Citycon Oyj’s Interim Report for 1 January-30 June 2015
Citycon Q2: Stable results supported by lower financing expenses
SECOND QUARTER OF 2015
- Turnover decreased to EUR 60.2 million (Q2/2014: EUR 61.9 million) mainly due to non-core disposals, on-going (re)development projects (a.o. Iso Omena extension project) and the weaker Swedish krona that also impacted net rental income which came to EUR 42.6 million (EUR 43.6 million).
- EPRA Earnings increased by EUR 5.6 million, or 23.1%, to EUR 30.0 million mainly due to substantially lower direct net financing expenses following degearing in 2014 and debt refinancing. EPRA Earnings per share (basic) was EUR 0.051 (EUR 0.053).
- Earnings per share was EUR 0.06 (EUR 0.03). The increase was mainly a result of lower net financial expenses, which were lower by EUR 20.8 million or 74.4% mainly thanks to a lower amount of debt, the weaker Swedish krona and a lower average interest rate.
- The company specifies its guidance relating to EPRA Operating profit and EPRA Earnings to reflect the acquisition of Sektor.
-Turnover decreased to EUR 120.3 million (Q1–Q2/2014: EUR 123.2 million) mainly due to divestments, on-going (re)development projects and a weaker Swedish krona.
- Net rental income decreased by EUR 1.3 million, or 1.6%, to EUR 82.3 million (EUR 83.6 million) mainly due to the reasons explained above. Net rental income of like-for-like properties increased by EUR 1.1 million, or 1.6%, excluding currency changes.
- EPRA Earnings increased by EUR 11.5 million, or 25.1% mainly as a result of lower direct financing expenses. EPRA Earnings per share (basic) was EUR 0.097 (EUR 0.102).
- Earnings per share were EUR 0.10 (EUR 0.09). The increase was mainly resulting from lower financial expenses, which decreased by EUR 25.3 million.
- Net cash from operating activities per share was EUR 0.06 (EUR 0.06).
|IFRS based key figures||Q2/2015||Q2/2014||%1)||Q1-Q2/2015||Q1-Q2/2014||% 1)||2014|
|Net rental income||MEUR||42.6||43.6||-2.3||82.3||83.6||-1.6||169.4|
|Profit/loss attributable to parent company shareholders||MEUR||35.1||12.3||185.2||62.1||40.9||51.7||84.5|
|Earnings per share (basic)||EUR||0.06||0.03||117.1||0.10||0.09||15.5||0.16|
|Net cash from operating activities per share||EUR||0.01||0.00||291.9||0.06||0.06||-6.8||0.13|
|Fair value of investment properties||MEUR||2,819.6||2,741.5||2.9||2,819.6||2,741.5||2.9||2,769.1|
|Loan to value (LTV)||%||41.5||39.9||3.9||41.5||39.9||3.9||38.6|
|EPRA based key figures|
|EPRA Operating profit||MEUR||37.6||38.8||-3.2||72.5||74.3||-2.5||149.8|
|EPRA Earnings per share (basic)||EUR||0.051||0.053||-4.4||0.097||0.102||-4.8||0.191|
|EPRA NAV per share||EUR||2.99||3.00||-0.5||2.99||3.00||-0.5||3.01|
1) Change-% is calculated from exact figures and refers to the change between 2015 and 2014.
CEO, MARCEL KOKKEEL:
Citycon’s financial performance during the first half of 2015 was stable driven by positive like-for-like performance, continued focus on cost control and decreased average cost of debt. Continued weak economic performance and subdued retail spending in Finland was offset by a healthy economic growth in Sweden.
During the quarter we announced the largest transaction in Citycon’s history, the acquisition of Sektor Gruppen. Entering the Norwegian market enhances our Nordic strategy and creates a balanced portfolio in the core countries. This transaction makes us the largest listed property company in the Nordics. We believe that Citycon will benefit from the increased scale and visibility, driving synergies from the larger operating platform. As part of the financing of the transaction we initiated in June a rights issue worth approximately EUR 600 million. Going forward our strategy is to maintain a strong financial profile with a target Loan to Value (LTV) of 40–45%.
During the quarter we also continued at full speed with our development activities. In May, we successfully opened the first phase of IsoKristiina and today we are 90% pre-let ahead of the grand opening in October. The preleasing of Mölndal Galleria in Gothenburg has progressed strongly with over 50% of the space leased and a good anchor profile in place. Construction will start after the summer. In June, Citycon also announced the divestment of three non-core properties for a total value of approximately EUR 70 million. Continued recycling of capital remains a priority for management.
ACQUISITION OF SEKTOR GRUPPEN - CITYCON BECOMES THE LARGEST LISTED SHOPPING CENTRE SPECIALIST IN THE NORDICS
On 25 May 2015 Citycon announced that it had entered into an agreement to acquire all the shares in the Norwegian shopping centre company Sektor Gruppen AS (Sektor) for a debt-free acquisition price of approximately EUR 1,467 million. The cash purchase price amounted to approximately EUR 540 million. The closing of the transaction was completed on 14 July and hence the Q2/2015 financial numbers do not include the impact of the transaction.
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.
The financing of the transaction includes a rights issue of approximately EUR 600 million executed in June-July and EUR 400 million of bridge financing facilities from banks. In addition, EUR 671 million of existing bank financing facilities of Sektor remains in place. Further information on the rights issue can be found in sections ‘Shares, share capital and shareholders’ and ‘Events after the reporting period’.
The acquisition consolidates 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 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.
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.
The economic outlook in Citycon’s operating countries remained relatively unchanged during the second quarter of 2015. The macroeconomic environment in Sweden, Estonia and Denmark remained strong, while market conditions continued to be weak in Finland.
