Good morning, everyone, and welcome to Citycon's Fourth Quarter and Full Year 2023 results audiocast. Last night we published our full year 2023 financial results, and I would like to direct you to the investor relations section of our website where you can find all results materials together with the presentation we will be going through this morning. I am Sakari Järvelä, the CFO with Citycon, and with me here in this call is our CEO, Mr. Scott Ball, as usual. We will start by Scott going through a summary of our business and operational highlights for the fourth quarter and the full year. After that, I will go through our financial results and our initial financial guidance for the full year 2024. After the presentations, we will be opening the line for questions from the audience. So with that, I will pass on to Scott. Please go ahead.
Thank you, Sakari. Good morning, everyone. Welcome to our 2023 full year report. This past year, Citycon continued to demonstrate the strength of its strategy and portfolio as all operational metrics, sales, footfall, rents, occupancy, and collections, continued to show sustained growth. Importantly, like-for-like NRI grew 6.5%, and standing NRI increased 6% compared to the previous year when adjusted for FX. This performance reflects the stability of our necessity-based properties, which are focused on serving as a center for the community as well as a last-mile logistics hub for the delivery of grocery, municipal, and other services. Our properties also possess excellent access to public transportation and locations in the strongest and fastest-growing cities in the Nordics. For the year, like-for-like tenant sales increased 3.4% and footfall 1.8% compared to 2022. Notably, tenant sales are already 9.2% above 2019 levels.
At the same time, we experience strong demand for our centers from both new and existing tenants, as evidenced by our leasing activity with over 132,000 square meters of signed leases in 2023, resulting in retail occupancy of 96%. Average rent per square meter with comparable FX increased EUR 1.6 to EUR 24 per square meter. The rent collection rate remains strong at 99%, which reflects the high quality and creditworthiness of Citycon's tenants. Despite the strong operational results, currencies continue to impact our reported figures. During the year, there has been adverse volatility of the NOK and SEK, which were at 20-year lows. FX rates had a EUR 10.2 million impact on our direct operating results. However, these currencies began to strengthen in the latter part of the year, which, if this trend continues, would provide a tailwind to our operations.
Likewise, yield expansion significantly impacted the book value of our assets, creating a paper loss for 2023. However, this was at least partially offset by actual cash proceeds due to the tremendous rent growth occurring in our assets. Now that spreads have begun to tighten, we anticipate that yield should follow, which provides an additional tailwind for us in 2024. Speaking of asset sales, we are negotiating with our JV partner to take over the remaining interest in Kista Galleria in Stockholm by assuming the seller's share of existing debt and a minimal cash payment of EUR 2.5 million. After the transaction, Citycon will have 100% ownership of the center, which will have an approximately EUR 70 million positive impact on the equity value of our balance sheet. Moving to the balance sheet, Citycon continued its credit actions to strengthen its investment-grade rating.
As previously noted, we refinanced and expanded our credit facility in April from EUR 500 million to EUR 650 million, consisting of a EUR 400 million revolver and a EUR 250 million term loan. In total, Citycon repurchased EUR 191 million of notional bonds in 2023 through a tender offer from the open market by using approximately EUR 184 million of cash, taking advantage of discounts and dislocation secondary trading. Furthermore, in Q4, we signed a seven-year mortgage loan of approximately SEK 1.02 billion secured by one of our Swedish assets, providing evidence that the secured loan market is functioning well. Additionally, the loan provided liquidity to improve our maturity schedule and our balance sheet, as the proceeds from the term loan were used to refinance the company's near-term maturities. In November and December, we successfully completed two hybrid equity exchanges where hybrid bonds were repurchased by issuing new shares.
We repurchased the hybrids at a discount compared to the nominal value in exchange for equity at the market value. This transaction highlights our commitment to maintain our investment-grade rating. In total, we retired EUR 87 million of hybrid debt in 2023. We are pleased that these credit actions, which continue to mitigate the earnings impact of higher interest rates while also improving our overall balance sheet, were recognized by S&P, who reaffirmed Citycon's investment-grade rating with a stable outlook. As evidenced by our actions in 2023, further strengthening our balance sheet and credit metrics is a top priority. To highlight our commitment to maintaining our investment-grade rating, the board of directors has proposed a dividend of EUR 0.30 per share for 2024, which further supports our IG rating and also reflects the currency impact on our results in 2023.
