12.00 hrs
Citycon Oyj's Financial Results for 1 January-31 December 2007
Summary of the Last Quarter of 2007
- In order to improve the transparency of disclosure, financial
results are now split between direct and indirect result in the
Notes.
- Direct result per share (EPRA EPS) i.e. earnings per share
excluding the effects of changes in fair value and other
extraordinary items grew to EUR 0.06 (Q3: EUR 0.03). - - Earnings per
share came to EUR 0.04 (EUR 0.12), the decrease resulting mainly from
the fair value changes and taxes.
- The fair value change of the investment properties was EUR 0.7
million (EUR 21.1 million) and the fair value of the investment
properties increased by EUR 24.4 million to EUR 2,215.7 million
(EUR 2,191.2 million) mainly due to acquisitions and investments.
- Citycon raised a total of EUR 99.3 million in new capital through a
successful rights issue.
- In the last quarter of the financial year, Citycon's net rental
income came close to the third quarter and amounted to
EUR 27,1 million (EUR 27.3 million). The decrease is resulting
largely from increased redevelopment activities as well as seasonal
and timing variation of maintenance and repair expenses.
- The company signed a EUR 350 million unsecured credit facility
agreement to finance Iso Omena acquisition with an international bank
group. The loan was oversubscribed, and the related credit margins
remained close to previous agreements in spite of the general
turbulence in the financial markets.
- The second and third stages of the extension and redevelopment of
the Estonian Rocca al Mare shopping centre were begun with an
additional investment of around EUR 38.9 million. In Lahti, Finland,
the first redevelopment stage of the Trio shopping centre was
completed.
- Citycon aims to obtain an international environmental rating for
three of its initiated pilot projects in sustainable construction.
- The Board of Directors proposes a per-share dividend of EUR 0.04
(EUR 0.14) and, additionally, a return of equity from invested
unrestricted equity fund of EUR 0.10 per share.
Key Figures
Q4 Q4 Q3 Change
2007 2006 2007 2007 2006 1)
Turnover, EUR million 43.3 33.0 38.0 151.4 119.4 26.9%
Net rental income,
EUR million 27.1 22.1 27.3 103.4 82.8 24.9%
Operating profit,
EUR million 24.5 42.5 44.3 300.7 196.5 53.0%
% of turnover 56.6% 128.7% 116.7% 198.6% 164.6% -
Profit before taxes,
EUR million 10.0 33.8 31.0 253.5 165.6 53.0%
Profit attributable to
parent company
shareholders,
EUR million 9.3 24.9 23.4 200.3 124.9 60.4%
Earnings per share
(basic), EUR 0.04 0.15 0.12 1.00 0.76 31.4%
Earnings per share
(diluted), EUR 0.04 0.13 0.11 0.91 0.73 25.0%
Direct result per share
(diluted), (Diluted EPRA
EPS), EUR 2) 0.06 0.05 0.03 0.18 0.20 -9.6%
Net cash from operating
activities per share, EUR 0.06 0.06 0.03 0.20 0.20 0.4%
Fair market value of investment
properties, EUR million 2,191.2 2,215.7 1,447.9 53.0%
Equity per share, EUR 4.44 3.30 34.6%
Net asset value (EPRA
NAV) per share, EUR 3) 4.83 3.53 36.8%
EPRA NNNAV, EUR 4.42 3.14 40.5%
P/E (price / earnings)
ratio 8.0 6 0
P/E ratio, excluding the effects of changes
in fair
value, gains on sale and other extraordinary
items -24.2 25 0
Return on equity (ROE), % -10.7 25.8 0
Return on investment
(ROI), % 0.0 16.8 0
Equity ratio, % 43.9 39.1 -
Gearing, % 111.8 136.6 -
Net interest-bearing debt
(fair value), EUR million 1,147.3 811.2 41.4%
Net rental yield, % 4) 5.8 7.1 -
Occupancy rate, % 95.7 97.1 -
Personnel (at the end of
the period) 102 73 39.7%
Dividend per share, EUR 0.04 *) 0.14 -71.4%
Return from invested
unrestricted equity fund
per share, EUR 0.10 *) -
Dividend and return
from invested
unrestricted equity fund
per share total, EUR 0.14 *) 0.14 0.0%
1) Change-% is calculated from exact figures and refers to the change
between 2006 and 2007.
2) Previously disclosed "Earnings per share excluding the effects of
changes in fair value gains, gains on sale and other extraordinary
items" have been replaced with the "Direct result per share
(diluted)" -key figure. Please see the note "Reconciliation between
direct and indirect result" for direct result calculations.
3) The calculation of NAV has been modified to comply with EPRA
definitions (previously deferred taxes were deducted).
4) Includes the lots for development projects.
*) Proposal by the Board.
The Board of Directors of Citycon Oyj has today approved the
Financial Statements of the company for the financial period 1
January - 31 December 2007 and they are available in pdf-format on
the company's website www.citycon.fi
Summary of the Year 2007
- Turnover increased by 26.9 per cent, to EUR 151.4 million (2006:
EUR 119.4 million), due mainly to new acquisitions.
- Net rental income grew by 24.9 per cent to EUR 103.4 million (EUR
82.8 million) due mainly to acquisitions. Net rental income from
like-for-like properties grew by 6.2 per cent.
- Profit before taxes amounted to EUR 253.5 million
(EUR 165.6 million), including a EUR 213.4 million
(EUR 120.1 million) in fair value gains of investment properties.
- Net financial expenses came to EUR 47.3 million (EUR 30.9 million),
the interest rate of interest-bearing debt averaging 4.68 per cent
(4.35%).
- Earnings per share were EUR 1.00 (EUR 0.76). The growth was due
mainly to fair value gains.
- Direct result per share (EPRA EPS) came to EUR 0.18 (EUR 0.20). The
decrease resulted mainly from increased financing expenses related to
new property acquisitions, increase in administrative costs related
to strengthening of the organisation, increased property development
activities and from the increased number of shares. The decrease was
partly mitigated by the lower current tax.
- Net cash flow from operating activities per share remained strong
and amounted to EUR 0.20 (EUR 0.20).
- Net asset value per share (EPRA NAV) grew to EUR 4.83 (EUR 3.53).
- According to an external appraiser, the average net yield
requirement for investment properties was at 5.6 per cent at the end
of 2007.
- Equity ratio rose to 43.9 per cent (39.1%).
- During the financial year, Citycon made its largest ever shopping
centre acquisition by acquiring the Iso Omena shopping centre,
located in Espoo, Finland. In Sweden, Citycon acquired the Tumba
Centrum and Strömpilen shopping centres and the Länken retail centre
and, in Estonia, the Magistral shopping centre.
- At the end of the year, Citycon had development and redevelopment
projects underway in Finland, Sweden and Estonia to the total value
of around EUR 330 million.
CEO Petri Olkinuora Comments on the Year 2007 as follows:"In 2007, Citycon's turnover continued to grow and profit improved
further. Citycon continued successfully implementing its expansion
strategy through selected acquisitions and development projects. The
company's net rental income increased and the fair market value of
properties rose. The shopping centre business was backed up by the
retail trade's strong growth in all of Citycon's operating countries.
Citycon's strategic focus lies in the development, redevelopment and
proactive management of its assets and the company made substantial
investments in various projects as reported. The company's existing
property portfolio offers good opportunities to increase rental
income by development investments and construction of new premises.
In the short term, redevelopment projects may lead to decrease in
rental income, since some retail premises under major renovation have
to be vacated, but going further, these activities will increase the
company's rental income and market position remarkably.
In our property development, we emphasize sustainable construction
and creating environmental-friendly practices. The company has
currently in progress seven major redevelopment and extension
projects. The three largest ones of these, the development project of
the Liljeholmstorget shopping centre in Stockholm, the extension to
the Rocca al Mare shopping centre in Tallinn and the refurbishment of
the Trio shopping centre in Lahti, form the company's pilot projects
in sustainable construction.
In spite of the increase in interest rates and the volatility in the
international financial markets, Citycon's weighted-average interest
rate grew modestly during the year thanks to our conservative
financing policy. Also, the margins of our new credit facilities
remained in line with the company's quality of operations. During the
year, the company also successfully carried out two share issues.
Citycon's cash flow remained strong despite higher net financial
expenses.
Citycon will continue the sustainable development of its shopping
centres in 2008. We also seek new opportunities to expand our
shopping centre business, both through new acquisitions and
redevelopment activities."
Business Environment
In 2007, retail trade growth remained strong, with new sales records
attained during the Christmas season. As a result of tax cuts and
wage agreements made in Sweden and Finland during the year, consumer
purchasing power increased. Consumer confidence in economic growth,
however, weakened towards the end of the year. The prevailing
uncertainty is caused by growing inflationary pressure, particularly
in the Baltic countries, and by increased volatility and weakened
condition of the financial markets. So far, this uncertainty has not
had a significant effect for Citycon with regard to the availability
of financing and the credit margins paid by the company.
