Good morning everyone, welcome to Citycon's H1 2019 results audio cast. Earlier today, we published our half-yearly report for the January, June 2019 period. All material is available on Citycon's website under Investors. My name is Mikko Pohjala, I'm Citycon's IR and Communications Director. Here with me in the room, I have our CEO, F. Scott Ball, our CFO and Executive Vice President, Eero Sihvonen. Scott will start the audio cast with a summary and the operational figures for the reporting period. This will be followed by Eero's review of the financial figures for the January, June 2019 period. Scott will conclude the presentation by talking about some of Citycon's focus areas for the rest of the year. After the audio cast, you will have a chance to ask questions. Scott, please go ahead.
Thank you, Mikko, good morning everyone. I'm pleased to present an overview of the first half of 2019 and the key highlights. I'll discuss a couple of significant events of the second quarter, after which I'll present the operational figures. This will be followed by a more comprehensive financial overview by Eero, after which I will conclude the audio cast with a few remarks about our priorities going forward. Some of the highlights of the first half of the year include, our EPRA EPS continued to grow and reached EUR 0.418 through June. Our administrative expenses, excluding the one-off cost related to organizational change, declined year-over-year. We had a solid operational start to the year. Occupancy remained strong at 95.6%, leasing spreads continued to be positive. like-for-like NRI growth grew slightly compared to previous years, while total NRI grew by 2%.
We were particularly pleased with the like-for-like development in Finland. Total tenant sales and footfall both showed clear growth driven by Mölndal Galleria. During the quarter, we signed a significant lease with the City of Lahti, who will open a new municipal service square in Trio, which I will discuss in more detail later. In June, our flagship asset in Iso Omena in Finland received recognition from the Nordic Council of Shopping Centers and was awarded the best Nordic shopping center. During the quarter, we also successfully sold 2 shopping centers in Finland at book value. After a solid first half of the year and the impact of disposals of Arabia and Duo, we are expecting EPRA EPS of EUR 0.785 to EUR 0.85 for the full year 2019. During Q2 2019, we continued to strengthen our team.
You might recall during the first quarter of the year, we introduced a new organization. The aim of the structure is to improve asset-level focus and remove boundaries between countries and functions. The ultimate goal is to intensify focus on asset management, as well as improve G&A efficiency. The new organization includes full P&L responsibility for our center managers and will incentivize our personnel to intensify their efforts to maximize value at each of the assets. In addition, we have separated leasing and special leasing into their own respective business units with the aim of intensifying our efforts in our common area leasing and media sales. Also within the operations team, we have formed a completely new function and team whose aim is to harmonize processes and standards across our operating countries. During the second quarter of 2019, the onboarding of this new organization continued.
In addition, we also introduced a new extended management committee. The aim of this EMC is to create shared leadership in the company and to further break down silos within the organization. We made several key recruitments during the second quarter of 2019, including in May, we announced the appointment of Erik Lennhammar as Citycon's new Chief Development Officer and a member of our corporate management committee. He will join Citycon in August and lead Citycon's development team. Erik is a great addition to our team and has a varied asset management and development background from various sectors. One of his first focus areas will be to exploit the densification opportunities within our portfolio. As mentioned previously, in May, we signed an agreement with the City of Lahti for a new municipal service square in our shopping center Trio.
This new service square will incorporate many of Lahti's public services into a new concept with a focus on community building. They will occupy 1,000 square meters on the second floor of Trio, and the plan is to open this new service square late autumn of this year. The city has also expressed interest to expand the service square to incorporate other public services into the service square after the first phase has been opened. For us, this is an important milestone in developing Trio, and the service square will be a significant improvement in the center's offering. We have a similar service square concept in Iso Omena, which acted as the model for this new service square in Lahti. We have tremendously positive experiences from Iso Omena, where the library alone attracts 1.5 million visitors annually.
