Hello, everybody, and welcome to the results presentation of NEPI Rockcastle for the first half year of 2022. First, let me express I would have preferred to be physically with you this week in Johannesburg and Cape Town, but unfortunately, just before my flight, I was tested COVID positive, so I needed to stay in Europe. Let's go right away into the presentation and start actually with the highlights of this half year, 2022. We saw a very strong recovery of the turnovers of our retailers in this first six months. In the first half, you remember by around the end of February, most of the restrictions, COVID restrictions were lifted, and we already saw that our turnovers were coming back to the level of the very good year, 2019.
In the second quarter then actually we were also a little bit surprised by the very positive further turnover growth of our retailers, double-digit, which leads at the end of June to an 8% increase of turnovers for the first half of this year in comparison to 2019. Now, as a result of this, our operational results, especially our NOI, has been growing by 4.3% against the first half of 2019. Well, main drivers here, obviously the fact that we didn't need to give any substantial discounts to our retailers in the first place. Secondly, the good turnovers obviously led as well to a higher turnover rent and over trend. On the income side, it was a very positive first half year, 2022.
Vacancy dropped again from 4% to 3.4% in comparison to the end of 2021. Reason here that there is still quite a bullish retailers market which are ready to come to our regions. We have new retailers, international retailers that are eager to come to Central and Eastern Europe as, for example, Primark or a brand like Lefties, which is an Inditex brand. Property valuation, due to the fact that our operations went so well, were lifted by the appraisers by EUR 59 million. Now, in all of this together, of course, leads to the fact that we would like to raise our guidance to 33% growth for until the end of the year.
Reason here is that already until half year, we are exceeding actually, our prognosis, number one, and number two, it's an approximate number because obviously we also see some risks, and we come to this later, until the year end. Our guidance in the beginning of the year, 24% growth, was quite conservative, and we see now here, a chance to move this up to 33%, as a target, for us as a team. Now let me talk about a little bit the key figures. This obviously also relates to a better distributable earnings. We are moving up, in comparison to the first half year, 2021 by 30% to EUR 0.2283 per share.
I think this is already going again into the right direction when we compare this to the first quarter of 2019. Our NOI has been increasing to almost EUR 200 million, which is actually a 4.3% plus versus 2019 if we compare this like for like, because you remember that we disposed of the Romanian office buildings during this period of time. Collection rate by the end of June at 96%. I can tell you, we are now already in August. Obviously, we are now already far above the 97%. I think very good collection, which is also related to the fact that our retailers obviously are making good money and are ready to pay their bills. EUR 2,300 per sq m.
The efficiency, let's say, per sq m in our portfolio is coming back to the levels and even above of 2019. The only factor that where we are still behind, let's say the best times, is our footfall. Footfall still 12% below 2019, increasing by 30 to 2021, but still not there where we would like it to be. And I think Marek will tell you more about it in a minute, it's actually moving up month by month, and we are closing the gap. From a balance sheet perspective, asset valuation went up, so our investment property value stands now at EUR 5.9 million. EPRA share 6.64, also 2% up.
Our loan to value is still in the very low thirties, so 31.3% with a lot of liquidity on the balance sheet. Most of our assets unencumbered 91%, which gives us a lot of headroom also for the future. The maturity of our debt. Well, you all have noticed that in the beginning of the year, we have refinanced our EUR 500 million green bond, I think at a very good moment, leading to the fact that we have now one year more of maturity. And also the pricing, obviously at that moment of time, that was a perfect moment actually to move into the market, because I think we have all seen what has happened over the last couple of weeks and months on the interest rate side.
The rest actually is hedged until 2024. Very safe on that side. Our occupancy asset also improved from 96% to 96.6%. Now, if we move further, we come to the operational part, and here I'm glad to hand over to my colleague, Marek Noetzel, who was recently appointed as the Chief Operating Officer of NEPI Rockcastle. Marek, your stage.
Thank you, Rüdiger. Good morning, everybody. It's as always both pleasure and privilege to be here. Rüdiger, hope you will get well very soon. It's a pleasure because we have a very good set of results to present, so it's actually very cool presentation to do. Let me take you through some numbers, and let's break down what H1 2022 was for NEPI Rockcastle. Of course, it all starts with turnovers, and we can proudly say that first half of 2022 was very strong. It was 8% over the levels of 2019, which I think is exceptional.
More importantly, if you look at the evolution of turnovers, and we moved from Q1, which was very close in terms of turnovers to result of 2019, which already was a good sign for us. Because we need to remember Q1 in 2022 was still a period where we had some restrictions. We didn't have a full lockdown, but in various geographies, we had to wear masks in indoor leisure elements were closed in Slovakia. We had to show the proof of vaccination, et cetera. The footfalls lagged behind, and yet we did manage to get to -1%. Once the restrictions were lifted, you can see how nicely it jumped to +16% Q2 2022 to Q2 in 2019.
Even if you adjust for inflation, this is above inflationary environment, which is very good and sets the tone, hopefully for the future. On average, this is +8%. The Q2 actually being 16% over Q2 2019 is the best quarter in terms of operations, turnovers of our tenancy in our history, 'cause 2019 was the best retail year in CEE. It is a very high benchmark, and we are above that bar. Looking at some statistics to break it down and show you where the growth is coming from. As Rudy mentioned, the footfall, which is represented by the orange bar, is slowly but surely catching up with the green one, which represents 2019 footfall.
We are not quite there yet, but if we look at the jump from -24% January to January to close to -7% in June and July, 'cause we do have numbers for July, that we can see it gradually coming to where it should be, which is 19. At the same time, the turnovers, they have reached 2019 levels in February, and since then, we are very high above 2019 benchmark, which is very good information. This is June cut-off, but the data we got for July for about 65% of reporting turnovers show the growth July 2022 to July 2019 in the range of 20%. Still very strong month.