In 2007, construction costs rose by 5.6 per cent in Finland (source:
Statistics Finland), 5.4 per cent in Sweden (source: Byggindex) and
12.7 per cent in Estonia (source: Statistics Estonia). Citycon
monitors construction cost trends and, in its property development,
focuses particularly on project management which can contribute to
curbing the effects of increasing costs.
Business and Property Portfolio Summary
Citycon is specialised in shopping centres and other large retail
units, its market areas comprising Finland, Sweden and the Baltic
countries. In Finland, Citycon is the market leader in the shopping
centre business, while in Sweden it is one of the fastest-growing and
most dynamic operators in the real estate sector. The company has
established a firm foothold in the Baltic countries.
Citycon continues its responsible growth strategy by expanding its
retail property portfolio in selected markets and by developing and
redeveloping its properties into entities that serve the needs of
retail even better. Citycon's preferred acquisition targets are
shopping centres that offer redevelopment and/or refurbishment
opportunities, and whose net rental income can be increased with
active retail property management.
Thanks to its careful market research and good local knowledge,
Citycon has been able to acquire some of the most interesting
shopping centres in the major growth centres in the countries where
it operates. Similarly, Citycon's new investments are focused on
areas where the population and its purchasing power can be expected
to grow.
At the end of the reporting period, Citycon owned 33 (26) shopping
centres and 53 (53) other properties. Of the shopping centres, 22
(19) were located in Finland, eight (5) in Sweden and three (2) in
the Baltic countries.
The market value of the company's property portfolio totalled
EUR 2,215.7 million, of which Finnish properties accounted for
71.6 per cent (69.7%), Swedish properties for 23.4 per cent (24.5%)
and Baltic ones for 5.0 per cent (5.8%). The gross leasable area at
the end of the period was 923,980 square metres.
Changes in Fair Value of Investment Properties
Citycon measures its investment property at fair value, under the IAS
40 standard, according to which changes in investment properties'
fair value are recognised through profit or loss. In accordance with
the International Accounting Standards (IAS) and the International
Valuation Standards (IVS), an external professional appraiser
conducts a valuation of Citycon's property portfolio on a
property-by-property basis at least once a year. However, in 2007,
Citycon chose to have its properties valued by an external appraiser
on a quarterly basis, due to market activity and rapidly changing
market conditions.
At the end of the year 2007, Citycon's property portfolio was valued
for the third time by Realia Management Oy, a part of the Realia
Group. Realia Management Oy works in association with the world's
leading provider of real estate services, the international company
CB Richard Ellis. A summary of Realia Management Oy's Property
Valuation Statement on the year-end status can be found at
www.citycon.fi.
During the financial year, the fair value of Citycon's property
portfolio rose by EUR 213.4 million as a result of development and
redevelopment projects, and changes in general market conditions and
the leasing business. The year saw a total value increase of
EUR 220.9 million and a total value decrease of EUR 7.5 million.
The average net yield requirement defined by Realia Management Oy for
Citycon's property portfolio decreased to 5.6 per cent (Q3/2007:
5.7%). The decrease in yield requirement was due mainly to new
property acquisitions, which were included in the valuation for the
first time during the last quarter, especially the inclusion of
shopping centre Iso Omena in the property portfolio.
Lease Portfolio and Occupancy Rate
At the end of the financial year, Citycon had a total of 3,700
(3,080) leases. The average length of the lease agreements was 3.0
(2.9) years. The period-end occupancy rate for Citycon's property
portfolio was 95.7 per cent (97.1%), and net rental yield was 5.8
per cent (7.1%). The decrease in net rental income yield was mainly
due the changes in the property portfolio's fair value. The occupancy
rate reduced slightly compared to December 2006, due to an increase
in the number of premises temporarily vacated due to redevelopment
projects.
The company's net rental income grew by 24.9 per cent to EUR 103.4
million. The leasable area rose by 25.0 per cent to 923,980 square
metres. Net rental income for like-for-like properties grew by
6.2 per cent.
Like-for-like properties are properties held by Citycon throughout
the 24-month reference period, excluding properties under development
and expansion as well as lots. The majority of like-for-like
properties are located in Finland. In the last quarter, properties
located in Sweden were also included in like-for-like properties for
the first time.
The calculation method for net yield and standing (like-for-like)
investments is based on guidelines issued by the KTI Institute for
Real Estate Economics and the Investment Property Databank (IPD).
Lease Portfolio Summary
Q4/ Q4/ Q3/
2007 2006 2007 2007 2006 Change, %
Number of leases
started
during the period 164 102 112 512 369 38.8
Total area of leases
started,
sq.m. 27,854 14,822 28,884 103,408 73,300 41.1
Occupancy rate at end
of the
period, % 96.3 95.7 97.1 -1.4
Average length of lease
portfolio at the end of
the
period, year 2.8 3.0 2.9 3.4
Acquisitions
Alongside its property portfolio's growth, Citycon has shifted its
business focus towards the development of its current shopping
centres. However, the company is continuously seeking new acquisition
opportunities in all of its market areas.
The largest acquisition during the year, and in the company's
history, was the purchase of the Iso Omena shopping centre in
September for EUR 329 million. The keystone in Iso Omena's takeover
and management is Citycon's own organisation operating in the
shopping centre itself and responsible for its management and
marketing as well as for the property's technical functioning. With
an objective to tune up the centre's service offering to serve its
customer base even better, the organisation also aims to support
Citycon's shopping centre offering in the Espoo region, where the
company already has several shopping centres. Immediately following
the acquisition, Citycon began planning the shopping centre's
extension and initiated the project's implementation. Iso Omena can
be expanded by a total of some 7,000 square metres, and the future
underground line will also create new opportunities for the
development of the shopping centre.
The construction, commissioned by Citycon, of a new retail centre in
Lentola, located in Kangasala in the Tampere region, Finland, was
completed in the last quarter of 2007, and the centre was transferred
to Citycon's ownership. The property acquisitions conducted during
the year are presented in the table below. In addition, the company
has carried out several share transactions in order to increase its
holdings in properties partially owned by it.
Acquisitions 2007 1)
+------------------------------------------------------------------------------+
|Property |Company |Location | Acquisition| Post-acquisition|
| | | | cost 2)| holdings, %|
| | | | (EUR million)| |
|-------------+-----------------+-----------+---------------+------------------|
|Finland | | | | |
|-------------+-----------------+-----------+---------------+------------------|
|Shopping |Big Apple |Espoo | 329.0| 100|
|centre |Acquisition Oy | | | |
|Iso Omena | | | | |
|-------------+-----------------+-----------+---------------+------------------|
|Shopping |Kiinteistö Oy |Lahti | 17.3| |
|centre |Lahden Hansa | | | |
|Trio | | | | |
|-------------+-----------------+-----------+---------------+------------------|
|Retail centre|Kiinteistö Oy |Kaarina | 10.9| 100|
|Lillinkulma |Lillinkulma | | | |
|-------------+-----------------+-----------+---------------+------------------|
|Shopping |Kiinteistö Oy |Espoo | 9.23)| 100|
|centre |Espoon Asema- | | | |
|Espoontori |kuja 2 | | | |
|-------------+-----------------+-----------+---------------+------------------|
|Retail centre|Myllypuron |Helsinki | 2.74)| 73,5|
|Myllypuro |Ostoskeskus Oy | | | |
| |Kiinteistö Oy | | | |
| |Kivensilmänkuja 1| | | |
|-------------+-----------------+-----------+---------------+------------------|
|Retail centre|Lentolan |Kangasala | 16.1| 100|
|Lentola |Perusyhtiö Oy | | | |
|-------------+-----------------+-----------+---------------+------------------|
|Sweden | | | | |
|-------------+-----------------+-----------+---------------+------------------|
|Shopping |Tumba Centrum |Botkyrka, | 59.4| 100|
|centre |fastigheter AB |Greater | | |
|Tumba Centrum| |Stockholm | | |
|-------------+-----------------+-----------+---------------+------------------|
|Shopping |Strömpilen AB |Umeå | 52.9| 75|
|centre |(formerly | | | |
|Strömpilen |Balticgruppen | | | |
|and |Handel AB) | | | |
|retail centre| | | | |
|Länken | | | | |
|-------------+-----------------+-----------+---------------+------------------|
|Baltic | | | | |
|Countries | | | | |
|-------------+-----------------+-----------+---------------+------------------|
|Shopping |Real estate |Tallinn | 16.2| 100|
|centre |transaction | | | |
|Magistral | | | | |
+------------------------------------------------------------------------------+
1) Includes investments with purchase price exceeding EUR 1 million.
2) Acquisition prices stated are debt free purchase prices with
transaction expenses, using acquisition date exchange rates.
3) The purchase price totals EUR 11 million and the rest of it is
payable upon approval of the change in city plan.
4) Includes several transactions.
