Citycon H1/2020: Citycon’s strategy validated in the face of the pandemic
– Rent collection remained strong being 93% in H1 validating Citycon’s strategy
– After a drop in March and in April, footfall numbers are returning to normal levels being 95% at the end of July, and all tenants are currently open for business
– Although tenant sales decreased, average consumer spending in our centres was higher than in 2019
– COVID-19 increased pressure on real estate valuations and fair values declined by 2.1% from year-end 2019
– Successful issuance of a 200 MEUR tap bond further improved liquidity
– Investment grade credit rating now from all three major credit rating agencies
– NOK and SEK exchange rates recovered from Q1 lows (NOK + 19% and SEK +8%) – however, exchange rates continued to negatively affect the result
– Net rental income was EUR 50.2 million (Q2/2019: 56.1). Net rental income was negatively impacted by COVID-19 pandemic through discounts granted to tenants as well as decreased turnover based rents and parking income. The acquisition of SPII in Norway, closed in February 2020, increased net rental income by EUR 2.3 million. This was offset by impact of weaker currencies and divestments made in 2019 that reduced net rental income by EUR 2.3 million and EUR 1.2 million respectively.
– EPRA Earnings decreased to EUR 36.3 million (38.7) as result of a decrease in net rental income, currency changes, lower share of profit of joint ventures and associated companies. EPRA Earnings per share (basic) was EUR 0.204 (0.217), negative impact from weaker currencies being EUR 0.0105 per share.
– Adjusted EPRA earnings was EUR 32.2 million (38.7) due to hybrid bond coupons.
– IFRS-based earnings per share was EUR -0.23 (0.04) as a result of higher fair value losses, lower net rental income and hybrid bond coupons and expenses.
– Net rental income was EUR 102.6 million (H1/2019: 109.7). Acquisitions increased NRI by EUR 4.1 million, while divestments and weaker SEK and NOK decreased net rental income by EUR 2.4 million and by EUR 3.9 million respectively. Impact of COVID-19 pandemic was mostly materialized during the second quarter.
– EPRA Earnings decreased to EUR 71.0 million (74.5) as result of lower net rental income, currency changes, lower share of profit of joint ventures and associated companies. EPRA Earnings per share (basic) was EUR 0.399 (0.418), negative impact from weaker currencies being EUR 0.018 per share.
– Adjusted EPRA earnings decreased to EUR 63.0 million (74.5) due to hybrid bond coupons
– IFRS earnings per share was EUR -0.17 (0.12) as a result of higher fair value losses, lower net rental income and hybrid bond coupons and expenses.
|Q2/2020||Q2/2019||%||Comparable change % 1)|
|Net rental income||MEUR||50.2||56.1||-10.6 %||-6.7 %|
|Direct Operating profit 2)||MEUR||44.0||50.7||-13.3 %||-9.1 %|
|IFRS Earnings per share (basic) 3)||EUR||-0.23||0.04||-||-|
|Fair value of investment properties||MEUR||4170.4||4149.8||0.5 %||-|
|Loan to Value (LTV) 2)||%||46.2||48.9||-5.5 %||-|
|EPRA based key figures 2)|
|EPRA Earnings||MEUR||36.3||38.7||-6.2 %||5.1 %|
|Adjusted EPRA Earnings 3)||MEUR||32.2||38.7||-16.7 %||-6.6 %|
|EPRA Earnings per share (basic)||EUR||0.204||0.217||-6.2 %||5.1 %|
|Adjusted EPRA Earnings per share (basic) 3)||EUR||0.181||0.217||-16.7 %||-6.6 %|
|EPRA NAV per share||EUR||11.33||12.77||-11.3 %||-|
|Q1-Q2/2020||Q1-Q2/2019||%||Comparable change % 1)||2019|
|Net rental income||MEUR||102.6||109.7||-6.5 %||-3.1 %||217.4|
|Direct Operating profit 2)||MEUR||90.2||98.4||-8.4 %||-4.7 %||193.5|
|IFRS Earnings per share (basic) 3)||EUR||-0.17||0.12||-||-||0.04|
|Fair value of investment properties||MEUR||4170.4||4149.8||0.5 %||-||4160.2|
|Loan to Value (LTV) 2)||%||46.2||48.9||-5.5 %||-||42.4|
|EPRA based key figures 2)|
|EPRA Earnings||MEUR||71.0||74.5||-4.6 %||2.6 %||145.6|
|Adjusted EPRA Earnings 3)||MEUR||63.0||74.5||-15.4 %||-9.1 %||143.9|
|EPRA Earnings per share (basic)||EUR||0.399||0.418||-4.6 %||2.6 %||0.818|
|Adjusted EPRA Earnings per share (basic) 3)||EUR||0.354||0.418||-15.4 %||-9.1 %||0.809|
|EPRA NAV per share||EUR||11.33||12.77||-11.3 %||-||12.28|
1) Change from previous year (comparable exchange rates). Change-% is calculated from exact figures.
2) Citycon presents alternative performance measures according to the European Securities and Markets Authority (ESMA) guidelines. More information is presented in Basis of Preparation and Accounting Policies in the notes to the accounts.
