Summary of the Second Quarter of 2014 Compared with the Previous Quarter
- Turnover increased to EUR 61.9 million (Q1/2014: EUR 61.3 million) mainly due to higher maintenance rents and turnover based rents.
- Net rental income increased by EUR 2.7 million, or 6.7%, to EUR 43.4 million (EUR 40.7 million), mainly as a result of lower property operating expenses reflecting normal seasonal variations as well as higher turnover.
- EPRA Operating profit increased by EUR 2.5 million, or 7.0%, to EUR 38.6 million (EUR 36.1 million), mainly due to higher net rental income.
- EPRA Earnings increased to EUR 24.0 million (EUR 22.3 million) mainly due to higher EPRA Operating profit. EPRA Earnings per share (basic) increased to EUR 0.052 (EUR 0.050) despite the higher number of shares resulting from the directed share issue in June 2014.
- The fair value change in investment properties was EUR 1.4 million (EUR 11.9 million), and the fair value of investment properties totalled EUR 2,741.5 million (EUR 2,744.3 million). The weighted average net yield requirement for investment properties remained at 6.2% (6.2%).
Summary of January–June 2014 Compared with the Corresponding Period of 2013
- Turnover decreased to EUR 123.2 million (Q1-Q2/2013: EUR 124.5 million) mainly due to divestments and a weaker Swedish krona.
- Net rental income increased by EUR 1.1 million, or 1.3%, to EUR 84.0 million (EUR 83.0 million) mainly due to strict operating expenses management supported by mild winter conditions. Net rental income of like-for-like properties increased by EUR 2.4 million, or 3.6%, excluding the impact of the weaker Swedish krona, while the completion of (re)development projects increased net rental income by EUR 1.2 million.
- Earnings per share were EUR 0.10 (EUR 0.07). The increase was mainly resulting from higher operating profit, higher share of profit of joint ventures and lower financial expenses. Financial expenses include EUR 13.8 million of non-recurring costs related to the loan prepayments with proceeds from the share issue.
- EPRA Earnings increased by EUR 5.8 million, or 14.4% mainly as a result of higher net rental income and lower financing and administrative expenses. EPRA Earnings per share (basic) was EUR 0.102 (EUR 0.098).
- Net cash from operating activities per share increased to EUR 0.06 (EUR 0.00).
Key figures
| IFRS based key figures | Q2/2014 | Q2/2013 | Q1/2014 | Q1-Q2/2014 | Q1-Q2/2013 | Change-% 1) | 2013 |
| Turnover, EUR million | 61.9 | 61.6 | 61.3 | 123.2 | 124.5 | -1.1 | 248.6 |
| Net rental income, EUR million | 43.4 | 42.7 | 40.7 | 84.0 | 83.0 | 1.3 | 168.9 |
| Profit/loss attributable to parent company shareholders, EUR million | 13.1 | 1.7 | 33.6 | 46.6 | 27.8 | 67.7 | 93.1 |
| Earnings per share (basic), EUR 2) | 0.03 | 0.00 | 0.08 | 0.10 | 0.07 | 52.4 | 0.22 |
| Net cash from operating activities per share, EUR 3) | 0.00 | -0.05 | 0.06 | 0.06 | 0.00 | - | 0.14 |
| Fair value of investment properties, EUR million | 2,741.5 | 2,711.3 | 2,744.3 | 2,741.5 | 2,711.3 | 1.1 | 2,733.5 |
| Equity ratio, % | 49.7 | 42.7 | 44.2 | 49.7 | 42.7 | 16.3 | 45.3 |
| Loan to Value (LTV), % 4) | 39.8 | 51.3 | 50.3 | 39.8 | 51.3 | 49.3 | |
| EPRA based key figures | Q2/2014 | Q2/2013 | Q1/2014 | Q1-Q2/2014 | Q1-Q2/2013 | Change-% 1) | 2013 |
| EPRA Operating profit, EUR million | 38.6 | 37.8 | 36.1 | 74.7 | 73.2 | 2.1 | 149.1 |
| % of turnover | 62.4 | 61.2 | 58.9 | 60.7 | 58.8 | - | 60.0 |
| EPRA Earnings, EUR million | 24.0 | 20.8 | 22.3 | 46.3 | 40.4 | 14.4 | 86.7 |
| EPRA Earnings per share (basic), EUR 2) | 0.052 | 0.047 | 0.050 | 0.102 | 0.098 | 4.0 | 0.203 |
| EPRA Cost Ratio (including direct vacancy costs) (%) 5) | 19.1 | 21.0 | 24.1 | 21.6 | 23.7 | -8.7 | 22.4 |
| EPRA Cost Ratio (excluding direct vacancy costs) (%) 5) | 17.1 | 18.6 | 21.6 | 19.3 | 20.7 | -6.9 | 20.0 |
| EPRA NAV per share, EUR | 2.99 | 2.99 | 3.03 | 2.99 | 2.99 | 0.3 | 3.10 |
| EPRA NNNAV per share, EUR | 2.72 | 2.77 | 2.74 | 2.72 | 2.77 | -2.0 | 2.90 |
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 to be 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 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.
5) 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–March 2014
- In June, Citycon’s Board of Directors decided on a directed share issue and a consecutive rights issue, whereby the company would raise 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. The subscription period for the rights issue of EUR 196.5 million was 17 June until 2 July. More information on the transaction is available in sections “Events after the Reporting Period”, “Financing”, “Shares and Shareholders” and in the stock exchange releases issued 13 May, 9 June and 8 July.
