Eurocommercial Properties NV

AEX:ECMPA

Q2-2025 Earnings Call

[Operator]

Good morning and welcome to the Eurocommercial Half Year 2025 results conference. [Operator Instructions]

I would now like to hand to Ilaria Vitaloni, Investor Relations officer of the company.

[Ilaria Vitaloni, executive]

Good morning, everyone, and welcome. I am Ilaria Vitaloni, Eurocommercial Investor Relations Officer. We are very pleased to have you with us today. This call will be hosted by our CEO, Evert Jan van Garderen; and our CFO, Roberto Fraticelli, Together, they will present the half year results, covering our operational performance, financial position and strategic progresses. After the presentation, we will open the floor to your questions.

With that, I hand over to our CEO, Evert Jan van Garderen.

[Evert Jan van Garderen, executive]

Thank you, Ilaria. Ladies and gentlemen, good morning, and welcome to our half year 2025 results presentation. It's a pleasure to share with you the progress we have made in the first 6 months of this year. At Eurocommercial, our strategy is clear and consistent: create vibrant shopping destinations, deliver resilient growth and generate long-term value for our shareholders, tenants and communities. .

Today, I will walk you through our operational highlights, leasing activity, remerchandising projects and sustainability achievements. And afterwards, my colleague, Roberto Fraticelli, CFO, will talk about the financial results and the guidance.

Let me begin with our operational highlights. In the first half of 2025, we achieved like-for-like rental growth of 3%, supported by healthy leasing demand and resilient retail sales. We signed 296 lease transactions in the first half with an average uplift of 2.9% on renewals and relettings. Notably, our new lettings, 110 in total, achieved a much higher uplift of 6.6%. This reflects the strong demand from leading retailers to join our centers and expand their formats. As the press release highlights, nearly 20% of lettable units were either renewed or relet during the period, a remarkable level of activity. Let me be clear, this is not just about numbers, it's about strengthening the tenant mix, securing the most attractive brands and ensuring our centers remain dominant in their catchments.

Occupancy across our portfolio remains extremely high at 98.8%, with a collection rate of 99%, which figure you will find on the next slide, evidence of the strong fundamentals of our assets and the affordability of our rents.

Retail sales increased by 2.6% with notable strength in health and beauty, services, supermarkets and books and toys. In July, retail sales increased by around 5%, confirming a positive trend already observed in June with growth of 4.7%, led by outstanding results in Italy and Belgium. In July, all countries recorded further improvements with the sole exception of Italy, where sales remained broadly in line with June strong performance.

Our OCR for our occupancy cost ratio stands at 10%, which is both sustainable and competitive. This ensures our retailers are profitable and committed to our centers for the long term.

We continue to work closely with some of the world's most attractive retailers: Inditex, Primark, MediaWorld, Rituals, Normal and many others. These partnerships are visible in the 296 deals signed, which included first-time entrants and new formats across Belgium, France, Italy and Sweden. For example, Skins first store in Brussels and Sandro's first store in a Belgian shopping center, Besson's new format in Les Atlantes in Tours France, Bershka's new store in Milan and Unit extensions in Sweden like the store for Hemtex. Here, you see some examples of new arrivals in our shopping centers in Belgium and France. And this confirms that Eurocommercial's assets are top priorities for retailers' expansion strategies.

Our success also rests on being relentlessly customer-centric. We're not just filling units. We are curating the right mix of fashion, food, health and beauty and services to meet the evolving consumer expectations. As the chart on this Slide 7 shows, the deal signed span a broad range of categories: 23% in fashion, 18% in health and beauty, 16% in gifts and jewelry, and strong contributors from restaurants, sports and services. At the same time, we are modernizing our centers, introducing full format stores, introducing new brands and redesigning layouts. This keeps our assets fresh, relevant and resilient.

Our leasing results highlight the strength of demand for space in our centers. In Italy, renewals and relettings delivered an average rental uplift of 8.2%. Belgium achieved 1.9% uplift while Sweden and France were relatively stable. Overall, the 296 transactions produced an uplift of 2.9% with particularly strong results in new lettings, where the uplift reached 6.6%. This confirms the ability of our portfolio to capture rental reversion, securing both current income and future growth.

Now let's move to our remerchandising pipeline, which is critical -- a critical engine of long-term value creation. In 2025, we launched 3 major remerchandising projects in Italy: Collestrada, I Gigli and CremonaPO. We are reducing the hypermarket here and reconfiguring units to bring in MediaWorld, Zara, H&M, Primark and Tezenis and this is happening in 4 phases. With this phase plan stretching to late 2026, this will cement Collestrada as Umbria's leading retail destination. Its unique merchandising mix makes it bulletproof.

