Citycon Oyj's Financial Statement Release for 1 January –

The Financial Statement Release for the period 1 January–31 December 2014 in its entirety is attached to this release. It is also available on the company’s website at www.citycon.com .
 

Financial Statements and the Report by the Board of Directors
On 10 February 2015, 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 2014. 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 2014 has been published simultaneously with the Financial Statements and the Report by the Board of Directors. All these documents are available on the companys’s website at www.citycon.com.

Summary of the Fourth Quarter of 2014 Compared with the Previous Quarter
- Turnover decreased to EUR 60.8 million (EUR 61.4 million) mainly due to the weaker Swedish krona and lower turnover rents.
- Net rental income decreased by EUR 2.7 million, or 6.1%, to EUR 41.3 million (EUR 44.0 million), mainly as a result of higher property operating expenses reflecting normal seasonal variation.
- EPRA Operating profit decreased by EUR 5.4 million, or 13.4%, to EUR 34.8 million (EUR 40.2 million), mainly due to lower net rental income and higher direct administrative expenses.
- EPRA Earnings decreased to EUR 24.1 million (EUR 29.4 million) mainly due to lower EPRA Operating profit and higher direct financial expenses due to non-recurring expenses related to the write-off of unamortised arrangement fees of the prepaid debt . EPRA Earnings per share (basic) decreased to EUR 0.041 (EUR 0.050) mainly due to lower Earnings as well as higher number of shares resulting from the share issuances in June-July.
- The fair value change in investment properties was EUR 2.2 million (EUR 0.1 million), and the fair value of investment properties totalled EUR 2,769.1 million (EUR 2,759.0 million). The weighted average net yield requirement for investment properties decreased to 6.1% (6.2%).

Summary of 2014 Compared with 2013
Citycon met its financial targets for 2014. The company specified its guidance twice during the year. In the Q3 interim report, the company stated that it expects its turnover to change by EUR -4–2 million, EPRA Operating profit to change by EUR -2–4 million and EPRA Earnings to change by EUR 8–14 million in 2014 compared to 2013, and that it forecasted an EPRA Earnings per share of EUR 0.18–0.19. In 2014 turnover decreased by EUR 3.3 million, while EPRA Operating profit increased by EUR 0.6 million and EPRA Earnings increased by EUR 13.0 million compared to 2013. EPRA Earnings per share was EUR 0.191, slightly exceeding the company guidance.

- The Board of Directors proposes a return of equity from invested unrestricted equity fund of EUR 0.15 per share and that no dividend will be paid.
- Turnover decreased to EUR 245.3 million (EUR 248.6. million) mainly due to divestments and weaker Swedish krona.
- Despite the disposal of EUR 29.9 million of non-core assets, net rental income increased by EUR 0.5 million, or 0.3%, to EUR 169.4 million (EUR 168.9 million) mainly due to strict property operating expenses management supported by mild winter conditions in the first half of the year. Net rental income of like-for-like properties increased by EUR 3.8 million, or 2.9%, excluding the impact of the weaker Swedish krona, while the completion of (re)development projects increased net rental income by EUR 1.9 million.
- Earnings per share were EUR 0.16 (EUR 0.22) mainly as a result of fair value changes, change in deferred taxes and higher number of shares.
- EPRA Earnings increased by EUR 13.0 million, or 14.9% mainly as a result of higher net rental income and lower financing expenses. EPRA Earnings per share (basic) was EUR 0.191 (EUR 0.203).
- Net cash from operating activities per share came to EUR 0.13 (EUR 0.14).

  Key figures    

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 in 2014

• On 18 December Citycon signed a EUR 500 million committed syndicated revolving credit facility agreement with a Nordic bank group.
• Citycon acquired GIC’s 40% stake in the Iso Omena shopping centre on 16 October. After the transaction, Citycon owns 100% of the existing shopping centre.
• Citycon 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.
• 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 equity 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 of 1 June.
   

CEO’s Comment
Comments from Citycon Oyj’s Chief Executive Officer Marcel Kokkeel on the Financial Year:

2014 was a good year for Citycon despite a challenging retail environment, especially in Finland. Our actions continued to deliver solid financial performance. Operationally, we were able to improve the quality of our portfolio and to produce like-for-like net rental income growth of 2.9%. With strong leasing efforts we also managed to increase our occupancy rate to 96.3%. The results clearly demonstrate Citycon’s resilient business model and capacity to manage real growth.

The quality of the property portfolio was further enhanced through continued focus on improved operations in a more systematic ‘One Citycon’ way and as a result of our efforts to recycle capital accretively. Since the strategy update in July 2011 we have successfully divested 26 non-core assets for a total value of approximately EUR 111 million. The significant growth in investment activity seen in the Nordics creates good momentum to continue the sell-off of the remaining non-core portfolio of approximately EUR 300 million. During the year, we also strengthened our development pipeline and introduced a new larger project, Mölndals Galleria in Gothenburg. The extension of Iso Omena progressed well and, after the buy-out of GIC’s 40% stake, we have full ownership of one of the most desirable shopping centres in Finland.

The year was characterised by substantial financing transactions and the introduction of another globally recognised real estate investor, CPPIBEH, as a strategic shareholder. Our substantially stronger balance sheet with modest Loan to Value provides us with the capacity to exploit further growth opportunities within our current portfolio as well as through selective acquisitions. 

