Citycon Oyj (CTY1S) Earnings Call Transcript & Summary

So good morning, everyone, and welcome to Citycon's Q2 2020 Results Audiocast. We have today published our half year 2020 report, and it can be found on our web page under the Investors section, as usual. My name is Laura Jauhiainen, and I'm here together with our CEO, Mr. Scott Ball; and our CFO and Executive Vice President, Eero Sihvonen. So today, there is a lot to discuss. So Scott will start today's audiocast with an overview of the quarter and the operations in the COVID environment. This will be then followed by Eero's financial overview, and Scott will conclude today's presentation with a few remarks on our strategy and our focus areas and a summary of the main points. As usual, you will have a chance to ask questions after the presentation. There will be a separate Q&A session once Scott and Eero has finished their presentation. So Scott, please go ahead.

Thank you, Laura. Thank you, and good morning, everyone. I'd like to start this call with a shout out to the team at Citycon. I'm extremely proud of the achievements and the relentless work of our team and our Board to manage the current circumstances while keeping Citycon's long-term goals in mind. I will present a short summary of the Q2 results as well as the key highlights for the quarter. There were several important events, and we also gained more visibility on the impact of COVID-19 that affected second quarter operations and financial results. This will be followed by a financial overview given by Eero, and I will end today's audiocast with a few remarks on the positive trends we see in the market and our key focus areas during the following months. Despite the challenging circumstances, Q2 was a relatively good quarter and a validation of our strategy. Short-term effects of COVID-19 impacted the quarterly results, yet our centers demonstrated resilience and the defensive nature of the assets. I'm also pleased to see that July performance has continued to improve and the positive trends continue. For the quarter, NRI was EUR 50.2 million compared to EUR 53.8 million for the comparable quarter, using the same currency exchange rates. Our like-for-like NRI excluding the impact of currency changes declined by 4.1% as a result of COVID-related reasons as lower footfall and tenant sales negatively affected turnover-based rents, especially leasing and parking fees. Subsequent strengthening of these metrics is a positive forward-looking indicator for the aforementioned income. Fair values of properties declined by 2.1%, while exchange rate gains positively affected EPRA NAV. EPRA NAV was 11.33% for Q2 compared to 11.36% for Q1, with only a modest decline of 0.3%. NOK and SEK exchange rates recovered from their Q1 lows, with the NOK up 19% and the SEK up 8%. Strengthening of currencies positively affected equity through positive impact on asset fair values. Yet, average exchange rate for the period continued to negatively affect our results when compared to Q2 2019. EPRA EPS and adjusted EPRA EPS amounted to EUR 0.204 and EUR 0.181, respectively, increasing from EUR 0.195 and EUR 0.173 in Q1 2020, an increase of 4.2% and 4.7%, respectively. EPRA EPS was EUR 0.204 compared to EUR 0.217 in Q2 2019. Exchange rates explaining EUR 0.011 of the decline. Adjusted EPRA EPS was EUR 0.181, reflecting the impact from weaker currency and issuance of the hybrid bond in H2 2019 compared to 2019, representing a decline of 6.6%. Our rent collection remained strong throughout the first half of 2020. Currently, 93% of H1 rents have been collected. At the end of July, 88% of our Q2 rents have been collected. The final collection rate will be higher due to some delays in payments experienced during the COVID-19. This is well above the industry average, and again, reflects both our strategy that is focused on a necessity-based tenant mix as well as operating in the Nordics, a topic that I will discuss in more detail later in the call. Operationally, Q2 was a solid quarter and the bounce back continues. Our centers remained open throughout the quarter. As of today, all tenants are open for business. As a result of our strategy and having less restrictions in the Nordics, our performance has been steadily increasing from the lows in April. Footfall dipped in April following government restrictions, and Q2 like-for-like footfall was down 29%. At the end of June, the footfall had increased back to 85% and continues to increase, and it was 95% as of last week. Tenant sales fell less than footfall due to changes in consumer behavior, and like-for-like tenant sales were down 8.7%. While footfall declined, average sales per consumer increased from the prior year level and was 28% higher in Q2 compared to 2019. Leasing activity was positive despite the COVID-19 environment, and we see continuous demand for our premises from attractive tenants. We've begun to see that the volume of leasing activity is increasing after slowing down during the worst of the crisis. We leased over 123,000 square meters in H1, well surpassing last year. We are especially pleased to have signed 8 new leases with municipal tenants in H1, in line with our target to increase the proportion of these services. This addition of 8,300 square meters both supports our mixed-use strategy and adds credit resilience to our cash flows. Additionally, we have agreed on 3 deals with municipal tenants in 3 different centers. These tenants enhance our assets by driving additional footfall and strengthening the credit profile of our properties in line with our strategy. Also, these leases are at pre COVID-19 internal leasing targets. In addition to the 7 other municipal tenants, we signed leasing contracts with Espoo City Library and a contract with Wellness Center, Elixia, both of these will be located in the new Lippulaiva center. Citycon maintains a strong OCR. Our low OCR allows our tenants to operate with good profitability, which demonstrates the quality of our premises and increases the attractiveness from a tenant's perspective. As a result, our rents are stable. Furthermore, this means there's room for future rent growth through indexation and reletting. Our occupancy has been slightly impacted. While our favorable tenant mix brought stability on a total level, the fashion & apparel categories were affected by the pandemic. Our retail occupancy was 94% in Q2, and total occupancy was 93.5%, which includes storage and ancillary spaces. The decline in occupancy relates to some bankruptcies and also the slowdown in leasing activity that was temporary during the crisis. As mentioned, we are very