Tuscany's most visited shopping center is undergoing another wave of remerchandising. The reduction of the PAM hypermarket will result in expanding Zara into a flagship concept store and adding Pull&Bear. This will strengthen I Gigli's dominance and widen its catchment. We see growing visits from more distant areas.

A brand new Primark is replacing Unieuro, which we have successfully relocated to the adjoining retail park. Primark's arrival at CremonaPO will broaden the offer, extend the catchment to neighboring provinces and appeal strongly to a younger customer base.

These 3 projects built on the outstanding results we saw from Carosello and Woluwe completed in 2024. It is the evidence that value is created. As a result of the remerchandising project at Carosello, retail sales increased by 14.9%. Rental uplifts reached 14.5% and occupancy stands at 100%. Zara, Stradivarius and Bershka all expanded, reinforcing Carosello's dominance in the Eastern Milan region. On top of that, Zara closed stores in competing centers. The remerchandising project has increased its catchment area and has diminished competition. Its activity towards the city of Milan has grown.

At Woluwe in Brussels, retail sales rose by 9.8%. Footfall increased by 13.8% and occupancy is virtually full at 99.3%. The remerchandising in Woluwe introduced premium brands, the latest concept of Zara, Massimo Dutti and C&A, a refurbished INNO department store and a new Carrefour Market, making Woluwe a leading premium shopping destination, and these are all powerful examples of how remerchandising creates both short-term growth and long-term competitive advantage.

No less important is our commitment to sustainability, which remains central to our strategy. 100% of our centers are now BREEAM In-Use certified, either excellent or very good. We achieved a 62% increase in green loans, secured a five-star GRESB rating and improved our carbon disclosure project rating to B.

In operational terms, solar production is up 41% year-on-year, 87% of landlord-controlled electricity comes from renewable resources and carbon emissions are down 12% compared to 2023. Importantly, green lease clauses are now included in about 60% of our leases, aligning our tenants with our sustainability objectives. This is not just ESG reporting. In our mind, it's a competitive edge. More and more retailers and consumers demand sustainable environments and Eurocommercial is delivering.

Now is the moment to hand over to Roberto Fraticelli to discuss our financial results.

[Roberto Fraticelli, executive]

Thank you very much, Evert, and welcome, everybody. As always, thank you for being here. Let's have a look at the financial highlights for today. So here, what we do is we give an idea of the core highlights that we want to discuss, and then we'll go more into detail in the coming slides.

So as you see, at the end -- in H1, we refinanced shopping loans for EUR 415 million, which is a good result. And we are making further progress in the loans which are expiring then in the second half of 2026. The loan-to-value ratio is down to 40.5%, which is also a very nice result. As Evert mentioned, we sold the Grand Samarkand for SEK 158 million, which is around EUR 14 million, which is above the book value.

Now if you look at valuations, it's nice because what we see is that overall, the value are increasing in all the portfolio. What's very interesting is that, of course, this is not coming from the fact that net initial yields are higher. Actually, net initial yields are flat, but it's really sustainable growth because it's growth of the NOI, it's growth of the ERV. So the rental income is increasing, and that is the base for the increasing value of our shopping centers. So that's healthy growth in all our portfolio in all the countries.

If you look at the financial position. What we highlight is, of course, the lower LTV to 40.5%. That's down from the 41.3% we had in December. And that's due to 2 facts. First one is, of course, the increase in the value of the portfolio, and that increased, of course, the value of the loan to value, and the second one is the fact that the net borrowings basically stayed the same. So stable borrowings, higher value, lower LTV.

Another thing that we need to highlight here is the long-term loans, which we extended. So we're talking about Fiordaliso, which is EUR 200 million loan which we extended for 5 years and a portfolio for assets in Sweden, which was due to expire in 2027, but we already renewed it and extended and actually, it went from SEK 1.8 billion to SEK 2.4 billion, which is roughly EUR 250 million, and we extended that for 3 years. Good progress is being made on the remaining loans. So we're very positive on that, but we will come further news once we have very good news to tell you about.

If we then go to the next slide, we see, as always, our beautiful EPRA NTA bridge. So we started in December from EUR 41.79. We add the investment result. We add the indirect investment result, which is negative, and we'll see it in the next slide. Of course, we do the correction for the first deferred tax for the value, the market value of the financial instruments, and then we do have the impact on the dividend. So we distributed a dividend of EUR 1.80. And of course, part of this dividend was also done in stock. So this is the double effect.

Then we have the effect of -- positive effect of the foreign exchange. That's mainly in the SEK being higher in value compared to the euro. And the other is just a slight effect of the dividend distribution because, of course, not everybody took the EUR 1.80, which we distributed, so you end up to the EUR 41.46.