As a result, we are confident that the new service square in Trio will bring further footfall to the center and increase its appeal. We are particularly pleased that this move will also significantly increase occupancy at the center. Another important event during the quarter was the opening of Lidl on Kista Galleria in a portion of the old former Åhléns department store. The first portion of this redevelopment happened in January when the second floor was occupied by H&M's Afound concept. The second important milestone was this Lidl opening in June. Finally, ICA will open in the last section of the building later this year. We are also revamping and refurbishing the center with a more modern look and feel, and the refurbishment of Sweden's largest food court has already begun and is progressing as planned.
As mentioned, we are pleased that Iso Omena once again received recognition during the quarter. It was awarded the best Nordic shopping center in 2019 by the Nordic Council of Shopping Centers. This is the third award for Iso Omena over this year. It was first awarded Finland's best shopping center in 2018 by NCSC. This spring, Iso Omena received the award as the best large shopping center expansion project in Europe by the International Council of Shopping Centers. In June, it received a aforementioned award as the best shopping center in the Nordics. We are tremendously proud of these achievements and of Iso Omena. Iso Omena is a great example of our strategy and the prototype of asset we want to own in the future. Further to validation of our strategy and ability to execute on our development pipeline.
The success of the center is also visible in the number of visitors and tenant sales in 2018, both increased significantly, and there is further opportunity to capitalize on the tremendous footfall growth of +74%. We also continue to recycle capital during the second quarter. During this quarter, we announced the disposal of shopping centers, Arabia and Duo in Finland. These assets were sold for EUR 77 million, which was in line with the asset's latest IFRS fair value. We were pleased with the transaction, which shows that there is investor demand for good retail assets with a diversified tenant mix. In addition, we divested a land plot next to the shopping center Columbus during the quarter. The buyer is planning to build around 900 residential units on the plot, which will provide additional footfall to Columbus and further strengthen our asset.
The sale of the land plot next to Columbus is also further evidence of the kind of densification opportunities we have within our portfolio. The proceeds of the Duo and Arabia divestment were used to repay debt. We made great progress in reshaping our portfolio, and as of today, our value is now more concentrated in our largest assets. Our top seven assets, including Iso Omena, Myyrmanni in Finland, Liljeholmen and Kista Galleria in Sweden, Oasen and Herkules in Norway, and Rocca al Mare in Estonia, make up 50% of the value of our portfolio. These assets are not only the biggest, but are located in the largest and fastest-growing markets. This concentration of value demonstrates our focus on owning the best assets in great cities with a focus on transportation. We will exploit the opportunities in each of these assets for further densification.
Looking at our portfolio operating metrics, footfall and tenant sales grew, driven by Mölndal Galleria. Our like-for-like net rental income grew slightly. The total net rental income grew by 2%. Eero will review this in more detail later in the presentation. Occupancies at our shopping centers remain strong at 95.6%. We have a very stable business model with a resilient tenant mix, and this is visible in our occupancy rate, which has been almost within 100 basis points for each quarter over the last four years. Leasing spreads were also positive during the quarter, driven by Norway and Sweden. With that, I will hand this over to Eero to go through the financial figures.
Thank you, Scott, and good morning, everybody. I will start by reviewing Q2 financials, continuing then to the first six months. Like Scott mentioned, we had a good solid quarter for Q2, and our net rental income during the quarter did grow by EUR 1.8 million. A bit later, I will be explaining in detail what were the components of this growth. Also, direct operating profit did grow, and that did grow by EUR 2.3 million and a bit more than net rental income due to the fact that also SG&A costs contributed. EPRA earnings were EUR 38.7 million, i.e., EUR 2.3 million higher than in the comparison period. Turning over to the full first six months, we had a net rental income, which ended up at EUR 109.7 million, which is EUR 2.1 million over previous comparison period.
Direct operating profit, EUR 98.4 million, i.e., EUR 2.6 million above, and earnings, EUR 74.5 million, i.e., EUR 2 million over. EPRA EPS ended up at EUR 0.418. A bit later, I will also detail the impacts of the numbers to our guidance and full year forecast. Starting with net rental income in a little bit more detail. We had Mölndal coming online, contributed mostly Mölndal by EUR 2.6 million, the three development projects, which more or less compensated for the income lost through divestments of the non-core centers, non-core properties, which proceeded quite nicely. Like-for-like was a positive figure. I would like to mention that for a very long time also, the Finnish portfolio, Finland plus Estonia showed very modestly, but anyway, positive like-for-like, which was, of course, great news.
