Good morning, everyone, and welcome to Citicom's Q1 twenty nineteen Results Audiocast. Earlier today, we published our interim report for the January 2019 period. All material is available on Citicorp's website under Investors. My name is Mick Pohela. I'm Citicorp's IR and Communications Director.
And with me here in Stockholm, I have our CEO, Scott Baum CFO and Executive Vice President, Eero Sigveonen as well as our Chief Operating Officer, Henrik Ginstrom. Scott will start the audio cast with a summary of the 2019 together with some operational figures of the quarter. These will be followed by Eros' review of the financial figures of the quarter. Scott will then conclude the presentation by giving some key focus areas for the rest of the year. After the audiocast, you will have a chance to ask questions from us.
Scott, please go ahead.
Thank you, Mico, and good morning, everyone. I'm pleased to present the Q1 twenty nineteen results. I will go through a short summary of January through March 2019 and the key highlights of the quarter. I will share a few words about our new organization, after which I will present the operational figures for the quarter. This will be followed by a more comprehensive financial overview by Arrow and I will conclude by saying a few remarks about our priorities going forward.
Some of the highlights of the first quarter include our EPRA EPS excluding the onetime costs related to the management change, amounted to $0.02 $07 while the reported EPRA EPS amounted to $0.02 $01 including the onetime costs related to organizational changes. Our administrative expenses, excluding the one off costs, declined significantly year on year. We had a solid operational start to the year. We are very pleased that the overall leasing spread was positive in all three of our largest markets, Sweden, Norway and Finland. Occupancy also remained strong at 95.9%.
Total tenant sales and footfall both showed growth. In mid April, our flagship asset, Isla Omana in Finland received recognition from the International Council of Shopping Centers. Eso Omena was awarded the best shop large shopping center extension project in Europe by ICSC, and I'll get back to this later in the presentation. During the quarter, a reverse split was carried out on our share at a ratio of five:one. And as a result, all our share based figures have changed accordingly.
Our guidance for 2019 remains unchanged. We already adjusted our guidance for EPRA EPS during the quarter in March to reflect the new number of shares due to the reverse split. We continue to guide the market towards an EPRA EPS of €0.775 to €0.8775 During Q1 twenty nineteen, we implemented our new organization structure. The aim of this restructure 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 and A efficiency.
Starting with the shopping center management organization, we made changes which increased accountability at the asset level by changing reporting lines. This will mean full P and L responsibility for our center managers and will incentivize our personnel to even further intensify their efforts to maximize the value of each asset. As it relates to the leasing function, we have separated leasing and specialty leasing into their own respective business units. We now have one Head of Leasing leading all countries, and the company will speak with one voice. At the same time, we have a new Head of Specialty Leasing with the aim of dramatically intensifying our efforts in the common area leasing and media sales.
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. In addition, the team has centralized purchasing to take advantage of our Pan Nordic reach. A few words about our Specialty Leasing business and why we believe there's so much potential. We welcome over 170,000,000 visitors to our assets. This provides a great opportunity to significantly increase our revenue from our common areas.
Specialty Leasing is currently a EUR6 million business, which represents less than 2.5% of our NRI. In The U. S. Mall business, this number is closer to 8%. Specialty Leasing encompasses media sales and specialty leasing.
Media sales include all advertising sales in our shopping centers, be it our own media sales or sales via a partner. Specialty Leasing or common area leasing would include kiosks and stands in the middle of our centers as well as parking lots. Over half of our specialty leasing sales come from Finland today, where there is still opportunity to improve these results dramatically. Further, with this centralized effort, we have the opportunity to translate this success to Sweden and Norway. And our large football numbers provide a great starting point for capitalizing on this traffic.
We have 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 the likes of Issa Omana and Miramani in Finland, Lilli Homen and Schiste Galleria in Sweden, Wasson and Hercules in Norway and Roka Omanari in Estonia make up approximately 50% of the value of our portfolio. These assets are not only the biggest but are located in the largest and fastest growing urban markets. This concentration of value demonstrates our focus on owning the best assets in great cities with a focus on transportation.
We will exploit these opportunities in each of these assets for further densification. As I mentioned last quarter, Issa Omana has been a success story for us and is a perfect example of where we will be in the future. This shopping center ticks all the boxes that we believe are important for a successful shopping center: urban location, population growth, public transportation, dominant size, and opportunities for densification. This flagship asset has a tremendous footfall of 20,000,000 visitors and the population of the city is projected to grow by 16% in 2,030. Eso Olmina, like most of our shopping centers, is located at a public transportation hub.
