The Financial Statement Release for the period 1 January–31 December 2013 in its entirety is attached to this release. It is also available on the corporate website at www.citycon.com.
Financial Statements and the Report by the Board of Directors
On 4 February 2014, 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 2013. 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 2013 has been published simultaneously with the Financial Statements and the Report by the Board of Directors. All these documents are available on the corporate website at www.citycon.com.
Summary of the Fourth Quarter of 2013 Compared with the Previous Quarter
- Turnover was nearly unchanged at EUR 62.0 million (Q3/2013: EUR 62.1 million).
- Net rental income decreased by EUR 2.0 million, or 4.5 per cent, to EUR 41.9 million (EUR 43.9 million), mainly due to higher property operating expenses reflecting normal seasonal variations.
-EPRA operating profit decreased by EUR 3.0 million, or 7.6 per cent, to EUR 36.5 million (EUR 39.5 million), primarily because of lower net rental income and higher administrative expenses.
- EPRA earnings decreased to EUR 22.1 million (EUR 24.2 million), mainly due to lower EPRA operating profit. Lower financial expenses offset part of the decrease in earnings. The EPRA earnings per share (basic) was EUR 0.050 (EUR 0.055). The EPRA key figures exclude non-recurring items such as fair value changes in investment properties.
- The fair value change in investment properties was EUR 4.7 million (EUR 6.3 million), and these properties’ fair value came to EUR 2,733.5 million (EUR 2,739.4 million). The weighted average net yield requirement for investment properties remained at 6.3 per cent (6.3%).
Summary of 2013 Compared with 2012
Citycon met the financial targets that it had announced for 2013. On the publication of its Q3 interim report, the company specified some of its targets, stating that it expected growth in turnover of EUR 8–13 million, an increase of EUR 11–16 million in EPRA operating profit, and growth in EPRA earnings of EUR 22–26 million in 2013 from 2012 figures, and it forecasted an EPRA EPS of EUR 0.200–0.215. The realised 2013 figures show that turnover grew by EUR 9.4 million from the 2012 level, the EPRA operating profit by EUR 13.5 million and EPRA earnings by EUR 22.8 million, and the EPRA earnings per share was EUR 0.204.
-The Board of Directors proposes a per-share dividend of EUR 0.03 (EUR 0.04) and a return of equity from invested unrestricted equity fund of EUR 0.12 (EUR 0.11) per share.
- Turnover increased to EUR 248.6 million (2012: EUR 239.2 million).
- Net rental income increased by EUR 6.9 million, or 4.2 per cent, to EUR 168.9 million (EUR 162.0 million). Net rental income for like-for-like properties rose by EUR 5.5 million, or 4.6 per cent, excluding the impact of the stronger Swedish krona, while the completion of (re)development projects and acquisition of shopping centres in 2012 increased net rental income by EUR 1.8 million.
- Earnings per share came to EUR 0.22 (EUR 0.24). The decrease was mainly due to non-recurring financial expenses of EUR 26.8 million in Q2/2013, related mostly to the unwinding of interest rate swaps, and a higher number of shares.
- EPRA earnings per share (basic) increased to EUR 0.204 (EUR 0.199).
- Net cash from operating activities came to EUR 0.13 per share (EUR 0.19), mainly on account of the above‑mentioned non-recurring financial expenses.
Key Figures
IFRS based key figures | Q4/2013 | Q4/2012 | Q3/2013 | 2013 | 2012 | Change % 1) |
Turnover, EUR million | 62.0 | 62.1 | 62.1 | 248.6 | 239.2 | 3.9% |
Net rental income, EUR million | 41.9 | 42.1 | 43.9 | 168.9 | 162.0 | 4.2% |
Profit/loss attributable to parent company shareholders, EUR million | 33.0 | 20.4 | 32.3 | 93.1 | 77.2 | 20.6% |
Earnings per share (basic), EUR 2) | 0.07 | 0.06 | 0.07 | 0.22 | 0.24 | -9.0% |
Net cash from operating activities per share, EUR 2) | 0.09 | 0.05 | 0.06 | 0.13 | 0.19 | -30.5% |
Fair value of investment properties, EUR million | 2,733.5 | 2,714.2 | 2,739.4 | 2,733.5 | 2,714.2 | 0.7% |
Equity ratio, % | 45.3 | 37.8 | 44.1 | 45.3 | 37.8 | 20.1% |
Loan to Value (LTV), % | 52.1 | 54.5 | 53.4 | 52.1 | 54.5 | -4.4% |
EPRA based key figures | Q4/2013 | Q4/2012 | Q3/2013 | 2013 | 2012 | Change-% 1) |
EPRA operating profit, EUR million | 36.5 | 34.2 | 39.5 | 149.1 | 135.7 | 9.9% |
% of turnover | 58.8% | 55.1% | 63.6% | 60.0% | 56.7% | |
EPRA Earnings, EUR million | 22.1 | 16.2 | 24.2 | 86.7 | 63.9 | 35.8% |
EPRA Earnings per share (basic), EUR 2) | 0.050 | 0.046 | 0.055 | 0.204 | 0.199 | 2.5% |
EPRA NAV per share, EUR | 3.10 | 3.49 | 3.06 | 3.10 | 3.49 | -11.0% |
EPRA NNNAV per share, EUR | 2.90 | 3.08 | 2.83 | 2.90 | 3.08 | -5.8% |
Dividend per share, EUR | 0.033) | 0.04 | -25.0% | |||
Return from invested unrestricted equity fund per share, EUR | 0.123) | 0.11 | 9.1% | |||
Dividend and return from invested unrestricted equity fund per share total, EUR | 0.153) | 0.15 | 0.0% |
1) Change-% is calculated from exact figures and refers to the change between 2013 and 2012.
