Eurocommercial Properties N.V. (ECMPA) Earnings Call Transcript & Summary

Good day and welcome to today's Eurocommercial Half Year Results 2023 Conference Call. [Operator Instructions] At this time, I'd like to hand the call over to Luca Lucaroni, Investor Relations Director of Eurocommercial. Please go ahead, sir.

Good morning, everyone, and thank you for joining this morning. I would like to inform you that on this call we have Evert Jan van Garderen, our CEO; Roberto Fraticelli, our CFO; and Peter Mills, our CIO, to present Eurocommercial results for the half year 2023. I give then the floor to Evert Jan to start with the presentation.

Good morning, everybody. And thank you, Luca, for introducing us. After my introduction, Peter Mills will talk in more detail about the property portfolio, the leasing and ESG; followed by Roberto Fraticelli, who will discuss in more detail the financial results. I will start with an overview of the operations of Eurocommercial during the first 6 months of the financial year 2023 and will finish this presentation with some closing remarks. We will then open the call for any questions and remarks you may have. The diversification over 4 countries and the quality of the almost EUR 3.8 billion retail property portfolio in each of these countries have again been key to the performance of the company in the first 6 months of 2023. There were no changes in our portfolio of 24 shopping centers. On the basis of the external valuations of the entire property portfolio as per 30 June 2023, the portfolio spread changed slightly compared to December 2022. Italy went up from 43% to 44% whereas Sweden went down from 21% to 20% due to currency movements. France and Belgium remain the same at 21% and 15%, respectively. Next to a good country diversification, our shopping centers are again well spread in those 4 countries and all in wealthy areas like for example Modern Italy or close to the Swiss border near Geneva or in the wealthy catchment of Woluwe Shopping in Brussels. This slide provides the maps of the 4 countries showing where our 24 shopping centers are. In my introduction, I said that the company showed a strong operational performance and here you see an overview of all the important operational metrics for the first 6 months of 2023, which underpin that statement. I will comment in more detail on each of these metrics in the remainder of this presentation. The sales in the first half of 2023 have been very strong compared to the same period in 2022. Belgium and Italy show even double-digit growth, which growth is more than the inflation in those countries. Compared to the prepandemic period in 2019, Italy and Sweden show in particular strong growth figures. It's clear that we have left the prepandemic levels behind us and that inflation is passed on by retailers to the consumers. These consumers continue to shop despite the higher prices. We are very encouraged by these turnovers in our stores during the first half year of 2023 and the growth is continuing. We just received turnover numbers for the month of July 2023 and the growth continued with 7.6% for the group compared to July 2022. If we look at the various sectors and compare the turnover for the first half year of 2023 to the same period in 2022, we see that all sectors show growth. Comparing the turnover figures to the same period in 2019, we see that all sectors have at least achieved their prepandemic 2019 levels with some clear winners such as sports, home goods and the food and beverage sector. The like-for-like rental growth for the portfolio and for the 4 countries was strong resulting in an overall growth figure of 8.2%. We always calculate these growth percentages on the basis of 12 months' data. We compare the tenancy schedule as per 30 June 2022 with the tenancy schedule as per 30 June 2023 so basically we compare 2 pictures. The reported figures include the impact of indexation, turnover rent, vacancies and the leasing activity; but exclude the impact of acquisitions, disposals, development projects and COVID-19 rent concession. You will not be surprised to hear that the main driver for the rental growth was the indexation mostly based on the Consumer Price Index. The company is in principle a natural hedge against inflation thanks to the automatic indexation clauses provided for in the leases. Next, growth from renewals and relettings. There was also a small contribution of turnover rent in countries like Italy and France. We are proud to be able to report that on 235 relettings and renewals, which last year were 268, an average rental uplift of 6.7% was achieved. These lease transactions account for 11% of the minimum guaranteed rent of the portfolio. All countries showed good uplifts, in particular Belgium. We also attracted many new tenants with our 62 new lettings achieving an uplift of 7.9%. These new deals were concluded under normal lease conditions and lease terms so no short-term leases. In the first 6 months of 2023 we entered into 112 leasing transactions, which produced a rental uplift of 7.1%. Low vacancy is usually a good indicator for the quality of the properties. Over the last 10 years, we have reported very low vacancy rates for our property portfolio ranging between 0.3% and 1.8% and we continue to do so. The average vacancy rate for the last 10 years was 1%. The EPRA vacancy rate remained very low at 1.5% in June 2023 for the entire portfolio, which was the same percentage as in June 2022. For France, the rate as expected reduced to 2.4% as a result of new lettings. But vacancies reduced also in Italy and Sweden compared to March 2023. The company has always been known for its low occupancy cost ratios and we are therefore pleased that we can report a 9.5% overall occupancy cost ratio for our portfolio as per 30 June 2023. This percentage is still one of the lowest in the industry and implies that the rents are affordable for our tenants. The rent collection is going well, which is evidenced by a rent collection at 98% of invoice rent for the first 6 months of 2023. These strong rent collection figures are also evidence of the pass-through of indexation and that there is no pushback from tenants on the indexation build by paying late or not at all. It therefore remains an important metric for the sector to report. This is the moment to hand over to Peter Mills, who will discuss in more detail our property portfolio, the leasing and will also report on our environmental, social and governance performance.