The new Western Metro opened in 2017 and is integrated into our asset, and the station is used by 30,000 people on a daily basis. Eso Omnia is also an excellent example of our strategy of offering more than retail only. The non retail income is almost 40% of the NRI and the asset has a wide range of grocery and services. Groceries alone account for 25% of the GLA. Issa Omana has been recognized externally for its vision of what successful shopping centers will look like in the future.
Last year, the center was awarded as the best shopping center in Finland and continues to be acknowledged in the industry. Just last week, ISA OMEN captured another award as it received recognition from the ICSC, which recognized it as the best large shopping center expansion project in Europe. We are very proud of this accomplishment, which is also an acknowledgment of our development capabilities. Issa Omen is the first shopping center in Finland to receive an ICSC award. The success of the center is also visible in the number of visitors and tenant sales in 2018, which both increased dramatically.
There's further opportunity to capitalize on this tremendous footfall as sales should follow this significant growth in traffic of plus 74%. Looking at our portfolio operating metrics, we saw gains in sales and football for the quarter. Our like for like net rental income was relatively stable and ahead of our internal plan. The total net rental income development grew by 0.6%. Arrow will present a more detailed bridge later.
Our core properties performance was about 1% better than our noncore, which makes up approximately 10% of the value of the company. Occupancy at our shopping centers remained strong at 95.9%. Average rents of lease started increased significantly from EUR 22.5 in 2018 to EUR 27.2 in 2019. As noted previously, we realized positive leasing spreads during the quarter in Sweden, Norway and Finland. I will now hand this over to Eero to go through the financial figures of Q1 in more detail.
Thank you, Scott. We like Scott mentioned, we had a solid quarter and the Q1 was a good beginning to the year 2019. We had one change in our reporting practices. And as the same as most probably most other publicly quoted companies in real estate, we started to comply with new IFRS 16 so called leases standard, and it may basically means that we will have to record and basically report all our leased properties and leased assets as if we did own them, and it has certain impacts on our numbers, and I will describe them in more detail as we go. Net rental income for the quarter, as mentioned, ended up at €53,600,000 which is 0.6% higher than one year ago.
Earnings were €35,800,000 and I will show in a while an exact bridge what caused these changes in earnings. EPRA NAV did grow, highlighting some of the positive things that happened during the quarter. And EPRA NAV per share at the end of Q1 was 12.98 compared to 12.95 at the end of last quarter. As mentioned, net rental income remained quite stable. IFRS 16, the new leases standard actually had a positive impact of approximately €1,800,000 The remaining part of other is due to the currencies.
And on the currencies, the on average weaker SEK and NOK, on the other hand, had a negative impact of 600,000. That means that the total impact of the so called other was positive €1,200,000 On the other hand, our disposals naturally reduced net rental income compared to last year due to the noncore disposals taking place during the year. And as a result of all of the changes, we had a fairly neutral, albeit slightly higher net rental income at 53,600,000.0 Then on the next page, we are showing the adjusted EPRA earnings, and we had EPRA earnings growth on an adjusted basis. And on a reported basis, it was slightly below previous year's level, but can be shown that on a comparable basis, we actually did have earnings growth during the quarter. And comparable adjusted earnings for the quarter were 36.7% compared to thirty six point one percent one year ago and 35.8%, which was the reported actual earnings for the quarter.
And the bridge consists of restructuring expenses. And restructuring expenses were €1,100,000 and relate mostly to the management changes and then the buildup costs of the new organization. IFRS 16 on earnings level had an impact of 1,400,000 And naturally, the disposals had an impact as well as did the currencies, and the impact of currencies was a negative €600,000 So adjusted EBITDA earnings grow among the positive messages for the quarter. Then turning over to fair value changes. During the quarter, we had €17,600,000 fair value losses before Chista.
And if we include 50% of Chista, then we had an €18,700,000 loss for the property values for the quarter. IFRS 16 has a negative impact. And IFRS 16 caused the leasing standard caused €1,500,000 loss. And apart from that, approximately half of the loss came from slightly higher yield requirement. Our yield requirements on average were higher by approximately two basis points.
And but when rounded, stayed at 5.3%. Mentioned already that EPRA NAV, net asset value increased, improved, and you can see the bridge here. And the main reason behind was translation reserve, I. E, positive currencies. But naturally everything starts from the April earnings that were approximately €0.20 for the quarter.
