pretty limited, even though at some Saturdays it was significant. 2.2%. At the end of October, for the French portfolio, the retailer sales were up by 1.5%.
Okay. I think just because now we have some questions on the phone also, I think we will take one, and then after we will come back in the room. Hello.
The first question by the platform is from Sander Bunck. Sir, please go ahead.
Hi. Morning, guys. Thanks very much for the presentation. Two questions from me, please. I think both pretty much on capital allocation. The first one is on the buyback versus the deleveraging strategy. How are you looking at that going forward? Do you expect to continue to do this buyback and renew this basically every year? Would it be a good idea to reduce leverage further as well, i.e., from the current 35%-40%, bring the target, for example, lower to, say, the 30%-40% range? That's the first question.
Okay. Maybe I take that one on the buyback. Just to say first, I hope not forever, because there is at least one crucial parameter for the buyback, which is the share price compared to the NAV. I don't hope that the share price will remain forever below the NAV. I still have some hope there. The second thing is, for the time being, this is the case, and we have already stressed that the buyback will come in connection with disposals in order to manage the expected dilution from the disposal.
Ideally, with an objective, which is still valuable for Klépierre, to keep debt stable, if not lower. This is it. We will see going forward how it will be. For this year, what we have announced, as you know, is a EUR 400 million new share buyback program in consideration of the disposal of the year. That we are quite confident we will achieve during the year, and we will adapt the pace of the buyback in connection with that.
Okay, thank you. The second one is on the quantum of the buyback. I think you said it's around EUR 400 million this year, and that you will match that with ongoing disposals. I read that as you're looking to dispose around EUR 400 million worth of assets this year. Is that a right assumption, or should we expect more disposals like we've seen over the last couple of years?
Well, your assumption will be correct if the yield on the buyback would be the same as the disposal yield, actually, which is probably not the case due to the level of the share price of today.
No, just more in terms of the quantum of the disposals. Because I think in the statement, you said you will match.
No.
the disposals with the buyback.
That's what I'm saying. Let's put it otherwise. No, the idea, as you know, we are not used to disclose on the disposal target. We don't have any financial constraint. The fact is that the way we have built the guidance is considering that the remaining impact of the disposal of 2018 and the one we are going to do in 2019 will be offset by the buyback. We have a perfect match in the way we have sized the buyback.
Okay, that's it.
I think-
Thank you.
I think it's important to understand that we were net seller last year. We are probably between, not probably, we are between EUR 0.02 and EUR 0.03 dilutive impact in 2019 of the disposal will be adapted to the disposals and not the disposals to the buyback. The buyback is one of our tool to manage our balance sheet and to size opportunity to create value for our shareholders. The budget has been done with a neutral effect.
Okay, excellent. Thanks very much.
Thank you. We will come back for a while in the room, Pierre-Emmanuel, and then we will go back to the phone because there is a list of waiters out there.
Thank you. Pierre-Emmanuel Clouard from Kepler Cheuvreux. The first one, just to come back on disposals. Let's assume that the total amount is approximately the same in 2019 compared to 2018. Can you give us a broad geographical breakdown? Maybe, are you planning, given the lack of transaction in the French market, to sell some assets in France? The second one, on your capital allocation. You are communicating more and more on the net debt to EBITDA ratio. Do you have a midterm target in mind for this ratio? The third one, on the value adjustment, especially in France, do you expect any value adjustment to come for your secondary assets in France? Thank you.
For disposal, if we don't have a target, we don't have a geographical target. Klépierre, it's more than 100 shopping malls, but the top 100 in values represent 93% or 94% of our portfolio. What we consider as a source of non-core assets disposal, that's the 7% or 6% of our portfolio. This is what we are doing, and we are committed to streamline the portfolio that way. We will size any opportunity when it comes to acquisitions, disposal, share buyback in the only view to improve the quality of the portfolio and to create value for our shareholders. We are not granular in the guidance when it comes to disposal. As you can see, we do that in many, many regions. The net debt to EBITDA, we keep a close watch on it, okay.
As you can see on the graph, we are very proud of what we have done. There is no chance that we change our mind.
