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

Good day, ladies and gentlemen. Welcome to the NEPI Rockcastle 2023 Half Year Results Live Webcast. [Operator Instructions] I would like to remind everyone that today's call is being recorded. I will now hand the call over to Rudiger Dany, CEO of NEPI Rockcastle. Please go ahead.

Good morning, everybody. Welcome to the results presentation of NEPI Rockcastle for the first half of this year. We're really pleased to have you all with us. So let me start maybe giving a little bit of an overview before we come to all the figures of the portfolio as such, 59 assets, which are located actually in 9 different jurisdictions within the Central Eastern Europe region. And you see that is obviously a heavy weight that we have here in Romania with 36%, and Poland 27%. And when we look at actually this region and compare it a little bit to the rest of Europe, and we did this year versus the EU 27 states, I think you all see that we are at the right spot. GDP growth foreseen by the IMF for 2023 as well for 2024 is actually outperforming the rest of the EU 27 states. But let's get into the numbers. So we are delivering, obviously, on our strategy this year, and we're very pleased, obviously, to announce that on the growth side, we can present to you a 24.9%, so almost 25% growth on distributable earnings per share. What are the drivers here? Well, obviously, the operational results were excellent for the first half year with an increase of more than 16% on the sales of our tenants, driven obviously by a very high demand by our customers. 23% higher NOI, what were the drivers here? Well, obviously, we have been invoicing the inflationary component, let's say, that we saw last year. But on top of this, we also had the possibility to decrease actually our utility costs. And therefore, the overall result in the NOI has been growing. A part of this, obviously, are the 2 acquisitions that we did in the end of last year. EUR 18 million out of this are coming from our new acquisitions in Gdansk and Copernicus in Torun. Nevertheless, on a like-for-like basis, on a comparable basis, the NOI of the portfolio has been growing by 15%, still a high double-digit number. But not only and we will go more obviously, into the details of operations with my colleague, Marek, but let me talk about another driver of the growth, especially of the future. Our development pipeline has been increasing slightly to EUR 722 million which we want to deliver in the course of the next coming years up to the first quarter of 2026. We will open actually our next shopping center in Craiova in this year in October. And the total pipeline consists of 231,000 square meters to be delivered. At the same time, we have been delivering on our acquisition pipeline. And you've seen this with the 2 acquisitions we did, which are actually even better performing than the rest of the portfolio. We always said the moment we want to acquire existing assets, they need to be at least at the level, if not better, than the average of our very excellent portfolio. So you see that here, the growth in turnovers in the first half of 2023 were even above the level of the average portfolio was 23.3%. Two additional pillars that are important for us is obviously our financial stability and we have a big focus on our ESG improvements. So fair valuation by half year went up by almost EUR 104 million, which actually is a result of our excellent operational results, less driven actually by cap rates that have been expanding that, together with the uptake of scrip dividend by 85% of our shareholders at the beginning of the year, leads to a decrease in LTV down to 33.4%, and there are no debt maturities actually coming up until the end of this year. On the ESG side, we have been talking about it in the past but we're not only talking we are also executing. So we have this investment of EUR 37 million into renewable energy, especially in Romania on our 30 assets, which is ongoing and we have already concluded quite a lot out of them. So until the end of the year, we are expecting that we'll have all 30 assets producing energy and producing additional income. 100 (sic) [100%] of the assets of NEPI Rockcastle are meanwhile rated at very good BREEAM certification. And we have been extending actually our efforts and we have been signing up for the SBTi. So the Science Based Target Initiative, where we will double check one more time on a science based, our targets, our ESG targets for the future. Now what does it mean? In numbers, as said, our distributable earnings will go up to EUR 0.2852 per share, which, as I said, is an uplift of 25%. Then we have a dividend yield, I think, which is a little bit exceptional within the region of retail real estate of 9.9%. NOI, as said, driven not only by inflation, also by cost savings up by 23% EUR 241 million. Occupancy, 97.2%. What we see is a strong demand by retailers. So we're very happy to see that not only the ones that are already existing within the region, but that we also have new retailers coming to the market of Central Eastern Europe because this is where they see growth for their business. And obviously, as we are the biggest player in the region, we are profiting from this and helps us to bring down our vacancy. You will hear a bit more about this when we come later on with Marek to our project in Craiova which is going to be opened in the beginning of October. We are very proud that we are the first shopping center actually where a brand like Inditex is coming with a new concept, which is called Lefties, which they take first time out of their home market in Spain into our region, a 4,000 square meter fashion concept. Now collection rate, very stable, 97%, even though, of course, invoicing was a bit different than in the past years as we saw the increase here due to inflation and at the same time also obviously, utility costs in total nominal have been increasing. So there has been definitely more pressure on that side. But nevertheless, we are very stable with our 97% collection rate and I would like to put this in context actually with the burden ratio, so the OCR for our tenants, which at the same time, even though their costs went up, the OCR went down. So we are now at close to 13%, so even a little bit lower than at the end of the last year. And overall, of course, this leads to a higher productivity per square meter, which is up by almost 15%. When we look on the balance sheet side and my colleague, Eliza will tell you more details about it later on, but you see that with a EUR 6.8 billion of property value, there is a nice increase of 3%. The EPRA NRV per share at EUR 6.92, also up 1.2%. And unencumbered assets went down by 7 basis points. That's mainly reason here is that we did the refinancing of the acquisitions that we did end of last year, where we actually did a secured loan on 2 assets, Mega Mall and [ CBU ] which, of course, then are encumbered, and that's why we have a slight decrease here on unencumbered assets. Our debt maturity 3.9 years. We'll talk about this a little bit later. Obviously, we have no maturities upcoming in 2023, but in 2024, and that's what the management team is working on to replace actually our bonds that will need to be refinanced at the end of next year, still some time to go. Loan-to-value. I've already said down to 33.4%. So I think also for this refinancing, the company is very well positioned at the moment also looking at the overall liquidity that we are provided with. And with this, I would like to hand over to my dear colleague, Marek, who will take you more into the details of operations. Thank you so far.

