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

Hello, and welcome to the Eurocommercial Full Year Results for 2023. My name is George. I'll be a coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I'd like to turn the call over to your host today, Mr. Luca Lucaroni, Investor Relations Director, to begin today's conference. Please go ahead, sir.

Thank you very much. Good morning to everybody. Thank you to be here. My name is Luca Lucaroni, Investor Relations Director. I'm happy to be on this call with Evert Jan van Garderen, our CEO; Roberto Fraticelli, our CFO; and Peter Mills, our CIO, to present the Eurocommercial result for the year 2023. The agenda for this conference call is presented on this slide. Evert Jan van Garderen will talk about the operational results of the company, including the leasing activity during the year. Peter Mills will talk in more detail about the property portfolio and ESG; followed by Roberto Fraticelli, who will discuss in detail the financial results. At the end, we will open the call for any questions and suggestions you may have. Now I leave the floor to Evert Jan.

Thank you, Luca, for introducing us and presenting the agenda for today. Good morning, everyone, and thank you for joining us this morning. I will start with an overview of the operations of Eurocommercial during the financial year 2023. And we'll finish this presentation later with some remarks on the dividend proposal and the guidance for 2024. 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 2023. There were no changes in our portfolio of 24 shopping centers. As a consequence of the external valuations as per the 31st December 2023, the portfolio spread changed slightly compared to December 2022. Italy went up from 43% to 44%. Sweden and France remained the same, both at 21%, whereas Belgium went down from 15% to 14%. Next to a good country diversification. Our shopping centers are again well spread in those 4 countries and in all in wealthy areas like, for example, Northern 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 located. The company showed a strong operational performance in 2023. On the slide, you see an overview of all the important operational metrics for the year, which underpin that statement. I will comment in more detail on each of these metrics in the remainder of this presentation. 2023 was the year of high rental growth. The growth was mainly driven by high indexation. The overall indexation for the portfolio are 7.9%. And this high indexation resulted in a record like-for-like rental growth figure for the entire portfolio of 9.7%. Italy and Sweden shows the highest rental growth, countries which covered together more than half of our property portfolio. Also, turnover rent, relettings and renewals as well as local vacancies contributed to the rental growth. You can see from the 10-year like-for-like rental growth overview that 2023 was a record year as over the last 10 years, our rental growth was more modest due to low inflation and the pandemic. The like-for-like rental growth for the portfolio and the 4 countries is always calculated on the basis of 12 months data. We compare the tenancy schedules as per the 31st December 2023 with the tenancy schedules as per the 31st December 2022. So basically, we compare 2 photographs. We already have a clear idea of the indexation for 2024 for most countries. In the presented table, you'll find these indexation figures. We are, in principle, applying these indexation figures to all our lease contracts. The 2024 indexation differs among our 4 countries. And for Italy and Sweden also differ significantly compared to 2023. For Belgium, it's more difficult to calculate the indexation for 2024 as every month, those leases, which started in that particular month, are indexed using the index for that month. In that case, we only know by the end of the year what the indexation invoice was. Therefore, we used an estimate of 3.1% based on our expectations about what the index will be for the rest of 2024. In France, the indexation is also somewhat regulated, as the government decided to keep also for 2024, the cap at 3.5% for small-sized companies, which kept us applicable for 2023. This cap will be applicable for about 10% of the tenants of our French portfolio. We, therefore, expect to apply a blended 6.1% for indexation in France. Last year, the index in Italy was the highest compared to the other countries in our portfolio, whereas for 2024, Italy is the lowest. Sweden has the highest indexation for 2024 with 6.5%, albeit lower than at 10.9% applied for 2023. And the occupancy cost ratios for our tenants are low for the industry, on average, well below 10%. The rents will remain affordable also including the 2024 indexation. On France and Sweden, the indexation for the first quarter 2024 has already been invoiced and collected. And in Italy, most of the billing of the indexation for the first quarter will take place in the second quarter of 2024, and we do not expect any problems in the collection and the indexation is very low this time. So far, we have not received any pushback from tenants on the indexation build in Sweden and France, but we cannot exclude that there may be cases later this year. As you can see, the company is in principle a natural hedge against inflation due to indexation. The sales in the stores of our shopping centers in 2023 have been strong compared to 2022, but also compared to the pre-pandemic period in 2019, which is not a surprise as there was considerable inflation during 2022 and 2023. I suspect this is the last time we will compare to an office with pre-pandemic levels as that is now 5 years ago and 2023 is fully comparable as it has not been affected by the COVID-19 pandemic. We are encouraged by the latest available turnover numbers in our stores, which are the January and February 2024 numbers, showing an overall increase of 3% for the portfolio compared to the January and February numbers for 2023. Footfall increased with 2.4% compared to the same period last year. If we look at the various sectors and compare the turnovers for 2023 to 2022 and also to 2019, we see that nearly all sectors have at least achieved their 2019 levels with some clear winners, which are food and beverage, health and beauty, gifts and jewelry, sports, home goods and hypermarket supermarkets, and we are pleased to see that all sectors increased their turnover compared to last year. We are still well positioned to lease our retail space to attractive tenants under sustainable conditions at affordable rent levels. Introducing new tenants and new concept of existing tenants will ensure that our shopping centers remain attractive for their customers and continue to have their purpose and stay relevant in their catchments. And we are proud to be able to report that on 214 relettings and renewals, an average rental uplift of 2.8% was achieved on top of indexation. The slide provides you with an overview of the various brands, which were included in the leasing deals we did in 2023 with a breakdown in percentages of the sectors in which the transactions took place. These leasing transactions reflect 14% of the minimum guaranteed rent of the portfolio. We were able to attract new tenants with our 74 new lettings, achieving an uplift of 6.2%. And these new deals were concluded under normal lease conditions and lease terms, so no short-term leases. This leasing activity is continuing with already 47 new leases signed in the first 2 months of 2024, achieving an average uplift of around 3.2%. Low vacancy is usually a good indicator of the quality of the properties. Over the last 10 years, we have reported vacancy rate in our property portfolio ranging between 0.3% to 1.8%, and we continue to do so. The average for the last 10 years was 1%. The EPRA vacancy rate remained very low at 1.5% in December 2023 for the entire portfolio, the same vacancy rate as in June 2023. The company has always been known for its low occupancy cost ratios, and we are therefore pleased to report a 9.5% occupancy cost ratio for our portfolio as per the 31st December 2023. This percentage is still one of the lowest in the industry and implies that the rents are affordable for our tenants. If we look back some years before the pandemic, we reported in 2014, 8.1% for the portfolio. And just before the pandemic started in 2019, we reported 8.9%. So