Eurocommercial Pptys N V

Hello and welcome to the Eurocommercial Half Year Results 2024. My name is Laura and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen-only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Luca Lucaroni, Investor Relations Director, to begin today's conference. Thank you.

Good morning to everybody. My name is Luca Lucaroni, Investor Relations Director. I'm happy to open the call where our CEO, Evertian Van Garderen, and our CFO, Roberto Fraticelli, will present your commercial results for the half year 2024. The agenda for the conference call is presented on this slide. Ever at the Janva Garden, we talk about the operational results of the company, including the leasing activity during the first six months of the year, and about ESG. Roberto Fraticelli will discuss in more detail the property valuation and the financial results. We will then open the call for any questions and remarks you may have.

Thank you, Luca, for introducing us and presenting the agenda for today. Good morning, everyone, and thank you for joining us this morning. As Luca said, I will start with an overview of the operations of your commercial during the first six months of 2024, and we'll finish this presentation later on with some closing remarks on the share buyback program, the dividends paid, and the guidance update for 2024. Although the entire property portfolio was externally valued as per 30 June, and there were some small uplifts in each of the countries, the portfolio weightings by value over the four countries did not change compared to December, 2023. Italy is still at 44%. Sweden and France remain the same, both at 21%. Whereas Belgium covers 40% of the portfolio. The total value is now just over 3.8 billion, and there were no changes in our portfolio of 24 shopping centers. This slide illustrates the geographical diversification and the locations of our 24 shopping centers within our four countries. The company produced a good operational performance in the first half of 2024. On the slide, you see an overview of all the important operational metrics for the first six months of the year, which underpin that statement. I will comment in more detail on these metrics in the remainder of this presentation. Much lower inflation and therefore much lower indexation compared to 2023 determined a like-for-like rental growth for the first six months of 2024, which resulted in a growth of 4.5%. Indexation was still the main driver of the growth together with turnover rent in particularly in Italy. 40% of the Italian rental growth was produced by turnover rent with the three flagships, Carosello, Fiordaliso and Igili being responsible for the majority of the turnover rent contribution. You can see from the 10 year like for like rental growth overview that the first half of 2024 was not a record. But 4.5% is still a good growth figure compared to the growth reported over the last 10 years. The like-for-like rental growth for the portfolio and the four countries is always calculated on the basis of 12-month data. We compare the tenancy schedules as per 30 June 2024 with the tenancy schedules as per 30 June 2023. So basically, we compare two photographs. We achieved an average rental uplift of 2.5% on 261 renewals and re-lettings. Last year, that number was 235. And this is on top of indexation. These lease transactions represent 16% of the minimum guaranteed rent of the portfolio. We were able to attract new tenants with our 100 new lettings, achieving an uplift of 5.8% as retailers and brands continue to recognize our centers as important destinations in their expansion plans. This leasing activity is continuing with already 135 new leases signed in the first half of this year, achieving an uplift of around 4.1% on average. Low vacancy is usually a good indicator of the quality of the properties. Over the last four years, we have reported vacancy rates in our property portfolio ranging between 1.3% to 1.8%, and we continue to do so. The average since June 2020 was 1.5%. The APRA vacancy rate remained very low at 1.7% in June 24 for the entire portfolio. It was slightly down from the vacancy rate reported for March 24. Vacancy in Belgium, France and Italy reduced. The vacancy in Sweden is temporarily up due to part of the space, which became vacant when the ICA hypermarket moved out in April to open next door to our Ingesta shopping center in their shopping. The majority of the space is already re-led to Coop on a 15 year lease and to Normaal on a new 10 year lease. And they will both open in November. The sales in the stores of our shopping centers in the first half of 2024 were up by 1.8% compared to a year ago. In France and Sweden, the inflation was higher compared to the other countries, which is reflected in the higher sales figures for those countries. For Italy, the sales were also hampered by the re-merchandising project in Carosello, where there were temporary vacancies due to construction works. and therefore the involved units are excluded from the figures. In addition, the poor weather in the spring and early summer in Italy affected the sales of summer clothing. The company has always been known for its low occupancy cost ratios and we're therefore pleased to report a 9.8% occupancy cost ratio for our portfolio as for 30 June 2024 compared to 9.5% in December 23. This slight increase is the result of high recent rental growth, mainly due to indexation. However, this percentage is still one of the lowest in the industry and implies that the rents are affordable for our tenants. An interesting trend is that the composition of the occupancy costs has changed over the years. Service charges are a slightly smaller part, whereas rent is a slightly bigger part of the costs. This is a healthy trend and shows that we're able to lower the service charges in favor of more rent. And this is clear evidence that our strategy to lower service charge for tenants with the aim to improve the rent levels and therefore achieve rental growth is working. This slide illustrates the strategic re-merchandising project at Walloway Shopping that has now almost been completed, involving several major anchor stores. On the 17th of April this year, Zara opened their full concept flagship store of 3,300 square meters, doubling their floor space in a new central mall location. This was shortly followed by C&A, who relocated and opened a 1,500 square meter store that was previously occupied by Zara. Meanwhile, Inno has started the full refurbishment of their 12,000-square-meter three-level department store, while Carrefour