Thank you Rudi and good morning everyone. [indiscernible] but there was an event which collided with our plans, what we had hoped to achieve and catch up with you in February. [indiscernible] H1 of 2023, which was indeed a very good year for our tenants, and we all are aware of the fact that the success of the company and the success of our investors is purely a function of how well our tenants are doing, and they are indeed doing very good. Just looking at the H1 [indiscernible] we can see a proper growth of 16.3%. [indiscernible] Clearly, there is difference between them. The growth -- are we okay with the sound? Sorry technical problems. But at least you know we are broadcasting live. [Technical Difficulty]. Should I start from the beginning? Okay. Okay. I always believe in old school [ good mics ] . I prefer that way. Anyway, we're talking about turnover. So we are 16.3% ahead of the H1 2022. And of course, Q1 was much better compared to Q1 2022 for obvious reasons. We all still remember, although I'll try to not remember anymore, but in January and February of 2022, we were still in sort of lockdowns or limited operations of cinemas, et cetera, which, of course, translated into poorer number of clients, which then translated into product turnovers. April 2022 was the first month where all the shopping centers were 100% fully operational, cinemas, food courts, et cetera. So no wonder that Q2 [ 2023 ] was slower compared to Q2 -- Q2 2023 was slower compared to Q2 2022 yet on average, 16.3%, given that H2 2022 already set quite high benchmark, it's amazing results. Now when we look at footfall, we are actually very happy to report that compared to 2022, the footfall for H1 2023 increased as much as 10 % and that is accompanied by the increase in basket size of 8%, which is rather remarkable [Audio Gap]. I good now? I hear we have some issues with the technical. Give us a second. If you can see me. [Technical Difficulty] I'm presenting again because the numbers are good. So because you haven't heard me, I will start from the very beginning, but that is not a problem at all. I hope that all the technology will not make any tricks now. So again, I'm happy, and again, welcome, everyone. Thank you, Rudi. Let me take you quick through the extremely good operational results of NEPI Rockcastle operations in H1 2023. It all starts with turnovers because we all know that our success is function of success of our tenants. So turnovers are one of the key metrics. And looking at those, we can only be happy because our tenants managed to deliver increase of turnovers compared to H1 2022 as much as 16.3%, which is a remarkable number given that that increase in 2022 over '21 was already very high. So the base was very high. So that's a very encouraging sign for us. No wonder Q1 was much faster in terms of rebuilding turnover because we all remember, although we try not to remember any more, but in January and February of 2022, we still experienced some limited operations. Cinemas were closed here and there, in other words, the footfalls and turnovers were not there yet. It was April 2022, where for the first full month, all the shopping centers in NEPI portfolio were fully operational and welcomed our clients. Therefore, Q1 2023 is much stronger compared to Q1 2022. But even then Q2 2023 compared to Q2 2022 was very strong. On average, 16.3% is very solid number. So we are very happy to deliver those numbers to present those numbers to our investors. Now looking the footfall, we are very happy to actually report plus 10 -- almost 10% increase compared to 2022. We like to compare to [ 2029 ]. And I know the questions were asked. So we are now very close to levels of [ 2029 ], and there are some properties which actually exceeded the footfall of [ 2029 -- 19 ], which is very positive. And again Q1, the delta compared to 2022 was higher than in Q2. But again, all the numbers are positive. And now looking at the numbers of July and August, we have all the reasons to be optimistic about the evolution of footfall in our shopping centers. But not only has the footfall increased, but we have more clients and not only more clients, but they spend more money, which has translated into basket size of plus 8%. Of course, some of that has contributed to higher inflation, but we see that the pressure from inflation is easing, and yet the basket is still increasing. So I believe that those numbers set us very positively towards the second half of the year. And now remembering now the turnover increased for the group of about 16%, an increase of footfall of about 10%. We wanted to actually showcase the 3 additions to our portfolio, namely Forum Gdansk in Poland, Copernicus in Poland and Ploiesti in Romania. You would notice that all of them in terms of turnover delivered more than average of portfolio respectively, 27%, 21% and 18%. When it comes to footfall, they are closer to where the rest of the portfolio was with exception for Torun but the reason for that is very simple. In Torun, we don't have cinema unlike in Ploiesti or Gdansk. Therefore, Copernicus didn't lose the footfall generated by cinemas when they were locked, so we didn't really suffer of the loss of customers. But being able to deliver plus 21% turnover of only 2% increase of footfall is still remarkable. We always say that one of our investment criteria is to -- whenever we add to our portfolio new property, it has to add the quality and the performance. And you can see all 3 of them after half year of operations delivered better than the average of portfolio. And it is important to