The Financial Statement Release for the period 1 January–31 December 2012 in its entirety is attached to this release. It is also available on the corporate website at www.citycon.com.
Financial Statements and the Report by the Board of Directors
On 5 February 2013, Citycon Oyj’s Board of Directors approved the company’s Financial Statements and the Report by the Board of Directors for the financial year 1 January–31 December 2012. The Financial Statements and the Report by the Board of Directors in their entirety are attached to this release. Also, Citycon Group’s Corporate Governance Statement for the financial year 2012 has been published simultaneously with the Financial Statements and the Report by the Board of Directors. All these documents are available on the corporate website at www.citycon.com.
Summary of the Fourth Quarter of 2012 Compared with the Previous Quarter
- Turnover grew to EUR 62.1 million (Q3/2012: 60.9 million).
- Net rental income decreased by EUR 0.5 million or 1.3 per cent to EUR 42.1 million (EUR 42.6 million), mostly due to higher property operating expenses reflecting common seasonal variations.
- EPRA operating profit decreased by EUR 3.1 million or 8.3 per cent to EUR 34.2 million (EUR 37.3 million), mostly due to EUR 2.5 million higher administrative expenses, of which EUR 0.9 million were one-off restructuring costs.
- The EPRA Earnings per share (EPRA EPS) decreased to EUR 0.049 (EUR 0.062) also due to higher number of shares resulting from the rights issue executed in October 2012. The EPRA figures do not include items outside of direct business operations, such as changes in the fair value of investment properties.
- Fair value gain of investment properties came to EUR 3.8 million (13.8 million). The fair value of investment properties totalled EUR 2,714.2 million (EUR 2,695.5 million), and their average net yield requirement was 6.3 per cent (6.3%).
Summary of the Year 2012 Compared with the Year 2011
Citycon fulfilled the financial targets it had announced for 2012. On the publication of its Q3 interim report, the company revised some of its targets, announcing that it expected a growth in turnover by EUR 16–21 million, a growth in EPRA operating profit by EUR 14–19 million, and a growth in its EPRA earnings by EUR 6–11 million in 2012 as compared to 2011, and forecast an EPRA EPS of EUR 0.195–0.215. The outcomes were that in 2012, turnover grew by EUR 22.2 million compared to 2011. The timing of tenant specific projects in Baltic Countries, in particular, resulted in a higher turnover than what the company expected in its third quarter report. The general circumstances and environment related to turnover development did not change. The EPRA operating profit grew by EUR 18.3 million and the EPRA earnings by EUR 10.6 million, and the EPRA EPS was EUR 0.214.
-The Board of Directors proposes a per-share dividend of EUR 0.04 (EUR 0.04) and a return of equity from invested unrestricted equity fund of EUR 0.11 (EUR 0.11) per share.
- Turnover grew to EUR 239.2 million (2011: 217.1 million).
- Net rental income increased by EUR 17.7 million or 12.3 per cent to EUR 162.0 million (EUR 144.3 million). The completion of development projects and the acquisitions of shopping centres Kristiine, Högdalen Centrum, Arabia and Albertslund had a positive impact of EUR 13.4 million on net rental income.
- Net rental income from like-for-like properties increased by EUR 5.5 million or 4.9 per cent, excluding the impact of the strengthened Swedish krona.
- Earnings per share came to EUR 0.26 (EUR 0.05).
- The direct operating result per share (EPRA EPS, basic) increased to EUR 0.214 (EUR 0.197).
- Net cash flow from operating activities per share reduced to EUR 0.21 (EUR 0.25) due to timing differences and exceptional items.