recently replaced Walloway's supermarket match, introducing the latest version of their Carrefour market concept, which in terms of quality is much more closely aligned to Walloway's immensely wealthy primary catchment. A similar project is underway in our Milan flagship Carrozzello. where Media World recently relocated into the former Cohen department store, which is around 3,000 square meters, thereby creating the retail space and opportunity for this important re-merchandising, which is focused on a new full format Zara of around 4,600 square meters, who will triple the size of their former store. The new Zara store is being built together with a new 800 square meter store for Bershka, and an enlarged Stradivarius store of 550 square meters. These Inditex stores will be completely and fully open for trading in early October this year, and will collectively become their flagship representation, serving the eastern region of Milan. In Sweden, at Grand Samarkand, Växjö, the development is well underway for a new external retail store for the expanding value retail The 8,200 square meter unit has been led on a 10-year lease and is scheduled to open in March 2025. The project cost, including land, is about 11 million and is expected to provide a return of at least 8%. We recently developed a similar store for EcoHallen at Nerschöping, which is illustrated in the picture at the bottom left of this slide, and sold the investment at the yield of 6%. Over the last five years, the health and beauty sector has increased its presence in our galleries by 24% in terms of floor area and by 32% in terms of rental income. Rituals have recently opened three more stores in our shopping centers, bringing their total number in our portfolio to 11, with another store due to open in Fiordalisa this autumn. New international brands expanding across our markets include the French fragrance designer Adopt, who have opened recently in Passage du Havre and Les Atlantes. Wiken Cosmetics, who have opened three additional stores in our Italian portfolio, taking the number to six, while their main competitor, Kiko, are now looking for larger stores and also investigating the Belgian and Swedish markets. The sector is also seeing the expansion of specialist beauty centers such as MediMarket, who are substantially increasing their footprint and their unit size to provide a range of in-store treatments in addition to the normal product range. MediMarket have recently signed for an enlarged unit in Walloway, which is 680 square meters, and will shortly open in Cremona Pole. The food beverage sector is continuing its rapid expansion following the COVID-19 restrictions with a range of new brands, concepts and formats. The sector now represents 9% of our gallery floor space, an increase of 23% in GLA and of 31% in rental income. To satisfy the increasing demand from both customers and operators, We have recently completed several F&B projects in all our markets, repositioning F&B as a central pillar of attraction, increasing both footfall and dwell time. The sports sector also continues its rapid expansion with the increasing popularity of branded sport and leisure fashion. The sports sector now represents around 10% of a gallery floor space, an increase of 24% over the last five years. this demand has resulted in a significant increase in rental income and also the rent per square meter of 64 percent and 32 percent respectively many of these brands are increasingly operating cross-border with jd sports being particularly prominent with whom we have already six stores covering france and italy increasing demand for sneakers and training shoes has seen the expansion of specialist footwear retailers such as Courir, Foot Locker, Snipes, and Skechers. This slide looks at the fastest growing brands in our shopping centers over the last five years. I just mentioned JD Sports, but on this slide, I would also like particular reference to Normale, the expanding Danish value retailer who is present in all our seven Swedish shopping centers and are also performing well in France. both in Passage du Havre and now also in Modeau in the suburbs north of Paris. Normale are also seriously investigating the Italian market, and we fully expect to have their presence in our portfolio soon. Fashion continues to be the cornerstone of our galleries, representing around 40% in terms of floor space. However, the big change in this sector is that it now comprises fewer but much more larger stores. This is most evident with Inditex as illustrated in the re-merchandising project I've just shown in Bolloway and Carosello, where they are doubling and even tripling their store size in order to showcase the latest full Zara concept. All the Inditex brands are expanding their representation, and we currently have 24 of their stores, mainly in Italy and Belgium. Equally, H&M already doubled the size of their stores in our Swedish centers before the pandemic. taking their typical unit size to 3,000 square meters, including H&M home. Before I hand over to Roberto for discussing the financial results, I would like to say a few words about some of the ESG activities listed on this slide. We continue with the double materiality assessment to identify key ESG topics and to evaluate your commercial's impact on the environment and society. Our approach ensures compliance with the Corporate Sustainability Reporting Directive and its standards. This process will be finalized in the third quarter of 2024 so that we're ready for reporting over 2025 in compliance with the CSRD and with limited assurance provided by our auditors. The recertification of our assets under new BREEAM in use protocol version 6 is progressing well, and we just received the certificates for our French assets with either excellent or very good scores. We continue to make further progress with our sustainable finance goals, having just reached agreement on the commercial terms for additional green and sustainability-linked loans for financing in Belgian and Italian and Swedish shopping centers, which loans Roberto will cover in more detail as part of the financial review. This slide provides the major ESG achievements reported over 2023, but also an update on the percentage of green leases out of the total leases per country and the electric vehicle charges in our shopping centers, which should reach a number of 494 by the end of this year. And this is the moment to hand over to Roberto Fraticelli, who will discuss in more detail the valuations of our property portfolio, the funding and the financial results.

