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

Hello, and welcome to the Eurocommercial Half Year Results 2024. My name is Laura, and I will be your coordinator for today's event. [Operator Instructions]. I will now hand you over to your host, Luca Lucaroni, Investor Relations Director, to begin today's conference.

Good morning to everybody. My name is Luca Lucaroni, Investor Relations Director. I'm happy to open the call where our CEO, Evert van Garderen and our CFO, Roberto Fraticelli, will present our commercial results for the half year 2024. The agenda for the conference call is presented on this slide. Evert van Garderen will talk about the operational results of the company, including the recent activity during the first 6 months of the year and about ESG. Roberto Fraticelli will discuss in more detail the property valuation and the financial results. We will then open the call for any questions and remark you may have.

Thank you, Luca, for introducing us and presenting the agenda for today. Good morning, everyone, and thank you for joining us this morning. As Luca said, I will start with an overview of the operations of our commercial during the first 6 months of 2024, and we'll finish this presentation later on with some closing remarks on the share buyback program, the dividends paid and the guidance update for 2024. Although the entire property portfolio was externally valued as per 30th June, and there were some small uplifts in each of the countries. The portfolio weightings by value over the 4 countries did not change compared to December 2023. Italy is still at 44%. Sweden and France remained the same, both at 21%, whereas Belgium covers 14% of the portfolio. The total value is now just over EUR 3.8 billion, and there were no changes in our portfolio of 24 shopping centers. This slide illustrates the geographical diversification and the locations of our 24 shopping centers within our 4 countries. The company produced a good operational performance in the first half of 2024. On the slide, you see an overview of all the important operational metrics for the first 6 months of the year, which underpin that statement. I will comment in more detail on these metrics in the remainder of this presentation. Much lower inflation and therefore, much lower indexation compared to 2023, determined the like-for-like rental growth for the first 6 months of 2024, which resulted in a growth of 4.5%. Indexation was still the main driver of the growth together with turnover rent and particularly in Italy, 40% of the Italian rental growth was produced by a turnover rent with the 3 flagships, Carosello, Fiordaliso and I Gigli being responsible for the majority of the turnover and contribution. You can see from the 10-year like-for-like rental growth overview that the first half of 2024 was not a record, but 4.5% is still a good growth figure compared to the growth reported over the last 10 years. The like-for-like rental growth for the portfolio and the 4 countries is always calculated on the basis of 12-month data. We compare the tenancy schedules as of 30 June 2024 with the tenancy schedules as for 30 June 2023. So basically, we compare 2 photographs. We achieved an average rental uplift of 2.5% on 261 renewals and reletting. Last year, that number was EUR 235 million. And this is on top of indexation. These lease transactions represent 16% of the minimum guaranteed rent of the portfolio. We were able to attract new tenants with our 100 new lettings, achieving an uplift of 5.8% as retailers and brands continue to recognize our centers as important destinations in their expansion plans. This leasing activity is continuing with already 135 new leases signed in the first half of this year, achieving an uplift of around 4.1% on average. Low vacancy is usually a good indicator of the quality of the properties. Over the last 4 years, we have reported vacancy rates in our property portfolio ranging between 1.3% to 1.8%, and we continue to do so. The average since June 2020 was 1.5%. The EPRA vacancy rate remains very low at 1.7% in June 24 for the entire portfolio. It was slightly down from the vacancy rate reported for March 24. Vacancy in Belgium, France and Italy reduced. The vacancy in Sweden is temporarily up due to part of the space which became vacant when the hypermarket moved out in April to open next door to our Ingelsta Shopping center in their shopping. The majority of the space is already relet to cope on a 15-year lease and to normal on a new 10-year lease, and they will both open in November. The sales in the stores of our shopping centers in the first half of 2024 were up by 1.8% compared to a year ago. In France and Sweden, the inflation was higher compared to the other countries, which is reflected in the higher sales figures for those countries. For Italy, the sales were also hampered by the remerchandising project in Carosello, where there were temporary vacancies due to construction works. And therefore, the evolved units are excluded from the figures. In addition, the poor weather in the spring and early summer in Italy affected the sales of summer closing. The company has always been known for its low occupancy cost ratios and we're, therefore, pleased to report a 9.8% occupancy cost ratio for our portfolio as of 30 June 2024, compared to 9.5% in December '23. This slight increase is the result of high recent rental growth, mainly due to indexation. However, this percentage is still one of the lowest in the industry and implies that the rents are affordable for our tenants. An interesting trend is that the composition of the occupancy costs has changed over the years. Service charges are a slightly smaller part, whereas rent is a slightly bigger part of the cost. This is a healthy trend and shows that we're able to lower the service charges in favor of more rent, and this is clear evidence that our strategy to lower service charge for tenants with the aim to improve the rent levels and therefore, achieve rental growth is working. This slide illustrates the strategic remerchandising project at Woluwe Shopping that has now almost been completed, involving several major anchor stores. On the 7th of April this year, Zara opened their full concept flagship store of 3,300 square meters, doubling their floor space in a new central mall location. This was shortly followed by C&A who were relocated and opened a 1,500 square meter store that was previously occupied by Zara. Meanwhile, INNO have started the full refurbishment of their 12,000 square meter 3-level department