Summary of the Third Quarter of 2014 Compared with the Previous Quarter
- Turnover decreased to EUR 61.4 million (Q2/2014: EUR 61.9 million) mainly due to lower capital and gross rents and the weaker Swedish krona.
- Net rental income increased by EUR 0.6 million, or 1.4%, to EUR 44.0 million (EUR 43.4 million), mainly as a result of lower property operating expenses reflecting normal seasonal variation.
- EPRA Operating profit increased by EUR 1.6 million, or 4.1%, to EUR 40.2 million (EUR 38.6 million), mainly due to higher net rental income and lower direct administrative expenses.
- EPRA Earnings increased to EUR 29.4 million (EUR 24.0 million) mainly due to higher EPRA Operating profit and lower direct financial expenses. EPRA Earnings per share (basic) decreased to EUR 0.050 (EUR 0.052) mainly due to higher number of shares resulting from the share issuances in June-July.
- The fair value change in investment properties was EUR 0.1 million (EUR 1.4 million), and the fair value of investment properties totalled EUR 2,759.0 million (EUR 2,741.5 million). The weighted average net yield requirement for investment properties remained at 6.2% (6.2%).
Summary of January–September 2014 Compared with the Corresponding Period of 2013
-Turnover decreased to EUR 184.5 million (Q1−Q3/2013: EUR 186.6 million) mainly due to divestments and a weaker Swedish krona.
- Net rental income increased by EUR 1.1 million, or 0.9%, to EUR 128.0 million (EUR 126.9 million) mainly due to strict property operating expenses management supported by mild winter conditions in the beginning of the year. Net rental income of like-for-like properties increased by EUR 3.0 million, or 3.0%, excluding the impact of the weaker Swedish krona, while the completion of (re)development projects increased net rental income by EUR 1.7 million.
- Earnings per share were EUR 0.12 (EUR 0.12). The higher earnings for the period was offset by the higher number of shares.
- EPRA Earnings increased by EUR 11.0 million, or 17.0% mainly as a result of higher net rental income and lower financing and administrative expenses. EPRA Earnings per share (basic) was EUR 0.152 (EUR 0.153).
- Net cash from operating activities per share increased to EUR 0.13 (EUR 0.06).
- The company specifies its guidance relating to turnover, EPRA Operating profit, EPRA Earnings and EPRA EPS (basic).
Key figures
IFRS based key figures | Q3/2014 | Q3/2013 | Q2/2014 | Q1-Q3/2014 | Q1-Q3/2013 | Change-% 1) | 2013 |
Turnover, EUR million | 61.4 | 62.1 | 61.9 | 184.5 | 186.6 | -1.1 | 248.6 |
Net rental income, EUR million | 44.0 | 43.9 | 43.4 | 128.0 | 126.9 | 0.9 | 168.9 |
Profit/loss attributable to parent company shareholders, EUR million | 20.1 | 30.1 | 11.9 | 61.3 | 52.1 | 17.7 | 94.9 |
Earnings per share (basic), EUR2) | 0.03 | 0.07 | 0.03 | 0.12 | 0.12 | -0.3 | 0.22 |
Net cash from operating activities per share, EUR3) | 0.06 | 0.06 | 0.00 | 0.13 | 0.06 | 112.1 | 0.14 |
Fair value of investment properties, EUR million | 2,759.0 | 2,739.4 | 2,741.5 | 2,759.0 | 2,739.4 | 0.7 | 2,733.5 |
Equity ratio, %4) | 54.9 | 41.7 | 47.6 | 54.9 | 41.7 | 31.7 | 43.2 |
Loan to Value (LTV), %4) 5) | 36.7 | 50.5 | 39.9 | 36.7 | 50.5 | 49.3 | |
EPRA based key figures | Q3/2014 | Q3/2013 | Q2/2014 | Q1-Q3/2014 | Q1-Q3/2013 | Change-% 1) | 2013 |
EPRA Operating profit, EUR million | 40.2 | 39.5 | 38.6 | 114.9 | 112.6 | 2.0 | 149.1 |
% of turnover | 65.5 | 63.6 | 62.4 | 62.3 | 60.4 | - | 60.0 |
EPRA Earnings, EUR million | 29.4 | 24.2 | 24.0 | 75.7 | 64.7 | 17.0 | 86.7 |
EPRA Earnings per share (basic), EUR2) | 0.050 | 0.055 | 0.052 | 0.152 | 0.153 | -0.9 | 0.203 |
EPRA Cost Ratio (including direct vacancy costs) (%)6) | 15.0 | 17.1 | 19.1 | 19.4 | 21.5 | -9.7 | 22.4 |
EPRA Cost Ratio (excluding direct vacancy costs) (%)6) | 13.1 | 15.9 | 17.1 | 17.2 | 19.1 | -10.0 | 20.0 |
EPRA NAV per share, EUR | 3.01 | 3.09 | 3.02 | 3.01 | 3.09 | -2.4 | 3.13 |
EPRA NNNAV per share, EUR | 2.65 | 2.69 | 2.61 | 2.65 | 2.69 | -1.5 | 2.78 |
1) Change-% is calculated from exact figures and refers to the change between 2014 and 2013.