2) Result per share key figures have been calculated with the issue-adjusted number of shares resulting from the rights issues executed in March 2013 and October 2012.
3) Proposal by the Board of Directors
CEO’s Comments
Comments on 2013 from Marcel Kokkeel, CEO:
‘In 2013, Citycon demonstrated that high-quality, grocery-anchored urban shopping centres, in combination with active management, can deliver healthy income growth even in a more challenging economic environment. Our EPRA operating profit increased 9.9 per cent thanks to both successful leasing and cuts in administrative expenses. We were able to exceed the ambitious target set for 2013 of saving up to EUR 5 million on administrative expenses compared to the previous year. The economic occupancy rate of Citycon’s investment properties remained stable at 95.7 per cent.
The quality of Citycon’s property portfolio improved further over the course of 2013. The acquisition of Stockholm’s Kista Galleria substantially strengthened Citycon’s position and market share in Sweden and offered a unique opportunity to further increase the company’s relevance in the eyes of international retailers. The performance of Kista Galleria has been in accordance with expectations.
Our divestment of non-core assets continued successfully in 2013. Eight properties (including one residential building) were successfully disposed of, for a total sales value of approximately EUR 60 million (including the 50 per cent sale of existing shopping centre IsoKristiina) at an average price of slightly above IFRS valuation. We will continue our strategy of maximising the value of non-core assets before divestment.
During the year we made good progress in the implementation of our strategy of diversifying funding sources and deleveraging the company. We were awarded two investment-grade credit ratings from Standard & Poor’s and Moody’s, raised EUR 200 million in an oversubscribed rights issue, and refinanced EUR 500 million through a successful Eurobond issue.
Citycon continues to be active in the (re)development of its properties. In the first half of the year, we started two major (re)development projects: the extension and (re)development of Iso Omena and of IsoKristiina. These projects are proceeding as planned. There are several interesting urban (re)development projects in the pipeline, among them refurbishment and upgrade of some parts of Kista Galleria.
With a strong base of 37 shopping centres in urban locations, a pipeline of accretive (re)development projects, and a strong balance sheet, Citycon is well positioned to deliver earnings growth in 2014 also.’
Business Environment
Market conditions continued to be challenging in Citycon’s operating countries during 2013. There are signs of gradual strengthening of the Swedish economy, but the recovery still eludes when it comes to the Finnish economy.
Retail sales growth and the inflation rate are key factors in Citycon's business and have an impact on rent received from retail premises. Almost all of the company’s leases are tied to the consumer price index. A significant number of leases also feature a turnover-linked component. Consumer prices continued to rise during the year in Finland, Estonia, and Denmark, while they remained fairly stable in Sweden and Lithuania. In December, inflation was 1.6 per cent in Finland, 0.1 per cent in Sweden, 1.4 per cent in Estonia, 0.4 per cent in Lithuania, and 0.8 per cent in Denmark (sources: Statistics Finland, Statistics Sweden, Statistics Estonia, Statistics Lithuania, and Statistics Denmark). The year saw strong growth in retail sales in Estonia and Lithuania, positive growth in Finland and Sweden, and negative growth in Denmark. Total retail sales growth for the first eleven months was 0.4 per cent in Finland, 1.9 per cent in Sweden, 5.0 per cent in Estonia, 4.4 per cent in Lithuania and -1.5 per cent in Denmark (sources: Statistics Finland, Statistics Sweden, Statistics Estonia, Statistics Lithuania, and Statistics Denmark).