stores, while Carrefour recently replaced always supermarket match, introducing the latest version of the Carrefour market concept, which in terms of quality, it's much more closely aligned to Woluwe's immensely wealthy primary catchment. A similar project is underway in our Milan flagship Carosello, where MediaWorld recently relocated into the former Coin department store, which is around 3,000 square meters, thereby creating the retail space and opportunity for this important remerchandising, which is focused on a new full format Zara of around 4,600 square meters who will triple the size of their former store. The new Zara store is being built together with a new 800 square meter store for Bershka and an enlarged radial store of 550 square meters. These Inditex stores will be completely and fully open for trading in early October this year and will collectively become their flagship representation serving the Eastern region of Milan. In Sweden, at Grand Samarkand, Vaxjo, the development is well underway for a new external retail store for the expanding value reader, Ekohallen. The 8,200 square meter unit has been let on a 10-year lease and is scheduled to open in March 2025. The project costs, including land, is about EUR 11 million and is expected to provide a return of at least 8%. We recently developed a similar store for Ekohallen shopping, which is illustrated in the picture at the bottom left of this slide and sold the investment at the yield of 6%. Over the last five years, the health and beauty sector has increased its presence in our galleries by 24% in terms of floor area and by 32% in terms of rental income. Rituals have recently opened three more stores in our shopping centers, bringing their total number in our portfolio to 11 with another store due to open in Fiordaliso resort. New international brands expanding across our markets include the French fragrance designer, Adopt, who have opened recently in Passage du Havre. Vikan Cosmetics, who have opened three additional stores in our Italian portfolio, taking the number to 6, while their main competitor, Kiko, are now looking for larger stores and also investigating the Belgium and Swedish markets. The sector is also seeing the expansion of specialist beauty centers such as Media Markt who are substantially increasing their footprint and their unit size to provide a range of in-store treatments in addition to the normal product range. Media Markt have recently signed for enlarge and large unit in Woluwe, which is 680 square meters and will shortly open in CremonaPo. The food beverage sector is continuing its rapid expansion following the COVID-19 restrictions with a range of new brands, concepts and formats. The sector now represents 9% of our gallery floor space, an increase of 23% in GLA and of 31% in rental income. To satisfy the increasing demand from both customers and operators, we have recently completed several F&B projects in all our markets, repositioning F&B as a central pillar of attraction, increasing both footfall and dwell time. The sports sector also continues its rapid expansion with the increasing popularity of branded sport and leisure fashion. The sports sector now represents around 10% of the gallery for or space, an increase of 24% over the last five years. And this demand has resulted in a significant increase in rental income and also the rent per square meter of 64% and 32%, respectively. Many of these brands are increasingly operating cross-border with JD Sports being particularly prominent with whom we have already 6 stores, covering France and Italy. Increasing demand for sneakers and training shoes has seen the expansion of specialist footfall retailers such as Courir, Footlocker, Snipes and Sketchers. This slide looks at the fastest-growing brands in our shopping centers over the last 5 years. I just mentioned JD Sports. But on this slide, I would also like a particular reference to Normal, the expanding Danish value retailer who is present in all our seven Swedish shopping centers and are also performing well in France, both in Passage du Havre and now also in MoDo in the suburbs north of Paris. Normal are also seriously investigated the Italian market, and we fully expect to have their presence in our portfolio soon. Fashion continues to be the cornerstone of our galleries, representing around 40% in terms of floor space. However, the big change in this sector is that it now comprises fewer, but much more larger stores. This is most evident with Inditex as illustrated in the re-merchandising project I've just shown in Woluwe and Carosello, where they are doubling and even tripling their store size in order to showcase the latest full Zara concept. All the Inditex brands are expanding their representation, and we currently have 24 of their stores, mainly in Italy and Belgium. Equally, H&M already doubled the size of their stores in our Swedish centers before the pandemic, taking their typical unit size to 3,000 square meters, including H&M Home. Before I hand over to Roberto for discussing the financial results, I would like to say a few words about some of the ESG activities listed on this slide. We continue with the double materiality assessment to identify key ESG topics and to evaluate your commercial impact on the environment and society. Our approach ensures compliance with the Corporate Sustainability Reporting directive and its standards. This process will be finalized in the third quarter of 2024, so that we're ready for reporting over 2025 in compliance with the CSRD and with limited assurance provided by our auditors. The recertification of our assets under new Brim in used protocol version 6 is progressing well, and we just received the certificate for our French assets with either excellent or very good scores. We continue to make further progress with our sustainable finance goals, having just reached agreement on the commercial terms for additional green and sustainability-linked loans for financing in Belgium, in Italian and Swedish shopping centers, which loans, Roberto will cover in more detail as part of the financial review. This slide provides the major ESG achievements reported over 2023, but also an update on the percentage of green leases out of the total leases per country and the electric vehicle charges in our shopping centers, which should reach a number of 494 by the end of this year. And this is the moment to hand over to Roberto Fraticelli, who will discuss in more detail with the valuations of our property portfolio, the funding and the financial results.

