Good morning, everyone. Jean DIDIER Michel and myself, we are happy to present 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 Klepierre is paying off to concentrate our portfolio on the big cities in Continental Europe.
But 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 Klepierre team members who are the people in charge of making that company better for our shareholders and to make sure 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. And I will go very quickly to the art, not the disclaimer, but to the art of our business, the core of our business. So 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. And as you can see, the uplift on each and every lease renegotiation is double digit, 11.1%. And 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. But we will see that on the NRI side. Germany is doing quite well.
The uplift is very strong in Iberia, and you will see that Central Europe and Iberia are pushing very fast and very strong in our reserves. And behind the numbers, what I think it's interesting is to see that the what make Klepierre unique compared to some of our peers is that we have a very large leasing platform. And the leasing platform is our capacity to sign leases with retailers that are really expanding in Europe. So you can see on that chart that the number of stores we are opening with some of our brands is quite significant. So on top of the list, you will have Sephora.
We have signed 15 leases this year, three new ones. And we have also newcomers like Action, like Normal, and they are all opening massively in Europe and in many countries. So the platform really help us to serve our clients. Sorry? So when we look at the mall level, we are also rotating quite significantly the commercial offer.
This is a few examples. So our malls are between 80 shops and 200 shops for the big ones. And in Alexandrium, we have 16 new stores. In Phyllis, 12 stores new. So 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 high sizing the stores, but it's also a question of making the store more experiential for the customers. We have put 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 are just skyrocketing. It's probably five times or six times the initial expectation. And we are continuously with our most important client to do exceptional stores. And I would like also to mention with H and M that we are also expanding their brands all over the places, not only H and M but Arquette, Monkey and other stores. And in Copenhagen, we were the first Scandinavian mall hosting all the brands of H and 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. So we continue to do flagship stores with large fashion retailers. But we also reduced some other segments like the toy segment. And 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. So the tenant mix is also evolving year after year positively. And this is probably why our energy and the quality of our team makes that our KPIs are still very good. So if we look at the a prior vacancy rate, it's still at 3.2, so 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, so 12.3%.
So still a very well see situation for us looking forward. And the bad debt, it's how much we collect. So you can see that this is still below 2%, so very solid KPIs for the portfolio. And then it translates into what we think are still very impressive numbers in terms of NII growth, outperforming indexation significantly by more than two twenty basis points. And as you can see, it distributes positively everywhere.
And some of the countries are doing extremely well. We will look at Iberia but also Central Europe. And the rest and The Netherlands is picking up significantly. So these are positive signs that our strategy is paying off. And we also have a significant boost of the specialty leasing and pop up stores, which are bringing new revenues to the platform.
And 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 Klepierre is to be pan European, so we can benefit from the fact that the macroeconomies in Europe are never synchronized and 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. And Scandinavia, it's probably going through a period where the Norwegian economy is slowing down, and that's the reason why the sales in Scandinavia are a little bit negative. But Iberia and Central Europe are still very, very positive. And this is as I just mentioned at the beginning of my presentation, this is not by chance that it happens.
So it's a clear evidence that the strategy pay off. So 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. And it's also, as I just said, it's a very focused, very customer centric, very retailer centric operational strategy. And that's probably what will make the difference in the future between the shopping center owners, the one who has the team to invest in their malls and the one who don't. So this is a business.
So the business has been very strong in 2018. And we have also continued to improve our risk profile and to streamline our portfolios. So as you can see, we have sold assets and properties a little bit everywhere. So we continue in order to finance our pipeline and our potential acquisitions. We are constantly selling assets.
And this has been done everywhere, so 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 lead of 5.7%. And in addition to disposing, we also invest in our properties and in our business. I think that's the most important. So we are extending our shopping centers.
This is our main focus when it comes to the pipeline. And 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. And we have also bought some shares to close the 500,000,000 program that we launched in 2017. So a few highlights on the last deliveries.
So Uc Aitran, it's almost the end of it. And as you can see on the picture, really great. So today, 52,000 square meters have been opened. We still have 28,000 square meters to complete in terms of refurbishment. As of today, 95% of the mall is leased and the footfall increased by almost 10%, so reaching almost €28,000,000 So, it's a great achievement.