say that we are not done yet with the teams. There is still a lot of value to be unlocked. So stay tuned with us. We are hoping to surprise you as the time comes. And another important metrics when we try to look at the performance per segment. Again, [indiscernible] very positive numbers. All the segments are increasing, and we are, in particular, happy to actually see entertainment growing compared to last year as much as 29%. And in entertainment, most of that is represented by the cinemas. You would remember us talking in February that cinemas were the last to actually recover. Now we can see that slowly, but surely, cinemas are back in the business. There are much more movies from Hollywood and local productions, and we can immediately see that in number of [ additions ]. Those numbers, interestingly, they do not capture yet the phenomena of [ Baby Heimer ] , which we will see in Q3 results. I have seen Oppenheimer not really Barbie yet, but this is just a great example of what we used to like saying that cinemas give you the experience that nothing else can give you in digital world and we are very happy to actually see this materializing now as we speak. Nobody has already expected, including the cinemas themselves that [ Baby Heimer ] can be so successful. And not only it is successful, but the footfalls increased carries on in July, August. It's not one weekend effect, so to say, which proves that cinemas really are a essential part of our business and our everyday life. And now good results of our tenants, of course, translate into the leasing activity we have been able to achieve more and better. And I think the most important -- well, interesting statistic here is base rental uplift. We did manage to achieve on the blended manner about 7.5% over the indexation. This is important to remember and for those of you who may not remember, I would like to discuss what is like-for-like BRU and asset management initiative related. Like-for-like BRU is the same unit with no physical changes. So same walls, different tenant or the same tenant, then we did manage to get 7.3% on top of indexation. But whenever we see an opportunity to [ transit ] of the unit, merge it, divide it, do whatever with CapEx-related initiatives, we always do it for good reason, meaning that the expected return will be higher than just leasing unit as is. And there you can see, there we are 2 percentage higher than on like-for-like 9.3% over the indexation. Overall, blended 7.5% over indexation, which I think is a very good result. Talking about vacancy evolution, Rudi already mentioned, we did manage to lease some more space. Looking at EPRA statistics, we are at the same level more or less where we were at the end of last year, which is 2.5%. We have signed agreements, but the units haven't been opened yet. So the EPRA statistics doesn't capture it yet. Should we look at GLA only the vacancy is closer to 2%. And there is more to be signed through the end of the year. So I think that this statistic will improve even further as we approach end of the year. And then, of course, better turnovers translate into better performance and overall statistics. And you can see that for the H1, as Rudi mentioned, 12.9% is the OCR for the group, which, again, I think we are on the safe side of the equation. It -- it puts us well for the second half of the year. The composition of our top 10 tenants hasn't really changed. They represent about 25% of our annual rental. Should we extend the lease to top 30, you would see all the top notch A-graded tenants. None of our tenants or none of our segments would have any operational issues that we should be afraid of. So our portfolio is healthy and doing well and tenants are very active in our geographical exposure. Expiry profile, the graph is more or less the same. You would notice that 2024, [ 5 and 6 ] are quite busy because respectively, we have 19,%, 18% and 15% of expiry measured by the rentals to expire. The same statistics for 2024 when reported in February, was over 20%. So there has already been some work done, teams are busy extending the agreements expiring next year. And I think this is a great opportunity for us to actually extract more value from the existing portfolio. The rest of slide hasn't really changed in our presentation, which is good because the rents are still paid in euro. They are triple net, and they are indexed. In other words, they are bankable, investable and nothing really has changed in the way we signed agreements with our tenants. Next 2 slides showcase our efforts to actually attract not only new tenants to the market, but we are very focused on moving same tenants between the countries. So it's actually international cooperation of leasing teams to open the tenants where they -- where we see there is opportunity for them. NEPI with 59 properties became #1 operator for any newcomer in the market. Hence, the deal -- the transaction with Primark, handset transaction with Lefties and more to come. We are still looking forward to experience some very good opening in the second half of the year to report them in our annual presentation. So I'm very happy to report that existing -- existing tenants are very actively looking to rightsize their portfolio and they are moving between the countries. But more importantly, we have new tenants knocking the door, and the team is very active looking for space to accommodate them to make our portfolio even more attractive for our customers. With that being said, and with hopefully no more technical issues, I would like to hand over to Eliza. Thank you

