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Edited Transcript of ECMPA.AS earnings conference call or presentation 5-Feb-20 10:00am GMT

Half Year 2020 Eurocommercial Properties NV Earnings Call

Amsterdam Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Eurocommercial Properties NV earnings conference call or presentation Wednesday, February 5, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Evert Jan van Garderen

Eurocommercial Properties N.V. - Finance Director & Member of Management Board

* J. Peter C. Mills

Eurocommercial Properties N.V. - Member of the Board of Management

* Jeremy P. Lewis

Eurocommercial Properties N.V. - Chairman of the Management Board & CEO

* Pascal H. Le Goueff

Eurocommercial Properties N.V. - Head of Eurocommercial France & Director

* Roberto Fraticelli

Eurocommercial Properties N.V. - Member of Board of Management, Director of Italian Operations & Company Secretary

* Valeria Di Nisio

Eurocommercial Properties N.V. - Property Director of Italy & Group Leasing Director

* Valerie Jacob

Eurocommercial Properties N.V. - Director of IR and Corporate Development

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Conference Call Participants

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* Amal Aboulkhouatem

Banque Degroof Petercam S.A., Research Division - Research Analyst

* Jaap Kuin

Kempen & Co. N.V., Research Division - Deputy Head of Real Estate

* Niko Levikari

ABN AMRO Bank N.V., Research Division - Research Analyst

* Rubinder Singh Virdee

Green Street Advisors, LLC, Research Division - Analyst of Research

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Presentation

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Operator [1]

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Welcome to the Eurocommercial Half Year Results for 2019 to 2020 Conference Call. I would now turn the call over to Valerie Jacob, Director, Investor Relations and Corporate Development.

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Valerie Jacob, Eurocommercial Properties N.V. - Director of IR and Corporate Development [2]

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Good morning, everyone, and welcome to our H1 results presentation. Our speaker today are going to be Jeremy Lewis, our CEO; Evert Jan van Garderen, our CFO; Pascal Le Goueff, Director of France; Peter Mills, Director of Sweden; and Roberto Fraticelli, Director, Italy. In addition, for the Q&A, we have with us Valeria Di Nisio, who is our Group Leasing Director; Caterina Liori, our Group Economist and also Head of Research.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [3]

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(foreign language). All right. Okay. Well, I think that we may just start. Well, you've all received, I think the -- well, I'm sure you have the interim report, which covers things in some detail. But in summary, I think the last 6 months, despite problems in the world, are not bad at all. I think our earnings, the first half earnings of EUR 1.19, you could decide to double to get the year, but what we said is that, certainly, in term of dividend, which is well covered, we believe, that it will not be less than last year, which was, of course, EUR 2.18 for the whole year. So we see no reason to change that.

We have, and we'll come back to it later, some properties on the market at the moment, where negotiations always take longer than they should, of course. But then unlikely to make a huge difference to these numbers. The thing that people seem to be worried about most in our portfolio is not our income because I think it's generally accepted that our -- and I have to say, because on the ground, we have superb management teams, that our vacancies are minimal. In terms of floor area, they're 0.7% or something because I see one analyst said "Oh, they might be higher if you don't do it on net income." Because I agree with whoever said that. But actually EPRA measure is, looking at future income, is not terribly reliable. I've never liked it. So I agree with the comment. But actually, you can see it if we do it on floor area, actually our percentage is lower, not higher.

So property income, yes, up. Don't forget, though, that we sold the Passage du Havre, in fact, at the end of September. So that income is not there. Just as a matter of interest on valuations, it's actually up slightly. So I think our partners, AXA, are rather pleased with their purchase. But that's because the yields are actually, despite some other comments, have gone down, not up. It was valued at 3.6%, partly because income is up slightly too because of indexation. That's on the side.

So our NAV is EUR 43. But of course, the thing that worries us more than anyone, I'm sure no more than many shareholders, myself included, the discount on NAV is huge. We're trading at EUR 23 something this morning, up slightly. But everybody suffered. I know, even of course, we buy Westfield. The market, I think, has not properly distinguished between what's happened in the U.K. and the U.S. and our markets, but I'll come back to that later.

So rental growth up. Better this period than last. Obviously, we have some pluses and minuses. We clearly, in France, which Pascal will talk about a lot more, we had the problem of the transport strikes, which, of course, mostly hit Passage du Havre, which is relied upon the -- it's got a major connection between the RER and the metro system. And of course, the Gare Saint Lazare. So the transport, which is both buses and trains, was a disaster. So I saw one analyst comment that the turnover was down 25% or something or 30% in high streets in France. Well, that's very much only in December, and that was very much only because of the transport strikes.

So our lift on lettings and renewals. No, I mean it's -- we've had better periods, of course. But again, at 9% overall, I don't think that's bad. Overall, rental growth like-for-like of 2.4%. I think in the circumstances, average inflation in our market is around 1.5% -- 1% or 1.5%. And we're probably expecting something similar this year.

So no, I think, all in all, at an operating level, we're never content. And we always worry like mad out about everything. But I think in the circumstances, they are creditable results, and absolute credit to incredibly hardworking teams we have on the ground. You can see -- and again, we will get a greater detail from the individual countries. But overall, 2.4% rental growth. Belgium, 1.7%. I'll come back to Belgium later. We've obviously been doing a lot of work in Norway. France, 1.7%. Italy, 2.6%. And Sweden actually has been a bit of a star, 3.1%, but then they're all broadly in line.

Our OCRs. We talk about a lot. You can see they're much higher in Brussels than they are in the other countries. They were, when we bought the property, they're coming down slightly now because the turnover is only increasing because we're doing an immense amount of work there. We've spent already about EUR 5 million on an internal upgrade of the mall. Again, I'll come to that in detail.

But Woluwe is quality city center. It's not in the center. But it is, as you all know, on a metro line. I would call it a wealthy inner suburb, if you like. So the OCRs, there are somewhere between the typical suburban center of sort of 9% or something, 8% or 9%. And the 20-odd-percent or 25%, in some cases, you'll get in the Passage du Havre. So no, we -- I'll talk more about that later. But no, the average of some other of the property companies, probably our average will be around that 14%, 15%.

Retail sales growth patchier. Obviously, in France, it was very much affected by the strikes, unfortunately. But I'd like to say, and Pascal will note that -- that they're largely -- overall, I think transport they are but there seem to be guerilla strikes as well at the moment. So we shall see. But I expect to see Macron to, in the end, win, but Valeria can no doubt comment better than I can.

No, I mean we're very much carrying on our day-to-day business. We're making sure that our shopping centers are interesting to people. We put on a lot of events. We ensure that our customer services are absolutely first rate. And Roberto, particularly, will talk about the things we're doing in digital innovation with things like CRM and the work we've done with Amazon and Alipay and all the rest of it. The important thing to note, though, is that was as I said in the interim reports introduction, that whereas -- there used to be a battle within retailers between online and physical. They are now combining them very much. And they are discovering, they are mutually complementary and helpful to each other. So that people do return and our total return goods as they want to, which can be quite a lot switching shoes to the shops and they can pick up goods from the shops. We have pickup stations for Amazon and others in our centers just to include the traffic.

One of the stars throughout our portfolio and the major difference between us and the U.S. or the U.K., it's a fundamental difference, is the majority of our suburban shopping centers are anchored by hypermarkets. Of course, they're reducing some of their areas of non-food. But they ensure regular visits because most of them do not deliver. And it does encourage traffic. Whereas, of course, most shopping centers in -- out of the U.K. or the U.S. that anchored on department stores, in which there are too many. And obviously, in the U.K., they're all going bust or most of them, completely and utterly different. That means that whereas people are talking about replacing retail or retailers have become [renty] with other uses, we're not.