Thank you very much, Evert Jan, and thank you all for joining the part here. Let's have a look at the valuation first. So, as you've seen, as Evert Jan mentioned, valuations were up 1%, which is not a huge woke up, but it's very important that we see that all countries that are actually coming up in valuation. And if you look at why the valuation has changed, the most important increase is in the estimated rental value. So, it's actually growth that we can then use in our shopping centers for the rental income. There's also a slight decrease in the net initial yield, the EPRA. It used to be 5.8% in December, and it's now 5.7%. We look at that more in detail later. If we then go to our split. As you know, we split our properties into two categories. Let's say, one is the dominant shopping center, our flagships. And the other one is the 19 hypermarket and anchor shopping centers. If we look at the consistency of the portfolio, you see there hasn't been a lot of change. The EPRA initial yields for the flagship stayed the same from December at 5.4%, while the EPRA net initiative for the suburban is slightly down at 6.0 from 6.2% in December to 6%. As you know, EPRA is a photograph of the moment. So, there is a dependency for concerns the level of vacancy, for example, and the rest. Now let's go to the fund part, which is the loans. As Evert mentioned, we've done a lot of refinancing this year. We're very happy with that. We refinanced 2024. And what's also very nice is that as vital mentioned, we are going greener and greener as much as we can. As you see, the first loan that we refinanced was with Banca Popolare di Milano, Bank of BPM, and it was a three-year loan. And that's because in this way, we align the loan on the Fiordaliso Park to the rest of the Fiordaliso shopping center. So that when we can refinance it in 2026. We have a nice full package for a nice big shopping center. Then, you add EUR 100 million loan sustainability linked on Ekohallen Castello, which has been extended for five years. And then SEK 700 million on the Allana shopping centers. As you see, that's also a difference, not only green, but also the length of the loans has increased before when there was the market turbulence, we used to increase our loans by 3 years, extend them by 3 years. And now as you can see, we're going to five, six-year loans and maybe also something more that we see, for example, in the loans expiring 2025. For this, we have agreed commercial terms. That means that we have signed a beautiful term ship, and we hope to finalize the contract by the end of the year so that we are all happy. The first one is on Val d'Oise, a big loan with ABN and ING for EUR 265 million. The extension is a little bit over 6 years. And we are going to get a green loan because Val d'Oise is getting a BREEAM certificate, and we are pretty confident they will be excellent. So that allow us to have a green loan, nice green loan also on our Val d'Oise asset. Then there is a EUR 50 million loan on CremonaPo, always from ABN AMRO, and that's also green and site-built linked. And then last but not least, we have in our Valbo shopping center, we are renewing the loan for SEK 750 million, and that is also going to be a 5-year loan in green because Valbo is also green. As Evert mentioned before, we have made a lot of effort with all our assets for concerns getting green and nice beautiful green certificates even with the new V6 standards. What does that mean? Well, if you look at the financial summary at the end of June 2024, that means that the loans that were expiring in '25 has been moved mainly to 2030 and 2031. So that's a nice movement forward of our loan expiration dates. As you see, there is a bulk at 2026. That's mainly our 3 beautiful flagships in Italy, which is Carosello Fiordaliso. For that, as you know, we have already started discussion with the banks. It's over 2 years far away, but it's always better to be prudent and we start the negotiations. What's also interesting to see, if you look at total net borrowings, so a slight decrease compared to December. And the average term of our hedges, as we will see better in the next slide is almost 6 years. And we kept the overall interest rate at 3.2%. It was the same as December, and that's also especially thanks to all our hedging, which we're going to look now. So, this is a graph to give you an idea of what we're doing on the interest hedging. The top graph, let's say, gives you the overview of what's been happening until now. So, as you know, we try and maintain an hedging ratio of around 80%, sometimes up something down depends also on the interest curve. And what it also shows is the EURIBOR 3 months, how it varied from the minus 05% at the end of 2020 to the plus 3.7% at the end of June, which is a humongous increase. But if you look then at our average cost, you see that it increases, but it increases at a much slower pace than the EURIBOR, and that's due thanks to the 80% coverage, of course, having 80% interest rate hedged. And so, there is a 20%, which is still a variable, and that's why you have the impact of the increase in the