Thank you, Marek. Sound check, is it working properly? So thank you, Marek. And congratulations on the great news in the area of the operations. Moving on the finance side. I kept the recurring topic of my sections, all of them with positive messages and good news. Therefore, today, I will talk to you about distributable earnings, funding and valuation. Let me go through the first point and most probably the most awaited news of the day, which is in the area of distributable earnings. As you may see on the slide, we generated in the first part of the year, EUR 241 million in NOI, out of which 75% translated directly into distributable earnings. There is a split in between the like-for-like NOI, which is the NOI derived from the existing properties and the NOI coming from the acquisitions. The reason for this split is to highlight that from the acquisitions done in the second part of 2022, 6 months in the process, we have already generated EUR 18 million which is a significant upside to our NOI. Looking at the NOI from the operations, this one increased by 15%. And as Rudiger mentioned in his section, this is partly attributable to the indexation, is partly attributable to the better recovery of the operating expenses and it's also attributable to our capacity of extracting more value from our properties via asset management initiatives. Therefore, looking at the gray side of things, which is not actually great, we are a big international listed European-based business. As a result, we also have costs. The same -- the most important of our cost relates to taxation, which is not optional to the administrative expenses and to the finance cost. Actually, the finance expenses represents almost 50% of the entire cost that we generate. And you are going to see in the funding side of my presentation that we are still at a very low cost of funding, which is competitive in the market. The key message of this slide is that actually the distributable earnings, which is let's say, elementary KPI for our business is rooted in our operations. It's driven by our key activity, which means that this is a healthy and sustainable result in the long term being backed up by the cash flow from our operations. Moving forward and connected to the distributable earnings. Now that I presented the results, I will also make you aware of how you can benefit of these results. Therefore, here, I will cover the dividend payout and I will explain also an important and not necessarily, let's say, new thing in relation to the settlement options ahead of you. I trust that this will end as a good news to you that we decided to award 90% of our distributable earnings in cash and that we decided to go for a 95% election of scrip option, also providing to you a 3% discount on the share price. So in the end, the scrip option is going to [ cater ] for approximately 98% of the overall distributable earnings. You have an option, therefore, to elect for a minimum 90% cash dividend or for a maximum of 98% scrip election. I will also want to highlight to you that this dividend payout is a significant upside of NEPI Rockcastle relative to the public announcement of the average European peers, which is in the range of 70%. The second part of the slide, as I mentioned to you, it's not something new. It's actually something recurrent but it's important to understand the tax implications of the elections that you are going to make. Therefore, the repayment of capital and the scrip option are exempted from withholding tax in Netherlands, which is our country of incorporation, and they are treated as return of capital in South Africa. The distribution out of profit is subject to withholding tax in Netherlands and distributed as dividend in South Africa. As I wrap up on this slide, you have this -- you have 2 options to get the dividend in cash or as a scrip issue. I strongly believe that both of them are great returns to our shareholders. And a circular is going to be put out in the next week providing for the timeline in which you are going to make the election so that to provide for the settlement at the beginning of October. Now that I impact -- that I unpacked the business as is, I will move, let's say, to the future. And here, I prepared the slides for you with an overview on the debt maturity. And in short, in 2023, as also Rudiger mentioned, we don't have any kind of maturities upcoming other than the regular installments. We have a maturity to manage in 2024, and this is our priority as management and this Board. We have actually viable options that we also highlighted here. We offer for the large distribution also the scrip issue. And this is how we preserved EUR 150 million cash in the business. And I want to thank you for those of you electing scrip issue because this gives us comfort over the liquidity that we have. We are offering the scrip issue also now and it's actually the preferred option on our side because it's based on your