When we're talking about as we are with adding hotels, we're adding to the retail. We're not reducing in the retail at all. Now of course, you change fashion, midrange fashion, the [cameos], et cetera, et cetera. In France, there are too many of them, I suppose, in that mid-range that are not particularly distinguished. But otherwise, we found in every case where we have a vacancy, even if it is fashion, we can replace them either with a different sort of fashion or other sorts of uses. Interesting that in Woluwe, for example, the turnover per square meter of some of our restaurants there, which are a mixed bunch, I have to say, and we've got to improve them a lot, is often higher than some of the fashion stores. So the comment that has been made that you have to reduce your rental income because fashion is weak is not true. And we can demonstrate that very clearly.

Clearly, if you're going to put in a huge firm foothold with one tenant as one did in the old days with a Flunch, then the rents will be low. But that's not what we've done, particularly in [Courir], where it's quite -- I wouldn't say revolutionary, but it is a food emporium, if you like, with lots of different restaurants and beautifully done. But mostly with access to the main road, the other side of which is a major retail park. So its objective is to bring people into the center, not to service people that are already in it. And it's been a great success.

We clearly -- we're very proud of the work we've done with the graze ber green scores with EPRA. And we make considerable effort, obviously, as you can see to ensure that we are reducing our environmental impact where we can. Of course, we are. I suppose it's something perhaps we have chatted about too much in the past because we've treated it as something an obvious and decent thing which you must do and we always have done.

So -- but looking forward then, I'll try to keep this introductory summary as brief as possible because the people that matter are the people on the ground. And those -- mostly Evert Jan van Garderen, who tries to keep everybody under control. No, but I think looking forward to the next year, we don't expect values to decrease significantly. It's interesting that in France, now I have to be a bit careful here, otherwise I might get shot by someone. But we hear rumors in the market that the large portfolio that [Levi] put on the market has found a consortium of buyers that are largely major because it would have to be French institutions. I found it fascinating that they are really coming back into the market for half a dozen shopping centers.

Now they've all gone into this portfolio, we don't know. But we hear whispers around the market that it might be a couple of billion this quarter, who are centered in France. But the major responsible institutions who are now benefiting from the increased savings ratios in France are very keen to invest in property still. And we -- look, it's a guess. But again, market rumors, can you trust them? I don't know. But there's a mixed bag of properties in that portfolio. We believe, including (inaudible) which a lot of people are worried about. But we understand that yield is 5% or thereabouts, which we think is definitely reasonable. So we don't expect that markets -- in any of our markets, again, to plummet in the same way they have in the U.K. And don't forget, in the U.K. they're plummeting for a very good reason. And that is because the rents are plummeted and the vacancies are increasing dramatically, even in Westfield, I believe.

So circumstances are completely different, the whole structure of the market is completely different. So I just ask any analyst who's interested and we'd be delighted to show you our properties, and you can have a look at themselves and make your own judgment. But clearly, of course, we're prejudiced. We believe in what we're doing. And as I said, I think looking forward to the next year, of course, with all the worries about the economy in China and what effect that will have on business in Europe, the supply chain, obviously, goes to China. There's always some problem everywhere, of course. But some -- overall, I think we're expecting -- and Caterina, you may as well correct me, but I would've thought we're looking at GDP growth around you, some of you, 1% and 1.5%. It's nearer 1%, she said. All right, which is not very exciting, but they're I think reasonably solid. At least it's not going backwards. There's always a chance of that.

And I suppose if that supply chain with this wretched virus really does get impacted, that might increase unemployment, something you've got to consider. But overall, in our markets, some of which have a higher supply of property than others, and that's a great attraction. Of course, with Brussels, it's a very low supply, I suppose. Then we're looking forward to the next year with a steady enough outlook, reasonable confidence.

On that cheery note, I'll shut up and hand over to Evert Jan van Garderen. Evert Jan?

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Evert Jan van Garderen, Eurocommercial Properties N.V. - Finance Director & Member of Management Board [4]

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Yes. I'm here, and I would like to say a few words about the valuations of the property portfolio and the funding of the company, and also something about the upcoming first interim dividend in April of this year.

The valuation of the profit portfolio as at the end of December was flat compared to the valuation in June 2019, evidencing how resilient the portfolio is. In Belgium, the contribution of the Inno department store in September of last year at a valuation of [EUR 67 million] was reflected in the increase of the value of the Woluwe shopping center for the same amount. In France, 5 individual property valuations were marginally down. And in 6 cases, individual property values were slightly up, like in Chasse Sud, Bordeaux and Val Thoiry. A very small increase in net initial yields of around 10 basis points resulted in 0.3% decrease in value of the Italian property portfolio.

And in Sweden, Hallarna in Halmstad and C4 in Kristianstad increased in value for about 3% as the extension and building works have now been completed and the shopping centers are fully occupied. This increase was neutralized by the slight increase in yield for other Swedish assets. The company's development pipeline is very limited, with currently only EUR 38 million of committed capital expenditure to be spent for 3 projects, Valbo in Sweden, Fiordaliso in Italy, and Etrembieres in France. All other potential development opportunities for assets in all 4 countries are being studied but are not committed.

In September, we prepaid with the proceeds of the sale of 50% of Passage du Havre, a loan of EUR 170 million granted by ING bank, which loan was maturing in 2022. This improved the maturity profile of our loan portfolio significantly and provides for a sound spread of maturities for the coming years, with now only a larger part of the loan book to be repaid in 2025 and in 2026.

In the second half of 2019, no loans were maturing. But we already started with the negotiations for new short-term and long-term loans, which we expect to close in the first quarter of this calendar year. There's only one loan maturing in Sweden and one loan maturing in Italy, both in July of this calendar year for a total amount of EUR 100 million. But we started with the renewal process already with the banks.

And we experienced that there is still a lot of appetite from banks to finance retail properties, especially first-class assets on good locations. Terms and conditions offered are also similar to transactions we completed in the past. And the current interest rate environment, with a 10-year swap rates in the Eurozone below 0 and the 10-year swap rates in Sweden below 50 basis points, is still extremely attractive. And benefiting from these attractive market interest rates, we expect to be able to maintain the overall interest rate for the loan portfolio at 2.1%.

Currently, the average term of the loan portfolio is just over 5 years. And interest costs are hedged for 83% for an average term of just over 6 years, mostly by interest rate swaps, although the number of fixed interest [coupon] loans in the loan book has increased.

The adjusted net equity position of the company stood at EUR 2.2 billion, which is EUR 50 million lower than in June. But that's due to the dividend of EUR 94 million we paid in November. The net loan to property value ratio increased to 44% from 42% reported for the first quarter. But that's, as I said, entirely due to the payment of the business. Other property sales are planned to reduce the company's loan-to-value ratio again.

At the Annual General Meeting of Shareholders in November, the new dividend policy was discussed and welcomed by the meeting. And the plan is to announce the interim dividend amount on the 31st of March of this year. And the interim dividend press release will also include the option to elect a stock dividend and, of course, the issue price for the stock dividend. It is likely that we will only offer a maximum number of depository receipt being equal to the treasury depository receipt we currently hold. And the interim dividend will be payable on 30 April. The final dividend will be announced with the publication of the annual results at the end of August. And the payment of the final dividend is on 30 November. As stated in our interim report, the total dividend in 2020 will be no less than it was in 2019.

And that concludes my brief observations. And I would like to hand over to Pascal Le Goueff, who will talk about France.

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Pascal H. Le Goueff, Eurocommercial Properties N.V. - Head of Eurocommercial France & Director [5]

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Thank you, Evert Jan. Good morning all. So let's start with economics for France. The French economic fundamentals are rather solid. On the employment front, the French economy is on track with unemployment down to 8.3% in metropolitan France. Spending power is increasing thanks to the latest government fiscal measures, which include the removal of the housing tax and the reduction of the income tax for the vast majority of the household, about 80%.

The good news come from the housing market, which has been weak for years in France and which is now rising all over France, over the past 12 months, price were up plus 2.2%. Paris is plus 8% and Lyon is plus 11%. However, industrial actions such as yellow vests last year under strike against the pension reform this year have delayed the positive effect of this good news on the performance of our center.