Thank you very much, Eritian. And thank you for joining the party. Let's have a look at the valuation first. So as you've seen, as Eritian mentioned, valuations were up 1%, which is not a huge wake up, but it's very important that we see that all our countries are actually coming up in valuation. And if you look at why the valuation has changed, The most important increase is in the estimated rental value. So it's actually growth that we can then use in our shopping center for the rental income. There's also a slight decrease in the net initial yield. It used to be 5.8% in December, and it's now 5.7%. We'll look at that more in detail later. If we then go to our splits, As you know, we split our properties into two categories. Let's say one is the dominant shopping center, our flagships, and the other one is the 19 hypermarket anchor shopping centers. If we look at the consistency of the portfolio, you see there hasn't been a lot of change. The upper initial yields for the flagships stayed the same from December at 5.4%. While the APRA net initiative for the suburban, it went slightly down at 6.2, from 6.2 in December to 6%. As you know, APRA, you know, it's a photograph of the moment. So there is a dependency for concerns, the level of vacancy, for example, and the rest. Now let's go to the fun part, which is the loans. As you, as we can mention, we've done a lot of refinancing this year. We're very happy with that. We refinanced in 2024. And what's also very nice is that, as I mentioned, we are going greener and greener as much as we can. As you see, the first loan that we refinanced was with Banco Popolare di Milano, Banco BPM. And it was a three-year loan. And that's because in this way, we aligned the loan on the Fior d'Ariso retail park to the rest of the Fior d'Ariso shopping center. so that when we can refinance it in 2026, we have a nice full package for a nice big shopping center. Then you add 100 million Euros loan sustainability linked on a portal in Castello with our friends of ABBI and AMRO, which has been extended for five years. And then 700 million Swedish Krona with SEB on the Alarna shopping centers. As you see, That's also a difference, not only green, but also the length of the loans has increased. Before, when there was a market turbulence, we used to increase our loans by three years, extend them by three years. And now, as you can see, we're going to five, six-year loans, and maybe also something more. That we see, for example, in the loans expiring 2025. For this, we have agreed commercial terms. That means that we assigned a beautiful term sheet. and we hope to finalize the contract by the end of the year so that we are all happy. The first one is on Voluwe, a big loan with ABN AMRO and ING for 265 million euros. The extension is a little bit over six years and we are going to get a green loan because Voluwe is getting a BRIM certificate and we are pretty confident they will be excellent. that allow us to have a green loan, nice green loan also on our VoloVe asset. Then there is a 50 million loan on CremonaPo, always from Ambien Amro. And that's also green and sustainability linked. And then last but not least, we have in our Valbo shopping center, we are renewing the loan for 550 million SEC. And that is also going to be a five-year loan and green because Valbo is also green. As Evert-Jan mentioned before, we made a lot of effort with all our assets for concerns getting green and nice, beautiful green certificates, even with the new V6 standard. What does that mean? Well, if you look at the financial summary at the end of June 2024, that means that the loans that were expiring in 2025 have been moved mainly to 2030 and 2031. So that's a nice movement forward of our loan expiration dates. As you see, there is a bulk at 2026. That's mainly our three beautiful flagships in Italy, which is Carosello, Ingenium, Fiordaliso. For that, as you know, we have already started discussion with the banks. It's over two years far away, but it's always better to be prudent and we start the negotiations. What's also interesting to see, if you look at total net borrowings, there's a slight decrease compared to December. And the average term of our hedges, as we'll see better in the next slide, is almost six years. And we kept the overall interest rate at 3.2%. It was the same as December. And that's also especially thanks to all our hedging, which we're going to look at now. So this is a graph to give you an idea of what we're doing on the interest edging. The top graph, let's say, gives you the overview of what's been happening until now. So as you know, we try and maintain an edging ratio of around 80%, sometimes up, sometimes down, depends also on the interest curve. And what it also shows is the Euribor, three months, it varied from the minus 0.5% at the end of 2020 to the plus 3.7% at the end of June, which is a humongous increase. But if you look then at average costs, you see that it increases, but it increases at a much slower pace than Euribor. And that's due thanks to the 80% coverage, of course, having 80% interest rate edged. And so there is a 20%, which is still a variable, and that's where you have the impact of the increase in the year-over-year three months. We also tried to give you an overview at what we are, what is going to happen in the future. So where is going, our edging ratio, where is it going to be? That's a bottom graph. As you see, we're trying to keep around 80% and just as a form of information. Until today, we have entered into a new swap for 150 million euros. Length is around six years and the interest rate is something lower than 2.6%. And also, we did that for this TBOR. So we swapped Swedish krona for 1.3 billion at an average length of something around the five years and a fixed rate of something less than 2.7%. Then let's look at our financial position. We just highlighted for you the four main points of interest, as you see. It is all pretty stable, which I think we like. The net APRA net initially decreased to 5.7%. We mentioned that before. The property investments were up by 1%, or the equivalent of 37 million, which we already discussed. The net borrowing decreased by 10 million, which is marginal, 0.7%, but it's not an increase. And the APRA NTA per share decreased slightly of 22 cents, or 0.6%. due to the fact that we issued new shares. As you know, for our dividend policy, we offer you the opportunity of choosing cash of shares for your dividend. And many of you have shown quite some interest in that, because we had interest ranging between 18% and 24%, which is a significant and important feedback for us that you actually appreciate this. But that, of course, leads to some dilution in our net asset value and the rest. So we compensate that marginally through our buyback program, which is now moving forward and which Etienne will discuss also later in the slides. If we now go to our loan-to-value, which is the slide next, You see that it went down from the 42.5% marginally to 41.8%. That's, of course, due to the increase in value of the assets and the slight decrease in the loans. Let's remember that our group covenant ratio is still 60%. And so we are at 41.8% and the loan-to-value Covenant ratio for the group is at 60%. Then we're almost there. ICR and net debt to EBITDA ratio. As you see, the net debt to EBITDA is continuing to improve. We are now at 8.5 compared to the 8.9 that we had at the end of December. Consider that the six-month EBITDA is annualized. So it's a calculation that is made. And if you look at the ICR ratio, it stayed stable, 3.7, 3.6, notwithstanding the strong increase in interest rate. So we see also that as a positive contribution for a positive ratio for our company. Then we go to the first of our bridges, which is the NTA. So we started on the 31st of December from 39.59. If we add up the direct investment result, which is €1.24, and the indirect investment result of €0.44, then we deduct, of course, the dividend that we distributed to you of €1.70. And there you see also the effect of the increase in the number of shares. So the stock dividend partially compensated by the share by back. Then for APRA, we need to adjust for the deferred tax. and then for the fair value of the financial instruments. And then we have the others, which is mainly related to the devaluation of the Swedish krona. And then we get to the end, to the 39.37 euros. If you look at the income statement, let's remember that those are IFRS figures. You see that the rental income increased by 2.7 million, 2.5%. Net property income increased by 5.3 million. That's a nice 6%. Direct investment results increased by 2.8 because we go from the 64.5 million to the 66.3. And, of course, there is also the increase in the indirect investment result per share, which is due to the positive evaluation of the asset and, of course, of the derivatives that we have in our portfolio. Last but not least, maybe the slide that you like the most, It's about the direct investment results, and we compare, let's say, what we did in one year, so from the 30th of June 2023 to the 30th of June 2024. As you see, the rental income went up by almost €4 million. We made a good gain on net service charges, so that means that we're able to recover more. Then we have to deduct amortization for end discounts and feed-out costs of the projects that you Evitiano has also illustrated partially of all the projects that we have been putting in place in the past period. We have a good increase in bed deaths. So we actually recovered more bed deaths that we thought we were going to have to concede. So that's very good news. And on the other hand, we have higher IT costs. And that's, of course, due to the digitalization program that we are implementing all over the group and particularly in our assets. Then we have the huge impact of the net interest expenses, 4.8 million euros. As you remember in the graph that you previously saw, the Euribor really showed up in 2023. And there you see the effect on the unedged part of the portfolio. Then we have corporate income tax. We made some savings, mainly in Sweden. And others are savings that we made in company and property expenses, mainly, and part of them also in land tax that we were able to recover. And now on this positive note, I am back to Evert Jan.

