Citycon Oyj's Financial Statement Release as well as Financial Statements and Report by the Board of Directors for 1 January–31 December 2011
The Financial Statement Release for the period 1 January–31 December 2011 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 7 February 2012, 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 2011. 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 2011 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 2011 Compared with the Previous Quarter
- Turnover increased to EUR 56.0 million (Q3/2011: EUR 55.0 million).
- Net rental income decreased by EUR 1.0 million, or 2.6 per cent, to EUR 37.3 million (EUR 38.3 million) mainly due to higher property operating expenses, reflecting common seasonal variations.
- The fair value change of investment properties was EUR –17.0 million (EUR –14.4 million): EUR 1.2 million for shopping centres and EUR –18.2 million for supermarkets and shops, with the fair value of investment properties totalling EUR 2,522.1 million (EUR 2,512.6 million). The average net yield requirement for investment properties was 6.4 per cent (6.4%).
- Earnings per share decreased to EUR–0.02 (EUR 0.00), due mainly to lower net rental income, higher one-off and other administrative expenses and higher negative fair value changes.
- EPRA operating profit was EUR 28.9 million (EUR 31.3 million). The reduction was due to seasonal variation in property operating expenses and one-off items in administrative expenses.
- EPRA EPS (basic) stayed at the same level at EUR 0.05 (EUR 0.05), the lower direct operating profit decreased the direct result.
- The Board of Directors proposes a per-share dividend of EUR 0.04 (EUR 0.04) and a return of equity from invested unrestricted equity fund of EUR 0.11 (EUR 0.10) per share.
Summary of the Year 2011 Compared with the Year 2010
Citycon was able to reach the financial targets announced for 2011. In connection with its Q3/2011 interim report, the company revised its guidance announcing that it expects an increase of EUR 18–23 million in turnover compared with 2010, an increase of EUR 10–15 million in direct operating profit (EPRA operating profit), and an increase of EUR 4–8 million in the direct result (EPRA Earnings). In 2011, turnover grew from 2010 by EUR 21.1 million, EPRA operating profit by EUR 12.4 million and EPRA Earnings by EUR 6.0 million.
Citycon changed its external provider of property appraisal services in 2011. For the first time, the value of Citycon’s property portfolio at the year-end was assessed by Jones Lang LaSalle Finland Oy. Citycon has changed its independent external appraiser at regular intervals. For the first three quarters of 2011, property valuation was conducted by Realia Management Oy, which had served as Citycon’s appraiser for over four years.
- Turnover increased to EUR 217.1 million (2010: EUR 195.9 million).
- Net rental income increased by EUR 17.1 million, or 13.4 per cent, to EUR 144.3 million (EUR 127.2 million). Based on comparable exchange rates, net rental income grew by EUR 15.5 million or 12.2 per cent. Completion of redevelopment projects such as Espoontori, Forum in Jyväskylä and Åkersberga Centrum increased net rental income by EUR 5.3 million. The acquisitions of the Kristiine and Högdalen Centrum shopping centres increased net rental income by EUR 7.0 million.
- Net rental income from like-for-like properties increased by EUR 4.0 million, or 3.8 per cent, excluding the impact of the strengthened Swedish krona. Like-for-like net rental income from shopping centres increased by EUR 6.2 million, or 7.3 per cent while like-for-like net rental income from supermarket and shop properties decreased by EUR 2.2 million, or 10.7 per cent.
- Earnings per share were EUR 0.05 (EUR 0.34). This decrease was mainly due to negative fair value changes on investment properties especially in the supermarket and shop properties. In addition, share issues taken place in July increased the number of shares.
- EPRA EPS (basic) stayed at the same level and was EUR 0.21 (EUR 0.21).
- Net cash from operating activities per share increased to EUR 0.25 (EUR 0.09), due to a higher EPRA operating profit, positive changes in working capital, received tax returns, extraordinary items and timing differences.