Thank you, Evert Jan. The current portfolio comprises 24 shopping centers and provides diversification in terms of geography, size and type. Our 4 countries; Italy, France, Sweden and Belgium; are shown here on the slide weighted by value. Italy remains our largest market at 44% of the portfolio, a weighting that we are happy to maintain as the positive economic and retail indicators that initially attracted us to the Italian market remain: namely extremely high wealth levels in Northern Italy and particularly in Lombardy where our 3 Italian flagships and CremonaPo are located, very low online penetration which has only just reached 10%, low levels of household debt and very low shopping center density and therefore competition partly because shopping center development started so relatively late in Italy from the early 1990s, meaning that even today retail density in our Italian catchments is well below half French levels. The existing portfolio also provides asset diversification with its 5 flagship shopping centers balanced by the remaining 19 suburban hypermarket anchored shopping centers. The 5 flagships are located in their respective country's capital or main economic cities and are important centers in their national context and retail hierarchy. I Gigli located outside Florence remains one of Italy's largest centers by footfall while Fiordaliso and Carosello are 2 of Milan's 3 regional shopping centers. Passage du Havre is a prime established central Paris gallery while Woluwe Shopping in Brussels is still regarded as the benchmark for shopping centers in Belgium as it has been over the last 50 years since it first opened. And these flagships attract a broad international tenant base and have a higher discretionary spend component, particularly fashion. By contrast, our 19 suburban hypermarket anchored centers have different and more defensive characteristics with over 60% of their floor spaces devoted to a broad range of essential and everyday retail, including groceries. Most were strategically cited and originally developed by the hypermarkets themselves in the wealthy catchment of important provincial towns and cities. And these types of shopping centers provide a broad mix of both national and regional tenants and an increasing range of services for their more local communities. Overall, the valuations declined by 0.2% compared to 31 December 2022. Generally, the valuations were the result of significantly higher net operating income balanced by higher initial or exit yields depending on methodology and higher discount rates. The higher yields were a reflection of an uncertain economic outlook, higher inflation and interest rates; which together resulted in a quiet investment market although there were a few significant shopping center transactions particularly in France and Germany, which were relevant reference points for the valuers who in their reporting identified the portfolio as sound property fundamentals and solid outlook for income security and growth supported by rent affordability and steady tenant demand. The overall EPRA net initial yield has increased from 5.5% to 5.7% over 6 months. We have again provided this valuation split separating our 5 flagships at the top of the slide, which together represent around 46% of the portfolio and are lower yielding at 5.3%. With an average individual value of over EUR 400 million, the flagships are large enough to accommodate a joint venture partner as we currently have at Passage du Havre in Paris with AXA and at Fiordaliso in Milan with Finiper. The remaining 19 mainly suburban hypermarket anchored shopping centers comprise 54% of the portfolio and are much smaller assets with an average individual value of around EUR 100 million and they are higher yielding at 6% overall. Our only current committed project is in Sweden where we are completing the final phase at Valbo located outside Gavle, the last of the 7 Swedish shopping centers we acquired in 2018. The objective has been to improve and broaden the tenant mix, upgrade the property to a modern standard while improving customer flow by creating a single loop from a new entrance. The project has been executed in 3 phases due to the complexity of keeping the center open and in full operation during the works. The first 2 phases are completed and provided new stores for tenants including H&M, New Yorker, Normal, Hemtex, Rituals and Deichmann and included the refurbishment of the malls and public areas. The last phase will be completed this autumn and will provide new facades, signage and 7 shops, which are all prelet to national brands in the food and beverage and consumer electronic sectors. Indeed, leasing remains the core activity in Eurocommercial's business model, building and developing professional relationships and partnerships with our tenants allows us to adapt our retail mix to changing consumer behavior and preferences, working together with our retailers as they also respond to these changes by rationalizing their estate, resizing and reorganizing stores and innovating to provide an integrated omnichannel experience. And I shall briefly look at 3 current retail trends that our leasing teams are focusing on. The pandemic was the catalyst for the rapid growth in sportwear and goods with outstanding trading performances from our traditional sport retailers including Stadium, XXL, Intersport and Decathlon. However, we also saw the rapid growth of new lifestyle fashion, branded sport fashion, leisure and footwear; and this has accelerated since the pandemic with many existing and new brands establishing in our centers, including Adidas, Nike, JD Sports, Foot Locker, Courir and Snipes. Having been severely impacted by government restrictions during the COVID period, the food and beverage sector has not only fully recovered, but is now rapidly expanding with a range of new brands, concepts and formats. We have responded with a number of initiatives illustrated on this slide, including recently completed F&B projects in Italy, France and Sweden. And finally, another clear leasing trend has been the expansion in the low-price value retail sector, which is not surprising with household budgets under pressure. These destination retailers are capable of generating high levels of footfall and comprise an increasingly important component in our tenant mix spread over a number of retail sectors. In the home goods segment, Clas Ohlson continued their expansion with over 100 stores as did Flying Tiger with their interesting and diversified assortment. In the health and beauty sector, the Danish retailer Normal are taking bigger units of up to 600 square meters and performed very well in all our Swedish shopping centers and have recently also opened in the Leclerc hypermarket anchored MoDo in Paris, a city where they also continue to trade very well in the lower ground floor of our prime city center gallery Passage du Havre in the busy pedestrian connection to the metro. In the fashion segment, Primark are important anchors in Fiordaliso and I Gigli and in order to expand further, Primark are now also more flexible on unit size. And finally, in the young fashion arena, the German retailer New Yorker are performing well in 3 of our Swedish shopping centers as well as Grand A in France and Fiordaliso in Italy. Our commitment to our broad ESG vision and strategy has seen progress with a number of initiatives articulated around our 3 strategic pillars illustrated here: Be Green, Be Engaged, Be Responsiblebe. Having already fully utilized the roofs of all 7 of our Swedish shopping centers for solar panels, we are progressing with installations now in our other markets. In Italy, I Gigli and Carosello, both illustrated on this slide, will be connected to the grid during the autumn. The installation at I Gigli will cover 450 car spaces and provide around 40% of the shopping center's electrical requirements. While the Carosello installation on an adjoining site will cover 56% of the shopping center's electrical needs. Elsewhere in Italy, Il Castello will be switching to geothermal heating during Q3 while major insulation work is being carried out in 4 centers; improving efficiency, reducing consumption, improving EPC labels and mitigating climate change risks. Additional smart metering to monitor common parts as well as tenant consumptions is improving baseline data across the portfolio. In Belgium, recent investments at Woluwe have included the replacement of the building management system, the relamping of the parking and technical areas and the introduction of motion detection sensors. These investments resulted in a reduction in electrical consumption of 18% during H1 2023. Construction has also started on an additional 568 solar panels on the Southern building at Woluwe taking the total to 2,300. The French team are converting all common areas and parking to LED lighting as they work together with our tenants in active green committees to put in place the provisions of the national sobriety plan and have already achieved the initial goal of 10% energy saving after only 1 year. Solar panels will shortly be installed on the roof of Shopping Etrembieres, with the electricity generated to be used for the common parts. Having initiated the Eurocommercial Retail Academy across all our Swedish centers with over 1,200 participants last year, we're rolling out the program across our other markets during 2023 starting with 8 shopping centers, 5 in Italy and 3 in France, in order to strengthen our relationship with our retailer communities while improving sales technique and customer service in the shopping centers. And finally, Eurocommercial has also recently made further progress with its sustainable finance goals, formalizing its Green Finance Framework and entering into several recent green and sustainability linked loans. And this is, therefore, the right moment to hand over to Roberto Fraticelli, who will cover this subject in more detail as part of the financial review.