3) The adjusted key figure includes hybrid bond coupons and amortized fees.
CEO, F. SCOTT BALL:
"The current operating environment validated the stability of the markets Citycon operates within as well as our strategy that focuses on community based urban hubs. Our tenant mix, that is heavily reliant on municipality and grocery anchor tenants, brings resilience to our portfolio which was reflected in our Q2 results.
Our centres located in the Nordics remained open throughout the quarter. The legitimate government restrictions temporarily affected our footfall. We were pleased to see that while footfall declined, average spend per consumer increased in our centres. Acknowledging the large variance in resilience across tenant sectors, however, we offered certain short-term easements to some tenants suffering the most in order to support their businesses through the exceptionally challenging times. This affected Citycon’s results and our like-for-like net rental income declined by 4.1%. COVID-19 also put increased pressure on real estate valuations that declined by 2.1%. The decline in valuations remained modest considering the circumstances and reflects the resilience of our portfolio and strategy that focuses on grocery-anchored mixed-use centres.
The Nordics are proving their strength as a stable operating environment. This was demonstrated by the significant government support programs implemented in all operating countries. In addition to direct subsidies to overcome the crisis, the holistic approach to support society both socially and economically place both individuals and businesses in a solid position to move forward after the crisis. All this, combined with our strategy, positively affected our rent collection rates that remained significantly stronger throughout the first half of the year compared to industry average, being 93% to date. Also, footfall has already recovered to 95% of 2019 level and we are seeing a pick-up in leasing activity. We have recently approved three separate deals with different municipalities at market rents which also improves our credit risk profile. It is apparent that April was the bottom of the trough and that the business has been improving steadily since then.
Citycon remained committed towards our strategy and long-term targets throughout the crisis. We successfully issued a tap bond to further improve our liquidity position. We were delighted to see our order book three times oversubscribed. As a result, we decided to increase the size of the tap issue from original target of 150 MEUR to 200 MEUR. Simultaneously, we were able to tighten the pricing. This proves our ability to access capital even under difficult financial market conditions. The proceeds were used to repay maturing short-term debt and RCF that was used in order to temporarily improve our liquidity. Additionally, Citycon’s board showed its commitment to strengthen the credit profile by adjusting 2020 dividend. We have also started to investigate the opportunity to offer our shareholders an option to receive stock instead of dividends in the future. These actions together with solid operational performance were rewarded with an investment grade credit rating from Fitch, issued in May 2020, as well as affirmed credit ratings from Standard & Poor’s and Moody’s.
While the operational environment is expected to remain challenging, Citycon is well-positioned to move forward and our team has continued to make progress on the strategic focus areas. In June 2020, we announced the recruitment of a Director, Residential Development and our near-term plans for residential development project in Oasen, Norway. These are concrete steps in our strategy to capitalise on the residential potential of our centres. Recognised zoning and permitting opportunities of 320,000 square meters generate value creation potential with little capital expenditure, and residential development is therefore highly attractive. Increased focus on residential projects also further strengthens our position as an owner of urban hubs in line with our mixed-use strategy. We are confident that as a result of these steady efforts and working together with our stakeholders, Citycon is in a prime position to achieve its targets. Combined with the improved visibility on current result, we feel confident with our business and see it is our duty to reissue our guidance for 2020.“
OUTLOOK FOR THE YEAR 2020 SPECIFIED
Citycon forecasts the 2020 direct operating profit to be in range EUR 171-189 million, EPRA EPS EUR 0.710-0.810 and adjusted EPRA EPS EUR 0.610-0.710.
The outlook assumes that there are no major changes in macroeconomic factors and that there will not be a second wave of COVID-19 with restrictions resulting in significant store closures. These estimates are based on the existing property portfolio as well as on the prevailing level of inflation, the EUR–SEK and EUR–NOK exchange rates, and current interest rates. Premises taken offline for planned or ongoing (re)development projects reduce net rental income during the year.
On 26 March 2020, Citycon Oyj assessed that its prospects for 2020 have weakened and the company withdrew its guidance for 2020 issued on 6 February 2020.
Citycon's investor, analyst and press conference call and live audiocast will be arranged on Tuesday 4 August 2020 at 10 am EEST. The audiocast can be participated by calling in and followed live on the following website:
Conference call numbers are:
Participants from Europe +44 333 300 08 04
Participants from the US
For more investor information, please visit the company’s website at www.citycon.com.
Helsinki, 3 August 2020
Board of Directors
For further information, please contact:
Executive VP and CFO
Tel. +358 50 557 9137
Head of Investor Relations
Tel. +358 40 823 9497
Citycon is a leading owner, manager and developer of urban, grocery-anchored shopping centres in the Nordic region, managing assets that total almost EUR 4.5 billion. Citycon is No. 1 shopping centre owner in Finland and among the market leaders in Norway, Sweden and Estonia. Citycon has also established a foothold in Denmark.
Citycon has investment-grade credit ratings from Moody's (Baa3), Fitch (BBB-) and Standard & Poor's (BBB-). Citycon Oyj’s share is listed in Nasdaq Helsinki.