Development and Redevelopment Projects
Maintaining its properties as attractive and dynamic centres for
shopping for both customers and lessees is the key element in
Citycon's business. The company aims to increase the long-term
cash-flow and return from its retail properties through development
projects. In the short term, however, such projects may weaken
returns from some properties, as part of the retail premises have to
be temporarily vacated for refurbishment, and this affects the rental
income.
In its development projects, Citycon pays attention to environmental
issues, such as recycling and construction materials. The company's
pilot projects in sustainable construction include building a new
shopping centre in Liljeholmen, Stockholm, and the refurbishment and
extension projects of the Rocca al Mare shopping centre in Tallinn
and the Trio shopping centre in Lahti. For these projects, Citycon is
seeking an international environmental rating.
The assessment applied in the pilot projects comprises a total of
over 60 points, reviewing various factors such as the energy
efficiency of the property, indoor air quality, the choice of
materials, the utilisation of public transport and minimising the
environmental impacts of construction work. On the basis of the
assessment, concrete development measures will be planned in order to
establish systematic sustainable construction practices.
The table below shows a list of the most significant development and
redevelopment projects in progress, as decided by the Board of
Directors. In addition, Citycon is planning and preparing a number of
other development and redevelopment projects. More information on
planned projects can be found in the management presentations
available on Citycon's website at www.citycon.fi and the Annual
Report, which will be published towards the end of February.
During the year, capital expenditure in the development projects
amounted to EUR 39.5 million in Finland, EUR 16.8 million in Sweden
and EUR 15.5 million in the Baltic Countries.
Development Projects in Progress
Actual gross
expenditure
Estimated by the end
total of Estimated
need the period year of
Property Location (EUR million) (EUR million) completion
Espoo,
Lippulaiva Finland 60-70 1) 8.9 2008
Lahti,
Trio Finland 50.5 21.5 2009
Seinäjoki,
Torikeskus Finland 4.0 2.1 2008
Åkersberga Österåker,
Centrum Sweden 27 2) 3.3 2009
Stockholm,
Liljeholmstorget Sweden 120 17.6 2009
Tallinn,
Rocca al Mare Estonia 68 13.2 2009
1) Both planned development stages are included in the figure.
2) Estimated total need has been adjusted to EUR 60 million.
2) Citycon owns 75 per cent of Åkersberga shopping centre, and the
overall project cost totals approximately EUR 40 million.
The company's most significant development project is the
construction of a new shopping centre in Liljeholmen, Stockholm. The
project advances within the planned budget and schedule. The related
investment plan was adjusted towards the end of the year, as
agreement was reached with the City of Stockholm and its transport
services on arrangements allowing both the expansion of the shopping
centre's lowest floor on a larger area than originally planned and
its direct connection with underground and bus stations. The new
shopping centre is expected to open its doors in
October-November 2009, but the first agreements with new tenants have
already been signed.
Åkersberga shopping centre development and redevelopment project has
delayed due to changes to the plans arising from a dispute with one
of the centre's tenants. Currently, an alteration of the city plan is
pending and the preparation of the new development and expansion plan
is underway.
The first redevelopment stage of the Trio shopping centre in downtown
Lahti was completed in November as planned. After the completion of
the first stage, the construction plans have been revised and, as a
result, the project's total investment is estimated to increase to
EUR 60 million from the original estimate of EUR 50.5 million.
Following the completion of the development project, the shopping
centre's sales are expected to rise from the current figure of
EUR 80 million to EUR 110 million. The aim is to attract
approximately 7 million customers to the shopping centre annually.
Refurbishing and extension of the Rocca al Mare shopping centre
acquired in Tallinn commenced in February 2007. The first stage of
the shopping centre's modernisation is planned to be completed in the
spring of 2008, and the second and third stages of the development
project are also underway. The completely refurbished Rocca al Mare
is expected to open its doors ahead of the planned schedule, in the
autumn of 2009.
The zoning appeal related to the expansion of the Lippulaiva shopping
centre in Espoo was dismissed by the Supreme Administrative Court at
the beginning of September, after which the project has continued
according to the original plan.
Completed Development Projects
The period saw the completion of several development projects. The
major ones are listed on the table below.
Actual gross
expenditure
Estimated total by the end of
cost the period
Property Location (EUR million) (EUR million)
Duo Tampere, Finland 27.3 25.5
Lillinkulma Kaarina, Finland 8.2 10.9 1)
Lentola Kangasala, Finland 16.6 16.2
Linjuri Salo, Finland 1.8 1.2
1) Includes stages 1 and 2. The second stage was completed earlier
than anticipated.
The most significant project completed during the year was the
refurbishment and extension of the old Hervanta retail centre located
in Hervanta, Tampere, into the shopping centre Duo. The Duo extension
was completed in April and the entirely refurbished shopping centre
was opened for the Christmas season. The leasable area of Duo is
15,500 square metres, consisting of the old Hervanta retail centre
(5,200 sq.m.) and the new extension (10,300 sq.m.). Exceptionally,
Duo has three large grocery stores as anchor tenants. For 2008, the
targeted number of customers is 3.5 million, the sales target being
EUR 55 million. The project was completed on budget and on schedule.
The new retail centre built in Lentola, Kangasala, was completed
towards the end of the year and transferred, fully leased, to
Citycon's ownership. Located in Kaarina, the new Lillinkulma retail
centre was completed in May.
In the centre of the town of Salo, a Citycon retail property was
redeveloped into a shopping centre and was opened for Christmas 2007.
At Myyrmanni in Vantaa, modernisation of the food court doubled the
shopping centre's existing restaurant services.
Business Units
Citycon's business operations are divided into three business units:
Finland, Sweden and the Baltic Countries. These are further divided
into business areas Retail Properties and Property Development.
Finland
Citycon is the market leader in the Finnish shopping centre business.
The company's net rental income from Finnish operations grew by
10.1 per cent, to EUR 75.7 million. Net rental income from
like-for-like properties rose by 6.6 per cent.
The business unit accounted for 73.2 per cent of the company's total
net rental income. During the last 12 months, rolling twelve-month
occupancy cost ratio for like-for-like properties was 8.6 per cent.
The occupancy cost ratio is calculated as a share of net rent and
potential service charges paid by a tenant to Citycon out of the
tenant's sales excluding VAT. The VAT percentage is an estimate.
Property acquisitions as well as development projects in progress or
completed in Finland have been covered previously in this document.
Lease Portfolio Summary, Finland
Q4/ Q4/ Q3/
2007 2006 2007 2007 2006 Change, %
Number of leases started
during the period 151 75 84 442 321 37.7
Total area of leases
started, sq.m. 18,640 11,670 14,510 74,400 66,500 18,640
Occupancy rate at end of
the period, % 95.9 95.6 97.2 -1.6
Average length of lease
portfolio at the end of
the
period, year 3.1 3.1 3.1 0.0
Financial Performance, Finland
Q4 Q4 Q3 2007 2006 Change, %
2007 2006 2007
Gross rental income,
EUR million 29.1 23.3 24.6 100.7 93.1 8.2
Turnover, EUR million 30.2 24.0 25.5 104.3 95.8 8.9
Net rental income,
EUR million 21.0 17.0 18.9 75.7 68.8 10.1
Net fair value gains on
investment property,
EUR million -2.1 13.0 16.2 148.5 104.8 41.7
Operating profit,
EUR million 17.5 30.2 33.9 218.7 176.1 24.2
Capital expenditure,
EUR million 32.5 5.7 353.2 429.1 152.8 180.8
Fair market value of investment
properties, EUR million 1555.5 1,587.0 1009.7 57.2
Net rental yield, % (1 6.6 6.2 7.6 -
Net rental yield, like-for-
like properties, % 7.4 7.1 7.9 -
1) Includes the lots for development projects.
Sweden
Citycon has achieved a substantial position in the Swedish shopping
centre market and has eight (5) shopping centres and seven (7) other
retail properties in Sweden, located in Stockholm and Gothenburg
areas and Umeå. The company's net rental income from Swedish
operations improved by 133.6 per cent, to EUR 21.6 million, and the
business unit's net rental income accounted for 20.9 per cent of
Citycon's total net rental income.
Property acquisitions and development projects in progress in Sweden
have been covered previously in this document.
