Good morning, everyone, and welcome to Citicar's H1 twenty eighteen Results AudioCast. Today, we've published our half year report for January, June 2018. The report as well as the audio cast presentation used now are both available on new website under investorsfinancial reports. My name is Mick Pomela, and I'm the Head of Investor Relations at Citicom. Today, we have a slightly different setup.
And here with me, Nesbo, I have our CFO and executive vice president here at Seaver, and while our CEO, Marcel Kochel, 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. Eir will then 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.
Yeah. Thank you, Nico. Good morning, everybody. Just before most of us here in The Nordics leave for holidays, we are pleased to present the February results for Citicom. And 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. And, the first half year of 02/2018, we made progress in transforming Citicom 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. And that is why we will continue with our disposal program and why we actively develop our best assets to urban cross point 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 and I will get back to that later. In 2011, we had 78 properties in a much smaller portfolio. And today, we have 41 centers that we expect to land at 30 or even less in 02/2022. And the average size of the assets will grow to a 160,000,000 or even more. Today, the top seven assets already account for almost 50% of the total portfolio.
As a matter of fact, the 2018, we have sold four local properties with a total value of €80,000,000. And when including the 2017 disposal results, we have sold over €7,000,000 during the last eighteen months. And for the years to come, we will continue, as I told you, to sell smaller non urban assets that we consider non core and the plan is to be very concrete to sell another, let's say, 2 to 400,000,000 of euro. We want to own larger and high quality urban assets in a concentrated portfolio, meaning capital cities and number two cities in each country. And this will help the company to be more efficient in terms of less SG and 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 400,000,000 of value of assets. We show a 10% decrease in SG and A and also our maintenance CapEx was at a lower level compared to last year due to the fact that new modern sensors do need less CapEx. One of the core strategies of Silicon is to create mixed use community malls with retail and services that drive people to centers on a daily basis. So we have developed the so called online resilience clock. For all the assets in our portfolio, this is a tool to measure online resilience.
And today, we have 55% of our income already online resilient and by proactive leasing and redevelopments, we aim to increase this number with another 10% in the years to come. Perfect showcase of how we recycle capital is ISOOMINA. And because ISOOMINA is incorporated in our pro form a like for like numbers in as of q two, 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% plus is telling a strong story. And actually, I would like to share some other interesting numbers, operating numbers as well as we, conducted a consumer survey in q two.
Before the extension, the center had close to 9,000,000 of visitors on an annual basis. And today, the estimates is that we will reach 19 to 20,000,000 visitors by the end of this year. And 37% of those visitors, they visit the food and beverage area, the so called meat area, meat, eat, entertain together. And 60% of all those 20,000,000 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.
And 96% of those visitors do shop or consume in the center, talking about interaction and efficient interaction. And based on the research, 62% of the visitors visit the shopping center more than or at least once a week. And that proves that we have that we serve daily convenience in the heart of communities. It's all in a for us, it's 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 Noondale, in Goteborg, and Lipolaivia in Helsinki.
Both are under development. And actually, Mondal, Galleria is about to open by the September. It will be great center in the heart of the community, 70% groceries, 90% food and beverage, some interesting, and well known brands, and we expect to have a 5,000,000 to 6,000,000 visitors. The total investment is about €120,000,000 We will maintain an attractive pipeline of plant, but still uncommitted projects within our existing portfolio. All quality assets and great locations in capital cities are number two cities, but with a lot of potential for urban developments and not only retail.
And we expect that Globant to add in the second half of the year to this list. In all these assets, we will incorporate nonretail elements like health care, education, kindergartens, elderly homes, you name it. And 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 the year 2018.
EPRA earnings 8.1% or $0.81 And it's clear that the large disposal program in 2017 together with the €80,000,000 in h one, the first half year 2018 does have an impact on our earnings and so does the Forex by the way as both NOK and SEC weakened. To be concrete, divestment decreased the NRI by 9,200,000 and the ForEx had an impact of negative impact of 2,900,000. We are pleased to show a significant decline in admin expenses, 10% down. The pro form a like for like in the right grew by 1.1 and that is including Soomina and Biskudits in Norway. And occupancy improved 30 bps up to a solid level of 96.3%, mostly, by the way, driven by our Fins assets.
