The Interim Report for the period 1 January–30 June 2011 in its entirety is enclosed to this release and it is also available on the corporate website at www.citycon.com.
Summary of the Second Quarter of 2011 Compared with the Previous Quarter
- Turnover increased to EUR 54.1 million (Q1/2011: EUR 52.0 million).
- Net rental income increased by EUR 3.9 million or 12.2 per cent to EUR 36.3 million (EUR 32.4 million). The acquisitions of Kristine and Högdalen shopping centres increased net rental income by EUR 1.7 million. In addition, net rental income increased due to lower property operating expenses reflecting common seasonal variations.
- The fair value change of investment properties was EUR -5.0 million (EUR 1.2 million), EUR 0.3 million for shopping centres and EUR -5.3 million for supermarkets and shops, with the fair value of investment properties totalling EUR 2,506.4 million (EUR 2,386.2 million). The average net yield requirement for investment properties was 6.4 per cent (6.4%).
- Earnings per share fell to EUR 0.03 (EUR 0.05), mainly due to negative fair value changes as well as higher financial expenses.
- Direct result per share (diluted) increased slightly and was EUR 0.05 (EUR 0.05) as higher net rental income increased the direct result while higher financial expenses decreased it.
-The company specifies its guidance regarding turnover, direct operating profit and direct result.
Summary of the Period January – June 2011 Compared with the Corresponding Period of 2010
- Turnover increased to EUR 106.0 million (Q1-Q2/2010: EUR 98.1 million).
- Net rental income increased by EUR 6.3 million, or 10.1 per cent, to EUR 68.7 million (EUR 62.5 million). With comparable exchange rates, net rental income grew by EUR 4.8 million or 7.6 per cent. The completion of redevelopment projects such as Espoontori, Forum in Jyväskylä and Åkersberga Centrum increased net rental income by EUR 2.7 million. The acquisitions of the Kristine and Högdalen shopping centres increased net rental income by EUR 1.7 million. Net rental income from like-for-like properties increased by EUR 1.1 million, or 2.3 per cent, excluding the impact of the strengthened Swedish krona.
- Earnings per share fell to EUR 0.08 (EUR 0.19). The decrease was mainly due to negative fair value changes and higher financial expenses. In addition, the share issue that took place in September 2010 increased the number of shares.
- The direct result per share (diluted) increased slightly to EUR 0.11 (EUR 0.10).
- Net cash from operating activities per share increased to EUR 0.08 (EUR 0.05) due to higher direct operating profit, positive changes in working capital, received tax returns, extraordinary items and timing differences.
- Citycon bought the shopping centre Högdalen Centrum in Stockholm for SEK 207.5 million (approx. EUR 23.1 million) and shopping centre Kristiine in Tallinn for EUR 105 million.
- The redevelopment project of the Koskikeskus shopping centre in Tampere was started, with the estimated investment cost being EUR 37.9 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, in the beginning of March.
Key Figures
Q2/2011 | Q2/2010 | Q1/2011 | Q1-Q2/2011 | Q1-Q2/2010 | Change-% 1) | 2010 | |
Turnover, EUR million | 54.1 | 48.6 | 52.0 | 106.0 | 98.1 | 8.1% | 195.9 |
Net rental income, EUR million | 36.3 | 31.8 | 32.4 | 68.7 | 62.5 | 10.1% | 127.2 |
Operating profit, EUR million | 26.0 | 49.2 | 28.2 | 54.2 | 79.6 | -31.9% | 157.7 |
% of turnover | 48.1% | 101.3% | 54.2% | 51.1% | 81.1% | -37.0% | 80.5% |
Profit/loss before taxes, EUR million | 9.5 | 34.8 | 14.4 | 23.9 | 52.0 | -54.0% | 102.8 |
Profit/ loss attributable to parent company shareholders, EUR million | 7.9 | 28.4 | 11.2 | 19.1 | 41.4 | -53.9% | 78.3 |
Direct operating profit, EUR million | 30.2 | 26.3 | 27.0 | 57.2 | 52.7 | 8.6% | 105.0 |
% of turnover | 56.0% | 54.2% | 51.9% | 54.0% | 53.7% | 0.5% | 53.6 % |
Direct result, EUR million | 13.2 | 10.1 | 12.6 | 25.8 | 21.5 | 20.4% | 47.3 |
Indirect result, EUR million | -5.3 | 18.3 | -1.4 | -6.8 | 19.9 | - | 31.1 |
Earnings per share (basic), EUR | 0.03 | 0.13 | 0.05 | 0.08 | 0.19 | -58.2% | 0.34 |
Earnings per share (diluted), EUR | 0.03 | 0.12 | 0.05 | 0.08 | 0.18 | -55.4% | 0.34 |
Direct result per share (diluted), (diluted EPRA EPS), EUR | 0.05 | 0.05 | 0.05 | 0.11 | 0.10 | 8.6% | 0.21 |
Net cash from operating activities per share, EUR | -0.01 | 0.01 | 0.09 | 0.08 | 0.05 | 60.1% | 0.09 |
Fair value of investment properties, EUR million | 2,386.2 | 2,506.4 | 2,229.5 | 12.4% | 2,367.7 | ||
Equity per share, EUR | 3.43 | 3.43 | 3.30 | 4.0% | 3.47 | ||
Net asset value (EPRA NAV) per share, EUR 2) | 3.70 | 3.73 | 3.68 | 1.3% | 3.79 | ||
EPRA NNNAV per share, EUR | 3.44 | 3.43 | 3.35 | 2.7% | 3.49 | ||
Equity ratio, % | 36.3 | 34.8 | 33.8 | 2.9% | 37.1 | ||
Gearing, % | 154.8 | 171.2 | 174.6 | -2.0% | 153.1 | ||
Net interest-bearing debt (fair value), EUR million | 1,389.5 | 1,540.1 | 1,369.6 | 12.4% | 1,386.0 | ||
Net rental yield, % | 5.8 | 5.8 | 6.0 | - | 5.8 | ||
Net rental yield, like-for-like properties, % | 6.0 | 6.0 | 6.0 | - | 6.1 | ||
Occupancy rate (economic), % | 94.9 | 95.1 | 94.6 | - | 95.1 | ||
Personnel (at the end of the period) | 130 | 134 | 124 | 8.1% | 129 |
1) Change-% is calculated from exact figures and refers to the change between 2011 and 2010.