decision, how much we are going to finance from this 2024 maturity. The third option relates to the bilateral negotiation in the area of the secured and unsecured funding. And I will remind you also here that we have EUR 620 million revolving credit facilities that can be used as a buffer liquidity and as a temporary liquidity to manage the maturity in 2024. As a fourth option that we didn't necessarily put here is that we have also the freedom to dispose some of the tail assets. The issue is that we don't have that many tail assets because [ visit ] of results doesn't come with too many tail assets. So we have, as I said, options, and I'm confident that we are going to manage very well and properly this maturity because as you are already used with us at NEPI Rockcastle, we are always delivering. Moving to the second part of the slide. I highlighted the pillars of the finance strategy, which are the investment grade, the liquidity and the LTV. On the investment-grade rating, as you know, we are rated by S&P, a triple flat, triple B flat. And last year, we got from Fitch triple B plus which is actually the highest rating that we can achieve considering the geographies in which we are in. We, as management, we are doing our best to preserve this rating going forward. In terms of liquidity I think that EUR 1 billion in liquidity provides for a safe business, while an LTV at 33.4% in the current real estate and retail environment, provides for a prudent and safe gearing. So the key message here is that we are in a green zone. We have options and there is nothing to worry about. To the opposite, we -- there is something to give comfort on how the funding strategy is going to go forward. The last but not least, is the portfolio valuation overview. The good news here is that we continue the upward valuation trend coming with approximately EUR 104 million in fair value gain. Last year, we also generated EUR 143 million. So in total in the range of EUR 250 million in the last 2 year in valuation, in a context in which the valuation yields are widening. Actually, I depicted here how this valuation came across, which is a negative impact from the valuation yields widening, but a strong positive impact from our property performance, which overcompensated for the widening in the valuation yield. As you know, one of the principles here is that retail is detailed. And it's not by coincidence that here, it's a picture with Mega Mall because Mega Mall is responsible for approximately 8% of this valuation uplift but as a result of the good asset management initiatives that we implemented. I let valuation at the end of my finance section because I wanted to end it on a positive note. And as a wrap up, actually, I had 3 message in this section. That we worked up to 98% distribution from our distributable earnings, and we encourage you to take the scrip or the scrip offer. This is the reason for which we have an incentive and the discount provided to that. My second message in the funding area is that you are in good hands with us. We have a maturity upcoming that you -- that we are taking care of as management and as a Board. And the last one is that in the area of valuation, we have a strong portfolio. The valuation is going up. The LTV is prudent and safe, helping us in our funding negotiation and shaping the prospects of our future investments. I wanted to keep the finance section crystal clear, but I'm available for all the details of the information that I provided here. And I'm moving also to the second part of my intervention, which is ESG. As we announced from the beginning of our mandate, we have -- we are strongly committed to ESG and our efforts have been externally recognized. Therefore, we have a lot of rating and prices obtained. We got EPRA awards for practices in financial and sustainability reporting. It's less than 1 week ago that Sustainalytics rated us as a business with a negligible ESG risk. Up until now, we have been rated as a low-risk ESG but now we have been upgraded. We also have according to MSCI a AAA ESG rating, and we are a leader in our industry. Speaking about the commitments which are in progress, as you know, we embarked on an effort to install solar panels, an investment of EUR 37 million in Romania. This is also beneficial from an ESG perspective, but it's also a profitable business. We have the commitment to implement science-based targets, which means that selected ESG KPIs are going to be determined based on a scientific approach, and this is going to provide full transparency into our business. And we are also focused on aligning ourselves to the European ESG standards, which are ongoing and developing. This translates into a lot of internal projects, but actually the benefit is that we have a more sustainable funding and we also have stronger operations. With those being said, I covered my part, and I will pass it over to Rudiger. Thank you very much for your attention.