Looking ahead to 2024, we are well-positioned with a proven, stable business model that has performed well regardless of macroeconomic pressures. This is enhanced by the fact that 93% of our leases are linked to indexation, which will further compound in 2024. Notably, our mix of high-credit tenants are less reliant on consumer discretionary spending, which provides significant stability. While we've been able to grow rents due to indexation, the fact that sales have continued to grow means our occupancy cost ratio remains low at 9.5%. This positions Citycon to have compounding rent growth with additional indexation without jeopardizing our tenants' ability to continue to be profitable. It is also important to note that following the completion of the residential towers in Lippulaiva in Q1 of 2023, we have minimal committed capital expenditures for 2024.
Given the stabilization of interest rates and the sizable amount of capital looking for investment opportunities, we anticipate a significant increase in activity in the transaction market this coming year. Based on this expectation, we are increasing our previously disclosed divestment target to EUR 950 million over the next 24 months. Citycon owns some of the best, most urban, large fortress assets in the Nordics. Our 12 largest properties make up approximately 80% of the value of our total assets. We will focus our efforts on these largest properties that offer a much stronger growth trajectory and divest the remaining properties. Our focus for 2024 is as follows: our core assets and major markets resulting in the disposal of EUR 950 million of assets over the next 24 months; more intense expense management to offset the increase in finance cost.
This includes consolidating all corporate functions in our suburban Helsinki office, reduced G&A overhead to an annual run rate less than 10% of NRI by the end of this year, a significant reduction in operating expenses to offset the increase in energy prices, a significant reduction of CapEx from EUR 96 million in 2023 to EUR 30 million in 2024, and the completion of major projects including the opening of a 7,300 square meter Prisma in Myyrmanni, which results in the center being fully leased and approximately 60% of the tenant mix dedicated to grocery. In Rocca al Mare in Tallinn, we are adding a Selver as well as a 1,800 square meter gym. These will open by August. In Iso Omena, we will open the first Nike Rise concept store in Finland this year. In Albertslund Centrum in Copenhagen, we will open a Lidl grocery store during this summer.
Taken together, these factors give us confidence that 2024 results will continue to build on our solid performance in 2023. Our guidance reflects the benefit from inflation as indexation pushes our rents higher. As a result, our estimated outlook for 2024 direct operating profit is in the range of EUR 185 million-EUR 203 million, EPRA EPS is EUR 0.62-EUR 0.74, and adjusted EPRA EPS EUR 0.44-EUR 0.56. With that, I will now turn it over to Sakari to review the financial performance.
Thank you, Scott. The underlying performance of our assets remains strong in the fourth quarter, with net rental income up 7.8% for the standing portfolio over Q4 last year and 5.3% on like-for-like basis. Just as a reminder, our like-for-like portfolio excludes centers where we have ongoing development activity and a number of development projects started to produce income this year, which is then not included in the like-for-like income. This shows in the lower like-for-like growth rate in this quarter compared to standing. In the last quarter of the year, we also recognized some one-time reallocation and reconciliation effects in our service charge income, mainly in Norway and Sweden, which lowered the like-for-like net rental income for Q4 compared to previous year. Without these one-time effects, the like-for-like growth would have been roughly in line with the full-year growth rate, which was 6.5%.
Our Standing Portfolio excludes all divested assets but includes our newest asset, Lippulaiva, which opened in Espoo, Finland in early 2022. In 2023, we added income to our Standing Portfolio from the four residential towers adjacent to the center, which we own and which were completed in the end of 2022 and early 2023. At the end of the year, those towers were approximately 90% occupied, which is something we are very pleased about considering the weaker residential market in Espoo, especially at the beginning of 2023. In constant currency, standing direct operating profit increased 3.4% versus Q2 2022. The slower growth rate compared to NRI was primarily due to some non-recurring one-off items in our G&A administrative costs. Standing EPRA EPS was up 1.6% in the fourth quarter versus the same time last year, and standing adjusted EPRA EPS was up 5.1% versus the same quarter last year.