Let's go down to the income statement. So as you see, rental income increased, and that's also notwithstanding the fact that we -- as Evert mentioned, we had all the remerchandizing projects going. So there was an important impact, but our rental income increased. What's also interesting to see is that the net interest expenses are also unchanged. That's thanks to the -- our hedging policy, of course, because we are still at the 80% hedging policy that we have. We are actually 81%, but that's around the 80% that we want to have.

Then the negative indirect investment results, that's mainly due to the substitute tax that we paid in Italy. Every once in a while, the Italian government is very kind and offers to reduce the tax burden through the payment of some taxes at discount rate, and what we did in the past, we had done some fiscal revaluation of the assets, which have created reserves, and now we are making this reserve distributable to the entire company, to the entire group. Direct investment results has also increased up by slightly.

If we then go to the bridge, which we all like. We see that we start from the EUR 66.28 million in December, then we add the rental income, which is EUR 3.30 million. We have higher corporate income tax compared to last year, and that's mainly in Sweden and in Italy, and that's also related to the increase in rental income. We have lower net service charges. So that means that we invoiced our tenants less than what we used to invoice last year, but that's also due to the refurbishment and all the remerchandising that Evert mentioned because as you see, some units are empty when you're moving the different retailers, so that's different.

Then company and other expenses is EUR 0.47 million, but that's mainly related also because we are comparing it to last year. Last year, we had a positive effect of bad debt, and this positive effect because we have booked too much, so we have to release part of the booking that we have done last year, and we do not have this effect this year. So we end up to the EUR 66.88 million.

Very important, of course, is the direct investment result guidance. Evert and I and the whole company, we're very happy with the results. So we are quite positive, and we decided to upgrade the guidance that we gave in -- update the guidance that we gave in March 2025. So we now believe we'll be at the upper part of the range between EUR 2.40 and EUR 2.45 per share.

And maybe one last slide, just to recap on the core missions of Eurocommercial. As Evert said, we are customer-centric. Our growth is focused on our customer. We do a lot of work. Ilaria does a fantastic job in the search and analysis of our customers. So what we do is we prepare our assets so that they can offer really the best possible services to our clients and our retailers.

Value creation. Evert has given a lot of examples of value creations where we're focusing, what we're doing. We are really trying to build the best assets that we can to make them bulletproof. It's always a strong word, not to make them very strong also in light of the future.

Sustainability. Evert Jan stressed it, how important it is to have sustainability for us, and we really believe it builds a competitive advantage also for us.

And then what's, of course, at my heart, which is the financial discipline and strength, nice loan-to-value, nice NOI growth, good refinancing, a solid stable financial platform.

Then last but not least, we are hoping to see most of you at the Capital Market Day on the 11th of September in 2025.

And with this one, I'll hand back. Thank you again, and then I'll hand back to you, and thank you for all our guys because we did a fantastic job, and back to the operator.

[Operator]

Thank you. Ladies and gentlemen, we are now ready to take your questions. [Operator Instructions] Our first question comes from Stéphane Afonso from Jefferies.

[Stéphane Afonso, analyst]

Yes. I have 3, if I may. Firstly, could you share the CapEx on block for the remerchandising projects and maybe also the targeted yield on cost. Regarding the guidance, I'm just trying to understand what is driving your decision to low-target the upper end of the range. And finally, on refinancing, what has been the average cost of debt achieved so far? Thank you.

[Evert Jan van Garderen, executive]

Maybe Roberto, you want to start?

[Roberto Fraticelli, executive]

I'll start with the finance, because I like it. Let's say the average cost, as you've seen, stayed the same, 3.2%. Of course, let's say, the margins are, as you know, Stephane, we do not communicate anything on the margin because we have a confidentiality agreement with the banks, but they're really in line with the financing that we currently have.

Of course, what we are monitoring is the long-term interest rate where it moves. But so far, the refinancing has been on good terms. We have a lot of demand. [ Felora ] shopping centers, so there was good competition among different banks. We always had at least 3 to 4 banks to select from. And that really gives a good impression of the value maybe of our assets, but also on the refinancing moment on the market. So we're very happy with the discussions that we're having with the banks.

Does that answer your question, Stephane?

[Stéphane Afonso, analyst]

Okay. Okay. Yes.

[Evert Jan van Garderen, executive]

Yes. Maybe then a few words on the guidance and our update today that we expect to be at the upper end of the range, as indicated by Roberto. I think it's a combination of a couple of factors, which we took into account. The first one is the Swedish krona, which is always volatile, but sort of seemed to be a bit more stable and slightly stronger than we had in our budget. So that obviously always helps a bit. But we also saw the good progress in the project. And next to that, actually some vacancy reduction, obviously, again, helping us in the forecast for the full year. So all in all, these are the sort of effects, which we took into account to bring us to an update of the guidance.

And then your last question on the CapEx involved in the remerchandising. Again, I think it's -- these are projects which quite differ from case by case. Obviously, we have our building works, but we're working in an existing building. So that is not immediately triggering a lot of CapEx where we do have some CapEx is, for example, fit-out costs, which we have for the tenants.