2) Result per share key figures have been calculated with the issue-adjusted number of shares resulting from the directed share issue executed in June 2014 and rights issue executed in July 2014.
3) Citycon changed the reporting of cash flows in the first quarter of 2014. Realised exchange rate gains and losses have been moved from net cash flow from operating activities to net cash flow from financing activities. The change has been applied also to the comparison periods.
4) Citycon amended its accounting policy regarding deferred taxes in the third quarter of 2014 which impacts both equity ratio and LTV. The change has been applied also to comparison figures.
5) Citycon changed the reporting of LTV in the period by including also 'Investments in joint ventures' in the investment properties. The change has been applied also to the comparison periods.
6) Citycon made an adjustment to its reporting of parking income during the year 2014. Previously Citycon reported parking income within service charge income, but starting from current year part of gross rental income. The change affects the calculation of EPRA Cost Ratios. The change has been applied also to the comparison periods.
Main Events January – September 2014
Citycon Group successfully placed a EUR 350 million 10-year Eurobond on 22 September. The guaranteed euro-denominated bond carries a fixed annual interest of 2.50%. The bond offering was oversubscribed and allocated to a broad base of international investors. The settlement date for the bond was 1 October and hence it is not included in the figures for the reporting period.
On 9 September Citycon announced that it has signed a joint venture agreement with NCC Property Development for the (re)development of Mölndals Galleria in Gothenburg. Citycon’s total investment will be approximately EUR 120 million.
Citycon’s two investment grade long-term corporate credit ratings were upgraded in July. On 8 July Standard & Poor’s upgraded Citycon’s credit rating to BBB (previous BBB-) and on 30 July Moody’s upgraded Citycon’s credit rating to Baa2 (previous Baa3). The outlook for both ratings is stable.
In June-July Citycon carried out a directed share issue and a consecutive rights issue, whereby the company raised approximately EUR 400 million of new capital. The directed share issue of EUR 206.4 million to CPP Investment Board European Holdings S.àr.l. (“CPPIBEH”) was executed on 9 June and the rights issue of EUR 196.5 million was executed on 8 July.
Jurn Hoeksema started as Citycon’s Chief Operating Officer and a member of the Corporate Management Committee as from 1 June.
CEO’s Comment
Comments from Citycon Oyj’s Chief Executive Officer Marcel Kokkeel on the reporting period:
‘Citycon’s financial performance during the first three quarters of 2014 was stable, driven by continued strong like-for-like net rental income growth of 3.0%. The results demonstrate Citycon’s resilient business model and capacity to perform in a difficult macro-economic environment, such as we are experiencing today in Finland.
We have strengthened our financial profile considerably during the two last quarters. The proceeds of the share issuances in June−July were mainly used to delever the company’s balance sheet. The credit rating upgrades and successful placing of a strategic EUR 350 million 10-year Eurobond support our goal of extending our average debt maturities and reducing our cost of debt. Going forward the company is committed to maintain or improve its current credit ratings.
During the third quarter we entered into a joint venture agreement with NCC Property Development for the (re)development of Mölndals Galleria in Gothenburg. This property fits perfectly with Citycon’s strategy of investing in strong urban shopping centres driven by daily needs and also further balances the share between Finland and Sweden in our portfolio.’