We still need to collect the data for the rest of portfolio, of course, but we expect that month to be as well above 19%. Looking at the footfall, we believe we entered Q3 very strongly. On top of that, very important to see how the basket increased. I mean, we are, as you can see, 27% above 2019 levels. Again, even if you adjust for inflation, this is a huge jump. With fewer customers, we do much better turnovers, so adding each, you know, million of visitors with that basket increase will add a lot of new turnover to our tenants. We are very optimistic looking forward. Of course, the question is what happens in July, August and till the end of the year.
We all know the winter is coming to Europe, and the utilities go up, the interest rates go up. Naturally, one would expect that this possible income of our customers will decrease. At the same time, we need to remember that as per the latest statistics in CEE, indexation of wages or the increase of wages is similar to the inflation. Actually, the disposable income is not eaten by inflation. It may change, may not, but so far, this has been the case. The reason for that is that labor market is very strong. We still record the lowest ever unemployment in the region we operated. Actually, this is driving the inflation of employment cost.
If we add on top of that, the policy of our governments, which aim on kind of setting off or helping the customers with their utilities prices by capping the price of the gas or actually subsidizing the cost of electricity, heating and gas, that should help as well to maintain the disposable income and the footfall in our shopping centers. Last but not least, Polish government again being very proactive. You might have heard they have introduced the law by which each person with the mortgage in Polish zlotys can apply for four months interest rate and capital and rate free period, four months this year and four months next year. I mean, for the banking sector, it's a huge problem because that means PLN 30 billion.
That's huge. That means that money stays with customers. Some of them, smarter, they probably will pay back the debt, but some of them will not, and they will. Well, what can they do with the cash? Save in the bank or they will go for shopping. We don't know. What we do know is that there is some fiscal stimulus to offset the effect of higher cost of living. How would that translate into our operations? Hard to say, but definitely we should not only look at the cost part of our living, but as well what our governments are doing to support customers going further. If you think about elections next year in Poland, et cetera, then you can connect all the dots.
When we break down the turnovers per category, I think this is very interesting slide. What it shows is the difference between H1 2021 versus 2019. This is the bar. All of them in negative territory. Whereas this side shows 2022, the dark bars show the difference between 2022 and 2019. You can see all the categories are positive in 2022, except for entertainment and fashion. Very importantly, fashion is almost where it was in 2019, and fashion represents as much as 45% of the reported turnover. We can see the tenants are back to good shape and we can see improvement month after month. When we speak about entertainment, this is very important because it was -73%.
You would all remember, entertainment was the first to lockdown and the last to reopen. These guys really went through tough times. They were at -73%, and they are now at -17%. If you look at Q2 only, the same category, it's -6.5%. We can see how quickly it is catching up and movies and restaurants are really performing very well, which again makes us very happy because we can see there is none of these categories that would be a headache for us. They're all healthy, having good business. Some challenges ahead, but we'll manage them as we always do. Now, looking at leasing. Rüdiger mentioned leasing on group level. This graph shows the leasing activity and our EPRA retail vacancy.
You can see it's gradually improving from over 4% to as low as 3.2%. We can see, looking at what we have in negotiations, that it should decrease further. Hopefully we can report even better results at the end of the year. I think it's not as important, I mean, how many leases we have signed, but what is important is that by mid-year we have signed 70% of leases expiring in 2022, and as we speak today, it's about 80%. 80% of expiring leases have been already signed. At the beginning of the year, it was 7.4% of gross income. We are now down to 2.2% that we need to still sign by the end of the year.
Again, we see no risks on delivering as budgeted. Half of the leases are renewals, half are new leases. I think, again, this is the statistic which proves how active our teams are in not simply prolonging the agreements as they are, but actually finding better, smarter, more efficient solutions by replacing tenants, right-sizing them, merging the units, changing the tenant mix so that we keep on being competitive. The tenant mix is attractive and we focus on tenants who are, you know, the best in class and they have the best sales densities. So that it then translates into our NOIs. Our retail environment is stable.
I mean, looking at top 9, 10 tenants, these are all corporates, international, and we do a lot of transactions with them as we speak. Even if we sum all of them, they represent only 24.3% and none of them actually is in any difficulty. I mean, if you extend the list further, you will see these are healthy set of tenants. We are very happy to host them. The occupancy cost ratio, we are close to where we were in 2019. The number for H1 2022 is 13.3% versus whole year 2019, 11.9%. Of course, H1's are historically a bit weaker in terms of performance.
Should we annualize that number? Should we get the turnovers that we historically do in H2, 13.3% should drop to somewhere around 12%, which is very, very healthy statistic. Again, composition of our tenants, this hasn't historically changed. It has always been type A, type B, international tenants. As you will see on the following slides, we keep on developing them and with them in our geography. When it comes to the agreements as they are, there are lots of questions about whether agreements have changed. No, they haven't strategically changed. They are all bankable, investable. They are all in Euros, triple net, et cetera. There was no change. We haven't seen the change through the pandemic and now we keep on signing same agreements.
What has changed is that tenants and landlords are interested to not necessarily sign anything more than 10 years because retail market is changing so much that we end up sometimes locked for too long with tenants who no longer perform as we would wish them to. It gives us a bit more flexibility. When it comes to expiry profile, as I said, 80% of the work done, so 2.2% to be done. Next three years we're gonna be busy, but we are busy every year. It's never walk in the park. Looking at the negotiation as they go and the mood and the operations of our tenants, we don't really see any material risk on not delivering what we promised to do. Our leasing status.
I mean, we are always proud to say how much we do with the leading retailers in the world. We again opened beautiful Zara. We signed more HalfPrice stores of this world. We continue to do so. We have strengthened our leasing capabilities. We have newly named leasing director for West portfolio, and all of that is aimed at, you know, having constant contact with the tenants. We need to make sure that none of the negotiations in one of the country gets unnoticed by the leasing manager in other country. We always need to communicate, and I think we are successful so far.
All those negotiations are being held on, say, HQ level, so we can do really good deals and we can transact quickly because having managing over 50 shopping centers makes us relevant to all the tenants and you can see that in the leasing progress as we go. Again, we're very proud to, for example, see first Foot Locker in Romania. JD entered the market and we were one of the first that JD Sports spoke to. Opening again, Zara's, et cetera. We opened very soon Primark in Bonarka, and we are close to agree on another deal and more to come. It's a healthy set of tenants, but not only that, we can see new brands coming.