We create, of course, new units and where we have costs which involved to make a unit relettable not to the specific tenant, but to a tenant, then as obviously our bill, our account, but I don't see that we have to spend millions and millions to do the remodeling, but of course, there are some amounts involved, and they are also spread over in some cases, more than a financial year, of course, but particular disclosure per project, I cannot give, I'm afraid.

[Operator]

We will continue to our next question, which comes from Lynn Hautekeete from KBC.

[Lynn Hautekeete, analyst]

I have 2 questions. The first one is on Belgium. So in Woluwe your rental uplifts on renewals and relettings decelerated in the first half of 2025 versus 2024 from 6.6 to 1.9 and I was wondering if you could give some color on this because I remember the uplift on new deals was around 6.6 in Belgium in the second half of '24 of your remerchandising projects. So I was wondering if you have a figure for this in the first half of 2025.

[Evert Jan van Garderen, executive]

Yes. Lynn, thank you very much for your question. And I expected the question because you also mentioned it this morning in your report on our numbers. And to give a bit more color what happens in Woluwe is that actually, we did 17 deals in the reporting period as we always say, renewals relettings is a matter of measuring what is happening 12 months. It's a rollover 12 months. So this is from the 30 June looking back 12 months, 1 year, that is where you measure the renewals relettings.

And actually, out of those 17 deals, we had only a few actually. If I look at the list, you could say that there were 2 deals which were negative, where we replaced a tenant which actually left the center. If I look here, it has to do with Desigual, JOTT and Superdry and we got back tenants in the units, which obviously strengthened the whole center. But these are really, yes, one-off.

So if I look back at the 6.6%, obviously, there were some of the previous deals included and not this one. But it is a matter of just changing 1 or 2 tenants out of the 17. The rest is all plus. But of course, an average in the end is an average. So these 3 deals in a negative territory, brings us to the 2%. But don't -- again, it's always difficult.

I don't think we should read into this the trend that when we do relettings renewables in Woluwe, that we do that at a lower increase or uplift than in the past. I mean, we're still very pleased with what we can do and including the latest Skins, Sandro. These are really nice brands to have in Woluwe, and obviously, we'll dive a bit more deep into the Woluwe tenant mix and what's happening there when we have our Capital Markets Day on the 11th of September, and you're most welcome.

[Lynn Hautekeete, analyst]

I look forward to that.

[Evert Jan van Garderen, executive]

You have one more question, I think.

[Lynn Hautekeete, analyst]

And then -- yes, yes, I do. I do. I will ask my second question now. So you had 1.3% fair value uplift and the main driver there is obviously the increase in your net operating income, but it was also mentioned somewhere that your exit yields were flat or actually went up. I was wondering if you could explain the drivers behind the increase in those exit yields, and if it was maybe related to certain assets.

[Roberto Fraticelli, executive]

Yes. Thank you so much, Lynn. You always have very good questions, unfortunately. I mean, the -- as you say, the value -- the increase in value was the NOI and that was, of course, different center by center. What we tried to do was to -- in discussion with the valuers, what they gave us was the impression on the market and the rest, and what they thought was that they did not see any particular transaction, which would actually change their mind in a dramatic way from the yields that they published and they used until now.

So it's really a minor maybe for some smaller assets where they increased a little bit the net initial yields or sometimes just the net exit yield, it really depends on the valuers and on the way they value the asset, but really nothing significant in any of the shopping centers to be fair.

[Lynn Hautekeete, analyst]

Okay. Clear, and then maybe related to that, could your risk premium go up in France in these exit yields, given the political situation? Did you already discuss that? Or is it too early to tell?

[Roberto Fraticelli, executive]

It's too early to tell because you've seen the movements in the markets, interest rates and property values as well -- sorry, the value of the shares of all the companies also investing in France. So I think it's a bit too early to tell also because we do not know what the end result will be. At the moment, of course, there is a lot of turmoil, which is not very good for the market. But I think we need to look at what actually is going to happen in France and see how they come out of it. So for once, I can say that I'm happy with the Italian situation. .

[Lynn Hautekeete, analyst]

Okay. That's clear. Well, thanks for explanation. See you on the 11th.

[Roberto Fraticelli, executive]

Thank you so much, Lynn.

[Operator]

The next question comes from Valerie Jacob from Bernstein.

[Valerie Jacob Guezi, analyst]

Can you hear me? So I have 2 follow-up questions from what have been asked. The first one is on the projects, I understand that if a project is different and that you cannot give the detail, but maybe if you could share the overall envelope. Like are we talking like a few million? Are we talking tens of millions or give us a range and also give us a range on the returns you expect from these projects. I think that would be useful. That's my first question.