In 2015, the European Commission forecasts Euro area GDP growth to reach 1.5%, with Sweden (2.5%), Estonia (2.3%) and Denmark (1.8%) showing stronger growth figures. The GDP growth for Finland (0.3%) is expected to remain very modest for a fourth year in a row and is dependent on both the recovery of the country’s export markets as well as domestic demand.
During the reporting period, consumer confidence levels have stayed 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 remained nearly unchanged compared to the previous year in all Citycon’s operating countries as well as in the Euro area. (Sources: Statistics Finland/Sweden/Estonia/Denmark) The unemployment rates are substantially below the Euro area average (11.1%) in all Citycon’s operating countries. (Source: Eurostat)
Retail sales growth for the first five months of 2015 has been strong in Estonia (8.0%) and Sweden (4.5%), slightly positive in Denmark (0.4%), but negative in Finland (-1.6%). (Sources: Statistics Finland/Sweden/Estonia/Denmark)
Prime shopping centre rents in Finland remained stable compared to the previous quarter, but decreased slightly year-on-year. The weak outlook for retail sales limits the rental growth potential and prime rental forecast in 2015 assumes a slight decrease in rents. In Sweden, year-on-year prime shopping centre rents increased by 2-3% over the last year with a similar rate of growth forecast for the forthcoming year. In Estonia, prime shopping centre rents have remained more or less stable over the past quarters and rental growth is expected to remain flat in 2015. However, downward pressure on rents has increased due to intensifying competition within the retail sector and even the long-term agreements are difficult to extend at current rental levels. (Source: JLL)
In Finland, the second quarter of 2015 continued the increased activity in investment market set in 2014, and the total transaction volume for H1 2015 was the highest since the financial crisis. The demand for core assets remains strong and an increase in investment demand outside prime properties has also been evident, driven mainly by new funds and the return of international investors. Due to strong investment demand, shopping centre prime yields are expected to see a small compression this year. In Sweden, the retail property transaction volume in the first half of 2015 was strong at around SEK 11 billion. Prime shopping centre yields have moved in during the last 9 months to around 4.75%, given strong demand and low supply as well as continued low interest rates. In Estonia, the investment market showed a somewhat lower activity in Q2 compared to Q1. Prime yields, which have slightly decreased over the past quarters driven by low interest rate expectations, are forecasted to remain more or less at their current level, i.e. at 6.7-7.0% in the second half of 2015. (Source: JLL)
EVENTS AFTER THE REPORTING PERIOD
On 14 July 2015 Citycon announced the completion of the acquisition of all the shares in the Norwegian shopping centre company Sektor. The debt-free total purchase price payable by Citycon for all of the shares in Sektor was EUR 1,467 million. The cash purchase price of approximately EUR 540 million was paid in connection with the closing of the transaction.
In connection with the closing of the transaction Citycon announced that Eirik Thrygg has been appointed Citycon Oyj’s Chief Development Officer (CDO) and member of the Corporate Management Committee. He will take his position immediately.
Citycon financed a part of the acquisition through a rights issue of approximately EUR 600 million. All offered 296,664,209 shares were subscribed for in the rights issue that ended on 7 July 2015. Pursuant to their subscription undertakings, Gazit-Globe Ltd. and CPPIBE subscribed for shares in the rights issue as follows: Gazit-Globe Ltd. 127,068,487 shares and CPPIBE 44,499,631 shares, representing approximately 57.8% of the shares offered. The subscribed shares represent approximately 33.3% of the total shares and voting rights in the company after the rights issue. The new shares were entered in the Finnish Trade Register and public trading in the new shares commenced on the Helsinki Stock Exchange on 14 July 2015. The subscription price was recognized under the invested unrestricted equity fund. Following the rights issue the total number of shares outstanding in the company is 889,992,628 as of 14 July 2015.
On 14 July Citycon announced the signing of an agreement to sell the non-core shopping centre Strömpilen in Umeå for approximately EUR 39 million. The disposal price is somewhat below the IFRS Q2 fair value.
The company specified on 13 July 2015 its guidance given in the Q1/2015 interim report for EPRA EPS (basic) to reflect the combined property portfolio of Citycon and Sektor and the increased number of shares due to the rights issue completed in July. Otherwise the outlook given in the Q1/2015 interim report has remained unchanged without taking into account the Sektor acquisition completed on 14 July 2015. Citycon now specifies its guidance regarding EPRA Operating profit and EPRA Earnings to reflect also the effects of the Sektor acquisition.
In 2015 Citycon forecasts the EPRA EPS (basic) to be EUR 0.155–0.175 (Q1/2015: 0.175–0.195). Furthermore, Citycon expects its EPRA Operating profit to change by EUR 17 to 32 million (Q1/2015: -8–0) and its EPRA Earnings to change by EUR 17 to 32 million (Q1/2015: 6–14) from the previous year.
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.
Helsinki, 14 July 2015
Board of Directors
For further information please contact:
Tel. +358 20 766 4521 or +358 40 154 6760
CFO, Executive Vice President
Tel. +358 20 766 4459 or +358 50 557 9137
Citycon is an owner, developer and manager of urban grocery-anchored shopping centres in the Nordic and Baltic region, managing assets that total approximately EUR 5 billion and with market capitalisation of approximately EUR 2 billion. Citycon is the No. 1 shopping centre owner in Finland and Estonia and among the market leaders in Norway and Sweden. Citycon has also established a foothold in Denmark.
Citycon has investment-grade credit ratings from Standard & Poor's (BBB) and Moody's (Baa2). Citycon Oyj’s share is listed in NASDAQ Helsinki.