EUCMF - Eurocommercial Properties N.V. (EUCMF) Q4 2022 Earnings Call Transcript
2023-03-24 13:30:19 ET
Eurocommercial Properties N.V. (EUCMF)
Q4 2022 Earnings Conference Call
March 24, 2023 06:00 AM ET
Company Participants
Luca Lucaroni - IR Director
Evert Jan van Garderen - CEO
Peter Mills - CIO
Roberto Fraticelli - CFO
Conference Call Participants
Inna Maslova - Bank Degroof Petercam
Francesca Ferragina - ING
Rob Virdee - Green Street
Steven Boumans - ABN AMRO ODDO
Jaap Kuin - Kempen
Presentation
Luca Lucaroni
Good morning everybody, my name is Luca Lucaroni--
Operator
Good day and welcome to the Eurocommercial Full Year Results 2022 Conference Call. This meeting is being recorded.
At this time, I'd like to hand the call over to Luca Lucaroni, Investor Relations Director. Over to you sir.
Luca Lucaroni
Good morning to everybody. My name is Luca Lucaroni, Investor Relations Director. And I'm happy to be on this call with Evert Jan van Garderen, our CEO; Roberto Fraticelli, our CFO; and Peter Mills, our CIO to present Eurocommercial results for the year 2022.
The agenda of this conference call is presented on the slide. Evert Jan van Garderen will talk about the operational results of the company, including the leasing activities during the year.
Peter Mills will talk in more detail about the property portfolio and ESG followed by Roberto Fraticelli, who will discuss in more detail the financial results. We then open the call for any questions or suggestion you may have.
Evert Jan van Garderen
Thank you, Luca for introducing us and presenting the agenda for today. Good morning everyone and thank you for joining us this morning. I will start with an overview of the operations of Eurocommercial during the financial year 2022, and will finish this presentation later with some remarks on the acquisition of the minority interest in Woluwe Shopping, the dividend proposal, and the guidance for 2023.
The business of the company showed a strong performance in 2022. We will discuss various operational metrics in this presentation and we are pleased see that in 2022, consumers have continued to visit and spent in our shopping centers despite the difficult environment caused by inflation and in particularly, the higher energy prices.
Also in January and February of 2023, the turnover in the stores of our centers have continued to be better than in 2022 and better than in the peak over period in 2019. We will discuss these results in more detail during this presentation. The diversification over four countries and the quality of the 3.8 billion shopping centers portfolio have again been key to the performance of the company during 2022.
We have 24 shopping centers in our property portfolio, split between 45% allocated to our five flagship centers and 55% allocated to our suburban shopping centers focused on everyday goods and anchored by hyper markets and supermarkets. 62% of the space in these shopping centers is dedicated to essential and everyday goods. Our five flagship centers have more exposure to discretionary retail due to their different function, but still have 41% exposure to essential and everyday retail.
After the sales of two French properties in the first quarter of 2022, the portfolio comprises only shopping centers. The spread over our four countries is as follows; Belgium 15%, France 21%, Sweden 21%, and Italy 43%.
Next to a good diversification of four countries, our shopping centers are again well spread in those countries and are located in wealthy areas like for example, Northern Italy or close to this Swiss border near Geneva or in the wealthy catchment of Woluwe shopping in Brussels.
This slide provides the maps of the four countries, showing where our 24 shopping centers are. In my introduction, I said that the company showed a strong operational performance and here you see an overview of all the important operational metrics for the year, which under underpins that statement. I will comment in more detail on each of these metrics in the remainder of this presentation.
The sales in the stores of our shopping centers in 2022 have been very strong compared to 2021, but also compared to the pre-pandemic period in -- sorry in 2019 with Belgium and France just above the levels of 2019, but Italy and Sweden well above these levels.
We are encouraged by the latest available turnover numbers in our stores, which are the January and February 2023 numbers, showing even an overall increase of 14% for the portfolio compared to the January and February numbers for 2022. Compared to the pre dynamic levels of 2019, the increase was 10%.
If we look at the various sectors and compare the turnovers for 2022 to 2021 and also 2019, we see that nearly all sectors have at least achieved their 2019 levels, with some clear winners, which are food and beverage, health and beauty, gifts and jewelry, sports, home goods, and books and toys and we are very pleased to see that all sectors increased their turnovers compared to last year.
We are now able again to report like-for-like rental growth for the portfolio and for the four countries as we always calculate these growth percentages on the basis of 12-month data. We compare the [indiscernible] schedule as per the 31st of December 2022 with the [indiscernible] scheduled as per 31st December, 2021. So, basically we compare two photographs.
The reported figures include the impact of index turnoverance, vacancies, and leasing activity, but exclude the impact of acquisitions, disposal, development project, and COVID-19 rent concessions.
And you will not be surprised to hear that the driver for the rental growth was indexation. The indexation for 2023 is for most countries clear and we are applying the index figures included in the table for 2023, which we show on this slide.
Although the indexation differs among our countries, the average indexation for the entire portfolio was assessed at 8.7%. In Italy, the indexation is the highest with 11.3%, followed by Sweden at 10.9%. For Belgium, it is more difficult to calculate indexation for 2023 as every month, those leases which starting in that particular month are indexed using the index for that month.
In that case, we only know by the end of the year, what the indexation invoiced and to be invoiced was. Therefore, we used an estimate of 3% based on our expectations about what the index will be for the rest of 2023.
The main difference with the average indexation applied in 2022, which was 5.6%, is the fact than in 2023, the index to be used will be clear of energy prices. This is the result of a rule introduced by the government of the Brussels region in December 2022.
In France, indexation is also somewhat regulated as the government introduced a cap at 3.5% for small-sized companies, which will be applicable for about 10% of the tenants of our French portfolio. We therefore expect to apply a blended 4.2% for indexation in France.
The indexation is expected to contribute to the rental income for 2023 for a maximum amount of approximately €14 million, taking into account the restrictions and rules and regulations which I refer to.
As the occupancy cost ratios for our tenants are low comparing it to the industry and on average well below 10%, the rents will remain affordable also including the indexation.
For France and Sweden, the indexation for the first quarter 2023 has already been invoiced and collected and in Italy, most of the billing of the indexation for the first quarter will take place in the second quarter of 2023. So far, we have not received any pushback from tenants on the indexation billed, but we cannot exclude that there may be cases later this year.
As you can see, the company is in principle and natural hedge against inflation, thanks to the indexation. We are still well-positioned to lease our retail space to attract tenants under sustainable conditions and at affordable rent levels.
Introducing new tenants and new concepts of existing tenants will ensure that our shopping centers remain attractive for their customers and continue to have their purpose as they relevant in the catchments.
We are proud to be able to report that on 255 re-lettings and renewals, an average rental uplift of 5.4% was achieved. These lease transactions reflect 13% of the minimum guaranteed rent of the portfolio. We were able to attract new tenants with our 81 new lettings achieving an uplift of 6.9%.
These new deals were concluded under normal lease conditions and lease terms, so there were no short-term leases. This leasing activity is continuing with already 37 new leases assigned in the first two months of 2023, achieving an average uplift of around 6.4%.
Low vacancy is usually a good indicator of the quality of the properties. Over the last 10 years, we have reported vacancy rates in our property portfolio ranging between 0.3% to 1.8% and we continue to do so. The average for the last 10 years was 1%. The EPRA vacancy rate remained very low at 1.5% in December 2022, that was for the entire portfolio and the same vacancy rate we had in June 2022.