our current overall OCR has not dramatically increased, bearing in mind that prior to 2019, our property portfolio also included retail parks, which, by nature, have much lower OCRs than galleries in shopping centers. Despite the high indexation and therefore, much higher rents invoice, the rent collection is back to normal with a rent collection rate of 99% of invoice rents for 2023 compared to a 98% rent collection for 2022. The rent collection for the first quarter of 2024, which already stands at 95% of the invoice rents is also evidencing that the rent collection is back to normal. Bearing in mind, we're still in the first quarter, so additional rent will be collected. This is the moment to hand over to Peter Mills, who will discuss in more detail our property portfolio and will report on our environmental, social and governance strategy and 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 weighted by value. Italy remains our largest market at 44% of the portfolio, but waiting that we are happy to maintain as all 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, 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 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 countries capital or main economic cities and their important shopping centers in their national context and retail hierarchy. I Gigli located outside Florence remains one of Italy's largest shopping 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. These flagships attract a broad international tenant base and have a higher discretionary spend component, particularly fashion. By contrast, our 19 suburban hypermarket anchors -- anchored shopping centers have different and more defensive characteristics with over 60% of their floor space 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 catchments 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 our more local communities. Overall, the property valuations declined by 2% compared to June 2023 when the properties were last independently valued and by 2.2% compared to a year ago. Despite higher net operating income, the overall decrease in value was due to the adoption by the valuers of 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 notable shopping center transactions early in the year, particularly in France and Germany, which were relevant reference points for the valuers, who in their reporting identified the portfolio sound property fundamentals and solid outlook for the income -- for income security and growth supported by rent affordability and steady tenant demand. The most significant decrease in value was Woluwe Shopping in Belgium, which has declined by 7.6% since the last valuation due to a combination of an increase in the capitalization rate, together with the exclusion of the value previously prescribed to the extension projects following our decision to withdraw the permit application at the end of 2023. The overall EPRA net initial yield on the portfolio has decreased by 30 basis points -- increased by 30 basis points from 5.5% to 5.8% over 12 months. We have again provided the valuation split separating our 5 flagships at the top of the slide, which together represents around 45% of the portfolio and a low yielding at 5.4%. 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 added shopping centers comprise 55% of the portfolio and our smaller assets was an average individual value of around EUR 100 million, and they are high yielding at 6.2% overall. During last year, we completed the final phase of our project 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 was executed in 3 phases due to the complexity of keeping the center open and in full operation during the works. The first 2 phases provided new stores for tenants including H&M, New Yorker, Normal, Hemtex, Rituals and Deichmann, and included the refurbishment of the malls and the public areas. The last phase, which was completed during the autumn last year and opened on the 28th of October, provides the new entrants facades and 7 shops, which were all pre-let to national brands in the food and beverage, fashion and consumer electronics sectors. This slide illustrates the remerchandising currently underway at Woluwe Shopping following the completion last year of negotiations with several anchor stores. Next month, we'll see Zara open an enlarged store of 3,300 square meters in a new central mall location, which will shortly be followed by C&A who are relocating to a new 1,450 square meter store previously occupied by Zara. Meanwhile, INNO recently started the refurbishment of their 12,000 square meter department store, while Carrefour are taking over Woluwe's supermarket, introducing the latest version of its Carrefour market concept that is more aligned to Woluwe's wealthy primary catchment. 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. We continue to see several fast expanding retail sectors, which are currently driving tenant demand. And on this slide, we illustrate some of the retailers behind the rapid growth of lifestyle and branded sports and leisure fashion and who have recently established in several of our centers, including Adidas, Nike, JD Sports, Foot Locker, Courir and Snipes. The health and beauty sector is increasing its presence in all our markets with the expansion of several international brands illustrated on the slide. The food and beverage sector also continues its post-pandemic growth with a range of new brands, concepts and formats. We have responded with a number of initiatives, including recently completed F&B projects in Italy, France and Sweden illustrated on this slide. And finally, with household budgets under pressure, we continue to see the expansion of the low-priced value retail sector. 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 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 also recently opened in MoDo in the Paris suburbs, a city where they also continue to trade very well in our prime city-center gallery Passage du Havre. In the Fashion segment, Primark are important anchors in Fiordaliso and I Gigli. And in order to expand further, they are now also more flexible on unit size. And in the young fashion arena, the German retailer New Yorker are performing well in 3 of our Swedish centers as well as Grand A in France and Fiordaliso in Italy. Our commitment to a broad ESG vision and strategy has seen progress with a number of initiatives articulated around these 3 strategic pillars: Be Green, Be Engaged and Be Responsible. During 2023, we completed 3 solar panel installation projects at I Gigli, Carosello and Etrembieres, which are already contributing towards the electricity requirements of their common areas. Collectively, our shopping centers increased their energy production by 14% last year, while energy consumption decreased by 15%. Continuing with our decarbonization targets, we achieved a reduction of 24% in our Scope 1 and Scope 2 emissions. And after decommissioning several gas plants, we reduced our gas consumption by 31%, while waste and landfill also decreased by 38%. And last year, climate change risk assessments were performed in all countries, providing us with the necessary data and information to prepare risk change -- climate-change risk mitigation plans. Our shopping centers are increasingly acting as vibrant hubs of social interaction and community development, providing many amenities such as entertainment, fitness and health facilities and hosting cultural and charitable events. During 2023, we worked closely with and strengthened our relationship with our tenant communities, developing the Eurocommercial Retail Academy and a further 8 shopping centers in France and Italy to improve customer service, while in November, we also launched the ECP tenant app in our Italian and French shopping centers to improve communication and collaboration with our tenants, providing them with better support and service. We also carried out 13,000 face-to-face customer interviews in 14 shopping centers, supplemented by additional online surveys and focus groups to acquire additional data from our communities, while we continue to make further progress with our sustainable finance goals entering into additional green and sustainability-linked loans. And this is, therefore, the right moment for me to hand over to Roberto Fraticelli, who will cover this subject in more detail as part of the financial review.