We are very proud of it. When we move to the next one, sorry, twice. So Cretei Soleil, it's another example of what we focus on to make our properties stronger in the catchment area. So the works are underway. So we are at 81% leased.
We opened at the end of the year and the leasing targets have been increased. So the yield increased from 5.7% to 6%. And the numbers of tenants lining up to come is simply impressive. So we are also very enthusiastic about the achievement of Creteil. The next one on the list probably will be Grand Renault.
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 pre letting before starting. And I think this is more and more important in the current environment.
And 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 corners out. So most of the times, they are hypermarket. We buy the stores some of the space from them, and we release it.
So we have done that in Asago, which is in Milan, a fantastic achievement. We have opened 5,000 square meters 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 we and they put Milan.
So we were very proud that they mentioned it. And 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 Legrout. We already bought space back from the hypermarket.
And Rive D'Arcens, this is an additional anchoring with Decathlon and with a big Zara store. So step by step, we continue improving our properties. And this has been the story for quite a while, so continuing increasing the cash flow. And this year, as you read, is 6.5% and keeping the leverage low and the net debt to EBITDA to still decreasing. So this is what we put on the graph, what we have done over the last few years.
And 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. And this has been made possible by the financial orthodoxy that we follow every year. And that's the reason why we are increasing we also we are happy to increase our dividends to our shareholders by 7.1% to €2.1 And now I will ask Jean Michel to go through the numbers and detail the specific financial performance of Klepierre.
Thank you, Jean Marc. Good morning sorry. Good morning, everyone. Just let's see now in deeper details how this all these good operational achievement transfer into financial figures. So the main growth driver sorry, the main growth driver into the cash flow is NRI like for like, for which the growth come mainly from indexation, 1.2% reversion, plus 1.4% and specialty leasing and parking revenues, plus 0.6%.
Acquisition and development, Nueva Condominium, Orcatara in the second phase, but also the opening of Prado and the expansion of Val D'Hoppe were offset by the disposals of Grenvier and Vitol 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 next year in 2019. In 2018, we continue to streamline our cost base. First, on operating cost restated from nonrecurring elements, lower our G and A by EUR 4,000,000. This mostly reflects a reduction in payroll, which were down by EUR 3,500,000.0. Combined with growing net rental income, this translates into a further decrease into the EPRA cost ratio by 70 basis points, which reached 15.6% at the 2016, as you can see here.
We continue to bring down our cost of net debt to 1.6%. This is a 20 basis point reduction, thanks to our refinancing initiatives, mainly on the banking facilities in 2017 and 2018. Our interest cover ratio continues to improve at a very high 7x. So 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 nonrecurring 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 127,000,000. Some cash flow was even available to finance part of our 02/2005 development pipeline. The second source of disposal come from of cash, sorry, come from disposal proceeds, which are mainly allocated to acquisitions, share buyback and deleveraging. We spent €110,000,000 on acquisition in 2018.
This includes the acquisition of hypermarket spaces in Italy and the purchase of a minority stake in partnership owning shopping mall in Spain and more especially, Meridiano in Tenerife. Our share buyback program was completed in 2018 with EUR 150,000,000 investment. The remaining EUR 103,000,000 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 twenty fifteen, this is almost 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 bps 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 the KPI hedging policy. KPI hedging policy is to maintain very high portion of fixed rate debt or hedge at fixed rate for at least the next three years and at a minimum of 70% long term.
The hedging ratio at the 2018 stood at 96 with 79% of pure fixed rate, fixed debt or hedge at fixed rate and 17% of caps with an average strikes for the cap below 0.6%. The weighted average interest rate on the fixed rate position is quite low at 0.8, excluding spreads, of course. With EUR 2,200,000,000.0, 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 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 is still 20% above the ten year average.
It is fair to say that like in previous years, a limited number of transaction took place in the main segment where Klepierre 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 it's 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 Klepierre disposal in 2018 were in line with the latest appraisal valuation. Over the twelve 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, minus 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 NII CAGR taken in consideration by the appraiser was a slightly increase from 2.5 coming from 2.3%.