You might have heard about Uniqlo opening in Warsaw, and they will do more, which is a long-awaited entry to the market. More importantly, it was based on their e-commerce experience in Poland. What they say is that they saw so much e-commerce going to Poland through their platform that they said, "We need to open physical store because it makes all the sense." This is kind of an answer to the question how e-commerce and online and offline worlds work together. This is exactly how the decision are made. We are very happy to see them. We can see more new tenants to the market, which is always good because that helps us to keep the tenant mix refreshed and always competitive. I mean, look at this store in City Park, Zara.
That's what you want to do, this kind of quality of the stores in portfolios who are very busy pushing our tenants to reinvent themselves, not just, prolong. Put some CapEx, renovate, and get the best you can. This is like, amazing store. I mean, just mind-blowing. Now when it comes to our omni-channel, we always communicated the initiatives we do. Without repeating ourselves, maybe a bit of an update. Last time we have informed you about launching our omni-channel SPOT loyalty app. It's now running in 50% of our shopping centers, and very soon 100% will be covered. We are implementing as we speak. So far it has been very successful. You can see 400,000 receipts registered in the application, and that recorded over almost EUR 70 million sales.
Of course, this is very important tool because that keeps our customers loyal to us. Of course, with that comes as well a lot of the data that we can gather. Then the more data we have about our customers, the better because of course, we can make all our decisions on marketing, on leasing based on the data we have, knowing what our clients are looking for, and we are closer to our customers than ever before. We as well launched our online marketplace. Again, this is in Bulgaria for now. We have intentions to develop it further. It's very interesting to see how it develops. It's a learning curve for us, and we learn a lot. It's again about getting the data and make, let's say, more scientific-driven decisions than just intuition.
Intuition is important, but a little bit of data helps a lot. We will continue developing those tools because we can see that at not high cost and a little bit of dedication, there is a lot of data that we can make a very good use of. Stay tuned. More is to come. With that being said, I'm happy to introduce Eliza to the stage. Eliza, the stage is yours. Thank you.
Thank you, Marek. Good morning, everybody. For those of you that may not know me, I'm Eliza Predoiu, the CFO of NEPI Rockcastle since the beginning of the year. Today I will speak about three main topics in my finance section. My main one is going to be about distributable earnings and dividends, because in dividend we concentrate everything that we do in our business. As Rüdiger and Marek mentioned earlier, we have a very good set of results that we are very proud to share today with you.
My second topic is going to be about liquidity, because liquidity provides for the safety of our operations and for the trust that we are a good business that is worth to invest in, because this is one of the reasons for which we are here, to build a trust in our business that is in good hands with us. My third topic is going to be about the property valuation and the upward valuation trend that we enjoyed in the last 12 months, starting from the second part of 2021 and up until now. Let me show you the most important chart and slide of the day, which relates to the distributable earnings. You will see a simple graph showing how we progressed element by element from H1 2021 distributable earnings to the current period distributable earnings.
Let me go a bit into details. Is it working? Yes, it does. In H1 2021, we distributed EUR 0.1764 dividend. In terms of operations, this element contributed now with 40.7% growth relative to H1 2021. We extracted more value from our properties, plus we didn't grant concessions to the tenants. There is also a small element of growth coming from the improvement of the funding terms from the bond issue that we had at the beginning of the year and that Rüdiger mentioned. We have this element of decrease of 11.7%, which comes from two factors, corporate income taxes and administrative expenses. I will give a bit more details of any of the two factors. First, the corporate income taxes.
Now the majority of our portfolio matured. The financial losses that we incurred at the beginning of the development stages have been utilized. Most of our properties now reach stable taxable profits. We became a business profitable not only from the distribution point of view, but also from the taxable point of view. This is the reason for which we have higher corporate income taxes, and this is how it's going to stay for the future. In the administrative expenses, is the second factor contributed to this element of decrease. We incurred some structural changes. We moved from some COVID-19 hard times to some inflationary pressures hard times, and the labor cost increases. We needed to adapt so that to preserve our competitive advantage.
We needed to strengthen and to build some other capabilities in the company in the area of ESG, procurement, and digital and technology, so that to sharpen our profile and to become competitive and stay competitive in the market. Third, our business is going through a transformation in the way that we internalize the property management and other support functions in 40% of our portfolio, generating a bit more administrative expenses, but optimizing the NOI because these extra administrative expenses are going to overcompensate for third-party fees that are now rendering the property management, in 40% of our portfolio.
So long story short, the story says that this year, adding the growth points together with the decrease points, we are able to distribute to you 29.4% distributable earnings higher than in H1 2021. I will move to my other slide, which doesn't bring an element of novelty, but it benchmarks the distributable earnings relative to H1 2019. This slide is important for us because 2019 was our best year, and we as management, we compare on how we progress relative to our best year. 2019 is our best performance year. There are also some elements of growth and some elements of minus that I will discuss about.
In terms of operation, we managed to bridge the gap relative to 2019, and this is shown here in the first part of the chart. There have been, nevertheless, some decisions that contributed to weather very well the COVID-19 pandemic. I will discuss about this decision that have now contributed to 14.6% decrease in the distributable earnings relative to 2019. What we decided to do was to keep a higher level of liquidity during these two years of COVID. What the actions have been was that we disposed of the Romanian office portfolio and the Serbian properties, and we didn't reinvest the money, so that to keep higher level of liquidity.
We issued a bond in the middle of the pandemic in June 2020, and that bond was issued at good commercial price in the context, but significantly higher than what we used to have in our portfolio. Third, in the same COVID-19 pandemic times, we had listed securities that became very volatile and didn't generate any kind of dividend, and we also decided to dispose of them. These three measures together contributed to weather very well and wisely the COVID-19 pandemic times, nevertheless, dragging the dividend by 14.6%. The other element of decrease that I also mentioned earlier relates to the corporate income taxes and the administrative expenses. Indeed, we are 21% lower than 2019.