EURIBOR 3months. We're also trying to give you an overview, what is going to happen in the future. So, what is going -- our hedging ratio? Where is it going to be? That's a bottom graph. As you see, we're trying to keep around 80% and just as a form of information. Until today, we have entered into a new swap for EUR 150 million. Length is around 6 years, and the interest rate is something lower than 2.6%. And also, we did that for the TBB. So, we swapped Swedish kroner for EUR 1.3 billion at an average length of something around the 5 years and a fixed rate of something less than 2.7%. Now let's look at our financial position. We just highlighted for you the 4 main points of interest. As you see, it is all pretty stable, which I think we like. The net EPRA initially decreased to 5.7%. We mentioned that before. The property investments were up by 1% or the equivalent of 37 million we already discussed. The net borrowings decreased by EUR 10 million, which is margin on 0.7%, but it's not increase. And the EPRA NTA per share decreased slightly of $0.22 or 0.6% due to the fact that we issued new shares. As you know, we have EPRA dividend policy, we offer you the opportunity of choosing cash of shares for your dividend, and many of you have shown quite some interest in that because we had interest ranging between 18% and 24%, which is a significant and important feedback for us that you actually appreciate this. But that, of course, leads to some dilution in our net asset value and the rest. So, we compensate that marginally through our buyback program, which is now moving forward in which I will discuss also later in the slides. If we now go through our loan to value, which is the Slide next, you see that it went down from the 42.5% to marginally to 41.8%. That's, of course, due to the increase in value of the assets and the slight decrease in the in the loans. Let's remember that our group covenant ratio is still 60%, and so we are a 41.8%, and the loan-to-value covenant ratio for the group is at 60%. Then we're almost there. ICR and net debt-to-EBITDA ratio. As you see, the net debt to EBITDA is continuing to improve. We are now at 8.5% compared to the 8.9% that we had at the end of December, considered that the 6 months EBITDA is annualized. So, it's a calculation that is made. And if you look at the ICR ratio, it stayed stable at 3.7%, 3.6%, notwithstanding the strong increase in interest rate. So, we see also that as a positive contribution for a positive ratio for our company. Then we go to the first of our bridges, which is the NTA. So, we started on the 31st of December from EUR 39.59, if we add up the direct investment result, which is EUR 1.2 and the indirect investment results of EUR 0.44. Then we deduct, of course, the dividend that we distributed to you of EUR 170. And there, you see also the effect of the increase in the number of shares. So, the stock dividend partially compensated by the share buyback. Then for APRA, we need to adjust for the deferred tax and then for the fair value of the financial instruments. And then we have the others, which is mainly related to the devaluation of the Swedish krone. And then we get to the end to the EUR 39.37. If you look at the income statement, let's remember that those are IFRS figures. You see that the rental income increased by $2.7 million, 2.5%. Net property income increased by EUR 5.3 million, that's a nice 6%. Direct investment results increased by 2.8% because we go from the EUR 64.5 million to the EUR 66.3 million. And of course, there is also the increase in the indirect investment result per share, which is due to the positive evaluation of the asset and, of course, of the derivatives that we have in our portfolio. Last but not least, maybe the slide that you like the most. It's about the direct investment results, and we compare, let's say, what we did in 1 year. So, from the 30th of June 2023 to the 30th of June 2024. As you see, the rental income went up by almost EUR 4 million. We made a good gain on net service charges. So that means that we're able to recover more. Then we have to deduct amortization for discounts and feed-out costs of the projects and Evert Jan has also illustrated partially of all the projects that we have been putting in place in the past periods. We have a good increase in bad debt. So, we actually recovered more bad debts that we thought we were going to have to concede. So, that's very good news. And on the other hand, we have higher IT costs and that's, of course, due to the digitalization program that we are implementing all of the group and particularly in other assets. Then we have the huge impact of the net interest expenses, EUR 4.8 million. As you remember in the graph that you previously saw the EURIBOR really showed up in 2023, and that's where you see the effect on the unhedged part of the portfolio. Then we have corporate income tax. We made some savings mainly in Sweden and others are savings that we made in company and property expenses mainly and part of them also in land tax that we were able to recover. And now on this positive note, I hand back to Evert Jan.

