Good morning everyone. Welcome to Citycon's H1 2018 results audiocast. Today we've published our half year report for January to June 2018. The report, as well as the audiocast presentation used now, are both available on Citycon's new website under investors/financial reports. My name is Mikko Pohjola and I'm the Head of Investor Relations at Citycon. Today we have a slightly different setup. Here with me in Espoo, I have our Chief Financial Officer and Executive Vice President, Eero Sihvonen. While our Chief Executive Officer, Marcel Kokkeel, has dialed in remotely. As we have now half of the year behind us, Marcel will start with a brief strategic update, followed by an overview of the operational performance for the first half of the year. Eero will conclude by going through the financials of the first half. After the presentation, you will have a chance to ask questions.
Marcel, please go ahead.
Thank you, Mikko. Good morning everybody. Just before most of us here in the Nordics leave for holidays, we're pleased to present the 2018 first half year results for Citycon. For this presentation, I've chosen not to start immediately with the key numbers and results. Instead, I would like to sketch the strategic context of what we do and why we do things, in order to give you a better understanding of the results that we deliver today to the market. The first half year of 2018, we made progress in transforming Citycon into a more urban focused real estate company. With multifunctional, well-connected assets in growing catchment areas. We have a strong belief that in a changing retail environment, assets that are typically located in irreplaceable locations will always benefit on the long run.
That is why we will continue with our disposal program, why we actively develop our best assets to urban crosspoints with more than retail only. A similar slide we showed at the last capital markets day last year. In order to improve the quality of our portfolio, we recycle out of lower quality assets and we reinvest in higher quality assets through the redevelopment of our best centers in the portfolio. I will get back to that later. In 2011, we had 78 properties in a much smaller portfolio. Today we have 41 centers, we expect to land at 30 or even less in 2022. The average size of the assets will grow to EUR 160 million or even more. Today, the top seven assets already account for almost 50% of the total portfolio.
As a matter of fact, in the first half a year 2018, we have sold four non-core properties with a total value of EUR 80 million. When including the 2017 disposal results, we have sold over EUR 400 million during the last 18 months. For the years to come, we will continue, as I told you, to sell smaller, non-urban assets that we consider non-core. The plan is to be very concrete, to sell another, let's say, EUR 200 million to EUR 400 million. We want to own larger and high quality urban assets in a concentrated portfolio. Meaning capital cities and number 2 cities in each country. This will help the company to be more efficient in terms of less SG&A and less maintenance CapEx, and thus enhance total cash flow.
You can see this already in our numbers today, after substantial offload of EUR 400 million of value of assets. We show a 10% decrease in SG&A, and also our maintenance CapEx was at a lower level compared to last year, due to the fact that new modern centers do need less CapEx. One of the core strategies of Citycon is to create mixed-use community malls, with retail and services that drive people to centers on a daily basis. We have developed a so-called online resilience clock. For all the assets in our portfolio, this is a tool to measure online resilience. Today, we have 55% of our income already online resilient. By proactive leasing and redevelopments, we aim to increase this number with another 10% in the years to come. The perfect showcase of how we recycle capital is Iso Omena.
Because Iso Omena is incorporated in our pro forma like-for-like numbers as of Q2, I think it makes sense to show some key performance indicators of this center after the opening of the Metro. The impressive growth and especially the same store sales number of 11%+ is telling a strong story. Actually, I would like to share some other interesting operating numbers as well, as we conducted a consumer survey in Q2. Before the extension, the center had close to 9 million of visitors on an annual basis. Today, the estimate is that we will reach 19 million to 20 million visitors by the end of this year. 37% of those visitors, they visit the food and beverage area, the so-called meet area, meet, eat, entertain together. 16% of all those 20 million visitors do consume in that area.