We are bridging the gap in the area of the operation, and we are also envisaging to bridge the gap in the medium term in all the other elements that I mentioned before. In short, the good news is that we distribute 29.4% higher distributable earnings relative to last year and is going to have a 100% payout with the calendar to be communicated to you as soon as we will relocate to the Netherlands. I will take also this opportunity to thank you for the support on the relocation of our parent company from the Isle of Man to the Netherlands. I will move to my second topic that I announced at the beginning, which relates to liquidity and funding.
I want to highlight where we stand in relation to the three pillars of the finance strategy. Our LTV is still prudent at 31.3%, below our threshold of 35%. The liquidity is strong at EUR 1.1 billion. We have EUR 450 million in cash and the revolving facility of over EUR 600 million. We are a BBB investment-grade credit rating company by S&P and Fitch, with S&P reaffirming their rating this year. The remaining debt term is close to five years, and considering the current times, we have a cost of debt of 2.4%, which is going to stay stable for the upcoming two years because all the variable interest rate is fully hedged.
On the next slide, I have three key messages that I want to convey to you. The first one is that at the beginning of the year, we issued that EUR 500 million green bond, securing the current year and the upcoming year with no significant debt maturities. The majority of our portfolio is unpledged, which will offer us a lot of flexibility in the current times to blend in unsecured with secured funding so that to make the company grow forward. Third, we maintain the revolving facility that are existing now in the portfolio of EUR 620 million to offer us buffer liquidity and to take advantage of them when the opportunity may arise. In short, after two years of COVID, NEPI Rockcastle is very safe from a liquidity point of view.
Also linked to the liquidity is the fact that we generate cash flow from operating activities supporting our distributable earnings. We are going to distribute in nominal terms EUR 139 million, and is everything backed by our operating activities. The difference between the two relates to the way in which we account for some expenses relative to their cash settlement and nothing else. As relating to the declaration of dividends, as I mentioned earlier, I mean, we are going to declare it when the relocation is going to be completed with a 100% payout ratio, and the necessary announcements are going to follow in the market.
This is only to revise and substantiate once again that we are a solvable company with good unencumbered assets and a good consolidated coverage ratio, this one being the main covenants under our significant unsecured debt. Now I will move to my third topic, which relates to the valuation of the property. We incurred EUR 59 million uplift in our valuation. I will remind you that in 2020, we incurred a significant decrease of EUR 340 million. We recovered EUR 25 million last year. We continue to recover close to EUR 60 million this year, which means that we are 25% in the closing the gap approach.
The good news is that the valuation is driven by the performance of our property, with only unsubstantial change in the valuation yield of five basis points. The other good news is that these valuations show once again by external parties how solid our business is and how high quality property portfolio we have. This is everything on my finance section, and as I committed to you in February, I will report twice a year on our ESG approach, which became an important point and long-term priority on our agenda as a board.
We have a few achievements since February up until now that I'm very proud to share with you, and there are also some action points that we envisage to take in the remaining of this year and in 2023. Let me start with the achievements. The first one is in relation to our carbon footprint and the optimization of our energy consumption. We will deploy EUR 37 million in photovoltaic plants. Ten out of them are going to be installed by the end of this year, with the remaining one being installed by the end of 2023. This is the first achievement. The second one is that we progress with certifying and green certifying our properties, confirming their resource efficiencies. At the end of December 2021, we have been at 70% certification.
Now we are at 85%, and we envisage to be 100% green certified by the end of this year. The third point is that we improved our Sustainalytics rating from 11.4 last year to 10.5. This equates with almost a negligible ESG risk from the point of view of Sustainalytics, and we are in top 15 companies in our category. With these three achievements in mind, we are looking ahead on defining and establishing a timeline for our decarbonization map. This one is working only on the right side. Okay. On strengthening the data collection in relation to ESG and rolling out the renewable energy solutions in our portfolio.
What we also did so far is that we strengthened our internal capabilities by having a head of the ESG department, by having a head of property management, by implementing KPIs at the level of the executive members and the operational members related to ESG, and by revising the environmental strategy. The key message that I want to leave with you is that ESG is at early stages. We progress in this direction, and we will report to you what are the achievements and the progress that we want to undertake. With that being said, being green today, I will hand it over to Rüdiger to tell you about the way forward. Rüdiger, over to you.
Can you hear me?
Yes, you're back. Yes.
Okay, very good. Thank you, Eliza. Yeah, looking a little bit ahead of where NEPI Rockcastle moves to over time, at least over the next six months up to, let's say, 2025. I think first we need to look a little bit at the macroeconomics. There we still see, obviously, that our region, Central and Eastern Europe, is still outperforming when it comes to expected private consumption, the rest of Western Europe. What we currently obviously also see that recession is a little bit on the doorstep generally in Europe due to the crisis that we currently see that are upcoming actually in the energy sector to the effect of inflation and obviously having a war next door. That is also affecting GDP growth of the major countries we are operating in.
Growth also in our region has been slowing down a bit, not at the level as it has been expected, let's say, three months ago. That's true, but at the same time, we believe, and we see, and you can easily compare, let's say, our growth in the first half of the year with the ones of our peers in Western Europe, and I think you will see quite a big difference. That showcases one more time how strong actually these emerging markets are and will be also in the near future. As said, inflation has been, let's say, the next big topic for us after we came out of the COVID crisis.
One has to say that the inflation within the jurisdictions we are operating in, which is the blu storiesseven storiese line on the lower part of the slide, we are on an average of 13.4%, while the rest of Europe is still somewhere slightly below 10%. Inflation in our regions have been even more aggressive, as we have seen it in the rest of Europe. What are the main drivers here and how do they affect, actually, could they affect the purchasing power of our clients and then obviously affect our business. Transportation and then everything around electricity, gas, are the drivers for sure, and also food and beverage.
Obviously, if our customers have to spend triple as much in this winter to pay their bills to heat their houses or flats, then this could have an impact. That's why we are monitoring this very closely. As Marek said, so far, our growth of turnover have by far outpaced actually inflation. Let's see how this will evolve over the next couple of months. Looking ahead, of course, what are some of our targets? We will still leverage, and Marek described it in the negotiations with our tenants as well, this very strong position that NEPI Rockcastle has within the region.
