Good morning, everyone. Welcome to Citicom's January 2018 results audiocast. Today, we've published our interim report for the January 2018 period. The report as well as the audiocast presentation are both available on Citicom's website under Investors. My name is Mick Bohelen and I am Citicom's IR and Communications Director.
With me here in Espoo have our CEO, Marcel Kopkeil and our CFO and Executive Vice President, Eero Sihvonen. Marcel and Eero will walk you through the main events in terms of operations and financials for the January period. After the presentation, you will have the chance to ask questions. Marcel, please go ahead.
Yes. Thank you, Mikko, and good morning, everybody. Happy to present the company results over the third quarter. So let's go to the summary year to date and specifically Q3. EPRA earnings per share, $0.01 $2.03, well on track with our guidance that we have set earlier in the year.
And the earnings have been impacted by the divestments that we did in 2017, $325,000,000 and early twenty eighteen, another €80,000,000 The currency worked against us. Both NOK and SEK weakened compared to last year, and that also had a negative impact of €4,200,000 compared to last year. A significant decline in admin expenses, 40% down. And the operational development, we call solid. If you look at the pro form a like for like, the NRI grew by 0.8%, and that is including Iser Omina in Biskorut, the smaller shopping center in Norway that we redeveloped.
Occupancy still at a high level of 96% and a clear improvement in Finland, mildly down in Sweden and Norway. And now there is a positive trend in the leasing spread overall, a mildly positive 0.2% today. Malndal, a new shopping center that we opened in the Getterburg area, happy with that new investment and we have good expectations. I have some slides to this. We successfully issued a EUR 300,000,000 bond.
We've been happy with the derisking of the €500,000,000 bond that is expiring in 2020. And at the same time, we reduced the average cost of debt. And then there is pressure on the non core property values. For the quarter, we had a EUR 23,000,000 value decline, And this is actually in line with a global trend that shows increased market yields for assets in secondary towns. And this is where it comes from.
In Norway, the declining values are due to widening yields, whereas the cash flow remains stable. In Finland, there's also pressure on the income in these secondary assets due to increased competition. Loan to value up, up to 48.2% due to the value decline and debt to cover the 50% acquisition of NCC's part in the shopping center of Moelndau. And then we specify the guidance towards EUR 15.75 and EUR 16.75 a share. Let's go to a new shopping center that we opened only three, four weeks ago by the September.
Nice shopping center, modern in the heart of a growing city. And we opened with a leasing percentage of 90%. And after the opening, we signed another three leases, counting for another 1,000 square meters. Good feedback from customers and also very successful first weeks for tenants. And the expectation is that this shopping center in Mundal will be will get direct real connection with the Goteborg Airport, so that will also improve the accessibility and the strength of the whole area.
And in the next slide, you see some numbers showing that we want to invest in growing cities and growing areas. Goteborg, fastly growing. And within Goteborg, Muen Dal is one of the fast growing areas with 6,000 new homes in the direct catchment of our center and with lots, lots of new offices. And one of the large office is occupied by SCA, that's a large international company that produces hygiene and forest products. And one of the famous brands is Libero.
It's a large office that they have actually next to our shopping center. With the completion of Meldal, full focus on Lipoliva, working on finalizing the concept, commercial concept construction. In the meantime, we almost finished the rock blasting in time, and we are about to start the foundation. The next slide tells you something about new competition. You read a lot and you hear a lot about new shopping centers in the Helsinki area.
And maybe this is not the place and time to talk about other people's investments, but I think it's fair to say that it's going to be busy in the Eastern Part Of Helsinki with two major new centers coming online and actually one opened only three weeks ago already. But to put it into perspective, the bulk of and what does it mean for Citicom, the bulk of our portfolio is on the other part of the city, so the Western Part Of Helsinki, especially Issa Ominar, our flagship, but also the newly Poliva are established in the Western Part of Helsinki called Espoo. And this Western part has a balanced competitive environment compared to the Eastern part and shows stronger population growth with much higher average income, almost 50% higher than the Eastern part. So this to put it in a perspective. Helsinki competition is growing, but it's mostly focusing on the Eastern part.
Opportunities for further developments. We have an attractive pipeline of that we have planned, but still uncommitted. All quality assets at prime locations and within our existing portfolio. And we can build on our urban mixed use philosophy. It's more than retail only.
After the completion of ESO, Ominna and Molndao recently, it's fair to assume that the expected CapEx will be approx €100,000,000 per annum for the coming years. And still working on a bonus, the resi potential. These urban developments have huge resi potential. And for all these developments, we are working on this and that has not been incorporated in our valuation so far. One of the examples is in Bergen is our shopping center Oaseen.