So all these changes reflect in an increase of the IPRA net initial yield of 10 basis points at 4.9%. Going from the valuation to the NAV, the EPI NAV per share stood at EUR 40.5 per share at the December 2018. This represents a 2.3% increase compared to December 2017. The main driver were the strong cash flow generation, $265,000,000, and the asset revaluation, 900,000.0, offset by the dividend payment of €1,960,000 The minus €660,000 mostly related to ForEx, minus 520,000.00 indeed, and to a lesser extent, to other operating and financial cost, while the share buyback had a positive impact of EUR $0.01 0. The Aircraft Navy is at EUR 39 per share or a 3.6% increase.
This slightly this is a slightly faster growth than the NAV and reflect the favorable evolution of the fair value of the fixed rate debt. And last but not least, the dividend. Jean Marc told you already it's going to be what we are going to propose to the next General Meeting will be EUR 10 EUR 2.1 per share with an increase by 7.1%. This is consistent with Klepierre payout policy of distributing 80% of its net current cash flow. This significant increase demonstrate our confidence in our ability to keep delivering sustainable dividend growth going forward, 1.3 per share of the dividend will be SIC related.
And for the first time, as you know, the dividend will be paid in two installments, one, one hundred five million in the March 10 and another EUR 105,000,000 in the July 11.
JEAN Thank Thank you very much. So 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. So it's 3.4% net rental increase like for like. Net current cash flow is 6.5% up. We continue to significantly divest the property, more than €600,000,000 over twelve months.
We keep the net debt to EBITDA around 8.3x. And as Jean Michel just indicated, we raised the dividend significantly by 7.1. So the 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 of between €2.72 and €2.75 per share of net current cash flow. And as we indicated in our press release, we have also put in place a share buyback program for €400,000,000 that we will use depending on the disposal of pace we are going to do in 2019. So thank you very much for listening to us, and now we are happy to take your questions.
Good morning. Michel Varaldo, Societe Generale. Two questions for me. The first one, it is retailer sales. We have a trend which is still positive but declining year by year.
And we have negative figures in Italy, in Scandinavian countries. Is it because we have a transfer kind of cannibalization from the sales in your shopping centers to Internet sales? Is it possible to have a little more color about this? And the second question is about the investment market. We have 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, Michel. So the retailer sales, I don't have any crystal ball to look in the future. But the way we look at it is, first of all, we are active in 12 countries. And then the as you know, the macroeconomies are never synchronized. And the most important element in that influence retailer sales is the GDP growth and the translation into the consumption.
So we see the slowdown of the economy at the 2018 as one element for the lukewarm retailer sales in some of the countries. But 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. But this has been a very difficult year for the fashion retailers. And 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. So just as a number, the we have more than 42% fashion retailers in our Italian malls, while in France, it's more 35%. So we still have a significant exposure. I don't know if significant is the right term, but we have a much larger exposure. And if we look at the segment of Fashion in Italy, it decreased by something like 5%, while for the group, it decreased by 1%.
So I think the dynamic is to continue releasing to less fashion and a more dynamic segment. So 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. So and the occupancy cost ratio for Italy is also pretty low. When it comes to Scandinavia, Norway has been the growth of 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 slowdown. So if you have some kind of memory, you would see that the retailer sales in 2014, 2015 and 2016 in Scandinavia were excellent. And then after a few years of GDP growth, it's not abnormal to see a plateau in terms of sales. And 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%.
So at the end of the day, it will be too long to comment country by country, region by region, city by city, catchment. The way we see our business going forward for the Retailer set, I think we have a competition coming from online for our retailers. It's obvious. It's growing in each and every country, and it's going to continue like this. So we think that the segment of the shopping centers, which is only 25% of the retail volume in Continental Europe, while in The U.
S, it's a little bit the opposite. I think the shopping center segment will be the winning format in the next ten years. I think as you can see in the small cities, secondary retail, high street retail is shrinking massively. And then 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. And 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.
So in each and every catch ment area where we are, we are seeing shops closing. And 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 those stores, I think this is a winning strategy for the next five to ten years. And that's the way we see the sales to evolve even though the global environment in retail sales is almost slightly positive.