pleased to see that leasing activity has picked back up again. With comparable exchange rates, the average rent was EUR 22.4 per square meter. The average rent per square meter decreased mainly due to weaker exchange rates and with actual exchange rates, the rent per square meter was EUR 21.7. Overall leasing spreads of renewals and relettings were positive in Sweden, Estonia and Denmark. The leasing spread of minus 2% is mainly concentrated in Finland and relates to a few individual contracts and some large space leases that were signed in Lippulaiva. As we've discussed many times previously, another factor explaining our resilience during this crisis and also during the normal business cycles is our strategy that is based on a large share of essential business exposure. Our locations in urban hubs with direct connection to transportation are perfect for the emphasis on necessity-based goods. This mix has held up well during the pandemic by increasing consumer average purchases in our centers 28% during the second quarter. We have clearly a larger share of groceries in our tenant mix compared to our peers and industry average. In addition to groceries, we have a significant number of other necessity-based tenants such as pharmacies, health care, social services, bringing the proportion of necessity-based leases to 35% of our mix. I should point out also that our share of turnover-based rents is currently only 2.9%, meaning much less fluctuation in our income stream. And as mentioned previously, the public sector has been a targeted segment and has grown to over 7% of our GLA. As discussed earlier, our Q2 results were temporarily affected by the short-term effects of COVID-19. As described, our short-term NRI was affected by the easements given to some tenants, as well as lower parking and turnover-based rents. COVID-19 substantially affected our NRI and -- by approximately 4% of the total 6.5% and is estimated to be driven by COVID-19 and the rest by currencies. Our tenant sales were affected by lower footfall and store closures. However, tenant sales declined less than footfall as the average consumer spend in our centers increased. And as mentioned, footfall has recovered and was 95% for the last week of July. The Nordics, once again, demonstrated their strength as an operating environment. The holistic approach to manage the COVID-19 crisis positively affected both our Q2 results and the operating environment going forward. In the Nordics, the governments have been proactively engaged with preserving the economic viability of business. In all of our operating countries, there have been economic support packages available for our tenants and in Sweden also for Citycon directly. Shopping centers have remained open and the mobility restrictions have been looser compared to Western Europe. As a result, we've been able to keep our shopping centers open with certain adjustments to opening hours. In Sweden, there's been a significant relief program for our tenants, consisting of direct business subsidies and company loans. Additionally, a program to cover the cost of rent relief has been implemented and Citycon has participated in this program. In Norway, a government program covering 80% to 90% of fixed cost has been implemented and our tenants have received subsidy payments under this program. Based on an analysis by Colliers, the Nordics rank among the top countries in the world in terms of government actions taken that support the real estate industry. We are very fortunate to operate in these markets. The measures have led to higher consumer confidence, which should facilitate a more speedy economic recovery. As most of you know, in Q2, we focused on maintaining a strong liquidity position and strengthening the balance sheet. We successfully issued a tap bond of EUR 200 million, with an order book 3x oversubscribed. This allowed us to both increase the size of the tap and to simultaneously tighten the pricing. At the beginning of the crisis, we drew down a portion of our RCF to demonstrate better liquidity. But now that we have comfort in our business stability, we have begun to repay that credit facility in addition to other maturing short-term financing. Currently, our liquidity position is strong with cash and the RCF totaling over EUR 630 million. Citycon's Board of Directors demonstrated its commitment to strengthening the balance sheet. Dividends payable during 2020 were adjusted downwards, and the Board announced a decision to suggest adjusted dividends also for 2021. Simultaneously with the dividend adjustment, we announced that we are currently investigating alternatives to offer our shareholders an option to take dividends in lieu -- to take dividends as shares in lieu of cash. These measures were rewarded with a third investment-grade credit rating from Fitch. We now have 3 investment-grade credit ratings from the top 3 rating agencies, Fitch, S&P and Moody's. Now that we appear to have passed the worst of the crisis, we are confident enough in our business to reinstate our guidance for 2020, which Eero will discuss a bit later. So to summarize the impact of COVID-19. As mentioned, rent collection for H1 2020 remained very strong at 93.3%. In Q2, the rent collection is currently at 88%. Our footfall has recovered and is at 95% of the 2019 year level at the end of July. All of our centers remained open throughout the quarter. At the end of July, all tenants are open for business. The total amount of rent discounts impacted our business by EUR 400,000 in Q2. Leasing spreads declined by 2% in the first half of the year, driven by currency -- primarily by currency as well as a couple of leases that dramatically changed the leasing profile of Lippulaiva. These were large leases taking tertiary space there. Our valuations declined slightly by 2.1% with a financial impact of EUR 76 million in Q2. As mentioned, our valuations declined less than industry average, reflecting the resilience of our strategy and tenant mix and were offset by strengthening of currencies for the full year in our NRV -- NAV. COVID-19-related bankruptcies are estimated to have a full year maximum impact of EUR 1.9 million. This is assuming that all stores of the bankrupt tenants would be immediately closed and space would not be relet. Naturally, this is not the case. As mentioned, while footfall declined, average sales per consumers increased from prior year levels, and the average transaction was 28% higher in Q2 compared to 2019. I will now hand this over to Eero, who'll go through the Q2 financials and financing-related events in more detail. Eero, over to you.