We are working on a mixed use shopping center with more resi, more offices. There will be a new trend line connection just in front of our center. Areas fastly growing and this is just one example of our development and extensions of existing shopping centers to make them even stronger and more urban. Same for Lillia Holmen, well known to most of you. We made nice progress last quarter with our developments and negotiation with municipality.
And the program is to increase by, let's say, 18,000 square meters and less than half of it will be retail, cinema, leisure. But there will also be culture, health care, library, offices, and we are having discussions with the hotel. So a new example, another example of a strong urban development that will further increase the strength of our center. Let's go to the operational performance. Pro form a like for like, as I said already on the first page, ended at 0.8%, including ISO, OMINA and BUSKERUT.
The like for like portfolio that's indicated with the pink bars represents 59% of the total portfolio, so in terms of fair value. So Finland, and that's so excluding Issoomina, would show up 38% or would represent 38%, which is not representative for the strength of the portfolio. The non core assets are overrepresented in the like for like portfolio. 96% of the non core assets are in the like for like, whilst the core assets are in for 55%. And the reason is simple as we have been developing those assets, those core assets to further improve the quality and the cash flows.
The pro form a like for like on this slide, you can see that how the assets in the core like for like are outperforming the assets in the non core. Especially in Finland, but also in Norway, there's a big performance gap between the core and the non core. Look at Finland, 2.6 in the core and minus 4.9%, close to 5% in the non core. Going forward, as we execute on our divestment strategy of selling noncore assets, we will see improvements of our like for like numbers as the core becomes a bigger piece of the like for like pool and the redevelopments will be added. And this is the transition that we have been managing over the last couple of years and that we will continue.
Overall sales and footfall, 4% up, the sales and the footfall plus 7%. And if you look at the like for like, and that is again excluding ISOOmnina, we end up with a flat footfall development on a company basis and 1% up for if we talk about the tenant sales. The occupancy, the next slide, remained at a good level, hovering around 96%. Leasing spread in Finland and Estonia is very much impacted, I repeat that, by some noncore properties hindered by overstored local markets. So this is where why the leasing spread in Finland still shows a negative.
Eero, time to hand over, and then I will get back to you with some final slides.
Thank you, Marcel. I will go through the Q3 financials starting from Page 17. And first of all, I would like to mention that during the quarter, we did combine two previous clusters, so to say, regions. So now Estonia and Finland are reported as one segment compared to the previously having Estonia as a separate segment. And the reasons are obvious.
Estonia was quite small as an independent segment following the split of the former Baltics and Denmark earlier, and we earlier already combined Denmark with Sweden. For your convenience, this quarterly report still includes certain figures for the former Estonia segment as well. But going forward, we will report Estonia Finland and Estonia as one cluster. Q3 quarterly financials on Page 17 show net rental income, which is 8.6% below last year. And this is obviously and naturally due mainly due to the fact that we sold a quite substantial noncore portfolio late last year, I.
E, in November, we sold a substantial approximately €165,000,000 worth of portfolio. And that is the main reason for the slightly lower net rental income, which I will come more in detail back to in a while. We did have clear savings in SG and A. In on a quarterly level, actually 22% lower than last year, which contributed to the fact that direct operating profit reduced less than net rental income. So direct operating profit was down by 7.5%, whilst earnings were 36.8% for the quarter, which is 6.4% below last year.
And here, we did achieve savings not only in admin costs, but also in finance costs, which were 7.4% below last year. Then moving on to first nine months monthly figures. And here you can see that net rental income is 7.7% below last year, Also, again, mainly due to the disposals of non costs that again took place quite late in the year helped improve by redevelopments coming online acquisitions coming online, slightly penalized by negative FX as we as I will mention in a while in more detail. Also for the first nine months, our cost saving exercise performed exercises did perform quite well. And SG and A costs on a first nine months basis are down 14% or €3,000,000 compared to last year, I.
E, the savings there are quite substantial. Also, we did achieve 5.6% lower finance cost and those factors led to a prior earnings being 7.8% below last year. I promised to have a more exact net rental income bridge, and here it comes. So basically, acquisitions, in particular, the Stredet acquisition in Denmark increased net rental income by €3,000,000 3,100,000.0 Redevelopment projects as a net impact had a €3,100,000 impact and disposals, a negative impact of €14,400,000 And this was something that we have been we knew that is going to happen. As like mentioned, the major disposals happened late in last year.
Then we have had a negative impact of €400,000 coming mainly from the currencies. And whilst Norwegian kroner has improved or increased since year end, it's actually now at the September was 3.8% higher, stronger than year end. Still, the average Norwegian exchange rate compared to last year is clearly below, I. E, approximately 3.7% below the average last year, whilst Swedish krona has been even weaker. So basically, average is about 6.7% lower.