Thanks a lot, Peter, and welcome, everybody. Let's start with the financial performance. If you look at this slide, you get a quick overview of the most relevant financial battle. The income statement and the financial positions in values and also per share. As you can see, both rental income and net property income increased significantly compared to H1 2022. The increase in rental growth was mainly due to the indexation and to the renewals and relettings that Peter and Evert Jan said. Net interest expenses, on the other hand, were higher than 2022 due to the significant increase in interest rates in both the Euribor and the Stibor. As we will see later, the increase in interest expenses has been limited thanks to our high hedging ratio. We also look more in detail at the increase in the direct investment results in the next slides. The negative value for the indirect investment results is mainly related to EUR 58 million difference in the investment evaluation of the properties. We have EUR 100.3 million negative for the first 6 months '23 compared to EUR 46.7 million positive for the first 6 months in 2022 and a EUR 98 million negative difference in the fair value of the derivative financial instruments. It's negative EUR 5.2 million for the first 6 months 2023 compared to positive EUR 92.8 million in the first 6 months 2022. These amounts are partially offset by EUR 26.9 million decrease in the deferred tax provision. Moving to our financial position. Property investment has decreased slightly mainly due to a weaker Swedish krona while the EUR 36 million increase in net borrowings is mainly related to the EUR 69.6 million acquisition of the 25.63 minority in the Belgium subsidiary holding, the Woluwe Shopping Centre. And then the EPRA NTA was basically unchanged. We will analyze this more in detail in the next slides. While the adjusted NAV reduction is mainly due to the accounting of the 2022 dividend, which was paid out in July '23. To look at the financial summary. This slide gives you a quick overview of the most important financial data. The total nominal value of the net borrowings at 30th June increased, as we said, by EUR 36 million to EUR 1.58 billion from the EUR 1.55 billion at 31st December 2022. That's due to the acquisition of the minority stake in Belgium as we said. And this was partly offset by lower net borrowings as a consequence of a weaker Swedish krona. As you can see, our loans are still spread among more than 15 banks in different countries with Dutch, German and Italian banks with shares between the 20% and 30%. What did we do this year? Well, in March '23 the existing EUR 159 million loan, which show the leases of 50% at EUR 79.5 million group share. Financing the shopping centers as partial in Italy was qualified as a green loan. In March and June '23, the company extended the existing 3-year green loan with Nordea Bank for an amount of SEK 1.2 billion, that's around EUR 101 million, until July 2027. In June 2023 the company also agreed with Nordea the refinancing of the Bergvik Shopping Center in Sweden for an amount of SEK 675 million, which is around EUR 57 million for 4 years. The final closing of this new financing is actually scheduled for next week and all these loans qualify as green loans. Considering these new loans, the average term of the loan book is now 3 years with most repayments foreseen as you can see in 2025 and 2026. If we now move on the hot topic, the interest rate hedging. The overall interest rate, including margins at June 2023, increased to 2.9% compared to 2.4% at December 2022. The increase in interest rate expenses has been limited notwithstanding, as we said, the strong increase in both the Euribor and the Stibor rates and that was thanks to our conservative hedging policy. As of 30 June, 78% of interest costs are hedged mostly through interest rate swaps, but also by a number of fixed interest coupon loans. The average interest rate hedging term is over 5 years. We, therefore, expect the interest expenses to further increase slightly during the year, but to remain at acceptable levels with an average overall interest rate for the portfolio slightly above the 3%. If we look at the loan-to-value ratio on the basis of proportional consolidation at 30 June after deducting purchases costs increased slightly to 41.8% compared to December 2022 when it was 40.4%. We already talked about the reasons behind this increase. But also please remember that the group covenant loan-to-value ratio agreed with the financing bank is 60%. And then for comparison purposes, our loan-to-value ratio adding back purchases cost becomes 40.8% and adding purchases costs and using the IFRS consolidated balance sheet it was 39.3%. So more ratio. Let's say the net debt-to-EBITDA ratio decreased from 8.9% in December 2022 to 8.1% in June. But please consider that this ratio is an approximation as the 6 months EBITDA values have been annualized while the interest cover ratio has remained stable at 3.9%. Then 2 last bridges that will bring us then to Evert Jan. The direct result bridge. The direct investment result for the 6 months to June increased to EUR 64.5 million as compared to EUR 62.7 million for the same period in 2022. So it's an increase of EUR 1.8 million or almost 3%. The main reasons being the EUR 6.3 million higher rental income related to the indexation and the acquisition of the remaining 25.63 shares in Woluwe and the absence of COVID-19 concessions to tenants, which was partially offset by the lower income related to the properties sold and to the weaker Swedish krona. These increases were offset mainly by higher bad debt provision in France and Italy for prudence at EUR 1.8 million and by an increase in net interest expenses from bank loans around EUR 3.4 million. Then last, but not least, a quick view of the relative changes in the EPRA NTA net tangible assets per share, which substantially remained stable from EUR 38.64 to EUR 38.65. But the 3 major movements beside of course the direct and indirect investment results are relative to the EUR 1.60 dividend per share, which was paid out in January and in July 2023 to the positive EUR 1.29 variance related to the acquisition of the minority stake in the Belgian subsidiary and to EUR 0.47 negative which is linked to the valuation of the Swedish krona. Thank you very much. And now back to Evert Jan.