[Evert Jan van Garderen, executive]

Yes. Thank you, Valerie, for the question. In terms of the envelope, what you have been doing is, if you look at our overall direct result and the payout we use for the dividend, which is targeted at 75%, there's obviously an amount left, which is sort of our key envelope, which we think we could overall in the portfolio dedicate to capital expenditure. Obviously, there's a bit of ESG involved as well. But mostly the remerchandising projects do tap out of that envelope.

So -- but of course, it's not only one, I think we have a few of those. But overall, if you look per project, I think it's more a matter of some millions than really double-digit amount, and there is a spread -- at the moment, we're spending a bit more in Italy than in the other countries, as you can imagine.

If you come to your next question, what is the return? I think short term, what we see it is, in most cases, a flat operation. But obviously, it's very important for us to think about the medium and the long term where we do see the benefit.

Obviously, when we are stronger against our competitors when we have new tenants coming in, where we can show that we have a bigger footfall, more turnovers and therefore, tenants are prepared to accept better conditions from our perspective.

And on top of that, I think where we do see some further potential uplift is that with the big brands. There is a component. It's of course, minimum guaranteed rent. But on top of that, the component of turnover and then we do benefit from their success, and I think our expectation is that for the years to come, we will see probably a higher component of turnover and in our overall rent roll. So that's basically the picture, Valerie.

[Valerie Jacob Guezi, analyst]

Okay. That's very clear. And my second question is on reletting and renewals, and you've got some slight negative numbers in France and Sweden. You've just mentioned a couple of negative transactions in Belgium. So I was wondering, do you think all these deals were sort of one-off over the past 6 or 12 months? Or do you see a trend that overall, the market is a bit more difficult now and that your portfolio is on average probably fairly rented.

[Evert Jan van Garderen, executive]

Well, Valerie, we just talked about Belgium, and I understand that we're always focusing on negatives or minuses. In Belgium, we had a few, as I said, 3, 4 deals, which were negative. I also have deals where we have an uplift of 32%, 23%, 12%, 22%. So it's really a case-by-case picture in Belgium.

France, I would say there, we obviously still have an effect and we're not alone there because it has an impact on all the landlords of some of the changes, which go into bankruptcy, recently Claire. I think everybody, all payers have Claire, so do we. But also in the past, it's all started with Camaieu, but we've seen recently Naf Naf again. So I think there's an impact of that kind of situations, which we don't have at least not in our portfolio, let's say, in Belgium or in Italy or in Sweden. So France is probably slightly different.

And if you then have that situation, yes, we think it's important that you get if a unit becomes available, the good brands back and that means that in some cases, you have to probably accept a lower rent. Also given the fact that in some cases, maybe the sector changes that you go to another sector where they cannot afford the rent level. You got out of that specific unit. I think that sometimes may be an element being forgotten that if it's all fashion again and you lease to fashion, then you can maybe say, okay, there's a negative trend because of the fashion sector, but it's also sometimes the change, which is, by definition, almost resulting into either a minus or a plus.

Roberto, anything?

[Roberto Fraticelli, executive]

In Sweden, of course, as we mentioned in the press release as well, we had a lot of inflation in the past year. So when you just look at the renewals. And then, of course, they already absorbed over 23% of inflation in the past year. So that was also related to that. But in the renewals, you see that there is a strong increase at plus 6.6%.

[Evert Jan van Garderen, executive]

Valerie, any more questions?

[Operator]

I don't think Valerie had any more questions. We will go over to our next question, Arianna Terazzi, Intesa Sanpaolo.

[Arianna Terazzi, analyst]

Good morning, everyone, from my side, too, and thanks for your presentation. I had a question on the return you expect from the project in Collestrada, I Gigli and CremonaPO, when they will come to completion. But I think you already covered this topic previously. Then I have another one on asset disposal. The transaction in Sweden was completed above latest valuation. Should we expect further noncore asset disposal in the coming quarters?

[Evert Jan van Garderen, executive]

Thank you, Arianna, for your questions. And indeed, the disposal we made in the summer, it was a small transaction but still relevant for us because we have created that megastore for ACO leased it out on a 10-year lease and it opened all very successfully. So that was for us a good timing to sell that asset. We do have another position in Sweden with similar big box, which we were absolutely investigating to see whether that could also be a good transaction to consider.

The fact is that in Sweden at the moment, the market is actually quite active for this kind of product. We also did these kind of sales in the past when we had retail boxes as we call them, which, of course, are for us, nice to have. But once you have got your tenants in there, you've got long leases, there's not so much you can do, not so much value you can add. That was also in the case of the Samarkand deal, and then we know that we have that retailer anyhow on our retail zone. So it does create traffic you want. And then we can focus on the gallery. That's really where we want to be. There we can add value there, we can work on the tenant mix. So we do hope to maybe see a more -- one more disposal in the, let's say, the coming months, but it's the kind of product, which, of course, we like to produce, but once it's there, then we could maybe better reinvested in our galleries.