Thank you, Peter, and hello, everybody there. Let's start with the latest update. As you can see from this slide, our long-term loans maturing in 2024 has been refinanced. The loan with Banca Popolare di Milano and the retail parking in Fiordaliso be refinanced for 3 years, so they can be included in the negotiations for the refinancing of the whole loan on the Fiordaliso Shopping Centre when it matures in 2026. The other 2 loans, respectively, for EUR 100 million with ABN AMRO and for SEK 700 million, which is around EUR 62 million with SEB AB has been extended for a period of 5 years. We have already started negotiations with our financing banks on the loans expiring in 2025. And next year, you see an overview of the most important financial data. The total value of the net borrowings at the 31st of December '23 was at EUR 1.6 billion, a slight increase compared to the EUR 1.55 billion at the 31st of December 2022. That's mainly due to the acquisition of the minority stake in Woluwe. As you can see, our loans are spread among more than 15 banks in different countries with Dutch, German and Italian banks shares all above the 20% each. What have we done in 2023? In March, the EUR 159 million loan finance in the shopping center in Fiordaliso Italy was qualified as a green loan. In March and September, we also extended the green loan for an amount of SEK 1.2 billion, which is slightly above the EUR 100 million with Nordea Bank on 3 properties in Sweden for a period of 4 years and also refinanced the loan on the Bergvik shopping center in Sweden for an amount of SEK 675 million, which is around EUR 60 million. Also for 4 years, and it also qualifies as a green loan. The overall interest rates, including margins at 31st of December 2023 increased to 3.2% from the 2.4% at the end of May of 2022, sorry. That's mainly due to the strong increase in EURIBOR and STIBOR rates during the year, which impacted on the 19% floating part of the loan book, a 31% is hedged in line with our interest rate hedging policy, as we will see more in detail in the next slide. Yes. When we have a closer look at the movement in interest rates, we can see the -- in the last years, notwithstanding the strong increase of the official ECB interest rate from around minus 50% to -- minus 0.5% to around plus 4%. Our average interest rate went up from around 2% to the 3.2% at the end of 2023. You can also see our hedging policy remains quite conservative around our hedging target level of 80%. In this slide, it's also interesting to note how the EURIBOR 3 months interest rate is expected to decrease from the current high levels to around 2.5% with a positive impact on the unhedged part of our loan portfolio. This slide gives you a quick overview of our performance this year. Property investments went down by 2.2%, mainly due to the increase in the net yields, which went up from 5.5% to 5.8%, as Peter already illustrated, which were partially compensated by the increase in the property rental income. Therefore, the EPRA NTA was slightly lower last year -- than last year. The net borrowings were slightly up, as discussed, mainly due to the acquisition of the minority stake in Woluwe. In the next slide, here, we see the higher initial yields and therefore, the lower value of the properties, which contributed together with higher debt to a slightly higher loan-to-value ratio, which, on the basis of the proportional consolidation at the 31st of December increased to 42.5% from the 40.4% at December 2022. Please remember that the group covenant loan-to-value ratio agreed with the financing bank is still 60%. If we look at the NTA, yes, this slide gives you a quick look at the relative changes in the EPRA NTA, net tangible assets per share from the EUR 39.82 at the end of 2022 to the current EUR 39.59. The 2 major movements besides, of course, the direct and indirect investment results related to the EUR 1.39 dividend per share in cash and to the EUR 0.45 effect of the increase in the number of shares derived from the stock dividends in January and July 2023. Moreover, we have a positive variance of EUR 0.81 per share, which is related to the adjustment of the fair value of the financial instruments, which is included in the indirect investment result, but has to be excluded from the EPRA NTA calculation. And a positive variance of EUR 1.27 per share related to the acquisition of the Woluwe minority share. Quickly, the net debt-to-EBITDA ratio remained stable at 8.9% in 2023, which is the same level as 2022, while the interest cover ratio decreased from 4.1% in 2022 to 3.7% in 2023. This slide -- this slide gives you a quick overview of our income statement. As you can see, both IFRS net property income by EUR 60 million and the direct investment result by EUR 3.6 million increase compared to 2022. This is mainly due to the increase in rental income from indexation and the renewals and reletting and also the elimination of the COVID-19 rent concessions, which were granted in 2022. IFRS net interest expenses were EUR 8.2 million higher than in 2022 with the increase in the interest rates, which was mitigated as discussed by our dividend policy. Results per share show how, notwithstanding a 1.1% increase in the number of shares. The direct investment result per share went up from EUR 2.28 in 2022 to EUR 2.32 in 2023. The negative indirect investment result is instead related to the lower market value of the derivatives due to the changes in the EURIBOR and STIBOR curve, EUR 44 million negative in 2023 versus EUR 131.6 million positive in 2022 to the lower market value of the properties, EUR 95 million negative in 2023 compared to EUR 13.2 million negative in 2022, partially compensated by a decrease in the deferred tax, EUR 5.5 million negative in 2023 compared to EUR 43.6 million negative in 2022. Last but not least, and as a bridge to our dividend policy. The direct investment result for the 12 months December increased by 3% to EUR 123.1 million compared to EUR 119.5 million for the same period in 2022. The higher net property income compared to 2022 is mainly related to higher rental income from the properties due to the indexation and the renewals and relettings, EUR 10.5 million. The absence of the COVID-19 rent concession related to IFRS 16, EUR 5.5 million and the acquisition of the minority stake in Woluwe, EUR 2.7 million, which more than compensated the increase in interest expenses, EUR 10.2 million and the higher current tax mainly in Italy of EUR 1.2 million, which is derived from the strong increase in rental income. Thank you very much. And now back to Evert Jan.