Thank you, Roberto, for presenting all the figures. Then I would like to make 2 closing remarks. One about our direct investment result going forward and one about the interim dividend for January 2024. Assuming no major deterioration of the macroeconomic environment and particularly further spikes in interest rates, we confirm the guidance provided with the publication of the 2022 annual results in March 2023 and expect the direct investment result for the financial year 2023 to be between EUR 2.25 and EUR 2.35 per share. The direct investment result is the basis for the applicable dividend policy providing for a cash dividend payout ratio ranging between 65% and 85%, but with a target of 75% of the direct investment result per share. An interim dividend will be payable in January 2024 and a final dividend will be payable in July 2024. According to the applicable dividend policy, the cash interim dividend is expected to be 40% of the total cash dividend paid in the previous financial year, which was EUR 1.60 per share. So for January 2024, the cash interim dividend is expected to be EUR 0.64 per share. We will then also intend to offer shareholders again the option of taking a stock dividend instead of a cash interim dividend with options offered in July 2023 when we paid the final dividend. At that time, almost 20% of the shareholders took up the stock dividend showing that there is an appetite for this alternative to cash and on which stock dividend the company does not have to withhold 15% Dutch dividend withholding tax. This enabled the company to raise capital for an amount of EUR 10.4 million by issuing 432,000 new shares at an issue price of EUR 24 per share. This slide shows the dates of the next 2 company publications, the third quarter results and the 2023 year-end results. And I would like to conclude this presentation with the statement that as Management Board, we are truly thankful to all our teams in the various countries for their hard work and their continuing commitment to our company. And I will now hand over to the operator for questions.

