Citycon acquires Sektor Gruppen, a Norwegian shopping centre owner and manager, for approximately EUR 1.5 billion and intends to raise EUR 600 million through a rights issue
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Citycon acquires Sektor Gruppen, Norway’s second largest shopping centre owner and manager – consolidating 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 EUR 1.47 billion acquisition, Citycon gains exposure throughout the entire Nordic region, while increasing its GAV by nearly 50%, from EUR 3.4 billion to EUR 4.9 billion.
Citycon Oyj (Citycon) has today agreed to acquire all the shares in the Norwegian shopping centre company Sektor Gruppen AS (Sektor) from its owners Joh Handel Eiendom 1 AS, Varner Invest AS and K&S Holding AS. The agreed debt-free acquisition price is approximately EUR 1,467 million (NOK 12,320 million), (based on the exchange rate 8.4), subject to customary balance sheet and post-closing adjustments.
Citycon intends to finance the acquisition through a rights issue of approximately EUR 600 million (the "Rights Issue"), a EUR 250 million bridge financing facility obtained from a syndicate of Nordic banks and from available financing facilities if necessary. In addition, waivers have been obtained for approximately EUR 671 million of the existing bank financing facilities of Sektor to remain in place post-closing. The closing of the transaction is expected to take place in July 2015.
- Strengthened Nordic position through enlarged footprint and geographical diversification. Following the transaction, Citycon will own 55 shopping centres in the Nordic countries and Estonia and increase its total annual footfall from approximately 150 million to over 200 million
- Excellent strategic fit – portfolio of quality urban grocery-anchored shopping centres in locations with strong demographics
- Immediate critical mass in Norway – one of the fastest growing and wealthiest economies in Europe
- Established Norwegian management platform joining Citycon: ability to focus on value creation from day one
- Net initial property yield of approximately 5.2% with material organic growth potential. Expected to be accretive to earnings per share as of 2016
- Upside potential through operational and financial synergies
- Strong financial profile with target Loan to Value (LTV) level of 40-45% maintained
- Material increase in number of shares together with larger asset base improves market visibility and financing options
- Citycon’s two largest shareholders, Gazit-Globe and Canada Pension Plan Investment Board, are supportive of the transaction and have, subject to certain customary conditions, committed to pro-rata undertakings in the Rights Issue
“We’re very excited about this acquisition, which completes our Nordic presence. The transaction is a defining step forward in our goal to be the household name for Nordic and Baltic shopping centres. During recent years, we have been focusing on strengthening our balance sheet, improving our cost base and operations and now we are ready for a strategic step by enlarging our operating platform. Sektor represents a perfect strategic fit for us, being recognized as a quality organization with an impressive track record, good assets and experienced management,” says Marcel Kokkeel, CEO of Citycon.
“We are happy to receive an owner with strong retail real estate experience and a long-term vision and investment horizon. Integrating Citycon’s wide experience, financial strength and strong management with ours will provide the optimum conditions for further growth and development, while creating scale advantages and synergies,” says Eirik Thrygg, CEO of Sektor.
The transaction reflects Citycon’s clear focus on expanding its asset portfolio in urban, fast-growing Nordic cities. Sektor’s portfolio fulfils Citycon’s asset selection criteria with regard to urban locations, everyday shopping, strong demographics and proximity to public transportation and services to ensure consistent footfall. Following the completion of the acquisition, Citycon will have leading market positions in Finland, Sweden, Norway and Estonia as well as an established foothold in Denmark.
Based on the increased size and geographical footprint, Citycon believes material operational and financial synergies can be secured within the next three years. Citycon sees income upside through best practice sharing, speciality leasing, digital marketing initiatives and cross-country tenanting leveraging on its existing relationships with Nordic and international retailers. Citycon also believes that the broader integrated platform will bring operating efficiencies. Citycon’s ambition is to generate annual like-for-like net rental income growth of +100bps above CPI (Consumer Price Index) for the Sektor portfolio going forward. Also, Citycon sees potential to increase the net initial property yield by +20 bps by year-end 2015 due to developments coming online. Additionally, Citycon expects savings in administrative expenses and lower funding costs driven by the enhanced access to capital and improved risk profile implied by higher diversification and larger asset base.
The integration of Sektor will follow a detailed plan to capture synergies and to combine systems, processes and competences including integration of financial reporting. The non-recurring transaction costs from the acquisition are estimated to amount to approximately 1% of the acquisition price corresponding to approximately EUR 17 million.