- Jurn Hoeksema started as Citycon’s Chief Operating Officer and a member of the Corporate Management Committee as from 1 June. Jurn Hoeksema did not have any shareholdings in Citycon at the end of the reporting period. Harri Holmström, previous Chief Operating Officer, started in a new role as Citycon’s Chief Commercial Officer and continues as a member of the Corporate Management Committee.
CEO’s Comment
Comments from Citycon Oyj’s Chief Executive Officer Marcel Kokkeel on the reporting period:
The performance in the first half of 2014 has been solid with like-for-like net rental income growth of 3.6% and occupancy rate increasing slightly to 95.7%. We consider this to be a good achievement in light of the prevailing market conditions. We have managed to keep a strict cost control on both operating and administrative expenses, which is key, as the performance of the Finnish market continues to be challenging.
During the quarter we announced a transaction that would strengthen our balance sheet by raising approximately EUR 400 million in new capital through two consecutive share issuances. Through the directed share issuance to CPPIBEH, we received another globally recognised real estate investor as one of Citycon’s strategic shareholders. The directed issue was followed by a rights issue that was completed successfully just after the close of the quarter. EUR 300 million of the additional equity will be used to delever the company’s balance sheet and bring the LTV down to approximately 40%. The overall arrangement strengthens Citycon’s credit profile and both Standard & Poor’s and Moody’s have put Citycon’s corporate credit rating on review for upgrade. Additionally Citycon will continue to recycle capital accretively by selling non-core properties and pursuing selected acquisitions and (re)development projects of grocery-anchored shopping centres in dense urban locations in the Nordic and Baltic regions. We are very pleased with the trust that our shareholders have shown in the company through this transaction, and would like to thank them all for their support.
Events after the Reporting Period
All offered shares 74,166,052 were subscribed for in the rights issue ongoing at the period-end and which ended on 2 July. Pursuant to its underwriting commitment, Gazit-Globe Ltd. subscribed for 1,956,885 shares, representing approximately 2.64% of the shares offered, as a consequence of which the rights issue was fully subscribed for. The underwriting commitment by CPPIBEH was not used. The gross proceeds raised by Citycon in the rights issue were approximately EUR 196.5 million. The subscribed shares represent approximately 12.5% of the total shares and voting rights in the company after the rights issue. The new shares were entered in the Finnish Trade Register on 9 July and public trading in the new shares commence on or around 10 July. The subscription price was recognised under the invested unrestricted equity fund. Following the rights issue the total number of shares outstanding in the company is 593,328,419 as of 9 July.
On 8 July Standard & Poor’s Rating Services upgraded Citycon’s investment grade long-term corporate credit rating to BBB. The outlook is stable. The previous rating was BBB- (stable outlook).
Outlook
The company specified its guidance regarding EPRA Earnings and EPRA EPS (basic) on 8 July following the completion of the directed share issue and rights issue in June-July. Otherwise, the outlook has remained unchanged.
In 2014, Citycon expects its turnover to change by EUR -1 to 7 million compared with the previous year. The company expects its EPRA Operating profit to change by EUR -2 to 6 million and its EPRA Earnings to change by EUR 7 to 15 million (Q1/2014: EUR 2 to 10 million) from the previous year. The company forecasts an EPRA EPS (basic) of EUR 0.175–0.195 (Q1/2014: EUR 0.20–0.22).
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. Properties taken offline for planned (re)development projects reduce net rental income during the year.
Business Environment
The economic outlook in Citycon’s operating countries show a mixed picture. 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 first half of the year 2014, consumer confidence levels have stayed stable in Citycon’s operating countries. The consumer confidence levels in the Nordics remain positive, while Estonia and Lithuania still struggle with negative consumer confidence. The negative consumer confidence in the Euro area has continued to recover. The unemployment rates are substantially below the Euro area average (11.7%) in all countries except for Lithuania. (Source: Eurostat) Consumer prices have remained fairly stable or increased slightly in Finland, Estonia and Denmark as well as the Euro area. Sweden and Lithuania are, however, facing negative inflation. (Sources: Statistics Finland/Sweden/Estonia/Lithuania /Denmark)
Retail sales growth for the first five months of 2014 has been strong in Estonia (6.0%), Lithuania (4.8%) and Sweden (3.3%), but negative in Finland (-0.2%) and Denmark (-0.4%). (Sources: Statistics Finland/Sweden/Estonia/Lithuania/Denmark) Year-on-year prime shopping centre rents remained stable in Finland, while increasing 1.5% in Sweden. Aside from rent indexations in Q1, prime rental rates in Estonia have stabilised. In Finland the softening outlook for retail sales limits the rental growth potential going forward and in Estonia the rental growth is expected to be almost flat in 2014. In Sweden prime retail rents are forecasted to increase by 2.0-2.5% as retail sales growth improves. (Source: JLL)
Investment activity has increased both 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 past quarters has continued and investment volume in H1/2014 exceeds the figures in H1/2013. In Sweden the transaction volume for Q2/2014 increased by approximately 490% compared to the previous quarter. In Estonia the investment market remained active, while recording two larger retail transactions in Q2. Prime shopping centre yields have dropped to 7.3% and are expected to remain stable in 2014. (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 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, 9 July 2014
Citycon Oyj
Board of Directors
Additional information:
Marcel Kokkeel, CEO
Tel. +358 20 766 4521 or +358 40 154 6760
marcel.kokkeel@citycon.com
Eero Sihvonen, Executive Vice President and CFO
Tel. +358 20 766 4459 or +358 50 557 9137
eero.sihvonen@citycon.com
Distribution:
NASDAQ OMX Helsinki
Major media
www.citycon.com