Thank you, Roberto, for presenting all the figures. In the press release, we included the dividend proposal, which we will table at a general meeting scheduled for Tuesday, the 11th of June 2024 for approval by the shareholders. In 2022, we introduced a new dividend policy for the company, which implies the payment of an interim dividend in January and the payment of a final dividend in July. For the interim dividend per share, we aim to pay 40% of the total cash dividend per share paid in the previous financial year. The new dividend policy also has a clear payout ratio range and payout ratio target for the cash dividend. The company's payout ratio for cash dividends will range between 65% and 85% of the direct investment result, but with a target of 75%. Today, the company's results are not directly affected by the wars in Ukraine and Gaza, but that could still change with the conflicts escalate further. Indexation for 2024 is much lower than for 2023, which will impact rental growth. We also cannot exclude that some tenants may have a hard time due to competition in their sectors and could become insolvent. However, short-term interest rates seem to have plateaued, although we have not yet seen rate cuts by central bankers. These cuts are now expected by the markets to take place in the summer and that may have a positive effect on property values as funding costs will come down. So on balance, we are optimistic about 2024 and therefore proposed to increase the total dividend per share from EUR 1.60 paid in 2023 to a total dividend per share to be paid in 2024, amounting to EUR 1.70. This is an increase of 6.5% and translates into a 73% payout ratio close to our payout ratio target of 75%. This proposal implies a final cash dividend of EUR 1.06 per share. We will also offer shareholders the option to elect for a dividend in shares instead of the cash dividend of EUR 1.06. As these shares will be charged to the fiscal share premium reserve, there is no Dutch dividend withholding tax due, which may be attractive for those shareholders who cannot obtain a reduction or a credit for the 15% Dutch dividend withholding tax. The ex dividend date will be Thursday, 13 June 2024, and the dividend distribution date will be Friday, the 5th of July 2024. Assuming no major deterioration of the macroeconomic environment, we expect the direct investment result for the year 2024 to be between EUR 2.30 and EUR 2.40 per share. I would like to conclude this presentation with a statement that as a Management Board, we are truly thankful to all our teams in the various countries for their hard work and their continuing commitment to Eurocommercial. I will now hand over to the operator for questions.

[Operator Instructions] Our first question today is coming from Valerie Jacob, calling from Societe Generale.

I have a quick question, if I may. My first question is about your cost of debt. You show a very clear slide about your cover and everything. And I was wondering if you could give us some guidance on where you see your cost of debt in 2024. My second question is about Woluwe. I saw in the presses that the extension is not happening anymore. And I was wondering if you could give us a bit of context and what are the next steps? And what could make you change your mind on the expansion? And my last question is about the asset values in Italy. They are up this year by 1%. And I was wondering if you could tell us if there are transactions happening in Italy or what is the base of this uplift.

Well, thank you, Valerie, for your very clear questions. And I think you managed to give 3 questions, which will be answered by 3 persons. So I invite Roberto to take your question #1 about the cost of debt.

Yes. I mean we are already at 3.2%. So let's say, if we look at the future, let's say, the -- our hedging policy is still the same, so around 80%. So we do expect more or less the cost of debt to remain around the 3.2%, 3.3%, 3.4%, some kind of that. It all depends also from the European Central Bank, if they decide to keep the interest rates of 4% or they want to move it to 5%. Of course, it's a different story, but we all hope that they will start at a certain point with the interest rate cuts. Does that answer your question, Valerie?

Yes. Okay. Well, Valerie, then on Woluwe, I'll do that together with Peter, because I will give some context on, let's say, why did we, in the end, decided to withdraw our application, and that obviously was the result of a long process. We started with the extension plans and the ideas already when we bought actually, Woluwe, so also before the pandemic. And it was a project which we teamed up with the municipality and the region, the region obviously like the mixed use in that project. But it's fair to say that sort of halfway the process, the municipality changed their mind and have more concerns about that project, particularly the height, but also flooding was an issue design. So that became really in the process of problem because in the end, they also appealed when we got the permit last summer and next to neighbors, et cetera. So we ended up with a situation where it could take quite some years to really maybe in a final stage, obtain the permit or not. So a lot of uncertainty. Meanwhile, building costs, et cetera, had changed, and we said we want to make Woluwe also a very strong mall today. And as you've seen on one of the slides, we are doing a lot of new leasing, leasing activity. We're very excited about it. And that means that you also need to cooperate with the municipality when it boils down to small permits, authorizations, approvals. And therefore, we said let's no longer almost fight about this extension in this format. But let's focus on the mall, let's make sure that we are all aligned, and that's why we took the initiative just before Christmas, allowing us to do these wonderful lettings in these -- with our anchors on nice new long leases. And yes, I think that's a bit about the process. Peter, on that leasing and...