Yes. Well, thank you, Roberto, for presenting all these figures. I also would like to say a few words, as I said before, about the share buyback program, which Eurocommercial announced on the 7th of June 2024 as it is related to our dividend policy and in particular the option to elect for shares instead of a cash dividend. We announced the start of the buyback program for a maximum amount of EUR 15 million, and the program started on 30 June and will cease on 29th of November or as soon as the maximum amount of EUR 15 million is spent to buy back the company's shares. It is expected that the total number of shares to be bought back will range between 1.2% and 1.4% of the issued share capital of the company depending on the prices for which the shares can be bought back. The objective of the buyback program is to avoid dilution as a result of offering stock dividend to shareholders in 2024. Given the prevailing stock price, the company expects the buyback to be enhancing to earnings and net asset value per share. And the buyback will be funded by existing cash and loan facilities and the company will keep the repurchase shares in treasury. Up to the 29th of August, 440,000 shares have been bought back for an average price of EUR 22.74 which translates into a total amount of EUR 10.1 million, meaning that about 2/3 of the program is now completed. In 2024, we paid a total dividend of EUR 1.70 per share compared to a total dividend of EUR 1.60 per share paid in 2023. And this is an increase of 6.5% and translates into a 73% payout ratio close to our payout ratio target of 75%. We also offered shareholders the option to elect for a dividend in shares instead of the cash dividend. As these shares are charged to the fiscal share premium reserve, there is no holding tax due, which may be attractive for those shareholders who cannot obtain a reduction or a credit for the 15% that's dividend withholding tax. And the take-up of stock dividend in January and July of this year confirmed that around 20% of our shareholders appreciate this option. According to the dividend policy, the cash interim dividend is expected to be 40% of the total cash dividend paid in the previous financial year, which for 2024 is EUR 1.70. So, for January 2025, the cash interim dividend is expected to be $0.68 per share. We intend to also offer shareholders in January 2025, the option of taking a stock dividend instead of a cash interim dividend. And now a few words about the guidance. Because today, the company's results are not directly affected by the wars in Ukraine and Gaza, but that could still change with the conflicts escalate further. Indexation for 2024 is much lower than 2023, which will impact rental growth. And we also cannot exclude that some tenants may have a hard time due to competition in their sectors and could become insolvent. However, short-term rates have now come down due to rate cuts by central bankers in Europe and further rate cuts are now expected by the markets to take place later this year, which will have a positive effect on our interest expenses and may have a positive effect on property values later this year as funding costs will come down. So, on balance, we're optimistic about 2024, and therefore, assuming no major deterioration of the macroeconomic environment, we update the guidance for the direct investment result for the year 2024 and expect it to range between EUR 2.35 and EUR 2.40 per share. And I would like to conclude this presentation with a statement that this management board were truly thankful to all our teams in the various countries for their hard work and the continuing commitment to Eurocommercial. And I will now hand over to the operator for questions.