We are fine already. We consider we are fine already. It can always be better, but I think it's a quite good figure already.
No, we like the financial orthodoxy, so if we are on a decreasing way, it's not to go up.
Okay, so I think we will take one more on the phone.
Next question by the phone is from Charles Boissier from UBS. Sir, please go ahead.
Yes, hi. Good morning. I have two questions. The first one is on CapEx. Thank you for the additional disclosure. You mentioned EUR 127 million of like-for-like maintenance CapEx and about a quarter is recharged to tenants. I was just under the impression that in the past, you were saying a larger portion was recharged to tenant, but I may be completely wrong. How do you see it evolving, both the total amount, so that's about 0.5% of asset value as like-for-like CapEx, and the share born by the tenant, so here it's about one third? The second question is on the yield. Basically, it's in the market where you're doing the best, operationally, where you actually have experienced the most yield expansion, so España, CE.
You actually said on the call that CE and España, in particular, are more active transaction market because of smaller size products. My question was, is it in markets with the transaction evidence that the yields are increasing and, where you don't have the transaction evidence, basically, there's been little or no change? Thank you.
Thank you, Charles. I like your French accent, like mine. I was on Bloomberg this morning, and it was tough for my accent. On the CapEx, I appreciate you acknowledge that we are more transparent. We have always been very transparent. We have three elements in the CapEx. We have the maintenance CapEx, and most of it is recharged to the tenants. We have CapEx, which are associated to leasing actions. That all of them are for Klépierre and are not recharged to the tenants, by definition. We have refurbishment CapEx. The refurbishment CapEx are also partly recharged to the tenants.
The average of 1/3, it's when you exclude the leasing CapEx, and you only take the maintenance and the refurbishment, then you will probably come to the number you have in mind when we previously discuss of how much we recharge in maintenance and refurbishment CapEx, which is closer to 50%. For the yields, I'm not sure. The narrative on retail is not very favorable, so there is a lot of question about the investment market, direct investment market in retail properties. I'm just going to tell what we are doing. We have always had a strategy to have a clear gap in terms of yields between our prime properties and more secondary properties. This is not new. It's not something that we just have started to do.
We have always been confident that when we come to the market for the non-core assets, we meet the market, and that's what we are doing, and good for us. When it comes to the core assets, we are not selling them, so I can't say. We see the appraisers being more cautious about retail, and that's the reason why we see at the mid-year expansion of the yields. That's it. We cannot comment more on the future.
Okay, thank you.
Yes.
I would just add that the shopping center segment is a very limited segment. Every time we were in competition to buy some assets, like the big ones that have been sold in 2018, we always lost. We always lost the competition at prices which are below our yields in our book. I think the market is also, we have to take into account that there is not so many transaction this year, but the year before, of large shopping centers of a nature that similar to what we own. That's probably where the market has to differentiate more between the high-quality assets and secondary assets.
Okay, I think we have another question in the room. Yeah.
Yes, Florent Laroche-Joubert from Oddo BHF. I would like to come back on your like-for-like growth. It was 3.4% last year, and it was a 200 basis points above indexation. Are you comfortable with such a difference with the indexation for next year?
Well, I think we expect slightly more indexation next year, and it is fair to say that what we have through the indexation, we don't necessarily have it on the rest of the NRI like-for-like growth. One part, we will benefit from the indexation because we will not give you how much we expect as NRI, like-for-like rental growth for this year. Probably something on average in the same extent that what we have posted in the last years. There is a chance that the contribution of indexation will be a little bit more significant.
Thank you.
Thank you. One more in the room, and then we go on the phone.
Yes, good morning. Vladimir Minot, Invest Securities. Some questions. I just want to better understand on the disposals. You indicated that they were realized slightly above book value. In the profit and loss accounts, we see a slightly negative loss on disposals. What's the explanation?
It's because I think there is two parameter. One is how the selling prices we got compared to valuation, it was in line and slightly positive. After, we have some extra cost. It can be broker fees and so on, which come on top and which come to. It's a EUR -10 million. I know the figure quite precisely, which come for all that part. When it comes to valuation, disposal value of the asset, we are in line.