Yes. No, no, I was going to say -- I mean, Valerie, in terms of the leasing, the extension was used the word getting in the way a little bit, not only just in terms of those anchors, but certainly the C&A, it would have complicated matters. But also we had up to 20 tenants who were sitting there holding over that we weren't able to have a move into new commercial terms or if they wanted to change their stores. So there was increasingly a conflict. And what I would say just in terms of the project to finish with is it's not over because, of course, we still have the rights, we would need a permit. And I think when we look forward to revisiting the subject, which it will be revisited, it will be -- I think with the experience we've had a much simpler single-level extension without that will exclude the need for basement parking, which will deal with the flooding, probably without residential, which was not particularly profitable, but it was a requirement of the region who wanted a mixed-use scheme initially, and that will remove a number of the objections we were getting from neighbors. So the rights are not lost, and it will be revisited, but the focus now is very much on the remerchandising of the existing mall.

Yes. And then maybe Roberto, on Italy.

I'll take the one on Italy. I'm absolutely right. But as always, say the plus 1% is mainly related to the increase in rental income, which was significant in it. So that compensated -- more than compensated for the increase in the yields, which we have seen in Italy as well, quite significant. About transactions, there's plenty of boiling. Of course, you never know when it comes to fruition, but there's at least 4 assets which are on sale in Lombardy. One is a bit of a mix between a shopping center and a retail park. Another one is another shopping center, which is undergoing some refurbishments, then, of course, you have a nice asset in Palermo, a couple of assets in Campania near Naples, a retail park in Bologna, several small assets in Tuscany and 2 important assets in row. So those are all negotiations which are going on. It's not been finalized yet. And as always rumors about another transaction, which could take place. But so far, let's say, we have not seen clear transactions taking place in Italy. Does that answer your questions, Valerie?

Just one more follow-up, if I may, on Woluwe. The -- that's easily committed to finding a partner for Woluwe or is it not the priority anymore if the extension is not happening?

No, we're not committed to find a partner. We mentioned a joint venture possibility of all way because it is our largest asset. We had at that time the project, which could be of interest as well, because at that time, we thought it could still enlarge the center in the way it was set up. But I think today, we're very happy with Woluwe. It's still, I think, a great asset. And of course, you can look for a joint venture part, but it's not the priority right now because we first want to really have Woluwe in the shape with all those new lettings. And then, of course, it is also an asset which gives a tenancy mix with new very long leases. I mean we're making our brand-new leases with Zara, Hemtex, Inditex. C&A is going to be also new lease and also now with Match becoming a Carrefour again, a very new lease, long lease there as well. So I think also from, yes, let's say, an attractiveness, it could still be for a JV partner, an interesting exercise. And that's something which we will not exclude. But for now, we're not committed or pressed or under pressure to find the JV part.

[Operator Instructions] We'll now move to Francesca Ferragina of ING.

I have a few questions. The first is on guidance. Can you tell us what are the assumptions behind the top line for 2024. So in terms of organic growth? And see, on top line, I saw that the average rents uplift renewals and reletting is overall very, very good with the exception of Woluwe and France. Can you elaborate a little bit on this? And I escalate a bit -- the questions on Woluwe. I understood the ambition on Woluwe has been withdrawn. Does it mean that you see some more interesting opportunity and maybe easier investment opportunity somewhere else? Do you see any new assets coming to the market for example, something that might have a good fit with your existing portfolio? And on JV, I'm fine with the answer on Woluwe. But in the past, you mentioned to be open to JV as a way to recycle capital. Is there something that is still interesting for you and might involve some other assets or a portion of the portfolio.

I listed 4 questions. And maybe we should take the last one first and work back to your #1 question about guidance because that's all about the future. And maybe some of the answers to the other questions will help you to get a bit more color on the future. So yes, the joint venture idea is still alive. Let's say, we have always talked about Woluwe because it is the largest asset, but we have more flagships. We currently have 2 JVs, one in France and one in Italy. And we're simply not excluding other JVs to happen. And then, of course, Italy is an obvious one. But I'm still also not excluding Woluwe, but it is just a matter of now getting it in such a shape that it can be also very clear for a partner. It will be a passive partner because, obviously, we want to do the asset management -- but if you have a very clear view on the new tenancy mix with all those anchor tenants being committed for many years. And don't forget what has happened is actually quite extraordinary because all these new stores with the latest concept means that all these tenants invest heavily in their stores, which is not coming with a couple of hundred thousand. So these big names are really committed to make long-term investments in our mall with their latest concept. So I think we can be rather proud of that. Coming to your next question, are there any opportunities else? Yes, of course, because the process we have continued with this permit and the extension would have taken further years. So uncertainty, you don't know what can you allocate in the end. And obviously, we always have to see where should we allocate our funds, our monies in the best interest of all our stakeholders. And yes, we do have opportunity elsewhere. Italy is working very hard to get further permits for future extensions not happening today, but certainly, in the next years, we see potential there. But also I think if you look at timing, we still have a possibility in France with our Val Thoiry shopping center near the Geneva border, where we can extend where we have a permit, and we're very still very hopeful that we can sort of move things so that indeed, there's something happening there. And that obviously will also require funds, limited funds, but still we need to look very carefully at allocations. So opportunities else, as you asked, yes, there are certainly in Italy, in France with our existing builders. And even in Sweden, we can do things as we've done in the past, extending them. Then you had a question about the renewals and relettings, which I think Peter would like to say some words there on how we see that also going forward.

