NEPI Rockcastle N.V. (NRP) Earnings Call Transcript & Summary

So first of all, hello, everybody. Good morning. Good morning to all of you here in Johannesburg but as well when you're joining us on the phone or you're in front of your screen. So we are delighted to have you here for our results presentation 2021. But let me first say that I've joined this company actually last year in July as a Chief Operating Officer. And I have to say I'm honored to be in front of you today as the Chief Executive Officer, together actually with my dear colleague, Eliza, who has been with the company already since 2014, but now got promoted to be the CFO of the company. Well, this gives me the opportunity to send our regards and a big thank you to my dear colleagues, [ Alex and Mirela ], who have been running this company over the last couple of years, which now is actually the leading retail real estate platform in Central Eastern Europe. But later on, we will have a Q&A session. And if you're on the phone, just look at our website, where you'll find some dial-ins. Or if you're in front of your screen, on the upper right side, you would find a button to join our [indiscernible]. Well, this leads us actually right away into the presentation, hoping to find the white button here. Go slow. Very slow. Not expecting technical problems, ladies and gentlemen. Where can I flip this page, please? This doesn't work. We're good right here. It should also work. Got it. Sorry. Sorry, everybody, we did a rehearse. But as you see, there's always a devil in the technical details here. All right, here we go. Does this work now? It's going to work. Perfect. Now we're here. So what has been driving actually our business in 2021? I think definitely it was more the second half of the year than the first half of the year, because in the second half of the year, we saw that actually governments were lifting restrictions, not to the total end of it, but obviously the total environment that we were operating in throughout our country has been improving tremendously starting from May actually of last year. And what we saw actually, mainly that turnovers were bouncing back immediately to the levels of 2019 or even above of that. And that has also stimulated retailers to come back to expansion. So not only building new stores together with us in our new developments, asking for space, but as well enlarging their stores and also investing into all stores and refurbishing them. Now it has also been proven right, our strategy on the concessions [indiscernible] throughout this crisis, because the strategy was to give it only for a month to be able to react immediately, and that has helped to bring down actually the concessions quite tremendously throughout the second half of the year, which, of course, then had a big influence on our NOI growth. Now the merger of online and off-line is ongoing. And here, I think we improved quite a lot with our strategy on omnichannel, and you will see later on what kind of initiatives we took in order to grow together with our tenants in the off-line sector but as well in the off-line sector. Now what we've restarted definitely is our development pipeline. We'll come to this later a bit more in detail, but we started actually on our mixed-use developments and purely retail developments already beginning of this year. And as I said, I think, speaks for itself. The numbers, the valuations are very stable and our balance sheet remains rock song. Now what does this mean in numbers? Maybe let me start with what we have been talking about, our NOI growth. So we've been growing from EUR 323 million to EUR 347 million. So nominal, you see that in the green box there, 7.4% growth. Well, it doesn't sound so big. This is normal and it's affected actually, obviously, by the fact that we are still having here the sales that we had in Bucharest on the offices, but as well on the smaller retail units that we sold in Serbia. So I think the more important number though is the like-for-like growth. So how did actually our retail performance has been over the last 12 months of 2021? And I think that is a double-digit growth of up to 12%, which I believe is also in comparison with peers is quite a good result. And that is manifested as well in the turnover per square meter. You see down there, it was EUR 1,600 per square and now actually productivity went up to 2,000 square meters. So it's a plus of 26.8%. I think this is quite a good growth number. And you can see with this, obviously, that the profitability of our retailers just went steeply up, again, which has helped to bring down our discounts to tenants and to improve the NOI. Now when we look at the numbers regarding more on the balance sheet and our liquidity, this is very stable and very strong. So total investments stood at EUR 4.8 billion. There has been no further disposals in 2019. And then you see that our loan-to-value is actually down to 30.9%, a little improvement. That has mainly to do with the fact that due to the good operations, we have been able to increase actually the valuation here by EUR 35 million approximately. Eliza will give you the correct numbers a little bit later on. So I think this is also very stable and going into the right direction. And on top of this, we were able to pay down some loans in Poland and Slovakia, and that's why actually unencumbered assets currently at 91%, up from 83%. Now when we look at the average debt maturity, it tells you 3.7 years, but this is based obviously on the 31st of December last year, which is not the number that we look -- should look at the very moment, because you know that we did a bond issuing where we replaced the bond for 2023, a green bond of EUR 500 million, which we did in January for quite favorable conditions, I have to say. And the maturity is at the very moment at 5.1 years. So I think this is also a good result that the team could achieve already in the beginning of the year. And that is actually the moment where I need to hand over, and I'd like to hand over to Marek. Even though I would love to present it myself, they're operational results, but Marek, you go for it. Thank you.