Lease Portfolio Summary, Sweden
Q4/ Q4/ Q3/
2007 2006 2007 2007 2006 Change, %
Number of leases started
during the period 13 27 18 49 32 53.1
Total area of leases
started, sq.m. 9,179 3,152 12,213 25,800 3,900 561.5
Occupancy rate at end of
the period, % 96.9 95.1 96.3 -1.2
Average length of lease
portfolio at the end of the
period, year 2.0 2.4 2.2 11.6
Financial Performance, Sweden
Q4 Q4 Q3 2007 2006 Change,%
2007 2006 2007
Gross rental income,
EUR million 9.4 6.6 9.7 35.4 15.9 121.8
Turnover, EUR million 11.1 7.2 10.1 39.0 17.3 125.1
Net rental income,
EUR million 4.7 3.7 6.5 21.6 9.3 133.6
Net fair value gains on
investment property,
EUR million 2.7 9.1 2.3 55.6 8.7 539.3
Operating profit,
EUR million 7.3 11.9 7.6 74.3 16.8 343.4
Capital expenditure,
EUR million 5.5 41.2 3.0 142.4 267.2 -46.7
Fair market value of investment
properties, EUR million 526.4 517.5 354.8 45.9
Net rental yield, % (1 4.8 4.6 5.1 -
Net rental yield, like-for-
like properties, % 6.0 5.3 6.8 -
1) Includes the lots for development projects.
Baltic Countries
At the end of the reporting period, Citycon owned three shopping
centres in the Baltic countries: Rocca al Mare and Magistral in
Tallinn, Estonia and Mandarinas in Vilnius, Lithuania. Due to the
limited size of the Baltic market and the limited availability of
suitable properties, Citycon has been cautious with investments in
the region. However, the company is continuously looking for
potential investment opportunities in the region. Net rental income
from Baltic operations increased by 25.4 per cent to EUR 6.0 million.
The business unit accounted for 5.8 per cent of the company's total
net rental income.
Property acquisitions and development projects in progress in the
Baltic countries have been covered previously in this document.
Lease Portfolio Summary, Baltic Countries
Q4/ Q4/ Q3/
2007 2006 2007 2007 2006 Change, %
Number of leases started
during the period - - 10 21 16 31.3
Total area of leases
started, sq.m. - - 2,161 3,208 2,900 10.6
Occupancy rate at end of
the period, % 100.0 100.0 100.0 0.0
Average length of lease
portfolio at the end of the
period, year 3.2 2.8 3.3 -15.9
Financial Performance, Baltic Countries
Q4 Q4 Q3 2007 2006 Change -%
2007 2006 2007
Gross rental income,
EUR million 2.1 1.8 2.1 7.7 6.1 25.7
Turnover, EUR million 2.0 1.8 2.3 8.0 6.2 29.4
Net rental income,
EUR million 1.4 1.3 1.8 6.0 4.8 25.4
Net fair value gains on
investment property,
EUR million 0.1 1.1 2.5 9.3 6.6 42.0
Operating profit,
EUR million 1.2 2.2 4.2 14.5 10.9 33.0
Capital expenditure,
EUR million 5.6 0.0 22.2 31.7 16.2 95.1
Fair market value of investment
properties, EUR million 109.3 111.2 83.3 33.4
Net rental yield, % (1 6.4 6.2 6.7 -
1) Includes the lots for development projects.
Turnover and Profit
Turnover for the period came to EUR 151.4 million
(EUR 119.4 million), mainly coming from the rental income generated
by Citycon's retail premises. Gross rental income accounted for
94.9 per cent (96.5%) of turnover.
Operating profit rose to EUR 300.7 million (EUR 196.5 million).
Profit before taxes came to EUR 253.5 million (EUR 165.6 million) and
profit after taxes was EUR 203.9 million (EUR 126.4 million). The
increase in operating profit was chiefly due to changes in the fair
value of the property portfolio and the operating profit generated by
the acquired properties.
The effect of changes in fair value of the property portfolio, of
gains on sales and of other one-off items on the profit attributable
to the parent company's shareholders was EUR 164.6 million
(EUR 92.5 million). Taking this effect into account, the direct
result was EUR 3.3 million above the reference period level (see the
Note Reconciliation between the Direct and Indirect Result). The
profit growth results from property acquisitions and increased net
rental income from like-for-like properties. Current taxes on direct
result were lower during the period than during the comparison period
in spite of profit growth. The lower current taxes resulted mostly
from higher depreciation of buildings in Finland, reducing the parent
company's result under the local Finnish Accounting Standards (FAS)
and thereby also current taxes.
Earnings per share came to EUR 1.00 (EUR 0.76). Direct result per
share (EPRA EPS) came to EUR 0.18 (EUR 0.20). Net cash flow from the
operating activities per share amounted to EUR 0.20 (EUR 0.20).
Human Resources and Administrative Expenses
At the end of the year, Citycon Group had a total of 102 (73)
employees, of whom 71 were employed in Finland, 24 in Sweden and
seven in the Baltic countries. Administrative expenses rose to
EUR 16.5 million (EUR 12.9 million), including EUR 0.7 million
(EUR 0.9 million) in share-based, non-cash implicit expenses related
to employee stock options and the company's share-based incentive
scheme. The higher expenses were partly due to the expansion of the
company's operations and to the cost of creating the new regional
organisation.
Capital Expenditure
Citycon's reported gross capital expenditure in the period totalled
EUR 603.9 million (EUR 436.4 million). Of this, property acquisitions
accounted for EUR 531.3 million (EUR 400.9 million), property
development for EUR 71.8 million (EUR 35.4 million) and other
investments for EUR 0.8 million (EUR 0.2 million).
The investments were mainly financed with the directed share issue
worth approximately EUR 133.8 million, with the rights issue worth
EUR 99.3 million and a bridge funding facility for EUR 350 million
made with a Nordic bank group.
Balance Sheet and Financial Position
The period-end balance sheet total stood at EUR 2,308.6 million
(EUR 1,486.4 million). Liabilities totalled EUR 1,297.7 million
(EUR 906.1 million), with short-term liabilities accounting for
EUR 157.8 million (EUR 134.4 million). The Group's financial position
remained healthy during the period. At the end of the financial year,
Citycon had a total of EUR 150 million of undrawn credit limits
available, and it also had the opportunity to issue EUR 45 million in
short-term loans under the company's domestic commercial paper
programme.
Year-on-year interest-bearing debt increased by EUR 340.0 million to
EUR 1,154.0 million (EUR 814.0 million). The fair value of Group's
interest-bearing debt stood at EUR 1,171.4 million
(EUR 832.5 million). Short-term interest bearing debt constitutes
approximately 9 per cent of the total interest-bearing debt of the
group. The undrawn credit limits available at the end of financial
year are sufficient to cover maturing interest-bearing debt for the
next two years.
The Group's cash and cash equivalents totalled EUR 24.2 million
(EUR 21.3 million). The fair value of Group interest-bearing net debt
stood at EUR 1,147.3 million (EUR 811.2 million).
The year-to-date average interest rate was 4.68 per cent (4.35%)
during the reporting period. The increase of the average interest
rate was moderate in comparison to the rapid increase in short-term
interest rates in the company's operating areas. The average loan
maturity, weighted according to principals of the loans, increased to
4.7 years (4.6 years), since the short-term bridge funding was repaid
using a seven year syndicated credit. The average time to fixing was
3.1 years (3.4 years). The interest rate, interest-rate swaps
included, averaged 5.02 per cent on 31 December 2007.
The Group's equity ratio stood at 43.9 per cent (39.1%). Period-end
gearing stood at 111.8 per cent (136.6%). The decreased gearing and
the improved equity ratio during the reporting period were due to the
share issues and good financial performance.
Of Citycon's period-end interest-bearing debt, 81.6 per cent (77.5%)
were floating-rate loans, of which 61.1 per cent (76.2%) had been
converted to fixed-rate loans by means of interest-rate swaps.
Fixed-rate debt accounted for 68.3 per cent (81.6%) of the Group's
period-end interest-bearing debt, interest-rate swaps included. The
loan portfolio's hedging ratio has been in line with the Group's
financing policy but slightly below the usual level, due to the
market outlook based on a slowdown in world economic growth.
Citycon applies hedge accounting, whereby changes in the fair value
of interest-rate swaps subject to hedge accounting are recognised
under equity. The period-end nominal amount of interest-rate swaps
totalled EUR 634.5 million (EUR 541.7 million), with hedge accounting
applied to interest-rate swaps whose nominal amount totalled
EUR 558.0 million (EUR 491.7 million). On 31 December 2007, the
nominal amount of all the Group's derivative contracts totalled
EUR 674.8 million (EUR 556.4 million), and their fair market value
was EUR 9.1 million (EUR -1.8 million).
Net financial expenses increased by EUR 16.4 million, to
EUR 47.3 million (EUR 30.9 million). This increase came mainly from
higher interest expenses due to the higher level of interest-bearing
debt, additional expenses resulting from an option on convertible
bonds, higher weighted-average interest rate and from non-cash
mark-to-market loss from derivatives recognised in the income
statement. The net financial expenses in the income statement include
EUR 1.8 million (EUR 0.3 million) in non-cash expenses related to the
option component on convertible bonds.
Capital Market Transactions
In 2007, Citycon obtained financing for a total of EUR 584.5 million
on the stock and debt markets, and used these funds for acquiring
properties and for the development of the existing ones. The
conducted financing transactions and changes in the fair value of
properties strengthened the company's balance sheet.