Well, thank you, Roberto, for presenting all these figures. I also would like to say a few words, as I said before, about the share buyback program, which your commercial announced on the 7th of June 2024, as it is related to our dividend policy and in particular the option to elect for shares instead of a cash dividend. We announced the start of the buyback program for a maximum amount of 15 million, and the program started on 30 June and will cease on 29th of November. or as soon as the maximum amount of 15 million is spent to buy back the company shares. It is expected that the total number of shares to be bought back will range between 1.2 and 1.4% of the issued share capital of the company, depending on the prices for which the shares can be bought back. The objective of the buyback program is to avoid dilution as a result of offering stock dividend to shareholders in 2024. Given the prevailing stock price, the company expects the buyback to be enhancing to earnings and net asset value per share. And the buyback will be funded by existing cash and loan facilities, and the company will keep the repurchase shares in treasury. Up to the 29th of August, 440,000 shares have been bought back for an average price of €22.74. which translates into a total amount of €10.1 million, meaning that about two thirds of the programme is now completed. In 2024, we paid a total dividend of €1.70 per share compared to a total dividend of €1.60 per share paid in 2023. And this is an increase of 6.5% and translates into a 73% payout ratio, close to our payout ratio target of 75%. We also offered shareholders the option to elect for a dividend in shares instead of the cash dividend. As these shares are charged to the fiscal share premium reserve, there is no Dutch dividend withholding tax due, which may be attractive for those shareholders who cannot obtain a reduction or a credit for the 15% Dutch dividend withholding tax. and the take-up of stock dividend in January and July of this year confirmed that around 20% of our shareholders appreciate this option. According to the dividend policy, the cash interim dividend is expected to be 40% of the total cash dividend paid in the previous financial year, which for 2024 is €1.70. So for January 2025, the cash interim dividend is expected to be 68 cents per share. We intend to also offer shareholders in January 2025 the option of taking a stock dividend instead of a cash interim dividend. And now a few words about the guidance, because Today, the company's results are not directly affected by the wars in Ukraine and Gaza, but that could still change with the conflicts escalate further. Indexation for 2024 is much lower than 2023, which will impact rental growth. And we also cannot exclude that some tenants may have a hard time due to competition in their sectors and could become insolvent. However, Short-term rates have now come down due to rate cuts by central bankers in Europe. And further rate cuts are now expected by the markets to take place later this year, which will have a positive effect on our interest expenses and may have a positive effect on property values later this year as funding costs will come down. So on balance, we're optimistic about 2024 and therefore assuming no major deterioration of the macroeconomic environment, we update the guidance for the direct investment result for the year 2024 and expect it to range between €2.35 and €2.40 per share. And I would like to conclude this presentation with the statement that this management board were truly thankful to all our teams in the various countries for their hard work and the continuing commitment to Euro commercial. And I will now hand over to the operator for questions.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We will now take our first question from Veronique Mertens of Kampen. Your line is open. Please go ahead.