We also started to implement the so-called IFRS 16. You will be finding a lot more details on IFRS 16, the so-called leasing standard, in our full disclosure. Here, probably it is enough to mention that on net rental income level, the implementation of IFRS 16 had a positive impact of EUR 3.5 million, and the total other impact on our net rental income was EUR 2.4 because we had a negative impact on the other hand from the currencies, i.e., both SEK and NOK were weaker than at the end of comparison period, and particularly weaker than on average last year. Whereas the NOK actually slightly strengthened from year-end 2018, whereas SEK weakened. As a result, we had a slightly negative translation result for the quarter. Turning over to fair value changes.
The total valuation result for the fair values for the quarter was -EUR 29.2 million. The six-monthly figure came at -EUR 46.8 million, both these numbers without Kista. With 50% our stake in Kista Galleria, the negative valuation for the first six months was -EUR 53 million, and for the three months ending, -EUR 34.6 million. The main reason for this negative valuation was a slight widening of non-core yields, slight changes in the market rents. The average yield requirement with one decimal point did still stay at 5.3%. The impact of slight widening did not move this needle. Having a quick look at EPRA net asset value development, we had positive earnings at EUR 0.42, valuation impacted by EUR 0.30, a slight translation reserve due to the currencies, as mentioned, was EUR 0.03, and the dividends had a EUR 0.32 impact.
Overall, meaning that our EPRA NAV did end up at EUR 12.77 for the quarter. We did not have any financing transactions during the quarter, but there was one change, i.e., our fixed portion of our debt portfolio slightly reduced to 83.3% due to the fact that the bond maturing in 2020, the remaining EUR 290 million that we have, turned short-term and therefore it's not categorized as fixed rate. Actually, we will gradually start looking into the refinancing of this EUR 290 million bond maturing in one year. Now the interest rates are low and the refinancing opportunities are ample. I think that looks as okay for the time being. No other major changes to the financial targets.
Amount of interest-bearing debt slightly declined from the year-end by approximately EUR 30 million, largely due to the fact that we did successfully close the disposal of Duo and Arabia, and naturally also invested into the redevelopment projects, which slightly compensated for that. The net result is that we had a lower interest-bearing debt compared to the end of the year. Our Loan-to-Value ended up at 48.9%, and due to the movements in valuation, Arabia, Duo, and repayment of the debt and FX movements, the next net impact can be seen here, i.e., 48.9%. Turning over to the outlook, as promised, we have specified the outlook and the direct operating profit guidance now stands at EUR 189 million-EUR 200 million. EPRA earnings, EUR 140 million-EUR 151 million.
In our previous forecast, we still had Arabia and Duo in, i.e., the two disposals just concluded. You can easily calculate that approximate impact of that is to the tune of EUR 3 million. Therefore, you can see that actually the midpoint taking into account the disposals is the same or actually slightly better than in Q1. Our guidance, our outlook is more or less exactly the same as in Q1. Although slightly better and naturally clearly more narrow because the band is now narrowed to EUR 11 million. The year looks seems to be pretty much as it seemed in Q1, i.e., fairly confident outlook is being provided. On EPRA EPS, it means that the guidance is now EUR 0.785-EUR 0.85. With that, I will turn back to you, Scott.
Thank you, Eero. I'd like to share some thoughts on the company's focus for the remainder of the year. We're in the process of developing Leppävaara in the Helsinki metropolitan area. We're very excited about Leppävaara and enjoy a strong relationship with the City of Espoo and the metro. Foundation works at the site are progressing as planned, and the project will contain a significant residential component. This project will have many of the components that are contained in Iso Omena, and we are confident it will become the new heart of the fast-growing City of Espoo. We continue to focus on identifying and executing upon opportunities within our portfolio to create value through further densification of urban properties with select residential and commercial developments.