Now that turnovers have normalized and rent concessions are not applicable anymore, we can also report the occupancy cost ratios for all countries and for the entire portfolio. The company has always been known for its low occupancy cost ratios and we are therefore pleased to report a 9.2% occupancy cost ratio for our portfolio as per 31st December, 2022. This percentage is still one of the lowest in the industry and implies that the rents are affordable for our tenants.
If we look back some years before the pandemic, we reported in 2015, 8.1% for the portfolio and just before the pandemic started, we reported 8.9%. So, our current overall OCR is almost at pre-pandemic levels.
The rent collection is back to normal, which is evidenced by a rent collection rate of 98% and that's 98% of the invoice rent for 2022, which is much better than the rent collection levels for 2021.
The rent collection for the first quarter of 2023, which already stands at 94% of the invoice rent, is also evidencing that the rent collection is back to normal, bearing in mind we're still in the first quarter.
Please also note that we have returned back to invoicing quarterly in advance in most cases and are using direct debits to collect the rents. Monthly payments and payments in our arears are only applicable in individual cases where we wish to help struggling tenants.
After the pandemic, we have been very active to expand the food and beverage sector with a range of new brands, concepts, and formats. You will find on this slide projects which we completed in Fiordaliso and Carosello in Italy and in our Etrembières shopping center close to Geneva. And you can see also the ongoing project in our shopping center Valbo in Sweden, which will be completed in the autumn of 2023.
The pandemic was also a catalyst for the rapid growth in lifestyle fashion, including important brands such as Adidas, Nike Store, JD Sports, Footlocker, Courir and Snipes.
Gyms and fitness centers took units in France and Sweden and are expected to be introduced in three of our Italian shopping centers.
Another leasing trend is the value retail sector, not surprising with household budget under pressure from rising inflation and increasing energy cost. This discount sector is an important part of the tenant mix inside shopping centers and spread over a number of sectors like home goods, health and beauty, and fashion.
On the slide, we list a number of brands recently be introduced in our centers. There is a wide range of other brands which entered into our shopping centers recently. And here you will see some examples.
This is the moment to hand over to Peter Mills, who will discuss in more detail our property portfolio and will report on our environmental, social and governance strategy, and performance.
Peter Mills
Thank you, Evert Jan. Well, overall, the property valuations decreased by 0.3% compared to December 2021. Although the portfolio generated higher net operating income, the marginal decrease in valuation was due to the adoption by the valuers of higher initial yields or exit yields depending on methodology and higher discount rates.
The higher yields were a reflection of an uncertain economic outlook, higher interest rates, accelerating inflation, and the war in Ukraine, which together resulted in an investment market with the reduced level of shopping center transactions, particularly in the second half of the year.
Although there was more consistent activity in other retail segments, particularly external retail parks, a retail property with the significant grocery component. As a result, the overall EPRA net initial yield has increased from 5.1% to 5.5% over 12 months.
We have again provided this valuation split separating our five flagship shopping centers, which are illustrated here grouped together. These assets are located in their respective country's capital or main economic cities and are all important shopping centers in their national context.
I Gigli outside Florence is one of Italy's largest shopping centers by footfall, while Fiordaliso and Carosello of two of Milan's three dominant and shopping centers. Passage du Havre is a prime established central Paris Gallery, while Woluwe Shopping in Brussels is still regarded by the market as well as the best shopping centers in Belgium, as it has been over the last 50 years since it first opened.
These flagships increasingly attract a broad international tenant base and together represent around 45% of the portfolio and a much larger assets with an average individual value of over €400 million and they are lower yielding at around 5.2%.
The remaining 19 mainly suburban hyper market anchored shopping centers have different and more defensive characteristics with over 60% of their floor space devoted to a broad range of essential and everyday retail including groceries and an increasing range of services supporting their more local communities.
They're strategically located in important provincial towns and cities with wealthy primary catchments and they have a strong representation of national regional and local tenants in all sectors, including the growing value retail sector or discount sector.
These assets comprise around 55% of the portfolio and are smaller assets with an average individual value of around €100 million and they are higher yielding at 5.8% overall.
During Q1 2022, we sold Les Grands Hommes in Bordeaux for a price of €22.5 million and our 50% ownership of the office and residential parts of Passage du Havre in Central Paris to our joint venture partner AXA for a price of €57 million. We remain the asset manager an owner of 50% of the retail gallery in the main building of Passage du Havre with its GLA of 14,000 square meters, including the main anchor, Finac and around 40 tenants.
These sales were completed at all very close to their latest valuations and formed the final parts of the company's €200 million disposal program.
Our only current and committed project is in Sweden where we are completing the final phase of a project Woluwe located outside Gävle, the last of the seven Swedish shopping centers we acquired in 2018. The objective of the project has been to improve and broaden the tenant mix, upgrade the property, and its installations to a modern standard, while improving customer flow by creating a single loop and a new entrance from its main car park.
The project has been executed in three phases due to the complex of keeping the center open and in full operation during the works. The first two phases are already completed and provide new stores for tenants including H&M, New Yorker, Normal, Hemtex, Rituals, [indiscernible] and included the refurbishment of the malls and the public areas.
The last phase is well underway and will provide a new main entrance new facades, signage and seven shops, which will open. In the autumn this year and are all pre-let to further national brands in F&B and consumer electronics.
At Woluwe Shopping in Brussels, we resubmit submitted our planning application last year for a 7,800 square meter retail extension and apartments above following some modifications to the scheme in consultation with the municipality and region.
The indications are that we should get planning consent from the region during the first half of this year. Meanwhile, the 47,000 square meter shopping center with its 130 shops continues to perform very well and its tenant mix was further strengthened last year with the summer openings of Finac, Mango, and AS Adventure.
Our ESG and business strategies remain carefully aligned so that business decisions can be approached with a long-term view in order to evaluate both their environmental and social economic impacts and the future demands and expectations of our customers, tenants, and employees. Our approach is articulated around these three strategic pillars shown on the slide; be green, be engaged, be responsible.
The company has been externally recognized by third-parties on its ESG strategy and performance and maintains its global real estate sustainability benchmark Four Star rating, improving its GRESB Score compared to 2021, while maintaining these A GRESB disclosure score for the ninth consecutive year.
The company was awarded the EPRA Financial Best Practice and Sustainability Best Practices Recommendations Gold Awards in 2022 based on the review of its 2021 annual report.
Effective from September last year, the company is also now included in both Euronext's AMX and AEX ESG indices.
Be green forms the foundation of our operations and provide us with the opportunity to make changes that will reduce both our imprint and operational costs as we focus on the transition to a low-carbon economy with the target to operate carbon-neutral by 2030.
To reduce our carbon emissions, we have set a reduction target for our Scope 1 and 2 emissions to achieve zero emissions by 2030 by improving the environmental quality of our shopping centers and by implementing standards and technologies to improve energy and water efficiency and waste recycling. This includes reducing energy consumption, procuring renewable electricity, where possible generating energy ourselves on-sites through further solar panels installations, rock heating, and groundwater heating and cooling.
As part of our environmental policy, the company uses a comprehensive range of environmental criteria, incorporated in the BREEAM certification process in order to standardize and improve the sustainable quality of our buildings and their management.
And in February last year, we completed our initial certification program with all our 24 shopping centers being BREEAM-certified three years ahead of the original target date of 2025, over 2023 receiving the scores very good, or excellent.
Last year, the company took proactive measures to assess the risks associated with climate change. We conducted an extensive analysis of the impact of climate-related risks and opportunities on our business and operations with the help of those internal workshops and external technical advisors.