The public service square with all kind of healthcare, community, municipality services, attract one and a half million visitors on an annual basis to the center. 96% of those visitors do shop or consume in the center, talking about interaction and efficient interaction. Based on the research, 62% of the visitors visit the shopping center more than or at least once a week. That proves that we serve daily convenience in the heart of communities. Iso Omena, for us, is a clear showcase of a mixed-use, multifunctional center that is Amazon-proof. The next slide, we will continue to recycle capital into our core urban assets as we do in Mölndal, in Gothenburg, in Lippulaiva, in Helsinki. Both are under development. Actually Mölndal Galleria is about to open by the end of September. Will be great center in the heart of a community.
70% groceries, 19% food and beverage. Some interesting and well-known brands. We expect to have a five to six million visitors. The total investment is about EUR 120 million. We will maintain an attractive pipeline of planned, but still uncommitted projects within our existing portfolio. All quality assets at great locations in capital cities or number 2 cities, but with a lot of potential for urban developments and not only retail. We expect to add Globen to add in the second half of the year to this list. In all these assets, we will incorporate non-retail elements like healthcare, education, kindergartens, elderly homes, you name it. All these assets have a lot of resi potential also. Transformation in our industry take time, but we believe that investors will be rewarded.
Now, having sketched the strategic context in which we operate, I would like to switch to the financial and operational highlights of the first half of year 2018. EPRA earnings, 8.1% or EUR 0.081. It's clear that the large disposal program in 2017, together with the EUR 80 million in H1, the first half of year 2018, does have an impact on our earnings. So does the Forex, by the way, as both NOK and SEK weakened. To be concrete, divestments decreased the NOI by EUR 9.2 million, and the Forex had a negative impact of EUR 2.9 million. We are pleased to show a significant decline in admin expenses, 10% down. The pro forma like-for-like NOI grew by 1.1%, and that is including Iso Omena and Buskerud in Norway.
Occupancy improved 30 basis points up to a solid level of 96.3%, mostly, by the way, driven by our Finnish assets. The pro forma in Iso Omena, I talked about already. Clear polarization between best and other assets, that is a general trend that we see in our industry everywhere. We also see this reflected in our valuation. The minus EUR 34 million over the first half of year, in terms of fair value changes, is due to pressure in Finnish and Norwegian secondary cities. Sweden overall shows, I would say as usual, a positive fair value change. We specified the guidance, we have taken the EUR 80 million divestment and the Forex development into account. Over the last couple of years, we have presented like-for-like NOI numbers without some of the strongest assets.
Q2 is the first quarter where we can show the impact of our Iso Omena development. If we include Iso Omena to our like-for-like on a pro forma basis, the NOI grew on a 1.1% basis. Again, the same we did for Buskerud. The next slide, talking about sales in footfall. The black column on the left-hand side indicates the overall growth in tenant sales. Very much impacted, of course, by Iso Omena. Even without the Iso Omena impact, we had a flat to a mild positive sales and footfall development. Estonia is a negative outlier, very much impacted by extreme competition and road constructions at Rakvere That is now already ongoing for more than nine months, and that is really hampering accessibility of the center. The next slide, about occupancy. Slight improvement can be seen in the bar chart.
Occupancy still at a good level, 96.3%, very much driven by Finland, as said. Slightly lower numbers in Norway, albeit also in Norway, still at a high level, close to 98% in that country. Overall leasing spread flat and a positive development in Sweden and Norway was compensated by some assets in Finland that really burdened the total picture and very much hindered by over-stored local markets. I am talking about the properties outside Helsinki. Next slide. Another center or flagship that will ride the storm is Kista. When we acquired Kista, we knew that there would be a need for repositioning and re-tenanting. We are in that phase right now. Also here the keyword is daily convenience combined with community. We are managing a quite complicated carousel of replacements, lot of replacements, in order to allocate larger supermarkets in the center.