Household consumer confidence improved in all of Citycon’s countries of operation during the year and remained well above the euro area’s average. In Estonia and Lithuania, the household consumer confidence indicator has remained negative (source: Eurostat).
In all of Citycon’s operating countries, except Lithuania, seasonally adjusted unemployment rates are lower than the euro area average, of 12.1 per cent. The unemployment rate in Finland increased somewhat in the course of the year but remained at a healthy 8.4 per cent, as in November. In Sweden, unemployment remained stable at 8.0 per cent. Denmark’s unemployment rate continued to be low, 6.9 per cent in November. In Estonia, the unemployment rate has been decreasing to 9.0 per cent, whereas unemployment in Lithuania has remained high, at 11.1 per cent as per October (source: Eurostat).
Property market
In Finland the property investment market saw very few transactions during the first three quarters of 2013; however, the last quarter was relatively active, recording the highest investment volume since Q1 2008. Demand for core assets remains strong, as equity rich investors keep looking for safe havens. There are also signs of investors starting to diversify their portfolios, both in terms of risk and geography. However, stronger economic fundamentals are needed before more robust growth can be expected. Shopping centre prime yields have remained stable both quarter-on-quarter and year-on-year, and no significant change is expected in 2014. Prime shopping centre rents remained stable compared to the previous quarter and year-on-year. The softening outlook for retail sales limits the rental growth potential and has already made occupiers somewhat more cautious which has lengthened leasing negotiations and slowed down decision making.
In Sweden the demand for core retail assets remains strong. In Q4 the transaction volume for retail properties was weaker compared to the previous year. Comparing 2013 and 2012 as a whole in terms of retail transaction volume, 2013 transactions represented around 95 per cent of the previous year’s volume. Prime shopping centre yields remained stable quarter-on-quarter as well as year-on-year, and no significant change is expected in 2014.
In Estonia prime shopping centre rents remained stable in Q4, but increased year-on-year by approximately two per cent. Vacancy rates in professionally managed prime shopping centres are close to zero per cent and demand for small to mid-size units is high, whereas older shopping centres in remote locations face challenges to renew contracts. The investment market in Q4 featured transactions mainly in the office and industrial segment. Lack of investment product has hindered growth of transaction volumes. Prime shopping centres yields have dropped to 7.3 per cent and strong economic fundamentals support further yield compression, although at the same time the increasing cost of financing affects the yields negatively.
(Source: Jones Lang LaSalle Finland Oy)
Tenants’ sales and footfall in Citycon’s shopping centres
During the year under review, total sales at Citycon’s shopping centres increased by one per cent and footfall remained at the level of the previous year. In Finland, sales decreased by one per cent, in Sweden sales increased by two per cent and sales in the Baltic Countries and New Business grew by six per cent. Footfall in Finland fell by three per cent, while it grew by four per cent in Sweden and by eight per cent in the Baltic Countries and New Business. The growth in footfall in Sweden resulted mainly from the larger shopping centres, such as Liljeholmstorget Galleria, and in the Baltic Countries and New business from the completion of the Magistral (re)development as the centre was closed during the comparison period. Like-for-like shopping-centre sales and footfall remained at the same level as in the previous year. It should be noted that the sales and footfall figures include estimates.
Short-Term Risks and Uncertainties
The Citycon Board of Directors considers the company’s major short-term risks and uncertainties to be associated with economic developments in the company’s regions of operation. Such developments affect demand, vacancy rates, and market rent levels for retail premises. In addition, key near-term risks include the fair value development of properties in today’s uncertain economic conditions. Also the risks of rising financial expenses due to higher loan margins or market interest rates and lower availability of debt financing are of importance. These risks have however reduced lately, on account of the two public investment grade credit ratings received in May, the EUR 500 million Eurobond issued in June and recent positive development in banks’ willingness to lend money.
Although the financial situation has so far had only minor effects on the rent levels of retail premises and on occupancy rates in Citycon’s operating regions, lower demand for retail premises, higher vacancy rates, and lower market rent levels in Citycon's regions of operation pose challenges in a sluggish economic environment. Economic developments, particularly trends influencing consumer confidence and behaviour, inevitably affect demand for retail premises. Risks to economic growth persisted in 2013. In times of weak economic growth, rental levels of retail premises typically fall, leasing of new premises is more difficult, and vacancy rates rise.