Events after the Financial Year
On 16 January Citycon announced that Harri Holmström, Citycon Oyj’s Chief Commercial Officer (CCO) and member of the Corporate Management Committee would leave the company at the end of January 2015.

On 28 January the company announced that it has signed an agreement with TK Development regarding the forward purchase of Straedet, a shopping centre to be built in Køge in the greater Copenhagen area. The purchase price is estimated to be approximately EUR 75 million and will be paid at completion in 2017.

Outlook
In 2015, Citycon gives guidance on three key metrics: EPRA Operating profit, EPRA Earnings and EPRA Earnings per share. Citycon will not give guidance on turnover going forward due to prediction uncertainties relating to e.g. currency fluctuations. Citycon expects its EPRA Operating profit to change by EUR -8 to 0 million and EPRA Earnings to change by EUR 6 to 14 million in 2015 compared with the previous year. The company forecasts an EPRA Earnings per share (basic) of EUR 0.175–0.195. 

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
Market conditions continued to be challenging in Finland during 2014 while the Swedish economy showed strong signs of recovery. According to the European Commission (forecast), GDP growth in 2014 was 0.8% in the Euro area, -0.4% in Finland, 2.0% in Sweden, 1.9% in Estonia and 0.8% in Denmark.

In 2015 the European Commission forecasts Euro area GDP growth to reach 1.1%, with Sweden (2.4%), Estonia (2.0%) and Denmark (1.7%) showing stronger growth figures. The GDP growth for Finland (0.6%) is expected to remain modest for a fourth 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. The consumer confidence levels in the Nordics remain positive, while the consumer confidence in Estonia is slightly negative. In general the Euro area still struggles with negative consumer confidence. Consumer prices have continued to increase modestly in Finland and Denmark, while Sweden, Estonia and Euro area are facing slightly negative inflation. (Sources: Statistics Finland/Sweden/Estonia/Denmark) The unemployment rates are substantially below the Euro area average (11.4%) in all Citycon’s operating countries. (S ource: Eurostat)  

In 2014 retail sales growth has been strong in Estonia (6.0%) and Sweden (3.4%), but negative in Finland (-1.0%) and Denmark (-2.1%). (Sources: Statistics Finland/Sweden/Estonia/Denmark) Year-on-year prime shopping centre rents decreased slightly in Finland, while increasing approximately 2.0% in Sweden. In Estonia prime shopping centre rents increased 1.5-3.0% due to indexation and increases in turnover rents. In Finland the weak outlook for retail sales limits the rental growth potential going forward. In Estonia prime rental growth is expected to remain flat in 2015 as demand for large units is limited and smaller units are already close to their maximum rental potential. In Sweden prime rental growth is expected to continue, however, being slightly limited by increased competition. Prime retail rents will perform better than secondary retail rents in terms of growth. (Source: JLL)

Investment activity has remained positive during the year and peaked in the fourth quarter. The demand for prime assets remains strong. Accordingly, increased investor demand and the limited supply of prime shopping centres has resulted in the compression of prime yields. In Finland the total retail transaction volume far exceeded the previous year. In Sweden the total transaction volume was record high, while the retail transaction volume was at the level of the previous year. In Finland yields are expected to remain stable in 2015 and in Sweden a minor decrease is expected for prime shopping centre yields. In Estonia the continued investment activity and improved market conditions has resulted in yields coming under pressure and yields are expected to come down slightly in 2015. (Source: JLL)

Risks and Uncertainties
The company’s core risks and uncertainties, along with its main risk management actions and principles, have been described in detail on pages 49-51 of the Financial Statements 2014 and in the upcoming Annual and Sustainability Report 2014.

Citycon’s Board of Directors believes there have been no material changes to the risks during 2014. The main risks are associated with property development projects, weaker demand for retail premises, rising operating expenses, environment and human related risks, decreasing fair values of investment properties and availability and cost of funding.

Board Proposal for Dividend Distribution and Distribution of Assets
The Board of Directors proposes to the Annual General Meeting to be held on 19 March 2015 that no dividend be paid for the financial year 2014 and that the shareholders are paid an equity repayment of EUR 0.15 per share from the invested unrestricted equity fund. The equity repayment will be paid to a shareholder registered in the company’s shareholders’ register maintained by Euroclear Finland Ltd on the record date for equity repayment 23 March 2015. The Board of Directors proposes that the equity repayment be paid on 30 March 2015.

Financial Reports in 2015
Citycon will publish its Annual and Sustainability Report 2014 on the company’s website in week nine of 2015 at the latest.

Citycon will issue three interim reports during the financial year 2015 as follows:

January–March 2015 on 30 April 2015 at about 9.00 a.m.,
January–June 2015 on 15 July 2015 at about 9.00 a.m. and
January–September 2015 on 21 October 2015 at about 9.00 a.m.

Annual General Meeting 2015
Citycon Oyj will hold its Annual General Meeting at Finlandia Hall, Mannerheimintie 13, Helsinki, Finland on Thursday, 19 March 2015 starting at 12:00 p.m.

For more investor information, please visit the company’s website at www.citycon.com .

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

Citycon Oyj (NASDAQ OMX: CTY1S) is a leading owner, developer and manager of urban grocery-anchored shopping centres in the Nordic and Baltic regions, managing assets that total approximately EUR 3.3 billion and with a market capitalisation of approximately EUR 1.5 billion. For more information about Citycon, please visit www.citycon.com