Yes. In terms of what we just reported the last 12 months, I think the encouraging thing was to see the much higher uplift on the 72 new lettings we did as part of that package of reletting some renewals. So 6.2% uplift on new lettings, I think is a good demonstration. There's still plenty of demand out there for new talents wanting space in our centers. I'm encouraged by the fact that this has continued in January and February of this year. In fact, the first quarter, which I gave an uplift of over 3% on some 40 transactions that have already taken place. So -- so that is continuing. In terms of the absolute amount, I mean, clearly, the percentage is down in terms of uplift and 2.8% overall. But of course, that comes on top of huge levels of indexation that we're collecting from the same tenants. So I'm not discouraged by the fact that the lease spread has narrowed a bit because I would expect the reverse to happen as the inflation comes down and we carry on our lettings and renewals, and it will form an increasingly important component of our overall rental growth. You mentioned disappointment of Woluwe. There were 22 deals in Woluwe, 21 of them were very good and produced an uplift of 6%. We had one large legacy renewal we had to deal with, which we inherited and allowed for in the purchase because it was an overrented situation, a rather large Swedish fashion tenant and a difficult unit, but a very important one. It's a 2-level store without an escalator. So it has now letter to its market value. So we would expect to see, particularly with the effect of the remerchandising we illustrated, we would expect to see Woluwe performing very well in terms of its rental uplifts as well going forward.

Yes. And then Francesca, on the guidance, as Peter said, we're still optimistic on lease spreads. Obviously, we have to take into account for '24, but we explained. That's why we put in the table in the press release indexation as such will be lower, much lower than for '23, but also different in the countries, whereas we see quite a stable situation, you could say, for France. Sweden still has some good indexation there. But actually, there's a big difference. But then last year, when we had this incredible 11.3% indexation. And this year, it is much lower. It's also the result of the way indexation is actually established in Italy. Maybe a few words, Roberto, on how that works.

Yes. No, that's true. I mean almost all leases are index using the December indexation. So we just pick 1 month on the basis of that month over the year that we fixed the indexation for the coming year. And as we mentioned in the press release, of course, this indexation is then invoiced to the tenants with the invoicing of the second quarter because the number is known only at the end of January. So it's too late for the first round of indexation.

Yes. And I think, Francesca, if you then look at '24, that's why we gave a guidance which is higher than last year. We increased the dividend also, which we think is possible. We're optimistic about the overall year. But -- we also have to take into account that the rental growth, which we've shown over 2023. Well, we'll be much lower in, let's say, the indexation column. That's very clear. People can calculate that. And at the same time, we still have to also accept that the interest expense, obviously, the -- by far, the largest cost in our P&L will go up further because it's probably you could say, is it marginal, not marginal, but it will go as all our peers will see higher interest expense in '24, but it heavily depends on short-term interest rates. And -- and if these come down, then obviously, we have a better outlook for the interest expense. But we have been cautious there and said, if everything stays the same as it is today, then obviously, your floating part, it is the most expensive part in our portfolio. We will stay where it is, although we were doing a bit of forward starting swaps where in due course, we can kick in with a low coupon. But so there are the uncertainties, and that's where we are today, hence the guidance. I hope this all answers your questions. Francesca?

This is very clear.

We'll now move to Steven Boumans of ABN AMRO ODDO.

I have also a bit clarification of questions asked earlier. So you touched a bit on potential transactions. But to be clear, are you involving any transaction processes today, so being potential acquisitions, dispose those or joint venture discussions? And following up on that, could you please comment on the probability that you are doing a larger transaction in '24? So that's my first question.

Yes. Well, let's say, obviously, we can only talk about things which are in the public domain. But there's always talk. You always are talking to parties in the market, et cetera. So that's an ongoing process that I think it's our duty as management to stay connected. But we all have seen what happened in '23, where there was really a slowdown in the market in terms of transactions. And although I think there was the expectation for '24 that would change. I must say that -- and it probably has to do with what happened to interest rates. I think in December, markets were probably a bit too optimistic about rate cuts, et cetera. It's still going to happen is my impression, but a bit later than earlier expected. And I think that could be the trigger really for transactions to start happening. But for now, I think everybody is sort of holding their horses a bit, before the rates come down. And therefore, either I cannot confirm or nor do we looking at a particular transaction, we're monitoring very closely the market. Obviously, we also understand that, let's say, we have a certain position with our balance sheet. So we don't have a pile of cash, which we can spend. So for us, it's really together with all our peers, I think, sitting on the fence and see what's happening and possible deals. Peter, maybe a comment from your side.

I mean, I think we certainly are seeing some deals happening in perhaps the high-yielding sectors, but some good assets recently in France and the U.K. And I think it's fair to say that there is property a reasonably good quality coming to the market. I mean, just this week, you've seen [ Xanadu ] [indiscernible] in Stockholm, Liverpool 1, Gropius Passage in Berlin. I mean there are things that are happening, and there's quite a lot of money in, I think, in the private equity group. So I think the interesting thing will be to say is that what really happens in the prime institutional lens, and that will be determined by the quality of centers and are the sellers of that type and are the buyers of that type. And are we going to see the big institutions, the life companies in Germany, France, Italy, the open-ended funds come back and look seriously at retail. But there is a word that's happening, but I think the next 6 months will be very interesting.