There are still a lot of asset management activities that we have budgeted that need to be fulfilled until the end of the year, which will be a driver of our future growth in DPS. Consolidating our base, meaning actually that the M&A market on retail real estate assets is currently, let me say, opening up. The last two years, there were hardly transactions within Central and Eastern Europe. This is currently a little bit in a change mode. Also obviously has to do with the current market circumstances of rising interest rates, so there are more landlords now open to discuss. Our M&A team with Anca heading it is very active at the moment to look at assets that are accretive to our portfolio and that reach, let's say, our quality standards or even above.
I hope we will be able to say more concrete about this in the near future. Delivering on our development pipeline. Yes, with our development pipeline, I think we are really paving the way forward to have this company grow. As you can see, we currently have EUR 665 million on the way, which will contribute in the future for the growth of our NOI and distribution to our investors. We have categorized it here in those that are already under construction, and then the ones where we have already secured the plots, but where we are currently in the permitting and pre-leasing phase to bring these assets to the market.
This pipeline should be completed actually until Q4 2025. In different stages. Let me run you through this a little bit more in detail. Promenada Bucharest, of course, our top-class asset in Bucharest, where we are currently under construction. We go seven stories down into the ground in order to do the car park. At the very moment, we are on time, on budget currently. We will add in total 58,000 sq m of retail and offices to this building. We will be close to 100,000 sq m in Sector 1 in Bucharest, which is, by the way, the richest part of town. It's as well ongoing constructions.
Let me move over to Promenada Craiova, a greenfield development in Romania, a city of 300,000 inhabitants with very little, let's say, or limited retail offer, where we are currently constructing a 64,000 sq m scheme, which is supposed to open by 2023. Now here, what we saw is that, and we said it before, also Marek explained, that the demand of retailers is actually very positive. We saw this also as well here in Craiova, where we found out that we could not really allocate, let's say, all the demand, all the retailers into this 64,000 sq m scheme.
We have just recently decided last week together with the investment committee that we will spend another EUR 21 million on building a 10,000 sq m retail park right next to the asset on the plot that we have already acquired. Therefore, we are very happy that we can even make this asset stronger, within its catchment area with this additional 10,000 sq m. That's in progress. We are very confident that we will deliver the project by the end of next year together with the opening already of the retail park. That's the plan, and for now, we are on track. Now if we move on, Bonarka City Center, a redevelopment.
You know that we do invest as well a lot into our already operating income-producing assets in order to protect, not only protect them, but also to improve actually our NOI situations in these assets. Bonarka is our flagship currently in Poland, where we are very eager to push the asset more into the market, make it and modernize it. It's a long-term project. It will only end by the Q4 of 2024. Reason here simply is it's an operation on an open heart because we can only actually do construction works in the nighttime because in the daytime we keep it free just for trading and to make sure that our tenants are not disturbed during the trading hours.
Vulcan Residence, the residence project that we have on the way in Bucharest, we are now in the seventh story, actually. Construction is on track, on time. We are on budget. When it comes to the sales process, we are as well in budget, so we have sold as many apartments as we thought we would in the beginning. We are on track here. Obviously, the new situation on interest rates has slowed down a little bit the sales process in comparison to what we saw in the very beginning, but we feel very confident that we will deliver the market the project in time and on budget by the end of 2023. Now moving on to those that we have actually still in the permitting and planning phase.
Promenada Plovdiv, a city which is the second biggest city in Bulgaria. By the way, our two assets, Serdica and Paradise in Sofia, in the capital of Bulgaria, are just extremely well-performing. The country is, for us, interesting to grow. This plot here has been acquired years ago, is the top plot actually in town. Here we are currently planning a 57,000 sq m shopping center. We are very close, I think, to final permitting, and we, I hope, of course, also we need to look into construction prices and so forth in the future. In principle, I think we could start construction here in the beginning of next year, if then circumstances are there where we believe they are profitable for us.
Galați, I don't know, but most of you most likely know that we already are operating a shopping center which is totally dominating the town of Galați in Romania, which is in the northern part of the city. We have acquired a plot in the south part of the city because there was a high demand by retailers for a retail park. We are currently in the process of getting the zoning and the permitting for a 30,000 sq m retail park. Actually, we have already like 80% of retailers that agreed terms and would like to move in. Another way for us to grow in the future if we talk about what is the way forward. Galeria Wólomin.
It's not only the big, let's say, investments, it's also taking care of our smaller assets like Wołomin, which is close to the capital of Poland, Warsaw. Actually, when you look in the right-hand side of the picture, that's where naturally we do an extension. It's not a big extension. It's a EUR 5 million investment where we bring in three more tenants. I think that's just to show that we are taking care of our assets. If there is potential to grow and if there is demand in the market, we are ready here to supply this to our clients. I think photovoltaic, that's kind of a new business we have been moving in, if I may say this.
Because it's not only, as Eliza mentioned, a EUR 37 million investment into decarbonizing our footprint. It is also quite a profitable business, obviously, looking at current energy prices. That is a combination actually on one side to decarbonize our portfolio, especially here in Romania. At the same time to generate additional income for our shareholders. We are now planning to roll this out across the portfolio. It's different from country to country because of regulations as an example, or weather conditions. We are now looking into country by country on where can we generate energy ourselves and actually sell this energy out as well. A focus for 2022, at least until the year end, of course.
We have now raised our expectation on the DPS until the end of the year to 33%. That's something that is, of course, for us, a target. That's something for the whole team to work hard for. That's set, and we are confident to get there. Execute on our development pipeline. That's well on the way. I have little doubts that we will have any hiccups here, at least until the end of the year. Well, until 2025, until completion, for example, of Promenada, of course, this is still a way to go, but currently it's on track. Actively looking, as I said, with our M&A team into the markets. Hopefully some more news in the future on how we can grow our business by also acquiring additional income.