So let's talk about retail sales. In our center, they were positive overall with -- at plus 0.2% over the past 12 months despite the strike, which started early December, the 5th of December exactly, and disrupted the Christmas sales. [Cocos], the major tenants association, has announced minus 18% in December in Paris due to the strike and minus 33%, I think, in railway station.

Nevertheless, our sales were flat over the past quarter, thanks to a strong November with an excellent Black Friday. The best performance in our portfolio are our greater Geneva assets, Val Thoiry and Etrembieres with, respectively, plus 3.8% and plus 2.7% retail sales growth over 6 months. And they were less impacted by the strike in December.

Rental growth. Like-for-like rental growth for the 12 months to December was solid, plus 1.7%. Relating and renewals have produced 5.3% rental growth from the 51 deals we made. Rates are maintained at a low level with plus -- with 1.1% over 90 days.

In terms of demand, the retailer demand. They continue to expand into sports, in the food and beverage and the health and beauty sectors. We see strong interest from retailers, such as Courir. We signed a lease in Passage du Havre. We also signed a second in Woluwe, which is not far from France. The group Intesa also show strong interest in 3 of our centers, as well as from Sephora and [Fnac] are showing interest on one of our center. Normal, which we have installed in Passage du Havre, the Danish brand, is looking also at 2 of our centers. In Etrembieres, we signed a lease with the group Agapes, a French food and beverage operator, which will operate 2 restaurants, il Ristorante and Les Trois Brasseurs, on 1,600 square meter.

On the other hand, demand from fashion retailer, especially from the national brands such as [Carmila, Etam,] (inaudible), is weakening a little bit and they turn to rightsize their physical footprint. In terms of vacancy on the portfolio, we have 12 vacant units out of 500, with most of them having received serious offers from retailers mentioned previously.

On valuation. The value of the French portfolio has increased by 0.8% compared to last June and by 1% over 12 months. Over the past 6 months, yield on some assets increased but it was more than offset by rental growth. The investment market for retail assets was quite active, quite dynamic with more than EUR 6 billion transacted in 2019, which represents an increase of 25% compared to 2018. Major transaction, obviously, there was Passage du Havre and [Italy do] for shopping center, reflecting a yield of 3.7% for Passage and 4.1% for Italy do .

To be mentioned as well, the sale of [quatorze sim avenue], which is a retail park developed by Altarea located in Herblay in the Val d'Oise, those suburb of Paris, but far from Taverny. It was sold to (inaudible) at a yield of 4.4%, and it was an interesting landmark for our value. We had also some transaction in I Street sector in Avenue [Montaigne] with 3 retail units sold by BlackRock to U.S. at a yield of 2.75%. And in Lyon, at the end of the year, [M&D] bought from [Adia] 40 buildings for a total amount of EUR 680 million, reflecting a yield of 3.8%.

In terms of project, we mentioned shopping at Etrembieres. Our project in Etrembieres is fully let. And we plan to start building works in March. Completion is expected in June 2021. Passage du Havre, we have operated a full remerchandising at the lower level with new brands such as Normal, Courir, Maisons du Monde and Rituals. And finally, Les Grands Hommes. You can see on the foot on the presentation that we have redesigned the external facade of Les Grands Hommes. We have installed a glass canopy above. And a new -- above, a new stone floor to create a nice external promenade around the center. And the first floor, the totality of the first floor has been let to Regus, which will occupy 1,700 square meter at a rent over treble the previous level.

So it's on that positive note that I hand over to Jeremy.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [6]

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Can I just add, talking of yields in France. I mean, obviously, Pascal has talked about the very low yields in Avenue [Montaigne] et cetera, et cetera, which is interesting because that's a UBS. And some parts of UBS seem to believe in retail, some don't. But there we are. That -- it would appear that office yields are now, for prime offices in Paris, in particular, are now 3% or even more. Is that right, Pascal?

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Pascal H. Le Goueff, Eurocommercial Properties N.V. - Head of Eurocommercial France & Director [7]

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It is. It's about 2.8%, yes.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [8]

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So and within warehouses, is now around the 3% or 4%. It's interesting that there is significant demand for office and warehouse property. And I wonder whether a lot of the hesitancy on retailers because the institutions are not geared to manage shopping centers. And that's why, I think, you'll find in the end if the CD by deal rumors are correct, that (inaudible) will be staying in for a percentage, and we'll be managing the portfolio for the consortium [at bars] if that is the case.

And I think that's always been the case, really, that transfusions have never been very interested in retail because you need to spend so much time and effort day-to-day, so they need competent managers. And it's always best to have a competent manager who's got a real interest in the portfolio by having a percentage.

Okay. Well, I might then talk about Belgium, should have done that before Pascal because it's big, big and we get it before prompt.

Now Woluwe, obviously, is up by far, our most expensive center. [We knew that] yield was going to be low. We believe it has huge potential. But of course, unfortunately, it's been rather neglected over the last probably 50 years since it was built. And AGR people we respect immensely who are very solid, very good organization. We will out any particular interest because they have very wide portfolios in retail. For example, when we bought center, I think, arrears for rent were around 6% or 7%. They're now down to our normal, below 1%. And that's just attention to detail and having proper systems.

We spent about EUR 5 million in the last 4, 5 months on -- maybe 6, on a complete refurbishment of the mall, the interior of the mall. Because we've been spending a lot of time, obviously, on getting the planning consent registered for the extension, which is about 8,500 square meters net of retail space, but with an additional 100 apartments you'll remember. And the yield on that could be a minimum of 8%, we believe, if we retain the apartments. Because, obviously, the yield on those will be about 3% on yield. Or if we decide to sell them. Well, we haven't decided yet what to do of the yield, it could be up to about 10%. But clearly, the center has suffered over the last few years from the chaos of all the road works, all the tram lines we put in. And you can see, retail sales are now increasing. We believe we can do a lot more. Our leasing team in Woluwe is, obviously, supervised, encouraged and improved. The presence of that area a bit easier. And we have put a number of new brands in, of course. And there's more to go.

One of the problems we have there is -- and it's a dreadful phase. I don't know whether that area invented it or not, called refugees. In other words, because we're -- the new mall will enter the existing mall at a certain point, we have to remove to them, so we can do that. And then reinstate them. So there's been a lot of negotiation going on there. And in some cases, we've had to be nice to the tenants because they've got leases, and we have to recompense them. But that's all part of -- and it's costing -- costed properly into the cost of the development, which we're still producing yields I've talked about, where we're looking at improving the food offering there.

Remember my comments about how important hypermarkets, and in this case, a supermarket is. We'd like to have a larger one and perhaps a better one. The department store, the only one we've got in the whole portfolio there, I'd be delighted if they weren't -- we can do a lot more with that, I think. We're thinking about the -- really, because one of the most important refugees is a little retailer called Zara. So we don't want to move, and they're quite tough negotiations, quite rightly. And so we're looking at moving them temporarily or permanently. And so there's a huge amount of work being done. The exterior of the center, we're not doing much with for the moment until that new mall goes in. It's going to be, I'm afraid, because of the Belgium planning system is very complex. I'm tempted to say even more complex than Italy, but that might be a challenge.

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Roberto Fraticelli, Eurocommercial Properties N.V. - Member of Board of Management, Director of Italian Operations & Company Secretary [9]

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That's the challenge.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [10]

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But we are getting on with it. There is great enthusiasm by the various authorities. This is going to make so much sense because of its wonderful transport access and being in one of the wealthiest areas of Brussels. So anyway, we're battling on then, there. I hope that the formal consent will be accrued, we think, within 15 months but who knows. But anyway, we'll keep you up to date. But so far, so good. No, we're enjoying -- the great attraction of that central park, we hope, rental growth. It will come in better now. We're really involved is its safety, if you like. Because we've actually replaced some smaller centers that we sold with this, which is thought, in terms of its position, the lack of retail density, which is incredibly low in that area and probably the safest investment we've got. But of course, that's why the yield is low, you can't have it both ways. Anyway, so I'm very happy with that.

So I'll now shut up again, and hand over to Roberto, who will talk about Italy.