Our analysis included a comprehensive evaluation of both physical and transition risks and we will be incorporating the findings into our business plans. Moving forward, we will be providing greater transparency by aligning our communications on climate change risk with the TCFD guidelines and our 2022 annual report will provide further information on our climate change risk assessment and how these risks will be addressed within the context of the evolving -- sorry within the context of the evolving geopolitical landscape, inflation, and rising risk -- rising costs, our teams also took out several initiatives in conjunction with its tenants to reduce energy consumption costs in the shopping centers over the year and that included reducing indoor temperature, reducing operating hours of heating, reducing light use and intensity, and improved use of timers and motion sensors.
We remain fully engaged with our customers and tenants and our shopping centers continue to form an integral part of their local communities, bringing improved social and environmental values. The company aims to create shopping centers that go beyond just being retail destinations, but rather serve as social spaces that are essential to the local communities in which they are situated.
By meeting the everyday shopping needs of our customers and their communities, we provide a safe, enjoyable, and service-oriented experience. We engage regularly with our tenants, customers, and communities taking into account their feedback to ensure that our centers remain relevant and adapt to the changing retail landscape.
Through constructive engagement with our tenants, we exchanged ESG ambitions targets and responsibilities including Green Lease documentation, which is being increasingly used in all our markets.
Last year, the company also further expanded its Eurocommercial Retail Academy, working together with our retailers to improve sales technique and customer service and therefore, the overall shopping experience.
The Retail Academy is already well established in all seven Swedish shopping centers and the 3,600 staff employed within and tenant response has been very positive and therefore the Academy will be rolled out in Italy and France with objective to have it fully established in at least 15 shopping centers by the end of 2023.
Eurocommercial is also making further progress with its sustainable finance goals formalizing its Green Finance Framework. As part of its core aims, the company is entering into new green and sustainability-linked loans, replacing its expiring borrowing.
The existing €159 million loan financing the shopping center and retail market of Fiordaliso has recently been qualified as a green loan as the relevant proceeds are used to finance this green asset. The company has so far entered into five sustainability-linked loans for a total amount of €216 million; three of these loans for a total of €117 million are also green loans. So, the company has in total four green loans for an amount of €386 million.
And I will now hand over to Roberto Fraticelli for the financial review.
Roberto Fraticelli
Thanks Peter and hello everybody. I'd start with financial performance. Okay, this slide gives you a quick overview of our performances this year. You can see the income statement, the financial position in values and also per share.
As you can see, both net property income and direct investment results increased significantly compared to 2021. This is mainly due to the increase in rental income thanks to the indexation and the renewals and re-lettings. And thanks to the elimination of the COVID-19 concessions, which were granted in 2021, which we'll see more in detail in the next slides.
Net interest expenses were slightly lower than 2021, that's mainly thanks to the sales program, which led to reduction of the borrowings.
Moving to our financial position, property investments have not changed that much. The lower investment values were mainly related to the sales and to the effects of weaker Swedish kroner. This is also reflected in the reduction in net borrowing. The results per share show how notwithstanding the 5.6% increase in the number of shares. Value has hold up pretty well. The significant uplift in the total investment results going up from €2.06 per share to €3.82 per share is mainly attributable to an increase in both the direct and indirect investment result.
The increase in the indirect investment results is mainly related to €111 million increase in the value of derivatives compared to the same period last year, which was partially offset by €21 million increase in the deferred tax position compared to the same period last year.
In the financials year, you see overview of the most important financial data. The total value of the net borrowing at 31st of December 2022 decreased by €130 million to €1.55 billion from €1.68 billion as at 31st of December 2021, thanks to the property sales and the weakest Swedish kroner.
As you can see, our loans are spread among more than 15 banks in different countries with Dutch, German, and Italian bank shares above the 20% each. In April 2022, we entered into a five-year loan of €66.5 million with ING to refinance two existing loans on the Curno Shopping Centre, Italy. In June 2022, we entered into a new three-year loan of €50 million with ABN AMRO bank to refinance an existing loan on the CremonaPo Shopping Center, Italy. These new loans qualify as green loans and also as sustainability-linked loans.
In May 2022, the Italian joint venture Galleria Verde, which is 50% owned by Eurocommercial, signed a new five-year mortgage loan of €21.5 million with Banca Popolare di Milano to finance the recently completed gallery expansion at the Fiordaliso Shopping Center, Milan.
The available resources at 31st of December 2022 were €71 million in cash and €161 million in available facilities.
Of the loans maturing in 2023, we have already refinanced an amount of SEK1.2 billion, which is around €110 million with a three-year green loan with Nordea Bank ABP on three properties in Sweden. We have also started the discussions for the ref of the remaining long-term loan maturing end of September 2023, which is around €62 million.
For concerns long-term loan maturities, as you can see from the table, most loan repayments are foreseen in the years 2025 and 2026. While in 2024 we have maturity €484 million.
The average interest rate including margins at December 2022 increased slightly to 2.4%, also thanks to our conservative hedging policy, which we are going to see now. Almost 86% of our interest costs are hedged, mostly through interest rate swaps, but also through a number of fixed interest coupon loans.
The average interest rate swap hedging term is over five years. An increase of 100 basis points in interest rate would therefore only cost a limited increase in interest expenses of around €2.5 million.
The loan to ratio -- the loan-to-value ratio on the basis of promotional of consolidation at the 31st of December after deducing purchases costs decreased to 40.4% compared to 42.3% at December 2021. Please remember that the group covenant loan-to-value ratio agreed with the recurrence banks is 60%. For comparison purposes, our loan-to-value ratio adding back purchaser's costs as 31st of December 2022 was 39.4% and our loan-to-value adding back purchaser's cost and using the IFRS consolidated balance sheet was 37.9%.
Thanks to the finalization of the sale [PH] program and the increase in EBITDA, the net debt to EBITDA ratio decreased from 10.3 in 2021 to 8.9 in 2022, while the interest coverage ratio increased from 3.7 in 2021 to 4.1 in 2022.
The direct investment results for the 12 months to December increased significantly to €119.5 million compared to the €110.6 million for the same period in 2021. The higher net profit income compared to 2021 is mainly related to higher rental income from the properties, thanks to indexation renewal and re-lettings and that's around €8.4 million and the acquisition of the remaining 50% share of Etrembières was a net contribution of €1.3 million, which more than compensated the loss of brands derived from the asset disposal program, net amount of around €6.6 million.
An important contribution was also given by the €7.3 million lower COVID-19 concessions to retailers and by the €1.8 million lower bad debt provision. Please remember that these numbers already include all the residual COVID-19 brand concessions to which IFRS 16 was applied, so an extra €4.1 million.
The other expenses mainly referred to higher shortfall on service charges for around €1.2 million and higher company expenses for around €1.1 million.
And then last but not least, our beautiful EPRA NTA bridge. This slide gives you a quick look at the relative changes in the EPRA net tangible assets per share from the €40.1 at the end of 2021 to the current €38.6. The two major movements besides of course, the direct and indirect results are related to the €1.50 dividend per share in cash and to the €0.55 effect of the mandatory script dividend in July 2022.
Moreover, we have a variance of €2.91 per share, which is related to the adjustment of the fair value differential instrument, which is included in the indirect investment results but has to be excluded from the NTA calculation.
Thank you very much and now back to Evert Jan.
Evert Jan van Garderen
Thank you, Roberto for presenting all the figures. AG insurance very recently exercised their put option under the shareholders agreement, we have them since September 2019 when they contributed part of the Woluwe Shopping into our Belgian subsidiary who is the owner of the Brussels Shopping Center and they did that in exchange for a minority stake of 25.6%. We will acquire this minority stake in April 2023 so that we will own 100% of Woluwe Shopping.