Thank you. [Operator Instructions]. We will now take our first question from Véronique Meertens of Kempen.

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

Okay. Well, thank you, Veronique, for your questions. Can I maybe -- Roberto, CapEx.

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

No structural increase in incentives when discussing new leases?

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

Yes. And then Veronique, on Sweden, indeed, we reported an increase in vacancy, but that's clearly the effect of ICA Maxi moving out in your shopping instar, which is, of course, a huge unit. It was 9,600 square meters. More than half has been relet and Coop and Normal will open in November. But we're still, of course, left with 4,400 square meters, which were in the process of reletting or at least targeting that we get that also relet. But that obviously has some impact on the numbers. But it's not something where we say, okay, this is a sign which we also experienced in other centers. There are still here and there, of course, tenants who may have difficulty financially. I think that's also something we see in France, even in the Netherlands, there are still parties who do not make it after the pandemic can probably be capitalized for a while with subsidies, et cetera. So that will phase out. But we don't see any particular, let's say, specific difference if you compare Sweden to our other countries. Having said that, RICS Bank has moved in terms of rates. So, I think that is a positive. We actually, last week already and this week as well. We benefited from that because the interest rates in Sweden have moved a lot which is nice for us, but it's also nice for the consumer in Sweden because we know a lot of Swedish families. They still borrow mostly floating or at least short-term. And therefore, if there is a decrease in interest rate, they see that immediately in their pocket, in their wallet, and therefore, is more left to consume to spend. Then finally, on the investment market, I think we are all keen to see what will happen after the summer holidays, whether this decrease in interest rates, at least in Sweden, and of course, very keen to see what is happening now in the U.S. where we see probably an acceleration of lower rates, ECB moved one time, but there's more probably in the pot to happen. And I'm sure that the lower interest rates will certainly trigger more activity in the investment market. And we're obviously following that very closely for our 4 markets. But I think it's probably a little bit too early to really see the first activities. But I'm sure maybe in 4 to 6 weeks later, we may see some further examples where one.

And we'll now move on to our next question from Francesca Ferragina of ING.

I have a couple. The first one is on guidance. It looks a bit prudent in light of the results that I saw today. So, can you make a little comment about H2? And if there is any particular reasons or hypothesis that explain your cautiousness? And the second one is on the refinancing that you mentioned over the call. Can you give some more colors about the terms of this refinancing?

Yes. Thank you, Francesca, for your questions. I'll leave the financing to Roberto and the terms, et cetera. But on the guidance, nice to hear from you that you qualify that as cautious because that's probably a little bit the image we have. So, I'm pleased that that's confirmed with that. But indeed, you could say cautious, I think if you compare to what we did, for example, last year, where we also narrowed our guidance upwards, but that happened in the third quarter. Now we do it already with the half-year results. And I can just tell you the main reason why we lifted the floor, we left the cap still at 240. But the floors, in other words, that we are feeling more confident ending up in the higher-end of the guidance has to do with the interest rates. And we still have a portion which where we're boring floating, and that helps now with the lower EURIBOR, certainly lower store. And on top of that, some good hedging possibility. So, let's say, the fact that our biggest component in our P&L in terms of cost, meaning interest. We have, yes, more comfort there and already are benefiting from lower rates, and that was really the main trigger for our decision. Roberto?