Okay. Thank you. Two quick ones. Can we have an idea of the vacancy rate, including the strategic vacancy?
3.8.
3.8.
Okay. Thank you. Is it possible to know the overall change in traffic in your shopping centers in 2018?
We don't give footfall, but the footfall is slightly positive in Europe, in our malls.
Thank you.
Thank you. Let's go back on the phone.
Next question by the phone comes from Jaap Kuin from ING. Sir, please go ahead.
Is that me?
Yes.
I'm sorry. Jaap Kuin, ING here. My question would be on the guidance and the share buyback. You made a statement that the impact of the 2018 buyback is included and neutral. Could you specify how much of the EUR 400 million indicated is included in the 2019 guidance, or is it not included at all? What would you think would be the annualized positive accretion potential from this full execution of the share buyback? That was my first question. Thanks.
Well, it's an unknown parameter equation. If I give you all of them except one, you will find the last one, which is the amount of disposal we plan in 2019. The answer is that the growth of the cash flow we forecast for 2019 is purely related to NRI like-for-like rental growth and optimization in cost, including cost of debt. There is nothing related either to a negative effect of a disposal or to a positive effect of the buyback, because the way we build our budget was to tailor-made the buyback in order to offset this effect. I think this is all what we can say.
Okay, great. That's very helpful. On your comment on the appraiser's assumption on the NRI CAGR, it's slightly up. Could you maybe, in your discussions with them, you've probably learned why this happened. Is that a mix effect? Is that higher inflation expectations or higher market rents? Could you maybe give slight detail on those assumptions?
Yeah. For the NRI CAGR from the appraisal, just put the figure, was at 2.3 and go at 2.5. It's a 20 basis points increase. This is mainly related to an increase in expected inflation going forward.
Okay, clear. Then my final one is on the amount of assets you state non-core, 6%-7%. Given the disposal yields realized at around 5.7%-5.8%, should we expect those yields to be slightly higher currently in the books, given the fact that probably, depending on the mix of what you sold, obviously, but could you give some guidance whether we should expect coming disposals to be higher or lower than what you've done in 2018? Thanks.
Our objective is to sell. We are very confident that when we go to the market to sell non-core properties, our values are in line with what the market can buy from us. The yield 5.7% it's a mix of different type of yields. We just comment on the average. We'll see next year. What's more, we have proven over the years that every time we sell assets, it's over book value, slightly over book value.
Okay, thank you.
I think one more on the phone, I think.
We have no more questions over the phone.
We have a online question that's super specific. We want to not discourage the people which are purely online to come to us. I take it. How much is energy cost in percentage of revenue, and how do you prepare for future energy price increase? Wow. On top of my head, sir, the service charge represent that we pass to the tenants is approximately 20%-25% of our revenues. In that number, the energy is probably average around 25%-30% energy cost, in which you have electricity cost. The increase of energy has been significant over the last years and something that is going to go. We develop more and more green energy to get better prices, but also we mutualize all our platform to buy cheaper electricity, depending on the legal constraints.
We have been able to keep the service charges for our tenant the same level of services. With an energy cost which is growing. This is a constant fight. We are confident that it's not going to be a problem in the future for us.
I have one more online. I believe it is for you, Jean-Marc. If we can make an update on the pipeline in terms of size and expected return.
The pipeline, the official number, it is EUR 2.6 billion. This is mainly a focus on extension. There is a list of projects that are identified and disclosed. All of them are investment in our large properties, a little bit everywhere in Europe. We are very confident that they are reasonable extensions, that they make sense, that we can lease them out, and that we can control the construction cost to meet the target, which is always around 7%. As a rule, we disclose it project by project, as a rule, the target for us is around 7%.
Okay. If we have exhausted all the questions on the phone. One more here in the room.
The valuation was 1.5% up during 2018. Is it possible to have a split between the core asset and the non-core asset, the 6% or 7% in terms of change of value, please?
I don't have the figures. We have nothing to hide. As an indication, if you look at the notes to the financial statements, you will see the average yields per country. If you look at 2014, 2015, 2016, 2017, 2018, if you are patient enough, you will see that some of the countries where we could suspect to have more secondary assets, you will see that the yields are pretty high as an average. Okay. They have not been expanding more than the others. The change is affecting a little bit every type of properties as an average. If you look at Hungary, for example, you will see that the average yields in our books is around 8.5%. That's a high yield. This has been like that for many years.
