THIRD QUARTER OF 2015
- Turnover increased to EUR 86.0 million (Q3/2014: EUR 61.4 million) mainly due to the acquisition of Norwegian shopping centre company Sektor Gruppen AS (Sektor). Turnover of Sektor amounted to EUR 27.7 million. This also increased net rental income which came to EUR 59.7 million (EUR 44.2 million).
- EPRA Earnings increased by EUR 9.4 million, or 31.7%, to EUR 38.9 million mainly due to Sektor acquisition. The impact of Sektor acquisition to EPRA Operating profit was EUR 16.4 million. EPRA Earnings per share (basic) decreased slightly to EUR 0.046 (EUR 0.047) due to the increased number of shares, which resulted from the rights issue completed in July 2015.
- Earnings per share was EUR 0.03 (EUR 0.04). The decrease was mainly a result of non-recurring transaction costs related to the Sektor acquisition (EUR 6.0 million), increased number of shares and higher losses on sale.
JANUARY–SEPTEMBER 2015
-Turnover increased to EUR 206.2 million (Q1–Q3/2014: EUR 184.5 million) mainly due to the Sektor acquisition. Divestments decreased turnover by EUR 4.6 million.
- Net rental income increased by EUR 14.2 million, or 11.1%, to EUR 142.1 million (EUR 127.8 million) mainly due to the reasons explained above. Net rental income of like-for-like properties increased by EUR 0.5 million, or 0.6%, excluding currency changes.
- EPRA Earnings increased by EUR 20.9 million, or 27.7% mainly as a result of the Sektor acquisition. In addition, lower direct financing expenses of EUR 7.2 million increased EPRA Earnings. EPRA Earnings per share (basic) was EUR 0.136 (EUR 0.141).
- Earnings per share was EUR 0.12 (EUR 0.11).
- Net cash from operating activities per share increased to EUR 0.14 (EUR 0.11) mainly due to Sektor acquisition and lower paid interest costs.
KEY FIGURES
IFRS based key figures | Q3/2015 | Q3/2014 | %1) | Q1-Q3/2015 | Q1-Q3/2014 | % 1) | 2014 | |
Turnover | MEUR | 86.0 | 61.4 | 40.1 | 206.2 | 184.5 | 11.8 | 245.3 |
Net rental income | MEUR | 59.7 | 44.2 | 35.1 | 142.1 | 127.8 | 11.1 | 169.4 |
Profit/loss attributable to parent company shareholders | MEUR | 22.0 | 20.2 | 9.0 | 84.1 | 61.2 | 37.6 | 84.5 |
Earnings per share (basic) 2) | EUR | 0.03 | 0.04 | -18.1 | 0.12 | 0.11 | 3.4 | 0.15 |
Net cash from operating activities per share2) | EUR | 0.08 | 0.06 | 44.2 | 0.14 | 0.11 | 26.9 | 0.12 |
Fair value of investment properties | MEUR | 4,036.1 | 2,759.0 | 46.3 | 4,036.1 | 2,759.0 | 46.3 | 2,769.1 |
Loan to value (LTV) | % | 45.2 | 36.7 | 23.3 | 45.2 | 36.7 | 23.3 | 38.6 |
EPRA based key figures | ||||||||
EPRA Operating profit | MEUR | 54.7 | 40.4 | 35.4 | 127.2 | 114.7 | 10.8 | 149.8 |
EPRA Earnings | MEUR | 38.9 | 29.6 | 31.7 | 96.4 | 75.5 | 27.7 | 99.7 |
EPRA Earnings per share (basic) 2) | EUR | 0.046 | 0.047 | -2.8 | 0.136 | 0.141 | -4.0 | 0.178 |
EPRA NAV per share | EUR | 2.83 | 2.99 | -5.3 | 2.83 | 2.99 | -5.3 | 3.01 |
1) Change-% is calculated from exact figures and refers to the change between 2015 and 2014.
2) Result per share key figures have been calculated with the issue-adjusted number of shares resulting from the rights issue completed in July 2015.
CEO, MARCEL KOKKEEL:
The most important event during this quarter and one of the most important events also in Citycon’s history was the completion of the acquisition of Sektor in July. The results for Citycon’s Norwegian operations, included in the company’s financials for the first time, were in line with our expectations. The property fair values were reconfirmed by our valuator to be in line with the price we paid for the acquisition of Sektor.