The price to be paid is the exercise price of the put option and is based on the current net asset value of the shares in the Belgian subsidiary. The price amounts to €69.6 million and will be funded by available cash and credit lines. This acquisition will allow us to create in due course, a 50/50 joint venture for Woluwe Shopping with a long-term partner.
In the press release, we included a dividend proposal, which we will table at the general meeting scheduled for Tuesday 13 June, 2023 for approval by the shareholders.
Last year, we introduced a new dividend policy for the company which implies the payment of an interim dividend in January and the payment of a final dividend in July.
For the interim dividend, we aim to pay 40% of the total cash dividend paid in the previous financial year. The new dividend policy also has a clear payout ratio range and the payout ratio target for cash dividends. The company's payout ratio for cash dividends will range between 65% and 85% of the direct investment result, but with a target of 75%.
A mandatory scrip dividend may still be distributed if that is necessary to maintain the company's tax status in the Netherlands, the FBI regime and/or its tax status in France, the so called SIIC regime.
Today, the company's results are not directly affected by the war in Ukraine and sanctions against Russia, but that could still change would the conflict escalate further. However, in particular short-term interest rates have spiked in the last couple of months and this could affect consumer spending in due course.
If consumer spending would start to subdue, some tenants could be hit in their business and in that case, we cannot exclude some insolvencies. We therefore have to remain cautious and propose to increase the total different from €1.50 paid in 2022 to a total dividend to be paid in 2023 amounting to €1.60, which is at the lower end of the payout ratio range; it is in fact at 70%. This proposal implies a final cash dividend of €1 per share.
We will also offer the shareholders the option to elect for a dividend in shares instead of the cash dividend of €1. As these shares will be charged to the fiscal share premium reserve, there is no Dutch dividend withholding tax due, which may be attractive for those shareholders who cannot obtain a reduction or a credit for the 20 -- for the 15% Dutch dividend withholding tax. The ex-dividend date will be Thursday, 15 June, 2023 and the dividend distribution date will be Friday, the 7th of July, 2023.
Assuming no major deterioration of the macroeconomic environment and in particular further spikes in interest rates, we expect the direct investment result for the year 2023 to be between €2.25 and €2.35 per share.
I would like to conclude this presentation with the statement that as Management Board, we are truly thankful to all our teams in the various countries for their hard work and their continuing commitment to our company.
And I will now hand over to the operator for questions.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions]
First question comes from Inna Maslova From Bank Degroof Petercam. Please go ahead.
Apologies. We are experiencing some technical issues. One moment, please. And Inna, we can't hear you. We'll move to Francesca Ferragina. One moment please. Apologies, we're experiencing some momentary technical issues on the call. Please hold on.
Inna Maslova, please go ahead, your line is open.
Inna Maslova
Hi, good morning. Can you hear me?
Evert Jan van Garderen
We can hear you Inna.
Inna Maslova
Excellent. Thanks. Good morning everyone and thank you for taking my questions. A couple of them, if I may. The first one on your 2023 guidance, I'm just trying to piece some things together because your guidance effectively implies either a small decline for 2023 or an increase of up to 3%.
If I look at it together in terms of the remaining impact of disposal from Q1, the upcoming acquisition of the stake in Woluwe as well as the indexation that you're guiding for, could you perhaps give us a little bit more of a color on how your guidance is constructed because I -- well on the basis of the numbers you have provided, I would have expected a stronger year-on-year increase?
Evert Jan van Garderen
Well, thank you, Inna for this question. Let's say the main uncertainties I think which we all face today is where will interest rates be. Of course, we are hedged for considerable percentage, but we still also have floating debt and seeing the recent spikes and of course, we have to see what the ECB does further.
We cannot rule out of course that short-term rates could go up further. And then there is an effect -- and the other effect where we have A3, again an external factor is the Swedish kroner we saw this year -- or let's say last year 2022, a decline in value, a weaker Swedish kroner, almost 8.5% it was, of course, that can rebound, but it can also maybe temporarily weaken further.
So, taking that into account, we ended up with this guidance, Inna. So, it is particularly the external factors which made us maybe then from your perspective a bit more cautious, but that's the reason.
Inna Maslova
Okay. Thank you. Just maybe a follow-up question on that. In terms of indexation, if I recall correctly, most of the contracts you are indexing on the 1st of January, is that correct to say?
Evert Jan van Garderen
That is correct. Belgium is different as you know, but the other countries it is all happening 1st of January, but we also explained a bit how it works in the different countries and basically France and Sweden, we already index in the billing. Obviously, every quarter, you also bill this extra piece of indexation.
Italy, we're about to invoice because there we have the index -- formal index number a bit late, so it's not possible to already take the indexation into account when you bill the first quarter. So, that is now happening, together with the second quarter.
Inna Maslova
And in terms of the feedback that you have so far, so more specifically than for the markets where passed on higher indexation like Sweden, there has been no pushback from tenants so far in terms of paying that amount?
Evert Jan van Garderen
No. I mean Sweden is actually very good example, given also the very high collection rate that the indexation is paid. So, there we don't have pushback reflected by payments. Of course, there are sometimes individual cases where in the intersection of both parties you could say, well, maybe how we can do with commercial transaction whereby you might say, okay, this indexation we accept a bit lower, but then in exchange for a longer lease or something like that. But these are really only a few cases where it makes sense for both of us to then agree an extension. But now all the indexation being built and being paid in Sweden.
Inna Maslova
Okay. Clear. Maybe just a couple of questions on Woluwe, I will -- I'll pass on my turn. Would you mind telling us what the implied yield is? Because you have mentioned the acquisition of the 25% stake happens at the latest NAV. What is actually the implied yields on the acquisition of that stake?
Evert Jan van Garderen
Yes, well, let's say it is the net value the share. So, it's not a property transaction. As you can imagine when we entered into the shareholders agreement in 2019, it is an agreement which you basically see a lot in the case of a joint venture. And we said if there is the exercise of a put or an exercise of a call, we also had a call, then we will just use the net asset value of the shares, which obviously implies the net asset value and the fair value of the property, but also the other items on the balance sheet and that's a price formula. So, let's say there is no yield in this case applicable.
Inna Maslova
But roughly speaking, if we compare -- because at the time when you closed the transaction in January 18, the acquisition yield was around round 4% and it is now in the books at a net yield of 4.6%. So, roughly speaking, would you say it's more in line where the current valuation of the asset?
Evert Jan van Garderen
Yes. Let me close -- let's say that's reflected -- the fact that the value of Woluwe is now different from what it was in 2019. That obviously has an impact on the price of the shares in the end as well. So, yes, the fair value of Woluwe today has an impact on the price of the shares. That is correct.
Inna Maslova
Okay. And then last question just on Woluwe, considering the fact that the cost of financing is rapidly changing, what is kind of the minimum yields on that you're still looking to do on the extension of Woluwe, assuming all permits are of course cleared and you can commence construction relatively quickly?
Evert Jan van Garderen
Yes. Let's say, we have, of course, learned from being in Brussels that you have to be patient. So, I think our position at the moment is let's say we are -- as Peter said, we are expecting to receive the permit, but let's see and then take the next step.
So, once we have it, I think then we are in the position to look at all the ingredients for the extension, which obviously means construction cost, but also means appetite, pre-letting, et cetera, the timeline. I mean, as you know in Brussels, if you have a permit, there is still the possibility for certain parties to oppose to appeal. So, yes, I think we -- what we learned from Brussels, it's step-by-step. And that's probably all I can say for now. We first have to see what is exactly possible once we have the permit thing.