Yes. Francesca, thank you so much for your question. You know that unfortunately, we are not allowed by the banks to disclose terms. That's part of the confidentiality. But as you correctly say, give me an idea on where you are. The terms are more or less similar to the ones that we had before, surely less expensive than during the crisis. What we see is some margins are a little bit up, but that's mainly due to the fact that the length of the loans is longer. So before when you add a 3-year loan, for example, and now you have 6, almost 7-year loan, then the margin are slightly higher to reflect, of course, the higher risk, which is for the bank being committed for a longer period of time. So overall, let's say, no change. We expect is actually to see a quite stable interest expense that we showed before and that Evert Jan just mentioned, also with the fact that anyway, the interest rates might stabilize, go a little bit down than the 80% or above hedging of our instruments financial instruments. Does that answer your question, Francesca.

And we will now move on to our next question from Steven Boumans of ABN AMRO, ODDO BHF.

I have three, so maybe take them one at a time. To start with the first, could you please elaborate on the likelihood for you to announce new redevelopments or internal investments for our commercial in the next 12 months?

Yes. Well, Steven, we talked about a small one in Sweden, which is a bit of a stand-alone project because we have the possibility to create for Ekohallen a nice big unit, which we've done before, and visit it's a good return on cost. And we'll then have to see whether we keep it in the portfolio or whether we think how we should sell it. I think there is demand for this type of product. So, we took that opportunity. But if we look at the portfolio overall, I think what you will see us doing mostly is working on the existing tenants and then, particularly inside the malls. So, Roberto already referred to Carosello, but also Collestrada, which is a little bit further out. But I think there, we will do a similar musical chair project like we did in Carosello and certainly, which is almost now ready. And I think we do have a few more of these opportunities. And another point to raise is, again, the change in hypermarket operators, particularly in France. We had 2 centers, Amiens and Saint Doulchard, where Casino was actually disappearing as a brand and Intermarché is now the hypermarket operator, but it also brings possibility that we may, in due course, get some space back, which again allows us to end the existing buildings in the existing mall to create further value with new lettings. It's usually not too expensive space you get back. So, you can do something nicely for also the larger operators there. And actually, another example there, which very recently was announced, of course, our surprise, but also, it's to our benefit. That's what is happening in Etrembieres and in Val Thoiry, where Migros, which is a well-known operator in Swiss, but not so much in France is now basically cooperating with Super U to create a much more, let's say, dedicated hypermarket for the catchment because a lot of French people live around their working maybe in Switzerland, but living in France. So, we, again, think that is a boost for those centers and maybe we can therefore also further work on the tenancy mix in these buildings. So, don't expect us to come up with big extensions. There is, of course, still the possibility in 1 or 2, but it's also taking time. We need in Italy, still a lot of consent to do that. But in the existing mall, it's fun. And I think we can create a lot of value doing the things you've seen some examples.

Maybe one follow-up, and you discussed also some France centers. And actually, all seems to be good there from retail sales and footfalls like you mentioned. But the question is then why is it hard to convert these to positive renewals in France so far? I mean, what to expect from renewals in H2 or '25?

Yes. I think, let's say, the renewal is here and there, taking a bit more time effort. But also, I think it's fair to say, as I said earlier, that they are still here and their tenants struggling and that happened there, particularly in France, where in the fresh mid-market fashion sector, a number of typical French brands cannot survive against the competition of an Inditex and Primark, and other major retailers. That's probably going to continue. But on the other hand, we had, of course, a nice rental growth in France. Indexation kicked in 2x over 6%. Yes, if you don't do a renewal, can you always get the tenant, again paying more rent than you already paid due to all this quite substantial indexation. I don't see it as a warning or a red flag for what has to come in France but there was a particular minus in France, but that also had to do in Passage du Havre where we -- and more examples, but in Passage du Havre where we now have Bershka, part of the Inditex Group in a very nice unit and there we had to forgo some end to make it happen, because, yes, it's, of course, a very high rent per square meter in downtown Paris.

That was one of the main contributors. Yes.

Okay. Going forward, you expect renewals in France to be flattish or maybe slightly negative still?