- Citycon acquired the shopping centre Kristiine in Tallinn for EUR 105 million and the shopping centre Högdalen Centrum in Stockholm for SEK 207.5 million (approx. EUR 23.1 million).
- Redevelopment project of Koskikeskus in Tampere began, the estimated project investment is EUR 37.9 million.
- In May, Citycon signed a EUR 330 million long-term unsecured credit facility agreement with a Nordic bank group. The facility consists of a bullet term loan of EUR 220 million and a EUR 110 million revolving credit facility. The loan period is five years.
- The company strengthened its balance sheet and improved liquidity by raising approximately EUR 99 million in new equity, through a directed share offering arranged in July, by issuing 33 million new shares. In August, the company signed a 7-year unsecured term loan facility for the amount of EUR 75 million.
- Citycon Oyj’s new CEO, Marcel Kokkeel, assumed his duties on 24 March 2011 and the company’s new Executive Vice President, Finnish Operations, Michael Schönach, at the beginning of March. Johan Elfstadius began as Vice President, Swedish Operations on 21 November 2011.
|Turnover, EUR million||56.0||49.9||55.0||217.1||195.9||10.8%|
|Net rental income, EUR million||37.3||31.8||38.3||144.3||127.2||13.4%|
|Operating profit, EUR million||10,7||35.4||17.0||81.8||157.7||-48.1%|
|% of turnover||19.1%||70.9%||-||37.7%||80.5%||-|
|Loss/profit before taxes, EUR million||-5.3||22.0||1.0||19.7||102.8||-80.9%|
|Loss/profit attributable to parent company shareholders, EUR million||-5.4||14.4||-0.7||13.0||78.3||-83.5%|
|EPRA operating profit, EUR million 2)||28.9||24.3||31.3||117.4||105.0||11.8%|
|% of turnover||51.6%||48.8%||56.8%||54.1%||53.6%||0.9%|
|EPRA Earnings, EUR million 2)||12.5||13.5||14.9||53.3||47.3||12.7%|
|Indirect result, EUR million||-17.9||0.9||-15.6||-40.3||31.1||-|
|Earnings per share (basic), EUR||-0.02||0.06||0.00||0.05||0.34||-85.5%|
|Earnings per share (diluted), EUR||-0.02||0.06||0.00||0.05||0.34||-85.5%|
|EPRA Earnings per share (basic), EUR 2)||0.05||0.06||0.05||0.21||0.21||-1.1%|
|Net cash from operating activities per share, EUR||0.04||0.00||0.14||0.25||0.09||190.5%|
|Fair value of investment properties, EUR million||2,512.6||2,522.1||2,367.7||6.5%|
|Equity per share, EUR||3.29||3.25||3.47||-6.5 %|
|Net asset value (EPRA NAV) per share, EUR||3.64||3.62||3.79||-4.6%|
|EPRA NNNAV per share, EUR||3.31||3.29||3.49||-5.7%|
|Equity ratio, %||37.7||36.0||37.1||-2.9%|
|Net interest-bearing debt (fair value), EUR million||1,445.2||1,463.5||1,386.0||5.6%|
|Net rental yield, %||5.9||6.0||5.8||3.4%|
|Net rental yield, like-for-like properties, %||6.0||6.1||6.0||1.7%|
|Occupancy rate (economic), %||95.4||95.5||95.1||0.5%|
|Personnel (at the end of the period)||129||136||129||5.4%|
|Dividend per share, EUR||0.04 3)||0.04||0.0%|
|Return from invested unrestricted equity fund per share, EUR||0.11 3)||0.10||10.0%|
|Dividend and return from invested unrestricted equity fund per share total, EUR||0.15 3)||0.14||7.1%|
1) Change-% is calculated from exact figures and refers to the change between 2011 and 2010.