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Roberto Fraticelli, Eurocommercial Properties N.V. - Member of Board of Management, Director of Italian Operations & Company Secretary [11]

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Thank you very much, Jeremy. Overall, I think a good set of results for Italy. The news, let's say, the elections in Emilia-Romagna and Calabria, has shown a significant shift in several -- the lefts than the right. So we might think that the populist parties, which have lost a lot, they might not really want a early election and -- in the short run.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [12]

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If you think, Roberto, it -- you're turning to type. And mostly, it's always been a sort of center-left or center-right move. It's turning back towards the center.

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Roberto Fraticelli, Eurocommercial Properties N.V. - Member of Board of Management, Director of Italian Operations & Company Secretary [13]

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Correct.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [14]

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This is good. Yes.

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Roberto Fraticelli, Eurocommercial Properties N.V. - Member of Board of Management, Director of Italian Operations & Company Secretary [15]

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Yes, I mean you never know the populists. I'll talk about it. No, it's very interesting. It's an interesting moment. But the message, I think, is clear from this election. And what else? Unemployment in Northern Italy is still a good 5.7% in October. If we look at the real estate market, what Savills said that the real estate volume in Italy is a EUR 12 billion transaction in 2019. That's a record. Around 50% more than in 2018. But mainly was related to the office and the hospitality sectors, so there was around 70%. While the real estate volume was down to EUR 1.9 billion, so it was less than 2018. And it mainly involved high streets and outlets, so nothing really comparable to our portfolio. But nevertheless, as Evert Jan mentions, we had a shift in primary yields -- in yields for primary and core shopping centers of around 10 basis points. So we're up to 5.2%, which, if you combine it with an 8% OCR, I do not think it's a very bad combination at all.

Retail sales in Italy for the year were up 1%. There was a significant contribution by the medium unit. In particular, we opened new larger stores, including 2 new Bershka and 3 enlarged H&Ms. Retail sales were very good in the last quarter. They were up 2.3% in November, and that was thanks -- sorry, in the quarter. That was really thanks to a strong Black Week in November, which really helped. All center turnovers are up. The only exceptions are [Commerciale daliso], as you would expect, the construction works. But the trend has now reversed after the opening. So we're looking forward to see the results. The overall number of visitors in our shopping centers decreased over the years slightly to minus 1%, 0.9%. But that was also in relation to the construction works. So in December, for example, we saw an increase in footfall by 1.5% compared to last year.

Rental growth, I think, in the 12 months was a good 2.6%. Airline inflation is still low, 0.9%. So the main contribution came from the 94 renewals and relettings, with an average rental uplift of around 13%. We only have 7 empty units in our shopping centers. Most vacancies are strategic and mainly in Fiordaliso, as a consequence, of course, of the refurbishment and expansion programs. The 90 days arrears are still very low, below 0.5%.

Now if we look more in detail. I'm sure the list of what we've done in November and December, I'm sure the list of the visitor numbers increased over 15% in December compared to last year. And it was also thanks, of course, to the opening of the Primark store. But please consider that a sizable part of the car park was and is currently nonoperational due to the ongoing works for the construction of the new hypermarkets.

At the end of 2020, the hypermarket will move to the exterior, being connected to the shopping center's [recombined] entrance, a bit like a [raisin], if you've seen it. The area of the current hypermarket will partly be demolished, and there will be a nice multilevel car park being built. And partly, 7,000 square meters will be converted into shops.

For concerns, [Po and] Cremona, they both opened on November 28. So that was right in time for Black Friday. And this is those numbers in Curno, where we have the measurement increases in the first week by over 25% compared to the same period in last year.

Last but not least, we won again some awards. And there was the awards given by the Consiglio Nazionale dei Centri Commerciali, so the Italian CNCC. We won 3 marketing awards with I Portali, I Gigli and a combined one on Castello and Carosello. While I Gigli also won the best of category awards for its shopping [dancer] campaign.

And now it's Peter.

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J. Peter C. Mills, Eurocommercial Properties N.V. - Member of the Board of Management [16]

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Thank you. Well, in Sweden, annual retail sales growth was up this period at 2.2%. That's significantly outperforming the HUI National Shopping Center Index. While fashion was flat over the period, other sectors more than made up the shortfall with strong performances from gifts and jewelry, up 18%; home goods, plus 6%; restaurants, plus 5%; health and beauty, plus 4%.

Our owned hypermarkets have had another strong 12 months, increasing sales by 3.5%. The star outperformer, C4 Kristianstad, cannot yet be included in these figures as it's not been open long enough. However, this new regional center can be included in comparative 3 months' numbers where it's showing outstanding sales growth of 12% as it increasingly takes market share, particularly from competition in and around the city center.

Like-for-like rental growth was up since we last reported, and increased by 3.1%, with 85 leasing deals completed over the 12 months, producing an average uplift of around 6%. And there is no doubt we're benefiting from the extensive redevelopment program completed over recent years as retailers increasingly focus on modern, regional centers while being prepared to release space elsewhere in secondary locations.

Valuations were marginally negative, down 0.2% since the properties were last valued 6 months ago with the overall initial yield around 5%. The exit yields used by the value has increased on 4 assets by between 10 and 30 basis points. That this was counterbalanced by higher net rental income of 3% overall and valuation increases at C4 and Hallarna, Halmstad, following successful completion of the recent developments there.

While there was an absence of comparable shopping center transactions last year, the value is took into consideration the strong property fundamentals across the portfolio and the low yields being achieved on hypermarkets now well below 5% and retail parks. The project at Valbo is progressing well, with the opening of a new mall, which significantly improves customer circulation within the center, and provides in large stores for H&M, 2,800 square meters, inter-sport 1,000 square meters; [Mitchell's], Deichmann and Carlings.

The new H&M unit opens in early summer and will be the fourth full concept H&M store that we will have opened in the portfolio in 12 months. The H&M at Elins Esplanad will then follow during the autumn, where they are currently expanding into the adjoining unit previously occupied by [Katherine's], who have been relocated. We have already seen the commercial benefits of having the full concept H&M in our centers, including the very successful new H&M home as they are not only bringing an increase in footfall in sales but they are also now closing some of their smaller, older stores in the same catchment. The latest example being the city center store in Kristianstad, which closed 2 weeks ago, leaving the H&M in C4 as their only full-concept store, covering a regional catchment of 300,000 people.

At Elins, we have also recently signed a new 10-year lease with the [Echo] Hypermarket, who have surrendered around 800 square meters of prime retail space fronting the mall, which have been pre-let to 4 new tenants at twice the previous rental level. Meanwhile, outside the main entrance, we're building a new 1,200 square meter unit for Nordic Wellness, a major West Coast gym operator, who will open after the summer, again, on a 10-year lease. This will be the second gym we've recently opened, and we are currently negotiating a third at Bergvik. And this is a good illustration of how we are constantly adapting our tenant mix to meet changing consumer demand.

Other examples are an increased provision and variety of food and beverage, health and beauty, leisure and services, including several health care providers. Indeed, our recent surveys confirmed that up to 30% of our customers are regularly using our shopping centers for socializing, entertainment and eating, in addition to shopping.

These new concepts build on the important role played by the hypermarket, still, the primary reason for the visit to some 40% of our customers. While the hypermarkets rarely deliver food, there is evidence of some growth in click and collect, which at some of our centers now accounts for up to 5% of their sales.

We're therefore working closely with ICA, COOP and City Gross to provide efficient on-site collection facilities to our mutual benefit. The other interesting development in the retail market is the steady growth of the value discount end. And we've completed several recent lettings in this category to the Danish Normal and Flying Tiger chains. While in fashion, New Yorker are rapidly increasing sales and taking on more units again. The largest retailers in this discount category are normally found in external boxes, where one of the fastest-growing operators are [Eco Holland], part of the successful [Bergendahl] group, with whom we are currently building a new store of 8,200 square meters at Ingelsta, which will open in September, again on a 10-year lease.

So finally, looking forward, I would expect the portfolio to maintain its current pace in terms of retail sales growth, with full occupancy, low OCRs and steady tenant demand. The letting team continues to secure healthy uplifts on the renewal program, which should keep rental growth above inflation, which is slightly lower in 2020 with our rents having just been indexed in January at 1.6%.