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

My last question, more technical question. Could you please comment on the background of the two cost reclassifications that we've seen. I think company expenses to property expenses, and the other was from the reduction of other income to service charges.

Yes, let's say, other income to service charges. That's because, let's say, those are as recharged to tenants, so what you had in other income, you had some income, which was actually cost which are results to tenant. So, we said, why should you have in other income, which is a post containing a lot of strange stuff also cost that you can actually quantify and qualify. That's why we moved that from other income to service charges and we did the same as of some interest that we had interest in. The other question, sorry, Steven, was?

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

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

We will now move on to our next question from Amal Aboulkhouatem of Degroof Petercam.

First one would be on the French portfolio and the transition from the Casino hypermarkets to Intermarché. I just wanted to know if you were asked for any incentive measures from the new tenants or support measures during this process?

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

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

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

Perhaps another question for Roberto following all the refinancing. You have now concluded or about to conclude. How do you see the cost of financing going forward, let's say, in the 12-month stance line and is it fair to say that we are close to the peak?

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

Yes. And I think, Amal, what we still, of course, appreciate because it fits with our strategy that we can do forward to hedging because we only use bank financing, and there are no particular other instruments with fixed coupons, so we can always make use of the curve. And it is still inverse quite dramatically, so which means that if you do a forward starter 1 or 2 years out and then extend for another 3, 4, 5 years, you get nice levels. I mean, we did have one of the swaps in Eurozone, 2.2% coupon for quite the long term is not bad. And now in the Swedish Krona, you can see similar levels. So, it's trending in our direction where we want it to be.

Yes. Okay. Very clear. And then last question on my side. On the share buyback program, do you consider perhaps extending this program beyond the November, end of November?

Well, Amal, as I said in my remarks, the program is around 2/3 of what we had planned for but it is looking a little bit like watching the grass grow. Every day, yes, we buy back some of the stock. Obviously, we're bound by the safe harbor rules as they were called because we're in a close period. And then in this case, ABN AMRO Bank can buyback and only to a maximum of 25% of the daily volume, that kind of rules. But it is -- and I think we're not the only one if you look at peers who do buybacks programs. It is a very slow process. So, I'm hopeful that we get to EUR 50 million before end of November. So that at least is done. But I think we will probably have a look when we arrived in January with the interim where, as we said before, we expect around 20% of our shareholders to pick up the stock dividend again. And then, of course, we can consider to do a buyback program to sort of mitigate or really make sure that the results of a stock dividend, which is always a little bit dilutionary to reverse that by a buyback. So, we will monitor that. But for now, I think we just carry over this program. My expectation is that probably say about, let's say, end of September, early October, we will probably announce that it is finished. And that's fine. And we're still -- the average has gone up a little bit in the buyback price, but it's still for us good value because the stock dividend was priced a little bit higher. So, we still make a margin in favor of all the shareholders and the company.

Indeed, it was very accretive, given the share -- the issue of the shares for the dividend Okay. That is very clear. Thank you very much, both of you, and have a nice day.

Thank you. And we will now take our next question from Arianna Terazzi of Intesa Sanpaolo.

I have one question. You mentioned a significant contribution from turnover rent in Italy. So, I was wondering if you could elaborate more on that also in light of the overall retail sales performance in Italy?

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

Now, Arianna thank you so much for your question. I mean, as you know, we have some retailers which have a significant component in the turnover rent and shipping, for example, Inditex, they are the main contributors to the turnovers, and they've actually been performing very well at least in our shopping centers. So, let's say that where you see actually an increase in the turnover rent. There are also many other contributors, but let's say this is the main one. And what we are expecting, actually, if you look at the sales, we're actually expecting a lot of good news coming from this turnover rent. So, hopefully, this is a trend which is going to continue and possibly increase. And that's, I think I would see it. Does that answer your question, Arianna?

Yes, of course. Any indication -- any quantitative indication to quantify this significant contribution?

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

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

Yes. Like shoes, for example, is very variable. So, that's also a component which we monitor quite close. If that answers your question, again?

Thank you. [Operator Instructions].

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

Thank you. This concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.