Hi, good morning all, and thank you, team, for the presentation. Three questions from my side. Firstly, I noticed that in your CapEx disclosure table incentives, tenant incentives went up quite significantly. Curious if you could elaborate on that. Is that a trend that you're seeing, or is it a specific one-off that we are seeing here? And then secondly, I was hoping to get a bit more feeling on how Sweden is performing. We've seen a gradual increase in vacancy and also your peers seem to show some underperformance in that region. So happy to have some additional color from you about that region. And then lastly, on the investment market, if you're currently seeing some interesting opportunities in the market or if we could expect some activity either on the disposal or on the acquisition side from your commercial. Thank you very much.

Okay, well, thank you very much for your questions. Can I maybe... Roberto, Capex. I'll start with Capex.

As you've seen, there are some one-offs, because, of course, we've done some nice projects in the past which are still depreciating, and some that are coming. You've seen Voluver. But, of course, we invested some money. You see Carosello, where we are investing some money. You see Colestrada, who will be investing some money. It's mostly part of the going concern of the assets and improving, let's say, their quality and the merchandising mix. So that's something we are continuing to do. We do not see anything in particular that will bring them even higher in the future. But let's say that's a bit of the situation at the moment, Veronique.

Okay, so no structural increase in incentives when discussing new leases?

No, because let's say when you talk, for example, to the big names, then, of course, they make big investments and they want you to help them out as well, which is fair. So, you know, they do make big investments in their shops as well. And that's, of course, to the benefit of the quality of the shopping centers of the future customers. footfall on the future uh income that we're going to get from the centers that the turnover their turnover the turnovers of the other shop which are which are in the in the shopping mall so we're quite positive of that but uh yeah as you've seen with that we we had some some some very interesting big projects that we've been working on uh in this in this year yeah

Yeah, and then Veronique on Sweden, indeed, we reported an increase in vacancy, but that's clearly the effect of ICA Maxi moving out in your shopping Ingolstadt, which is, of course, a huge unit. It was 9,600 square meter. More than half has been re-let, and Coop and Normaal will open in November, but we're still Of course, left with 4,400 square meters, which were in the process of re-letting or at least targeting that we get that also re-let. But that obviously has some impact on the numbers. But it's not, you know, something where we say, okay, this is a sign which we also experience in other centers. There are still here and there, of course, tenants who may have difficulty financially. I think that's also something we see in France. Even in the Netherlands, there are still parties who do not make it after the pandemic and probably be kept alive for a while with subsidies, etc. So that will phase out. But no, we don't see any particular... let's say specific difference if you compare Sweden to our other countries having said that Riksbank has moved in terms of rates so I think that is a positive we actually last week already and this week as well we benefited from that because the interest rates in Sweden have moved a lot, which is nice for us, but it's also nice for the consumer in Sweden because we know a lot of Swedish families, they still borrow mostly floating or at least short-term. And therefore, if there is a decrease in interest rate, they see that immediately in their pocket, in their wallet. And therefore, there's more left to consume, to spend. Then, finally, on the investment market, I think we are all keen to see what will happen after the summer holidays, whether this decrease in interest rates, at least in Sweden, and, of course, very keen to see what is happening now in the US, where we see probably an acceleration of lower rates. ECB moved one time, but there's more probably in the pot And I'm sure that the lower interest rates will certainly trigger more activity in the investment market. We're obviously following that very closely for our full markets. But I think it's probably a little bit too early to really see the first activities. But I'm sure maybe in four to six weeks later, we may see some further examples, Veronique.

Okay, that's very good. Thank you very much.

Thank you. And we'll now move on to our next question from Francesca Faragina of ING. Your line is open. Please go ahead.

Yes, hello. Good morning, everybody, and thanks for taking my questions. I have a couple. The first one is on guidance. It looks a bit prudent in light of the results that I saw today. So can you make a little comment about H2 and if there is any particular reasons or hypotheses that explain your cautiousness? And the second one is on the refinancing that you mentioned over the call. Can you give some more colors about the terms of this refinancing? Many thanks.