Inna Maslova
Very clear. Thank you very much Evert Jan.
Evert Jan van Garderen
You're welcome Inna.
Operator
Thank you. And I will take the question from Francesca Ferragina from ING. Please go ahead.
Francesca Ferragina
Can you hear me?
Operator
Yes, we can. Please go ahead.
Evert Jan van Garderen
We can hear you Francesca.
Francesca Ferragina
Looking at the first months of 2023, you mentioned rent collection of 94%. I was wondering how is this rate compared to a normal pre-COVID year, for example? And so far, looking at the first months of 2023, have you noticed any sign of weakness from any particular category of tenants? Any requests for risk scheduling payment timing? Have you noticed any different payment behavior? You mentioned some insolvency risk during the call, what type of tenants do you expect to suffer the most in the coming months?
Evert Jan van Garderen
Yes. Well, Francesca on the rent collection for this quarter, we're still in this quarter. We actually see absolutely a normal pattern which we have before the pandemic. Of course, let's say we still -- as I said, there are always maybe some individual cases where you said to help you, you can very monthly orders, maybe a payment in arrears. But it's a normal pattern. So, I don't expect anything unusual when this quarter is behind us, which still one half weeks ago.
And in terms of -- I probably have to say and then I look at Roberto and Luca. In Italy, obviously, we don't have the full test yet, because we haven't -- well, we are in invoicing, but let's say the second quarter will be an interesting quarter because there of course, yes, let's say Italian tenants could respond to that. I mean Roberto?
Roberto Fraticelli
That's true. I mean, Francesca, as you know, I'd say, we -- in Italy, we invoiced indexation in Q2 related to Q1. That's because, of course, indexation is normally on the 16th or thereabout of January.
And what we have seen so far the tenants have paid regularly. What's also important moment is the service charges reconciliation and I think that's maybe a positive because of course, we have the accrued for an higher amount of service charges that we actually believed would have to be charged to the tenants. But unfortunately, I'd say the final prices that were paid for the energy were lower, let's say, than the expectation. So, that gives also a little bit of space in the financial situation of a tenant.
And to be fair, I mean, we see that, of course, sourcing the turnovers, there has been an important increase in turnover for the tenant. So, there should be liquidity. Of course, as you know, we Italians like to have a little fight. So, there will be some negotiations when we start invoicing the Q2 2023, which then includes part of the indexation for the Q1 2023, but we do not expect anything outside the normal range to be fair. But there would be a negotiation, but I'm not expecting a war.
I'd say that was maybe clear, Luca, when we had the discussions also at the -- with the Italian authorities. At the beginning we're expecting measures as they were taken in France and Belgium for to reduce indexation to be applied.
It was nothing of that. There were three or four articles in Italian news. But for the rest, there was really no uproar or people shouting or crowing or yelling that it was impossible to pay the rent. But we'll see.
Evert Jan van Garderen
Yes. And Francesca, your question about tenants and insolvency, I mentioned that because so far what we have seen is a few examples in France really. So, it's not that we are foreseeing this to happen also in other markets, but in France and that has hit the newspapers, of course, had the sort of mid-market fashion retailers who had a difficult time.
Some of these are in bankruptcy or being sold by the administrator. So, that kind of, tenants we have experienced to struggle. We only have a few units really, so therefore, the exposure is very limited. But that's something which we have noted and therefore, I mentioned it in my speech.
Francesca Ferragina
And just talking about inflation, do you assume that the inflation that you would pass-through for 2023 will also drive some change in the tenant mix?
Evert Jan van Garderen
Well, let's say so far, it hasn't in Sweden. So, I don't think -- let's say Belgium is also an interesting one because we see the inflation in Belgium, it's still too high, but coming down quite rapidly. And as you can see in our sort of estimate, we now have penciled in 3% only which you could say is actually relatively low compared to other currencies.
So, I don't see that the indexation and also given the forecast, inflation should come down that by our indexation, we kick tenants into the wrong direction or tip them over the wall, so that they get bankrupt.
And of course, we also like the fact that yes; there is now a one-off which you could say is nice that it is in some cases double-digit indexation therefore quite substantially increase in rent.
But I think it is much more healthier for the market if there is some indexation, but not at the levels we have seen for this year. So, I do hope that we get in a bit more normalized situation which also will probably help us then on the interest expense side because obviously then they had a current very high interest rates short-term. It is all very unusual. I mean, we are looking constantly at an inverse interest rate curve, both for the euro and for the Swedish kroner.
Francesca Ferragina
And expensing at the latest re-letting and the new leases that you have recently signed, is any one-off passing of the contract, for example?
Evert Jan van Garderen
Sorry, Francesca, you were fading in your last two sentences could you repeat it please?
Francesca Ferragina
Looking at the latest contract that you signed, at term of the negotiation -- of the conversation that you had with tenants, for example?
Evert Jan van Garderen
Yes. So, what sort of are the themes, the items to be discussed with tenants? And so Peter -- I think in the latest deals we're doing, it's probably still--
Peter Mills
I mean to give you an example, in Sweden, we -- just since December so that they were in the update we've just provided, the 6% uplift we've achieved on new letting, that included six leases we signed were stayed in the number one sports retailer in that country where we've extended the term and got a nice little rental uplift with them.
I think in terms of tenant mix and changes, I mean what we saw in the numbers last year we gave was -- that we had -- there was nothing too obvious in terms of the new lettings we did, which was about 56% of those deals where there was a re-merchandising mix. There was some conversion of fashion mainly to the expanding health and beauty, home goods, gifts and jewelry.
From a second point of view food and restaurants has recovered very well and we saw that in the slides, the development of many new concepts and brands and expansions of existing one. So, that's been a growth area for us.
So, I think we -- really because under the circumstances, we really tried to improve tenant mix turning them into sectors, expanding sectors and using the opportunity to do so whether leases renew. So, I don't think there's been an enforced change, I think it's been an active change from the leasing teams that has been the theme.
And, of course, in the first two months of this year, I'll just add what we have seen and was in Evert Jan's presentation, there was a substantial increase which he mentioned in terms of retail sales both compared to the two months of last year, which was slightly Omicron-affected, but 10% up compared to January, February of the pre-pandemic 2019. At a time where footfall has also been increasing this year, which he didn't mention. So, our footfall has gone from 90% to 93% of 2019 levels and was 10% up on the same two-month last year.
So, it's both footfall and sales that have been developing even in the first two months and we haven't seen March yet and we won't get March until middle of next month. But we've got full visibility of January and February and so far no indications of stress.
Francesca Ferragina
That's clear. Many thanks.
Evert Jan van Garderen
Thank you.
Peter Mills
Thank you, Francesca.
Operator
And our next question comes from Rob Virdee from Green Street. Please go ahead.
Rob Virdee
Morning everybody. Quick couple of questions. First one is on the secured debt market and how bank financing is at the moment? Just wondering what the spreads you're seeing are to increase and how those conversations have changed or how much spreads has moved in the last few weeks given everything that's happening?
Evert Jan van Garderen
Rob, we're very mean. I mean that's absolutely a great question, let's say what we actually did this yesterday, we signed the refinancing with Nordea of the SEK1.2 billion. What we seeing is the discussion with the banks is still normal, meaning that the message that we received is you're long-term clients, we are happy to deal with you. So, we're happy to go on. We can renew the facilities. There is space if you need some more.