The performance in these are all in our I talked about already. Clear polarization between best and other assets and that is a general trend that we see in our industry everywhere, but we also see this reflected in our valuation. So the minus 34,000,000 over the first half a year in terms of fair value changes, is due to pressure in Finnish and Norwegian secondary cities. And Sweden overall showed, I would say as usual, a positive fair value change. We specify the guidance and we have taken the $80,000,000 divestment and the Forex development into account.
Over the last couple of years, we have presented like for like and line numbers without some of the strongest assets. And q two is the first quarter where we can show the impact of our EsoOmena development. So if we include EsoOmena to our like for like on a pro form a basis, the NRI grew on a 1.1 basis. And again, the same we did for this group. The next slide talking about sales and footfall, the black column on the left hand side indicates the overall growth in tenant sales, very much impacted, of course, by Isomina.
But even without Isomina, the impact of the Isomina impact, we have a flat to a mild positive sales and fruitful development. Estonia is a negative outlier, very much impacted by extreme competition and growth constructions at Rocamara 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 improvements can be seen in the bar chart. Occupancy is still at a good level, 96.3%, very much driven by Finland as such. Slightly lower numbers in Norway, albeit also in Norway still at a high level, close to 98 in that country.
Overall, spreads flat 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 overstored local markets. And I'm talking about the cities outside or the the properties outside Helsinki. Next slide, another center or flagship that will ride the storm is Shista. When we acquired Shista, we knew that there was a need or would be a need for repositioning and retenanting. So we are in that phase right now.
And, also, here the keyword is daily convenience combined with community. So we are managing a quite complicated carousel of replacements, a lot of replacements in order to allocate larger supermarkets in the center. And the result will be less fashion, more growth in food and beverage, and more services. We signed the Lidl, and another large supermarket section is in the making. When it comes to fashion, it should not be more of the same.
We are happy and proud actually to host a new brand, a new format by H and M. It's called The Found. 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 and M brands, but also quality labels are being offered. And H and M has selected CheeseSpa as one of the few centers in Sweden where they will open this new brand and the opening will be for your information in q four. Going forward, further recycling capital as said, $104,100,000,000 the coming years, most of them in Finland and Norway.
And of course, the proceeds we will use for the funding of the development pipeline and to reduce leverage. Proactive leasing in order to to get and to keep the occupancy at a high level and to increase the urban community appeal with the goal to improve online resilience also. And low to revenue targets still below 45%. We are not yet there. We know that, but we will get there.
And having said that, I would like to hand over to Edo.
Okay. Thank you. I will go through the financial performance, I. E, the figures relating to twenty first half. First of all, the quarter the second quarter and for second quarter, the net rental income was €54,300,000 compared to €59,400,000 one year ago, I.
E, 8.5% lower. And here divestments of the non course, of course, they had an impact they had an impact of €5,000,000 And foreign exchange, the lower SEK and lower NOK had an impact of €1,000,000 And those were the reasons behind net rental income of €54,000,000 of course, helped by redevelopments coming online and acquisitions. I will go through in a while more in detail the impact of different components. We also, like Marcel mentioned, we have a tight cost control in place and we were able to reduce SG and A costs by roughly 10% or approximately $700,000 compared to Q2 in 2017. And therefore, the operating profit came down slightly less as a percentage.
In terms of April earnings, April earnings for the quarter were 36.4%. And on top of the factors that I already explained before, also finance costs were slightly lower, I. E, dollars 300,000 lower compared to the previous year's Q2. And as a result, 10% down and EPS for the quarter was $0.41 and NAV $2.86 Then the first half and for the first half, net rental income entered came at 107.67.2% below last year. And here, disposals had an impact of €9,200,000 and FX had an impact of €2,900,000 And also here, the SG and A showed a reduction of about 10%, I.