We have our ESG strategy, and Eliza mentioned it. It becomes a vital part within our thinking. It's not just something to add on because we need to do it because of our regulators. I think we need to have it in our, let's say in our NEPI blood. That's what we're implementing now together with our teams. You saw it that we have also discussed this widely within the company and also make people responsible and adding actually this to their OKRs. Of course, Eliza mentioned it, to maintain, let's say, the safety of our balance sheet. I think this has always been, I think, a remarkable work from NEPI Rockcastle, and we don't see here any change to this.
Stay prudent and we'll build guarantee safety for our investors. I think that's also important in these also next turbulent times that we're moving in currently in Europe. With this, I'm very happy to invite you in the room via your telephone via the webcast to give us some questions, and we'll do our very best together with the very team to answer those questions. Feel free to come up with questions. Thank you first of all for bearing with us, listening to us, and now we are happy to answer your questions. Thank you so much.
Well, I have table.
Thanks. I think the first question would be for Marek. Can you explain the rental uplifts that you get, that you're securing on the lease renewals and the new leases? I'll go to the second one.
Sure. I was expecting that as one of the first questions. Yeah, I mean, when we talk about the so-called base rental uplift, by which we understand same tenant in the same physical unit or different tenant, but the same unit physically, we talk of at least the expected indexation over inflation, and very often slightly more than that. I think it's as well very important to understand that, as you might have seen, 50% of leasing actually comes from new leasing, which means that this is actually what is value creating and what enhances our rental uplift, because we can see much more growth potential in relocating tenants, right sizing them, putting new ones. I mean, just prolonging is easy, but there's more to win if we are more active, so to say.
If I were to answer your question straight, that would be inflation plus a little bit, on average.
Just a quick question. On the base rental.
Mm-hmm.
Relative to the OCRs, would you say that you are under-rented on the base rental to start off with?
Well, as you saw.
Has this always been your model?
As you saw for H1, we are at 13.3%% OCR, and if we continue to see the trend line, we should go to around 12%. To us, anything below 15%, we are on the safe side of the equation, I would say. You might say so, but you need to of course look per category, per country, per tenant. You can't say that we are, as a group, under rented because that would be overstatement. Generally, definitely we are not over rented. We need to play with some of the tenants. We need to change them. We need to improve, of course, as always. Generally, we don't see any material risk over there with any of our tenants.
Just with regards to the revised guidance that you've given for 2022, you are talking of a softer second half, but you've increased guidance. How conservative are you in that guidance? Or can you just explain, well, one's going up, one's going down.
Rüdiger, would you like to start and I will give more color?
Yeah.
Okay.
Sure. No, I think our guidance for the at the beginning of the year was 24% was quite conservative. You have seen what the performance has been now over the first half. It's foreseeable that we should actually be able to optimize this and get to this 33%. There are obviously risks in the market which we have tried to, let's say, incorporate into this 33%, as we said, purchasing power inflation, then also our non-recoverable costs. But we feel confident at the moment that we could reach this approximately 33%. It has to do also with the fact that obviously we had foreseen maybe a longer period of COVID impact. I think we all hope that this part now of crisis is really coming to an end.
We don't see at the moment that even though infection rates are still pretty high in Europe, we don't see that governments are actively coming back to measures that are affecting our business. Therefore, hopefully this won't be over the next six months, but I think with the traction that we currently have, which does not last only until the thirtieth of June. But we as Marek said, we also saw a very good trend now in July and August also seems to go in the right direction. And then of course, you have only a couple of months left to year-end. If then, let's say obviously the best months of the year, always November, December.
If we should then be able there to stabilize, let's say on the levels of 2019, we should be able to reach this 33% growth. If this answers your question.
Hi guys. Thanks for the presentation. Just a question on the possible bankruptcy by Cineworld, which owns, I think, Cinema City. Just a question around the potential impact on your business, how much of your rental they are, and what maybe contingency plans you guys have?
That was question number two on my list that would be asked today. The big elephant in the room. The elephant is not that big actually, 'cause our exposure to Cinema City, because this is the brand they operate in our geography, is immaterial because they deliver just below 1.5% of gross income. It's of course in administration now, so we need to see what the future brings. I think looking per property, and we of course looked at each property where we operate with Cinema City. Should worse come to worse, we don't see material risk of not being able to replace the tenant because the market is competitive. I mean, just based on Craiova, we have three cinemas who are just queuing there to enter. The market in CEE is still undersaturated.
Should worse come to worse, we don't see that as an issue. Secondly, I think it's important to understand that the problems of Cinema City are not originating from, let's say, on operational level. You look at others and you look at our numbers and at the figures the entertainment as such do, this is very good set of numbers. If you read what Cineworld actually what they have announced, there are some other problems they need to face. I think in their whole portfolio, actually CEE portfolio is a jewel in the crown, actually, 'cause it's very profitable and has been historically.
We do have plan, of course, should worse come to worse, but even if we need to close for whatever reason, it's below 1.5% of gross income. I think it's manageable both, but immaterial as well.
You were working on a last mile delivery solution.
Mm-hmm.
You know, out of the shopping centers. How far have you progressed on discovery on how you would implement something like that? With the cinema space, you know, just feed into that to create another opportunity. You know, instead of developing out, warehousing space, you know, or integrating them into your shopping center, you could use some of this space. I'm trying to get your thinking around that.
I mean, on the last mile, I think we are in this learning curve in Bulgaria now, and I'm looking at Marius, because this is where we exercise, and I can see Marius would want to add on that.
We are in Bulgaria, we are expanding our marketplace project. We are delivering from the tenants to the customers. Combining the tenants from the shopping centers and deliver it to customers. And it's going just well. And on the cinema turning into logistics, I think it's a matter of opportunity. Generally, cinemas are placed in the shopping center somewhere where it's, you know, difficult to access easily the logistics part. We are thinking about the solutions, but I don't think that cinemas themselves as a space could, at the moment, present an opportunity. We could turn it into some other things, maybe not in logistics. If Marek wants to add.
No, no, I just fully agree in this.