And compared to end of last year, the balance sheet exchange rate the spot exchange rate was €4,700,000 below. So the impact on net rental income from currencies has been €4,200,000 lower. And on EPS, it's close to 0.5% impact on EPS. So we are talking about a quite sizable FX impact. Going forward, and next item being the fair value changes, we had a negative 20,700,000 investment properties negative valuation coming mainly from Finland, Estonia, 14,600,000.0.
Also in Norway, euros 6,700,000.0 negative. And this mainly reflects the slight revaluation downwards of our certain noncore properties in Finland and in Norway, whilst Sweden and Denmark were flat for the quarter. And the average yield requirement remains the same as previous quarter without CHISTA 5.4% and with CHISTA 5.3%. There are slight widenings in non core centers, but the overall widening was so small that it's still within the previous quarter's average level. Net asset value is close to previous quarter's level and not far from year end, actually €05 below last end of last year.
We have, of course, had the positive earnings, which has been compensated negatively by the indirect result, I. E, mainly fair value losses. And also during this quarter, we had the negative bond buyback cost, approximately €20,000,000 which has an impact and others. But as an overall result, 2.66 single NAV. And actually, the triple net NAV increased contrary to the single NAV.
And the main reason here is the secondary market value of our bonds And following the general widening on bond markets of bond spreads and interest rate increases, the impact of the bond prices was €0.10 for the full year for the first nine months on the triple net 10 AB. Then something we are particularly proud of, and that's being the successful refinancing that took place in during the quarter, during third quarter. As Marcel mentioned, we were successful in derisking the €500,000,000 bond, the benchmark bond that we have maturing in 2020, our nearest upcoming maturity. And we used to have like €500,000,000 We were successful in issuing a long eight year bond back in August at point 375% coupon. And we used more or less exactly all of the proceeds to buy back twenty twenty bonds.
And we did that at a price of €106.96 approximately, and that resulted in the tender expenses of €20,800,000 I. E, $281,000,000 plus €21,000,000 corresponds to €300,000,000 And as a result, of course, we booked this one off cost in our Q3 financial items. But going forward, this substantially and greatly reduces our average cost of debt by 42 basis points to be exact, everything that we did in Q3. And as a result, our average cost of debt is now 2.36 percent, meaning that we will be saving more than €8,000,000 on an annual basis in interest cost, meaning like close to €01 in earnings, which is quite substantial. But probably even more important is that we don't have any short term upcoming maturities.
And the next maturity is now only, I would say, €219,000,000 in 2020. And the same KPIs can be found in the financing key figures tables. The average cost of debt, we used to have 2.78 at the end of last year. Now it's 2.36, I. E, substantial reduction in cost of debt.
Also, the average loan maturity has been extended to five point two years. We are more than 90% fixed. So we are not among the real estate companies that will be first hit by the future potential raising raises in interest rates. So we are very conservative in that regard. Relating to the loan to value during the quarter, we bought the remaining 50% stake of Meldal Galleria for approximately €60,000,000 and that was the main reason behind the slightly higher loan to value, I.
E, 48.2%. We still commit remain committed to bringing it down. And you may notice that we did transfer close to €100,000,000 of properties under properties held for sale during the quarter, and we expect and hope to transact these and some of the transactions still during the year, bringing down the leverage. Then the last point from financial presentation is the outlook. And we basically narrowed the guidance within existing ranges.
So we are now guiding the markets that our EPS is expected to be €15.75 to €16.75 I. E, euros $0.01 range, and we feel that it's fit to narrow the range now to €01 And calculating backwards then to EPRA earnings, that will result also narrower similar guidance in that respect. And if you make the calculations, you will see that we have now produced €109,000,000 earnings and we are guiding that the last quarter earnings would be somewhere between 31,000,000 and €40,000,000 And in terms of EPS, something like €3.45 to €4.45 So very realistic guidance. This is all from me. So back to you, Marcel.
Yes. Thank you, Eero. To put all this in a strategic context, ladies and gentlemen, how to go forward? Well, our management targets and priorities remains to be focused on two elements: improved portfolio quality and improve the balance sheet. And it goes without saying that active development of our core assets remain to be a key component as recycling of capital is.
We are in several disposals negotiations at the moment, and we would expect to close some transactions before year end. So if we talk about the portfolio improvement, we want to create mixed use community malls with retail and services that drive people to the centers on a daily basis. And the word is convenience, daily convenience. And we do that by proactive leasing and redevelopment of our best centers, only our best centers in capital cities or number two cities. Today, the share of the non retail part is 29%, And we want to improve and increase this number just to make our cash flow more diverse and online resilient and reflecting the urban nature of our properties.