Overall Citycon’s operating performance during the first three quarters has been stable, with like-for-like net rental income growing by 0.6% and occupancy increasing to 96.7%. The operating results in Sweden have been especially strong, while the economic and retail environment in Finland has continued to be weak. In Estonia, the competition in the shopping centre sector has increased lately.
During the quarter, we secured the refinancing of the Sektor acquisition through three successful bond placements, one denominated in EUR and two in NOK. Hence, our financial position is built on a strong basis and we remain committed to an LTV target of 40-45% going forward.
Immediately after the closing of the Sektor transaction, we started an intensive process to integrate the operations to Citycon. Thanks to an efficient process, we have been able to reach key milestones at a fast pace, including the implementation of a “One Citycon” organisation model with key appointments and rebranding Sektor as Citycon. We are ready for the next steps in aligning business processes and systems and thereby reaching additional efficiencies.
The further quality upgrade of the portfolio remains one of the top priorities for management. We successfully continued the disposal of our non-core assets with a sale of a portfolio of 13 supermarket and shop properties in Finland. Including the two properties sold in October, we have divested 42 properties for a total value of more than 250 million since the strategy update in July 2011. We currently aim to dispose of an additional EUR 100-150 million within the next 1.5 years.
We also continued to strengthen our portfolio through our active (re)development strategy. The (re)developed and extended IsoKristiina had a successful grand opening in Lappeenranta and we started the construction of Mölndal Galleria in Gothenburg. We also made good progress in the leasing of Iso Omena, reaching a pre-leasing ratio of 65% for the first phase to be opened in Q3/2016.
ACQUISITION OF SEKTOR GRUPPEN - CITYCON BECAME THE LARGEST LISTED SHOPPING CENTRE SPECIALIST IN THE NORDICS
On 14 July 2015 Citycon acquired all the shares in the Norwegian shopping centre company Sektor Gruppen AS (Sektor). The debt-free acquisition price amounted to approximately EUR 1.47 billion and the cash purchase price to approximately EUR 540 million. Sektor is consolidated in Citycon’s financial numbers as of 1 July.
Sektor, rebranded as Citycon on 15 October, is the second largest owner, manager and developer of shopping centres in Norway. The portfolio comprises a total of 34 shopping centres of which 20 are fully or majority-owned, 4 minority-owned, 2 rented and 8 managed.
The acquisition consolidates Citycon as the largest listed shopping centre specialist in the Nordics by gross asset value (GAV) and the third largest listed continental European operator. With the acquisition, Citycon gained exposure throughout the entire Nordic region, while increasing its GAV from EUR 3.4 billion to EUR 4.7 billion.
The fair value of Citycon’s Norwegian properties amounted to EUR 1.33 billion at the end of Q3. The acquisition price of EUR 1.47 billion (NOK 12.3 billion) included some customary adjustments and was based on an exchange rate of 8.4. At the end of Q3 the exchange rate was 9.5. Lower fair value in EUR at the end of Q3 is due to the lower NOK exchange rate. The acquisition generated a goodwill of EUR 182.8 million (with the Q3 exchange rates), which consists of two parts, one that arose mainly from the deferred tax liabilities and the other which was due to the FX-change from the fixed NOK/EUR-rate. Information on the goodwill generated by the acquisition can be found in the notes on page 30.
The financing of the transaction included a rights issue of approximately EUR 600 million, NOK bonds of approximately NOK 2.65 billion and a Eurobond of approximately EUR 300 million. Further information on the financing can be found in section ‘Financing update’.
BUSINESS ENVIRONMENT
The economic outlook in Citycon’s operating countries remained relatively unchanged during the third quarter of 2015. The macroeconomic environment in Norway, Sweden, Estonia and Denmark remained strong or relatively strong, while market conditions continued to be challenging in Finland.
In 2015, the European Commission forecasts Euro area GDP growth to reach 1.5%, with Norway forecasted to match that level (1.5%) despite the impact of the fall in oil price. Sweden (2.5%), Estonia (2.3%) and Denmark (1.8%) are showing stronger growth figures than the Euro area average while the GDP growth for Finland (0.3%) is expected to remain modest for a fourth year in a row and is dependent on both the recovery of the country’s export markets as well as domestic demand.