Maybe, let me add on to your question. That for us, this entertainment part of cinema is a vital part in general of our brand and tenant mix and of the entertainment meaning food and beverage that all comes together. I think there will be no replacement in a sense that we would not replace, let's say, a cinema with a cinema. First of all, they are custom-built for cinemas because of the height. And secondly, as said, it's an important part, an important offer that we give to our clients, the whole entertainment part. So we will definitely, I think, stick to this. As you can see, this is an industry that went through very harsh times. Now, this tenant has problems beyond, let's say, as Marek Noetzel said, the operational part.
They have just been growing too fast, overleveraging themselves, and now has lost the investment grade, which made it very expensive for them. There are other reasons, I think, but even as that, even if they should affect us, we would replace it most likely again, with cinemas. By the way, as this was not totally unexpected because there were already, let's say, rumors in the market, first calls of competitors already reached us for certain locations, whether we would consider them. As Marek said, it's unfortunate. We don't like to see this, obviously, to have one of our bigger clients to get into this kind of trouble. We are here to deal with the circumstances, and I have no doubt that our leasing team will take care of it.
Let's see now, what actually the administrator is planning to do with this company. Might be there also be a takeover. By the way, the competitors of them have been doing very good business when you look at the numbers. Now we have the new blockbusters coming in autumn. We also believe that this minus that we still see on turnovers in our entertainment area, that we still can catch up until the end of the year, to make this more positive.
It's a very good point because if you add on that, the cinema that we are most exposed in Poland, which is Helios. They are part of a public group, and they just posted their results, and they said that Q2 2022 for the cinema arm of the business was best Q2 in their history. They really come back. The same AMC, the biggest cinema in the world, they said they are very happy with their results, which proves it's not a cinema industry problem. The problems are elsewhere. Of course, COVID didn't help. I mean, we don't feel the cinema industry is any sort of problem.
No more questions from audience.
Shall we move to the phone questions?
We go to the-
There's not any.
We go to the phone questions.
Thank you. We have no questions from the conference call. We can go over to webcast questions.
Okay.
Hello. A question for Marek Noetzel. How do you expect to see higher utility costs impacting your margin? Can you recover all the higher costs from tenants? How sustainable do you think the current OCR is?
I mean, this is why we always make sure that our OCR is healthy, because we need to be able to recover with tenants. We never recover 100% of the increase because various tenants have caps, and there is some vacancy, et cetera. We recover most of it. We did, of course, stress testing to test various scenarios as what happens if. I think that with the performance of our tenants, we can recover. We can keep the same rate of recoverability at what we projected. If the costs go through the roof, which I don't think will be the case, like they will quadruple next year, I mean, the electricity cost, which will not happen, then we all will simply have problem.
It will be a cross-businesses problem because companies will have to stop their operations. I don't think this is the base case scenario. The numbers that you see for that year already includes the increase of the utilities for 2022, so it's in the number already. We will grow. The utilities next year will increase from already quite high base of 2022. We will look with Marius and the finance team, reporting team on various scenarios, and we try to model the future. I think we are well prepared to weather that storm should that come.
Just to add, we are hedged on our utility cost till next year, Q1, Q2, so we don't expect any changes till the end of the year and first part of next year. That's on top.
To keep still Marek on the hotspot, can you share some color on the trend in turnovers in July? Are there any signs that part of the very strong second part of 2022 was a result of pent-up demand? Or do the turnover so far seem to be holding up at a very high level versus 2019, even throughout the summer?
Well, as I said, and I shared some of the data for July, it's not full portfolio. It's about 65%-70% of shopping centers that reported turnovers, and they are around 20% higher than, on like-for-like basis, higher than in 2019. I don't think it's no longer a, you know, delayed kind of demand because we are already in July and the restrictions been lifted in March, April. We believe this is driven by inflation, of course, but as well, but increases are higher than inflation. It's again, very strong employment market.
We need to all remember as well that we have a big demographic shift in where we operate due to what happens in Ukraine, and there's a lot of Ukrainians in the regions we operate, and we can feel that impact as well. It's for wrong reason, but that's an impact on our operations. If you look at numbers, the demographics of Warsaw increased by 15%, and Bucharest was about 10%-12%, and we can see that. No, it's not a delayed or postponed demand. It's simply more money in the market and very strong labor market. As I said, latest statistics show, and that's very important, that actually wage increase is at the level of inflation.
Inflation, for time being, is not eating the disposable income, which is very important.
Yeah, I wanted just to say that on top of the demographics that we see from Ukraine, we also see business relocating from Ukraine to our geographies. We have, you know, the guys that were operating in Ukraine going back to Poland, moving up their business to Poland, to northern part of Romania, central part of Romania. That means we have also more organic growth of the purchasing power.
Some questions on taxes for Eliza.
Please go ahead.
Please can you elaborate on the future tax expense? Where will the current tax rate trend over the next three years? If you can detail the components that make up the large deferred tax liability on the balance sheet.
Okay. I will split it in two. On the current tax expense, we published at the end of December 2021 an effective tax rate of the group. I cannot guess what are going to be the changes in the regulations in each country and how the tax rate is going to evolve. Looking at the status now, I will say that this effective tax rate is going to materialize in the, at least in the short to medium term, unless some other legislative changes are going to occur. This is the portion on the, on the current income tax. On the deferred taxes, this relates to the uplifting the valuation of the portfolio and the way in which the deferred taxes is computed.
The fair value of the properties, less their fiscal value, which is also subject to amortization. I will add the fact that the deferred tax liability and the deferred tax expense is not impacting the distribution. It's for IFRS purposes. Thank you.
One question for Rüdiger. What is the rationale in internalizing the property management function, and how is this reflected from a cost perspective?
A very good question. I love to answer the question because this is actually a potential, especially a cost potential that we saw to do two things at the same time. You need to understand that part of, partially, certain services on the operational side were outsourced. Outsourced to third-party managers where we are paying fees for them actually to do the job. Now, in as you can understand, in 60%-70% of the portfolio, we have these services already insourced, and we're doing this ourselves. If you look at it, let's say, more from a number perspective, we are expecting here actually a positive impact overall. On one side, of course, our administrative costs go up because we need to have these resources in-house.