Good morning, everyone. I'm actually very happy to be able to come [indiscernible] to South Africa to do the presentation. It's been 2 years. Seems like yesterday. A lot has changed over the last 2 years. But as Rüdi, the business is sound, and I'm happy to tell you where we last year and where we are having, what is the strategic approach and how do we think we need to position our company going forward. To start with, you can see the operations of our shopping centers in the year '21 compared to '19. What you can see is that actually, whenever we are almost fully open, so to say, starting May, the turnovers of our tenants were back to the levels of '19 or actually, in many cases, a bit higher. You can see the first 4 months were a bit more difficult because we had more lockdowns, et cetera. And hence, the malls were not fully operational. But starting May, we observed increased -- increasing month-on-month turnovers and footfalls coming back to '19 levels. It slowed down a bit at the end of the year, again, due to the fifth wave and a lot of hospitalizations, et cetera, and some lockdowns here and there, but generally, the year ended at a very strong note. We are not there yet compared to '19 when it comes to the yearly turnovers, but again, it's a function of the base, there were a lot of lockdowns last year and we believe that this year will not bring any major lockdowns and, therefore, it should be a proper growth here compared to '19. This is more details how the behavior of our clients changed. What you can see actually here is how the footfalls and turnovers were returning to their '19 levels. And you can see that despite footfall lagging a bit behind, the turnover bounced back. It's clear from what we observed that those customers of ours who are not actually the shoppers, we call them window shoppers, they are not coming there because there's no reason for them. And hence, the basket, the average transaction in our shopping center increased tremendously over 15% '20 compared to '21. And we can see the trend continuously, which proves the point that shopping centers play a vital role in the distribution systems for all the retailers and we don't see that trend changing. Maybe a bit complicated slide, but what we want to reiterate here is that looking at the turnovers of our tenants in the 2021 compared to '19, we are, at least, as we were '19 or better in many cases. The only outlier is or lagging behind is entertainment, but there are good reasons for that. When we get our fashion tenants reopened, they sell properly. Where cinemas were opened in Europe, in Central and Eastern Europe in particular, there were a lot of restrictions, too, there. So at the beginning, this [ must put to sell ] 30% of their capacity. So they will kind of open, but they couldn't fully trade. But then when they open fully and they could sell 100% of the available, since we could see that the turnovers decline -- turnovers and customers are really rushing back to the cinemas, we had a lot of proper Hollywood productions, which has driven cinema market tremendously. We are working on various developments. And there are cinemas, we're very interested to expand further and increase their footprint in CEE, believing that the cinema market is not mature yet, which sets the very positive tone for the overall market. So we stay positive. There were a lot of questions during the pandemic. What about entertainment? We haven't seen any financial difficulty of any of the shopping -- cinemas in the region we operate. More than that, we continue the fruitful cooperation with our main entertainment partners. When it comes to leasing activity with turnovers bouncing back to '19 levels, we have seen an increase in leasing activity. We have signed over 1,100 agreements, of which 40% are new leases. And I think it's very important to note, we don't sit there and passively prolong the agreements, and that's all we do now. 40% of what we signed are new tenants. We are always keen. And that's actually one of our main KPIs, to exchange the tenant mix, just look at the underperformance, change them to new tenants, move the tenants across our portfolio, bring new tenants to the -- to our portfolio. So we always -- our -- one of our main goal is to always keep that tenant mix fresh. And the teams are very focused on that. Hence, those numbers are quite remarkable. If we add on top of that decreased retail vacancy for 2021, I can proudly say that was a good year for the leasing and asset management teams. Going further, looking at our tenant mix, it has always been and it continues to be a very strong mix of international tenants. You can see top 10 of our tenants represent over 24% of NOI, none of them being in any sort of financial difficulty. Actually, when you look at the list, we are in discussions with all of them about expanding. We are not talking about closing stores. They want to increase their footprint in the region we operate, and we are their partners for them. Should you extend the list to top 50, none of them is in any sort of difficulty. We passed that situation of cash flow issues to be managed. Tenants are in expansion mode, and we are there, well-positioned to help them and run a profitable business. When we look about OCRs, which is one of the key metrics, you would remember, we have always been in a safe side, some up 13%, way below 15%, which is considered market equilibrium [ ladder ], so to say. Of course, 2020 shown an increase of that metric. But in '21, we are gradually decreasing OCRs, and we should see the trend continuing towards 2022. When it comes to retail environment, pandemic has not changed, and I mentioned that because we got those questions. The pandemic has not really changed the retail environment. We are still signing euro agreement. They are still 5 years or longer. They are [indiscernible] properly secured to be called the bankable -- investable. This hasn't changed. So we -- there were questions around it. We can close the discussion. This has not changed. And I just want to expand, and the only way to expand is to sign agreements as the market expects. And we are happy we did manage to keep that -- those important parts of our disagreement unchanged. Of course, each year, we want to showcase a bit how busy we are with our tenants. We spent the last couple of months traveling to our main anchors to discuss with them the challenges they face, where they want to expand, et cetera, et cetera. It's very interesting to see how their plans changed to -- from what it was 1.5 years ago to today. They really want to expand. And all the brands, you can see, we are very busy expanding the footprint and signing agreements with [indiscernible] expanding CCC and actually their new brand. The same with Primark, they will open this year in Bonarka and there are more agreements to negotiate with [indiscernible] in the rest of the portfolio, Carrefour, LPP, Inditex, et cetera. On that list, we can see a lot of brands. Very importantly, a lot of them are new, either to the countries or the region we operate. If you look at S'portofino, if you look at JD Sports, et cetera, our cross-border leasing team is doing a tremendous job to make sure that none of the leads we would have in any of the country by an international retailer would go unnoticed in the portfolio. This is not happening. And hence, we are so successful in actually partnering our tenants in expanding from Warsaw to Bucharest and whenever they want to be in Eastern Europe where we operate. And this is the way we want to continue our business. So we call ourselves one-stop shop for retailers because in one meeting, we can offer them over 50 locations, unique locations. See, I don't know any other company who could do that. So I think we are very well-positioned for this returning retailer market and we stay positive looking ahead. And of course, physical retail is where it is. We know the fundamentals are there, and we don't see major risks over there. But we are very focused on improving our digital strategy and our omnichannel strategy. We have launched very successfully loyalty up last year and it will extent to all of the portfolio, unified products so that would actually be something unique, again. In European scale, we have initiated our marketplace in Bulgaria, which was a learning curve for us. We learned a lot. And what -- stay tuned, you will see a lot of us showcasing new digital initiatives. We just won't stop. Once we started, we will get there. And we know we need to be in omnichannel world. We are in a retail world where physical retail is one of the channels -- institution channels for our retailers, and we are well aware, omnichannel is the solution, part of which, of course, is physical presence, but we can support our tenants, which [ market-placing ] themselves as well. And with that comes, of course, unified customer database. We are very focused here. I would actually quite almost [ evolve ] digital evolution within our organization. We are unifying CRM, ERP and other systems to make the data that we collect every day available to us almost online because life, because this is how we want to make decisions based on our life consolidated data. And again, that's a big change, and we are looking forward this year. Should be a very big progress in that field. And we will be happy to report by the end of the year where we are. But it really is a major, major shift for us in very, very good direction. With that being said, I'm happy to hand over to Eliza. Thank you very much.

