Summary of the First Quarter of 2014 Compared with the Previous Quarter
- Turnover decreased to EUR 61.3 million (Q4/2013: EUR 62.0 million) mainly due to divestments of non-core properties.
- Net rental income decreased by EUR 1.3 million, or 3.0%, to EUR 40.7 million (EUR 41.9 million), mainly as a result of higher property operating expenses reflecting normal seasonal variations as well as divestments.
- EPRA Operating profit decreased by EUR 0.4 million, or 1.0%, to EUR 36.1 million (EUR 36.5 million), mainly due to lower net rental income, which was partly offset by lower administrative expenses.
- EPRA Earnings increased to EUR 22.3 million (EUR 22.1 million) mainly thanks to lower direct financial and administrative expenses. EPRA Earnings per share (basic) increased to EUR 0.051 (EUR 0.050).
- The fair value change in investment properties was EUR 11.9 million (EUR 4.7 million), and the fair value of investment properties totalled EUR 2,744.3 million (EUR 2,733.5 million). The weighted average net yield requirement for investment properties decreased to 6.2% (6.3%).
- The company specifies its guidance regarding turnover.
Summary of January–March 2014 Compared with the Corresponding Period of 2013
-Turnover decreased to EUR 61.3 million (Q1/2013: EUR 62.9 million) mainly due to divestments and a weaker Swedish krona.
- Net rental income increased by EUR 0.3 million, or 0.8%, to EUR 40.7 million (EUR 40.4 million) mainly due to strict operating expenses management supported by mild winter conditions. Net rental income of like-for-like properties increased by EUR 1.2 million, or 3.9%, excluding the impact of the weaker Swedish krona, while the completion of (re)development projects increased net rental income by EUR 0.4 million.
- Earnings per share were EUR 0.08 (EUR 0.07).
- EPRA Earnings increased by EUR 2.6 million, or 13.4% mainly as a result of higher net rental income and lower financing and administrative expenses. EPRA Earnings per share (basic) were EUR 0.051 (EUR 0.052).
- Net cash from operating activities per share increased to EUR 0.06 (EUR 0.05).
Key figures
IFRS based key figures | Q1/2014 | Q1/2013 | Change-%1) | Q4/2013 | 2013 |
Turnover, EUR million | 61.3 | 62.9 | -2.5 | 62.0 | 248.6 |
Net rental income, EUR million | 40.7 | 40.4 | 0.8 | 41.9 | 168.9 |
Profit/loss attributable to parent company shareholders, EUR million | 33.6 | 26.1 | 28.6 | 33.0 | 93.1 |
Earnings per share (basic), EUR | 0.08 | 0.07 | 9.8 | 0.07 | 0.22 |
Net cash from operating activities per share, EUR2) | 0.06 | 0.05 | 17.7 | 0.08 | 0.14 |
Fair value of investment properties, EUR million | 2,744.3 | 2,730.9 | 0.5 | 2,733.5 | 2,733.5 |
Equity ratio, % | 44.2 | 40.4 | 9.6 | 45.3 | 45.3 |
Loan to Value (LTV), %3) | 50.3 | 49.0 | 2.5 | 49.3 | 49.3 |
EPRA based key figures | Q1/2014 | Q1/2013 | Change-%1) | Q4/2013 | 2013 |
EPRA Operating profit, EUR million | 36.1 | 35.4 | 1.9 | 36.5 | 149.1 |
% of turnover | 58.9 | 56.3 | 4.6 | 58.8 | 60.0 |
EPRA Earnings, EUR million | 22.3 | 19.7 | 13.4 | 22.1 | 86.7 |
EPRA Earnings per share (basic), EUR | 0.051 | 0.052 | -3.2 | 0.050 | 0.204 |
EPRA Cost Ratio (including direct vacancy costs) (%)4) | 24.1 | 26.3 | -8.4 | 25.0 | 22.4 |
EPRA Cost Ratio (excluding direct vacancy costs) (%)4) | 21.6 | 22.9 | -5.9 | 22.6 | 20.0 |
EPRA NAV per share, EUR | 3.03 | 2.99 | 1.3 | 3.10 | 3.10 |
EPRA NNNAV per share, EUR | 2.74 | 2.70 | 1.7 | 2.90 | 2.90 |
1) Change-% is calculated from exact figures and refers to the change between 2014 and 2013.
2) Citycon changed the reporting of cash flows in the first quarter of 2014. Realised exchange rate gains and losses have been moved from net cash flow from operating activities to net cash flow from financing activities. The change has been applied also to the comparison periods.
3) Citycon changed the reporting of LTV in the period by including also ‘Investments in joint ventures’ in the investment properties. The change has been applied also to the comparison periods.
4) Citycon made an adjustment to its reporting of parking income during the year 2014. Previously Citycon reported parking income within service charge income, but starting from current year part of gross rental income. The change affects the calculation of EPRA Cost Ratios. The change has been applied also to the comparison periods.