So if you look at Issa Ominar, which is a showcase of what we want to achieve with all kind of municipality services, health care, blood banks, x-ray services, entertainment, what have you, we have 37% of the income derived from non retail. This is where we want to be in the future. So that's talking about portfolio improvement. If we talk about balance sheet improvement, yes, capital recycling in 2017, I repeat, $320,000,000, early this year, 80,000,000 and more to come. So 200,000,000 to €400,000,000 in the next few years, that is what we have stated before.
But again, we expect some transaction to be closed in before year end in the coming months. So we are still on a journey to improve the quality of the portfolio and the company. And I know it takes time, complete investments and returns that might kick in later. However, we are convinced that the route that we have chosen is the right one. We want to own larger and high quality urban assets in a concentrated portfolio, meaning capital cities, number two cities in the countries we operate in.
And this focus will enhance the quality of the company, will lower SG and A and maintenance CapEx and hence it will enhance future cash flows. And with this, I would like to hand over to the operator.
Thank you, Jean Marciell, for the presentation. Now we have time for your questions, and we turn to the operator an audio line for questions.
And the first question is from Ari Arvinden from Danske Bank.
It's Ari from Danske. A few questions. First, starting with the CapEx. You mentioned about €100,000,000 on annual basis. Is this then assuming that the Liquoliva works will start like next year?
Yes. It's including Liquoliva. Again, today, we have Liquoliva as the only larger development ongoing. And we are working on it already, and we will continue to do that. So the 100,000,000 for the coming years is including Lipoliva.
Okay. And then on the admin costs, they are declining quite rapidly. Do you see room for further cuts? Or how do you see that playing out?
We are now at a very good level internationally. I mean that the development has been quite positive. So I don't think it's proper to promise much more. But I think that going forward, of course, if we would dispose properties, we would make sure that also the admin cost would reduce in the same pace.
Okay. And then on the rent levels in Finland, like there's a big increase in supply in Helsinki region, one big mall opened, the next one next year Tripla. So you are basically saying that on the Western part, like Isommen, there are no signs of pressures on rental negotiations given that those increases are other part of the city?
Yes. This is exactly why we want to include that slide. And so the answer is yes. I confirm that the Western part is not impacted as we have seen it so far, and we don't expect that this part will be impacted. And by the way, there's a very fast growth, high growth in new residential being built in the area.
Yes, that can be seen. Then finally, a little bit smaller one, but what is the status of Koski Kescu in Tampere? The Ratina is now open and it's right beside your mall. Have you experienced some changes in tenants or downside pressures on the rents there?
Well, it would be almost arrogant to say that we would be immune for a new 55,000 square meters of mall next to us. So that's not true. So there is an impact. Of course, there is an impact. If you look at the footfall, by the way, the footfall decline is marginal, only a couple of percentages.
So from that point of view, we don't see the impact. We feel that we have the strongest location. Koski is certainly part of the city center, the very heart of the city center of Tampara. Tampara is growing. Infrastructure around the Koski Kescruz has improved and will further improve.
But there is an impact, of course. If there is 55,000 square meters next to you, there is an impact.
Okay. And finally then on the Kaski Kaskus, do you see any need for remodeling or refurbishing? You've done some work there, but do you expect to continue as it is now?
Well, I think that's what we do for a living. I mean you need to position yourselves and with a face to the customer and taking into account competition. So Koski Kaskus is well positioned, has an historical place in the very heart of the city. City is growing, and we are going to focus more on the word urban and make it even more urban with more food and beverage and daily convenience.
Okay. Thank you. That's all from me.
Any further questions, please press 0 and 1 on your telephone keypad now. And the next question is from the line of Nicolas Dekary from ABN AMRO. Please go ahead. Your line is open.
Thank you very much. Good morning, guys, and thank you for the presentation. My question is regarding the transaction market in Finland and more relating to the noncore assets because I noticed that, obviously, you mentioned in the presentation that you have disposal negotiations ongoing. But any update there given that It went out this morning in the case of a rolled huddle. So just how are you doing with the rest of your disposals in the Finnish market?
Thank you.
Yes, we are multitasking. So whilst being in this presentation, I also saw the news that It is was sold. And it shows that there is trade even for those large animals in quite competitive environment on the Eastern part. We are focusing on the more non urban assets. And as we have shown last year, there is a market.
It's not easy, but we have proven that we are able to sell sizable numbers, portfolios or assets at book or even slightly above. That's the history and we will continue doing that. I cannot commit to any kind of specific timeline. That would
be
unwise. So I repeat what I stated in the presentation. We are in serious processes, and we expect to finalize some deals successfully before year end.
Thank you.
And there are currently no further questions registered. So I'll hand the call back to the speaker. Please go ahead.
As there are no further questions, I would like to thank everyone for participating and thank you for the good questions. And should you have any questions after the order cast, please be in touch with me or Eero. Thank you very much.