Based on discussions with rating agencies, Citycon expects its current ratings (BBB by Standard & Poor’s and Baa2 by Moody’s) to be affirmed with stable outlook, subject to currently planned Rights Issue and other conditions relating to the transaction.
Citycon’s guidance for 2015, published in relation to the Q1/2015 results, does not take into account the effects of this transaction. Citycon will provide an updated guidance, when the impact of the acquisition can be determined with full precision.
For preliminary combined key figures of Citycon and Sektor for 2014, please see Annex I.
Financing of the transaction
The estimated total debt-free purchase price payable by Citycon for all the shares in Sektor will be EUR 1,467 million (NOK 12,320 million), (based on the exchange rate 8.4). The cash purchase price of EUR 541 million (NOK 4,541 million) will be paid at the closing of the transaction, but remains subject to customary post-closing adjustment mechanisms.
Citycon intends to finance the acquisition through a Rights Issue of approximately EUR 600 million, a EUR 250 million bridge financing facility, with a maturity of one year, obtained from SEB and Nordea, and from available financing facilities if necessary. In addition, waivers have been obtained for approximately EUR 671 million of the existing bank financing facilities of Sektor to remain in place post-closing. The closing of the transaction is expected to take place in July 2015.
In connection with the completion of the transaction, Citycon intends to refinance three secured bonds issued by Sektor amounting to approximately EUR 222 million (NOK 1,865 million) in total through an early redemption by Sektor of its outstanding bonds. In addition, an old vendor loan in Sektor of approximately EUR 42 million (NOK 350 million) will be settled.
After closing, Citycon will consider available alternatives to optimise its long term financial structure and refinance the bridge financing facility and existing Sektor debt within the next year, including but not limited to issuance of bonds and divestments of non-core assets. Citycon's identified non-core portfolio amounts to approximately EUR 300 million, which management expects to divest during the next years.
The Rights Issue is subject to the extraordinary general meeting of Citycon authorizing the Board of Directors to decide on the issuance of new shares. A notice to the extraordinary general meeting to decide on the authorization for the Board of Directors will be published later today.
Citycon’s two largest shareholders, Gazit-Globe Ltd. (42.8%) and CPP Investment Board Europe S.à r.l. (15.0%), a wholly owned subsidiary of Canada Pension Plan Investment Board, have, subject to certain customary conditions, provided undertakings to subscribe to their pro-rata portion of the Rights Issue.
Terms and timetable of the transaction
The closing of the transaction is not subject to any third party approvals. The closing of the transaction is expected to take place in July 2015, after the completion of the Rights Issue.
The necessary shareholder authorization for the Rights Issue will be sought at Citycon's extraordinary general meeting to be convened later today to be held on 15 June 2015.
The Board of Directors of Citycon is expected to decide on the timetable and terms and conditions of the Rights Issue based on the authorization by the general meeting. The Rights Issue is expected to be launched in June 2015.
Overview of Sektor
Sektor is the second largest owner, manager and developer of shopping centres in Norway. Sektor’s portfolio comprises a total of 34 shopping centres of which 20 are fully or majority-owned, 4 are minority-owned, 2 rented and 8 managed shopping centres. Most of the centres (approx. 95%) are located in Norway’s three main economic hubs: the Oslo, Bergen and Stavanger regions. Sektor generated a total IFRS-based turnover of EUR 127.0 million and operating profit (including fair value changes on investment property) of EUR 103.5 million in 2014. Based on the Norwegian GAAP figures, the turnover increased by approximately 11% compared to the previous year and EBIT decreased by approximately 5% mainly as a consequence of ongoing (re)development projects.
The fully and majority-owned shopping centres have a gross leasable area of 400,000 sq.m., while the total portfolio under management has a gross leasable area of more than 600,000 sq.m. The economic occupancy rate for the owned portfolio was 96.5% at year-end 2014. Sektor's gross asset value is EUR 1.5 billion and the total annual footfall 62 million.
Sektor focuses on shopping centres with a leading position in their catchment area, and actively considers potential extensions to ensure viability and competitiveness. Major tenants include specialty and grocery chains as well as restaurants, tenants from the banking and financial sectors, and municipal services. Sektor’s largest tenants include Norway’s biggest grocery chain NorgesGruppen and clothing company Varner Gruppen, whose brands include e.g. Dressmann, Bik Bok and Cubus. Sektor has approximately 150 employees.