Key Figures
IFRS based key figures | Q4/2012 | Q4/2011 | Q3/2012 | 2012 | 2011 | Change % 1) |
Turnover, EUR million | 62.1 | 56.0 | 60.9 | 239.2 | 217.1 | 10.2 % |
Net rental income, EUR million | 42.1 | 37.3 | 42.6 | 162.0 | 144.3 | 12.3 % |
Profit/loss attributable to parent company shareholders, EUR million | 20.4 | -5.4 | 30.2 | 77.2 | 13.0 | 495.7 % |
Earnings per share (basic), EUR 2) | 0.06 | -0.02 | 0.10 | 0.26 | 0.05 | 438.9 % |
Net cash from operating activities per share, EUR 2) | 0.04 | 0.04 | 0.05 | 0.21 | 0.25 | -16.2 % |
Fair value of investment properties, EUR million | 2 695.5 | 2 714.2 | 2 522.1 | 7.6 % | ||
Equity ratio, % | 34.8 | 37.8 | 36.0 | 4.7 % | ||
EPRA based key figures | Q4/2012 | Q4/2011 | Q3/2012 | 2012 | 2011 | Change-% 1) |
EPRA operating profit, EUR million | 34.2 | 28.9 | 37.3 | 135.7 | 117.4 | 15.5 % |
% of turnover | 55.1 % | 51.6 % | 61.3 % | 56.7 % | 54.1 % | 4.8 % |
EPRA Earnings, EUR million | 16.2 | 12.5 | 17.8 | 63.9 | 53.3 | 20.0 % |
EPRA Earnings per share (basic), EUR 2) | 0.049 | 0.043 | 0.062 | 0.214 | 0.197 | 8.5 % |
EPRA NAV per share, EUR | 3.71 | 3.49 | 3.62 | -3.7 % | ||
EPRA NNNAV per share, EUR | 3.24 | 3.08 | 3.29 | -6.4 % | ||
Dividend per share, EUR | 0.043) | 0.04 | 0.0% | |||
Return from invested unrestricted equity fund per share, EUR | 0.113) | 0.11 | 0.0% | |||
Dividend and return from invested unrestricted equity fund per share total, EUR | 0.153) | 0.15 | 0.0% |
1) Change-% is calculated from exact figures and refers to the change between 2012 and 2011.
2) Result per share key figures have been calculated with the issue-adjusted number of shares resulting from the rights issue initiated executed in October 2012.
3) Proposal by the Board of Directors.
CEO’s Comment
Comments on 2012 from Marcel Kokkeel, CEO:
“For Citycon, the key focus in 2012 has been to improve earnings and quality of cash flows.
This has meant sound operational improvements, identifying and working on redevelopment potential and carrying through selective acquisitions. We have broadened our portfolio geographically to Denmark by acquiring Albertslund Centrum in Copenhagen in July and strengthened our market position considerably in Sweden by acquiring Kista Galleria in Stockholm (closed in January 2013). The acquisition of Kista Galleria balances the weight of Citycon’s different business areas in the company’s property portfolio in accordance with its growth strategy. Another key rationale for the acquisition is to further improve the retail space offering and to better serve retailers with a wider supply of quality shopping centres.
Citycon’s strategy also includes investing in shopping centres with joint venture partners. The co-operation with the global and respected joint venture partner CPPIB is another example of executing this strategy. Half of the Kista Galleria acquisition is financed together with CPPIB with a stand-alone asset backed loan agreement. A share issue is currently under planning.
In 2012, the company’s like-for-like net rental income grew by 4.9 per cent. In accordance with our strategy, we managed to attract new international tenants like Debenhams from the UK and the Italian Furla.
Last year, we achieved to cut administrative expenses and the efficiency program continues with higher targets for 2013; the cost savings target relating to administrative expenses for 2013 is to save up to EUR 5 million compared to 2012 level.
We successfully refinanced practically all of the loans maturing in 2013, expanded our financing sources to the bond markets and further strengthened our balance sheet in October by a rights issue. After the acquisition of Kista Galleria, the company started planning another rights issue mainly to finance the acquisition as well as to strengthen the balance sheet.
Citycon turns 25 years in 2013. The year will be characterized with strengthening the Citycon quality brand and profile towards shareholders, tenants, customers and all other stakeholders. We believe that the power of the local shopping centre brand should be combined with the strength and knowledge of Citycon as a Nordic industry leader. ”
Business Environment
Generally speaking, 2012 was a year of financial uncertainty, although positive developments were observed in the form of a growth in the retail trade in Citycon’s operating markets. Uncertainty increased during the year due to the worsening Eurozone debt crisis.
Retail sales growth and the inflation rate are key drivers for Citycon's business and have a direct impact on rents from business premises. Almost all of the company’s leases are tied to the consumer price index. A significant number of leases also feature a turnover-linked component. Consumer prices continued to rise during the year in all of Citycon’s operating countries. In December, the annual inflation rate was 2.4 per cent in Finland, -0.1 per cent in Sweden, 3.9 per cent in Estonia and 2.8 per cent in Lithuania.