[Operator Instructions] My first question comes from Steven Boumans from ABN AMRO-ODDO.

I've got some questions on operations. First, could you please provide more color on why rent renewals have been so strong for a while now and how long this could last going forward? So do you expect mid-to-high single-digit renewals for H2 or maybe 2024 too?

Steven, you had more questions or shall we take this one first?

Yes, let's start with this and then I have a question on Belgium and Sweden, but maybe start with this.

Okay. I mean the rent renewals and relettings again we think is a strong figure. Leasing activity is just continuing. We added a quarter, we lost a quarter. That's how it works with the renewals and reletting, it's 12-month rolling forward period. We haven't yet seen particular cases where we say "Oh, gosh, that is going to lead to different sort of levels". We continue to see the similar deals and uplifts as in the past. I'm also conscious of course that at some point, have we said it before, the indexation has been strong for this financial year. We collected it and still for every quarter that we might expect that when you do a renewal of existing lease that at some point, the indexation and the level is playing a role in how much uplift you can achieve on top of a renewal. But I mean if I look at Peter, I'm just making a general comment, but I think what we are seeing in the country is that it's true.

Yes. I think certain sectors have been driving it; health and beauty we talked about, food and beverage, gifts and jewelry, sport have been perhaps higher rent contributors in the renewal program. I think generally if I look at -- we have a graph that shows our last 10 years, the average was 10% although we're at 7% now. So I think and if I look at the graph, it has marginally declined over the last 2 or 3 years -- actually 2 years and particularly as obviously the inflation has kicked in. But no, I think it's still very steady. We gave the figure for the last 6 months particularly just to show that even though we give a 12-month -- I took the 12-month number and report on a 12-month basis, the last 6 months has been very active, 112 transactions uplift 7.1% I think we said. So actually even higher than the 12 months. So I think it still looks very positive, Steven.

Okay. And maybe one follow-up on this one. Is there certain OCR level, for example the country that you save, from that moment renewals are likely to be more flat? Is that how you look at it?

I think the OCRs are at the right level. I mean obviously overall we give a 9.5% OCR figure and it depends a little bit. It's lower in Sweden because we have a higher grocery component in that number because we own them. We own all the hypermarkets. It's looks higher in Belgium because it's Woluwe at 14%. But those rents are not pushed in Woluwe. If I tell you that the rents in Passage du Havre, which is probably our closest comparable property, are much higher than Woluwe and yet the OCR in France is lower because overall it's mixed with our hypermarket centers. But no, I think for each type of center and I think I'd look at it rather than look at it by country, I think the OCRs are at the right level.

Okay. Then a specific question on Sweden, if I may. Renewals are highest there while retail sales growth is relatively weak. Is that a risk for affordability or just a result of shifting the mix?

I don't think it's a shifting of the mix and I think it's fair to say that in terms of the market generally, I mean we're probably going to see some tougher times. Our retail sales growth was slightly lower. Having said that, if I look at July, it's the same sort of level 6%. It's not been as high as it has been and maybe there's some worries in terms of household debt, exposure to mortgages, which are mainly as you know on variable rather than fixed rates. The housing market in some cities has tipped maybe 15% to 20%, but that tends to be in the big capital areas. The big capital is Gothenburg and I think Stockholm in particular. So it's not been as high as some of our other markets, but I don't think there are danger signals out there yet, no.

Yes. I think, Steven, to add to that, what is an important moment in time in the near future obviously is what will be the next indexation 1st of January, which we know more about in November. So we're carefully monitoring the inflation in Sweden and I have to say inflation is still if you compare it with other European currencies at the higher end. There are some higher rates in European countries, but Sweden is still at the higher end. So yes, we sort of have in mind that if it would be around the 6% level, then you look at next year the indexation of that level, that's probably okay. But if it is higher, yes, you can see that maybe also tenants who just digest over 10% indexation in January and then another if it would be 7%, 8%, it's quite high. So I think that's a point to monitor. Obviously the Swedish Central Bank is doing a lot to get this inflation down. But the difficulty is also a little bit weak Swedish krona because mostly inflation is actually importing. On the other hand I think it's fair to say that the energy prices in Sweden have come down dramatically and in a funny way. They had of course quite some trouble recently with a lot of water in Sweden, but that actually helped their energy prices because of course I think about 50% of what they produce in energy is via these water installations where they basically create electricity. So yes, Sweden will be interesting to monitor during the autumn.

Okay. Makes a lot sense. Last one is on Belgium that valuations are somewhat weaker while rental growth was good. Is that due to higher yields or are valuators more cautious on estimated rental values?

Well, I think there, Steven, what we can say is that obviously Woluwe as Passage, they have flagships which were at lower yields and are still at relatively lower yields. Any move in a yield and exit yield or whether you do an initial yield, obviously has a big impact in money terms. I mean, Peter, I think it's...