Well done. Thank you, Eliza. Yes, back here with a little bit of information, obviously, on our development pipeline. Actually the pipeline has increased from end of last year, up to EUR 722 million that we're looking at to be delivered over the next coming years. Of course, the big projects that we have been shown in the past are still in process. And as I said, our newcomer Craiova, which will actually be the #60 within the portfolio will be delivered by the beginning of October. And you will see later on, on how we have been performing here, especially our leasing team has been performing here. So that's well underway, and I have no doubt that we will deliver the asset in time. But more important, we will also deliver it in budget. On top of this, actually, as a newcomer to this list here, which you know already, is Ploiesti. You've seen the operational numbers of first half year, which Marek has been presenting with strong double-digit growth on turnovers. We have acquired the 50% share of Carrefour last year, one of our acquisitions. And the reason behind it is that we also see here the possibility of an extension of the asset by 7,400 square meters. bThe topic here is that the traffic in this asset is so high that we simply not can provide with enough parking, so we'll add some additional parking. We'll have less discussions with the police station on people parking all over the place. So that is good news for us that we found here a solution with Carrefour and that we finally have the possibility to create actually the value out of the location that we can do. Promenada Plovdiv, close to the building permit. And still, we need to go for the final decision on when we want to start the project but it's a 60,000 square meter scheme in the second biggest city of Bulgaria. And you see how strong our Bulgarian assets, especially Paradise are performing at the moment. So this is definitely one of the markets that will grow over time. And that's why we believe that Bulgaria is the right place for us to expand our business. Galati Retail Park. There, we have acquired the plot. We're planning there 33,000 square meter retail park. Reason here is that we are already the dominating, let's say, shopping center operator in the city in the north side and the retail park will be in the south side and with this, we are kind of completing the city. And when we look at Promenada Craiova, I said this is going to be delivered and it's the shopping center itself is 53,000, almost 54,000 square meters. And our leasing team was able to lease it at up to 99%. We have 3 small units where the team is still working on. They still have 3 weeks, 3, 4 weeks to do so but fully let, and we're very happy that we have been achieving actually very good rent levels. So we are here also from an income side, absolutely on budget what we have been looking at when we started the project. And on the retail park, which is next door, we started here a little bit later. But still, we have already covered 85% of the GLA that is already let. And I think we will also get very close to the 100% until the opening date, which is another 10,000 square meters. Due to the high demand actually there that we saw an outcome was that we decided to go for an additional retail park and on top of this, we also now have considered to put there a drive-in of McDonald's and a drive-in of Burger King. So -- but this will be delivered a little bit later, a few weeks later after the opening of the big scheme. So you see this is, I think, a location and a city where retailers really want it to be, and we will have a very nice, very modern and very ESG-driven shopping center because this is the shopping center where we also have the photovoltaics not only on the rooftop, but across the whole parking. Yes. Then we come to the ones that are in progress still, not so close to be delivered, which is Promenada Bucharest. You know that we are heading here for quite an extensive extension of the retail part plus offices/hotel on top of it. Here, we will have an extension bring the GLA close to 100,000 square meters and the terms agreed here with tenants already and you know that the opening is only planned for 20 -- beginning of '26 summer. We have already agreed to terms and signed contracts with retailers of 54%. Why is this important? Because in this case, we need to relocate the Inditex brands. We need to relocate the [indiscernible] book out of their current locations into new locations. And we've already also agreed terms with a cinema because the