(Sources: Statistics Finland, Statistics Sweden, Statistics Estonia, Statistic Lithuania)
Consumer confidence in their own financial situation was positive in the Nordic countries, but negative during the whole year in the Baltic region. The economic uncertainty and general weak news affected consumer confidence in each of the Nordic countries, where the positive trend turned in the summer and confidence declined in the final months of the year. In December, consumer confidence was restored in Finland and Denmark to the positive figures of the start of the year, but fell close to zero in Sweden. (Eurostat)
Retail sales growth and the inflation rate are key drivers for Citycon’s business, having an impact on rents from business premises. Retail sales grew in both Finland and Sweden. The total retail sales growth rate in 2012 was 4.4 per cent in Finland and 2.3 per cent in Sweden compared to 2011. In January – November 2012 compared to the previous year’s corresponding period retail sales grew by 7.0 per cent in Estonia and 4.8 per cent in Lithuania. (Statistics Finland, Statistics Sweden, Statistics Estonia, Statistics Lithuania)
Unemployment adjusted for seasonal variation was below the EU average (10.7%) in Finland, Sweden and Denmark: at the end of December, seasonally adjusted unemployment was 7.7 per cent in Finland, 8.1 per cent in Sweden and 7.9 per cent in Denmark. Unemployment remained high in Estonia and Lithuania but, in contrast to the Nordic region, was falling, being 9.5 per cent in Estonia and 12.5 per cent in Lithuania at the end of October. (Eurostat)
The Europe-wide instability of the financial market continued to affect the availability and cost of funding.
Property Market
Demand for investment has remained stable in the Finnish property investment market but the scant supply of prime assets has lim¬ited transactional activities. During 2012 retail investment volume exceeded low levels of 2011 ending up to EUR 400 million. The forecast for 2013 does not indicate any big changes in the market. Shopping centre prime yields have remained stable but the second¬ary yields are facing upward pressure. As a consequence of relatively strong development in retail sales, retail rents have also kept rising, although such increases have been concentrated in the very best locations only.
In Sweden the retail property transaction volume SEK 13.4 billion for the year 2012 was clearly lower than in the previous year (SEK 16.1 billion). Investors’ interest is strong for retail properties which have a good location, strong tenants and low vacancy rates. However, retail properties which do not meet some or all of these criteria will be more difficult to sell. Prime yields for shopping centres have generally remained stable since mid-2011 but prime yields for retail warehouse parks increased in the last quarter of 2012.
In Estonia retail sales development has been strong which encourages demand for retail space, especially in Tallinn downtown areas and professionally managed modern shopping centres. Vacancy rates in shopping centres are close to zero and rents have increased along with inflation. Also the retail property investment market has picked up and retail yields have dropped below 8 per cent. Also in Lithuania retail investment market is recovering and investor demand is forecasted to decrease yield requirements.
(Source: Jones Lang LaSalle Finland Oy)
Tenants’ Sales and Footfall in Citycon’s Shopping Centres
During the year, total sales in Citycon’s shopping centres grew by 6 per cent and the footfall increased by 3 per cent year on year. There was sales growth in all of the company’s countries of operation: 5 per cent in Finland, 5 per cent in Sweden and 14 per cent in the Baltic Countries and New Business. Footfall increased by 2 per cent in Finland, 6 per cent in Sweden and 6 per cent in the Baltic Countries and New Business. Positive developments in sales and footfall are mainly attributable to (re)development projects completed during recent years. Like-for-like shopping centre sales grew by 4 per cent and footfall by 2 per cent. There are estimates included in the sales and footfall figures.
Short-Term Risks and Uncertainties
Citycon’s Board of Directors considers the company’s major short-term risks and uncertainties to be associated with economic development in the company’s operating regions, which affects demand, vacancy rates and market rents in retail premises. In addition, key near-term risks include rising financial expenses due to higher loan margins, reduced availability of debt financing and the fair value development of properties in uncertain economic conditions.
Although the financial crisis’ effects on both rent levels for retail premises and occupancy rates have so far been minor in Citycon's operating areas, demand for retail premises, reduction of vacancy rates and lower market rent levels pose challenges in a sluggish economic environment. Economic trends, particularly those impacting consumer confidence and behaviour, inevitably affect demand for retail premises. The instability of the Eurozone has continued in 2012, which has made forecasting financial growth difficult. Risks to economic growth are still present and in conditions of weak economic growth, rental levels of retail premises typically fall, leasing of new premises is more difficult, and vacancy rates rise.
Implementation of Citycon's growth strategy requires new financing, which means that risks associated with the availability and cost of financing are of fundamental importance to the company. The Nordic banks’ willingness to lend money to real estate companies continues to be moderate, so the availability of financing is limited and loan margins have remained at a high level. In the future, tightening regulation of the banking and insurance sectors (Basel III and Solvency II regulations) is likely to support the elevated costs of debt financing, and to limit the availability of long-term bank loans. This will probably raise the cost of Citycon's new loan financing. So far this change in margins has been mitigated by reduced underlying base rates and Citycon’s active financing policy. Over the next few years, Citycon will have to refinance loan agreements that were signed at low margins before the financial crisis, and consequently, the margins on these loans will rise which will push Citycon's average interest rate upwards in the future. The EUR 360 million credit facility agreement signed with Nordic banks in September decreased the refinancing risk for 2013 considerably. The facility enables the refinancing of the material bank loans due in 2012 and 2013.