Thank you, Marek. Not sure which one of the logistics is going to work. Let's try like that. Is it working? I hope so. Okay. So good morning, everybody. I'm Eliza Predoiu, I'm the newly appointed CFO and the newest member of the Board. For those of you that know me, I've been with the management team for the last 8 results presentations. And the difference now is that I'm sitting in front of you with the content behind to be delivered. And I must admit that there are some emotions attached to it, and I get to know what the stage fright is. And enough with the introduction, and let me kick off my presentation. In the finance section, I will tell you about the distributable earnings about liquidity and finance and about valuation. On the distributable earnings, the good news is that this year, as Rüdiger and Marek already mentioned, we managed to extract more values from our properties, which translated into a 16.3% growth relative to the distributable earnings. This is a great achievement in the context of a pandemic here, which was marked in the first half of the year by significant trading restrictions. The number shows the very well-managed performance of the properties, which is a great achievement in absolute terms and also relative to our peers. There have been also some other decisions impacting the distribution and one of them, as Rüdiger already mentioned, was the disposal of the Romanian portfolio and the Serbian properties. Whilst this decision impacted distribution, but in the long run, it's a very good decision because the portfolio property is better off. Second, by this disposal, we benefited from a significant level of liquidity in the pandemic context. And now we are very well-positioned for capitalizing on growth. Further details on our strategic endeavors to generate growth are going to be elaborated by Rüdiger later on. Third, we navigated in a pandemic context with an LTV of 30% to 32%, which was not a risk by any of our stakeholders looking at us. Another decision that was made to enhance the liquidity was to issue a green bond last year during the pandemic in July 2020, which was greatly priced in the market context, but at a higher coupon and cost relative to the pre-COVID times. This has also an impact on distribution. All the other elements are immaterial. And if I were to stop here today, I would have been communicating to you a 5.5% growth in distribution. There is this other element with a significant value that most of you are aware in this room and that Rüdiger will further on elaborate in the way forward section, which is a penalty in relation to an arbitrage loss in connection to a discontinued acquisition back in 2019. We received the decision, we factored in the entire expense in these financial statements and in this distribution. The positive side of it is that we are going to start with a clean 2022 with no legacy whatsoever. And now that I'm done with the distributable earnings, I will move to funding and liquidity, I hope. Yes, I do. Okay. First, I would like to highlight where we stand in relation to the 3 strategic pillars of final strategy. We are at a very prudent LTV of 30.9%, which is significantly below our threshold. We have a very good liquidity with a buffer of EUR 620 million revolving facility. And we maintained our investment-grade credit rating, and we even positioned better by getting a positive outlook in a pandemic context by Fitch. The rating agencies, I would like to highlight here that started to look to another gearing ratio than LTV in the pandemic context, to net debt over EBITDA, which is an indicator much more in control of the management. And I'm happy to report that throughout the years, we had a headroom of at least 100 basis points relative to the threshold imposed by the rating agencies. Other key highlights here are the fact that the cost of debt throughout 2022 was of 2.4%, that all the interest rate risk is 100% hedged and the average remaining debt as of 31st of December was below 4 years, but it was immediately increased to 5.1 years due to the strategical bond issue that we had in January 2022. In the next slide, there are also a few key messages which are all important. The fact that we took intended action to maintain the previously existing facilities and even increased them to EUR 620 million is showing enough buffer liquidity; that we managed to conclude our first bilateral agreement with the International Finance Corporation, this boosts our reputation and credibility in the financial market as NEPI Rockcastle is a safe place to invest by any financial institution; third, we secured a 2022 and 2023, without significant debt obligation, and we did that by repaying the EUR 242 million in Slovakia and Poland; and we strategically issued our second green bond of EUR 500 million for an 8-year turn. We also took intended action to ensure that our portfolio is unpledged. And currently, we have 90% of the portfolio not being encumbered. The chart also shows the debt maturity profile as of February, which doesn't have any kind of debt obligation in the upcoming 2 years. The next slide is also connected to -- the next slide is also connected to liquidity, and I will go quickly through it because it actually enhanced the point that I made previously. We are a very well-positioned company, with a good solvency ratio, good coverage ratio and with a significant proportion of our portfolio being unpledged. The last slide connected also to liquidity is that our distributable earnings is fully supported by the cash flow from operating activities. Shall we discuss only by the recurring distributable earnings, the gap between the cash flow from operating activities and the recurring distributable earnings would come exclusively from the way in which we are accounting for expenses relative to the settlement on cash. The element of the expense with litigation claim, which is unsettled at the 31st of December 2021, and as I mentioned, Rüdiger will elaborate on it, make the gap a bit larger between the distributable earnings and the cash flow from operating activities. The company decided to distribute 100% of the distributable earnings to be settled in cash in March, which is in line with our distributable earnings policy of 90% or more and which will add a few percentage points immediately in the LTV, but we are going to be still prudent and below the threshold. The key message after covering the liquidity and funding is that NEPI Rockcastle is in a safe liquidity position, is in good hands with us and has a very safe balance sheet. Moving forward on the valuation, the main point, there are 3 messages that I want to cover here. One of them is that the valuation went up by EUR 34.7 million. And this uplift is solely due to the performance of our properties because the valuation yield remained constant relative to December 2020. The third message that I want to convey here is that the strong valuation will enhance our LTV, and this will better position us for generating growth by attracting new funding. Now that I'm done with the finance section, I will cover 2 other topics, ESG and relocation of the parent company. ESG stands for the environmental, social and governance, and this became a strategic priority for us. It's covered in only one slide, but I will report year-on-year to you on this ESG. Here on this slide, we presented a snapshot of the key initiatives in 2021 relating to the ESG and the recognition of our efforts. I will start with the right side of the page, with the recognition of the efforts in the ESG direction, in the way that we received the Bronze Award from EPRA for our transparency and sustainability report and we are rated as a low ESG risk by Sustainalytics and put as an [ ESG ] rating leader by MSCI. What we are doing is that we have our portfolio -- 3/4 of our portfolio is green certified by BREEAM and we [ envisioned ] to have the entire portfolio [ green-certified by the end of this year. And those key initiatives rolled over in 2021 is the implementation of the composting equipment in [indiscernible] properties in Romania and Bulgaria; the installation of lead lighting across portfolio, with 75% of the gross floor area being covered by lead lighting; and the enhancement of the green urban mobility by the extension of electric car charging network, and in this direction, we partnered with Tesla. We also continued our green finance strategy started in 2020. And currently, 60% of our funding is green-labeled. The key message of this slide is that we are at the early stages of a long journey, which is the ESG. And this is a strategic priority for us and will require some wise investments in the future in this direction. The last topic that I will cover is another strategic decision of NEPI Rockcastle to relocate the parent company from the Isle of Man to Netherlands. Netherlands has been studied from various angles, and the conclusion is that this will enhance the long-term sustainability of the business by positioning the parent company in a politically and economically stable EU jurisdiction, much closer to our properties. This will enhance the visibility of the group in the European market and will attract a broad range of investors. It's also a natural fit for the group because the group is already listed on the Amsterdam Stock Exchange. The company, by this relocation, will continue its operation and this does not entail any kind of disruption in share trading or dissolution or winding up of any company in the group. The implementation is going to be done in 2 processes, an initial migration to Luxembourg, because the Dutch law does not allow a transfer of a company from a non-EU country to an EU country. And then it's going to be a subsequent migration to Netherlands. So we will reach Netherlands via a stepping stone to Luxembourg in order to have the continuation of the business. The key milestones in these respects are going to be the shareholders' approval, which is preliminary set for April and May, these orange-dotted -- dots. And a detailed SENS announcement is scheduled for the upcoming weeks in March 2022. Another key message that I want to say here is that this was a well-thought decision; that in the long term, this will enhance the value and the sustainability of the business and of the operations; that there are challenges to this relocation and all of them have been taken into account and [indiscernible] have been found to them. I will let a bit this slide here because I'm sure that there are going to be some questions later on. And I will also turn the floor to Rüdiger. Thank you. Take the mic. And let's stop this one, please. Thank you.