2) Citycon has renamed previously disclosed direct operating profit as EPRA operating profit and direct result as EPRA Earnings. Citycon has been previously disclosing only EPRA Earnings, diluted. In the financial statements 2011, Citycon discloses also EPRA Earnings basic and in the future is going to disclose only EPRA Earnings basic in accordance with the EPRA's Recommendations. Additional information on the EPRA EPS basic and diluted is available in Citycon's Financial Statements 2011 under the section EPRA Perfromance Measures.
3) Proposal by the Board of Directors.
Comments from Citycon Oyj’s Chief Executive Officer Marcel Kokkeel on the year 2011:
“The year 2011 was a period of solid performance: the company’s net rental income grew by 13.4 per cent, like-for-like net rental income by 3.8 per cent, the occupancy rate remained high at 95.5 per cent, the shopping centre footfall in total grew by 3 per cent and sales by 7 per cent. In particular, the shopping centre Liljeholmstorget Galleria in Sweden improved during the year.
In 2011, a clear distinction was made between asset classes of different quality. This general trend reflects in Citycon’s property performance and valuation. Overall, demand for the best properties is solid and their fair values remain stable, whereas non-prime properties show the opposite trend.
Management prioritises working on sustainable cash flows and therefore we need to improve the quality of the portfolio. We are engaged in high level of activities to accelerate property redevelopments, disposals and selective acquisitions. Also, we have been organising for example work shops to find new leasable space in shopping centres. We are also committed to use temporary and specialty leasing to generate additional income.
The year 2011 was a year of transition: we updated our strategy to focus on only quality shopping centres in the Nordic and Baltic countries and we concentrated on business improvements. During the year, we launched an internal project called “Project Now” to improve our operations and reduce costs. The aim is to become more efficient, be close to customers, tenants and market places and to become a more pro-active partner. There have also been changes in the management. These changes are a main cause of one-off administrative costs, for example in terms of severance pays. However, as of the start of 2012, most of these changes have been executed and the cost pressures will ease going forward.
During the year, the company strengthened its property portfolio through both acquisitions and redevelopment projects. In May, Citycon acquired two new shopping centres: Kristiine in Tallinn, and Högdalen Centrum in Stockholm. We are pleased with both acquisitions and especially Kristiine has outperformed our expectations. The most significant ongoing redevelopment projects are in Finland: Koskikeskus in Tampere and Myllypuro in Helsinki, additionally there is a minor extension project in Iso Omena, Espoo. Also, the shopping centre Magistral in Tallinn is currently being redeveloped and extended. In addition, some non-core properties have been sold and these disposals will be accelerated.
Citycon’s financial position is good. The directed share issue arranged by the company in July was completed successfully. At the year-end, available liquidity totalled EUR 345.0 million and equity ratio was 36.0 per cent.”
On the whole, the first half of 2011 was positive in Citycon's operating countries, with strong consumer confidence and growing retail. After the summer, economic sentiment turned negative, particularly due to the sovereign debt crisis in the euro area. During 2011, changes in real economy trends impacted on retail trade. However, retail sales grew in both Finland and Sweden. Total retail sales growth rate in 2011 was 5.3 per cent in Finland, 1.2 per cent in Sweden, 4.0 per cent in Estonia and 8.8 per cent in Lithuania. (Sources: Statistics Finland, Statistiska Central Byrån, Statistics Estonia, Statistics Lithuania)
Household consumer confidence remained strong until last summer, but deteriorated sharply in the final months of the year in all operating countries. In Finland and Sweden, the household consumer confidence indicator was still positive, unlike in Estonia and Lithuania. (Eurostat)
Retail sales growth and the inflation rate are key drivers for Citycon's business and have an impact on the rents from retail premises. Consumer prices continued to rise during the year in all of Citycon's operating countries. In December, the annual inflation rate was 2.9 per cent in Finland, 2.3 per cent in Sweden, 5.0 per cent in Estonia and 3.4 per cent in Lithuania. (Statistics Finland, Statistiska Central Byrån, Statistics Estonia, Statistics Lithuania)
In Finland and Sweden, unemployment is lower than the European Union average: at the end of December, the unemployment rate in Finland was 7.4 per cent and in Sweden 7.1 per cent. In Estonia and Lithuania, the unemployment rates remain high: 10.9 per cent in Estonia and 15.3 per cent in Lithuania at the end of September. However, the adoption of the euro has had a positive impact on the Estonian economy, through tourism and foreign investment. (ibid.)