And that concludes my comments for Sweden.

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Valerie Jacob, Eurocommercial Properties N.V. - Director of IR and Corporate Development [17]

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Thank you very much, Peter. Now we're going to move to questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today is from Rob Virdee from Green Street Advisors.

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Rubinder Singh Virdee, Green Street Advisors, LLC, Research Division - Analyst of Research [2]

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I have a few questions. If you could take them one-by-one, that would be really great. Firstly, I think that you said one area of confirmation for you, and it certainly is for me, is the persistent double-digit growth after value discount Eurocommercial has traded at. There's a bit of a broad...

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [3]

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Well, there are others, I'm afraid. But yes, I agree.

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Rubinder Singh Virdee, Green Street Advisors, LLC, Research Division - Analyst of Research [4]

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So it's a bit of a broad question. So could you detail your thoughts on how this gap to be closed? And maybe you could touch on your priorities in terms of capital allocation. Now I know you've talked a lot about LTV and why you're comfortable. But perhaps you could touch on where you stand with share buybacks or disposables and where they are in the list of priorities?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [5]

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Okay. Thank you. Now of course, I mean all we can do -- the market has a view at the moment. And as we all know, markets change their views from time to time. But the market clearly is concerned, (inaudible) but they are concerned that the losses that are recurring in the U.K., as we said, are because of massively increased vacancies, rents that are too high, [aren't ready the parcels], et cetera, et cetera, will spread to our market. I don't believe they will. So I think in terms of trying to get that stock price to improve, I'm not sure what we can do, except carry on doing what we have, i.e., managing the business well, I think, and so that our centers have always been pretty well full. They always will be. And that's largely because we choose them in the right places.

And then, as I said earlier, thanks to the wonderful staff we have on the ground, manage them well and don't push rents too hard. So I don't think we can do much more than that. I think the markets we're in are solid. I mean clearly, France and Northern Italy are very strong economies. We've seen a very low unemployment in Northern Italy, where we are, 5.5% or something. Unemployment has come down in France since Macron took the reins to 8.5% or something like that now from 10%. Sweden has always been a solid and perhaps slightly an enigmatic country. And Brussels, of course, is the heart of Europe. And there's a place where there's massively lower density than anywhere else in Europe, I think. So all we can do is choose the right properties and manage them well, and we don't intend to change that.

Now the market perception, though, hopefully, we can change. And as I've always said, I'm delighted to take anybody who wants to show them our centers and see what's actually happening on the ground, which is different (inaudible).

Now in terms of our debt ratios, I mean, ignored the temporary moves of dividend. And I think (inaudible) the current property sales, we've got a couple of properties on the market that I have to say, are taking longer to settle than we imagined. Our aim is to get much nearer or, if possible, [140%], which we'll see. The dilemma though, of course, is we don't have to make new asset sales. But if with every property we sell generally don't get even at a very low yield of the Passage du Havre, for example, the current yield of 3.6% is going to be higher than [obviously debt] which, as Evert Jan said, is 2.1%. So you have to plan these things very, very carefully.

But I repeat, the reason that people are concerned with those debt ratios are because they believe values are going to plummet. Of course, you can imagine that the interest rates are currently very low, which they are, and debate when they are going to increase. That's a P&L matter, obviously. I would have sought and got, if we're discussing them, and no doubt I'm getting glare from Caterina. But I think in the current economic circumstances, it's very unlikely that interest rates are going to rise significantly for at least 2 years, but we should see. And that's very fair statement. But I repeat, I think it's nothing to do with the actions of the company, but rather a perception amongst some people and institutions, not just analysts, that the retail sector is changing so fundamentally. Well, of course, it's changing. But we are adapting to the changes as are the better companies out there, the top tiers, (inaudible) and other professionals. So that we're not expecting and I wouldn't think any of those are expecting to see there is plummeting in our markets, maybe in the U.K., yes, or the U.S. but not in our markets.

So I think the fundamentals of the properties are sound. But of course, there is a perception out there that things are going to change radically. And that I can't help. What we can do is, I think, just keep demonstrating that on the ground. The truth is, not the perception, the truth is that our centers are full and there is rental growth and there is turnover growth. It may not be exciting, but it is there. That's the truth. The rest is perception and expectation.

There is no reason why what's happening in one market should necessarily affect another, except that markets have a life of their own. So I'm afraid, I'm not expecting that gap. It should close and will close. But not -- I don't think we would expect to be trading at NAV this year. Is the reason why we're trading because the fascinating thing is that major institutions in all countries are still keen to buy property. So there is a disconnect between the perception of the stock market and its pricing and the fundamental value, if you like, or worth of -- as part of the portfolio or property given low interest rates, bond yields that are nonexistent or negative, and property you've seen has a very good store value, which it always has been, and will always continue to be fundamentally. So to answer your question on closing that gap, God knows. You probably know more than I do. But we'll just carry on doing our professional job.

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Rubinder Singh Virdee, Green Street Advisors, LLC, Research Division - Analyst of Research [6]

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I probably don't know more than you do. But certainly, the one point that you did say, there was the private market, there is an appetite. Do you not think that you've played that arbitrage by maybe increasing certain prices?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [7]

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Of course. But the trouble is that our properties are all very good investments. And that's our job is to invest in good investments. But of course, we think about these things all the time. And I wouldn't discount other proposals -- disposals as time goes on. We've got nothing -- we've got 2, obviously, as we said last year, on the go with endless negotiations carrying on, we'll see. But I -- we'll never announce anything until the money is in the bank on property deals. They always take my phone when we expect. But yes, of course, that's what, as I said, we did, of course, in the case of our good friends at AXA or on the Passage du Havre. So yes, of course, that is a possibility. But I think fellows in the equity market should think about that contradiction themselves, i.e., on the fundamentals of the asset, if you like, there is not, at least in our markets, a massive oversupply compared with demand, which appears to be there from long-term institutions. And I repeat, people have complained -- but there is a concern for spending in France, in particular. Because the French savings ratios are now bounced to the Italian level, amongst the highest in the world. But of course, that savings money has to go somewhere. And it's going to the institutions. They want to put it somewhere, which means they will want to put it into properties. So no, your comment is a very sensible one. Help us, please. We're coming on quietly running our business. That's not going to change.

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Rubinder Singh Virdee, Green Street Advisors, LLC, Research Division - Analyst of Research [8]

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Okay. The second question is on the fashion segment and department stores. So we've seen that transparency and pressure acute in that segment, we've seen that in the U.K. and in the U.S. And the question is -- and obviously, the question there is on the sustainability of their cash flow. And could you...

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [9]

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In department stores?

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Rubinder Singh Virdee, Green Street Advisors, LLC, Research Division - Analyst of Research [10]

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Yes. And fashion.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [11]

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Doesn't exist.

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Rubinder Singh Virdee, Green Street Advisors, LLC, Research Division - Analyst of Research [12]

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Yes. Well, there you go. But why are you so confident that the pressures seen there or care in the U.K. and in the U.S. are not going to be seen in Europe? I appreciate the point about hypermarket anchors. But is there more than that?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [13]

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They're completely different. Yes. No, I mean if you look at Carrefour, et cetera, and some of the department store chains in Germany and elsewhere, they are under pressure. Of course, they are. We only had one department store. And I repeat if they decided to leave, we will be delighted because we can relet that space at a higher rate. We have tenants ready and willing to go. That we have one department store. There are very few. Certainly, in Italy, you have (inaudible) in the center of Milan.

And now again in Rome, but there are very few. And they just don't exist, whereas, of course, in the U.K., as you all know, we've got 3 to 4 that are moribund. Even the wonderful John Lewis is suffering, I think, at the moment. Don't forget that the department stores, when they were developed in the 1880s and 1890s, were the first version of a shopping center. They were one place where you could go to get a huge variety of goods. So to have these days, a shopping center inside the shopping center doesn't make any sense at all. And of course, most of the department stores relied on services they can't afford anymore. And of course, the hypermarkets took over a largely to give that function. And of course, that the retail boxes have appeared in the retail parts where the specialist suppliers of sports goods and electricals.