I'll take this one. [ Reflects ] like as always. So I can imagine you all have quite some questions around the case of Serenada. It is actually a litigation that was ongoing over the last 3 years, and we have informed you by the end of January that the tribunal of the arbitration has been awarding, actually a claimant here for EUR 30 million damage against us plus interest, which all leads to this EUR 37.5 million. So this is a one-off. And as Eliza has been showcasing it, we have been treating it financially immediately as a provision within our financial statements. But what does it actually mean? So here, this ruling actually, it consists actually of 3 members in the arbitration. And one of them was definitely defending actually the opinion of the other 2. So here is definitely the willingness of the Board and the management to challenge this decision. So we're not just going ahead and going to pay this. We will suspend the payments, number one. And definitely we will, if I may say, this way, fight this opinion by actually appealing against it in front of the Polish court. This means actually that we take it forward most likely over the next 2 years. So there will likely not be a decision within the next 2 years as this appeal, obviously, will take its time until we get a final decision. So that's number one. Number two, what other options are there? Obviously, there is always the option for a settlement. But obviously, only if this would be favorable to our shareholders. So these are the 2 options that we're currently looking at, and so it will not might have a direct impact at the very moment, as we will follow up on this single challenge, this decision of the arbitration. And we do believe that we have good grounds, not to just postpone it, but really also to, let's say, get a benefit out of this appeal for you as our investors. So that's the number one. Maybe talking about especially the Serenada case. And if you have later on questions to it, as far as we can, I'm happy to answer those questions. But looking a way forward, I mean you all have been most likely this morning, reading and seeing the breaking news which are concerned about Europe at the very moment. So the Russians have finally invaded Ukraine. And they have not just invaded the eastern part of it, they are going for the whole country. Also been involved into fights already or key bombings in Kiev, the capital so -- and that is a neighboring country and is a geopolitical issue, obviously. But for the very moment, we are not as much concerned since we have no operations in Ukraine and none of our assets is even close to the Ukrainian border, so we don't see an immediate impact, I would say, at the very moment for our business. But how this will turn out over the next couple of weeks or months is economically, for Europe is, I think, also for me and for everybody, I think in the room, unforeseeable. So we will have to deal with it but I think you saw, together with Eliza, we are prepared. And actually, this is, of course, something that we need to take into consideration, but I wouldn't look forward -- wouldn't like to look forward in a negative sense. I would really like to look forward together with you in a more positive sense. And why is that? Well, it's been proven also through the pandemic how resilient our portfolio is and what kind of markets we are actually operating. And these markets are fundamentally different than Western Europe market. So when we look, for example, here at the consumption and the purchasing power actually of the markets we are operating in, you see that all these countries, the 9 countries we are operating in, is quite above Western Europe, which is a saturated market, which does not have the same growth because purchasing power is not growing in the same pace as it does in Central Eastern Europe, and that is what helps us actually to grow our business. Now and also, if we did a comparison here actually of, again, the portfolio of NEPI Rockcastle in these countries versus the EU 27. And in all these sectors, actually, whether it's real GDP growth, consumer price, unemployment, the countries we are currently operating in are outperforming the rest of the EU 27. Now looking ahead and what are we heading for, especially as you have more of a new team now that is running actually together with our 450 colleagues in the countries this company. So first of all, of course, we want to leverage also the future on, let's say, the strength we have within our -- within our in-house asset management. And this is where we can create also within the 56 assets that we're currently operating, where we can create and will create more value for you as shareholders. Secondly, the consolidation actually are growing actually within the regions that we are currently operating in by acquiring additional assets or portfolios within the CEE region is definitely was a target in the past but will stay a target in the past. And then I think we also have potential in the future by looking into the western part of Europe. So it's not a full such plan at the very moment, but we're doing the research and we're looking at where we can grow maybe into interesting markets, richer real estate and mixed-use markets within Europe. We have seen, and that's also affect over the last 2 years, that acquisitions within our regions that are accretive to the quality of portfolio that we are operating, that has been quite challenging. Not a lot of product has been coming to the market where we would say this reaches actually up to the quality level that we are expecting to bring to the portfolio. So I think it's just logic that we, let's say, look around into our neighboring countries in Western Europe and source whether we see possibilities for growth there in the future. But not only acquisitions and that is the last point, that is actually delivering on our development pipeline and something that NEPI Rockcastle can be quite proud of because not a lot of real estate companies, especially real estate, are currently doing a lot of developments. Now what is our pipeline? EUR 610 million that we have currently only in the section of investment for permitting, in permitting and construction. I think this is quite a substantial number, and we want to deliver this project actually until the end of Q4 2025, step-by-step, asset-by-asset. This means a growth actually in GLA that is creating an additional NOI for you as investors as well, obviously, 224,000 square meters that will come to the market over the next couple of years. Now let's go a little bit more into details of what we are talking about here. So number one, you heard it, Focus Mall Zielona Gora is actually the extension of a shopping center, but we've refurbished at the same time, the whole asset. We've extended by 15,000 square meters, and it's actually now under completion. And Marek, you were able to actually have a leasing activity here. Up to 95% of the asset is already let. Bonarka City Center, one of our core assets, the biggest asset actually we have in Poland, which is 100,000 square meter [indiscernible] currently refurbished, will take until Q4 2024. And there, we have been adding. And Marek said it already, we have been able to add an important retailer as an anchor, Primark, to this asset. So this is under progress at the very moment. The next one that is also