My name is Simon Boutinier. You have mentioned on Page 45, in the highlights, you spoke about the French retailers, the plus 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 month of the yellow vest movement, which had a big hit, negative hit on the Christmas reason and to restate its impact on the twenty eighteen full year figures. Well, yes, we know 2.2% is the negative impact of the yellow vest movement of the social unrest. I will speak English.
So the impact was 2.2% on So we the impact of the yellow vest was November and December, not full November, not full December. So and approximately 15% to 20% of our malls have been impacted because the movement were not national, and the impact was mainly on Saturdays. So some of the Saturdays were very bad, but most of the consumption has been transferred to the other days of the week. So the impact is pretty limited even though at some Saturdays, it was significant, so 2.2%.
And at the 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.
The first question by the platform is from Sander Banks. Sir, please go ahead.
Hi, good morning guys. Thanks very much for the presentation. Two questions from me, please. I think both pretty much on capital allocation. And the first one is on your 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? Or would it be a good idea to reduce leverage further as well, I. From the current 35% to 40%, bring the target, for example, lower to, say, the 30% to 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. So I don't hope that the share price will remain forever below the NAV. So I still have some hope there.
The second thing is but 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. I think ideally, with an objective, which is still available for Klepierre to keep debt stable, if not lower. So this is it. We will see going forward how it will be.
For this year, what we have announced, as you know, is a €400,000,000 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. And then the second one is on the quantum of the buyback. I think you said it's around €400,000,000 this year and that you will match that with ongoing disposals. I read that as you're looking to dispose around €400,000,000 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. I mean, just more on in terms of the quantum of the disposals because I think you said in the statement, you said you will match No. That's the disposals what with the I'm saying,
but let's put it otherwise. No, the idea, we as you know, we are not used to disclose on the disposal target. We don't have any financial constraint. But the fact is that the way we have built the guidance is considering that the impact the remaining impact of the disposal of 2018 and the one that we are going to do in 2019 will be offset by the buyback. And we have a perfect match in the way we upsized the buyback.
Okay. That's clear.
Yes. And so I think it's important to understand that we were net seller last year. So we are probably between not probably, we have between €02 and €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. But the budget has been done with a neutral effect.
Okay. Excellent. Thanks very much. Thank
you. So So 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 over there.
Thank you. So Pierre Emmanuel, Clouard from Kepler Cheuvreux. The first one, just to come back on disposals. So let's assume that the total amount is approximately the same in 2019 compared to 2018. Can you give us a broad geographical breakdown?
And maybe are you planning, given the lack of connection in the French market, to sell some assets in France? The second one, on your capital allocation. So you are communicating more and more on the net debt to EBITDA ratio. Do you have a midterm target in mind for this ratio? And the third one, on the value adjustment, especially in France, do you expect any value adjustment to come for your secondary assets in France?
DIDIER So for disposal, if we don't have a target, we don't have a geographical target. But Klepierre, it's more than 100 shopping malls, but the top 100 in values represent 93% or 94% of our portfolio. So what we consider as a source of noncore assets disposals, that's 7% or 6% of our portfolio. And this is what we are doing, and we are committed to streamlining the portfolio that way. So we will size opportunity when it comes to acquisitions, disposals, share buyback in the only view to improve the quality of the portfolio and to create value for our shareholders.
And we are not granular in the guidance when it comes to disposals. And as you can see, we do that in many, many regions. The net debt to EBITDA, we have we keep a close watch on it, okay? As you can see on the graph, we are very proud of what we have done. So 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 decreasing way, it's not to go up.
Next question by the phone is from Charles Voisier from UBS. Sir, please go ahead.
Yes. Hi. I have good morning. I have two questions. The first one is on CapEx.
So thank you for the additional disclosure. You mentioned €127,000,000 of like for like maintenance CapEx and about a quarter is recharged to tenants. So it's just under the impression that in the past, you were seeing a larger portion was recharged to tenant, but I may be completely wrong. So obviously, it evolving both the total amount, so that's about 0.5% of asset value as like for like CapEx and the pure bond by the tenant. So here, it's about onethree.
And the second question is on the yield. So basically, it's in the market where you're doing the best operationally, where you actually have experienced the most yield expansion, so Hispana CE. And you actually said on the call that CE and Hispana, in particular, are more active transaction market because of smaller size products. So my question was, is it in markets with the transaction dividend that the yields are increasing? And where you don't have the transaction dividends, basically, there's been little or no change?