[Operator]

Our next question comes from Steven Boumans from ABN AMRO - ODDO BHF.

[Steven Boumans, analyst]

I have three, maybe first also to clarify some earlier answers. I hope you can quantify answers a bit better. So to start on the remerchandizing projects, what is the net annualized rental uplift that we can expect for the three projects combined? And also given you, say, Carosello led to 14.5% uplift, what will -- what was that number for Woluwe?

[Evert Jan van Garderen, executive]

Let me see here, Steven. Yes, I'm afraid that I'm -- let's say, for -- otherwise, we would have published it, if we would have exactly the net annualized income for the next 3 years of each of our remerchandising project. So I'm afraid I cannot comment more than what I said in the call earlier when other colleagues of you asked similar questions.

If we look at Woluwe, I think there, we do also have a different situation than Carosello where, of course, in the case of Carosello, we now have the new tenants also up and running. That was already the case a bit earlier in Woluwe. So I think in 2025, we can probably be more precise on the numbers.

But on Woluwe, Steven, I assume that you will also see us in the Capital Markets Day soon. But if I look at renewals relettings over the last periods, it was 16.6% in December, 10.8% in March and now it's 4.1%. So that's in the reletting is the case. But the average which we gave in Carosello, yes, that's also depending on the deals we did there.

[Roberto Fraticelli, executive]

Maybe, yes, Steven, those are always good questions, and it's always great to hear. Let's say, on the remerchandizing, I think what is important is some of our peers, they give their expected return. And they based on a series of assumptions, which is then not shared with everybody. I mean, we also have the expected yields, returns that we have on the remerchandising. And those, of course, are let's say, at least in line with those of our peers.

What is interesting for us is that, of course, there are several components of this increase in value. The first one is when the contract that you're signing, for example, with very big tenants, and so you have a component which is the MGR, but there's also the component on turnover rent, which is also a very important component.

We all, as the retailers have expectations on the turnovers that they're going to realize. And most times, what we've seen, and then we've seen with Carosello, we've seen with Woluwe, the actual turnover that they realize are beyond our expectations. So we're very happy with that.

On the second hand, there is also the renewals and relettings because, of course, once you've made your center more attractive, then you also have an increase in the number of visitors and you have an increase in the spend. That's the medium- to long-term strategy that we discussed also several times. So what we see is a strong increase in what will be -- what we expect, and we hope to see is the strong increase in rental income and in visitors and a strong effect on the renewals and reletting. So well, others are telling you I'm going to have a yield of 8%, 9% or 10%. We are saying we are doing this, and we are confident that it's a good investment.

But please let us realize these expectations as so that we can communicate with them, and that's also what we did with Carosello and what did we Woluwe. We did the project and now we're sharing with you the results that we're getting. So it's not that we want to be to tricker that we are expecting remerchandise -- sorry, cost return on investment of 2%, on the contrary we are expecting a good return on investments. Just that we want to share the real results and not what will be a fantastic expectation on this investment.

That's to answer your question, Steven.

[Steven Boumans, analyst]

Yes, that provides a lot of clarity. So thank you for the background. If I may, I also have one other question, maybe you can quantify that a bit better. So total CapEx, what do you expect for the, let's say, '26 or the next years and maybe categorize it broadly. Maybe also some color on which part of sustainable investments, for example, like solar you are needing.

[Evert Jan van Garderen, executive]

Well, let's say, Steven, there. Again, we have our sort of rule of thumb that what we do not pay out as dividend, that's obviously cash flow we can use for CapEx spread over the portfolio, but not more than that, otherwise, you would also see gearing going up or whatever. So that's sort of where you should put us and this is -- if I look for the next period, obviously, it's -- the majority of that will be Italy. There will be, if I look at our internal tables, there's not that much happening in Sweden. There is maybe a bit more happening in France, depending on developments there.

But that's, of course, something we realize ourselves. We can't do all those projects at the same time. It's not only about the CapEx and the availability of that, but it's also about the income and we have to accept that when you are -- and that's why we deliberately put some of the photos in the presentation that we're really doing a lot of work, and that means that you cannot lease that space out.

So temporarily, you have a revenue which you're missing and that you have to plan carefully through the portfolio to make sure overall, at group level, obviously, our rental income is still steady or increasing with indexation and other matters, and that's what we have to plan very carefully .

[Roberto Fraticelli, executive]

Steven, I mean, to give you the -- as we always discuss the CapEx, say its around the EUR 40 million, more or less. Of course, we invested a lot of CapEx in ESG, and that's also very important because we want to keep on achieving our targets.