related to the EUR 610 million investment is the greenfield development in Craiova. Craiova is in Romania, for those who are not so familiar. And it's a city of 300,000 inhabitants, has a catchment area of more than 600,000 inhabitants, but it's a white spot on the map when you look at it from a retail perspective as we are not facing any serious competition here. And that's why we said, and that's why the pop was acquired, and that's why we started now actually. So construction is already ongoing for a 50,000 square meter scheme, and we're hopeful to deliver this by 2023. The next one is Promenada Mall. I mean, that is obviously right next to our headquarters. We can see it every day. And we are so happy now, after 6 years, finally, our team was able to achieve the building permit. Was not an easy task. And we already started here with construction. And we will increase actually by another 58,000 square meters. But this is a mixed use, so we will optimize actually the retail part. The plot was already bought so we are extending it now to the site. And we will have on top of this an office building. So in total, it will be somewhere around 100,000 square meters of GLA that we're looking at. But this will take a bit of a longer time because we will start digging, I think, in like 14 days. But it will take some time for this to be completed. What is the next one? Residential. Well, as I said, we are not a residential developer, and we don't want to become, let's say, a fundamentally a residential developer. But wherever we have, a plot that is adjacent to our retail and cannot be used for retail, or it's better to use for residential, that's obviously where we want to lift additional value for our investors, not just having the plot around doing nothing. So in that case here in Vulcan, we are actually constructing currently and we're already getting out of the ground 18,300 square meters, so 252 apartments that are there for sale. So this is build-for-sale and not built to lease, because in the Romanian market, this does not really exist, to lease, so everything gets built and apartments get sold one by one. And it's expected to be delivered in 2023. And it's not really a secret that we have already sold 41 of these. Yes, ongoing. And I think absolutely on the prices that we have been expecting, we're expecting actually this to grow as the market is pretty high. Promenada Plovdiv, this is under permitting. Plovdiv is the second biggest city actually in Bulgaria. We are currently with 2 big assets, as you know, in the capital. Now we are expanding into the second biggest city in Bulgaria with a scheme of almost 58,000 square meters. It's in the heart of the city. And we are very hopeful here to receive the building permit throughout this year to start construction. And then actually might deliver this project at the end of 2024. So I think this is an impressive pipeline only on development. And I think of future income that is then distributable to you as our investors. Now having an outlook to 2022. Well, we've talked about obviously the risks that we see that are always around us in this world. And currently, we see that we have some serious issues between the Russians and the Ukraine. So this is obviously something, which we did not or we cannot factor in at the very moment. But we are positive, as I said. Looking especially at the fact and actually Marek did mention it, but we see now throughout our jurisdictions that governments are planning now to even lift restrictions on pandemic even more. And you've seen it in the presentation that, for example, in 2021, especially, let's say, our entertainment part and food courts, that were still quite heavily infected because there were restrictions on capacity. So you can go to a cinema, but they could only have 50% of the seats sold. So that has impacted our business, obviously, still. Also, the food court. So our entrance into shopping centers in Bulgaria and Romania by the end of the year, November, December, you could only enter if you would show your green pass, right? So your vaccination certificate. This has impacted our business. Now if we look at this maybe positively that this is now fading away and that more and more countries, especially, I think Poland just recently announced that they will very soon lift all restrictions, maybe you still have to wear your mask, but that's approximately it, so this will obviously help our business again to grow in the next months and until the end of the year. If we don't see any further, let's say, new disruptions there. But that's where we think we should be hopeful and we can be positive about the future. And that's why we say we'd like to maximize, obviously, our NOI, which increases then the DEPS to 24% as an outlook. Execute on development pipeline. I think I've just said that this is one of our big targets, obviously, not only to talk about projects, but also to deliver projects. And that's where our development team is very busy but I'm very positive about it. Actively looking for investment opportunities, not only in the CEE region, but also, let's say, doing our research within Western Europe, whether to see whether there are opportunities coming up. Successful implementation of relocation of parent company. Well , we're moving now from the Isle of Man to the Netherlands. And it's a thought-through process, but it's not an uncomplicated process. And there's definitely a point the investors, we would need also your support in the future, in the [ EMG ] to make this happen and to let this support actually all the thinking and doing we have for the future of the company. So improved ESG performance. I think Eliza elaborated on this quite deeply. But I think we all know that this is a factor that becomes more and more important also for the real estate business. And let me say openly, we don't believe that we are 100% there yet, but the team is working hard on this. And we will also, let's say, invest into this topic also by, let's say, doing some hiring here. And we will improve on this over the next 12 months. This is one of our core targets to achieve over the next 12 months. And of course, we stay prudent, and we want to maintain actually the strength of our balance sheet, good liquidity and keep our BBB rating. That is for sure as well. So I think this was the presentation so far. It has been a pleasure. Thank you all for listening. But I would like to give a chance now to all of you here in [indiscernible] but as well on the phone. As I said, there are dial-in numbers or via your screen, should be on the right up, a button, to join us online. So feel free for questions. I would like to ask Eliza and Marek maybe to join me here in front. And we are happy to answer your question. Maybe we start here with the audience in Johannesburg. If you have questions to the presentation to something, feel free to give us a question. But not only in Johannesburg. So maybe we have somebody sitting in front of his laptop and hearing and listening, and maybe you noted down some questions for more details to a subject, and we are happy to give you answers as much as we are able to. But also when you are on your phone, just write us an e-mail. We have the e-mails right here, and we can answer immediately. So happy to have questions. The presentation must have been quite -- not too many questions, yes. Yes.