The result will be less fashion, more growth in food and beverage, and more services. We signed with Lidl, another large supermarket transaction is in the making. If it comes to fashion, it should not be more of the same. We are happy and proud actually, to host new brands, new formats by H&M. It is called Afound, and the company presents this new format as an innovative off-price marketplace for online and offline, where a wide range of aspirational brands, and not only the H&M brands, but also quality labels, are being offered. H&M has selected Kista as one of the few centers in Sweden where they will open this new brand, and the opening will be, for your information, Q4. Going forward, further recycling capital, as said, SEK 200 million, SEK 400 million the coming years, most of them in Finland and Norway.
Of course, the proceeds we will use for the funding of the development pipeline and to reduce leverage. Proactive leasing in order to get and to keep the occupancy at a high level and to increase the urban community appeal with a goal to improve online resilience also. Loan-to-value targets still below 45%. We are not yet there. We know that, but we will get there. Having said that, I would like to hand over to Eero.
Okay. Thank you. I will go through the financial performance, i.e., the figures relating to 2018 first half. First of all, the second quarter. For the second quarter, the net rental income was SEK 54.3 million, compared to SEK 59.4 million one year ago, i.e., 8.5% lower. Here, divestments of the non-core, of course, they had an impact, and they have had an impact of SEK 5 million. Foreign exchange, the lower SEK and lower NOK had an impact of SEK 1 million. Those were the reasons behind net rental income of SEK 54 million, of course, helped by redevelopments coming online and acquisitions. I will go through in a while more in detail the impact of different components. Like Marcel mentioned, we have a tight cost control in place, and we were able to reduce SG&A costs by roughly 10% or approximately SEK 700,000 compared to Q2 in 2017.
Therefore, the operating profit came down slightly less as a percentage. In terms of EPRA earnings, EPRA earnings for the quarter were EUR 36.4. On top of the factors that I already explained before, also finance costs were slightly lower, i.e., EUR 300,000 lower compared to the previous year's Q2. As a result, EPRA EPS was 10% down, and EPRA EPS for the quarter was EUR 0.041, and NAV EUR 2.86. The first half. For the first half, net rental income came at EUR 107.6 and 7.2% below last year. Here, disposals had an impact of EUR 9.2 million. FX had an impact of EUR 2.9 million. Also here, the SG&A showed a reduction of about 10%, i.e., EUR 1.4 million compared to the first six months in previous year. Tight cost control and cost reduction continuing.
On a first six-month basis, finance costs were down by EUR 1.2 million, that also did have a slight positive impact on EPRA earnings, which were down 8.5% over previous year. Continuing on the net rental income. Here you have a bridge on page 23, the bridge indicates that compared to EUR 116 million a year ago, acquisitions, which actually consists only of Strædet in Denmark, impacted about EUR 2 million positively. Redevelopment projects added EUR 2 million. Here one needs to keep in mind that there was also a negative impact in redevelopment projects relating to Lippulaiva. This not all EUR 2.1 million is Iso Omena positive. There was also something offsetting. Disposals, of course, for the larger part relate to the large disposal of EUR 165 million on non-cores in Finland that was conducted in November 2017, i.e., very late in the last period.
The regular like-for-like was slightly negative, i.e., minus EUR 0.3 million, we already received some questions about how Iso Omena was taken into account in the pro forma like-for-like. The answer is that the Iso Omena has been taken into account for one quarter, i.e., Q2, due to the fact that in Q1 2017, the extension was not yet fully open. Also for Q2, we did not account for the metro station level because that was opened very late in 2017. Of course then there is nothing to compare with, therefore, Iso Omena is taken into account in a slightly reduced fashion and manner. Anyway, it shows that Iso Omena is contributing already in this calculation very positively and will continue to do so even more going forward. The currencies probably deserve a little explanation why currencies had an impact.
The reason was that particularly Swedish krona has been weak, both end of the periods and average period, approximately 6% lower than previous period and also 6% approximately lower than the previous average. Both end of period and average has been about 6% lower. Whereas in general, Norwegian krona has also been weak, but in a little bit different manner. It was at its weakest, so to say, at the end of last year, thereafter it has somewhat strengthened, but still the average for the period has been substantially weak, about 4% compared to the same period on average last year. So far for the first half, net rental income has been impacted by minus EUR 2.9 million relating to foreign exchange impact and EPS by EUR 0.003.