This higher growth in adjusted EPS was a result of approximately EUR 500,000 in interest savings from our hybrid bond repurchases during the year. Moving to the full-year standing results on slide nine, the story is generally the same as the fourth quarter with a few exceptions. For the full year 2023 and in constant currency, net rental income growth was 6% for the standing portfolio compared to 6.5% for the like-for-like portfolio. This is mainly due to the fact that over the first three quarters of the year, the closure of Torvbyen center in Norway weighed on the standing portfolio income growth but was excluded from the like-for-like. Torvbyen is the Norwegian asset which we had to close due to structural issues and has not produced any notable rental income after Q3 2022. We finally decided to close the center permanently at the end of the first quarter 2023.
Year to date, standing EPRA EPS in constant currency increased by 2.9% over the same period last year, following a small increase in the direct net financial expense. Interest expense increased mainly due to higher interest rates on new debt refinanced during the year and also due to lower capitalized interest from Lippulaiva compared to last year when it was still partly being categorized as a construction project. These effects were offset by income from our cross-currency interest rate hedges. However, we did see a marked improvement in standing adjusted EPRA EPS, which was up 6.3% in the year and benefited from our hybrid bond repurchases and a correlating decrease in hybrid interest expense. On slides 10 and 11, we have provided detailed bridges for both net rental income and EPRA earnings. Starting from page 10, we can highlight the strength of our current portfolio.
Our like-for-like portfolio produced a total growth of EUR 9.9 million in the year, and we produced additional EUR 3.2 million rental income from development projects coming online. Hence, the new income generated from existing assets more than offset the income lost from divestment of the four Norwegian assets in 2022 and the closure of Torvbyen, which we consider as an excellent result in a difficult market. In the quarterly bridge, we can see the Q4 like-for-like growth at EUR 2.1 million, so slightly lower than the full-year run rate, which, as mentioned before, was due to one-off items affecting service charges compared to last year. Finally, the full impact on our NRI from weaker Swedish and Norwegian kronors ended up to EUR 11.3 million in the year, as Scott mentioned before. Similar effects are found on page 11 for EPRA earnings.
If we move on page 12, we look again at the fair value development in the full year, which Scott already discussed earlier, where we recorded a total fair value loss of EUR 200 million for the full year 2023, or 5% of the total investment portfolio. The fair value changes were geographically relatively evenly distributed across the portfolio, although there was a larger individual write-down in the year related to Torvbyen as the asset was permanently closed. As mentioned by Scott, the fair value decline can be attributed almost exclusively to higher net initial and exit yields. Our average exit yield for the investment portfolio increased 50 basis points year to date, but the negative valuation impact from this was partly offset by cash flow improvements from increased rent growth through indexation and completed development projects.
EPRA NRV per share decreased to EUR 9.3 versus EUR 11 as at Q4 2022. Excluding negative currency effects of EUR 0.47, the EPRA NRV per share would have been EUR 9.78. As we have discussed during the year, the weakness of Norwegian and Swedish kronors has been a standing theme weighing on our results and on our balance sheet. We're running a partial natural hedge through funding our Norwegian and Swedish operations in local currencies, but this only partly eliminates the translation effects arising from the weakening currencies. To demonstrate these effects, on page 13, we show the currency impact on our LTV, EPRA NRV per share, and our shareholders' equity. Should foreign exchange rates return to the level of year-end 2022, we would see an increase in equity of EUR 37.2 million and LTV improvement of approximately 1%.
If year-end 2021 rates were applied, we would see an increase in equity of EUR 84 million and an LTV improvement of almost 2%. On liability management side, we had a very busy 2023. As Scott mentioned, we refinanced a total of almost EUR 750 million of debt, including EUR 400 million RCF backup facility and a total of EUR 350 million of secured bank debt. We also added new lending relationships with three banks during the year and extended commitments from the existing five house banks and have now balance sheet commitments from a total of eight European banks. This underlines our excellent banking relationships and access to funding.