[Operator Instructions] And there are no questions at this time. I'd be happy to return the call. [Operator Instructions] We'll take a question from Jakub Caithaml of Wood & Company.

Maybe I can take one question here that just came in, just came in. And I will read the question for you so everybody is aware. "So what level of concessions are you budgeting for 2020? And if not asked before, what do you think the current situation will have on your assets?" So maybe start with the second part of the question. As said, we don't see any direct impact currently on our operations for our assets, in none of the countries, as we are not acting actually in Ukraine currently. And we are also, let's say, not affected in a way, which we, obviously, thought of if you have an asset that is, for example, pretty close to the border, you might have as called tourist shopping, so meaning people coming over the border, because it's a different currency and it might be favorable and it's just in the catchment area. So fortunately, this is also not the case. Our assets to close is actually in Galati in Romania, and that's still so far away from the border. So we are not expecting any direct impact here. But I think it would be looking into a glass ball, if you would ask me, okay, what kind of impact this would have overall in the near future on economies generally in Europe. I think it's wise for us to follow and monitor the situation as sanction will, obviously, come in from the Western side and then to see also the reaction from Russia. But I think it would be I think not really wise for me to try to give you any answer on that question. Now when it comes to the concessions for 2021. We have been budgeting obviously because we need to be cautious. The pandemic isn't over, we know this. And we know that when Omicron hit us, we saw another wave coming over and the reactions of government. So obviously, I think we should be cautious, careful, looking into 2022. And that's why in our budgeting, at least, we have forecasted some concessions for 2022, but at a much lower amount as we have been providing them in 2020 and in 2021. So we are expecting, and that is actually covered in the 25% of growth that we see on the DPS for the coming year. I hope this answers your question.

The next one, I think, is for Marek.

Next question. "Can you please elaborate on the cost creep you are seeing in the portfolio, labor costs, et cetera?" Well, it comes at no surprise, a trend that continues for a few years that we have labor cost increasing. Now we can see the utilities cost increasing as well. But the way our model is structured is that most of the costs, we are able to reconcile with our tenants because we manage properties for them. But of course, one of the strategic initiatives for this year is to keep a laser sharp view on our cost. And you will see how the operational change to being able to actually centralize various acquisitions we do on our highest OpEx element so that we can, at least, limit the growth of the cost. And I think this is one of the challenges for this year.

Comment on the tenant churn and retention given 40% of the leases signed were new leases.

Churn -- that refers to?