So the market is completely and utterly different. No shopping center in the U.K. offers food, not (inaudible) anyway. So it's a complete -- they don't get that regular visits. And the -- then I've got to be careful, but the Debenhams and other companies of this world, but I don't believe they can survive. Of course, Selfridges, of course, Harrods will survive in their prime locations as well (inaudible) and Galeries Lafayette in Paris. But suburban ones, no. The writing is on the wall; they can't survive, I'm afraid. So we don't have any. So that's why I'm confident, and there are very few others that it's a completely different market.

I mean we have supermarkets in the U.K., but they're stand-alone. So they don't help shopping centers at all. Most shopping centers in towns have terrific traffic. Rents are far too high. I mean the OCRs in the U.K., on average, double those in our markets with no difference in lawful spending. So no, I mean, I'm sad to say, obviously, as (inaudible) but I'm afraid things are pretty bad and bleak in the U.K. for retail. We don't believe they are bleak and we see no reason for contagion, if you like, crossing the channel.

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Rubinder Singh Virdee, Green Street Advisors, LLC, Research Division - Analyst of Research [14]

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Very clear.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [15]

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I hope I'm right. Go on. Yes.

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Rubinder Singh Virdee, Green Street Advisors, LLC, Research Division - Analyst of Research [16]

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And the last one, I think it's an easier question. But you've made -- mentioned in this report about potential development of hotel.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [17]

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Yes.

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Rubinder Singh Virdee, Green Street Advisors, LLC, Research Division - Analyst of Research [18]

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Where are you talking there specifically? And what prompted that?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [19]

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We're talking -- in all our markets. I mean Woluwe, we've already discussed that with the regional planning office. It's on the other corner of the site from where we're going to do the retail extension. The great -- what we're doing though is adding -- they're not substituting retail space for hotels. But in all our properties, where we're thinking of doing, we have planned already. So we don't have to buy the land. But we, obviously, won't operate the hotels. I mean we have a hotel next to us in Taverny in France. We have a hotel which we own in Halmstad. We have a hotel that we own in [Kronan], and so no, I mean, they are, we think, complementary, especially unlikely, okay, I have to say, sadly, where our shopping centers stay, particularly in Italy, till 10:00 p.m. at night or similar time in Sweden. France, most shopping centers do close at 7. But no. So there are 3 (inaudible) there are 3 sites in Sweden we are actively looking at now. And I'm talking to potential operators in Italy to show us street, yes, and by the way, of course, we've only got one center in Sweden.

So we -- no, I would love to put one there because we're going to go around and (inaudible) which is 10 minutes when the road works, which is where -- from the airport. So no, it makes a lot of sense. They would tend to be -- our intention is 3-star, I think, on average. So not massively luxury. But no, we think it makes sense because people will prefer to go, we think, to a hotel that is next to a decent shopping center so they can wander around in the evening, or most important, they enjoy our restaurants. So we think now are complementary as indeed in some of the residentials that we're doing. And remember, in Passage du Havre, we had a good percentage, not just of offices in province, which obviously attractive but also some 40 apartments, I think, so -- which we have in Kronan as well. So now what we want to do for our centers is to add to the customers for our shops, not substitute shops for other uses. All we've got to do it. So these things always take much longer than you expect. But it's easier to get planning consent for a hotel I think generally than for a shopping center. So fingers crossed.

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Operator [20]

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Our next question today is from the line of Niko Levikari from ABN.

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Niko Levikari, ABN AMRO Bank N.V., Research Division - Research Analyst [21]

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Just a few questions, some of them already been answered. But maybe to follow on the hotels question. Can you provide any indication of what sort of size in terms of CapEx you would be looking at potentially? I mean it's very preliminary at this stage, but if there's anything you'd like to have a comment?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [22]

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Of course, and I can't, really. We -- well, the first stage where we decided which centers we would like to do it. The next stage is to see if there is a potential operator who agrees with us. The next stage is getting planned and, I would say we're probably 5 years off in many, many cases. Now of course, the obvious question you should ask is, given our resident capital constraints, where does the money come from. It's in the bank -- and very much enough. So it doesn't necessarily mean that we have to own the hotels. What we want is the people in them to spend money in our shopping centers. So no. In one case, in Sweden, we're already looking at effectively a joint venture with an adjoining landowner, and we'll see what happens. But no, we want a hotel there. We don't necessarily need to own it. So no, there are no -- there's no budgeting at all.

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Niko Levikari, ABN AMRO Bank N.V., Research Division - Research Analyst [23]

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Okay. Fair enough. Second question regarding the Etrembieres extension. Is that still scheduled to be about 1,600 square meters or based on the old guidance? Or has there been any changes there?

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Pascal H. Le Goueff, Eurocommercial Properties N.V. - Head of Eurocommercial France & Director [24]

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No. It's on 1,600. It has been fully let as explained to the group Agapes, which is a French food and beverage operator. And they will operate 2 restaurants. One is called Les Trois Brasseurs and the other is Il Ristorante. It's in of the totality of the project.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [25]

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The reason for doing that, and we agonized about whether to add more retail. So it's another point, I think that the flexibility, one has to adopt or can adopt if you've got some spare land because we believe that the McDonald's that's already on the site is probably the most successful and profitable in Europe. Is it on the way to the (inaudible). And so to add more restaurants, which is what we're doing, we think makes a lot of sense because very, very visible folks on the [autoboot] and of course, we suffered a bit from roadworks, the maintenance over the last year or 2. That's all now completed. And I'm glad to say the work on the first (inaudible) in the north of Paris, which is helped model a lot of centers there. Yes, I mean look, it's not a massive development. The center isn't massive. And again, we've got a very successful long-term joint venture with AXA here. And that's I suppose why the deal in Paris was so relatively easy because we already had a joint venture agreement with everybody's agonized over and worked. And they're decent people that are very, very professional. So no, I mean, we had a good example there. And they invited us there. And I think actually we got our own battlefield out. No, but that's fascinating, I think. Yes.

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Niko Levikari, ABN AMRO Bank N.V., Research Division - Research Analyst [26]

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Okay. Just a quick follow-up on the disposals plan. So you mentioned that now these couple of sites that you're looking at that are in the market that you're offering. Are you doing these as off-market type of deals? And what are, if you can give any indication, type of delays or causes for the delays? Is it more the funding aspect from the potential prospective buyer? Or what's the...

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [27]

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It wouldn't be fair. I think clearly, we know why things are taking a bit longer, but it wouldn't be fair, I think. No, I mean there are 2 highly professional parties. It's just all taking a bit longer. We think valid reasons. We don't think they're fooling around. But who knows, I mean, property, if you try to buy your own houses on you'll notice there's always some damn thing that goes wrong, something. But I would rather not comment on the true. Maybe as a result of a professional agent dealing, as you would expect in a [low] market way.

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Niko Levikari, ABN AMRO Bank N.V., Research Division - Research Analyst [28]

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Sure. Fair enough. And maybe just as a last quick one. Regarding (inaudible), there was some sort of an extension in refurb earlier that you started last summer. So is that now completed because I couldn't at least see that in the filings exactly? But...

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J. Peter C. Mills, Eurocommercial Properties N.V. - Member of the Board of Management [29]

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Well, actually, we've been doing several small pieces there. I mentioned in the call that we've taken some space back from the hypermarket and done a long lease to them, and we're now building 4 small shops, which we'll hand over in April. We are building the gym outside. That's a stand-alone box unit. We have the planning for it. But we converted some ancillary space we had for them. And the big H&M is something that's ongoing and will be finished when they take possession in the autumn. But to do that, we had to remove (inaudible) who are a garden flower operator who were in effect a greenhouse that linked into the city center and start of the shopping center. And we've -- they've relocated to a retail park. And we had to build the castle and new stores so that H&M could expand, and that's going in at the moment. What you might be referring to is the final piece of the loop that we could build, and we have planning for around 3,000 square meters, which we fully intend to do. And I think, actually, it will be -- it's partly a pre-letting situation that we want to achieve at least 70% or 80%. It's fair to say when the H&M opens and they announce it, most importantly, I think that will be the sort of filler to the final letting. And I would think somewhere around 2021 will be the moment to look at that.