New clients that's maybe a bit of a different story, because of course, it's a different proposal that has to be brought to the committees. So, that's -- if you want a bit the feeling that we are having at the moment. Of course, there's been a deterioration in the past weeks. I'd say this deterioration has not appreciated yet the discussions that we having with the banks.
So, let's say a size we can tell now, let's say is sort of business as usual. What's very interesting to see is how this will develop in the coming months because of course, is this the start of a banking crisis or is that just something we just finished? It's a bit of a question and it would be great to have crystal ball to see the effect.
If you talk about margins, I mean margins have picked up a little bit from last year, but in the order of 30, 40 basis points. If you will go to the market now, I mean in this coming months, I think that be a bit more complicated. But steel really depends from bank-to-bank.
Some of them has a completely different approach. Some banks look at it like it's Armageddon and other banks say, well, it's an interesting market for us to continue to do business. Is that an answer to your question Rob?
Rob Virdee
No. Of course and I appreciate you don't have that crystal ball. It's just very interesting has its moving. But that answers sufficiently all as much as you can do.
Evert Jan van Garderen
And Rob I think it's fair to say that in the deal we just announced in Sweden, we have worked on that already for some time, Roberto and his team, and in principle, I think in terms of pricing, we agree that actually already -- again in principle before the year end.
So, -- and since then despite all what happened, we did have to sort of look again at the pricing or renegotiate. So, it was a very stable journey, which is good and one of the things Roberto is doing is, we're not waiting until the last minute to sort of start talking about an extension or renewal. So, we're, of course, very conscious of our maturity schedule and it just also takes more time within the bank. So, you better start on time.
Rob Virdee
Completely agree. The second question is more on the operations and just obviously we can see that you've told us that indexation is being passed through with much -- without much pushback, I'm more wondering about how you see your tenants margins? Are they managing to push on that inflation themselves? Or are they being squeezed? And this just comes back to your one comment about potential some more insolvencies maybe. So, how are tenant margins?
Evert Jan van Garderen
Well, I think Rob we always -- and we have a big database and more naturally the turnover of the tenants very closely. We have them on a monthly basis. Obviously, that doesn't tell you the margin. And so that's a more complicated analysis.
And all what we can say so far is obviously the turnovers together with footfall, also with collection rates is probably a good sort of points to have on your dashboard to see what's going on.
But again, let's say in our experience so far, hardly any pushback, but that could change. I mean, we don't know what therefore; it's also interesting to see how the consumers will behave further in the year now that the interest rates are higher.
Or what we can see probably a bit is that -- because then you look really turnovers that, let's say in areas like the groceries and also food and beverage, the restaurants, there really the prices are higher and apparently those tenants are able to past the inflation on to the consumers. And I think we all experienced that when we do our everyday shopping, Rob, or eat at the restaurant.
Rob Virdee
Of course. And just one follow-on if I may. Just -- with indexation so high, I'm hearing some continental retailers or landlords t structuring their contracts slightly differently with flows and caps instead of just a normal indexation. Is that something that you guys are considering or are doing at the moment?
Evert Jan van Garderen
No, we are actually in the lease negotiations. It's all about -- of course, rent levels do matter, but it's not that we certainly have a new element caps on and it can -- you can talk about caps on rent, caps on service charge, or what have you.
So, no, I think it's a normal lease negotiation.
Peter Mills
Yes, that's true, Rob. I mean I think it also depends on the quality of the shopping centers. I mean as a negotiation you always try to introduce caps. But at the end, when you then finalized the negotiation, if you have a weaker position because maybe your shopping center or your store is not providing for great footfall and allowing great turnover stand, than maybe some more difficult negotiation.
But so far, we have had some requests. But we thank them for proposing this suggestion, but then we went on with the normal.
Evert Jan van Garderen
I think Rob that retailers are probably more interested if they can achieve that. And that's not the case with us so much. But that they want to sort of turnover-only rent, that's probably still what looking for more than trying to introduce caps or so. But anyhow, it's not something we experienced.
I mean, Peter comment on--
Peter Mills
One of two retailers in Sweden, the big crude retailers each in particular have always had a percentage the indexation, 75% to 90%, but that's really the only exception. One or two are on a turnover rent-only clause. We have some H&M examples, Clas Ohlson also one in Sweden, which obviously has a different effect. But no I mean, generally the index is -- there are very few caps.
Rob Virdee
All very clear and helpful. Thank you.
Evert Jan van Garderen
You're welcome, Rob.
Operator
And our next question comes from Steven Boumans from ABN AMRO ODDO. Please go ahead, your line is open.
Steven Boumans
Hi and thank you for taking my questions. Of course, I have a couple of questions on Woluwe and next on Sweden. First, the Woluwe acquisition, do I understand it correctly that the acquisition was regarding the entity primarily holding the department store? And it was at the initiative of this seller?
And I was wondering why they would execute the put option now? And lastly, could you please comment on the performance of department stores in Belgium, specific within low Woluwe given the department stores elsewhere are having difficulties?
Evert Jan van Garderen
Thank you, Steven for the questions. On Woluwe, yes, let's say minority stake of AG that was the result of their contribution in September 2019 of the -- part of Woluwe Shopping where department store is renting the space. So, that is correct.
Let's say they exercised their put, they were entitled to do so under the shareholders agreement and exit is always normal when you have a JV at some point. People should have the opportunity to exit if they want to do that.
And in this case, there was a put, as I said before in this conversation, we also had a call and it was let's say their decision to exercise the put and therefore, we take over their share in April. And that's fine with us because obviously it complicated a bit the total accounting for us with minority stake to report.
We have to share the income with them in Woluwe and there was a price formula which we discussed before, I think when there were some other questions, which basically takes into account the fair value of Woluwe today. So, that's different than it was when we started.
So, no, for us, its fine to take it board and stay in a much more clearer position. We have 100% of Woluwe, so then we can talk to interested parties for a long-term joint venture. And clearly also when there is the permit as well on the table, then I think we have much cleaner proposition for long-term investor on Woluwe than it was.
In terms of your question about department stores and how they're doing. Let's say of course, we can't see what the in-house stores are doing overall in Belgium, but I think Woluwe is still a nice location for them. It's in their top three or five stores in Belgium.
But of course, we also read the newspapers. And they are part of a bigger group of department stores. And yes, the future of department stores in Belgium is an interesting question, because I don't know, maybe that group might be sold to other parties or whatever. But yes, that's for us, of course, not something we can really comment on, because we don't know more than you know reading the paper.
Steven Boumans
Okay. Clear. And like you say so the within Woluwe, that's doing fine, that nowadays you don't see any risks there?
Evert Jan van Garderen
Well, let's say, of course, you always have to bear in mind that if your tenant is part of a group, the shop can maybe do very well. But that doesn't necessarily mean that you're safe as a landlord if the group has a problem, and therefore may have to close overall or stop business. Then obviously, we are also affected. But if you look at the store level performance, then we're happy.
Steven Boumans
Okay, fully clear. Then a question on Sweden, could you comment on consumer spending year-to-date there? And second question on Sweden, could you help me with your Swedish krona hedging policy? I don't know if that's in place there.
Evert Jan van Garderen
Yes. Maybe, Sweden on consumption, Peter?
Peter Mills
Yes. I think retail consumption remains very strong. I mean, there's clearly been a lot of government support, both the businesses and private individuals. Private individuals received their subsidies in February. They'll get further subsidies in May. And I think consumption remains very healthy. They've had very strong growth numbers both last year, which you've seen in the figures and which we've just confirmed for January and February.