The company is actively seeking to diversify its funding sources, as demonstrated by the EUR 150 million domestic bond issue in May, in order to mitigate the risks related to bank financing, but there are no guarantees that such alternative funding sources would be available in the future at cost efficient prices.
The fair value development of investment properties continues to be characterised by high uncertainty caused by the harsh economic conditions. Several factors affect the fair value of the investment properties owned by Citycon, such as general and local economic development, interest rate levels, foreseeable inflation, the market rent trend, vacancy rates, property investors' yield requirements and the competitive environment. This uncertainty is reflected most strongly on retail properties that are located outside major cities, or which are otherwise less attractive, because investor demand is currently not focused on these properties, and banks are not particularly keen to offer financing for such projects. Yet, at the same time, the fair value of the best shopping centres, which attract investor interest in uncertain conditions, remained stable or even increased during 2012.
The company’s short-term risks and uncertainties, as well as its risk management and risk management principles, are discussed in more depth at www.citycon.com/riskmanagement, on pages 43-46 of the Financial Statements for 2012, and on pages 50-51 of the upcoming Annual Report for 2012.
Board Proposal for Dividend Distribution and Distribution of Assets from the Invested Unrestricted Equity Fund
The parent company’s retained earnings amount to EUR 17.3 million, including the profit for the period of EUR 17.0 million. On 31 December 2012, the funds in the parent company’s invested unrestricted equity fund amounted to a total of EUR 337.3 million.
The Board of Directors proposes to the Annual General Meeting to be held on 21 March 2013 that a per-share dividend of EUR 0.04 be paid out for the financial year ending on 31 December 2012, and that a return of equity of EUR 0.11 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 26 March 2013 and that the dividend and equity return be paid on 4 April 2013.
Outlook
Citycon continues to focus on increasing both its net cash flow from operating activities and its direct operating profit. In order to implement this strategy, the company will pursue value-added activities, selective acquisitions and proactive asset management.
The initiation of planned (re)development projects will be carefully evaluated against strict pre-leasing criteria. The company will continue selling off non-core properties to improve its investment portfolio and strengthen its balance sheet, and further refining its properties’ sales strategies in order to maximise their value through proactive management and leasing.
In 2013 Citycon expects to continue producing a stable cash flow and to increase its turnover by EUR 5–20 million compared to 2012. It also predicts a growth in EPRA operating profit by EUR 5–20 million based on the current property portfolio (including recent acquisitions and disposals). Citycon expects its EPRA earnings to increase by EUR 15–30 million over the previous year. Based on the existing number of shares the EPRA EPS is expected to reach EUR 0.22–0.26. These estimates are based on (re)development projects already completed and to be completed, on the prevailing level of inflation and on the euro-krona exchange rate. Properties taken offline for planned development projects will reduce net rental income during the year.
In the outlook, Citycon has assumed Kista Galleria to be consolidated with the equity method meaning that Citycon’s share (50%) out of the net profit of Kista Galleria shopping centre is recorded as share of result in jointly controlled entities in the statement of comprehensive income. In the statement of financial position, Citycon’s share of Kista Galleria is reported within the line called Investment in jointly controlled entities.
Helsinki, 5 February 2013
Citycon Oyj
Board of Directors
Financial Reports in 2013
Citycon will publish its Annual and Sustainability Report 2012 on the corporate website in week nine of 2013 at the latest.
Citycon will issue three interim reports during the financial year 2013 as follows:
January–March 2013 on Wednesday, 24 April 2013 at about 9.00 a.m.,
January–June 2013 on Wednesday, 10 July 2013 at about 9.00 a.m. and
January–September 2013 on Wednesday, 16 October 2013 at about 9.00 a.m.
Annual General Meeting
Citycon Oyj will hold its Annual General Meeting at Finlandia Hall, Mannerheimintie 13, Helsinki, Finland, on Thursday 21 March 2013, starting at 3.00 p.m.
For more investor information, please visit the corporate website at www.citycon.com.
For further information, please contact:
Marcel Kokkeel, CEO
Tel. +358 20 766 4521 or +358 40 154 6760
marcel.kokkeel@citycon.fi
Eero Sihvonen, Executive Vice President and CFO
Tel. +358 20 766 4459 or +358 40 557 9137
eero.sihvonen@citycon.fi
Distribution:
NASDAQ OMX Helsinki
Major media
www.citycon.com