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Operator [30]

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Our next question for today is from the line of Jaap Kuin from Kempen.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [31]

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Well apology upfront, I will get back to yields and valuations later. But I guess, I agree with your operations is probably now more than ever the key to longer-term success. So maybe a first question on reletting. So obviously, the numbers are kind of fairly in line with what you said in June. I was just wondering if you could further specify what's happening to rent levels of vacant units that you're currently -- or in the last 12 months have re-leased versus previous passing rents. Do you see similar kind of 10% uplift? Or what do you see with those type of units?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [32]

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Yes. Well, perhaps I'll ask Valeria to comment on that. She's at the core phase of this.

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Valeria Di Nisio, Eurocommercial Properties N.V. - Property Director of Italy & Group Leasing Director [33]

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Of course. As you have seen out, while we have approximately 150 new leases signed, of these, 68 units were signed with new tenants. And overall, on these about 17 units, we achieved a 10% rental uplift, actually higher than our average 9%. And that clearly implies that new tenants to be fair either in anticipation, but we don't have many, actually very little or in existing units previously occupied by other tenants are prepared to pay higher rent. In some cases, even in the region of 15%, 20%, it really depends on the cases. Does it answer your question?

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [34]

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Yes, more or less. So basically, you do not have to compromise rent levels at all to fill up your vacant units. Is that the correct summary?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [35]

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To be fair, in the Passage du Havre, clearly, we had Zara in there and H&M who went in (inaudible) building. And we've now replaced them with Maisons du Monde, which is a furniture retailer, et cetera and a pharmacy and the rent is slightly lower.

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Valeria Di Nisio, Eurocommercial Properties N.V. - Property Director of Italy & Group Leasing Director [36]

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Slightly lower. Correct, Jeremy. But only on the vacant. On the other units, the increase is approximately 10% as well on the new let-ins.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [37]

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We could have gotten more fashion in there probably in a similar shop.

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Valeria Di Nisio, Eurocommercial Properties N.V. - Property Director of Italy & Group Leasing Director [38]

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To keep the rent.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [39]

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But we decided that actually you look at the tenant. And I think we've seen perhaps a bit of an oversupply in fashion these days. So it makes sense to adapt your merchandising.

Next comment, Pascal?

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Pascal H. Le Goueff, Eurocommercial Properties N.V. - Head of Eurocommercial France & Director [40]

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Yes. On Passage du Havre with GAP, Zara and (inaudible) producing a turnover of EUR 12 million. And based on what we have at the moment, but normal produce, which is already in Passage du Havre. We -- and focus for the other brands, we expect turnover of EUR 20 million. So a huge increase of turnover with these new brands compared to the Zara and GAP and [St. Moritz].

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [41]

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And that's fundamental. The reason of that, don't forget, is the reason that Zara and H&M left was they have much bigger stores on the corner in (inaudible). So the EUR 12 million to EUR 20 million, and that's what matters in new shopping centers. So you put your finger on it, Pascal. That's the key to it, not necessarily the rent, which will catch up with the tenants in due course.

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Valeria Di Nisio, Eurocommercial Properties N.V. - Property Director of Italy & Group Leasing Director [42]

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And can I add that we have also brought in an Italian Normal, which obviously is quite strong at the moment in France, (inaudible), which is using our (inaudible) all the businesses downtown Paris. But also a brand like Rituals and Courir, they are opening any minute now.

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Pascal H. Le Goueff, Eurocommercial Properties N.V. - Head of Eurocommercial France & Director [43]

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Courir is open and Rituals will open soon.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [44]

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No I mean things change all the time. So you've got to keep up with it, which we're trying to do.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [45]

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Good. And then on yields and values. I mean if you kind of assume there's a difference in price sensitivity between a typically unlevered buyer like an insurance company looking to take a stake in a JV, for example, for a prime retail asset. If you contrast that maybe with a levered buyer that will have to manage the asset themselves, then how comfortable are you really with you staying put for the broader retail property segment in France, especially outside of Paris, if you take into account that for the bulk of transactions, you will have to rely on kind of the latter type of buyer?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [46]

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Yes. I mean theoretically, with debt costs in the 1% or 2%, actually, some deals (inaudible) could afford to pay more, not less. No, yes. Provincial France, and Pascal can run it much more than I can, but yes, I mean, clearly, the -- better not name any more names. So there are some retail groups who wish to sell property. Frankly, we don't really need to or want to sell anything but that's concerned about the perception of values and therefore, gearing ratios, but yes. No, I mean the bulk of -- in total of shopping square meters, of course, is in provincial France, not in the center of Paris, where there probably is a bit of an oversupply, but we'll see. No, I suspect there's been a bit of boredom, ennui, I guess perhaps, with the conventional hypermarket and 100 shops. These are quite a lot in France, but they do need some expertise to manage. They may be boring, but you've still got to manage them very carefully. So yes, the trouble is they don't come in big lumps, and I think a lot of the institutions, of course, I'm assuming -- and again I'm assuming I may be wrong, prefer to spend large chunks of money in one go to do it simply. And to buy a small shopping center in (inaudible) which doesn't actually achieve that. So Pascal, any comment?

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Pascal H. Le Goueff, Eurocommercial Properties N.V. - Head of Eurocommercial France & Director [47]

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Yes. If the comparable, we have it in province even if it's in town center, it's young. We're among the (inaudible) 40 buildings are at quite a low entry point, 8%. But what I would say about this potential market, we are the interest of local operator, for example, in Bordeaux, that's a local operator will be very keen to buy Bordeaux. We have better interest in (inaudible) as well. And Val Thoiry, which is in province of France, is a project which we have a lot of interest from investors.

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J. Peter C. Mills, Eurocommercial Properties N.V. - Member of the Board of Management [48]

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Well, because it's near the Geneva, it would be fair.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [49]

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No. And that one we'd love to get on with the development there. But clearly, with and that's one of the reason we might consider selling stuff. It's not so much worrying about value is decreasing, but we want to get on with the extensions, like, for example, Val Thoiry will be -- is pre-let to incredible names, really incredible names. (inaudible) But no, so there's a lot we want to do. And we're actually very positive at the moment. And you may think we're mad but we are. There's just so much we can do. So I don't know if that answers your question.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [50]

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Yes. Yes. Yes, partly. And then maybe just to follow up on that. Because at the beginning, you mentioned a large deal. And I think I understood that you -- understood it was a 5-ish type of yield. I mean doesn't that reflect negatively?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [51]

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Yes, I repeat. I'll repeat, this is scuttlebutt and rumor in the market. We have no evidence of that at all. I mean I'm just being hopeful, of course. A big deal could be done. So that really is -- does anybody to know what I mean by scuttlebutt?

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [52]

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No. Because -- okay, then I probably misunderstood because also, if there will be a 5% yield, of course, there would be probably a negative yield across to the wider market. But then probably we'll just leave that towards...?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [53]

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God knows. No. No, I suppose, if it's true. And God knows whether it is, but yes, it's quite a big deal. If it's true, we'll see. It's just a pure rumor. That's all.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [54]

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And then maybe just one more transaction -- point of transactional evidence you might want to comment on. Obviously, we saw [Covidio] selling from retail assets in Italy. The yields are roughly to close to 9%. Is that in any way relevant for your portfolio, you think?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [55]

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No. We're very different from it. Not at all.

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Roberto Fraticelli, Eurocommercial Properties N.V. - Member of Board of Management, Director of Italian Operations & Company Secretary [56]

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No. We don't think they are comparable. And I think it's -- we really did a very good deal, and it was, of course, part of a mixed bag with offices, which were at the core.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [57]

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So [it's half] empty, I think. There is a sale (inaudible).