And so, I don't see any signs of weakness, I mean, clearly, there have been concerns about the housing market and high personal debt. I mean, we tend to see that more perhaps in the very big cities and our provincial portfolio, I think, we'll probably be less impacted in that direction, if that was what was leading your question. But there is nothing so far, on the hedging policy?
Roberto Fraticelli
We have a natural hedging, Steven. So, let's say, it's a balance between assets and loans, and that balance is also interest expenses and rental income. So, you can think about 35%, 40%, of which is hedged in that way, naturally yes. But we have not in place, we have not put in place any extra hedges on the krona.
Evert Jan van Garderen
Yes, Steven, I can actually just add there that, if you want to also hedge that kind of exposure, we would always have accepted, let's say, then to maximum 50% of the total portfolio as a currency risk already for many years.
Let's say, our experience is, if you want to start hedging the currency, it's one of the most difficult things to do. And you're probably in 50% of the cases right and the other 50% wrong. So we said, why bother? And it's an open exposure. And last year, the krona weakened. It's probably fair to say, if there is a bit more turmoil in markets, et cetera, currencies, or smaller countries like Sweden, but also Denmark and Norway probably suffer a bit more in the totality.
But I'm sure that, the Riksbank is very aware of the fact that, with this weak Swedish krona, they import a lot of inflation. So they will definitely do whatever they can to keep the krona at least in a certain range and prevent the krona for not further weakening.
Steven Boumans
Okay. That's completely clear. Thank you.
Evert Jan van Garderen
Thank you, Steven.
Roberto Fraticelli
Thank you.
Operator
Thank you. [Operator Instructions]
We will now take our next question from Jaap Kuin from Kempen. Please go ahead.
Jaap Kuin
Hi, good afternoon.
Evert Jan van Garderen
Hi, Jaap.
Jaap Kuin
Hi. I guess, first question on guidance. I think two sub questions. So, just to get this straight, the guidance, includes the acquisition of the value stake and can you confirm that there's no disposals or other kind of capital rotation included in the guidance?
Evert Jan van Garderen
The guidance is based on, indeed, had the portfolio as it is today and also including the acquisition of the minority stake, which basically -- that's quite a marginal effect there because on the one hand, of course, we have to fund it this price. On the other hand, clearly, the minority stake had also a return -- had a return on the shares in the Belgium subsidiary. So it is a marginal effect, but it is included in how we see 2023.
Jaap Kuin
All right. And the second leg of the guidance. So, obviously, you showed around, I think, €3 million of cost increases year-on-year, thinking about inflation still being at peak levels. What type of SG&A and operating expenses increases that you roughly pencil in for this year?
Evert Jan van Garderen
Well, we just, let's say, went with the estimate of inflation that we used also for the rental income. So, let's say this is based on what we believe would be, of course, the reflection of the -- the cost of inflation. So that's more or less, let's say, what we used. Of course, there is also an impact, Jaap, as you know in the service charges: the service, share income, service charges expenses and then there is a delta of the service charges, which are for our own costs. So, that's also an effect
Jaap Kuin
Sure. Yes. Okay. Clear. Thanks. Then one clarification one, you stated margins, 30, 40 bps higher, could you just remind us about the kind of what -- where that leaves the margin on an absolute level?
Evert Jan van Garderen
That's of course, still sensitive information, Jaap. We are always in discussion with banks, always talking about pricing. So I think we -- as Roberto rightly did, he gave a relative comment, but absolute levels, I think that's still a bit in-house knowledge, which we rather not share. But it's -- but it's not a big increase.
Jaap Kuin
Of course -- sure. And then maybe more generally speaking then, I mean, if you would give me an estimate of your -- what we should put in our models from, let's say, the incremental cost of debt for the entirety of 2023. I mean, can you indicate what the ballpark should be?
Evert Jan van Garderen
Well, I think it's probably much more relevant to look really at market interest rates. So, I don't think that the pricing of banks will make a big difference in the totality of expenses. It's absolutely the market interest rates, which now make the difference.
Peter Mills
No, that's true. That's also the comment before from Rob. I mean if you look at the average interest rate that, we had in 2022 that must have been around zero. And just to give you a number. With the average interest rate be in 2023 will be around 2.5%, 3%. So, this is really the big impact that we're looking at.
Evert Jan van Garderen
Last summer, Jaap, we were looking at a three month Euribor of minus 50 bps still, today it is 3%. So, that's a huge, huge spike in absolute terms, but relatively unheard of. I think in the Eurozone or at least even if you go back maybe to the – give us that period. But, so I think that's the game changer really.
Jaap Kuin
Yes, of course, of course, all right. I'll go back to that offline. And if you I look at capital allocation, so obviously there's no secret, you -- longer term, you plan to JV or partner up on Woluwe. In terms of timing, obviously current markets are kind of closed. Is this something really we should forget about for 2023 or 2024? Or in your planning, what would be the relevant timing for such an event?
Evert Jan van Garderen
Yes. Well, I think, as I said before, it's important that we also have more clarity on the permit, first of all, that we have it finally; secondly, can we use it, that is probably in Brussels also a very relevant question. And together with 100% ownership -- and also, I think, it's fair to say, we are very active in Woluwe with the leasing.
Last year, we did some nice leasing deals also on the mix of that. And we're working on a further improvement of the mix and the overall attractiveness of the mall. So, I think during 2023, all those kind of actions and preparations are really aimed to, yes, to have a look forward for, and yes, make it more attractive for a long-term partner, so that also has more, let's say, security less uncertainties about stepping into Woluwe for the longer term.
I think that is our job to make it really understandable and then I think, there's still a market for this kind of nice long-term institutional investment in property. I mean, it's a first-class property. It has a very good reputation. And yes, I think that's something we have to work on. But if you ask us, will you JV this already before the summer? The answer is no.
Roberto Fraticelli
I mean, there are some forward-looking investors, but that would surprise us.
Evert Jan van Garderen
Yes.
Jaap Kuin
All right. It makes a lot of sense. Then maybe, finally, also as you're giving somewhat more disclosure on your ESG targets. Can you already put a number on the total ESG related CapEx required in your portfolio until 2030?
Roberto Fraticelli
Let's say, if we look at it, Jaap, let's say, we've been investing in ESG now for the past three years at least. And it also depends on several things, which is let's say, the national legislation for example and that can be impact -- that can have an impact in several ways. I mean, if the European guidelines are implemented in a more stricter way then of course, there is a higher cost. But also -- and that's also the example that we saw in Italy and we also in some other countries. You also have a contribution by the government, for example, 65% to 75% of the investment is then supported by the state, because you are putting your ask more green and all of this.
And in some cases you can think of solar panels or other stuff. It is an investment which then gives you an important yield also for the long term because, of course, you are switching from service charges, tenants pay on electricity costs to electricity, which is basically provided for free whereby the only cost is then the amortization of the plants that you have installed.
So there are several cases. And at the moment, I mean, the -- we have made an estimate of the ESG interventions for the coming years, but it's not huge. It's not a big amount. And as I said, it depends also the timing of the investment, depends the authorizations that you need to have from the local authorities to go ahead with certain investments.
Sometimes, when you're in ownership for example, with the hypermarket you also need to agree with the upper market, the investment, when and how much. So it's a lot of variables, which so far, we have seen -- I mean, it all goes smoothly, because we are left to go into that direction. But the amount of investment so far has not been a huge amount. And as you've seen, we have already been certified in our centers.
Jaap Kuin
All right. Thank you very much.
Operator
Thank you. And it appears that we have no further questions in the phone queue. With this, I'd like to hand the call back to our speakers for any web questions. Thank you.