As we have discussed in the previous quarters, we tendered a total of EUR 278 million of unsecured bonds and hybrid bonds during the year, managing our near-term maturities and utilizing the dislocations in the capital markets to repurchase our debt instruments at large discounts. We also repaid the NOK 800 million Norwegian krone bond in November last year. In December, we also executed two equity exchange transactions Scott described earlier, issuing a total of EUR 25 million of new equity. Looking forward to 2024, over the last two months, we've been pleased to note a marked positive shift in the real estate financing market. We have witnessed at least partial reopening of the bond markets for mid- to low BBB-rated real estate issues, which clearly is a positive sign for the sector as a whole.
Looking at our balance sheet in more detail on page 15, our maturity schedule remains well laddered. The change from previous quarter is that the EUR 310 million bond with maturity in October 2024 is now within 12 months from maturity and hence classified as short-term debt. We will be refinancing this maturity in due course, but note that our liquidity position remains strong with EUR 434 million total liquidity available, more than sufficient to meet all our near-term financial commitments. Following the issuance of two secured loans during 2023, our debt stack now includes approximately EUR 340 million of secured loans, which translates into 19% as a share of our total outstanding debt quantum of approximately EUR 1.8 billion, excluding hybrid bonds.
Finally, and importantly, S&P affirmed our BBB- credit rating with stable outlook in December, which was underpinned by our strong commitment to retaining our investment grade rating going forward, which is also evidenced by the actions we have announced today. On slide 16, you can see the development of our credit ratios. Most notable change is the increase in LTV by 4.6% or 3.8% on constant currencies, following the EUR 200 million fair value reduction in our investment portfolio. The refinancings executed during the year increased our average interest rate by only 0.2%, which had a minor negative impact on our interest coverage ratio. Apart from the higher financial expense, the weakening net debt to EBITDA and interest coverage ratios in 2023 were also driven by the negative currency impact affecting our earnings. Finally, I would like to introduce our financial guidance for the full year 2024.
I will start by noting that given the now very high likelihood of Kista transaction closing, we are providing our guidance, including Kista Galleria 100% consolidated from February onwards. Also, there are no effects from asset divestments included, as we will be judging the impact on our guidance as the divestments materialize during the year. We also assume prevailing FX rates. So for direct operating profit, we guide a range of EUR 185 million-EUR 203 million with a midpoint of EUR 194 million. For EPRA EPS, a range of EUR 0.62-EUR 0.74 with midpoint at EUR 0.68, and for adjusted EPRA EPS, a range of EUR 0.46-EUR 0.58 with midpoint at EUR 0.52. With that, I end our presentation of 2023 financial results and open for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue.
If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from John Vuong from Kempen. Please go ahead.
Hi, good morning. Thank you for taking my questions. What is exactly the rationale for Kista? I understand the NAV side, but I'm trying to get my head around the earnings side of owning 100% of Kista.
Listen, I think this is an opportunistic purchase for us. It's an asset that we obviously know very well since we've been in the asset for some time. Kista was probably the most negatively impacted of all of our assets during COVID. And so we've seen probably a bigger value loss in that asset than we've seen through the rest of the portfolio.
The upside is pretty significant in our mind as the property has kind of hit the valley, if you will, and we're starting to see an increase in all the operational metrics in the asset. So not unlike what we did you might recall a couple of years ago, we bought some assets that we managed in a JV with Partners Group in Norway, and we were able to buy those assets at a significant discount, which has turned out to be a great investment for us. We see this in that same light, that we're able to buy basically a trophy-level asset that has gone through the worst of it already with tremendous upside, and we're able to buy it at a significantly discounted price because the partner is looking to exit the market. So we have a motivated partner who's looking to exit. We know the asset well.
We see all the upside opportunity there. So we think this is a big win for us, actually.
Okay, that's clear. And on the operations improving, do you expect to spend some CapEx here in Kista?
I think we have a minimal amount of CapEx dedicated to some tenant allowance efforts that we're doing in the property. I think there's a gym that we're looking to add. So there is some TI CapEx there. The only other CapEx that we may spend is kind of a nominal amount related to getting zoning and permitting for expansion there. We have a plot of land adjacent to the property where we can add more square meters, and then we also have a section of the property where we can go up.
So we've been working with the city quite extensively on getting zoning approval to be able to do these additions. And I will note, there's a lot happening in that market around Kista directly across from the property. There's a developer who is converting office to residential. And the city has dedicated more resources, actually, to this part of the city. So there will be a minimal amount of CapEx related to getting that zoning, but it's de minimis.