Main Events January–March 2014
Citycon announced changes in its Corporate Management Committee. Jurn Hoeksema was appointed Chief Operating Officer and a member of the Corporate Management Committee starting 1 June 2014. Harri Holmström, current Chief Operating Officer, was appointed to a new role of Chief Commercial Officer.
CEO’s Comment
Comments from Citycon Oyj’s Chief Executive Officer Marcel Kokkeel on the reporting period:
‘Year 2014 started positively despite the challenging market conditions especially in Finland. Like-for-like net rental income increased by 3.9%, which is a solid result in a low inflation environment. EPRA Earnings per share remained close to the same level as last year including the full impact of the increased number of shares from the rights issue executed in March 2013. The positive fair value change of EUR 11.9 million (EUR 24.8 million including Kista Galleria) is an indication of Citycon’s strengthened portfolio composition and the portfolio’s resilient nature.
During the first quarter, Citycon’s occupancy rate remained fairly stable, being 95.5% on 31 March. In Kista Galleria we successfully finalised some important tenant negotiations which allows us to start the upgrade and extension of the food court and refurbishment of the Northern entrance before summer.
During the quarter, the company appointed a new Chief Operating Officer with broad international experience, Jurn Hoeksema, to strengthen the management team. Harri Holmström, current COO (until 1 June), was appointed Chief Commercial Officer that will allow Citycon to focus even more on successful leasing.
We expect the market conditions to remain tough especially in Finland though the latest forecasts indicate that the Finnish economy has bottomed out. Citycon’s focus in 2014 will continue to be on cost control and increased leasing efforts. ’
Events after the Reporting Period
No material events after the reporting period.
Outlook
The company specifies its guidance regarding turnover. In 2014, Citycon expects its turnover to change by EUR -1–7 million compared with the previous year (Q4/2013: EUR 1–9 million). The adjustment in the guidance is due to the weaker SEK and divested properties. The company expects its EPRA Operating profit to change by EUR -2–6 million and its EPRA Earnings to change by EUR 2–10 million from the previous year. The company forecasts an EPRA EPS (basic) of EUR 0.20–0.22.
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. Properties taken offline for planned (re)development projects reduce net rental income during the year.
Business Environment
The macroeconomic fundamentals in Citycon’s operating countries have continued to stabilise with GDP growth estimates for 2014 being positive and above 2013 level in all countries. The European Commission forecasts Euro area GDP growth to reach 1.2% in 2014 with Sweden (2.5%), Estonia (2.3%), Lithuania (3.5%) and Denmark (1.7%) coming in ahead of this. The GDP growth for Finland (forecast 0.2%) is dependent on both the recovery of the European export markets as well as domestic demand. During the beginning of the year consumer confidence levels have stayed stable or decreased slightly in Citycon’s operating countries, while the negative consumer confidence in the Euro area has continued to recover. The consumer confidence levels in the Nordics remain positive. The unemployment rates are substantially below the Euro area average (11.9%) in all countries except for in Lithuania. (Source: Eurostat) Consumer prices continued to rise during the beginning of the year in Finland while they remained fairly stable in Estonia, Lithuania and Denmark. Inflation turned negative in Sweden.
Retail sales growth for the first two months of 2014 have been strong in Estonia (5.1%) and Lithuania (7.6%), positive in Sweden (2.9%), stable in Finland (0.1%) and negative in Denmark (-0.4%). (Source: Statistics Finland/Sweden/Estonia/Lithuania/Denmark) Year-on-year prime shopping centre rents remained stable in Finland, while increasing 1.5% in Sweden and 1.5-2.0% in Estonia. In Finland the softening outlook for retail sales limits the rental growth potential going forward and in Estonia the rental growth is expected to be almost flat in 2014. In Sweden prime retail rents are forecasted to increase by 2.0 - 2.5% as retail sales growth improves. (Source: JLL)
The transactional activity has remained modest in Finland and Sweden. However, the demand for core assets remains strong and accordingly prime shopping centre yields have remained stable. In Finland the first quarter of 2014 continued the increasing investment activity set in Q4/2013, however, transaction volumes were still low for retail properties. There are signs of modestly increasing investor risk appetite, although stronger economic fundamentals are needed before more robust growth can be expected. In Estonia the investment market has been active, although the market lacks large volume transactions. Prime shopping centre yields have dropped to 7.3% and are expected to remain stable in 2014. (Source: JLL)
Risks and Uncertainties
The company’s core risks and uncertainties, along with its main risk management actions and principles, are described in detail on pages 58–59 of the Annual Report 2013 and on pages 53-56 of the Financial Statements 2013.
Citycon’s Board of Directors believes there have been no material changes to the risks outlined in the Annual Report. The main risks are associated with property development projects, weaker economic development, rising operating expenses, environment and human related risks, decreasing fair values of investment properties and availability and cost of funding.
Helsinki, 23 April 2014
Citycon Oyj
Board of Directors
Additional information:
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