Yes. I mean, I think [ lithium ] was the catalyst to quite a lot of that discussion. So -- and as I said, the 2 properties that have been announced being available coming to the market this week, I think is a knock-on from that. And these are not distressed assets. These are good quality. So where they land in terms of yield will be very interesting.

Okay. Very clear. Then I have 2 other questions. So one is still on the outlook. Does it includes any renewals or turn off the base rent? And maybe the last question, could you please provide the update on potential new competitions like Geneva or maybe Milan? That's all the questions from me.

Okay. Steven, that's competition in the Milan area of shopping centers, you mean?

Yes. Yes, indeed.

[indiscernible] No, I think Roberto can take that one. He is a regular in Milan, so...

Yes. Let's say I'll tell you, Steven, the -- what is known on the market. And the rumors, of course, we can leave for a beer. I'd say there's been no news, let's say, on the big projects in the Milan area in [ Sigrid ]. So what we have seen is the -- been a tender for concerns, a revised version of the project, much smaller than what it was what the concept was. If that is the case, and this new concept is approved, most probably will have to go through the -- obtaining a new permit, so that would be important in terms of time, money and effort. For concerns other projects in the Milan area, there's mainly one, which was Merlata Bloom, which opened. And yes, it was a nice opening. And the other one, which is [ Milano Nord Duem ], we haven't -- there's no news on the official news on the market yet. But of course, the cost it would be to that project are also extremely important. If that answers your question, Steven, as much as I can.

Yes. That was clear on Milan. And for Geneva, [ so free ]...

Geneva?

Yes.

Geneva? You said, Geneva, okay.

The competition in Geneva, I think it's fair to say, is under -- but probably not completely mothballed, but I think partly through financial reasons, partly through environmental planning objections. We don't see any activity from the Altarea, [ the fray ] or the outlet malls that was discussed. We -- as a result of that, I mean, we're focusing very heavily now in terms of getting on and doing our project in Val Thoiry, because there is definitely a window there in terms of the competition. We think we have a very good opportunity with relocating Leroy Merlin on to the adjoining site, which we own, which will release the old store of 8,000 meters, which we can break up and relet for which we spent very strong demand. And that demand itself is a demonstration of the lack of alternatives for some very major occupiers that we're focusing heavily on. So no, I think it's an opportunity for us now to move forward in Geneva, both because of the opportunity ourselves in terms of the space but also the lack of competition under what is very now what is proving to be a very successful new legislative restriction on new shopping centers of above 10,000 square meters in France. There's very little new development at all in France. So it's quiet on the development front.

Yes. That's very clear. And so the last one, are renewals or turnover base rent in your '24 outlook?

Yes. I think, let's say, in our outlook for '24, we -- as we said before, renewal relettings, we still see similar sort of percentages, which we expect or have in mind turnover and is still a component. I mean it has been there. And I think we have a number of strong tenants, particularly in Italy and Roberto, maybe you can color on turnover and it does exist, Steve. It does exist.

As you see, things are going fine. Then Italy, what we usually expect, I mean, that from a statistical perspective is last year, we have a strong indexations of renewals and reletting on the top of indexation was not 300%. This year, of course, we have an indexation which is 0.6, so that could be a nice surprise on the renewals and reletting in Italy, and the turnover rent.

Okay. And to be clear, that is partly in your outlook, the 230, 240 outlook?

Yes. Let's say, we have made, of course, a very detailed budget for all our '24 assets in terms of rental income, the -- also including turnover vacancies, the usual elements, these are quite detailed budgets and then, of course, further forecast for up to 5 years even, but certainly for '24. All the ingredients are in there because '24 will be a different year from '23 because you have not that rental growth is in '23, but not a jump in interest either, but still, you have to balance it and make sure that you're doing the right things and also allocate the money properly because now we have taken a decision on Woluwe, that extension. And therefore, we can focus, as Peter said, on Val Thoiry, and we have some other things in mind as well, including even in Sweden. Yes.

We now move to Inna Maslova calling from Banque Degroof Petercam.

I just have one last question. In relation to the valuation yields and how you see the current valuation of your portfolio, whether you would expect still any movements to come in? And certainly in the perspective of where the initial indication is on the transaction yields appearing in the market, I would be curious to know what your view is generally on the opportunities that are there and perhaps a wishful thinking, but at what levels you would feel comfortable to pull the trigger and invest.

Yes. Inna, that's something which, obviously, we talk a lot about internally, no, but Inna, your question is very, very relevant because we haven't seen really the transaction, the comparable transactions, which are, of course, are leading also for valuations and which valuers look at in order to arrive at their expert report. So that is -- had a big unknown. On the other hand, if you look at what happened to valuations in December and particularly also on the cap rate. My personal view is that they are not so much connected anymore with the interest rate environment. Obviously, when the valuations took place in the autumn, we were still in a scenario where interstates were ticking up. Then the question was, are we at the highest level? And will there now be a pause, which effectively was clear in December, that's why obviously, a lot of the property stocks went up rapidly. But that was not included in valuations, if I see discount factors of what was it sometimes 8% or so, completely disconnected from 10-year interest rates, 10-year swap rates. So I think if you look at the next valuation around, I would hope that there is some more connection between interest rates and cap rates and what have you. Having said that, of course, transactions could happen, which show yields. And if that are really comparable deals that you say, okay, that therefore, it has an impact on valuation. But in principle, if you now look at also our portfolio with the high yields coming out of the portfolio, also the EPRA yields we published. These are, I think, very defensive.