Pangea Property Partners acted as Nordic lead transaction advisor to Citycon in connection with the execution of the transaction. SEB served as financial advisor, JPMorgan as financial co-advisor and BA-HR as legal advisor to Citycon in connection with the transaction.
Roschier, Attorneys Ltd. acts as Citycon’s Finnish legal advisor and Shearman & Sterling (London) LLP as Citycon’s US legal advisor in relation to the contemplated Rights Issue.
Citycon CEO, Marcel Kokkeel, and CFO, Exec. VP Eero Sihvonen, will host a live audiocasting and conference call for investors and analysts on May 26, 2015 at 09:00 CET to discuss the transaction.
To join the investor audiocasting and slide show:
To join the investor audiocasting by phone:
International: +44 20 3003 2666
Norway: +47 2 156 3318
A press conference will be held in Oslo with the Chairmen and CEOs of both companies on May 26, 2015 at 10:30 CET at the Thief Hotel, Landgangen 1, 0252 Oslo.
To join the press conference webcast:
English (live translation):
Helsinki, 25 May 2015
Board of Directors
Citycon is a leading owner, manager and developer of urban grocery-anchored shopping centres in the Nordic and Baltic region, managing assets that total approximately EUR 3.4 billion and with market capitalisation of EUR 1.8 billion. Citycon is the No. 1 shopping centre owner in Finland and Estonia and among the market leaders in Sweden. Citycon has also established a foothold in Denmark. www.citycon.com
Sektor Gruppen AS is the second largest company in managing, developing and marketing of shopping centres in Norway. Sektor’s portfolio consists of 20 fully and majority-owned shopping centres, 4 minority-owned centres, 2 rented shopping centres and 8 managed shopping centres. With these 34 shopping centres, Sektor creates excellent shopping experiences for its customers in partnership with tenants. Sektor’s total portfolio under management has a gross leasable area of more than 600,000 sq.m. www.sektor.no
Annex I: Preliminary combined key figures
Citycon audited consolidated financial statements are prepared according to IFRS as adopted by the EU (“IFRS”). The audited consolidated financial statements of Sektor are prepared according to Norwegian Generally Accepted Accounting Principles to ("NGAAP"). All NGAAP to IFRS differences as of 31 December 2014 and for the year then ended evaluated by Citycon management as relevant and significant for the purposes of the presentation of the combined financial information have been adjusted in the preliminary combined information presented in this stock exchange release.
The unaudited preliminary combined financial information does not represent the actual combination of the financial statements of Citycon and Sektor in accordance with IFRS, since certain simplifications and assumptions have been made. Furthermore, the unaudited preliminary combined financial information is based on certain assumptions that would not necessarily have been applicable if Citycon had ownership of these assets from the beginning of the period presented in the unaudited preliminary combined financial information.
The unaudited preliminary combined information describes a hypothetical situation. The unaudited preliminary combined financial information has been prepared for illustrative purposes only to show how the transaction might have affected Citycon group’s consolidated income statement for the period presented if the acquisition had occurred at an earlier point in time, and consolidated balance sheet as of 31 December 2014, as if the acquisition had occurred at the balance sheet date. Because of its nature, the unaudited preliminary combined financial information addresses a hypothetical situation and, therefore, does not represent Citycon group’s actual financial position or results if the transaction had in fact occurred on those dates, and is not representative of the results of operations for any future periods. The unaudited preliminary combined financial information therefore does not reflect Sektor's or Citycon group’s actual financial position and results. Further, the unaudited combined financial information is preliminary in nature and must not be considered final or complete, and may be amended in future publications of accounts.
Preliminary combined key figures for 2014
|Citycon 2014||Sektor 2014||Adjust-ments||Combined figures|
|Net rental income||MEUR||169.4||74.0||-1.3||242.0|
|Operating profit 1)||MEUR||165.0||103.5||-8.9||259.5|
|Net financial income and expenses||MEUR||-77.5||-49.0||-||-126.5|
|Profit for the period 1)||MEUR||89.7||40.2||-8.6||121.3|
|Fair value of investment properties||MEUR||2,769.1||1,308.3||104.5||4,181.9|
|Loan to Value (LTV)||%||38.6||62.4||Approx. 45|
1) Including fair value changes on investment property
This announcement is not an offer for sale of securities in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration under the U.S. Securities Act of 1933, as amended. Citycon does not intend to register any portion of the Rights Issue in the United States or to conduct a public offering of securities in the United States.
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