That refers to the slide with 39% of new leases.

So first of all, 40% of tenant that we changed, we need to put it into perspective, when we say we have 40% of new leases, that means that not only are we changing the tenant mix into better tenant mix, first of all, but with the same comes a reconfiguration of the GLA as well. So it would relocate tenants to rightsize them, actually reserved on bigger space so we would do so in order to free the space for other tenants who want to enter. Very often, we would merge neighboring unit or we would actually create new GLA, et cetera, et cetera. And that all leads to improving the tenant mix. There was a question as well on the rental reversion somewhere. It's very difficult to calculate because of all the reasons I've just mentioned. So it's not just turning one tenant to the other. I think the right statistic to look at is the base rental increase year-on-year, and that's over 3% '21 to '20. And that excludes turnover and overage rent, which is purely a function of the successful operation of tenants. So that proves that we are not definitely losing money on improving our tenant mix. We are actually making it better and we can see benefits of that. I hope that covers the question.

Maybe let me add here that if you look at total number, total number of contracted rent 2021 versus 2020, that's stable and we have even increased the total number of contracted rents versus the former year. So if you put it in a nutshell, we don't see actually that we have difficulties to reach rent levels as before or higher. I think the question was a very good question on the cost side. On the cost side, you know that we charge to tenants the costs of the asset mainly. And there is a smaller part, which is then affecting actually our P&L, which are nonrecurring, which are costs that we cannot hand over to tenants. And that is the part where we, obviously, have seen now growth, of course, especially due to, as my colleague stated, especially on minimum wages that have been going up tremendously in all of Europe, but especially Central Eastern Europe. And secondly, of course, energy prices. I mean, I think everybody heard about it, and that is really an increase of 40%, 50% that we see throughout the portfolio. And that is, of course, we need to be careful that, let's say, these service charges, covering the cost for tenants, when it become to a second rent for the tenants and a too high burden? And that's why we need to work on it. That's why we need to focus on this subject even maybe a bit more. We're always focused on the rents don't worry about it. But we'll definitely focus also on the fact that we need to have reasonable costs for our tenants in order for them to afford to pay a really good rent to us, and that's maybe closing this subject. There was -- another question was related to -- can you give that to me?

The sectors.

Yes. What sectors, retail office logistics would you look at moving into Western Europe? So basically, I mean, we are a retail company, and that's the heart of our company. And I think we'll always focus in the first instance, obviously, on what we know on how we do it. So I think NEPI Rockcastle will stay also, if we would move into Western Europe, definitely a retail-driven company. But at the same time, Western Europe markets are working a bit differently, number one. Number two, there is a big trend, obviously, especially on the investor side, to look not only into pure retail but diversify, let's say, your risk. And then we would definitely also look into multiuse projects, where the core of the product is retail. But why don't -- why are we able to add hotel, residential and offices? I think we have the capacity to do so. And that's maybe the answer to the question. In the first instance, obviously, we're looking at retail assets. But if we have a chance, let's say, to move into projects or products, which also have a mixed-use component, I think we would definitely have a look at it.

I understand that we have a question via phone.

We have a question from Jakub Caithaml of Wood & Company.

This is Jakub from Wood & Co. I tried to submit it also through the chat and through [indiscernible] sorry, in case you've already answered it. I was trying to dial in, in the meantime. I wondered about the new leases and whether they are keeping up with the inflation, and maybe in a broader sense, regarding the contracted rent level, what would be a good estimate for 2022 versus '21? That would be the first question.

I understand the question was about indexation. So yes, all the agreements are euro-indexed. So we -- they are just following indexation. We all know what it was in Europe. So the rents would follow. And I didn't get the second part of the question, if you could repeat.

Right. So what I was rather asking about is when you are closing new leases, would the new leases, which have come to an end, how would the rent in these leases compared to the one which was in place prior and whether that is keeping up with the inflation?

Of course, yes. So when we -- the agreement, should we assume we have the same tenant for the same unit extended for another period, then, of course, on -- with the extension comes inflation on top of that. If this is a tenant's option. If the lease expires, we will sit and discuss, and getting inflation, meaning we can get -- very often, we would be able to actually get the rental higher. But we don't see any issues with prolonging the agreements on the current terms plus indexation, which will be quite substantial this year. And yes, I hope that answers that question.

Perfect. That's very helpful. And the second question.

Yes, that relates to inflation and, obviously, we are benchmarking us against EU, but inflation through our countries is different, and whether this could give a squeeze actually on our margin. So actually, in principle, I would say inflation is not our enemy. Inflation is rather our friend when it comes to lease agreements because as we are related immediately to an increase of rent, I think this is not a threat in general. But inflation, obviously, also has other effects. So it has effect obviously on our cost side as we said when, of course, we see now prices going up, especially on utilities. But if you take the comparison, obviously, on our total rent and our total cost, then I think we can live with the burden on the cost side with the inflation increases. Of course, as I said, we need to take care of it and have a close look into it and try to optimize, this is not a question. But actually, inflation is rather a driver of our business and it's putting our business down. Depending also a little bit, obviously, on how it affects purchasing power of our clients. So if you spend too much, let's say, on your utility bills, then you might not buy a new dress. So it has a couple of, let's say, reactions to us. But in general, it's not something that we would take really as a concern at the very moment, at least.

There is a question in relation to the guidance on the distributable earning per share for 2020. Whether we based our 24% increase to the normalized distributable earnings per share or to the reported one. In all the announcements and the financial statements, we mentioned that at least 24% is based on the reported distributable earnings per share of 34.42. We received a few questions in this direction. Another one for you, Rüdi is, "Whether we are considering any further disposals."