If you then multiply this by two, you see that roughly the currencies can have an impact of EUR 0.005 or EUR 0.006 on an annual basis. Turning over to the fair values and fair value changes. Fair value valuation produced a negative EUR 25.6 million for the quarter and minus EUR 33.5 million for the first six months, particularly in Finland, and relates for a larger part to a few properties which have continued to experience a difficult competition situation. Also in Norway, the majority of the EUR 10 million quarterly change relates to a few properties. As Marcel mentioned, the polarization has increased in general in real estate industry, and this is the effect of that. Q2, as you may remember, has been fully externally valued by CBRE. Basically Q2 and Q4 are always fully externally valued.
The average yield requirement itself has stayed approximately the same and was 5.3% at the end of the period. NAV was close to previous period's level. It was down actually EUR 0.03, and the components can be seen here. EPRA earnings, of course, were clearly positive as expected. The value SG&A items, on the other hand, had a negative impact of EUR 0.06, and dividends and equity returns that we always pay on a quarterly basis were approximately EUR 0.06. As a result of earnings indirect and disposals, basically the NAV was much lower. On the other hand, triple net NAV slightly improved, and it improved because the changes in interest rates have an impact on the fair value of our bonds. That has an impact on the triple net NAV. Loan-to-value, like Marcel said, continues to be slightly outside 40-45%.
We are still committed to 40-45% range and intend to bring the LTV back to that range by disposals going forward. Available liquidity continues to be at a very strong level, consisting mainly of unutilized committed credit facilities. We do hold a minimum amount of cash only. Average loan maturity continues to be a healthy 4.7 years, and we are not going to be one of the first companies being impacted by raising interest rates because we are essentially fixed. We have about 95% fixed debt in our portfolio following fixed-rate bonds and swaps. Finally, the outlook, which we specified, and here, as mentioned, we need to take into account that there is now a slightly elevated volatility in foreign exchange markets relating to our two important currencies, i.e., NOK and SEK, and therefore, the EPRA EPS guidance is EUR 15.5-EUR 17.
We have also disclosed that the guidance is impacted by about EUR 4 million on a yearly level, on an EPS EPRA earnings level by weaker currencies. Of course, we have updated the forecast also otherwise in general, slightly reduced the band, and now the EPRA EPS guidance is EUR 15.5-EUR 17, and earnings guidance is minus EUR 14 to minus EUR 1, also slightly reduced the band and operating profit to minus EUR 14 to minus EUR 1. This concludes my part. Back to you, Mikko.
Thank you, Eero and Marcel. Now we have time for your questions, so we turn to the audio line for any potential questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name's been announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. There'll be a brief pause now whilst we register any questions. Our first question comes from the line of Kirill Kutakov of Avaron Asset Management. Please go ahead. Your line is open.
Hey, guys. Thank you for presentation. I was hoping to get more flavor on the development of like-for-like in Estonia. We have now finished with the reconstruction of Kristiine Keskus and the road development next to Rocca al Mare has stopped. How's the situation looking there? We're seeing the revaluations of the assets in Estonia. What's the outlook?
Currently we are-
Eero, can I?
Currently, we are in refurbishing the Kristiine shopping center, and therefore we have taken it out of our like-for-like, by the way.
We're doing well in leasing, especially on the second level. We give this shopping center a new coat and a new atmosphere. When it will be back online, that will be in the second half of next year. We expect to be at a high level of occupancy, actually close to 100%. It will again contribute to our earnings. Rocca al Mare, the road constructions will be finished somewhere late summer. What the impact will be, I cannot anticipate on that, but it will definitely be a better picture than the loss in footfall that we have shown over the last year.
Okay. Do you see the increased competition from T1 soon appearing in Tallinn and Rocca al Mare being placed further away from the city center as a potential threat to the asset's competitiveness?