Citycon controls the key urban land sites which properties are located, we believe that our expansion projects of developing and owning high-quality mixed-use properties will both further enhance our properties and create live, work, play nodes in key urban locations where there's strong demographics and connections to public transit. To conclude, I'd like to reinforce our commitment to the priorities which we have discussed earlier this year. In the current retail environment, we must intensify our focus on maximizing the value of our assets. During the first half of the year, we implemented the new organization, with this clear organization, we're better able to focus on all parts of the business as well as find synergies from our pan-Nordic reach. With our strengthened team, we start looking at how we can best take advantage of the numerous densification opportunities that we have in our portfolio across the countries.
Strengthening the balance sheet remains a priority for us. During the second quarter, we disposed two shopping centers in Finland to repay debt. We are in several discussions regarding other potential divestments at the moment. We will continue to recycle capital going forward as we focus our reinvesting in the densification of our best assets. I'd like to also highlight the stability of our business model, where a clear majority of our leases are linked to indexation. We have a diversified tenant mix with a relatively low share of fashion tenants, which has helped us weather the headwinds the retail sector is facing. We remain focused on being good stewards of capital and to ensure that capital is used efficiently for those projects where it provides the best return. It is clear that we have a great number of embedded growth opportunities within this existing portfolio.
With that, I'd like to hand it back over to Mikko. Thank you.
Thank you, Scott and Eero. Finally, we would like to remind you that we will host our capital markets day in Stockholm in September. The day as such will consist of asset tours during the morning, followed by management presentations in the afternoon. The aim of the day is to give all institutional investors a strategic update from Citycon's new management. Presentations will be held by the CEO, CFO, COO, Henrica Ginström, and the new CDO, Erik Lennhammar. We're hoping to see as many of you as possible in Stockholm on Tuesday, September 3rd. If you have any further questions, please reach out to me if you have any. With that, we have now time for your questions, and we turn to the audio line for potential questions. Operator, please go ahead.
Thank you. If you do wish to ask a question, please press 01 on your telephone keypad now. Okay, we have a question from the line of Niko Levikari from ABN AMRO. Please go ahead, your line is now open.
Okay, good morning, gents. Just had a quick question about the Trio development in Lahti. You mentioned, obviously, that there's some additional plans to go ahead, or some ideas how you want to progress with the asset. Could you perhaps provide a bit more color on that at this stage?
Yeah. Hi, this is Scott. I think what we mentioned in the comments was that while the first portion of this deal with the city is to occupy 1,000 square meters, we are in conversations with them about expanding that offering. I don't want to be too specific because I don't want to put the city in a difficult position. I think that we enjoy a very good relationship with the city, and they are very aware of what we've been able to do at Iso Omena and how we've worked with the city of Espoo. We are doing other things with the project as well. We are revising our parking policy to provide free parking there. We also have an opportunity to do something with the center portion of the shopping center, and we are in negotiations on the ground floor to do something pretty significant there.
Again, I can't be very specific about it at this point, but it's very active at this point. We actually feel pretty good about this shopping center, and kind of we feel like we've turned a corner and have the opportunity to do something pretty significant here.
No, I understand. I've got a second question regarding the financing costs following the downgrades earlier this year. I was just wondering if there could be perhaps some indication of what could be the potential impact if you now go into the market and issue additional commercial paper to the financing cost.
Well, the commercial paper pricing has not moved. The commercial paper investors are not rating specific, at least not that much. Our existing bonds do not have any reference to the rating level. I mean that we did not have any penalties or anything like that. Our existing financing is exactly on same terms as it was before the downgrade, so no moves there. Of course, where it has an impact is on refinancing. Like mentioned, we don't have any refinancing needs before June 2020. Right now, actually, the low interest rates are compensating for any increases in the spread. I would not expect the downgradings to have a major negative impact on our cost of funds.
Okay. Thank you.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. There are currently no further questions registered, I'll hand the call back to the speakers. Please go ahead.
As there are no further questions, I would like to thank you, everyone, for participating, and thank you for the good question, Niko. If you happen to have any questions after the audio cast, please reach out to me or Eero, we'll be happy to help you. With that, we all wish you a very nice summer. Thank you