You just made it. It was a 10 basis point move and it did make a material impact. I don't think it's been a change in terms of a view from the ERVs, which was your question though. I think it's purely yield, which has ticked up to 4.7%.

Our next question comes from Francesca Ferragina from ING.

Many compliments for the numbers. I have a few questions. The first one is on the market. It's common thinking that new assets will come to the market as of September. Can you elaborate a bit on this? What are your feeling and it's fair to expect some more dynamics in H2? The second question is on the portfolio. I saw a more positive portfolio revaluation in Italy and France. Can you make a little comment on this? Are the valuators becoming more positive considering the inflation has been passed through effectively? And third, can you give us a little update on the expansion projects in Italy and Belgium? I saw that Woluwe, the Brussels region gave the approval for Woluwe. Can you also provide an update on this?

Thank you, Francesca, for your 3 questions. Maybe if I may and then I'll also pass on to Roberto and to Peter. But maybe to start with the last one about Woluwe and the project there just to give that update and we also refer to that in the press release. So the situation today is that yes, the Brussels region has granted a permit. And yes, the municipality as they also announced earlier in the year and expressed on the website, they have now submitted an appeal. So that means that at the moment we're a little bit in the hands of the 2 authorities. And there is a procedure which has started by this appeal, which means that there is a 75-day period in which basically a committee which will be established soon will then take another view on the permit of the Brussels region, whether they confirm it or whether they say there is indeed a reason to change things. So we're first waiting that decision and if that decision would then be that they confirm the permit as it is today, then there is another 60 days for example the municipality, but also neighbors to appeal against that decision at the [indiscernible], which of course is the overall supreme body. And if that procedure is started, then obviously again there will be a certain delay because that procedure can take some time. So basically where we are at the moment is look and see. There's not a lot we can do. And meanwhile obviously we're focusing very much on the existing mall of Woluwe where we think we can do quite some interesting new leasing, trying to get the latest concepts there and making sure that the existing mall is performing well and will continue to perform well and actually what we see in Woluwe is very good numbers. I mean also the turnover numbers we showed, if you compare that to for example the current Belgium inflation number, which is the lowest in Europe, it's below 2%. So it's really encouraging that people are spending in the Woluwe center. So that's the comment on Woluwe. And the other projects, I mean Peter talked about Valbo. And then in the portfolio we have a number of possibilities in the future, but that concerns more preparing for the years to come. For example in Italy, Roberto, you may want to say a few words about what we're doing there in the various centers.

Francesca, we're unfortunately producing a lot of paper and it's always paper before you can actually start building. So getting all the various permits and the rest, I mean we are progressing. But as you know in Italy, it takes a while before you actually get through. One of the changes, if you wish, was I Gigli where we finally got the building permit for the new leisure village, which will strengthen also the position of the cinema next to I Gigli. So that's something that we can work on. So we are finalizing all the -- we already have the tenants and the rest. So that's something that we can work on. And for concerns the rest as a general remark, the extensions can come from 2 sides. One is the extension through actually the extension process with the local municipality, the region and the rest; and the other one is of course the possible reduction of the hypermarket. So we are all looking at what's possible, but there is no news at the moment on this kind of development.

Yes. And then maybe, Roberto, you can give some color on the other question Francesca had was about the valuation, particularly also in Italy where we see an uplift and what values have done with the indexation, et cetera.

Yes. We really have a strong increase in NOI as you've seen, Francesca. So that was the main increase in the valuations. And if you look at them, I mean the yields went up a little bit basically for all the properties and of course there is higher discount rates, which has been used because of the increase in the Euribor. But overall, we actually have a gain on the valuations compared to last year, but that's mainly driven from the NOI and also the expected rental value that the valuers because of course they're independent and they build a judgment on the properties.

Yes. And then maybe some other countries, the valuation in France.

I mean a quick word on France, which was stable obviously on lower net operating income because actually the inflation has been lower. I think the yields generally were pretty stable although we did see overall they're up slightly. But we saw a decline actually again in our prime center Gallery Passage, quite similar comments to Woluwe, a small yield shift made a significant difference, but that was compensated actually by a big uplift we had on the Grand A gallery, which we refurbished 3 or 4 years ago which has been a great success and has become the #1 gallery now in EMEA and that saw a nice uplift in the quarter and the yield came in to what I would say is the average hypermarket yield of Etrembieres, MoDo, [indiscernible] somewhere around 5.5% to 5.75%. It seems to be a little lower still in Val Thoiry and Taverny I think reflecting the wealth levels of particularly our Swiss customers there and rental levels have been a bit higher there too, but generally stable I would say.

Francesca, you were referring your other question to the markets where we're in, but I didn't pick up exactly. Do you mean the investment market or more the leasing market and how you see that going forward with tenants?

No, it was mainly referring to the transaction market.

So the investment market. Okay.