Events after the Reporting Period
No material events after the reporting period.
Outlook
In 2014, Citycon expects its turnover to change by EUR -4 to 2 million (Q2/2014: EUR -1 to 7 million) compared with the previous year and its EPRA Operating profit to change by EUR -2 to 4 million (Q2/2014: EUR -2 to 6 million). The specified guidance regarding turnover and EPRA Operating profit reflects mainly the weakened Swedish krona. The company expects its EPRA Earnings to change by EUR 8 to 14 million (Q2/2014: EUR 7 to 15 million) from the previous year. The company forecasts an EPRA EPS (basic) of EUR 0.18–0.19 (Q2/2014: EUR 0.175–0.195). The guidance for EPRA EPS (basic) reflects the increased number of shares after the share issuances executed in June-July.
These estimates are based on the existing property portfolio as well as on the prevailing level of inflation, the euro-krona exchange rate, and current interest rates. Premises taken offline for planned or ongoing (re)development projects reduce net rental income during the year.
Business Environment
The economic outlook in Citycon’s operating countries continues to show a mixed picture with Finland suffering from a drawn-out downturn while Sweden’s macro environment remains strong. The European Commission forecasts Euro area GDP growth to reach 1.2% in 2014, with Sweden (2.8%), Estonia (1.9%), Lithuania (3.3%) and Denmark (1.5%) coming in ahead of this. The GDP growth for Finland (forecast 0.2%) is, however, expected to remain modest or negative for a third year in a row and is dependent on both the recovery of the European export markets as well as domestic demand. During the reporting period, consumer confidence levels have stayed relatively stable in Citycon’s operating countries except for in Finland where the consumer confidence has decreased after a peak in June. The consumer confidence levels in the Nordics remain positive, while Estonia,Lithuania and the Euro area on average still struggle with negative consumer confidence. The unemployment rates are substantially below the Euro area average (11.5%) in all Citycon’s operating countries except for Lithuania. (Source: Eurostat) Consumer prices have continued to increase modestly in Finland, while Citycon’s other operating countries are facing close to zero or even negative inflation. (Sources: Statistics Finland/Sweden/Estonia/Lithuania /Denmark)
Retail sales growth for the first eight months of 2014 has been strong in Estonia (6.5%), Lithuania (5.3%) and Sweden (3.1%), but negative in Finland (-0.7%) and Denmark (-0.2%). (Sources: Statistics Finland/Sweden/Estonia/Lithuania/Denmark) Year-on-year prime shopping centre rents remained stable in Finland, while increasing 1.5% in Sweden. In Estonia prime shopping centre rents increased 1.5-3.0% in relation to indexation and increases in turnover rents. In Finland the weak outlook for retail sales limits the rental growth potential going forward and in Estonia the prime rental growth will continue at a moderate pace around 2%. In Sweden prime retail rents are forecasted to increase by 2.0−2.5% as retail sales growth improves. (Source: JLL)
Investment activity has continued positively in Finland and Sweden. The demand for core assets remains strong and accordingly prime shopping centre yields have remained stable. In Finland the positive trend seen during the first half of the year has continued, though compared by volumes Q3 remained slightly lower than previous quarters. In Sweden the transaction volume in Q1−Q3 increased by 24% compared with the same period in 2013. In Estonia the investment market remained active and prime shopping centre yields have remained around 7.3%. (Source: JLL)
Risks and Uncertainties
The company’s core risks and uncertainties, along with its main risk management actions and principles, are described in detail on pages 58–59 of the Annual and Sustainability Report 2013 and on pages 53-56 of the Financial Statements 2013.
Citycon’s Board of Directors believes there have been no material changes to the risks outlined in the Annual Report. The main risks are associated with property development projects, weaker economic development, rising operating expenses, environment and human related risks, decreasing fair values of investment properties and availability and cost of funding.
Helsinki, 15 October 2014
Citycon Oyj
Board of Directors
Additional information:
Marcel Kokkeel
CEO
Tel. +358 20 766 4521
marcel.kokkeel@citycon.com
Eero Sihvonen
Executive Vice President and CFO
Tel. +358 20 766 4459
eero.sihvonen@citycon.com