Yeah, thank you, Francesca, for your questions. I'll leave the financing to Roberto and the terms, etc. But on the guidance, nice to hear from you that you qualify that as cautious, because that's probably a little bit the image we have. So I'm pleased that that's confirmed with that. No, but indeed, you could say cautious I think if you compare to what we did, for example, last year, where we also narrowed our guidance upwards, but that happened in the third quarter. Now we do it already with the half-year results. And I can just tell you the main reason why we lifted the floor. We left the cap still at 240, but the floors, in other words, that we are feeling more confident Um, and ending up in, in the higher end of, of, of the guidance has to do with the interest rates. Um, and we still have a portion which we are, where we're boring floating. Um, and, and that helps now with a lower URI board is certainly a lowest T board. Uh, and on top of that, uh, some, some good hatching possibly, but possibility. So it's really the, the, the, yeah, let's say the fact that our biggest component in our P&L in terms of cost, meaning interest. We have more comfort there and already are benefiting from lower rates. And that was really the main trigger for our decision. Roberto.

Yeah. Francesco, thank you so much for your question. you know that unfortunately we are not allowed by the banks to disclose terms, and that's part of the confidentiality. But as you correctly say, you know, give me an idea on where you are. The terms are more or less similar to the ones that we had before, surely less expensive than during the crisis. What we see is some margins are a little bit up, but that's mainly due to the fact that the length of the loans is longer. So before when you had a three-year loan, for example, and now you have a six, almost seven-year loan, then the margin are slightly higher to reflect, of course, the higher risk, which is related, which is for the bank being committed for a longer period of time. So overall, let's say no change. What we expect is actually to see a quite stable interest expense that we showed before and that just mentioned, also with the fact that, anyway, the interest rates might stabilize, go a little bit down, and then the 80% or above hedging of our instruments, financial instruments. Does that answer your question, Francesca?

Yeah, that's fine. Thank you.

Thank you. And we will now move on to our next question from Steven Beaumont of ABN AMRO or ABHF. Your line is open, please go ahead.

Hi, good morning and thank you for taking my questions. I have three, so maybe take them one at a time to start with the first. Could you please elaborate on the likelihood for you to announce new redevelopments or internal investments for your commercial in the next 12 months?

Yeah, well, Steven, we talked about A small one in Sweden, which is a bit of a standalone project because we had the possibility to create for Equahallen a nice big unit, which we'd done before, and lease it. And it's a good return on cost. And we'll then have to see whether we keep it in the portfolio or whether we think we should sell it. I think there is demand for this type of product. So we took that opportunity. But if we look at the portfolio overall, I think what you will see us doing mostly is working on the existing tenants and then particularly inside the malls. So Roberto already referred to Carosello, but also Colostrada, which is a little bit further out. But I think there we will do a similar musical chair project um project i like we did in carousel and certainly walloway which is almost now ready and um and i think we we do have a few more of these opportunities and another point to raise is again um uh you know the the change in hypermarket operators uh particularly in france we had two centers uh amia and uh where casino was actually disappearing as a brand and Intermarché is now the hypermarket operator but it also brings possibilities that we may in due course get some space back which again allows us to in the existing buildings in the existing mall to create further value with new lettings it's usually not too expensive space you get back so you can do something nicely for also the larger operators there and actually Another example there, which very recently was announced to, yeah, of course, our surprise, but also it's to our benefit that what is happening in Etrambierre and in Valtuari, where Migros, which is a well-known operator in Swiss, but not so much in France, is now basically cooperating with Super U to create a much more um let's say dedicated hyper market for the catchment because a lot of french people live around there working maybe in switzerland but living in france so we we again uh think that is a boost for those centers um and maybe um we can therefore also further work on on the tendency mix in these buildings so don't expect us to you know um come up with Big extensions, there is, of course, still the possibility in one or two, but it's also taking time. We need, in Italy, still a lot of consents to do that. But in the existing model, it's fun. And I think we can create a lot of value doing the things you've seen some examples.

Maybe one follow-up. You discussed also some France centers and actually all seems to be good there from retail sales and food for just like you mentioned. But the question is then why is it hard to convert this to positive renewals in France so far? Maybe what to expect from renewals in H2 or 25?

Yeah, I think let's say the renewals is here and there. um uh taking a bit more time effort but also i think we it's fair to say as i said earlier that they're still here and their tenants struggling um and that happened particularly in france where in the fashion mid-market fashion sector a number of typical french brands cannot survive against the competition of of an inditex and primark and other major retailers That's probably going to continue. But on the other hand, we had, of course, nice rental growth in France. Indexation kicked in two times over 6%. Yeah, if you do a renewal, can you always get the tenant again paying more rent than he already paid due to all this quite substantial indexation? I don't see it as a warning or a red flag for what has to come in France, but there was a particular minus in France, but that also had to do in Passage du Havre, and more examples, but in Passage du Havre, where we now have Perska, part of the Inditex group, in a very nice unit, and there we had to yeah, to forego some rent to make it happen because, yeah, it's, of course, a very high rent per square meter in downtown Paris. That was one of the main contributors, yeah.