In February, Citycon arranged a directed share issue to Finnish and
international institutional investors, waiving the shareholders'
pre-emptive rights. The issue of new shares was based on the
authorisation by the Extraordinary General Meeting of 26 January 2007
and was carried out in an accelerated book-building process on
12-13 February 2007. A total of 25 million new shares were subscribed
for at a per-share price of EUR 5.35, resulting in net proceeds of
approximately EUR 132.2 million.
In September, as part of financing the acquisition of the Iso Omena
shopping centre, the Board of Directors decided on a share issue
based on shareholders' pre-emptive subscription rights, worth
approximately EUR 99 million. The share issue was authorised by the
Annual General Meeting of 13 March 2007, and a total of 27,594,782
new shares were offered for subscription at a price of
EUR 3.60 per share. The subscription period began on 19 September and
ended on 3 October 2007. Citycon's shareholders had the right to
subscribe for one new share per seven shares held. All offered shares
were subscribed for in the share offering. A total of
27,235,387 shares were subscribed for in the primary subscription,
representing 98.7 per cent of the shares offered. Since the secondary
subscription was oversubscribed, the share issue became fully
subscribed.
The details of the directed share issue and the rights issue are
presented in the stock exchange releases issued by Citycon during the
financial year, and are available on the company's website at
www.citycon.fi.
Related to the acquisition of the Iso Omena shopping centre, Citycon
also signed a EUR 350 million unsecured credit facility agreement
with an international banking group. The agreement consists of a
seven year bullet term loan of EUR 200 million and a EUR 150 million
five year revolving credit facility. The facility was substantially
oversubscribed at syndication. The term loan facility was used to
refinance a short-term credit facility drawn for the financing of the
acquisition of Iso Omena. The EUR 150 million revolving credit
facility will be utilised to finance the committed development
pipeline and potential property acquisitions in accordance with
Citycon's strategy.
Near-term Risks and Uncertainties
Risk management aims to ensure that Citycon meets its strategic and
operational goals. The company's risk-management process involves
identifying business-related risks, analysing their significance,
planning and implementing risk-management measures, reporting on
risks on a regular basis and controlling risks.
In the late 2006, Citycon initiated a large-scale project aiming at
the adoption of a holistic Enterprise Risk Management (ERM)
programme. The project implementation was completed during 2007.
Accordingly, the company adopted ERM-compliant operating models and
principles of risk management in preparing its 2008 annual plan. The
company updates its guidelines for risk-management principles,
approved by the Board of Directors, on a regular basis in response to
possible changes in its business.
Citycon estimates that major near-term risks and uncertainties are
associated with economic development in the company's operating
regions and changes in the fair value of investment properties and
interest rates. As the focus of Citycon's growth strategy is shifting
from property acquisitions to development and construction of its own
properties, the risks associated with project management and with
increasing construction costs will be more significant. A marked
increase in interest rates, materialisation of a major project risk,
considerably higher construction costs, a decline in the fair value
of investment properties or a sharp economic slowdown in Finland,
Sweden or the Baltic countries could have an adverse effect on
Citycon's business and profit performance.
The turbulence in the financial markets that began in the late summer
has resulted in a clear increase in short-term interest rates and
difficulties in banks' own funding activities, which may
significantly affect the availability of funding for Citycon and
increase future credit margins and financing costs if the uncertainty
continues for a prolonged period. This could have a negative effect
on the implementation of Citycon's strategy and on the company's
business and profits. The company aims to hedge the risk of changes
in the financial market by applying a conservative financing policy,
which has thus far kept the company's financial expenses from rising
significantly and the availability of financing from decreasing.
The company's risk management is covered in more detail in the Annual
Report 2007, which will be published towards the end of February.
Financing risks are also presented on pages 35-36 of the Financial
Statements.
Environmental Responsibility
Energy-use control forms an integral part of property companies'
operating-cost control and environmental responsibility. Citycon is
involved in KRESS, the energy conservation agreement for the property
and construction sector, aimed at reducing properties' energy
consumption. Other major environmental effects in shopping-centre
management relate to land use, property maintenance and waste
management.
Citycon pays attention to environmental issues in its development
projects and is seeking an international environmental rating for
them. Sustainable construction is covered above under Development and
redevelopment projects.
Legal Proceedings
Market Court's Decision on Citycon's Appeal Regarding Ratina Tender
Procedure
The Finnish Market Court issued a decision on 12 October 2007 to
dismiss the petition filed by Citycon Oyj and Skanska Talonrakennus
Oy on 27 April 2006 in the tender procedure regarding the
construction of a shopping centre and related areas in the Ratina
region of the City of Tampere, Finland. Citycon did not appeal the
decision. More details on this issue are provided in the stock
exchange releases published by the company on 27 April 2006 and
15 October 2007 which are available at www.citycon.fi.
Annual General Meeting
Citycon's Annual General Meeting (AGM), held in Helsinki on
13 March 2007, adopted the financial statements of Citycon Oyj and
the Citycon Group for 2006 and discharged the Board of Directors and
the CEO from liability. The AGM decided that a per-share dividend of
EUR 0.14 be paid for 2006. The dividends were paid out on
23 March 2007.
Board of Directors
With the number of Board members remaining at eight in 2007, the AGM
re-elected the following Board members for a one-year term: Gideon
Bolotowsky, Amir Gal, Raimo Korpinen, Tuomo Lähdesmäki, Carl G.
Nordman, Claes Ottosson, Dor J. Segal and Thomas W. Wernink. The
Board elected Thomas W. Wernink as its Chairman and Tuomo Lähdesmäki
as Deputy Chairman.
Auditor
The AGM elected Ernst & Young Oy (a firm of authorised public
accountants) the company's auditor for the financial year 2007, with
Tuija Korpelainen (Authorised Public Accountant) acting as the chief
auditor appointed by the firm.
Board Authorisations
The AGM authorised the Board of Directors to decide on issuing new
shares and disposing of treasury shares through paid or free share
issues. New shares can be issued and treasury shares can be
transferred to shareholders in proportion to their existing
shareholding or through a directed share issue waiving the
pre-emptive rights of shareholders, if a weighty financial reason
exists for doing so. The Board can also decide on a free share issue
to the company itself. In addition, the Board was authorised to grant
special rights referred to in Section 1 of Chapter 10 of the Finnish
Limited Liability Companies Act, entitling their holders to receive,
against payment, new shares in the company or treasury shares. The
combined number of new shares to be issued and treasury shares to be
transferred, including the shares granted on the basis of the special
rights, may not exceed 100 million. This authorisation is valid for
five years from the date of the AGM.
The Board exercised this authorisation on 10 September 2007, when it
decided on a share issue based on the shareholders' pre-emptive
subscription rights. A maximum of 27,594,782 shares were offered for
subscription by shareholders. As a result of this, the number of
shares that can be issued or disposed of on the basis of the
authorisation now totals 72,405,218.
At the end of the reporting period, the Board had no other
authorisations.
Alteration of the Articles of Association
The AGM approved the proposed amendments to the Articles of
Association, resulting mainly from the new Finnish Limited Liability
Companies Act. The amended Articles of Association were registered in
the Trade Register on 30 March 2007. The most significant amendments
included deleting provisions governing the company's minimum and
maximum share capital and the share's nominal value.
Shareholders, Share Capital and Shares
Citycon is a Mid Cap company in the Financials sector, sub-industry
Real Estate Management & Development, on the OMX Nordic Exchange, its
shares being listed on the stock exchange in Helsinki since November
1988. Its trading code is CTY1S and shares are traded in euros. The
ISIN code used in international securities clearing is FI0009002471.
Trading and Share Performance
In 2007, the number of Citycon shares traded on the OMX Nordic
Exchange Helsinki totalled 153.7 million (51.2 million) at a total
value of EUR 738.1 million (EUR 197.6 million). The highest quotation
was EUR 6.09 (EUR 5.09) and the lowest EUR 3.24 (EUR 3.02). The
reported trade-weighted average price was EUR 4.76 (EUR 3.86) and the
share closed at EUR 3.65 (EUR 5.05). The company's market
capitalisation at the end of the financial year totalled
EUR 806.6 million (EUR 844.3 million).
Shareholders
On 31 December 2007, Citycon had a total of 2,090 (1,721) registered
shareholders, of which nine were account managers of
nominee-registered shares. Nominee-registered and other international
shareholders held 210.9 million (155.6) shares, or 95.5 per cent
(93.1%) of shares and voting rights.
Notifications of Changes in Shareholdings
In 2007, Citycon Oyj received three notifications of changes in
shareholdings:
Fidelity International Limited notified the company in February that
the holdings of its direct and indirect subsidiaries in Citycon Oyj
had fallen below the ten per cent threshold. According to the
notification, Fidelity International Limited and its direct and
indirect subsidiaries held a total of 17,297,574 Citycon shares on
14 February 2007, equivalent to nine per cent of the company's share
capital and voting rights at the time.