So positive earnings, positive currency translation due to the fact that despite the average currencies were weaker than last year, actually the end of quarter Norwegian krone exchange rate was higher than it was at the 2018. And consequently, we had a translation gain of approximately €14,000,000 that can be seen in our income statement, other comprehensive income. And as a result, NAV increased and was 12.98 We had no new financing transactions during the quarter. And therefore, the average maturity of the loan portfolio was one quarter less, and that was the main reason why the average maturity now is just a notch below five years at four point eight years, but still on a nice fairly long level. We continue to be predominantly fixed, I.
E, close to 92% of our debt portfolio is based on fixed rate of interest, meaning that we will certainly not be among the company's first hit if and when the interest rates start increasing. We have a very high unencumbered asset pool, and most of our financing is unsecured. Actually, 95.2% of our financing is unsecured, which is another clear strength. And we continue to have essentially all of our revolving credit facilities undrawn. And as a consequence, we have like more than €560,000,000 of liquidity buffer in our usage.
The cost of debt continues to be clearly substantially below last year's level. And the weighted average interest rate, including all margins and swaps, was 2.38%, which is approximately 40 basis points lower than Jan one year ago and mainly relates to the buyback of last year when we bought back like €300,000,000 of our most expensive 3.75% bond maturing in 2020. Loan to value stayed at the same level. So loan to value was flat compared to previous quarter at 48.7%. And we continue to have ample headroom under all of our financial covenants.
Then turning over to my final slide, I. E, outlook 2019. We continue to be nicely within our outlook ranges. And as per previous practice, we will most probably reduce the ranges in Q2, and we will continue with the same end of the year ranges, meaning that we did not change anything in the guidance apart from the technical change that now, of course, everything will be based on the new number of shares following the reversed split. And per EPS continues per EPS guidance continues to be exactly the same, 0.775 to 0.875, so exactly the same.
That was everything I had to say. Back to you, Scott.
Thanks, Eero. Before I share some thoughts on the company's focus for the rest of the year, wanted to provide a brief update on our development projects. We are in the process of developing Leap Alive in the Helsinki metropolitan area. This shopping center will have a new Westline metro station inside much like Issa Omana. Construction is ramping up as we have begun the foundation work.
We are very excited about the project and enjoy a strong relationship with the city of Espoo and the metro. This project will have many of the components that are contained in Issa Omana. We will also have the ability to build around 400 residential units on top of the shopping center, which, if we choose to do it, will enable us to create a whole new community in this thriving market. Our repositioning project in Shista Galleria is progressing as planned. In the vacant aliens department store box, we have cleared space for three large tenants.
Recently, we announced that ECA will open a new store in Shista Galleria. We are excited to offer clearly more necessity based services in the center as Lidl and ECA will both open this summer. This change will increase the share of groceries to 14% of the GLA. In addition, H and M's new concept, AFOUND, opened in January and it took a vacant space on the Second Level in the center. The refurbishment of the food court has also started and the area will be rebranded as M.
T. As we have in Issa Omana. This is much needed for this food court which serves six six thousand meals every day. The facelift of the common areas will also start during the summer to make the layout of the center more refreshed. This repositioning and renovation is the start of several new opportunities we have at this asset which already welcomes 18,000,000 visitors each year.
We also have a lot of potential in our development pipeline. We have four uncommitted development projects in various stages of planning and zoning within Sweden and Norway. Furthest advanced is Lilliehulman, which provides the densification opportunities we have discussed, including a significant residential component. All of these assets tick the boxes that we believe are important for a successful shopping center now and in the future: urban, population growth, public transportation, dominant size, and opportunities for densification. To conclude, I'd like to reinforce our commitment to the priorities which we discussed earlier in February.
In the current retail environment, we must intensify our focus on maximizing the value of our assets. During the first quarter, we took the first steps on this front and implemented a new organization. Our team is very excited about the broader leadership that has been created and the increased accountability. With this clearer organization, we are better able to focus on all parts of the business as well as finding synergies from our Pan Nordic reach. Strengthening the balance sheet remains a priority for us.
And at the moment, we have several discussions regarding potential disposals. We will continue to recycle capital going forward as we will focus on reinvesting in the densification of our best assets. We remain focused on being good stewards of capital and to ensure that capital is used efficiently for these projects where it provides the best return. It is abundantly clear that we have a great number of embedded growth opportunities with existing portfolio. Isa Ullmanis recognition from ICSC is a great acknowledgment of our development capabilities as well as our strategy of offering convenience based shopping and urban transportation hubs.
With that, I'd like to thank you and hand this back over to Miko.
Many thanks, Eero and Scott. Now we have time for your questions. Before we go to the audio line, we have received some questions online. So we can take those first. And we have three questions from Ari Aravina from Danske Bank and I'll take these one by one.