On the other side, obviously, we are deleting those management contracts. In total, this will bring us approximately EUR 1.5 billion-EUR 1.6 billion annually of a positive increase of our distributable earnings. That's on the numbers side. It's not only a decision that we took driven by the fact that we want to increase our profitability, but also that we want to make sure that we have throughout the total portfolio the same quality of asset management. I think that the team has been proving over years now that it is a very vital team and that can really manage assets upwards. There is no reason to outsource to third parties, which obviously you also need to steer, control and so forth.
That's the two major reasons why we decided to actually onboard these services into our own operations, and very important also, run this with more safety on our own tools and also our digital tools. This gives us more safety, it gives us a better quality, and it gives us an advantage on the cost side. These were the major reasons why we decided to insource, actually, those activities. I hope this answers your question.
A question for Rüdiger again, on developments this time. Are all construction contract for committed projects fixed and protecting the development deals and margin from any construction cost fluctuations?
Yes, I can say that's the fact. Fortunately, we have contracted actually already the construction on Promenada Bucharest and on Craiova, let's say, before we moved into the tremendous increase, for example, of steel prices during the last quarter last year. That. We are, let's say, hedged here for Craiova. We are, in a way, hedged as well for Promenada in Bucharest until we get, let's say, out of the ground. We have now tendered until we have finished actually all construction work that goes to ground to level zero. Yes.
We do this in a way, maybe to add here, where we do prepayments to our contractors, and we make sure that they buy those materials that are very much driven by price increases to secure them actually with the prepayments we do. We don't wanna take the risk, obviously, that the contractor here is waiting and seeing and trying to get it cheaper or whatever, and then all of a sudden he comes and says, "Sorry, I can't deliver any more because the prices went up." We are not only securing this, let's say, with the deal with the contractor, but also we are.
I wouldn't call it forcing, but I would call we are strongly advising the contractor to secure that especially material prices are safe and sound. That's how we do that. At the moment, I don't see any material risk for Craiova and for the construction as well on, actually, Vulcan, our resi project. No increases because of prices that have been moving up in the construction business.
Thank you. A question for Marek. What percent of your leases is CPI-linked? Given the macro backdrop, do you expect the indexation will be fully passed on the rents in 2023?
Yes, they are all linked to CPI, except for those which are turnover only, but they represent around 5% of our NOI. When you ask me about passing to tenants, I think at current average expected inflation, I don't see problems of passing that because that's expected to be around 7%-8% in Europe. Should that go to 20%, different story, but that's not the base case scenario. We can see inflation stabilizing in Eurozone. I think in Germany it was two consecutive months in a row that it actually decreased slightly. It should be, it should end up the year in the range of 7%-8%, and that should be passed to tenants 100%.
A question for Eliza. Can you please elaborate on the increases in admin costs?
Yes. I elaborated a bit in the depiction of the distributable earnings, and I will mention once again. The first trigger of the increase in the administrative expenses is related to the labor force cost. We are living in inflationary times, and we needed to adapt in relation to adjusting the salary base to the CPI minimum and average salaries. The second one relates to the strengthening and the addition of new capabilities in the internal organization, so that's to build our competitive advantages. This caters for at least half of the increase in the administrative expenses. There is also another element, which is the relocation fees that are one-off, and the majority of them have been incurred in the first half of the year.
We combine the staff costs together with this one-off event, and this explains the majority of the increase in the admin expenses. The entire admin expenses are subject somehow to get readjusted with the inflation level. Even the audit fees. We changed the auditor this year. We made the tender that we are doing usually at every three or four years. This was the main, let's say, pressure on the fees, the level of the inflation and the labor cost incurred in those fees. Thank you.
One last question for Rüdiger. What sort of acquisitions are you looking at by size and geography within the Euro area? Will you acquire poorly performing assets with the purpose of making them better versus over time?
Yeah, very good question. Now, as said, I mean, first of all, we are focusing on our CEE region. Obviously those countries that we are operating already where we can become, let's say, stronger, offering, let's say, having an even better offer to our retailers. If we look at jurisdictions, I would say, Poland still is very attractive for us as a market to grow, for example. As well, Romania, we have only one asset in Croatia, I think we could do more there. I think we first focus on, obviously, the jurisdiction we are currently operating.
When it comes to the quality of the asset, of course, the asset needs to be, let's say, the number one minimum, the number two within the city needs to be quite dominating within its catchment area. We would not buy into an asset, let me say, that does not meet the fundamentals. If we see there is no juice, so we cannot really manage the asset upwards, obviously this is not an asset we would look at. What we look at is assets that are very good within the city they are operating, and where we, with our asset management experience and excellence, where we can really move the needle and create more NOI over the next 12 to 24 months and move the asset into a different direction.
It needs to have at least, I'm always saying, it needs to have at least the quality of the portfolio that we currently have. We're not buying distressed assets because there are reasons for them to be distressed. We're not buying this kind of assets and then try to do the magic wand. We are rather looking at solid assets, but that still have potential to grow. I think that's where, as I said, our asset management expertise comes into play.
If there are no more questions?
There's one more.
Oh, sorry, Kondai.
It's fine. Thanks, Eliza. That's the last of these questions for you. It's just a question on the cost of funding.
Yes.
Obviously, you don't have this issue right now, but should you maybe hypothetically fix, kinda raise or refinance debt and fix it for five years, what would that cost be now?
It depends because it's a different story whether we go for a secured funding or whether we go for an unsecured funding. If we go for the secured funding, then you may not see any significant differences than what we have now because it's based on Euribor plus some margin, which is in the range of what we have now. The unsecured market, the debt capital markets have been, in a way, frozen in Q2 and even in Q3 because it's summer holidays. This may be in the higher 5%. It's the quotation of our bond is public. It has some ups and downs, and we are monitoring the context so that to take the action when the context is going to be favorable to us, unsecured or secured.
Because the reason for which we have so much unencumbered assets is going to be something to capitalize on. It offers us a lot of flexibility to do funding now.