But we really did some major investments in the past. So when we look at the future investment, there is still a lot, but there's also a lot of reserve which we can invest in these kind of projects that we are doing in Carosello in Woluwe, in I Gigli. So there's plenty of opportunities for us.

It also depends, if you remember from the contribution from the government like in Italy when we get -- we got the contribution if we invested in green refurbishment. So -- but so far, as Evert Jan say, this is what we are planning to -- those are the resources that we would like to invest, being careful. We're not doing too much. We're not doing enough. So always trying to find the balance where we can add the best value to the portfolio, that is prioritized.

[Steven Boumans, analyst]

Okay. Very clear. Then my last question, a simple one. Vacancy is obviously low. But just to push you on the contrary with some vacancy being Sweden, could you provide some color here? So is that mainly from the former ICA in Ingelsta, any comments on what we can expect from the vacancy in Sweden?

[Evert Jan van Garderen, executive]

Yes. Steven, indeed, the vacancy in Sweden is mainly in Ingelsta Shopping where ICA Maxi moved over the road and built a new big hypermarket, and that space has been relet to Coop and Normal, and there's still a residual part, which we actually were in Sweden early this week and also to discuss a number of deals, which they have been on the table, they're all back in Sweden a bit earlier than in the other countries, and we do hope that we can feel that, I should not say feel, but have a nice new tenant for the space. .

We have a few options, and we just have to see which one will fit the best. But it is, of course, a lot of space. It's quite deep. So it's not space, which is available for a number of tenants. You need some specific tenants who can take up that kind of surface. But no, we are positively looking at that, and if that is happening, the deal, then obviously, Sweden is back on the levels where the rest of the countries are.

In the other centers, we don't have a lot of vacancy. We're doing some nice lettings in Sweden to also a bit more in the surface sector, health care sector. So in that respect, I think the market in Sweden looks quite nice for the second half of the year.

[Operator]

The next question comes from Alex Kolsteren from Van Lanschot Kempen.

[Alex Kolsteren, analyst]

Just one question remaining from my end, I got one question remaining. So if you look at some of your peers, they've been active in the transaction market, and I think investors are appreciative of that, and then your LTVs are close to the 40%, your target. So I was just wondering what's your view on adding assets to the portfolio?

[Evert Jan van Garderen, executive]

Yes, Alex, we do have on our agenda, the items like indeed what about asset rotation, joint ventures, and we've seen some transactions by peers. At least we have now also done a disposal, which I think if you talk about asset rotation is probably the first step you need to do in order to rotate.

We're keeping an eye on the market. We do have some, if you look indeed at our balance sheet, it's stronger than it was. LTV down. So we are in a position where we can look at various options, but don't expect us to jump into any assets which is now coming to the market. I think we do want the good quality we have in the portfolio.

Obviously, we're very much focusing on the remerchandising projects. But the kind of deal, which we would like for our portfolio, we haven't seen, but maybe they're coming. It's, I think, more and more activity in Spain and maybe that flows over to Italy, who knows. And Sweden, I think there, again, we see more activity. We were one of the deals, of course, which is the effect of lower interest rates.

I mean, in Sweden, the STIBOR has come rapidly down. It's now 2%, maybe one more rate cut there, and therefore, the fundability of assets is much better. We see a lot of appetite among the banks to finance property. We bump into that as well when we, of course, internally discuss it and have our conversation with the bank. So I think the lights are more green for transactions in the Nordics as well. So who knows? Yes.

[Operator]

The next question comes from Francesca Ferragina from ING.

[Francesca Ferragina, analyst]

I have two questions. So first one, there was a change in ownership of Carrefour in Italy. Could you maybe provide more color on any impact this might have on your Italian assets?

And then the second question, coming back on the portfolio revaluation. You already mentioned that the portfolio revaluation is related to the operational performance and not the yield compression. But to what extent do you see the remerchandising projects translating into the asset sales? So reevaluations in Italy increased by more than 2%. But what extent is this impacted by the remerchandising of Carosello? And also what impact would you expect on the revaluation of Woluwe as this was only -- was up slightly 0.7%.

[Roberto Fraticelli, executive]

Very difficult question, the first off. Let's say, of course, it's third parties Carrefour did this deal with NewPrinces, which is an Italian investor who has acquired plenty of companies in the past years. Let's say, what -- it's very interesting on this side is, of course, that as all these products that is now able to sell through the Carrefour operations in it, and so if you sell cheese, for example, and you really have a very limited amount of space in the supermarkets, well, if you can double it, of course, that's extremely interesting for your turnovers for the entire company.

So they have reached that agreement. They haven't finalized the transaction yet, which is expected to happen at the end, before the end of the year, possibly at mid-November. So we are, of course, in discussion with Carrefour. We know NewPrinces, but we haven't got contact with them yet. But let's say, with Carrefour, of course, we only have one asset, which is Carrefour -- which is Carosello. And in Carosello, we have done all this transaction. And of course, yes, premarketing Carosello is quite large, so it will be nice to reduce. This could offer possibilities. Let us put it that way.