Euros 1,400,000.0 compared to the first six months in previous year. So tight cost control and cost reduction continuing. On a six month basis, finance costs were down by 1,200,000.0. So that also did have an impact, a slight positive impact on net product earnings, which were down 8.5% over previous year. Then continuing on the net rental income.
And here, you have a bridge on Page 23. And the bridge indicates that compared to €116,000,000 a year ago, acquisitions, which actually is only of first credit in Denmark, impacted about EUR 2,000,000 positively. Redevelopment project added EUR 2,000,000. And here, one needs to keep in mind that there was also a negative impact in redevelopment projects relating to repo, Iva. So this is not all 2.1 is the is on a positive.
There was also something offsetting. And disposals, of course, for the larger part relate to the large disposal of EUR 165,000,000 on course in Finland that was conducted in November 2017, I. E, very late in the last period. Like for like the regular like for like was slightly negative, I. E, minus 300,000 And we already received some questions about how Isau Menna was taken into account in the pro form a like for like.
And the answer is that this alumina has been taken into account for one quarter, I. E, Q2 due to the fact that in Q1 twenty seventeen, the extension was not yet fully opened. And also for Q2, we did not account for the metro station level because that was opened very late in 2017. And of course, then there is nothing to compare with. And therefore, Issue Omana is taken into account in a slightly reduced fashion and manner.
But anyway, it shows that Isom and I 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. And 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. So both end of period and average has been about 6% lower. Whereas in general, Norwegian kroner 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. And thereafter, it has somewhat strengthened, but still the average for the period has been substantially weaker, about 4% compared to the same period on average last year. And so far for the first half, net rental income has been impacted by minus €2,900,000 relating to foreign exchange and EPS by €0.03 And if you then multiply this by two, you see that roughly the currencies can have an impact of $5 or $0.6 on an annual basis. Then turning over to the fair values and fair value changes. So fair value valuation produced a negative €25,600,000 for the quarter and minus €33,500,000 for the first six months.
And particularly in Finland and relates for a larger part to a few properties, has have continued to experience a difficult competition situation. Also in Norway, the majority of the 10,000,000 quarterly change relates to a few properties. And as Marcel mentioned, the polarization has increased in general in real estate industry, and this is the effect of that. And Q2, as you may remember, has been fully externally valued by CBRE. So basically, Q2s and Q4s are always fully externally valued.
The average yield requirement itself has stayed approximately the same and was 5.3 at the end of the year at the end of the period. NAV was close to previous period's level. It was down actually $03 and the components can be seen here. April earnings, of course, were clearly positive as expected. The valuation items, on the other hand, had a negative impact of €06 and dividends and equity returns that we always pay on a quarterly basis were approximately €06 And as a result of earnings indirect and disposals, basically the NAV was a notch lower.
On the other hand, triple net NAV slightly improved and it improved because the changes in interest rates have had an impact on the fair value of our bonds and that has an impact on the triple net NAV. Loan to value, like Maarten said, continues to be slightly outside 40%, 45%. And we are still committed to 4540% to 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 four point seven years. And we are not going to be one of the first companies being impacted by raising interest rates because we are essentially fixed. And we have about 95% fixed debt in our power portfolio following fixed rate bonds and swaps. Then 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, Norwegian and Swedish crowns.
And therefore, the guidance EPS guidance is €0.15 to $0.01 7 And on we have also disclosed that the guidance is impacted by about EUR 4,000,000 on a yearly level on an EPS earnings level by weaker currencies. And of course, we have updated the forecast also otherwise in general, slightly reduced the band. And now the EPS guidance is 15.5% to 17%, and earnings guidance is minus 14 to minus 1%, also slightly reduced the band and operating profit to minus 14 to minus 1%. This concludes my part. Back to
you, Riko. Thank you, Eero and Marcel. Now we have time for your questions, so we turn to the audio line for any potential questions.
Thank Once your name has been announced, you can ask your question. If you find it answered before it's your turn to speak, you can dial 02 to cancel. So once again, that's 01 to ask a question or 02 if you need to cancel. And our first question comes from the line of Kirill Gutskov of Averon Asset Management. Please go ahead.