ING Clarion Real Estate Securities, L.P. notified the company in
August that its holding in Citycon Oyj's voting rights and share
capital had risen above the threshold of five per cent. According to
the notification, ING Clarion Real Estate Securities, L.P. held
9,726,700 shares on 24 August 2007, equivalent to 5.04 per cent of
the company's share capital and voting rights at the time.
Perennial Investment Partners Ltd notified the company in November
that its holding in Citycon Oyj's voting rights and share capital had
risen above the threshold of five per cent. According to the
notification, Perennial Investment Partners Ltd held
11,256,637 shares on 5 November 2007, equivalent to 5.10 per cent of
the company's share capital and voting rights at the time.
Share Capital
At the beginning of 2007, the company's registered share capital
totalled EUR 225.7 million and the number of shares 167.2 million.
During the period, the company's share capital has increased by
EUR 33.9 million and the number of shares by 53.8 million as a result
of share issues and exercise of stock option rights. The table below
shows the changes in more detail. At the end of the period, the
company's registered share capital totalled EUR 259.6 million, and
the number of shares came to 221.0 million. The company has a single
series of shares, with each share conferring entitlement to one vote
at general meetings of shareholders. Since the amendment made to the
Articles of Association in March, the shares no longer have a nominal
value.
Own Shares
During the financial year, Citycon Oyj held no own shares.
Stock Option Schemes
Stock Options 1999
An Extraordinary General Meeting of Citycon held on 4 November 1999
authorised the issue of a maximum of 5,500,000 stock options. Of
these, 5,327,500 options were granted to the personnel. The rest of
the options were granted to Citycon's fully owned subsidiary
Veniamo-Invest Oy.
The stock option scheme 1999 expired on 30 September 2007. By the end
of the subscription period, a total of 5,631,912 Citycon shares had
been subscribed by exercising the 1999 stock options, including
825,982 shares subscribed at a EUR 1.35 per-share subscription price
during 2007. The shares subscribed entitle their holders to a
dividend for the financial year 2007. Of the 1999 option rights, only
the 172,500 held by Veniamo-Invest Oy remained unexercised. These
options have expired worthless.
Stock Options 2004
The Annual General Meeting held on 15 March 2004 authorised the issue
of a maximum of 3,900,000 stock options. Of these, 3,220,000 A/B/C
options were held by Group employees at the end of the financial
year. The stock options 2004 A and 2004 B are listed on the OMX
Nordic Exchange Helsinki. Trading in 2004 B options began on
3 September 2007.
The terms and conditions of the stock option plan 2004 were amended
due to the rights issue carried out during the period. Amendments
made to the share subscription ratio and subscription prices also
apply to the maximum number of shares that can be subscribed
exercising these option rights. The table below shows basic
information on the stock option scheme 2004 after the amendments
valid as of 10 October 2007.
Basic Information on Stock Options 2004 as at 31 December 2007
2004 A 2004 B 2004 C
No. of options granted 1,040,000 1,090,000 1,090,000
No. held by Veniamo-Invest Oy
¹) 260,000 210,000 210,000
Subscription ratio,
option/shares 1:1.2127 1:1.2127 1:1.2127
Subscription price per share,
EUR ²) 2.3432 2.7308 4.4313
Subscription period
begins/began 1 Sept. 2006 1 Sept. 2007 1 Sept. 2008
31 March 31 March 31 March
Subscription period ends 2009 2010 2011
No. of options exercised 336,720 - -
No. of shares subscribed with
options 376,316 - -
¹) Veniamo-Invest Oy has no right to subscribe for its parent
company's shares.
²) The share subscription prices are reduced by half of the per-share
dividends paid. However, the share subscription price is always at
least EUR 1.35.
The number of new shares subscribed during the financial year by
exercising the A options attached to Citycon's 2004 stock option
scheme was 286,601, including the 606 shares subscribed for in
December. No 2004 B options have been exercised. Shares subscribed in
2007 entitle their holders to a dividend for the financial year 2007.
The increase in the number of shares corresponding to the shares
subscribed in December has not yet been registered with the Finnish
Trade Register. The outstanding stock options under the 2004 option
scheme entitle their holders to subscribe for a further 3,496,553 new
shares.
Events after the Financial Year
In connection with the Lippulaiva shopping centre's extension,
Citycon acquired all shares in MREC Kiinteistö Oy Majakka and, at the
same time, divested its entire holding in MREC Kiinteistö Oy
Ulappatori. Kiinteistö Oy Majakka owns undeveloped land in the
surroundings of Lippulaiva, in the area planned for the shopping
centre's extension in Espoo, Finland.
Citycon signed an agreement on 12 February for the sale of part of
shopping centre Iso Omena to an affiliate of GIC Real Estate, the
property investment arm of the Government of Singapore Investment
Corporation. Upon closing of the agreement, Citycon will own 60 per
cent of the shopping centre and GIC Real Estate, 40 per cent. The
parties have agreed that Citycon will continue to be responsible for
the business and management of the shopping centre on customary
terms. The agreed debt-free purchase price, EUR 131.6 million, is
equivalent to 40 per cent of the original acquisition price of EUR
329 million paid by Citycon.
Board Proposal for Profit Distribution and Distribution of Assets
from the Invested Unrestricted Equity Fund
The parent company's distributable funds amount to EUR 12.6 million,
of which profit for the period accounts for EUR 8.4 million. On the
date of publication of the Financial Statements, funds in the parent
company's invested unrestricted equity fund total EUR 201.1 million.
On the basis of the Financial Statements to be adopted for the
financial year ending on 31 December 2007, the Board of Directors
proposes to the Annual General Meeting of 13 March 2008 that a
per-share dividend of EUR 0.04 be paid out from the retained earnings
and that EUR 0.10 per share be returned from the invested
unrestricted equity fund. The Board of Directors proposes that the
record date for dividend payment and equity return be 18 March 2008
and that the dividend and equity return be paid on 2 April 2008.
Outlook
Citycon's focus will continue to be on increasing net operating
income and cash flow. The company expects the development and
redevelopment projects to continue to play a central role in its
business in 2008. The company will remain active in developing its
shopping centres while also seeking acquisition opportunities to
implement its expansion strategy. Citycon is also considering to
divest non-core properties.
The company expects its net rental income and direct operating profit
excluding fair value changes to increase in 2008. The estimate is
based on the property portfolio's growth, including the acquisition
of Iso Omena shopping centre in September 2007, on investments in
shopping-centre management as well as on expansion and redevelopment
projects coming on line.