All right. That's very clear. Thank you. And onto the dividends, why are you only lowering it and not going for a full cut, given that you're trying to message the market that you're in delivering mode?
Well, I think the fact of the matter is that we have more than sufficient liquidity and more than significant cash flow to cover the dividend that we have described today.
I do think that we are sending a message that we are prepared to do whatever it takes to maintain this IG rating. And so in our mind, we think the shareholders deserve to be paid something for continuing to own our stock, and we think this is appropriate.
Okay, that's fair. And on your cost savings plan, you plan to cut your overhead by a third or even more than a third. Do you expect any one-off costs for this year to attain this level?
We do, and that's built into the guidance that Sakari has provided. So there will be some severance that would be one-off that would be included in the numbers.
Okay, that's clear. And on the operating expenses, where are the easiest gains to be made here? And could you provide a bit more color on what you mean by significant reduction?
Well, I think if we look at what the operating expenses are and how they have developed, of course, we're seeing a significant increase in the energy prices. And for us, it comes with a little bit of a lag, given that we've been very prudently hedged. So we were not affected in the previous years as we have been this year. So it continues to come through to our expenses. But when it comes to the other operating expenses, I think there's a couple of impacts. There's always a pricing impact, and there's a volume impact. And we will be looking at both. So we will be renegotiating some of our contracts, and we will be using less some of the services.
Yeah, I think just to give you a little bit more color on that. I mean, we're not going to go line item by line item.
But basically, what we've identified is on controllable expenses, we will see a 14% reduction on controllable expenses.
Okay, that's clear. Thank you. That's it from my side.
The next question comes from Neeraj Kumar from Barclays. Please go ahead.
Morning, everyone, and congratulations, Sakari, for the new role. I have a few questions, actually. So the first one is in regards to your EUR 900 million disposal plan. I mean, I just wanted to understand you have a very good set of assets, as you mentioned, and you are getting very opportunistic acquisitions of Kista. So why you're going for the disposals and why not going for the equity raise to preserve the investment grade rating?
Yeah, so on the disposals, I think what we're trying to do is we're saying 12 assets basically make up 80% of the value of the company.
Those 12 assets happen to be in the largest markets. For lack of a better term, they're almost bulletproof, given what we've done with the merchandising and given the location of those assets. So our intention is to focus on those. The assets that we would be selling will be smaller, and in cities they're still fantastic assets. Don't get me wrong. I would have no problem continuing to own them. But we think it's prudent to really focus our efforts in these major cities and sell in those cities that are more distant. It makes us much more efficient. I don't know.
And I think fundamentally, we recognize that our share prices trading at a meaningful discount to the book values, and much more meaningful than we feel that the transaction market would price those assets for.
What we are looking to do is resetting also our balance sheet. So we're going to be used those proceeds to deliver and fundamentally put us in a position where we can maybe start growing again and issuing equity when the share price that allows.
Sakari made a great point. The fact that if you look at how we're trading at such a discount, and yet if you look at the value of these assets, we've gotten indications we had two offer letters just in the past two weeks, actually, which shows you a little bit of the green shoots that we're seeing in terms of the transaction market opening back up. And these offer letters are much closer to the book value versus where our stock is trading at such a significant discount.
Got it. That makes sense.
Regarding the stock trading below the book value, I see you have done some hybrid exchanges in the last couple of months. I mean, that is indeed an equity issuance that's lower than the book value as well, right? So maybe a bit more on the dynamics of that equation in the sense, is that offer available to every single hybrid holder out there, or was it one-off, or you may not do this in future? Just wanted to hear more thoughts on that.
I mean, what we did at the end of last year, we received some inbound proposals, which we then took up with. I think at the end of the day, there's nothing saying that we wouldn't be or couldn't be doing more, but that is for the Board of Directors fundamentally to opine on.
And I think it depends on pricing.
I mean, I think basically, we were presented with an opportunity while our stock is trading at a discount. We were provided an opportunity to buy the hybrids at an even more substantial discount. So it's basically math. I mean, it worked very well in our favor to do that. So I think, as Sakari said, should other opportunities present themselves, we'll look at the math, and if it makes economic sense, we'll do it. And if it doesn't, we won't.