We have sold properties in Hungary. We are met that the market was hot enough to buy it from us at that level. I'm not sure I have the answer. I need a colleague of mine to help me. Can you provide a total GLA base vacancy figure of 2018 versus 2017? I think we'll post an answer to that. I think there is no discrepancy between the fluctuation of the financial vacancy and the fluctuation of the physical vacancy. If my recollection is correct, we disclose it in our financial statements note. The strategic vacancy is not a way for us to change the numbers. As we said, the strategic vacancy on identified releasing and refurbishment actions is pretty marginal to the total numbers. There is no deterioration of the physical vacancy, I guess.
Okay.
When we give you the exact numbers.
There is one more on the phone.
Next question over the phone is from Jonathan Kownator from Goldman Sachs. Sir, please go ahead.
Good morning.
Good morning, Jonathan.
I just want to expand on the development pipeline, if I may. There's obviously a number of projects in the controlled pipeline that have been pushed back over the years. Should we just read that despite the comment that you've made previously, at this stage, you don't necessarily have appetite to spend additional money in these controlled projects, or are you expecting some to come very shortly into committed? I think you mentioned Gran Reno, but are there any others? Thank you.
I think probably the shift, if any, in the development pipeline looking backward is that we are more and more focused on extensions. It doesn't mean that they are easier to do from a permitting point of view. One of the main hurdle we have to go over in doing development, it's a permitting issue. In all the countries, it's complicated. When we push the date, it's just because it's as a consequence of this administrative process. We are very confident in the projects that are identified and listed in our pipelines. They are all in the catchment area where our shopping centers have a strong position. The fight is not against internet only, the fight is very local. The strategy we have is that in each and every catchment area, we want to be the winning shopping center.
Instead of building new ones in new catchment area, is to reinforce. Because the polarization of retail is underway, and this is going to benefit to the strong shopping centers. For that, you need to continue constantly ask the new retailers that want to join you. This is what we do. We are super confident they will be accretive in terms of return, but they will also be value creative for the future of the business.
Just to clarify, effectively what you're saying is that you're confident in demand from retailer, you would be ready to invest today in these shopping centers, but it's just the permitting that is holding you up on all of this.
Most of the time. Look at Gran Reno. Gran Reno, we could have started earlier, but we wanted to check that we can pre-let it. It has always been a concern for us to start a project when we have the right level of pre-leasing. It's clear that we have a little bit put the bar above the previous years. We are confident that there is a retail demand from all the extension that are listed.
What's the buy, is it 50% for the pre-let or?
No, pre-let, it varies. For extensions of the size we contemplate, is between 30% and 40% pre-let. Closer to 40%.
Okay. Thank you.
Thank you.
Okay.
Thank you very much for. You have one last more.
You mentioned that the retailers showed high performance levels according to sectors, except for fashion, which is minus one. They are all operating well. Can you break down performance between small boutiques and medium-size and large-size supermarkets? No, I can't. If I were to give you a full European review, it would take too much of our time. Norway, Denmark, and the rest of Europe. You are an expert of retail, right? Your magazine has been a retail expert for years. If you look at the last few years, the fashion business and fashion retail business has been skyrocketing with retailers, with revenues of. I need to speak English. Sorry. I'll switch back to English.
To do that again. There are two. We had, for 15 years, a large development of fashion, small retailers. It's clear that they are less capable to meet the customer expectation in the digital world and are just going to diminish. That's what we are just saying. The smaller format, less than a billion sales on a European basis, is more challenging for them. They also get a pressure on their EBITDA, on the pricing, to do the volume. This is what just we are seeing. This is what is happening. Jean-Michel invite me to finish. Thank you very much for attending, and thank you very much for your questions and the patience. The next date for us is our general meeting on the 16th of April.
On the 18th of April, we will do the Q1 report about turnover figures. We will meet you in between. Thank you very much again, and see you soon.
Thank you.