Luca Lucaroni
Yes, we have a few questions here.
Evert Jan van Garderen
Can we see them on the screen?
Luca Lucaroni
Okay. Yes, there are a number of questions on Woluwe, but I think about the extension, et cetera that is something we talked about.
Evert Jan van Garderen
Yes. There's one also about the solar panels. That's from our investor, Antonio Mckoy [ph]. And let's say -- I'll read the question out.
Luca Lucaroni
Yes.
Evert Jan van Garderen
So, solar panels. In Sweden, we have quite a few solar panels in France and Italy, the yields of solar panels is much higher compared to Sweden, due to more and more intensive hours of sunshine. In addition, solar energy can in France and Italy also be used in summer for air conditioning, why is the investment in solar panels in France and Italy lagging behind compared to Sweden?
Peter Mills
Yes, perhaps a simple answer on that is, I mean, legislative -- well, first in terms of ownership we own 100% of the centers. So, we don't actually have the complication that Roberto mentioned with the hypermarkets. You're right. We did get on with it. Legislation is in favor of doing it. We have solar panels on every roof of the Swedish shopping centers, and it produces around 10% of the energy consumption in those centers and picking up on Jaap's earlier question, very little actually in terms of direct capital expenditure because the energy companies take it themselves. So, that's what it confirms Roberto's point in terms of the low CapEx. But no, you're correct, we have been able to get on and do it very efficiently in Sweden.
Evert Jan van Garderen
No, that's correct. And in Italy, as we discussed, because we discussed this already, I mean -- and in France, we are late with the legislation. Let's say, it's cumbersome. It's not clear. So, we are trying to do with the new government is also to try and get a legislation which streamlines the possibility of becoming greener and that includes also, the possibility of producing electricity and consumer electricity within a certain area or a group of investors.
So there are steps which are being put forward. Unfortunately, there, let's say, we do not have control on this, and we are waiting hopefully, and I'm looking to look at consolidate. He's our [indiscernible] let's hopefully, by the end of June, we might have some good feedback on the legislation and that would enable us go ahead. I mean, we have already done all the pre-studies and all the rest. So, that's all work, which has been prepared. For concerns now, we are implementing what can lawfully be implemented. But of course, we hope that the legislation change will be picked up soon. Okay. Then, we have --
Roberto Fraticelli
I think yes, there is a question on the return on the additional investment when we buy this minority stake. And basically, what will happen is that, where we today have to report the minority stake in our books and also had the share of the direct result, for example, also the indirect result, which is going to the minority stakeholder. We disclose that every period that share is actually our return.
So I think that's the way to look at it. It's not that we are buying a certain property and then get a certain rents. Now, we already have the totality of our in our books and whatever value is producing, a 25% share of that is going to the minority shareholder and that's no longer the case. We get that now. So, it's up to us to improve that return further for the near future. I think, there are a few more questions from other investors.
Evert Jan van Garderen
The rental income in – yes, if you can click on that. That's why I look at the question.
Luca Lucaroni
Mr. Hobel.
Roberto Fraticelli
So there is a question from Mr. Gerben Hobel [ph] and that's about – and I read it in its entirety. Yes. Okay. So rental income Q4 Italy is €2.1 million lower than in Q3. What explanation is there for this?
The explanation is concerned – it's quite technical, and it concerns the IFRS 16 that was applied in Italy. You might remember when we gave rent concessions related to the COVID-19 measures I'd say, in all -- in our countries like Belgium and France and Sweden, we were able to use IFRS 9. So, that allowed us to take the full cost within the fiscal year.
While in Italy, since it was forward-looking concessions that we gave, we had applied IFRS 16 measures, IFRS 16. That means that only part of the cost was included in the accounts of the financial year and 2019, 2020. And the rest had to be amortized over the length of the contracts. And what we then had was that -- we were supposed to have this amortization of the cost for the coming six years.
And we said, well, let's do something nice and that let's take the entire cost this year. So, what you see the difference of 2.1, reflects a lower amount of and higher costs let's say, related to an extra amortization of the COVID-19 concessions of around €4.1 million, well concerns IFRS. And that's within that €4.1 million then you see the lower point – the lower €2.1 million in renting. I hope that, answers the question. Yes. And then solar panels, we did.
Luca Lucaroni
We have a question also from Jean-Pascal Roland. See here, could you update us on your developments and extensions of your two shopping centers around Geneva, please?
Peter Mills
Yes. Well, in terms of -- it probably is a very easy one. We've done it. We opened in June, the two restaurants which are in a separate building adjoining the shopping centers, and they opened well and trading very well. So, there's no further extension possibilities. It's only a very tight side, with the river and the motorway. We wish, we could do more, but it's trading well, it's doing well and we've done some nice tenant changes there, don’t worry, we're continuing to investigate carefully both in terms of cost and timing.
The Phase 1 the closer -- the Phase 1, which will be perhaps the closest to a realization, it would be the move of Leroy Merlin from the existing older building. They have adjoined joining the shopping center into a site we acquired some years ago and we're looking very hard at that, particularly the costs, which have moved materially.
I think there will be some decision on that Phase 1 during the course of this year. The bigger project where there are some quite significant pre lettings as well is going to be more challenging, both technically, but also in terms of planning and just what else is happening in commercially in the area before we take that decision. There's quite a big cost particularly in underground car parking. We don't have a generous site there. But the center is trading very well. So, I think that if you hear further news from us, it's likely to be possible transfer of the Leroy Merlin and the Phase 1 of that project.
Evert Jan van Garderen
Yes. Okay. Then we have EPRA NTA question, yes, okay. That's a question for -- from Paul, I hope I speak it correctly. Could you please just detail the negative fair value effect of financial instruments on your EPRA NTA? Shouldn't the opposite with interest rate going up? Thanks a lot.
Well, that's in the definition of the EPRA NTA. So, we have to exclude the effect of the fair value financial instruments and that you see for example, at page 20 of our press release then you see the effect, for example, the financial -- fair value financial instruments. It went from, let's say, a negative, therefore a positive correction in 2021 of €90 million into a negative correction of €48.7 million that's why you see the effect. I mean, in that table we try and give a clear explanation. Let's say, of the effects and the calculation of the EPRA NTA.
Luca Lucaroni
Thank you. Yes. And then we have a question from Niko Levikari. What are you seeing at the moment in terms of financing covenants for new facilities? And can you give some indication of the levels you will see for covenants like cash traps? I don't think we have cash traps, Roberto?
Roberto Fraticelli
No. I mean not yet, fortunately, but what we do see is the increasing interest in green loads. So, what we are is we are discussing with banks they're asking, can we introduce some measures, it's metal introduced to and to make your finance green because that's also as important effort their classification within the their own classification of the assets that they have in their books. So, that's a bit what we are seeing.
Other financing covenants at the moment we haven't seen. I'm just checking, with everybody. But so that's mainly the thing that, we are seeing so far. Just concentration focus, more focus on the green than there was before and that's a positive impact also because – as we've mentioned before, the assets are green and so that makes it easier for us to enter into green loans and facilities. And that's a positive development yes.
Luca Lucaroni
Okay. Well, I think also being conscious of time there are a few more very small, but rather detailed questions, which we probably can deal with by e-mail. So, and I don't think, is there anybody else who will ask a question over the telephone? No, I don't think so. So yes, I think we therefore can conclude this conference call, and thank everybody for participating.
Evert Jan van Garderen
Thank you very much.
Operator
Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
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Eurocommercial Properties N.V. (EUCMF) Q4 2022 Earnings Call Transcript