Thank you, Scott, and good morning, everybody. I will start with the Q2 financials. Net rental income ended up at EUR 50.2 million, which was 10.6% below comparable quarter last year. And a bit later in the presentation, I will go through in detail what exactly impacted that. But it had to do with FX weaker, SEK and NOK, it had to do with the disposals and naturally, the COVID pandemic. Our EPRA earnings ended up at EUR 36.3 million for the quarter and that was 6.2% below comparable quarter last year. Then turning over to the H1 financials. And in the first 6 months, our net rental income was EUR 102.6 million, which was EUR 7.1 million below last year's level. And again, I will go through in detail in a while what exactly impacted that. Overall, it can be said that in the circumstance, taking into account the COVID pandemic, these results are solid and good. And weaker FX, as can be seen on Page 17, had a clear impact and particularly Norwegian krone was still clearly weaker than it was at the end of last year and during the comparable period, approximately 10% weaker than last year comparative period, whereas Swedish krona has more or less strengthened back to the year-end levels. Net rental income bridge, on Page 18. It can be seen that we had an impact from the 2 acquired properties in Norway, the so-called SP-II portfolios, Stovner and Torvbyen, impacted by EUR 4.1 million. Disposals executed in 2019 had an impact of -- negative impact of EUR 2.4 million. Whereas, the like-for-like negative was EUR 3.4 million on NRI. And I think that in the circumstance EUR 3.4 million negative is a good achievement. The FX, particularly Norwegian krone had a negative impact of EUR 3.9 million and then various other minor events impacted slightly. And as a result, net rental income for the full period ended up at EUR 102.6 million. Then on Page 19, you can see the estimated COVID-19 impact, and we wanted to give you a little more color on what -- how exactly did COVID impact the company. And of course, naturally, there's a slightly higher vacancy and a loss of capital/gross rents by approximately EUR 1 million. Rental discounts overall were approximately EUR 4.5 million, but due to the fact that IFRS requires these discounts to be straight lined, the impact on our period for these rental discounts was EUR 400,000 approximately. And then slightly lower turnover-based rents, specialty leasing, parking fees and also credit losses and credit loss provisions had an impact. We still have very moderate credit losses despite the fact that the COVID naturally has impacted and made them slightly bigger than last year, but anyway, on a fairly stable level. Fair value changes for the quarter -- sorry, for the -- yes, for the quarter, we had EUR 75.6 million fair valuation losses. And for the full year, it was like 18 -- sorry, EUR 11 million higher. But for the quarter, despite the fact that we had EUR 75.6 million losses, I think that, that was also very good achievement and result compared to the peer group and had to do with approximately 8 basis points wider cap rate. And our properties are fully appraised by JLL in Finland and Sweden and by CBRE in Norway, Denmark and Estonia. So this Q2 valuation was based on full external valuation of every single property and splits between the different regions and countries, as can be seen here, i.e., Finland, Estonia, minus 33%; Norway, minus 18%; and Sweden, Denmark, minus 24%. The average cap rate as of the end of the quarter was approximately 5.5 basis points -- 5.5%. Then the NAV bridge on Page 21. And here, you can see that the NAV was virtually unchanged versus previous quarter and was 11.33%. And as mentioned, the currencies somewhat recovered from Q1 lows. And therefore, we had a EUR 58 million positive translation gain from equities in our subsidiary in Sweden and Norway, and this is, in fact, presented here under translation reserve, an indirect result, mainly refers to valuation results. So the property valuation reserve and currency-related translation reserve more or less netted off each other during the quarter and as a result, NAV at the end of the quarter was 11.33%. Our main financing metrics consist of mainly fixed borrowings, i.e., 81.5% of our indebtedness is based on fixed interest rate. We do have investment-grade credit ratings from all 3 main rating agencies, BBB- from both S&P and Fitch and Baa3 from Moody's. And as Scott mentioned, the new rating acquired recently has been Fitch. So now we have 3 ratings from all the main agencies. Loan-to-value at the end of the quarter was 46.2%. Financing key figures. Average loan maturity was 3.9 years. We had ample available liquidity, close to EUR 600 million, mostly consisting of committed unutilized revolving credit facility. We issued the tap bond at 4.5%, but still, basically, our weighted average interest rate remained at very close to previous quarter's level, i.e., our average cost of debt, including all the margins and swaps was 2.31%. Our liquidity position remained very good, and available liquidity at the end of the quarter was EUR 582 million. We had a slightly higher level of cash. We had EUR 156 million of nonrestricted cash and cash equivalents, mainly consisting from the recently issued tap bond. Thereafter, we have further paid down -- paid on the revolver. At that point of time, we had EUR 125 million of the revolving credit facility outstanding, and soon, we expect most likely to pay down entirely the RCF. Commercial paper market at the beginning of the pandemic were closed for a short period of time, but currently, Finnish and Swedish commercial paper markets seem to operate nearly normal, nearly more or less the same way as they operated prior to the pandemic, and we have access to commercial paper markets, and our commercial paper outstandings were very close to previous quarters' levels. Our maturing debt profile is very conservative. We have one bank loan maturing in Norway by the end of this year. And we have a very small remaining part of the NOK bond maturing likely in January '21. But apart from that, we essentially don't have any debt maturities prior to the revolving credit maturity at the end of next year. Another important topic is guidance. And as you recall, we did withdraw the guidance on 26th of March and now are reinstating the guidance due to the fact that we have confidence in our business, and we know what the year most likely will look like. But anyway, this is a fairly wide guidance, and this is a little bit like a more cautious guidance from that angle and assumes that there will be no major lockdowns and no major store closures in the -- towards the end of the year and no major FX movements. And -- but due to the slight uncertainty, we wanted to keep it a bit wider than we would normally probably have kept it. But anyway, we now reinstate the guidance on the operating profit level with EUR 18 million band. And this guidance is EUR 171 million to EUR 189 million on an operating profit level and EPRA EPS EUR 0.71 to EUR 0.81 and adjusted with the impact of the hybrid, i.e., so-called adjusted EPRA EPS EUR 0.61 to EUR 0.71. So this is the newly reinstated guidance. And with that, I will turn back over to Scott.