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Roberto Fraticelli, Eurocommercial Properties N.V. - Member of Board of Management, Director of Italian Operations & Company Secretary [58]

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Yes. The assets have been on the market for quite a while. So the -- we knew about the transaction and all that. But we don't think, in our opinion, that they're comparable.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [59]

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Well, I'm sure they're not. But I think that's -- a few people have concerns, which I understand about the position of physical retail vis-à-vis the Internet and all the rest of it. Then if there's anything wrong with the center or it's badly positioned as some of these were or half empty, then the yields will rush up. I mean there is such a huge gap between what is considered prime and reliable and sustainable and that the distance. So no, I don't think there's anything at all. I mean as Pascal has said, looking at the recent sale of a retail partner, (inaudible) at Taverny, 4.5% where we are. I mean that goes partly back to one of the other questions. That's not in the provinces, but it's in outer suburban areas. It's a nice little retail park but nothing that special really. So -- and people are going into retail parks. But and I say conventional shopping centers has been so successful for so long. I thought would be a bit boring but we don't believe that.

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Operator [60]

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(Operator Instructions) One from Amal from Degroof.

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Amal Aboulkhouatem, Banque Degroof Petercam S.A., Research Division - Research Analyst [61]

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One last question on vacancy in the French portfolio. Can you just comment on where this vacancy has increased? And what are the main reasons for that?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [62]

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Pascal?

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Pascal H. Le Goueff, Eurocommercial Properties N.V. - Head of Eurocommercial France & Director [63]

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Yes. So we have 12 vacancies. We had 7, 6 months ago. We had 10, 1 year ago. So it's really increasing slightly, is due to remerchandising that we are doing in Passage du Havre. We talked about it. It's also due to departure of our share in Taverny, where we are about to fill this unit with new tenant. One has been -- is already -- also -- we have signed already a lease with one of them. And we are negotiating with the other one. And also in (inaudible), where we have 2 vacancies (inaudible). But for most of this vacant unit, we have, as we said, serious offers from retailers. So I think we can see in France is under control, thanks to Nicolas and Juliette.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [64]

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Yes. So I think these overall are temporary things. Of course, two, again, in (inaudible), where H&M that we are in the process of filling them up. But there's always a gap, especially if it's a larger marketplace as that was. (inaudible) You got the last 6 months for them to be re-leased sometime.

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Amal Aboulkhouatem, Banque Degroof Petercam S.A., Research Division - Research Analyst [65]

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Okay. And you don't have any exposure to (inaudible)?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [66]

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Pardon me, sorry?

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Amal Aboulkhouatem, Banque Degroof Petercam S.A., Research Division - Research Analyst [67]

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[Orchestra].

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Valeria Di Nisio, Eurocommercial Properties N.V. - Property Director of Italy & Group Leasing Director [68]

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[Orchestra].

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [69]

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Oh, yes, we do.

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Pascal H. Le Goueff, Eurocommercial Properties N.V. - Head of Eurocommercial France & Director [70]

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So what was the question?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [71]

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[Orchestra].

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Amal Aboulkhouatem, Banque Degroof Petercam S.A., Research Division - Research Analyst [72]

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Do you have any...?

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Pascal H. Le Goueff, Eurocommercial Properties N.V. - Head of Eurocommercial France & Director [73]

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Yes, we have. Yes, we have 2 [Orchestra] and yes, one Orchestra , the company is (inaudible) one in (inaudible) and 1 in (inaudible).

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [74]

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(inaudible) I think that's the point (inaudible) if the company goes, as you know, it's probably similar in Belgium. But the first thing a receiver does is he makes sure, if he can, he keeps paying the rent. Because otherwise, he would lose any goodwill you may have in some of your business. So no, I think about 10, whatever it is, companies in receivership, at least half of them are still paying the rent. So it's not a (inaudible) there's no really different than it was last year. But it's when they come in chunks. I mean as Pascal said, we haven't had 3 major retailers that want to go at the same time. And a big chunk of H&M. And of course, our target retailer at Brussels, which we placed pretty quickly in too. So yes, these things come and go. But no, I don't think the situation fundamentally any worse than the average of the last 5 years, for instance.

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Valeria Di Nisio, Eurocommercial Properties N.V. - Property Director of Italy & Group Leasing Director [75]

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Yes. I'll add, Amal, that out of 1,840 units, our portfolio, only 10 units are occupied by tenants in receivership, okay?

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Amal Aboulkhouatem, Banque Degroof Petercam S.A., Research Division - Research Analyst [76]

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And comment on hotels. Can you just give us an idea of the type of yield, investment yields you expect to recently opened in Hallarna in Sweden. Is it comparable to an extension of the retail park or the shopping mall or is it higher?

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J. Peter C. Mills, Eurocommercial Properties N.V. - Member of the Board of Management [77]

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Well, in Hallarna, we refurbished a hotel, which is 120 rooms and relet it to Good Morning Group on the 20-year lease. There, we decided we would do the minimum base rent throughout the term with indexation, of course. And on that model, though, this is a tower, sort of, as I say, 120 rooms, taking very little footprint but integrated into the shopping centers. So it was an existing property. I can't say -- yet the return on costs overall for the development was 8%, so that included the shopping center. But if -- we're now looking to repeat that model, which is at the sort of economic end of the hotel, the group. So it's typically SEK 1,000 per night. That's the sort of -- that's the right sort of market for these motorway, prime motorway located sites.

And typically, what we're looking at is to the cost, if you like, of those is around about EUR 12 million to EUR 15 million to build. And the income return -- which I think will probably go to a lend between minimum base rent and turnover rent. So the cost -- the return on the cost will be around about 8% minimum. So it's very profitable because, of course, we already own the land. And so the moment (inaudible) much operator. We have 3 of the 7 locations we have are appropriate for these types of hotel operators. We think it'll be very good demand. So it's really now effectively planning.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [78]

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Any more?

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Operator [79]

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Yes, sir. We have a follow-up from Niko Levikari from ABN.

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Niko Levikari, ABN AMRO Bank N.V., Research Division - Research Analyst [80]

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Just a quick follow-up. Regarding the AG stake of Woluwe. So just to confirm, that is 25% now that they have?

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [81]

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Well, Evert Jan?

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Evert Jan van Garderen, Eurocommercial Properties N.V. - Finance Director & Member of Management Board [82]

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Niko, let's say, we have a joint venture with AG, where, let's say, we have a stake of 75% and they have 25%. But obviously, that was also caused by the gearing in Woluwe. We have EUR 286 million long-term loan on the property. And of course, they contributed their department store in exchange for shares, where that was the nongeared asset. So if you -- and we have to do that always at NAV. So therefore, you get that percentage. But basically, of course, we're in control. And we have clearly a JV agreement there. But we're in the driver's seat. And you can see for the first time in the interim report that we have reported under IFRS. And you can see the stake of AG. But that's the position, Niko.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [83]

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And the price of the department store was EUR 67 million. There are all sorts of financial adjustments made when you get down to the equity. But it was EUR 67 million out of the EUR 600 million, whatever it was in the sentiment. And we would love to negotiate a deal with them and say bye-bye. And we'd love to do things. We've got all sorts of ideas of what to do with an advanced (inaudible) because it's 12,000 meters on 3 floors. And we don't believe that it's being used as effectively as it could be from, perhaps, other uses. No doubt they'll disagree. And of course, Inno is a bit of an institution in Brussels. So perhaps if we just had to do something, some old lady (inaudible) we shall see. Anyway, certainly, the rent of EUR 237 per square meter is very low. And whatever we do there, we'll get more, I'm sure.

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Operator [84]

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And there are no further questions, sir.

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Jeremy P. Lewis, Eurocommercial Properties N.V. - Chairman of the Management Board & CEO [85]

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Okay. Well, thank you all for your interest. We appreciate it. And all I can do is repeat, if you have any doubts about our properties, come and look at them. We'd be delighted to show you around. So do join us in decent markets, please. Thanks for your interest. Thanks a lot.