The implementation of Citycon's strategy will require new financing going forward, which means that risks associated with the availability and cost of financing are meaningful to Citycon. Banks’ willingness to lend money is still lower and the loan margins remain at higher levels than before the financial crises, but both the availability and cost of financing have improved during 2013. In the future we will see stricter regulation of the banking and insurance sectors (e.g., with the Basel III and Solvency II regulations) which is likely to again elevate the costs of debt financing and limit the availability of long-term bank loans. Some of Citycon’s loan agreements were signed at low margins before the financial crisis; when new loans are taken out, the margins are likely to be higher. Along with rising market interest rates, such an increase in loan margins is likely to push Citycon's average interest rate upwards in the future.
The company is actively seeking to diversify its funding sources – as is demonstrated by the EUR 500 million Eurobond issued in June – in order to mitigate the risks related to bank financing. However, there are no guarantees that such alternative funding sources will be available in the future at cost-efficient margins. Bond issues, in combination with the EUR 360 million credit facility agreement signed with Nordic banks in September 2012, the EUR 90 million rights issue in October 2012, and the EUR 200 million rights issue in March 2013, considerably strengthened the company’s balance sheet, improved the available liquidity, and decreased the refinancing risk for the coming years. Also the public investment grade credit ratings received in May 2013 improved the availability of funding at competitive terms.
The fair value development of investment properties continues to be characterised by uncertainty caused by the sovereign debt crisis and the resulting tough economic conditions. Several factors affect the fair value of the investment properties owned by Citycon, among them general and local economic developments, interest rate levels, foreseeable inflation rates, trends in market rent levels, vacancy rates, property investors' yield requirements, and the competitive environment. The associated uncertainty is being reflected most strongly in developments for retail properties outside major cities or in otherwise less attractive properties, because investor demand is not currently focused on these properties and banks are more reluctant to offer financing for projects related to such properties. On the other hand, the fair value of winning shopping centres, which attract investor interest amid uncertain conditions, remained stable or even increased during 2013.
The company’s short-term risks and uncertainties, along with its risk management and the principles applied therein, are discussed in more depth at www.citycon.com/riskmanagement; on pages 53-56 of the Financial Statements for 2013; and on pages 58–59 of the annual report for 2013, soon to be released.
Board Proposal for Dividend Distribution and Distribution of Assets from the Invested Unrestricted Equity Fund
The parent company’s retained earnings amount to EUR 17.4 million, including the profit for the period of EUR 13.1 million. On 31 December 2013, the funds in the parent company’s invested unrestricted equity fund amounted to a total of EUR 501.6 million.
The Board of Directors proposes to the Annual General Meeting to be held on 19 March 2014 that a per-share dividend of EUR 0.03 be paid out for the financial year ending on 31 December 2013, and that a return of equity of EUR 0.12 per share be returned from the invested unrestricted equity fund. The Board of Directors proposes that the record date for dividend payment and equity return be 24 March 2014 and that the dividend and equity return be paid on 31 March 2014.
Future Outlook
Citycon focuses on increasing both its net cash flow from operating activities and its direct operating profit. Therefore, the company pursues proactive asset management, value-added activities, and selected acquisitions.
The initiation of planned (re)development projects will be carefully evaluated against strict pre-leasing criteria. Citycon intends to continue divestment of its non-core properties after value maximisation activities.
The company expects its turnover to increase by EUR +1 to +9 million and EPRA operating profit to change by EUR -2 to +6 million compared to 2013 level, based on the existing property portfolio. The company predicts its EPRA Earnings to increase by EUR +2 to +10 million and on the basis of the current number of shares its EPRA Earnings per share (basic) to be EUR 0.20–0.22. The EPRA Earnings per share in 2013 of EUR 0.204 has been calculated with the issue-adjusted average number of shares of approximately 425.4 million shares (current number of shares approx. 441.3 million).
These estimates are based on (re)development projects that have already been completed and on those yet to be completed, as well as on the prevailing level of inflation, the euro–Swedish krona exchange rate, and current interest rates. No major (re)development projects are scheduled to come online during 2014.
Financial Reports in 2014
Citycon will publish its Annual and Sustainability Report 2013 on the corporate website in week nine of 2014 at the latest.
Citycon will issue three interim reports during the financial year 2014 as follows:
January–March 2014 on Thursday, 24 April 2014 at about 9.00 a.m.,
January–June 2014 on Thursday, 10 July 2014 at about 9.00 a.m. and
January–September 2014 on Thursday, 16 October 2014 at about 9.00 a.m.
Annual General Meeting 2014
Citycon Oyj will hold its Annual General Meeting at Finlandia Hall, Mannerheimintie 13, Helsinki, Finland on Wednesday, 19 March 2014 starting at 2:00 p.m.
For more investor information, please visit the corporate website at www.citycon.com.
For further information, please contact:
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
Distribution:
NASDAQ OMX Helsinki
Major media
www.citycon.com