Thank you, Eero. I'd like to continue with a short update on our key development project at Lippulaiva as well as some of our strategic initiatives. We've been able to carry on the development, and it has not slowed down Lippulaiva for us as well as the connecting metro station. This shopping center will house a wide range of private and public services. One of the most significant public services will be the new Espoonlahti regional library and a Service Point of City of Espoo will also open. In addition to that, we have 8 residential towers, which will be built, consisting of 500 units of rental and owned condos. We also continued to work on our broader residential strategy with a number of concrete measures. In June 2020, we announced the recruitment of a Director of Residential Development, who starts next week. And our near-term plans for residential development project in Oasen, Norway have progressed. There are, in total, recognized zoning and permitting opportunities of over 320,000 square meters. This implies significant value creation potential with very little capital expenditure being required, and residential development remains, therefore, highly attractive for us. These are concrete steps in our strategy to capitalize on the residential potential in our centers. This increased focus on residential projects also further strengthens our position as an owner of urban hubs in line with our mixed-use strategy. We are very pleased with the quarter and confident that we are well positioned moving forward. Our resilient properties and tenant mix positively affected Q2 results and Citycon's asset values outperformed the sector average. Operational performance in Q2 was solid, and the recovery is strengthening. Leasing activity in our centers has picked up after a temporary slowdown during the COVID-19, and we continue to attract tenants that enhance our assets in line with our strategy. The Nordics is a stable and attractive market to operate within. Consumer confidence remains strong, underpinning the future retail demand. Our team is committed to our strategy, and we made progress in our initiatives around expanding our residential exposure during the quarter. Strong liquidity and access to financing were again demonstrated during a difficult quarter and will be important going forward as well. Our confidence in the business has allowed us to reinstate our guidance. So with that, I'd like to thank you for your time and hand it back over to Laura.

