Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Eurocommercial Properties NV (CHIX:ECMPAa) reported a like-for-like rental growth of 4.5% for the first half of 2024, driven by lower inflation and indexation.
- The company achieved an average rental uplift of 2.5% on 261 renewals and relettings, with new lettings achieving an uplift of 5.8%.
- The EPRA vacancy rate remains very low at 1.7%, indicating high occupancy and quality of properties.
- Significant progress in ESG initiatives, including additional green and sustainability-linked loans and high scores in the BREEAM certification for French assets.
- The share buyback program is expected to be earnings and net asset value per share accretive, with 440,000 shares already bought back at an average price of EUR 22.74.
Negative Points
- Sales in the stores of shopping centers were up by only 1.8% compared to a year ago, with Italy's sales hampered by remerchandising projects and poor weather.
- The company reported a slight increase in the occupancy cost ratio to 9.8%, up from 9.5% in December 2023.
- Vacancy in Sweden temporarily increased due to the relocation of a hypermarket, although part of the space has been relet.
- The net EPRA initial yield decreased slightly from 5.8% in December to 5.7%, indicating a minor decline in property yield.
- The company remains cautious about potential tenant insolvencies due to competition and macroeconomic uncertainties, which could impact rental growth.
Q & A Highlights
Q: I noticed that your CapEx disclosure table incentives at data centers went up quite significantly. Is that a trend or a specific one-off?
A: There are some one-offs due to projects like Woluwe and Carosello. It's part of improving asset quality and merchandising mix. No structural increase in incentives when discussing new leases.
Q: How is Sweden performing given the gradual increase in vacancy?
A: The increase in vacancy is due to ICA Maxi moving out, but more than half of the space has been relet. No significant issues compared to other countries. The recent rate cuts by Riksbank are positive for consumers and the market.
Q: Are you seeing any interesting opportunities in the investment market?
A: We are keen to see post-summer activities. Lower interest rates could trigger more activity. We are monitoring closely but it's too early to see significant movements.
Q: Your guidance seems cautious. Can you comment on H2 expectations?
A: The cautious guidance is mainly due to interest rates. We feel more confident due to lower EURIBOR and good hedging possibilities. No major concerns for H2.
Q: Can you provide more details on the refinancing terms?
A: Terms are similar to previous ones, with slightly higher margins due to longer loan durations. Overall, refinancing costs are stable and we expect them to remain so.
Q: What is the likelihood of announcing new redevelopments or internal investments in the next 12 months?
A: We are focusing on existing tenants and internal mall improvements rather than big extensions. Projects like Ekohallen in Sweden and remerchandising in Italy are examples.
Q: Why is it hard to convert positive retail sales and footfall in France to positive renewals?
A: Renewals take more time and effort, especially in mid-market fashion. Indexation has already increased rents significantly. No major concerns but it requires careful management.
Q: Can you comment on the cost reclassifications from company expenses to property expenses?
A: Reclassifications were made for clarity. IT costs and other expenses directly related to properties were moved to property expenses for better allocation.
Q: Were there any incentive measures requested by new tenants during the transition from Casino to Intermarché in France?
A: No changes in conditions or contributions were requested. The new tenant stepped into the existing contract, and we expect potential space returns for better tenancy mix.
Q: How did retail sales perform in France during the summer months?
A: July was flat, and August data is not yet available. Weather and other factors influenced sales, but no dramatic changes were observed.
Q: How do you see the cost of financing going forward? Are we close to the peak?
A: Signs indicate that interest rates may decrease. Margins are improving, and we expect refinancing costs to stabilize or decrease slightly.
Q: Will you extend the share buyback program beyond November?
A: We will monitor the situation and consider extending the program in January based on the interim results and stock dividend uptake.
Q: Can you elaborate on the significant contribution from turnover rent in Italy?
A: Inditex and other retailers have performed well, contributing significantly to turnover rent. We expect this trend to continue, but it is subject to seasonal variations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