T1 will open its new shopping center for the members of the audience. It's a new shopping center to be open in Q3 this year, also in Tallinn. The impact on Rocca al Mare will be limited. The reason is simple. Rocca al Mare is located far from that location. For Kristiine, it might be a bit different because they're closely connected or closer to each other. Kristiine is better positioned. Therefore, we have started the upgrade and the refurbishment already earlier. I think we are well positioned. We have a high footfall of local customers, while T1 is a clear destination.
Okay, thank you very much.
Thank you once again. If there are any further questions on the line, please dial 01 on your telephone keypads now. As there are no further questions at this time, I'll hand back to our speakers for the closing comments.
Apologies.
We just had one further question come in through just as I said that.
There seems to be one more question on the line, so we turn back to the audio line.
Apologies. Sorry, that came through just as I was saying that. Our question comes from the line of Jonathan Kownator of Goldman Sachs. Please go ahead. Your line is open.
Hi. Good morning. Thank you for the presentation. I just wanted to come back to two questions, which are disposals and the money you need to invest in developments, and therefore the impact of the LTV shorter term. Can you comment perhaps on the strength of the disposal market, the type of buyers that you see out there and the type of prices that they're ready to pay? Also, if we look at your funding requirement over the next six months, I think you also need to fund the rest of Mölndal, for instance. I was just trying to anticipate how your LTV journey is going to evolve over the next six to 12 months. Thank you.
Eero, you? Me?
Yeah, maybe I can start from the LTV part. We have disclosed the cash flow in our quarterly release. There you can see that our requirement for CapEx on developments and others have come substantially down. It is like SEK 46 million on a per six-month basis. We have two ongoing projects, which are Mölndal in Sweden, in Gothenburg, will be completed in September. Thereafter, we will not need to send money there. Of course, we will buy out the 50% joint venture for SEK 60 million at that point of time, and we will continue Lippulaiva. For the time being, these are the only committed projects that we have online. I think that the overall CapEx spend will be closer to SEK 100 million on an annual basis when it has been closer to SEK 150 million on an annual basis so far.
A little bit less. I think that then you can calculate how much we need to dispose to be within 45% at the end of the year.
If I may add to that then, if we talk about the disposals, earlier, we talked about 5%-10% over the portfolio. Actually, that is the EUR 200 million-EUR 400 million that we talk about today. According to us, that should be closer to EUR 400 million than to EUR 200 million.
What's the progress regarding that? Do you see good momentum from purchaser? Do you have assets on the market? I'm sure you do, but do you see good traction with your disposal program, or is it going to take time to get the values that you want?
Well, listen, the last 18 months, we have sold EUR 400 million. That proves that there is a market. There is a clear distinction between the best and the rest, and the best we will not sell. It's not always easy to sell the bottom part of the portfolio. That's the reality of today. What you also see reflected in our valuation is that valuations of especially secondary assets came down. There is a market, as we have shown earlier, we will tap from that market. Local buyers, institutions, syndicate buyers, opportunistic buyers, we are flexible sellers, on an individual basis, which we've done the last, let's say, five months for smaller assets, but also smaller portfolios as we have shown last year in our Cerberus deal. Some are in process, we will get back to you.
Okay, fair enough. Can I perhaps suggest one more questions, [to], on a different topic? If you look at the increase in occupancy rate, you mentioned Finland in particular, is that due mostly to disposals of properties with lower occupancy rates, or do you see traction from retailers allowing to increase occupancy on the like-for-like basis? Perhaps that links actually to Iso Omena as well, coming back online after the metro part. Thank you.
Yeah. The answer is half of the increase is due to disposals, half is due to more leased space.
Okay. Thank you very much. Bye.
Thank you once again. If there are any final questions, please dial 01 on your telephone keypads now. Okay, that seems to be the final question. I'll hand back to our speakers for the closing comments.
Now there don't seem to be any further questions. Thank you, everyone, for participating. If you have any further questions after the audio cast, please be in touch with any one of us. We wish you all a great summer. Thank you