Thank you, Scott and Eero, for the presentation. Now we have time for questions, and we will turn the audio line on. Operator, please go ahead.

[Operator Instructions] Our first question is from Anssi Kiviniemi from SEB.

It's Anssi from SEB. Many of my questions have been already answered, but still a couple of left. I will take them one by one, if that's okay? First of all, let's kick off with the rental trend and like-for-like growth in rents. Do you think that Q2 was the lowest point and rental trend improves going into Q3 and Q4 and like-for-likes will be less negative going forward? What are you seeing now and kind of -- is this a fair assumption?

Anssi, nice to hear you again. Someday, we'll get to see each other. But in response to your question, it does seem as though Q2 was the trough, both in terms of demand, in terms of tenants who were looking for space because I think a lot of folks kind of put everything on hold and on pause, waiting to see what was going to happen as well as -- and I guess, probably directly related to demand would be pricing. We are seeing both pick up -- I think we're going to know a lot more once we get past the holiday period. But again, as we noted, we are starting to see this pick back up. It was really interesting that during even the kind of the toughest period of time that we were still actively making progress, particularly on municipal leasing. As mentioned, we approved 3 deals at the end of May, beginning of June. So really kind of in the thick of everything, with different municipal tenants in 3 different shopping centers. So I think the fact that the cities were still active, we thought was actually really, really interesting. I hope that answered your question.

Yes. Then second question on fair value changes. What factors and/shopping centers impacted the most in the negative development? And I guess the major part in the fair values it came from cap rates, but have you changed your cash flow assumptions for 2020-'21 so -- and so on? What's the cash flow profile like in the model? So if you could open that a bit, that would be helpful.

Eero, you want to go ahead?