cinema so far is missing in the asset. So let me say, the anchor tenants are already solved which gives us, of course, the confidence for the future to do the rest during the construction period. Bonarka City Center I mean, a flagship of NEPI Rockcastle and the progress is amazing. We spent there over EUR 70 million in this refurbishment and the most of it, big part is done, but still Phase 7 and 8, where we increased actually the GLA, where we extend and modernize the food court is still ongoing, and that will be delivered in Q2 2025. Not to forget here that we do this while the center is operating. So all construction work can only be done in the nighttime. Vulcan Residence, that's delivered. It's completed. The construction is completed. Out of the 254 units, we have sold already 155 units -- 151 units. So another more or less 100 to go, but we are quite confident here also seeing over the last quarter, the sales results with more than 30 units, we feel quite confident that we will sell the rest of the apartments as well. The result of this is not shown yet in the -- in our cash flow simply because these are reservations. And only after the handover of those units, the final price will be paid, but they're all contractually already agreed these 151 units that are sold. Galeria Wolomin is a small example. It's a small investment. It's only EUR 4 million, but it is what we daily do in order, we take care not only of big assets, but also these ones here, which is a retail park in Poland, close to Warsaw, where we're investing EUR 4 million because we have pre-letted already with 100% with 2 units. One of them is actually in the existing building, we will relocate it in order to get additional rent there on this unit as well. So it's a small one, but it's in progress. What is the way forward for NEPI Rockcastle. I said I think the underlying economical KPIs for our region are actually quite positive. It's not only the numbers that are driving the GDP growth, the low unemployment rates. It's also, I think, the confidence that the customers have within our region and a different way of getting along with crisis inflation as maybe our customers do in Western Europe. So this is -- also the sentiment is helping us here. So we will leverage obviously on this resilient growth in Central Eastern Europe. We will leverage more and more on the size on our dominance as a retail real estate company in Central Eastern Europe especially on the leasing side, growing NOI through the mixed-use developments. We still have possibilities to do more within the section of but slowly within the section of mixed use. And the prudent management on the balance sheet, and I think that Eliza has been providing you there with the evidence that we are still quite prudent when it comes to our LTV, when it comes to how we manage actually our cash. So I think that will stay as is, and we have still a strong commitment to ESG, which is a must-have in the future, especially when we look also at -- on the financing, on the funding side. This all, of course, the results of the first half year have been outstanding, not to the level as we expected. It has obviously been above. And that led to the fact that together with the Board, we are revising now our distribution of earnings until the year-end to 12% growth relative to 2022, and that means 5% growth relative to the nominal EPS. So I think this is good news. We could argue and we would understand that with these set of numbers, you would maybe look for higher guidance, but there are reasons which we really like to explain if you have questions to this. But it's mainly driven obviously that we had a very strong first half of '23, which is also related to a 2022 half year, which still had some impact -- negative impact in the first quarter. And on top of this, it's also related to the fact that with the increase in our assumptions on a scrip take-up, the earnings per share are obviously affected here. So these are the main drivers, maybe here just as an explanation. So -- but in total, as said, we believe that for the rest of this year, we are well positioned retailers' demand is high. Consumers are not scared of inflation within our region. So we have good reasons to believe that we will deliver on this guidance over the next 6 months. And with this, I would like to say thank you. Thank you also for your patience when we had a little bit of a technical difficulties here. And with this, I invite you and we're happy for questions that you have regarding our half year results.