During the reporting period, consumer confidence levels have stayed stable in Citycon’s operating countries. The consumer confidence levels in Finland, Sweden and Denmark remain positive, while the consumer confidence in Norway, Estonia and on average in Euro area is still slightly negative. Consumer prices have remained nearly unchanged compared to the previous year in all Citycon’s operating countries apart from Norway where the prices have increased (2.1%). (Sources: Statistics Finland/Norway/Sweden/Estonia/Denmark) The unemployment rates are below the Euro area average (11.0%) in all Citycon’s operating countries. (Source: Eurostat)
Retail sales growth for the first eight months of 2015 has been particularly strong in Estonia (8.0%) and positive in Norway (3.2%), Sweden (3.1%) and Denmark (1.2%), but negative in Finland (-1.1%). (Sources: Statistics Finland/Norway/Sweden/Estonia/Denmark)
Prime shopping centre rents in Finland decreased by around 2% compared to the previous quarter and by around 3% year-on-year. The weak outlook for retail sales limits the rental growth potential and prime rental forecast in 2015 assumes a slight decrease in rents to continue. In Sweden, year-on-year prime shopping centre rents increased by around 2-3% over the last year with a similar rate of growth forecast for the forthcoming year. In Estonia, downward pressure on rents has increased due to intensifying competition. However, prime shopping centre rental growth is expected to remain flat in 2015. (Source: JLL)
In Finland, despite the sluggish development of real economy, the activity in investment market has continued and the investment volume for the first three quarters of 2015 has even surpassed the total for year 2014. The demand for core assets is strong and an increase in investment demand outside prime properties has also been evident, driven mainly by new funds and the return of international investors. Due to strong investment demand, shopping centre prime yields are expected to see a small compression during the last part of the year. In Sweden, the activity in investment market has continued strong and during the first three quarters of 2015 the investment volume was around SEK 17 billion. Prime shopping centre yields have moved in during the last 9 months given strong demand and low supply as well as continued low interest rates. Also yields for secondary shopping centres have somewhat decreased. In addition, investors are seen to be willing to pay a premium for portfolios of assets, compared to individual assets. In Estonia, prime yields are forecasted to continue to decrease driven by low interest rate expectations. (Source: JLL)
EVENTS AFTER THE REPORTING PERIOD
The divestment of non-core property in Talvikkitie 7-9 in Tikkurila, Vantaa, was closed on 1 October. The purchase price amounted to approximately EUR 9 million.
The divestment of shopping centre Strömpilen in Umeå was closed on 1 October. The purchase price amounted to approximately EUR 39 million.
OUTLOOK
In 2015 Citycon forecasts the EPRA EPS (basic) to be EUR 0.17–0.18 (Q2/2015: 0.155–0.175). Furthermore, Citycon expects its EPRA Operating profit to change by EUR 23 to 29 million (Q2/2015: 17–32) and its EPRA Earnings to change by EUR 28 to 34 million (Q2/2015: 17–32) from the previous year.
These estimates are based on the existing property portfolio as well as on the prevailing level of inflation, the euro-krona exchange rates, and current interest rates. Premises taken offline for planned or ongoing (re)development projects reduce net rental income during the year. Citycon’s outlook also includes the impact of the Sektor acquisition and the rights issue executed in July.
Helsinki, 27 October 2015
Citycon Oyj
Board of Directors
For further information please contact:
Marcel Kokkeel
CEO
Tel. +358 20 766 4521 or +358 40 154 6760
marcel.kokkeel@citycon.com
Eero Sihvonen
CFO, Executive Vice President
Tel. +358 20 766 4459 or +358 50 557 9137
eero.sihvonen@citycon.com
Citycon is an owner, developer and manager of urban grocery-anchored shopping centres in the Nordic and Baltic region, managing assets that total close to EUR 5 billion and with market capitalisation of approximately EUR 2 billion. Citycon is the No. 1 shopping centre owner in Finland and Estonia and among the market leaders in Norway and Sweden. Citycon has also established a foothold in Denmark.
Citycon has investment-grade credit ratings from Standard & Poor's (BBB) and Moody's (Baa2). Citycon Oyj’s share is listed in NASDAQ Helsinki.