Yes. The appraiser, as you might recall, took an assumption in Q1 that all nonessential tenants would be closed for 3 months. So there was a quite harsh assumption in Q1. Now of course, that was slightly updated. And in the case of most centers, now there's an assumption of possibly 1 month rent free for the nonessential tenants remaining. And of course, time will tell whether that is enough, yes or no. But in general, the appraisers took the opinion that COVID is a short-term crisis and therefore, they took somewhat hits on the next year cash flow. And apart from that, most of the impacts in fair values took place through the cap rate movement. Like mentioned, it was approximately 8 basis points and had to do with all countries, as you can see in the presentation naturally because it was quite broad-based in euro terms. Larger centers maybe had a bit higher losses than smaller centers, but on a percentage basis, I would say that it was pretty evenly spread.

Yes. If I could add to that, I think we did get some credit from the appraisers for the points we made in our presentation about being necessity-based and being located in the Nordics. I think they understood the upside and how we've outperformed as a result of those 2 factors. That being said, I do think that there's no real transparency because there's no real transactional activity occurring. And I could argue that cap rates -- if you look at the spread between cap rates and interest rates right now, it's kind of historically wide. And one could argue that something will happen to tighten that spread. And I don't believe interest rates are going to go up anytime soon. This is just my opinion. So that being said, even though we widened much less than our peer group, I still would question whether even that is what we're going to see going forward.

Okay. Then twofolded question. Firstly, kind of how do you look at your balance sheet currently? Does it affect the decisions you are making? And have you made kind of, let's say, changed your strategy approach doing business due to the balance sheet? And the second question related to that is on divestments and the M&A market. How do you look at the divestment potential? And what's the activity in the M&A market like?

Eero, you want to take the -- perfect.

Well, the balance sheet to start with the balance sheet, of course, the company looks to improve the balance sheet. And you remember the discussions about the SCRIP dividend. So we are reviewing the options to institute a SCRIP dividend program, whereby shareholders could take dividend as shares, and we have made some progress in -- with that. We cannot promise when exactly that would be in place. We hope to put it in place as soon as possible. Hopefully, already this year, but I cannot promise anything. And of course, that would substantially reduce the dividend outflow. And currently, we are distributing approximately EUR 90 million of dividends. And let's assume that half of the shareholders would take the dividends in terms of shares that would restrict the dividend outflow by close to EUR 50 million, and that would be much -- that would be very substantial. Then naturally, the company is looking into possibilities to dispose noncore properties. Right now, it's fair to say that disposal markets are not functioning. And -- but there are signs that they will start opening up, and let's hope that, that will be true. And immediately when they are open, I'm sure the company will come back to those. And then when it comes to the impact of balance sheet strategy, maybe Scott, you can take that part.

Well, as it relates to disposals, I guess the thing I would add is that we're taking this kind of slowdown, if you will, in the transaction market to put together a package for a group of assets that we would come to market with and make sure that we're kind of ready to hit the market as soon as it starts to open back up. Our expectation is that we think you'll start to see that happen probably after the summer in September-ish kind of time frame. So we are, as I said, taking this momentary pause to make sure that we're ready to come to market with what we think is a pretty attractive package. And I think that that's probably the best kind of insight I can give you, Anssi. I just -- it's a little bit of who knows, but that's our thinking at this point.

And our next question is from Niko Levikari from ABN AMRO.

Okay. I've got a number of questions, and maybe we can just start with the one relating to occupancy levels. I noticed that you had, let's say, steady falls across the 3 main segments that you report. I was just wondering, because I noticed that particularly with Norway, I think the drop was slightly more drastic between the full year and the H1. Can you comment on what was the reason there with the falloff with the occupancy level? That's the first one.

It's twofold, I would say. One is there was a bankruptcy of large sporting good chain in Norway that we felt the impact of. And then secondly, in Norway, these centers have a large number of, I'll call it, ancillary space, it's storage, it's nonretail space, which is why we gave you 2 numbers there. And that is particularly pronounced in Norway. So a lot of that was storage and kind of tertiary space, that's not truly retail space.

Okay. That's clear. And maybe second, you mentioned also about the OCR that it's at the lower end at the moment. But if I remember correctly, the OCR that Citycon reports is for the whole center, including the larger, let's say, supermarket or hypermarket space, however you want to call it. Can you comment on what's the OCR for Citycon Center if you exclude these large retailer spaces?