Thank
you, Charles. I like your French accent like mine. So I was on Bloomberg this morning. It was tough for my accent. So on the CapEx, I appreciate you acknowledge that we are more transparent.
We have always been very transparent. So we have three elements in the CapEx. We have the maintenance CapEx and most of it is recharged to the tenants. Then we have CapEx which are associated to leasing actions that are all of them are for Klepare and are not recharged to the tenants by definition. And then we have refurbishment CapEx.
And the refurbishment CapEx are also partly recharged to the tenants. So the average of onethree, it's when you exclude the CapEx, 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 discussed of how much we recharge in maintenance and refurbishment CapEx, which is closer to 50%. So for the yields, I'm not sure I have there is the narrative on retail, it's not very favorable. So there is a lot of question about the investment market, direct investment market in the retail properties. I'm just going to tell what we are doing.
So the we have always had a strategy to have a clear gap in terms of yields between our prime properties and more secondary properties. And this is not new. It's not something that we just have started to do. And so we have always been confident that when we come to the market for the noncore assets, we meet the market, and that's what we are doing. So and good for us.
So when it comes to 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 kind of expansion of the yields. And that's it. That's we cannot comment more on the future.
Okay. Thank you.
Yes. I would just add that every time we 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. And we always lost the competition at prices which are below our yields in our book. So 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.
So and 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.
Florent Hubert from ODBHF. I would like to come back on your like for like growth. So it was 3.4% last year, and it was 200 bps above indexation. So are you comfortable with such difference with the indexation for next year?
MARTIN Well, I think we expect slightly more indexation next year. And it's 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. So one part will benefit from the indexation because we will not give you how much we expect as NRI like for like rental growth from next for this year, probably something in average in the same extent that what we have posted in the last years. But 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.
Morning. Vladimir Mino, Invest Securities. Some questions. Just want to better understand on the disposals. You indicated that they were realized slightly above book value.
And in the profit and loss accounts, we see a slightly negative loss So what's the explanation?
JEAN Well, it's because I think there is two parameter. One is how the prices the selling prices we got compared to valuation, it was in line and slightly positive. Then after, we have some extra cost, it can be broker fees and so on, which come on top and which come to the it's a minus EUR 10,000,000, I know the figure quite precisely, which come for all that part. But when it comes to valuation, disposal value of the asset, we are in line.
Okay. And two quick ones. Can we have an idea of the vacancy rate, including the strategic vacancy?
3.8. 3.8, okay.
And 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 Geb Gal from BFE. Sir, please go ahead.
That me?
I'm sorry. Yes, Yapkein, ING here. My question would be on the guidance and the share buyback. So you made a statement that the impact of the 2018 buyback is included in neutral, but could you specify how much of the €400,000,000 indicated is included in the 2019 guidance? Or is it not included at all?
And 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 a multi 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. So 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 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. So I think this is all what we can say.
Okay, great. That's very helpful. And then 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 us slight detail on those assumptions?
Yes. For the NRI CAGR from the appraisal, just put the figure, was at 2.3% and go at 2.5%. It's a 20 bps increase, and this is mainly related to an increase in expected inflation going forward.
Okay, clear. And then my final one is on the amount of assets you stayed non core, 6% to 7%. And 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 you've depending on the mix of what you saw, obviously, but could you give some guidance whether we should expect coming disposals to be kind of higher or lower than what you've done in 2018?
Our objective is to sell we are very confident that when we go to the market to sell noncore properties, our values are in line with what the market can buy from us. So the yield 5.7%, it's a mix of different type of yields. So we just comment on the average. So we'll see next year. But once more, we have proven over the years that every time we sell assets, it's over book value, slightly over book value.
Thank you.
I think one more on the phone, I think.
We have no more questions over the phone.
So we have an online question that's super specific. So we want to not discourage the people which are purely online to come to us. So I take it. So how much is energy cost in percentage of revenue? And how do you prepare for future energy price increase?