Helsinki, 14 February 2008
Citycon Oyj
Board of Directors
Condensed Consolidated Income Statement, IFRS
Q4/ Q4/
EUR million 2007 2006 Change 2007 2006 Change
Gross rental income 40.6 31.7 28.0% 143.7 115.1 24.8%
Service charge income 2.7 1.3 109.2% 7.7 4.2 82.1%
Turnover (Note 3) 43.3 33.0 31.1% 151.4 119.4 26.9%
Property operating
expenses 16.0 10.6 50.5% 47.8 36.0 32.7%
Other expenses from
leasing operations 0.2 0.2 -20.9% 0.3 0.6 -54.7%
Net rental income 27.1 22.1 22.3% 103.4 82.8 24.9%
Administrative expenses 3.9 3.2 20.5% 16.5 12.9 28.3%
Other operating income
and expenses 0.6 0.3 76.0% 0.5 0.6 -12.7%
Net fair value gains on
investment property 0.7 23.1 -96.9% 213.4 120.1 77.8%
Net gains on sale of
investment property 0.0 0.1 -133.8% -0.1 5.9 -101.5%
Operating profit 24.5 42.5 -42.4% 300.7 196.5 53.0%
Net financial income and
expenses 14.5 8.7 66.6% 47.3 30.9 53.0%
Profit before taxes 10.0 33.8 -70.5% 253.5 165.6 53.0%
Current taxes 3.2 -1.0 -414.5% -3.4 -7.4 -54.0%
Change in deferred taxes -3.3 -6.3 -47.8% -46.2 -31.8 45.1%
Profit for the period 9.9 26.4 -62.6% 203.9 126.4 61.3%
Attributable to
Parent company
shareholders 9.3 24.9 -62.8% 200.3 124.9 60.4%
Minority interest 0.6 1.5 -60.4% 3.6 1.5 133.8%
Earnings per share (basic),
EUR 0.04 0.15 -71.7% 1.00 0.76 31.4%
Earnings per share
(diluted), EUR 0.04 0.13 -66.5% 0.91 0.73 25.0%
Direct result (Note 4) 14.0 8.6 61.9% 35.7 32.4 10.3%
Indirect result (Note 4) -4.7 16.3 -129.0% 164.6 92.5 77.9%
Profit for the period
attributable to parent
company shareholders 9.3 24.9 -62.8 % 200.3 124.9 60.4%
Condensed Consolidated Balance Sheet, IFRS
EUR million Note 31 Dec. 2007 31 Dec. 2006
Assets
Non-current assets
Investment property 5 2,215.7 1,447.9
Development property 6 33.2 -
Other property, plant and equipment 0.9 0.6
Derivative financial instruments and
other non-current assets 8 10.7 4.8
Total non-current assets 2,260.5 1,453.3
Current assets
Derivative financial instruments 8 1.2 0.4
Trade and other receivables 22.7 11.3
Cash and cash equivalents 7 24.2 21.3
Total current assets 48.1 33.1
Total assets 2,308.6 1,486.4
Liabilities and Shareholders' Equity
Equity attributable to parent company
shareholders
Share capital 259.6 225.7
Share issue - 0.1
Share premium fund and other
restricted
reserves 131.1 131.1
Fair value reserve 8 4.9 -1.3
Invested unrestricted equity fund 199.3 -
Retained earnings 387.0 209.7
Total equity attributable to parent
company shareholders 982.0 565.3
Minority interest 28.9 15.0
Total shareholders' equity 1,010.9 580.3
Liabilities
Interest-bearing debt 1,049.3 726.3
Derivative financial instruments and
other
non-interest bearing liabilities 8 2.4 4.9
Deferred tax liabilities 88.1 40.4
Total long-term liabilities 1,139.9 771.7
Interest-bearing debt 104.7 87.6
Trade and other payables 53.1 46.8
Short-term liabilities 157.8 134.4
Total liabilities 1,297.7 906.1
Total liabilities and shareholders'
equity 2,308.6 1,486.4
Condensed Consolidated Statement of Changes in Shareholders' Equity,
IFRS
Equity attributable to parent company
shareholders
Share
premium Invested
fund unrest-
and Fair ricted
Share Share other value equity Retained
EUR million capital issue reserves reserve fund earnings
Balance at
1 Jan. 2006 184.1 1.1 85.4 -10.5 - 96.5
Cash flow hedges 9.3
Profit for the
period 124.9
Total recognized income
and expense for the period 9.3 124.9
Share issues 36.8 37.1
Share
subscriptions
based on stock
options 4.8 -0.9 0.1
Dividends (Note 9) -6.6 -12.6
Share-based
payments 0.9
Equity instrument
of
convertible
capital loan 15.1
Other changes
Balance at
31 Dec. 2006 225.7 0.1 131.1 -1.3 - 209.7
Balance at
1 Jan. 2007 225.7 0.1 131.1 -1.3 - 209.7
Cash flow hedges 6.3
Profit for the period 200.3
Total recognized
income
and expense for
the period 6.3 200.3
Share issues 33.8 197.6
Share
subscriptions
based on stock
options 0.1 -0.1 0.0 1.8
Dividends (Note 9) -23.4
Translation
differences -0.3
Share-based
payments 0.6
Other changes
Balance at
31 Dec. 2007 259.6 - 131.1 4.9 199.3 387.0
Equity Minority Shareholders'
attributable to interest equity, total
parent company
shareholders
Balance at 1 Jan. 2006 356.6 3.6 360.2
Cash flow hedges 9.3 9.3
Profit for the period 124.9 1.5 126.4
Total recognized income
and expense for the period 134.1 1.5 135.7
Share issues 73.9 73.9
Share subscriptions
based on stock options 3.9 3.9
Dividends (Note 9) -19.2 -19.2
Share-based payments 0.9 0.9
Equity instrument of
convertible capital loan 15.1 15.1
Other changes 0.0 9.9 9.9
Balance at 31 Dec. 2006 565.3 15.0 580.3
Balance at 1 Jan. 2007 565.3 15.0 580.3
Cash flow hedges 6.3 6.3
Profit for the period 200.3 3.6 203.9
Total recognized income
and expense for the period 206.6 3.6 210.2
Share issues 231.3 231.3
Share subscriptions
based on stock options 1.8 1.8
Dividends (Note 9) -23.4 -23.4
Translation differences -0.3 -0.7 -1.0
Share-based payments 0.6 0.6
Other changes 0.0 11.0 11.0
Balance at 31 Dec. 2007 982.0 28.9 1,010.9
Condensed Consolidated Cash Flow Statement, IFRS
EUR million Note 2007 2006
Cash flow from operating activities
Profit before taxes 253.5 165.6
Adjustments -164.9 -94.0
Cash flow before change in working capital 88.5 71.6
Change in working capital 0.2 -0.5
Cash generated from operations 88.8 71.1
Paid interest and other financial charges -42.7 -34.1
Received interest and other financial income 3.1 0.9
Taxes paid -10.0 -5.9
Net cash from operating activities 39.3 32.0
Cash flow from investing activities
Acquisition of subsidiaries, less cash acquired 5 -517.6 -331.8
Acquisition of investment property 5 -16.0 -33.6
Capital expenditure on investment properties 5 -39.3 -35.6
Capital expenditure on development
properties, other PP&E and intangible assets 6 -24.5 -
Sale of investment property 0.3 73.9
Net cash used in investing activities -597.1 -327.1
Cash flow from financing activities
Proceeds from share issue 232.4 77.4
Proceeds from short-term loans 773.1 421.2
Repayments of short-term loans -727.9 -392.2
Proceeds from long-term loans 535.8 675.3
Repayments of long-term loans -228.9 -461.8
Dividends paid 9 -23.4 -19.2
Net cash from/used in financing activities 561.1 300.8
Net change in cash and cash equivalents 3.3 5.7
Cash and cash equivalents at period-start 7 21.3 15.6
Effects of exchange rate changes -0.4 -
Cash and cash equivalents at period-end 7 24.2 21.3
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basic company data
Citycon is a real estate company investing in retail premises.
Citycon operates mainly in Finland, Sweden and the Baltic countries.
Citycon is a Finnish public limited company established under Finnish
law and domiciled in Helsinki. The Board of Directors approved the
financial statements on 14 February 2008.
2. Basis of preparation and accounting policies
Basis of preparation
Citycon has prepared its consolidated financial statements in
accordance with the International Financial Reporting Standards
(IFRS) and applied the IFRS/IAS standards, effective as of 31
December 2007, which refer to the approved applicable standards and
their interpretations under European Union Regulation No. 1606/2002.
Accounting policies
Citycon changed its accounting policies related to IAS 23 Borrowing
Costs -standard as of 1 January 2007 and started to apply an
alternative treatment allowed by IAS 23. The standard allows that the
borrowing costs such as interest expenses and arrangement fees are
capitalised as part of the cost of development properties.
More information about the accounting policies can be found from
Citycon's annual financial statements for the year ended 31 December
2007.
Acquisitions in the balance sheet
Lentola retail centre was acquired in November 2007. The identifiable
assets and liabilities of the acquisitions, corresponding to the
shares acquired, have been recognized at preliminary fair value in
the company's balance sheet.
Reporting to Gazit-Globe Ltd.
The company's main shareholder, Gazit-Globe Ltd, holding
approximately 39 per cent of the shares in the company, has announced
that it applies International Financial Reporting Standards (IFRS) in
its financial reporting in 2007. According to IFRS one company may
exercise a controlling interest in another company even if its
shareholding it that company does not exceed 50 per cent. Gazit-Globe
Ltd. holds the view that it exercises controlling interest, as
defined in IFRS, in Citycon Oyj based on the fact that it has been
able to exercise controlling interest in Citycon Oyj's shareholders'
meetings pursuant to its shareholding. In accordance with an
agreement concluded between the companies, Citycon Oyj will provide
Gazit-Globe Ltd. with a more detailed breakdown of the accounting
information it discloses in its interim and full-year reports so that
Gazit-Globe Ltd. can consolidate Citycon Group figures into its own
IFRS financial statements.
3. Segment Information
Citycon's business consists of the regional business units Finland,
Sweden and the Baltic Countries.
Q4/ Q4/
EUR million 2007 2006 Change 2007 2006 Change
Turnover
Finland 30.2 24.0 25.8% 104.3 95.8 8.9%
Sweden 11.1 7.2 53.9% 39.0 17.3 125.1%
Baltic
Countries 2.0 1.8 10.9% 8.0 6.2 29.4%
Total 43.3 33.0 31.1% 151.4 119.4 26.9%
Operating profit
Finland 17.5 30.2 -42.0% 218.7 176.1 24.2%
Sweden 7.3 11.9 -38.2% 74.3 16.8 343.4%
Baltic
Countries 1.2 2.2 -47.9% 14.5 10.9 33.0%
Other -1.5 -1.9 -16.8% -6.8 -7.2 -5.5%
Total 24.5 42.5 -42.4% 300.7 196.5 53.0%
EUR million 31 Dec. 2007 31 Dec. 2006 Change
Assets
Finland 1,594.2 1,016.6 56.8%
Sweden 542.2 358.0 51.4%
Baltic
Countries 125.3 83.6 49.8%
Other 46.9 28.2 66.8%
Total 2,308.6 1,486.4 55.3%
The significant increase in segment assets is due to the acquisitions
of the shopping centres and the increase in fair value of investment
properties.