Yes. Eero, correct me if I'm wrong. I think it's just slightly over 12%. So it's a bit higher, but it's still relatively low when you compare that to others. Eero, I think I have that number right?

Yes, yes. That's the right ballpark. And I would just remind that it is an intentional strategy of the company to be grocery-anchored and necessity-based, and this has helped us a lot. And therefore, we feel that OCR should be reported on this basis, basically taking into account all tenants.

Okay. Fair enough. Maybe as the next question regarding lease incentives and market rents. I appreciate that you mentioned that you see a gradual pickup happening with the leasing. I was just wondering if you can comment anything regarding what do you see happening with lease incentives. Do you see that tenants are demanding more of these at the moment? Or...

Yes. I wouldn't say that we're seeing increased demand in incentives. I would say that when you look at retail, I think you do have to make a distinction of the different categories. And I would say the fashion and apparel parts sector of the business is probably, at this point, the most impacted. And therefore, I would say those deals are probably the toughest deals that we're doing at this point. There's probably a lot less of new deals being done with fashion, but that's, I don't want to say it's good, but it's okay when you look at our strategy and the fact that we have been, for a number of years now, focused on bringing that piece of the business, making it smaller as part of our tenant merchandise mix, I think it's just -- it's -- it kind of dovetails with our strategy. So therefore, it's not as -- we're not as impacted, one, because we aren't -- we don't have as much of it to begin with; and two, because we have strategically decided that, that was going to become a smaller piece of our business. So we were already planning for there to be -- as these renewals and expirations occur, we are already planning for there to be more replacement of some of these fashion tenants. So we're not really seeing that. I know on the continent, others have talked about this being more pervasive. But again, we're not seeing it in our portfolio.

Okay. Maybe as the last question, I just wanted to pick up on the optional share dividend angle. I noticed that Eero was mentioning that if you would get, let's say, a take of around 50%, I'm not going to comment on any other names, but I'm just wondering if that seems rather optimistic in this market. And just maybe to follow on that, have you been given any indication from your main shareholders that they will be willing to take the optional share dividend going forward once this becomes an option?

Yes, Niko, I did not say that 50% is the likely. I used 50% as one example, and you can, of course, calculate it using whatever percentage you wish, but we certainly hope that they would take the full part, and we certainly hope that as many shareholders as possible would take the dividend in terms of shares because that will help the balance sheet. Actually, the company does not know -- the real answer is we don't know what will be the stake taken by the shareholders because this has not been started yet.

[Operator Instructions] Our next question is from Allison Sun from Green Street Advisors.

Can you hear me? Hello?

Yes.

Yes. Two questions from my side, if I may? So question number one is, based on your negotiations or conversations with the tenants, what percentage or roughly, that you think your tenants are actually loss-making right now? And eventually, do you have a sense like as what percentage of your NRI would be negatively affected by those tenant bankruptcies eventually? So that's the first question. Second question is, I know that your centers are located on the transport hub, but do you have a broad sense like how residents in the city, how is their feeling towards taking the public transport to go to shopping centers? Because right now, in London, we noticed that a lot of people, they are still quite hesitant to use the Tube. So it would be great if you can give some additional color on that front?

Okay. Well, first, Allison, thanks for the questions. I would say, starting with your last question, it's interesting here in the Nordics. I sit in Stockholm, and Eero is in Helsinki right now. And it's interesting when you walk around, first of all, people are not wearing face masks. There's a general -- I don't want to say -- I think people -- because of where the stats -- statistics are and where they've been recently, people seem to have a more relaxed approach to the COVID-19 and as a result, you just don't see -- it's -- and again, I'm from the U.S., and I talked to my friends there as well as my friends in London and on the continent, and I know it's -- people have a different sense there and more face -- more people wearing face masks, et cetera, et cetera. You just don't see that here. So there's not this general reluctance. As it relates to the transportation hubs, I think where we're seeing perhaps a decline is people taking transportation to the office because there is -- there are more people continuing to work from home than there was prepandemic. And it's interesting. For us, it actually helps a number of our centers because people are using the centers that are closest to them instead of doing something to or from work. And so a number of our centers are actually seeing a pickup. It's funny, some of our smaller centers actually saw increases in sales during the pandemic because it was more convenient for customers to go there than it would have been to take the train to work or back from work and pick up something along the way. So it's an interesting dynamic there. And I apologize, Allison, I forgot your first question. The first part of your question was...