Wow. So on top of my head, sir, this is we the service charge represent that we pass to the tenants is approximately 2025% of our revenues. In that number, the energy is probably average around 2530% energy cost in which you have electricity cost. So the increase of energy has been significant over the last years and something that is going to grow. So we develop more and more green energy to get better prices.
But also, we have mutualized all our platform to buy cheaper electricity depending on the legal constraints. So we have been able to keep the service charges for our tenants, the same level of services with an energy cost, which is growing. So 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's for you, Jean Marc. If we can make an update on the pipeline in terms of size and expected return.
DIDIER For the pipeline, it's the official number, it's €2,600,000,000 And this is mainly a focus on extension. So there is a list of projects that are identified and disclosed. And all of them are investment in our properties, large properties, a little bit everywhere in Europe. So 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 whole. We disclose it project by project, but as a whole, the target for us is around 7%.
Okay. So if we have exhausted all the question on the phone, one more here in the room.
So the valuation was 1.5 percent up during 2018. Is it possible to have a split between the core asset and the noncore asset, just 6% or 7%
FRANCOIS in terms of change of value, I don't have the figures. We have nothing to hide. So it's if you look at the as an indication, if you look at the notes to the financial statements, you will see the average yields per country. And if you look at 2014, 2015, 2016, '17, 2018, if you are patient enough, you will see that some of the countries where we could suspect to be to have more secondary assets, you will see that the yields are pretty high as an average, okay? So and they have not been expanding more than the others.
So the change is affecting a little bit every type of properties as an average. So 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. And this has been like that for many years. So we have sold properties properties in Hungary, and 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, so I need a colleague of mine to help me. Can you provide the total GLA based vacancy figure of 2018 versus 2017? I think we will 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. And if my recollection is correct, we disclose it in our financial statements note.
And the strategic vacancy is not a way for us to change the numbers. So as we said, the strategic vacancy on identified releasing and refurbishment actions it's pretty marginal to the total numbers. So there is no deterioration of the physical vacancy, I guess, when we give you the numbers, the exact numbers.
There is one more on the phone.
Next question over the floor is from Jonathan Carnator from Goldman Sachs. Sir, please go ahead.
Good morning, morning,
on
the development pipeline, if I may. So there's obviously a number of projects in the controlled pipeline that have been pushed back over the years. So 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?
I think the 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. So 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. So when we push the date, it's just because it's as a consequence of this administrative process.
So 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. So the strategy we have is that in each and every catchment area, we want to be the winning shopping center.
And instead of building new ones in new catchment area, it's to reinforce because the polarization of retail is underway. And this is going to benefit to the strong shopping centers. And for that, you need to continue constantly also the new retailers that want to join you. So this is what we do. We are super confident they will be accretive in terms of return, but they will also be value creation value creative for the future of the business.
Particularly.
So 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 these?
DIDIER Most of the time. Most of the time. And look at Grand Renault. Grand Renault, we could have started earlier, but we wanted to check that we can pre let it. So it has always been a concern for us to start a project when we have the right level of pre leasing.
And it's clear that we have a little bit put the bar above the previous years, But we are confident that there is a retail demand from all the extension that are listed.
What's the bar? Is it 50% for the pre let or
No. Pre let, it varies for extensions of the size we contemplate, it's between 3040% pre let, closer to 40%.
Okay.
Thank you.
Thank you. So 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 1%, they are all operating well. Can you break down performance between small boutiques and medium sized and large sized supermarkets? No, I can't. Because 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 has and fashion retail business has been skyrocketing with retailers, with revenues of I need to speak English, yes, sorry. I'll switch back to English.
So there is two we had, for fifteen years, large development of fashion, small retailers. And it's clear that they are less capable to meet the customer expectation in the digital world, and they are just going to diminish. So that's what we are just saying. So the smaller format, less than €1,000,000,000 sales on a European basis is more challenging for them. And they also get a pressure on their EBITDA on the low on the pricing, so to do the volume.
So this is what just we are seeing. So the and this is what is happening. Jean Michel invites me to finish. So thank you very for attending, and thank you very much for your questions and the patience. So the next date for us is our general meeting on the April 16.
And on the April 18, we will do the Q1 report about turnover figures. So we will meet you in between. So thank you very much again, and see you soon. Thank you.