For concerns, your second question on valuations and obviously taking into consideration the potential value created by the remerchandising efforts that we did. Well, it is in some form because, of course, the -- depending on the value and the way they do the valuation, some of them use the discount of cash flow. If you use a discounted cash flow, of course, you already start taking into account the ERVs. So do you expect the rental value for the future. So in some cases, we -- the value has already taken into consideration, the ERVs for the future, how they could change, how they could increase, how they could decrease. Those are all the assumptions based on the feedback that we could provide them and that is mainly on the timing and when we think that an operation can be finalized mainly on some of the contracts which have already been signed.

And on that basis, then you can formulate or she can formulate her or his own hypothesis on what is the future rental income going to be. And on that base, then they use the cash flow projections to determine the value that they expect the centers to be. And then, of course, they discounted that. So it also depends a lot on the discount rate, which are still very high. So the effect that you have, of course, been discounted, it's lower and lower the further in the future you go.

Does that answer your question?

[Francesca Ferragina, analyst]

Yes. Thank you.

[Operator]

Our next question comes from Kai Klose from Berenberg.

[Kai Klose, analyst]

I've got two quick questions. The first one, after you had a couple of refinancings in Italy and Sweden, could you indicate what the LTV on an asset basis is compared to the group level? Maybe just as an indication, is it marginally higher or lower or significantly higher or lower? That would be helpful.

And the second question, you mentioned that in terms of the company and other expenses, there were some passing effect in the first half, which explains the increase. I didn't get that in full, if you could explain that again in a bit more detail.

[Roberto Fraticelli, executive]

Yes, yes, yes. So let's say for concerns, the refinancing in Sweden and Italy, the loan to values, it really depends on the banks. Usually, they're between the 40% to 50%, and that's a range that we usually have. We also have some existing financing, which are, of course, the lower loan to value, and that's because during the -- in the time the property increasing value and the loans stayed the same. We had a small amortization. So there's also where you create a gap, but when we refinanced, that's what we're looking at between 40% and 50%, that's where we aim.

[Evert Jan van Garderen, executive]

And I think Kai, in the case of Sweden, we -- because obviously, the Swedish krona is a foreign currency to us, so if at asset level, we could go at 250, 255, we would not mind, because that gives us a bit more natural hedging.

So I think for Sweden, we have may be quite keen on a slightly higher LTV at asset level. But of course, we have to, overall, bear in mind that 40% LTV ratio is something where we feel comfortable. So that it all adds up. But that's, I think, a bit where we are, sorry.

[Roberto Fraticelli, executive]

No, no, no, absolutely. The last one is the bad debt. Let's say, what we had last year we had accrued that. I'm just making up a number, EUR 2 million for bad debt because there were several retailers which are facing difficulties. So we thought let's be prudent and accrue for this possible protection of bad debt.

After a year, we had to realize that actually the agreements that we have reached some of those tenants that were perfectly fine. So there was no need for the accrual, with some others we actually agreed a bad debt which was lower than the one we have provided for. So we had a correction. So instead of having a negative EUR 2 million for the bad debt, you had a plus EUR 1 million for bad debt because we actually had accrued too much. .

Is that helpful?

[Kai Klose, analyst]

Yes. Yes. Got it. got it.

[Operator]

I see that we have one written question, Evert, do we still have time for that?

[Evert Jan van Garderen, executive]

Yes. No, sure. I can read out the question and then we will also provide an answer. And the question is, please could you provide some color on why like-for-like sales for food and beverage and sport are negative, having been among the best categories in recent years.

No, thank you for this question. I think the short answer is that in this case, these sectors were impacted by the works when we introduced the new operators, and it's, of course, just a temporary thing you measure against the previous where you measure against last year, 1 month or 3 months or 6 months. You see it varying and we expect this to improve again. So it's a temporary effect, but it all has to do with where the particular works in the malls are happening at the moment.

[Operator]

All right. That was our last question, and I will hand the call back over to Mr. Evert van Garderen for any closing remarks.

[Evert Jan van Garderen, executive]

Okay. Well, thank you so much. All the participants today who listened in and of course, all the analysts who asked questions. Thank you for asking these questions, which makes it, of course, a very interactive and hopefully interesting conference call.

We look forward to our Capital Markets Day mentioned before in Brussels on the 11th of September, on Thursday, where we will, of course, show Woluwe, what happened there and also go into some more detail on this particular merchandising project.

But for now, I would like to thank everybody for participating, and of course, not last but not least, all our colleagues who worked very hard behind the scenes to get all the numbers and presentations ready, and I wish you a pleasant Friday. Thank you so much.