4. Reconciliation between direct and indirect result
Due to the nature of Citycon's business and the requirement to apply
IFRS, the consolidated income statement includes a large number of
items related to non-operating activities. In addition to the
consolidated income statement under IFRS, Citycon also presents its
profit for the period with direct result and indirect result
separately specified, in an attempt to enhance the transparency of
its operations and to facilitate comparability of financial years.
Direct result describes the profitability of the Group's operations
during the financial year disregarding the effects of fair value
changes, gains or losses on sales and other extraordinary items.
Earnings per share calculated based on direct result corresponds to
the earnings per share definition recommended by EPRA
Q4/ Q4/
EUR million 2007 2006 Change 2007 2006 Change
Direct result
Net rental income 27.1 22.1 22.3% 103.4 82.8 24.9%
Administrative expenses -3.9 -3.2 21.8% -16.5 -12.3 34.3%
Other operating income
and expenses 0.6 0.3 76.0% 0.5 0.6 -12.7%
Net financial income
and expenses -14.5 -8.4 72.0% -47.3 -30.0 57.6%
Current taxes 3.2 -0.9 -470.9% -3.4 -5.5 -37.9%
Change in deferred taxes 1.7 -1.4 -217.2% -0.2 -3.0 -94.7%
Minority interest -0.2 0.1 -312.9% -0.9 -0.3 227.2%
Total 14.0 8.6 61.9% 35.7 32.4 10.3%
Direct result per share
diluted (Diluted EPRA
EPS), EUR 0.06 0.05 24.0% 0.18 0.20 -9.6%
Indirect result
Net fair value gains on
investment property 0.7 23.1 -96.9% 213.4 120.1 77.8%
Profit on disposal of
investment property 0.0 0.1 -133.8% -0.1 5.9 -101.5%
Administrative expenses
related to disposals - 0.0 - - -0.6 -
One-off financial income
and expenses - -0.3 - - -0.9 -
Current taxes related to
disposals - -0.2 - - -1.9 -
Change in deferred taxes -5.0 -4.8 2.7% -46.0 -28.8 59.6%
Minority interest -0.4 -1.6 -75.0% -2.7 -1.3 114.3%
Total -4.7 16.3 -129.0% 164.6 92.5 77.9%
Indirect result per share,
diluted -0.02 0.08 -125.9% 0.72 0.53 36.5%
Profit for the period
attributable to parent
company shareholders 9.3 24.9 -62.8% 200.3 124.9 60.4%
5. Investment property
EUR million 2007 2006
At period-start 1,447.9 956.6
Acquisitions during the period 531.3 400.9
Investments during the period 44.8 35.4
Disposals during the period -0.3 -67.9
Transfer into the development properties -6.2 -
Fair value gains on investment property 220.8 131.3
Fair value losses on investment property -7.5 -11.2
Exchange differences -15.1 2.9
At period-end 2,215.7 1,447.9
An external professional appraiser has conducted the valuation of the
company's properties with a net rental income based cash flow
analysis. Market rents, occupancy rate, operating expenses and yield
requirement form the key variables used in the cash flow analysis.
The impact of key variables on the fair value of properties have been
tested with the sensitivity analysis. Analysis indicates that the
market value is most sensitive to the yield requirement and gross
income levels. A 10 percent decrease in the yield requirement results
in an approximately 11 percent increase in total value.
Correspondingly, a 10% increase in gross income increases the value
by approximately 14 percent. The segments' yield requirements and
market rents used by the external appraiser in the cash flow analysis
were as follows at 31 December 2007 and at 31 December 2006:
Yield requirement (%) Market rents (€/m²)
2007 2006 2007 2006
Finland 5.7 6.6 21.1 16.8
Sweden 5.4 6.4 13.2 13.0
Baltic Countries 6.4 7.1 16.4 14.5
Average 5.6 6.6 19.0 15.6
6. Development property
When Citycon redevelops its existing investment properties, the
properties remain as the investment properties in the balance sheet,
and they are measured based on fair value model in accordance with
IAS 40. The significant development projects, in which a new building
or significant extension is constructed, are exceptions and they are
treated in accordance with IAS 16 Property, Plant and Equipment
standard. The significant extension projects are presented separately
from the property, plant and equipment in the balance sheet based on
the recommendations of the European Public Real Estate Association
(EPRA). As at 31 December 2007, the development properties consisted
of the capital expenditure relating to extension projects in Rocca al
Mare, Åkersberga and Liljeholmen shopping centres.
EUR million 2007 2006
At period-start - -
Investments during the period 26.4 -
Capitalized interest 0.6 -
Transfer from investment property 6.2 -
At period-end 33.2 -
7. Cash and cash equivalents
EUR million 31 Dec. 2007 31 Dec. 2006
Cash in hand and at bank 24.2 19.4
Short-term deposits - 1.9
Total 24.2 21.3
8. Derivative Financial Instruments
EUR million 31 Dec. 2007 31 Dec. 2006
Nominal Fair Nominal Fair
amount value amount value
Interest rate derivatives
Interest rate swaps
Maturity:
less than 1 year 40.0 0.2 50.0 0.4
1-2 years 112.5 -0.6 40.0 0.0
2-3 years 83.0 -1.1 86.0 -2.6
3-4 years 70.0 1.7 83.0 -2.6
4-5 years 20.0 0.2 40.0 -0.8
over 5 years 309.0 8.5 242.7 3.8
Total 634.5 8.8 541.7 -1.8
Foreign exchange derivatives
Forward agreements
Maturity:
less than 1 year 40.4 0.3 14.8 0.0
Total 40.4 0.3 14.8 0.0
The fair value of derivative financial instruments represents the
market value of the instrument with prices prevailing on the balance
sheet date. Derivative financial instruments are used in hedging the
interest rate risk of the interest bearing liabilities and foreign
currency risk.
The fair values include foreign exchange gain of EUR 1.0 million (EUR
-1.9 million) which is recognized in the income statement.
Hedge accounting is applied for interest rates swaps which have
nominal amount of EUR 558.0 million (EUR 491.7 million). The fair
value gain recognized in the fair value reserve under shareholders'
equity taking account the tax effect totals EUR 4.9 million (EUR -1.3
million).
9. Dividends
The Board of Directors proposes to the Annual General Meeting of 13
March 2008 that a per-share dividend of EUR 0.04 be paid out for the
financial year ending on 31 December 2007 and that EUR 0.10 per share
be returned from the invested unrestricted equity fund.
In accordance with the proposal by the Board of Directors and the
decision by the Annual General Meeting held on 13 March 2007 dividend
for the financial year 2006 amounted to EUR 0.14 per share (EUR 0.14
for the financial year 2005).
Dividends paid amounted to EUR 23.4 million (EUR 19.2 million) during
the period.
10. Contingent Liabilities
EUR million 31 Dec. 2007 31 Dec. 2006
Mortgages on land and buildings 46.4 21.1
Bank guarantees 49.8 37.1
Capital commitments 31.0 40.7
VAT refund liabilities 15.6 9.9
At 31 December 2007, Citycon had capital commitments of EUR 31.0
million relating mainly to development projects.
11. Key Figures
Q4/ Q4/
2007 2006 Change 2007 2006 Change
Earnings per share
(basic), EUR 0.04 0.15 -71.7 % 1.00 0.76 31.4 %
Earnings per share
(diluted), EUR 0.04 0.13 -66.5 % 0.91 0.73 25.0 %
Equity per share, EUR 4.44 3.30 34.6 %
Net asset value (EPRA
NAV) per share, EUR 4.83 3.53 36.8 %
Equity ratio, % 43.9 39.1 -
The formulas for key figures can be found from the 2007 annual
financial statements.
Financial reporting in 2008
Citycon will publish its Annual Report for 2007 on its website in
week 9 and its printed version in week 10 at the latest.
Citycon will issue three interim reports during the financial year
2008 as follows:
January-March 2008 on Thursday 24 April 2008,
January-June 2008 on Friday 18 July 2008 and
January-September 2008 on Thursday 16 October 2008.
Annual General Meeting
Citycon Oyj will hold its AGM at Finlandia Hall, Helsinki Auditorium,
Mannerheimintie 13e, Helsinki, Finland, on Thursday 13 March 2008,
starting at 2.00 p.m.
Further information for investors is available at Citycon's website,
www.citycon.fi.
For further information, please contact:
Mr Petri Olkinuora, CEO
Tel. +358 9 6803 6738 or +358 400 333 256
petri.olkinuora@citycon.fi
Mr Eero Sihvonen, CFO
Tel.: +358 50 557 9137
eero.sihvonen@citycon.fi
Distribution:
OMX Nordic Exchange Helsinki
Major media
www.citycon.fi