And the question was are we expecting to see a change I think did you say in the second half of the year in terms of supply of centers? I think there may be 1 or 2 more. I mean there were several transactions done, which I referred to, but I was thinking of Passy Plaza, [ Re D Rivoli ] in Paris or Pep in Munich. But we didn't see a large volume. I think most countries, the transactional volumes were significantly down in all sectors including retail. We hear that there are 1 or 2 properties that will come to the market. I think with revaluations what they call pricing discovery may be easier to find. And I think for good shopping centers with the outlook of solid rental income. I think the retail sales has been a surprise for all of us in terms of how strong they've been. I think the sentiment is there and hopefully we'll see some more transactions. But I wouldn't expect to see a flood of them and nor do we expect to see a flood of good quality assets coming to the market, which tend to be held by well-financed companies, but I would certainly think there would be more than we saw in the first half.

Does that answer your question, Francesca?

Kai Klose of Berenberg.

I've got only 2 quick questions. The first one, could you indicate again what was the debt amortization in the first half and what is the amortization weight in the newly signed loans or in the upcoming ones? And the second one, could you remind us again what is the amount of investments for the leisure village what you're going to spend there over the coming periods?

Kai, if I understood you correctly so the amortization in the loan book in the first half year. Roberto, he will take that question. And the second one, there was a slight blip. So can you repeat your second question?

Yes, of course. If you could remind us how much you're going to spend for the leisure village in Italy I Gigli.

Okay. I Gigli, sure. Well, I think these both questions I will pass to Roberto. They cover his part.

Yes. I mean if you look at the financial summary, I mean there you have the view of the amortization of the loan. So you see it's around EUR 10 million every year so EUR 8 million, EUR 17 million, EUR 15 million, EUR 13 million. So let's call it EUR 15 million per annum, which is a sort of amortization of the long-term loans. And then of course you have the short-term loans which we renew, which are there for also cash purposes and the rest. So I mean if you look at until the end of the year, we have no long-term loans to renew. If you look at 2024, there is a line of around EUR 20 million in Fiordaliso so that's for us EUR 10 million. which are already I think finalizing the renewal or the renegotiations, which is foreseen in January '24. And then we have a little bit in Sweden we said, which we also start the discussion for the negotiation. And then we have the EUR 100 million with ABN Amro in Italy, which will be -- where we also already started the negotiation for the extension. And there's nothing particularly exciting, I mean touching whatever needs to be touched that, we are seeing in the coming period. Is that an answer to your question, Kai? And then if you look at I Gigli so that's the second question on the retail park on the leisure park. Let's say we expect costs to be in the range of EUR 6 million to EUR 8 million so that's also not a huge investments and that's thanks to the fact that basically the land is already owned. All the paper works for the building permits and the rest that's already done. So it's really a matter of building these structures and then renting it. It's also already done. So that's not a big cash outflow that we have related to this leisure park.

[Operator Instructions] Our next question comes from Inna Maslova from Banque Degroof Petercam.

Just to come back on the Woluwe extension given that it's a rather difficult tedious process. What would be your feeling if the outcomes on these rulings are negative? Would you be open to resubmitting another proposal for extension for a different permit? And then also a follow-up question on the level of OCRs. Would it be possible to get the level of OCRs excluding the hypermarket component? And then the last question, I would be very curious to hear your comments in general on the market outlook, the level of tenants and administration. I appreciate the fact that the rents are still coming in, but more specifically on how the proportion of 1.5% of your GLA is split geographically for tenants and administration? And if you think that the potential economic slowdown could accelerate the situation in that regard?

Thank you, Inna, for your questions. And maybe start then with the question which is about Woluwe where you are very close to basically. Are you open for amendments? I think all what we can say now it's far too early to tell. Obviously the permit was received -- well, it's dated 7 July so it was received first 2 weeks of July and the appeal of the municipality was made a few weeks after that. So it's pretty fresh obviously in the holiday season. So therefore, we now have to see in the coming weeks what exactly will happen first at the region in this procedure and then to see again what this special committee will decide and then to see again what is the response of the municipality. So I think for us it is prudent, as I said before, wait and see because we're not really in this part of the procedure party. Obviously we are an interested party. So I think we have to wait the outcome of that and what that means to the existing permit. So also fair to say you can appreciate, Inna, that we haven't been able to speak to the region nor to the municipality as they were all on holiday. So this is all I can say for now. But I think it will take some time in terms of months to really see where are we going to in this process. And yes, we are already for a number of years busy with this extension, but this is all in the game. We know that this could happen. On the other hand, as I said before, it doesn't stop us from making sure that Woluwe Shopping Centre is today an attractive center and also tomorrow and also next year. And I think in that respect, I'm quite optimistic and encouraged really what we see on the ground with the leasing and what we're doing with also the main tenants. And we do hope that later in the year, we can make a nice announcement about all what will happen in the mall so that it's very clear that Woluwe today and tomorrow is a first-class, very attractive prime shopping center. Maybe on the level of the OCRs, I can pass on to Peter.