No, not at the very moment. I mean, we have a plan of rotating assets which actually are not maybe contributing in the future, especially as much the growth of NOI, as we would expect. So there -- let me say that a bit in this way, they are squeezed out. And actually, you do not really see here a possibility to create more, let's say, earnings for the investors. And then we might think about switching these assets, selling them off and then buying into something where we have, let's say, a better future to see. But also consider currently the capital markets, the investment market. So to go to the market currently selling off assets, it's maybe not the best moment. And that's why you also haven't seen a lot of transaction ongoing throughout Central Eastern Europe, especially on retail real estate. There was a hype, obviously, on everything that was industrial and also on residential. But if you look at transaction over the last 2 years on retail real estate and this was really flat. And if there were transactions, they're not related as much to the typical, let's say, core shopping centers that we are operating. It was more in the region of retail -- smaller retail parks. So for now, we are not planning actively any disposals. So we're expecting NOI to be stable on that side, but rather then increase actually our results with the 56 assets that we're currently operating.

My understanding is that we have also another question on the phone?

We do. We have a follow-up from Jakub Caithaml of Wood & Company.

I didn't realize I indicated. But yes, I had one more question. Regarding the total occupancy cost ratio, especially with regards to the service charges and the utility bill. Can you roughly estimate where would the total bill for the tenants on average be in your portfolio now in kind of '22 versus 2019?

Maybe it helps to go through this a little bit historically. So if you look at our OCRs, which are actually covering rent plus service charges. So total cost of tenants versus their turnover is actually, let's say, the KPI that we would, obviously, look at. And if you see that, then actually NEPI Rockcastle had a very favorable KPI compared, for example, to Western Europe in 2019 which was at 12.5%. Now with the crisis coming, with the pandemic crisis, actually, we have been seeing this rising obviously, above 40%, even after we have been providing concessions, discounts to tenants. So you can also see that we were not, let's say, providing too much money. So they were also suffering and they had to spend money on the pandemic because their overall costs were increasing while turnovers, obviously, did not turn out to be as well. So 2019, 12.5%. Last year, we were -- in 2020 -- sorry, in 2020, we were above 14%. And now we are actually almost back to the old time, so meaning now we are back to 13%. And that is due simply to the fact that turnovers came back actually more or less immediately after restrictions were lifted. And if we take this forward now into 2022, of course, we're hoping here, with further restrictions being lifted, that we actually come back to our 12.5% of OCR, which is very, very healthy for our tenants throughout the portfolio.

There are some questions also in relation to the -- sorry. Thank you. Okay. There is another question on elaborating why we are considering entering Western Europe and whether we consider that we missed any opportunities during the pandemic in relation to acquisitions.

Happy to answer. Very good question, thank you. Let's start again with the second part. Did we miss anything in the market? I think that I'm currently sitting here today with us and her team and the whole team of NEPI has been drilling the market in Central Eastern Europe on where there are opportunities actually to acquire additional projects or portfolios. And believe me, they have been very, very busy. But fortunately, on the other side, I think we have a very well-organized and very confident investment committee team, which is sourcing this together with us. And I have to say we have been and all deals that came to the market, but none of them actually were, let's say, as interesting as we would expect them to. So I don't think that we have missed out on chances. And I also sometimes believe it's better sometimes to do nothing than do something, meaning why should we -- okay, I know we have big liquidity and we should put the money to work and we want to put the money to work for your benefit, but we should do it with a long-term thinking and not a short-term thinking. And that's why we are focusing more on quality that is accretive to the quality that we currently have than just buying into an asset just to, let me say it this way, tick the box. So that's not what we're looking at, number one. Number two, as I said, looking into Western Europe, we think there could be opportunities in the future, and we are starting this project at the very moment and cannot give you any outcome here yet because we're just starting with this. But there will be -- I think there will be also opportunities in Western Europe also for a company like NEPI Rockcastle opening itself up, let's say, to these markets, getting more knowledgeable and maybe become -- moving to into this market also as partners, whatever. So it's just a way, let's say, to think about the growth of the company and to exclude this thought and this idea, to look also in new markets, I think we shouldn't exclude this. We are a very strong company. We have all, let's say, the tools in order to do this. And therefore, that's the way -- a part of the way we're looking into the future. And do not forget, at the same time, we will definitely also work on the markets we are currently working in, not only with acquisitions, but also with the development pipeline currently of around EUR 600 million, which I think is quite a big number to achieve this and to bring these assets to life in order to create new income.

We are done with the questions via email.

All right. Then I would simply ask, are there more questions maybe here in the room in Johannesburg? But you're also welcome by phone, something more maybe on your laptops, screens. If not, then I would simply say a big, big thank you to all of you joining today's presentation. And you see here, except of Marek sitting here already for years, but the young lady next to me and myself being the new kids in the block, I may say it's a pleasure to have you here today. And we are looking forward actually to, let's say, get a much closer relationship to each of you over the next coming days, weeks and months. And maybe not to see only here in South Africa, but we are planning actually and you're -- really, well, invited to come with us on a property tour during this year. If you can make it to Europe, it would be absolutely our pleasure not just to talk about assets, but maybe to visit assets and to see also construction sites of what we're doing and how this company is growing. And it would be our great pleasure to welcome you wherever within our jurisdictions, whether it's Warsaw or in Romania or Bulgaria, doesn't matter. So we highly invite you to see us. And I'm definitely looking forward to work with you and for you, together with my whole team. And with this, maybe I end this presentation, and I wish you all the best. Thank you so much.

Thank you.

Today's conference has concluded. You may now disconnect your lines.