CEO's review, CEO F. Scott Ball:

Citycon achieved another solid quarter on both the operational and transactional fronts amidst an improving macro-economic environment in our Nordic markets.  We are encouraged to see continued performance and valuation improvement at our centres, with operations nearly back to pre-covid levels.

Citycon’s operational performance showed continued improvement in the quarter with like-for-like net rental income in Q3 0.4% above in the same period last year for properties excluding divestments.  While certainly a positive trend, we are even more pleased to note that performance at our properties is nearly back to pre-covid levels.  On an unadjusted basis, we would also point out a consistent, quarter-over-quarter improvement, with Q3/2021 representing the third consecutive quarter of growth over the prior, with unadjusted net rental income of 51.3 MEUR, which is 1.0 % points over Q2/2021. The direct operating profit is similarly ahead of Q2/2021, standing at 44.7 MEUR in Q3/2021.

On the transaction front, the Nordic real estate transaction market has continued to be very active with a great deal of both domestic and foreign capital flooding the space and cap rates continuing to compress.  One trade of note this quarter was the recently announced Akelius residential transaction for over 9 billion euros, at indicative pricing yields approaching 2%. Looking through to our portfolio and residential development rights, this appears to indicate that our existing residential building rights are significantly more valuable, while also suggesting that cap rates for our well located, necessity-based retail should be declining as well as global investors search for stability and yield. As for our Q3 valuations, the operating properties recorded a third consecutive quarter of uplift, however we were negatively impacted by an IFRS16 adjustment as well as additional construction expense at Lippulaiva where we have decided to build the remaining two residential towers ourselves. This will now mean that we will construct 6 of the 8 towers ourselves for residential rental units.

Speaking of valuations, post quarter end, we agreed to sell our Columbus shopping centre in Finland, for a gross price of 106.2 MEUR, which is 10 MEUR above its Q4/2020 valuation. This deal is a great example of Citycon´s comprehensive ability to create value at every stage of an asset’s life cycle.  Our asset management team has done a tremendous job activating the center and establishing the optimal tenant mix while working hand in hand with our development team to execute a disposition at an attractive price, increasing valuations, as well as the demand for high-quality Nordic real estate assets.  The last step in the capital recycling process is to allocate capital effectively and, as noted in our release yesterday, we are considering using a proportion of the Columbus sale proceeds to repurchase shares.  This opportunistic capital recycling will take advantage of our large discount to NRV per share and emphasizes our belief that our current share price does not reflect the inherent value of our unique portfolio and development opportunities.

These development opportunities will provide significant organic growth for us going forward, particularly on the residential front and serves to enhance and improve our existing hubs. As we have stated previously, increasing the densification and diversity of our urban hubs improves both the stability of our existing assets while providing to excellent growth and value enhancement from the newly developed buildings coming online. The first milestone of this strategy is our exciting Lippulaiva project (opening spring 2022), which includes in total approx. 550 apartments and will bring our existing residential component of the portfolio to 2.8% of our total GLA. 

On the operating front, like-for-like tenant sales have picked up year-to-date and now stand at 2.2% above the same period last year.  Once again, it is worth noting that we are seeing like-for-like tenant sales reaching pre-covid levels, which we believe sets us apart from our retail peers and is a testament to our strategy of owning necessity-based retail in growing locations with access to excellent public transportation. This is evident in tenant demand for our urban hubs as we continued to demonstrate strong leasing activity in the quarter with approximately 41,000 square meters leased.   We are particularly pleased with the improvement in specialty leasing, which has shown significant growth recently as tenant interest in pop-ups and common area leasing has dramatically picked up in line with the economic recovery. Specialty leasing is an important operational initiative for us as it offers not only additional income and new GLA but also serves as an important ‘farm system’ to find, identify and build a relationship with tomorrow’s long-term tenants.

As has remained the case throughout the pandemic, Citycon´s non-adjusted rent collection remained at a high level, and stands at 96%, year-to-date. Final collection rates are again expected to increase beyond this already high level. We would also note that this strong level of collection continues to be a result of our necessity-based tenant focus, in addition to our excellent Nordic city locations.

Continuing with the balance sheet, we announced our intentions in September to redeem the 161.7 MEUR remaining on our senior notes maturing in 2022. In addition, we redeemed nearly all of our outstanding CP and now have no significant near-term maturities until 2024.  This additional balance sheet strength provides us the ability to pursue our long-term strategic goals.

We believe the company is well positioned for today and our future, as demonstrated by our solid Q3 results. We continue to demonstrate the strength of our strategy, focusing on necessity-based retail hubs in top Nordic locations. Our tenant mix, of municipal and grocery anchor tenants, brings resilience to our portfolio, which distinguishing against our more fashion-oriented peers through the pandemic and should continue to do so going forward. This stable cash flow combined with the significant value creation associated with our development pipeline provides an attractive value proposition for all stakeholders. Finally, we were pleased to see the lifting of government restrictions in our operating countries in September, which gives us confidence for the rest of the year.  As a result of our year-to-date results, confident in tightening our full year guidance and now anticipate EPRA EPS to be in the range of EUR 0.683-0.723 for the full year 2021.

Source: Citycon's Interim Report Q3/2021