[Operator Instructions] And there appear to be no questions on the phone at this time. I will hand back to the room for written questions.

Hello. We have a first question on the guidance. NEPI Rockcastle  now guides for 5% nominal growth in distribution per share, which implies that the second half in terms of distribution will be lower than the first half. Can you explain where you expect the reduction would come from in the second half of '23?

We will mention here that as Rudiger indicated in the presentation that we had an assumption in relation to the scrip take-up for October. Therefore, the distributable earnings in nominal terms are expecting to be at least at the same level as for the first half. But the per share result is going to be impacted by the assumptions that we made in the scrip take-up. Rudiger, if you want to give more color.

Obviously. I mean this is more math driven because simply, we will -- we will distribute already by the scrip opt that our investors have been deciding for in March, which was 85%. Of course, this puts more shares in the market and the distribution per share simply is restricted to that factor. And we have been looking at and we've been offering actually here again a scrip dividend with a bonus for the distribution now in October and that will have an additional impact. So please, when you look at our -- when you look at our guidance, take this in consideration, so that is one of the drivers. Another driver, and please don't forget what I said that the -- in the second half of last year, look at the growth rates, we had 16.5% in the third quarter, again, double digits in the second quarter. So when we talk about growth, we talk about growth on a pretty high base. So -- that's also, I think, where we should be not too prudent, but we should not over expect actually that the situation that we have been seeing now in the first half would just simply go on like that in the second half.

A question for Eliza. Should we expect the scrip dividend policy to be the norm going forward to raise cash and reduce debt?

This is a decision that we, as a Board, are making at any distribution moment. Therefore, up until now in the last distribution and this one, we allowed for all 3 options. We are going to revisit this assessment every time when a distribution should occur. So do not expect anything. Let's take it step by step.

And keeping Eliza on the spot again. What is the anticipated timing to refinance the '24 bonds? Is this something you want to do this year? Or are you comfortable to wait until closer to maturity? And somehow relating to [indiscernible] Can you give us a sense of the marginal cost of debt on the [indiscernible] ?

Okay. Thank you. So speaking about the plans to manage the maturity coming in 2024, this is to be done the latest by the moment of publication of the annual report, which means Q1 2024. The sooner the better. On the other hand, we have the responsibility of optimizing the cost of liquidity and the second question was how is -- yes, here, we cannot publicly disclose the margins because we are in negotiations with various funding partners, and this is going to be detrimental to our negotiations.

Maybe let me add here. It's not the question whether we are able to refinance the bond at the end of 2024, looking at our rock solid balance sheet and the discussions we have, I think this is -- and I think we can all agree on this. This is not the topic. The topic here is simply the timing and therefore, very much the pricing. And that's where we are very sensitive, obviously.

Okay. And one question for Marek this time. You are giving excellent releasing figures on extension to sites, but a lot of these successes seem to be from anchor tenants moving from existing sites to extension. Please, can you give us some color on how the overall vacancy will develop, given the space they will leave behind?

Whenever we undertake any asset management initiatives, that includes relocating anchored to other location to extension. There are some conditions to be met, and one of them is prelet of our plan to be executed for the vacated unit. You would never move a tenant to an extension, not having a plan for existing unit. Or I would go even further, we wouldn't start any extension should we not be 100% comfortable that the existing GLA supports the market needs. So we would only do extension if we knew we can leave. And actually, there is at least one tenant more for the GLA that we have the GLA. So we don't take risks here. We never develop on speculative basis.

It's also shown in our -- I think in our numbers, the occupancy numbers that we present are obviously an overall number. So it would also incorporate a unit where you have relocated an anchor tenant and you have not relet it, so that would immediately show up in the numbers.

And one question again for Eliza. Would the cash flow from the sale of residential units be considered as distributable income?

We are still assessing whether to, let's say, have a distributable income or not from this gain. It's not mandatory under the decided guidance to be distributable. And at the time when it's going to impact fully the cash flow, we are going to make the right decision.

I think that the results speak for themselves because we have no further questions at this point.

Well, then we are happy to see, hopefully, a lot of you within our upcoming one-to-one meetings to go a little bit more deeper into -- actually the business of the first half year and a pleasure to see you there and promised we will come next time to Johannesburg and also to Cape Town, which wasn't possible because of the BRICS Summit and to be very frank and open, it was simply because the hotel operator and the event operator just told us before we were supposed to go there, they canceled our booking. So because of the event, so we simply had no chance to come. So therefore, thank you for bearing with us online and not physically present within the wonderful country of South Africa. So next time, we're going to be there. Thank you.

Thank you.

Thank you.