The instability of the financial market in Europe deepened towards the year-end, affecting the cost and availability of financing.
The Finnish property investment market overall has witnessed low levels of transactions since the slowdown of market in H1 2008. Even though the investment demand has been increasing, low supply of prime assets has limited the transactional activity. The retail investment volume remained below EUR 400 million in 2011. As a result of a strong investment demand both shopping centre and retail warehouse prime yields have moved in since the Q1 2010. The polarisation of the market seems also to continue and at the same time demand for core assets remains strong.
In Sweden, the retail property transaction volume increased from approximately SEK 3.22 billion in H1 2010 to SEK 8.537 billion in H1 2011. However, demand is weaker for secondary and tertiary retail property investments.
In Estonia, demand for shopping centre space has been growing as shopping in centres is increasing its share in shopping habits and retail chains are expanding. Despite global turmoil the outlook for Estonian retailing is positive and in general, plans to enlarge existing shopping centres have been resumed.
In Vilnius, Lithuania, there are no new shopping centres under development, but some super- and hypermarkets are under construction. (Source: Jones Lang LaSalle Finland Oy)
Tenants’ Sales and Footfall in Citycon’s Shopping Centres
During the year, total sales in Citycon’s shopping centres grew by 7 per cent and the footfall increased by 3 per cent, year-on-year. There was sales growth in all of the company’s operating countries: 5 per cent in Finland, 7 per cent in Sweden and 18 per cent in the Baltic countries. In Finland, the footfall increased by 2 per cent, in Sweden by 6 per cent and in the Baltic countries by 2 per cent. Positive developments in sales and footfall are mainly attributable to redevelopment projects completed in recent years. Like-for-like shopping centre sales (sales excluding the impact of redevelopment projects and property acquisitions) grew by 4 per cent and were positive in all operating countries. Like-for-like footfall remained at the previous year’s level.
Short-Term Risks and Uncertainties
Citycon’s Board of Directors considers the company’s major short-term risks and uncertainties to be associated with economic development in the company’s operating regions, which affects demand, vacancy rates and market rents in retail premises. In addition, key near-term risks include a rise in loan margins, weaker availability of debt financing and the fair value development of properties in uncertain economic conditions.
Although the financial crisis’ effects on rent levels for retail premises, and on occupancy rates, have so far been minor in Citycon's operating areas, demand for retail premises, reduction of vacancy rates and market rent levels involve challenges in a sluggish economic environment. Economic developments, particularly trends impacting on consumer confidence and consumer behaviour, are inevitably affecting demand for retail premises. Escalation of the sovereign debt problems in the euro area towards the end of 2011 was followed by growing uncertainty in the financial markets; as a result, short-term financial growth forecasts have been revised downwards. Risks to financial growth are clearly higher, and in conditions of weak economic growth, rental levels typically will fall for retail premises, demand for new premises is lower, and vacancy rates will rise.
Implementation of Citycon's growth strategy requires new financing, which means the risks associated with the availability and cost of financing are of fundamental importance to Citycon. Banks’ willingness to lend money to companies improved in 2010 and in early 2011, but towards the end of 2011 the availability of debt financing decreased and loan margins rose sharply as banks experienced more difficulties with their own funding. In the future, tightening regulation governing the banking and insurance sectors (Basel III and Solvency II regulations) is likely to push the costs of debt financing upwards, and to limit the availability of long-term bank loans. This will probably raise the cost of Citycon's new loan financing. So far this change in margins has been mitigated by reduced underlying base rates and Citycon’s active financing policy. In 2012, the company does not have major refinancing needs, whereas in the next few years, Citycon will have to refinance some loan agreements signed at low margins before the financial crisis, which means the margins on these loans will rise. Such a rise in loan margins is likely to push Citycon's average interest rate up in the future, even if market interest rates remained largely unchanged.