And the first question is considering targeted non core asset divestments, do you see potential to make larger transactions or do you rather expect smaller transactions?
I'm not sure I understand the
question. Do we? I guess whether there is potential to make portfolio transactions or would we prefer to make smaller transactions asset by asset? I think this is the question.
Well, if you're talking about disposals, I think the idea is that we have a group of assets that we are marketing, and we are focused on selling provided that pricing is appropriate. We are not a distressed seller. The assets that we have in our portfolio all are cash flow positive, so they help us. But that being said, we are continuing to focus on the fact that we want to really concentrate our efforts on our best biggest assets, and weire going to reinvest in those assets. As we sell some of our non core, that money will be used to reinvest in these assets and provide further densification.
We think thatis where thereis real upside in this portfolio. So I hope that answers the question.
The second question is probably more for Eero. So would you expect to see further cost savings in admin costs later this year as well?
Well, we are certainly working exploring all alternatives and all avenues for cost saving. So but it's very difficult at this stage to commit on particular levels and particular cost savings. But yes, this is the overall aim of the company to reach cost savings.
And the final question regards IFRS 16 impact and whether we should expect similar quarterly impact later in 2019 as we saw in the first quarter.
This is a very short answer, yes.
Good.
And then the next question comes from Christopher. And he asks, what is your view on the recent downgrade from Standard and Poor's? And what will you do in order to stay in the investment grade?
I think that we are very firmly in that new category of BBB minus, which we received in S and P, and that's further confirmed by the fact that we have like a neutral outlook. So I don't think that there is anything to be afraid of for the in the current situation. We I would rather be concerned how can we make sure that in the long term, we can upgrade the company. I think that this is rather the question. But mostly, it was like gearing related, so loan to value was the most important factor as it's a public document that they have circulated relating to this.
But so the management is not currently at all concerned about a further downgrade within by S and P because we are so firmly in that category.
Good. At this point, there are no further questions online, and hence, we would turn to the audio line should there be any questions.
Our first question comes from the line of Ansi Kibineni from SEB. Please go ahead.
Yes. Hello, guys, and thanks for taking my question. I have one question, and it's related to Sweden and Denmark. If we look at the like for like trend in those markets, we have seen about 5% growth in 2017. But then the trend has been all the time becoming closer to zero.
And in Q1, it was, as a matter of fact, negative. So could you please elaborate a little bit on the factors behind this change? And it's quite a step change. And do you expect this kind of development continue? Or how should we read on this?
Well, first of all, you should not read too much into one single first quarter numbers. So three months numbers are not like something that you should draw too many conclusions about. But it's true that in Sweden and Denmark, there has been a slight downwards trend, but I think that, that was expected by everybody because we have been showing like 7%, 8% in Sweden. And long term, of course, that is not sustainable. But the message is not that we would be negative as such.
And I think that this is not like a very representative number, this one single quarter.
Yes. Maybe I can just Q1. When it comes to the Q1, we had some positive one offs last year in Q1. So that is the main reason for the negative number in Sweden. So we expect during the year a bit stronger number.
So this is not very reflective of how we see the picture from an operational point of view.
Okay. And could you remind us how big was the, let's say, positive one off in Q1 twenty eighteen?
I don't think we comment on the one offs. So but we will then in the Q2, you will probably see the effect of this better because it's of course, it was in Q1. So in Q2, it kind of does not impact in the same way as in Q1 because It is
anything out of the ordinary to have one offs. So every quarter, you have one offs to the positive and negative. But here, they were particularly large. And so that was the describing factor.
Okay, great. Thank you.
And the next question comes from the line of Nikolovikori from ABN AMRO. Please go ahead.
Good morning, gents. Just a quick question regarding the Lipolite, the developer question. So could you provide any additional color on how the negotiations are going, to find or who will be the next, main developer for the site? Because I take it that Letho is not going to go ahead, going forward with this project as the main developer.
Yes, sure. No problem. Yes, I think we've been pretty public that Leto is not the contractor going forward. I can't speak specifically about who the contractors are that we are currently in conversation with. That being said, I can share with you that we fully anticipate to have this the general contractor selected by the June.
And, but in the interim, we are moving full speed ahead and are aggressively working on the foundation and are on track to deliver all of this, in a timely basis.
Okay. Thank you.
As there are no further questions, I'll hand back to the speakers.
Thank you very much. As there seem to be no further questions, I would like to thank everyone on the line for participating and thank you for the good questions. Should you have any questions after this audio cast, please feel free to contact me or Eero. Thank you very much and have a nice rest of the