Okay, and going forward, you expect renewals in France to be flat, so maybe slightly negative still.

Yeah, I think, let's say, you can see that the re-lettings obviously form the larger part of the nice growth which we show. And in the renewals, it's probably going to be a little bit weaker. But, you know, it also depends, of course, on where we are exactly, in which center, with which leases to mature. So, again, we don't have penciled in any particular weakening or whatsoever in the French portfolio. Having said that, You know, leasing is still doable, but it takes more time. And in some cases, you need to also carefully look at what are you offering in terms of maybe an incentive or whether you can help a tenant with a fit out. But I'm sure that that's an experience which all of our peers have as well.

Thank you, that's very clear. And my last question, more technical question, could you please comment on the background of the two costs reclassifications that we've seen? So from company expenses to property expenses and the other was from the reduction of other income to service charges.

Yeah, let's say other income to service charges. That's because let's say those are costs which are actually recharged to tenants. So what you had, you had, uh, you know, the income, you had some, um, uh, income, which was actually a cost, which are reserved to parents. So we said, why should you have another income, which is a post containing a lot of strange stuff, also, uh, costs that you can actually quantify and qualify. So that's why we moved that from other income to service charges. And we did the same also for some interest that we had, interest income. And the other question, sorry, Steven, was?

Yeah, you also reclassified company expenses to property expenses, a bit less than a million.

Yeah, correct. That's because those are really, let's say, if you look, for example, at IT costs, We usually kept them in company expenses because they were generic. You know, it was not a huge amount. And we thought, well, you know, company expenses can do. But actually, with the digitalization program that we're putting in place, we are investing a lot of money into new softwares, into new programs, and into new CRM and the rest. which is actually something that we're using directly for the properties. So we thought a better allocation of this expense was not in a generic post being the company expenses, but actually being allocated where the cost should be allocated, because that's also where we need to add the effect, which is in the properties. That's why we did the reclassification, just to make it clearer and simpler for everybody to see. that those costs were actually being allocated properly in the accounts. Does that answer your question, Steve?

Yeah, that answers the question. Thank you so much, Roberto, and the rest of the team, of course.

Thanks. Thank you. It's always a pleasure.

Thank you. And we will now move on to our next question from Amal Abulkertem of D-Groove. Peter, can your line be open? Please go ahead.

Yes, good morning, everyone. Thank you for taking my questions. The first one would be on the French portfolio and the transition from the casino hypermarket to intermarché. I just wanted to know if you asked for any incentive measures from the new tenants or support measures during this process.

Well, thank you, Amal, for your question. In the case of Amiens, we are not the landlord, so I'm not aware of any requests to the landlord of that hypermarket. What I can say in the case of Saint-Transur is that basically what happened is that the new tenant so to speak because there we own the whole shopping center so we are the landlord also of the hypermarket unit stepped into the shoes of casino obviously we all were also involved in the contract because we had to give consent but basically it was just a matter of carrying on with the existing position so there is no let's say change in in conditions or contributions or whatsoever. But of course, what can happen, and it's still early days, but we all know that the hypermarket operators nowadays, they make their money mostly in the food sector, and the non-food is the more difficult part. And the unit in Saint-Transur is huge. It's a very big hypermarket, and there's quite a big component non-food, so yeah let's say our expectation is that there could be maybe in due course a position where where we could get back space um which then we have we have certainly ideas or even more than that demand for that space so if that happens that would be really a win-win because of course intermarche could do better if they focus on on those products where they really make the margin and where they are successful At the same time, we can make the gallery more attractive with a better tendency mix.

Just to stay on the French portfolio, you are publishing a bit later than your peers. Can you provide us some color about how the sales went during the two summer months, especially after the elections?

Yeah, well, let's say we do, of course, get our numbers in every month. In July, we have some color there. August is too early to tell. And I think the overall picture we see, but that's not only France, but it's quite a sort of a flat, let's say, picture. I think there's a lot also depending on weather. I don't think that July is really, was a great month in terms of weather and so on. Then we don't have, of course, many centers there. We have one in Paris with Versailles, you have the Olympics. It was rather quiet, I can say. Nice Olympics, but I don't think... It was particularly interesting for retail that month. And I said before, the other countries show a similar picture. So nothing dramatic, but also not that you could say it's up particularly. That's probably all I can say, Amal, about July. And August is too early to tell because we don't have the figures.

Of course. I think it's already helpful. Perhaps now a question for Roberto. Following all the refinancing you have now concluded or about to conclude, how do you see the cost of financing going forward, let's say in the 12 months down the line? And is it fair to say that we are close to the peak?