Your line is open.
Hey, guys. Thank you for presentation. So I was hoping to get more flavor on the development of like for like in Estonia. So we have now finished with the reconstruction of Christina Kaspris and the road development next to Rocket Minor has stopped. So how's the situation looking there?
We're seeing the revaluations of the of the assets in Estonia. What's the outlook?
Currently, we are we are Pero, can I
currently, we are in refurbishing, the, the Christina, 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 the shopping center a new coat and 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 a 100%.
And, it will again contribute to to our earnings. Rocco Mara, the road constructions will be finished somewhere, late summer. And, 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 t one soon appearing in Talon and Falcon matter being placed further away from the city center as a potential threat to this to to the asset's competitiveness.
Q1 will open its new shopping center for the for the knowledge of the audience. Its new shopping center to be open in Q3 this year, also in Tallinn. The impact on Roc Almada will be limited and the reason is simple. Roc Almada is located far from that location. For Christina, it might be a a bit different, because they're closely connected or closer, to each other.
However, Christina is better positioned, and and therefore we have started the upgrade and the refurbishments already earlier. So I think we are well positioned. We have a high footfall, of local customers whilst t one 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 keypad now. As there are no further questions at this time, I'll hand back to our speakers for the closing comments. Obviously, we just had one further question coming through just There as I said
seems to be one more question on the line. So we turn back to the audio line.
Apologies. Sorry, that came through just so saying that. Our question comes from the line of Jonathan Kaneita 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 money you need to invest in developments and therefore the impact of the LTV shorter term. So 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? And also, if we look at your funding requirement over the next six months, I think you also need to fund the rest of Sundal's, for instance.
So I was just trying to anticipate how your LTV is going to evolve over the next six to twelve months.
Yes. Maybe I can start from the LTV part. And we have disclosed the cash flow in our quarterly release. And there you can see that our requirement for CapEx on developments and others have come substantially down. It is like €46,000,000 on a one off per six year basis.
And we have two ongoing projects, which are Melda in Sweden will be completed 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 €60,000,000 at that point of time, and we will continue a little, Iva. But for the time being, then these are the only committed projects that we have online. So I think that the overall CapEx spend will be closer to €100,000,000 on an annual basis when it has been closer to €150,000,000 on an annual basis so far, so a little bit less.
So 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% to 10% over the portfolio. Actually, that is the EUR $204,100,000,000 that we talk about today. And according to us, this should be closer to EUR 400,000,000 than to EUR 200,000,000.
And so what's the progress regarding that? I mean, you see good momentum from you know, purchase the other,
you know, assets on the market?
I'm sure you do. But but do you see good, you know, good traction with your disposal program or is it, you know, is it going to take time to get the values that you want?
Well, listen. The last eighteen months, we have sold €400,000,000. So that proves that there is a market. There is a clear distinction between the best and the rest, and the best will not sell. So it's not always easy to sell, the bottom part of the portfolio.
I mean, that's that's the reality of today. And what you also see reflected in our valuation is that valuations of especially secondary assets came down. There is a market. There is a market as we have shown earlier, and we will tap from that market. Local buyers, institutions, syndicate buyers, opportunistic buyers, and we are flexible sellers.
So on an individual basis, which would then the last, let's say, five months or so of smaller assets, but also smaller portfolios as we have shown last year in our servers deal. Some are in process and and we will get back to you.
Okay. Fair enough.
Can I ask perhaps just one more
questions to on a on
a different topic?
If you look at the increase in occupancy rate and you mentioned Finland in particular, is that due to 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? Or perhaps that seems actually to you saw me now as well coming back online
after the metro part? Thank you.
Half. Yeah. Yeah. The answer is half of the increase is due to disposals and half is due to, more leased space.
Okay. Thank you very much. Thanks. Thank
you. Once again, if there are any final questions, please dial 01 on your telephone keypads now. Okay. And that seems to be the final question. So I'll hand back to our speakers for the closing comments.
So now there don't seem to be any further questions. So thank you, everyone, for participating. And 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