Got it. And probably the last question on that, it's the same hybrid line. So the first call date is in November 2024. So what's your de facto plan on that in terms of preserving the equity content on the instrument? I guess that's essential for the investment grade rating as well, right?
No, I mean, that's correct.
I think what we've consistently been saying over the years, I mean, we've committed to the investment grade, and our investment grade rating today is underpinned by the equity credit that these hybrid bonds enjoy. We will be doing actions to replace that equity credit in one way or another. There's a menu of maybe two or three or four options, and we will be choosing one of them that will be economically the best for us at the time when we come to the decision.
Got it. That's very helpful. Thank you very much.
Thank you.
The next question comes from Simen Mortensen from DNB. Please go ahead.
Hi, guys. A few of my questions have already been asked, but I have a few more.
In terms of the divestment, is there any LOIs and ongoing discussions you can give us any indication about that in terms of timing of these transactions and also comments on in which markets? And is it just the smaller assets you're planning to sell, or is it some prime assets also considered to be sold? Yeah.
So as I mentioned, we have basically offer letters on two assets that are very recent. Those are in the Norwegian market, which at this point is more liquid than the other markets we operate in. But we are seeing a lot, we're having a lot of conversation in the other markets as well. And all of this has really, I would say, picked up in the last month or so, kind of post-holiday.
As mentioned, the two offer letters we have are in a range where we haven't accepted them, but we are in negotiations with them. So I don't have an LOI signed per se, but we are in active negotiations. And I would think that we would see something in the first half of this year. That being said, we, again, very surprised ourselves a bit at how many inbound calls we are fielding from brokers and from potential buyers. So it feels like this is really the right time. As it relates to the assets we're going to sell, I mean, we are really focused, as said, on the major capital cities, so maintaining our assets in Helsinki or Stockholm or Oslo or Bergen. So I don't see us transacting necessarily, at least in the bigger assets in those markets.
If we have a smaller asset in one of those markets, we may sell it. But it would be more the outlying markets that we would be looking to sell.
Okay. Thank you. Just also a question on the Kista transaction. You guessed this share is basically closed for free. How do you look at that as a reference transaction for the rest of your portfolio? Because that is a big asset now going at a quite low level. And how do you look at that?
Yeah. So yeah, we had the same it's almost an identical situation that we had with Partners Group when we acquired their interest in the assets in Norway. And at the end of the day, I think the appraisers recognized that this was a transaction that was not necessarily a market transaction, but more driven by the partner entity exiting the market.
And so therefore, we were the logical buyer of their interest. And so I think the same thing will happen here, honestly. I don't see it as a marker for where values stand and what the value of this asset is. We have some history here in terms of how this has been done, and I expect it'll be kind of the same thing here.
Yeah. And I mean, obviously, we've been discussing this with our appraisers beforehand, and we've been assured that the asset will be valued based on the yields and cash flows modeled as before. So we don't expect this to be necessarily considered relevant market evidence for the appraisers.
Okay. I'll take note.
You also mentioned that you're planning to sell a bit of the assets because you argue the value of assets is too low or the share price is too low to raise equity, and you hope to lift it with selling assets and proving that. But you commented in that same answer to the previous guys that you are considering, if the share price is going higher, to raise equity. Am I correct in understanding that that was your answer to this situation?
I mean, maybe I can comment on that. It's not what we said that we necessarily seek to get the share price up to issue equity. I think it's more that we feel that our share is trading at a relatively large discount. And normally, as standard for real estate companies, I mean, you have asset base.
You can issue debt and equity based on it and as a normal course of business. So we fundamentally want to get into a position where we have a share that trades fairly. If we see opportunities to grow in the market, not just divest, I think we would want to be taking that. So it's just a recognition that right now, we don't feel that we are there.
Yeah, that is not our immediate strategy. There's been no conversation internally about issuing shares at any price. I think what Sakari was mentioning when he said that, what he meant was, it's a kind of real estate practice. If you feel like your shares are trading at some premium, you might issue shares if you see an opportunity to grow your company. We're obviously a long way from that.