Yes. I mean, around 6%, which is what we are now overall. And looking forward, I mean, we're going to see -- I mean, our best estimate on the indexation is 3.3%, 3.4% overall. But I think we should expect at least a contribution of 2% to 3% from the lease spreads and turnover rents. So we could be looking at, again, rental growth to 5% or 6%. So there's a little bit of cushion there even if yields were to move out. But I think from 6%, that looks pretty stable. And from speaking early to some of our values. That's what I'd expect. So yields may move up a little bit, but I think that will again be compensated by the rental growth. It's my best guess because we haven't -- we're not -- the properties we're expecting to see aren't in the market aren't necessarily that's going to be directly comparable to our centers. But we need to obviously watch the market very carefully and see where some of the centers I mentioned earlier, where they land.

And if you compare to other asset classes in, I mean, retail is a much higher yields than on the other asset classes in the dealer estate. So maybe from the discussions we had with NII, what we've seen -- what we see is still, let's say, investors looking at double digits hovering on the retail market. But we still -- we're already seeing some other investors, the more long-term investors, which should interest in the yields, which are not double digit, and they started looking back at retail because of course, at certain point offices became a backward like it was retail for many years. So I mean, we need to see look at the cycle as always. Inna, does that answer your question?

It does, absolutely.

[Operator Instructions] We'll now move to Kai Klose calling from Berenberg.

It's Kai from Berenberg. Just 2 quick questions from my side. The first one, the increase in property expenses by 11% in the last year. Was that to some extent driven by higher inflation? Or were there some other items maybe in the context of the extension in Sweden? And what kind of uptick you are planning or you're budgeting for in 2024? And second question would be on the recent debt extensions. Could you indicate how much of additional debt or how much you were tapping up, so to say, the existing mortgages? And the last question, 1 mortgage or 1 loan in Sweden only was 70% hedged. So I just be curious, why not 100% then only 70%?

You're always spot on, on everything. That's unfair. Let's just start from the property expenses. Let's say there are 2 things to include, of course, one, as you correctly pointed out, is inflation. We had a strong increase in the income side, but that also affected, of course, the property expenses. On the other hand, and I'd say there was an effect on the Italian tax because, of course, rental income in Italy, which if you remember, is one of the 2 countries where we are subject to taxation. So the rental income were up so much in Italy that we were not able to compensate it fully. So our taxes went up there with EUR 1 million. And what you also have is a correction, let's say, of bad debts, which we had in 2022, which we're not having in 2023. So that explains more or less the EUR 4 million difference that you see, if that helps or concerns the future, let's say, we're looking at the inflation at the moment and the costs and the rest. Yes, we do not foresee any reason for a very strong increase in property expenses in the coming year. But let's see how it goes this year because, of course, interest expenses are still high. So that might affect the cost. Our concerns the debt extension, let's say, we have 1 loan in Sweden, which we swapped -- sorry, hedged at 70%, that's correct. And that's because, let's say, the interest -- we believe that the curve of the STIBOR can go down still a little bit. So we are monitoring the moment where it might be more interesting for us to enter into a hedging situation for that part of the loan. On the debt extensions, I wasn't quick enough to note it. Kai, if you can repeat it.

Yes. The question was if it was just, let's say, pure extension or if you were also tapping up, meaning taking more debt based on the...

Yes. Let's say we -- at the moment, let's say, we are happy with the loan to values that we have on our financing. I think the only case would be [ Valbo ], which expires in 2025, where we actually made a good extension that you could see a case whereby will be still interesting to increase the loan, but keeping the loan-to-value still, let's say, below around the 50%. On the other assets, let's say, which are explained next year that is Woluwe. We believe we will keep more or less the same value sales we currently have. And the other malls are quite -- the other loans are quite small that we need to renew. So that will not really make a big difference. If that answers your question, Kai?

Yes. Perfect.

As we have no further questions at this time from the audio audience, we'd like to now turn the call over to any questions submitted by webcast.

Yes. Thank you, operator. We have some questions via webcast. But I see 2 of these have actually been already answered because the analysts also had those questions. So I will read out the one which we haven't seen so far. And the following question was asked, could you please remind us which was the additional value related to the extension of Woluwe included in your previous valuation. Well, what we can say there, and I think we also made that clear in the press release that the big movement we had over the year in terms of valuation for Woluwe was caused by the increase in the cap rate, 40 basis points over that period, which means that then you can see that actually, there wasn't that much left for the extension project, if I have to say what was that sort of in the valuation that was less than 2% of the value in the various reports. So the majority of the movement was really caused by the movement in the cap rate, so not so much the extension. And as we said, this extension project is no longer on the table, but we still have the possibility to extend Woluwe. There is in Belgium, a rule where every 20 years, you can extend a retail property with 20%. So that is still available to us. But it has to be in a different format. And Peter has already alluded to that a little bit how that could look like, probably more simple and more straightforward on retail, but we'll see. So I think that answers that question. And then we see also another question on the trade and other payables, which is a bit higher in our balance sheet compared to last year. And I'm looking at Roberto, who is [ talking ] but we can also maybe say we can come back on that...

No, no. But it's a mainly about interest expenses. Of course, you know that we pay our interest on the -- in Italy on the 17th of January, I mean the other countries on the 30th of January. So the balance due to the increase of interest expenses went up. And what you also have, let's say, a bit of increase in the trade creditors and the other tax payables, of course. Those are, if you wish, the main components of the increase in the creditors. But there's nothing particularly worrying that we're seeing in any possible way.

Okay. Okay. I don't think there are any other questions. I don't see them. So I think this concludes our conference call and the Q&A session. So thank you very much for all of you who are participating. And hopefully, we see a number of you asking the questions very soon for further discussions about the results. Thank you so much.

Thank you. That will conclude today's conference. Thank you very much for your attendance. You may now disconnect. Have a good day, and goodbye.