2) In accordance with a change in the EPRA's Best Practice Recommendations 2010, Citycon has changed net asset value (EPRA NAV) calculations so that the fair value of all financial instruments is excluded from the net asset value.
CEO’s Comment
Comments from Citycon Oyj’s Chief Executive Officer Marcel Kokkeel on the reporting period and updated strategy:
“In general, retail business in Citycon’s operational regions experienced positive developments especially in Finland and Sweden. Net rental income from the company’s like-for-like shopping centres grew particularly well by 6.6 per cent. Net rental income from all like-for-like properties grew by 2.3 per cent, but was still weighed down by three nearly empty supermarket properties located in Finland.
In May, Citycon acquired two new shopping centres: Kristiine in Tallinn, and the Högdalen Centrum in Stockholm. Högdalen, which provides growth opportunities through more professional shopping centre management and future development projects, is a good example of an investment that implements Citycon’s strategy. Kristiine, on the other hand, strengthens Citycon’s position in Tallinn, where the company now has more than 100,000 square metres of shopping centre space available for lease. Both investments improve the profitability of the company, are accretive to earnings per share from day one, and increase rental income.
Together with this interim report, we introduce the updated strategy of Citycon. Currently, Citycon is a market leader in Finland. While the company intends to retain this position, it also aims to increase the relative importance of other countries included in its strategy. Apart from Finland, currently the company also owns shopping centres in Sweden, Estonia and Lithuania. Going forward, Norway, Denmark and Latvia will also be included in the strategy. Citycon will concentrate on competitive shopping centres located in winning cities.
We are a focused retail real estate company in a focused area. The key rationale for our expansion plan is to further improve the retail space offering and to better serve retailers with a wider product offering. Several international retail chains seek further expansion or entrance into the Nordic and Baltic markets. Potential newcomers prefer to partner with a leader who can provide them with strong retail positions and top locations. Citycon has the expertise to be that leader. We know how to connect customer flows with strong retail and real estate cash flows. This knowledge forms the basis of the company’s growth strategy.
A key part of Citycon’s clarified strategy is improving the direct result from operations. Costs will be controlled even more closely and the company will strive for stronger rental growth. Marketing has a key role in this effort for stronger rental growth. The company will further focus on improving the occupancy rates by implementing appealing marketing programs and bringing in new retailers. Internal targets have been set for improvement of metrics across the property portfolio.
The winners in the shopping centre industry will be those who are able to select best locations and combine them with best tenant mix and customer services. Citycon will certainly be one of them, aiming to be the best in class in the Nordic and Baltic region. We want to be the benchmark in the areas in which we operate. By becoming better, we will improve the direct result per share; by improving the balance sheet, we will be stronger; and ultimately these foundations will allow us to achieve our vision of doubling the portfolio over the next five years.”
Business Environment
Retail sales have grown both in Finland and in Sweden. During the first half of the year, the retail industry grew by 6.3 per cent in Finland and by 2.0 per cent in Sweden. In May, retail sales in Finland grew by 7.9 per cent, while in Sweden retail sales decreased by 1.1 per cent year-on-year. However, the Swedish office of statistics, Statistics Sweden (SCB), believes that the total retail sales for 2011 will show growth. In May, retail sales in Estonia grew by 2.0 per cent. (Sources: Statistics Finland, Statistics Sweden, Statistics Estonia).