Yes. The first question is, how do you feel like the percentage of your NRI would be eventually negatively affected by those tenant bankruptcies? Or like how bad is the loss-making for your tenants right now, if you have any idea?

Yes. Yes. I think that the majority of any kind of bankruptcy that we're going to see has probably occurred because if you're going to file bankruptcy, you weren't going to kind of try to live through the COVID-19. And as we mentioned in the presentation, if all the tenants that are currently in bankruptcy were to close right away, and we were not able to relet those premises, the impact for us in 2020 would be EUR 1.9 million. Obviously, we don't -- we know that that's not what's going to occur. But just to give you a kind of worst-case scenario, that would be the impact. We're not -- I'm not expecting us to see some second wave of bankruptcies at this point. I think those tenants that were in trouble have already filed.

And maybe just to add that credit losses and credit loss provisions for the quarter were EUR 1.6 million, which is approximately EUR 800,000 higher than last year. And for the first 6 months, they were EUR 2.6 million and that was like EUR 1.2 million approximately higher than last year. So yes, they have been higher, but still very, very moderate when comparing with any of our peers.

[Operator Instructions] Our next question is from Tobias Kaj from ABG.

Yes, I have a few questions. And I would like to start with the government support package. And in Q2, how much net rental income do you include which is received from -- or expected to be received or already received the government support? And also if you can give a split between the different countries?

Yes. It's a hard question to answer in terms of what we've received because, for instance, in Norway, that money goes to the tenants, and then they turn around and pay our rent. So I think the best measure of that is how much rent have we actually collected and in Q2, we collected 88% of our rent. I think of that 88%, we're somewhere between 1% and 2% is support package money that we don't necessarily have the cash in yet, but anticipate receiving because of government support coming back to us. So I don't know if that answers your question, but that's -- I think that is probably kind of the best detail I can give you.

Okay. And you mentioned that you had 93% rent collection for the first half, and you had 1.2% credit losses, does that indicate that you have 5.8% of income, which is reported for first half, which you have not yet received?

That's -- I think that's...

I have not verified those numbers, and I have not made those calculations, but it is possible. Of course, if you look at our cash flow, you see that the working capital is slightly higher. And of course, the tenants pay a little bit slower right now. But overall, the collection has been very strong, like Scott mentioned.

I would just reinforce -- I'm sorry, I just want to reinforce, I mean, the collection, I think when we reported Q1, at the time, it was like 95%, now we're at 97%. So to Eero's point, the collections continue to strengthen and we have been a bit more lenient in terms of allowing tenants more time to pay rent. And so while Q2 is currently at 88%, that number, we fully anticipate will grow just as Q1 grew over time. And again, those are very strong numbers. I mean to be 93% in this environment, I think, is pretty amazing.

And if you have some 6% of booked income, which is not yet received, when do you expect to receive it already in the second half of this year? Or have you given notice that they can pay you later, like in 2021 or as far away as in 2022?

No, no, no. We have not allowed any payments past this year. So again, I don't have -- I can't tell you the exact dates for each of the receivables, but we've not extended anybody's payment schedule past this year. So we would anticipate to collect all of that money this year.

Okay. And you had minus EUR 24 million in change in working capital, is that mainly related to late payers or is something else as well in that figure?

It's mainly related to the collection and late payments and also sometimes impacts like VAT has an impact regarding -- particularly VAT paid in advance relating to development projects. So I don't have like an exact breakdown to give you, but roughly, these are the reasons.

And as there are no further questions, I will hand it back to speakers for any final comments.

Okay. Thank you for all the questions. If you feel that you will have some more, then please feel -- feel free to contact myself or Eero, we're happy to answer any of the additional questions. And from my behalf, have a nice day. Thank you for attending.

Thanks, everybody. Have a great day.