The question was I think OCR without the hypermarket and that broadly makes a difference as I mentioned in answering an earlier question in Sweden where we own them. But overall, it takes our OCR from 9.5% to 10.3% if we just look at the gallery tenants and the change is roughly 7.6% to 9.5% in Sweden and that's making the difference to the overall number. And I think Roberto is having a look at the administration question.

Which countries, so Roberto will talk about that.

Let's say we have, if you wish, some old one which are still there like Scarpe & Scarpe and Coin and others, which are I would say we're looking at the -- sorry, Scarpe & Scarpe, we're looking at the situation of the procedures are going on. If I look at the split, we have a big component which is France where you have also for example Anchor Sports, which is now being taken over. So the situations are changing. And the other major component is in Italy and we have also some little stuff in Sweden, which is especially related to Sushi Yama, which has the administration. If you look at the balance sheet of course -- sorry, the profit and loss, we also took some extra provision of EUR 1.8 million for those tenants in Italy and France. And it has to be fair more out of a prudent perspective because we believe that most of these tenants in receivership or administration will be able to pay. What we are looking at and that I think was also an important question that you had is if you look at the economic outlook, we believe that the economic outlook is going to make the situation worse. I mean of course we...

I think, Inna, there let's say what we've seen in France where some of the mid-market fashion change have trouble and therefore, went into receivership or administration or were sold after a process of restructuring. We saw the heavy examples there with Kamau, Jennifer and other fashion retailers. I think that's probably fair to say a result also of the fierce competition there that strong brands like the Inditex Group, Primark, that's quite competition for those chains. So that happened in France. But we asked the question very recently to the other country teams. Are we seeing that, expecting that? Sweden for example, you have there an old tenant which is a local F&B tenant, who is then not performing well. Okay. We replace them or he's going into bankruptcy in a special case. But it's not that we see that kind of or expect that kind of effect what we have seen in France to happen in Sweden. And also fair to say that in Italy where there's not that sort of mid-market fashion. I mean I think the markets there are different. In Sweden, we have strong Nordic retailers who don't really dominate the market and will not be kicked out by Inditex or Primark. I mean they're not even present there. And that's the beauty of being diversified over 4 countries, it's not all the same. And that's in the end of course helping us in our overall performance. Does that answer your questions, Inna?

Very much so. Thank you.

And there are no further questions in the phone queue, I would like to hand the floor over to our host for any web questions. Thank you.

And now we are looking into the chat box. There are question and I will read out the question. Thank you very much for the presentation. The company and indirect property expenses have increased. Can you comment on this? Are there plans to reduce costs?

Well, all I can say is that in the company expenses where we give a lot of detail on particularly the line items, I think there are some costs which have increased, some costs which have decreased. Overall it has gone up. I mean any particular line items you would like to discuss, Roberto.

I mean the salaries went up a bit, but that's also because of course we strengthened our teams so to be able to improve further the quality of the service that we provide. So that was one of the items that you saw increase in the company expenses. What concerns the property expenses, there's always a bit of a mix. I mean every once in a while you have some extra consultancy and sometimes you don't. If we expect them to decrease in the coming future, I would say that also taking into consideration the inflation levels because that's also what needs to be looked at because we are talking about an inflation of around 10% now which we saw happening for the year 2022. And if we look at the current level of inflation, I think property should also increase more or less in line with the inflation. So I'm not expecting anything particular to happen in the coming months this year. Maybe to add to that is that if you look at the property expenses where we have seen an increase over the period reported compared to last year. The major difference with last year are the bad debts because this year we report EUR 1.1 million for bad debts. We just talked about being prudent...

And in the previous period actually we had the reverse, there was a negative bad debt because we had a lot of extra provisions coming out of COVID and et cetera which we reversed. So you're looking already at EUR 1.8 million, almost a bit more difference on bad debt. So if I then project that on the total property expenses, actually the other items are not that different. Again salaries and wages higher than last year, but not surprisingly also we had to deal with inflation in the countries, cost of living, et cetera. But I think it's fair to say that all the other line items are more or less in line. Some have reduced, some have increased. But it's not an overall we think dramatic situation. And I think again the bad debts do make the big difference in the property expenses.

Let me see is there another question. Why did you decide to let the hedge ratio drop by 8 percentage points versus year-end 2022 instead of rolling over expiring hedges?

We rolled over expiring hedges. What we have is of course also an increase in the loans because we of course bought the 25% stake in Woluwe, which is the EUR 70 million. And what we are doing is also we got some forward start interest rate swaps, which will kick in. But on average I think we always said that we aim to hedge around 80% of our loan book value so sometimes we are higher, sometimes we're lower. For the future of course what we are trying to look and you know better than us, I mean we look at the curve and we try and see when we can get a good spot for a good coverage of the interest expenses.

Let me see are there any other questions? I don't see any other in the chat box.

So if there are no other questions, then I would like to hand back to the operator.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.