So just to be very, very clear, there is no intention of issuing any shares in the near future.
Okay. Also, on your guidance, upper earnings, the call date on one of your hybrids is this year, November 24th, if I'm correct. Is that included in the guidance, or how do you look at that?
I mean, as said, we will be dealing with the hybrid towards the end of the year in one or the other way. I think at the end of the day, it is in November, so the impact for many potential transactions is not very large. Yeah, that's right. And at the end of the day, yeah, that's right. So it is in our plan underlying our guidance, but the financial impact of any potential transaction is minor in the guidance.
Okay. Thank you. Those are all my questions.
Great. Thank you.
The next question comes from Anssi Raussi from SEB. Please go ahead.
Thank you. Hi all, and thank you for the presentation. A couple of questions left, and I start with the dividend. So you mentioned about the math and your shares trading at a discount compared to book values, and you have a call date on hybrid this year and a lot of debt. So what kind of cost of capital you're thinking for dividend when you compare different options regarding capital allocations? I'm trying to understand what would it take for you to cut your dividend in general. That's the first one. Thanks.
But we are cutting the dividend. We are cutting the dividend from EUR 0.50 to EUR 0.30.
Yeah, and I think it's EUR 0.30 too much.
You're entitled to your opinion. Yeah.
Yeah, but I'm trying to understand when you compare different options, we use this EUR 0.30 per share. What kind of number you're giving for dividend in terms of cost of capital because your debt, the interest rates, and so on, so.
I don't think we necessarily think about it from this perspective. I think the dividend is an important component of our equity story, so we start from there. And now, of course, we recognize that our leverage is elevated, and we want to be absolutely crystal clear that we commit to the investment grade. So now we're cutting the dividends and using the proceeds to repurchase debt or reduce leverage. I guess that's the underlying reasoning that we follow.
Okay. So yeah, I'm just thinking that maybe paying dividend is not maximizing your shareholder value.
But anyways, the next question is that do you think that you would need to slash your fair values in your portfolio if you ended up to sell some assets at a discount, or would it be any problem? Would you be able to isolate the impact, to say?
Well, let me be very clear. Anything we sell is not going to be sold at some massive discount. That's not the intention. If that were the case, we could have sold assets in the last 12 months. But we honestly didn't feel like the market was pricing our assets appropriately. So any asset sales that we transact on will be approaching our book value. So I don't see that as even a possibility that we're going to have to deal with.
And I would also point out, when you asked the question if we're taking a massive discount, I mean, we took a massive hit in yields in 2023. The fact of the matter is you're starting to see the yields or actually debt yields tighten, and you're starting to see the market yields actually stabilize because interest rates have stabilized. So if anything, I think that moving into 2024, you might start to see yields move in the other direction again, maybe not all the way back to where they were previously, but I think you're going to see them move in the other direction. So in my mind, we've taken "the massive hit."
Thanks. That's clear.
If I continue on this plan divestment, and let's say that if something happened and you couldn't find demand for these assets worth of EUR 950 million, what would be your plan B in that case?
Well, I guess I fundamentally don't agree with your premise that that might not happen. Again, based on the conversations we're having, we are very confident in this occurring. Now, that being said, we don't have to sell EUR 950 million. We just see that that's where the market is moving, and we're going to move with the market and, as said, really focus our efforts on these 12 core assets. That disposal plan is not a function necessarily of liquidity. It's a function of, "This is our investment strategy. This is what we're doing. We're going to reset.
We're going to stabilize the company, build on top of what we've already got in terms of our best assets, and then look to grow the company."
To add to that, I think we have EUR 380 million remaining for this year for the previous divestment target of EUR 500 million. We've been consistently saying, I mean, based on the conversation we have and the inbound interest we've had on our assets, we're absolutely convinced that that will be delivered this year. Out of the additional that we announced last night, it's a question then, will it be next year or will it be this year? But EUR 380 million this year is something we're absolutely convinced we will deliver.
Okay. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay.
I think it's time to close the call today then. So we thank everyone for attending and for the great questions, and look forward to talking to you on the road in the coming months and weeks.
If you have any more questions, feel free to reach out.
Absolutely. Have a great day.
Thanks, everybody.
Thank you.