I wish I'm up. I mean, if you look at the number, that's a very good question, and I wish I had the crystal ball, because then I wouldn't use it before. But from what we can see now, if you look also at the latest inflation data of today and yesterday, you see that the signs are there for the interest rates to decrease. The impact on the long-term part of the curve that's for us, extremely interesting because that's where we work with our swaps, with our extensions, and that's already gone down significantly and that we really appreciate. What we also see is that the refinancing from the banks is actually the margins are improving. So that's something that we're seeing in a bit all of our markets. So hopefully, and I hope you share my positiveness, then the cost of refinancing could go down a little bit. What we mentioned before was that we are going to possibly stick around where we are because, of course, we are always cautious. But if we look at the potential impact of lower interest rates, you know, especially on the short-term part of the curve, which is still quite high, you know, on the 20% or 16% part of our loans, which is not hedged, you know, that would be a very welcome gift.

Yeah, and I think what we still, of course, appreciate, because it fits with our strategy, that we can uh do forward hedging because we we only use bank financing and there are no particular other instruments with fixed coupons so we can always make use of the curve and it is still inverse quite quite dramatically so which means that if you if you do a forward starter one or two years out and then extend for another three four five years you get nice nice levels i mean we did have one of the swaps eurozone 2.2 percent coupon for for quite the long term is is not bad and now in in the swedish crony you can see similar levels so it's it's trending in in in our direction where we want it to be yeah okay very clear thank you and the last question on my side on the share by by program do you consider perhaps extending this program beyond the november end of november Well, Amal, as I said in my remarks, the program is around two-thirds of what we had planned for. But it is looking a little bit like watching the grass grow. It's every day. Yes, we buy back some of the stock. Obviously, we're were bound by the safe harbor rules, as they were called, because we're in a closed period. And then in this case, even Emerald Bank can buy back and only to a maximum of 25% of the daily volume, that kind of rules. But it is, and I think we're not the only one, if you look at peers who do buybacks programs, it is a very slow process. So I'm hopeful that we get to 50 million before end of November, so that at least is done. But I think we will probably have a look when we arrive in January with the interim, where, as we said before, we expect around 20% of our shareholders to pick up the stock dividend again. And then, of course, we can consider to do a buyback program to sort of mitigate or really make sure that the results of of a stock dividend, which is always a little bit dilutionary to reverse that by a buyback. So we will monitor that. But for now, I think we just carry on with this program. My expectation is that probably say about, let's say, end of September, early October, we will probably have announced that it is finished. And that's fine. And we're still you know, the average has gone up a little bit in the buyback price, but it's still, for us, good value because the stock dividend was priced a little bit higher, so we still make a margin in favor of all the shareholders and the company.

Indeed, it was very accurate, given the issue of the shares for the stock dividend. Okay, that is very clear. Thank you very much, both of you, and have a nice day.

Thank you.

Thank you, and we'll now take our next question from Arianna Torres of Intesa San Paolo. Your line is open. Please go ahead.

Good morning, all, and thanks for the presentation. I have one question. You mentioned a significant contribution from turnover rent in Italy, so I was wondering if you could elaborate more on that, also in light of the overall retail sales performance in Italy. Thank you.

Thank you, Arianna. Well, this is Of course, a very good question regarding Italy. So if you don't mind, I give Roberto the floor to answer this one, as he is, of course, always very close to what's happening in Italy.

No, Arianna, thank you so much for your question. I mean, as you know, we have some retailers which have a significant component in the turnover rent. And if you think, for example, Inditex, they are the main contributors to the turnovers, and they've actually been performing very well, at least in our shopping centers. So let's say there where you see actually an increase in the turnover rent, there are also many other contributors, but let's say this is the main one. And what we are expecting, actually, if you look at the sales, we're actually expecting... a lot of good news coming from this turnover trend. So hopefully, this is a trend which is going to continue and possibly increase. And that's, I think, how I would see it. Many thanks. Does that answer your question, Arianna?

Yeah, of course. Any quantitative indication to quantify this significant contribution?

As you know, we are quite prudent. And it also depends, to be completely fair, on the weather at times. We had, as you know, a quite crazy summer in Italy. So sometimes the sales for fashion were not performing as good as we had hoped. other times when there is a change in temperatures and then the seals shoot up. Let's say what we take into consideration is, let's say, eternal rent are more or less the same size for the coming period. That should be our expectation. And, of course, we like to be surprised on the up, but I think we also need to be cautious because, of course, If the weather is different, then it's complicated. I mean, you can imagine, for example, a very warm winter. So that, of course, has an impact on the fashion sales.

Yeah, and for now it's a seasonal effect because we get these turnover ends always in the first half of the calendar year because then you know exactly what happened in the previous year. So it's really now that we enjoy it. Let's see in 12 months time.

Yeah. Shoes, for example, is very valuable. So, you know, that's also a component which we monitor quite closely. Yeah. If that answers your question, again.

Yeah, yeah. Very clear. Thank you.

Thank you. As a final reminder, if you would like to ask a question via audio, please press star 1 on your telephone keypad. For webcast questions, kindly press on the orange button which says ask a question. Thank you.

If there are no further questions.

No. Okay. Well then, if there are no further questions, all I can say, thank you very much for attending this conference call and being with us this morning to discuss the half year results. And I would like then to hand over to the operator to close the conference call. Thank you. Thank you.

this concludes today's call thank you for your participation stay safe you may now disconnect