At the moment, the fair value development of investment properties is characterised by high uncertainty caused by the sovereign debt crisis and the resulting harsh economic conditions. Several factors affect the fair value of the investment properties owned by Citycon, such as general and local economic development, interest rate levels, foreseeable inflation, the market rent trend, vacancy rates, property investors' yield requirements and the competitive environment. This uncertainty will reflect most strongly on retail properties located outside major cities, or in otherwise less attractive properties, because investor demand is not currently focused on these properties, and banks are not particularly keen to offer financing for such projects. Yet, at the same time, the fair value of winning shopping centres, which attract investor interest in uncertain conditions, has remained stable in 2011 or even increased.
The company’s short-term risks and uncertainties, as well as its risk management and risk management principles, are discussed in more depth at www.citycon.com/riskmanagement, on pages 40–42 of the Financial Statements for 2011, and on pages 73–74 of the Annual Report for 2011, to be published in week seven.
Board Proposal for Dividend Distribution and Distribution of Assets from the Invested Unrestricted Equity Fund
The parent company’s retained earnings amount to EUR 11.5 million, including the profit for the period of EUR 7.6 million. On 31 December 2011, the funds in the parent company’s invested unrestricted equity fund amounted to a total of EUR 277.2 million.
The Board of Directors proposes to the Annual General Meeting to be held on 21 March 2012 that a per-share dividend of EUR 0.04 be paid out for the financial year ending on 31 December 2011, and that a return of equity of EUR 0.11 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 26 March 2012 and that the dividend and equity return be paid on 4 April 2012.
Citycon continues to focus on increasing both its net cash flow from operating activities and its direct operating profit. In order to implement this strategy, the company will pursue value-added activities, selected acquisitions and proactive asset management.
Initiation of planned projects will be carefully evaluated against strict pre-leasing criteria. Citycon intends to continue the divestment of its non-core properties, in order to improve the property portfolio and strengthen the company’s financial position. The company is also considering alternative property financing sources.
In 2012, Citycon expects to continue generating solid cash flow and expects its turnover to grow by EUR 7–16 million and its EPRA operating profit by EUR 8–16 million compared with the previous year, based on the existing property portfolio. The company expects its EPRA Earnings to increase by EUR 4–11 million from the previous year. Furthermore, the company expects its EPRA EPS (basic) to be EUR 0.21–0.23 based on existing property portfolio and number of shares. These estimates are based on already completed (re)development projects and those completed in the future, as well as on the prevailing level of inflation and the euro-krona exchange rate, and current interest rates. Properties taken offline for planned development projects will reduce net rental income during the year.
Helsinki, 7 February 2012
Board of Directors
Financial Reports in 2012
Citycon will publish its Annual and Sustainability Report 2011 on the corporate website in week 7 of 2012 at the latest, and in print in week 8 of 2012 at the latest.
Citycon will issue three interim reports during the financial year 2012 as follows:
January–March 2012 on Wednesday, 25 April 2012 at about 9.00 a.m.,
January–June 2012 on Wednesday, 11 July 2012 at about 9.00 a.m. and
January–September 2012 on Wednesday, 10 October 2012 at about 9.00 a.m.
Annual General Meeting
Citycon Oyj will hold its Annual General Meeting at Finlandia Hall, Mannerheimintie 13, Helsinki, Finland, on Wednesday 21 March 2012, 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
Eero Sihvonen, Executive Vice President and CFO
Tel. +358 20 766 4459 or +358 40 557 9137
NASDAQ OMX Helsinki