Household consumer confidence remained strong in both Sweden and Finland. In Estonia, household consumer confidence is on a higher level than in the other Baltic countries, whereas in Lithuania, confidence was significantly lower than in the Eurozone. (Source: Eurostat)
Unemployment has decreased and was 7.8 per cent in Finland and 7.7 per cent in Sweden at the end of May. In Estonia the unemployment is still high and was 13.8 per cent at the end of the first quarter. The changeover to the euro has, however, had a positive impact on the Estonian economy through tourism and foreign investment. (Sources: Eurostat, Statistics Estonia)
In Finland and Sweden, consumer prices continued to rise during the first half of the year. In May, inflation in both countries was at 3.3 per cent, and in Estonia, 5.4 per cent. Interest rates continued to be low but were on the rise. (Source: Statistics Finland, Statistics Sweden, Statistics Estonia)
The availability of financing continued to improve compared with previous years. The Nordic banks, in particular, adopted a more active approach to financing.
Property Markets
The atmosphere in the Finnish property market has been positively expectant since summer 2010. The number of executed transactions has, however, remained low even though some significant office property transactions have taken place during the quarter. The investment demand has focused mainly on high-quality city-centre or new build properties while there is still downward pressure on the values of non-prime properties. The Swedish property market has recovered faster than the Finnish one and demand and trading have spread beyond the metropolitan area as well. The Baltic countries are gradually coming out of the deepest recession, but the rental market is still challenging. In spite of this, the first major post-recession property transactions have already been seen in Estonia. (Source: Realia Management Oy)
Tenants’ Sales and Footfall in Citycon’s Shopping Centres
During the first half of the year, total sales in Citycon’s shopping centres grew by seven per cent and footfall increased by six per cent compared with the same period in the previous year. There was growth in sales in all of the company’s countries of operation: five per cent in Finland, eight per cent in Sweden, and 23 per cent in the Baltic countries. In Finland, footfall increased by four per cent, in Sweden by seven per cent, and in the Baltic region by 19 per cent. The positive developments in sales and footfall are mainly attributable to the completed (re)development projects and shopping centre acquisitions completed during the period. Like-for-like shopping centre sales (sales excluding the impact of redevelopment projects and acquisitions) grew by four per cent, and were positive in all of the countries of operation. Like-for-like footfall remained at previous year’s level.
Short-Term Risks and Uncertainties
Citycon’s Board of Directors considers the company’s short-term risks and uncertainties to be associated with economic development in the company’s operating regions, which affects demand, rent and vacancy rates in retail premises, as well as with the cost-efficiency of debt financing, changes in the fair value of investment properties, and the execution of redevelopment projects. The Board estimates that the most significant risks faced by the company at the moment relate to general economic development, the success of leasing activities for retail premises, and reducing the vacancy rate.
During the first half of the year, the general economic environment has been relatively positive, but recently insecurity in the eurozone has increased, particularly because of the debt crisis in Greece. In many regions, this has led to the strong economic growth seen at the beginning of the year being abated; in addition, share prices have fluctuated in the stock markets of the Nordic countries. In Finland, economic recovery has continued, supported by domestic demand. In Sweden, while the strongest economic growth has abated, unemployment is still declining, and the undertone of the economy continues to be positive. Of the Baltic countries, Estonia is in the best position in terms of economic growth, with forecasted growth for Estonia surpassing that of Finland and Sweden. Estonia is faced with the challenge of rapid inflation, although that has recently appeared to be slowing down. (Source: SEB Nordic Outlook May 2011)
Notwithstanding the fairly favourable economic environment, demand for retail premises still did not grow significantly, making leasing activities challenging. During the second quarter of 2011, vacancy rates in Citycon premises decreased slightly, with occupancy rates increasing to 95.1 per cent compared to the first quarter of 2011. The market rent prices for retail premises only developed quite moderately. The average rent level of new lease agreements made during the quarter increased compared to the previous quarter but declined in Finland. Leasing of retail premises continued to be challenging in certain Finnish supermarket and shop properties owned by Citycon.
The company’s short-term risks and uncertainties are discussed in more depth in the Annual Report for 2010. More details of risk management and its principles are available on the corporate website at www.citycon.com/riskmanagement, and on pages 35–37 and 49–51 of the Annual Report and Financial Statements for 2010.
Outlook
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.
The initiation of planned projects will be carefully evaluated against strict pre-leasing criteria. Citycon intends to continue the divestment of its non-core properties to improve the property portfolio and strengthen the company’s financial position. The Company is also considering alternative property financing sources.
In 2011, Citycon expects its turnover to grow by EUR 15–23 million and its direct operating profit by EUR 9-15 million compared with the previous year, based on the existing property portfolio. The company expects its direct result to increase by EUR 2–7 million from the previous year. 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 as well as current interest rates. Properties taken offline for planned development projects will reduce net rental income during the year.
Helsinki, 12 July 2011
Citycon Oyj
Board of Directors
Financial Reports in 2011
Citycon will publish one more interim report in 2011:
January–September 2011 on Wednesday 12 October 2011, at approximately 9.00 a.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.fi
Eero Sihvonen, Executive Vice President and CFO
Tel. +358 20 766 4459 or +358 40 557 9137
eero.sihvonen@citycon.fi
Distribution:
NASDAQ OMX Helsinki
Major media
www.citycon.com