Summary of the Third Quarter of 2008 Compared with the Previous
Quarter
- Turnover grew by 0.8 per cent to EUR 44.6 million (Q2/2008: EUR
44.2 million).
- Net rental income grew by 3.2 per cent to EUR 31.5 million (EUR
30.5 million), resulting from lower maintenance and repair expenses
and from turnover growth.
- Net cash from operating activities per share was lower than in the
previous quarter at EUR 0.02 (EUR 0.06) due mainly to timing
differences relating to working capital and interest payments.
- Earnings per share were EUR -0.21 (EUR -0.26).
- Direct result per share (diluted) improved and was EUR 0.05 (EUR
0.04).
- The fair value change of investment properties was EUR
-70.8 million (EUR -84.7 million). The fair market value of
investment properties decreased to EUR 2,094.4 million (EUR 2,156.9
million).
- The average net yield requirement for investment properties was 6.2
per cent (6.0%) at the end of the period, according to an external
appraiser. The increase in the net yield requirement was due to
changes in the market conditions.
- The company's net financial expenses increased due to higher
interest rates and debt level and totalled EUR 16.1 million (EUR 14.7
million). The period's net financial expenses include EUR 0.6 million
(EUR 0.2 million gain) one-off, non-cash expense resulting from the
quarterly valuation of the company's interest rate hedging contracts,
mainly due to the decline of long-term interest rates.
Summary of the Reporting Period 1 January - 30 September 2008
Compared with the Corresponding Period of 2007
- The company's total liquidity at the end of the reporting period
was EUR 310.7 million including unutilised committed long-term debt
facilities amounting to EUR 292.0 million and cash of EUR 18.7
million. The available liquidity will cover the authorised
investments and scheduled debt service payments at least until the
end of 2010 without the need for additional financial sources.
- Turnover grew by 23.1 per cent to EUR 133.1 million (Q1-3/2007: EUR
108.1 million), due mainly to both property acquisitions made during
2007 and active retail property management.
- Profit/loss before taxes was EUR -121.4 million (EUR 243.5
million), including a EUR -154.1 million change (EUR 212.7 million)
in the fair value of investment properties.
- The company's direct result rose to EUR 29.3 million
(EUR 22.5 million), up mainly because of increased net rental income,
decreased administrative expenses and lower taxes compared to the
reference period. Changes in the fair value of the company's property
portfolio have no effect on the company's net rental income or direct
result, but they will affect the company's total profit.
- Direct result per share (diluted) was EUR 0.14 (EUR 0.12).
- Earnings per share amounted to EUR -0.42 (EUR 0.99). The decrease
resulted mainly from the fair value changes.
- Net rental income increased by 20.1 per cent, to EUR 91.6 million
(EUR 76.3 million).
- Net rental income from like-for-like properties rose by
1.8 per cent.
- Net cash flow from operating activities per share was steady at EUR
0.14 (EUR 0.14).
- The equity ratio was 40.3 per cent (41.2 %).
- Citycon signed three long-term loan agreements on competitive
terms.
Key Figures
Q3/ Q3/ Q2/ Q1-Q3/ Q1-Q3/ Change-
2008 2007 2008 2008 2007 % 1) 2007
Turnover, EUR
million 44.6 38.0 44.2 133.1 108.1 23.1% 151.4
Net rental
income,
EUR million 31.5 27.3 30.5 91.6 76.3 20.1% 103.4
Operating
profit/loss,
EUR million -43.2 44.3 -58.7 -74.5 276.2 - 300.7
% of turnover - 116.7% - - 255.5% - 198.6%
Profit/loss
before taxes,
EUR million -59.3 31.0 -73.4 -121.4 243.5 - 253.5
Profit/loss
attributable to
parent company
shareholders,
EUR million -46.0 23.4 -56.6 -93.5 191.0 - 200.3
Direct result,
EUR million 2) 10.4 8.2 9.5 29.3 22.5 30.6% 36.3
Indirect
result, EUR
million -56.4 15.2 -66.0 -122.8 168.6 - 164.0
Earnings per
share (basic),
EUR -0.21 0.12 -0.26 -0.42 0.99 - 1.00
Earnings per
share
(diluted),
EUR -0.21 0.11 -0.26 -0.42 0.89 - 0.91
Direct result
per share
(diluted),
(diluted EPRA
EPS), EUR 2) 0.05 0.04 0.04 0.14 0.12 12.0% 0.18
Net cash from
operating
activities per
share, EUR 0.02 0.03 0.06 0.14 0.14 3.9% 0.20
Fair market value of
investment properties, 2, 2, 2,
EUR million 2, 156.9 094.4 191.2 -4.4% 215.7
Equity per
share, EUR 4.13 3.87 4.42 -12.3% 4.44
Net asset value (EPRA NAV)
per share, EUR 4.46 4.16 4.82 -13.7% 4.83
EPRA NNNAV per share, EUR 4.20 4.05 4.30 -5.7% 4.42
Equity ratio, % 42.1 40.3 41.2 - 43.9
Gearing, % 123.3 133.8 122.3 - 111.8
Net interest-bearing debt
(fair value),
EUR million 1,205.3 1,221.1 1,184.3 3.1% 1,147.3
Net rental
yield, % 3) 5.4 5.6 6.1 - 5.8
Net rental yield,
like-for-like properties, % 6.0 6.1 6.6 - 6.3
Occupancy rate,
% 95,7 95,6 96,3 - 95.7
Personnel (at the end of the
period) 110 112 95 17.9% 102
1) Change-% is calculated from exact figures and refers to the change
between 2008 and 2007.
2) In comparison to previous practice direct result excludes the
changes in fair value of financial instruments that are recognized in
the income statement. Please see the Note 4 "Reconciliation between
direct and indirect result" for direct result calculations and Note 5"Earnings per share" for calculation of direct result per share.
3) Includes the lots for development projects.
CEO Petri Olkinuora comments on the reporting period:"Citycon's turnover and net rental income continued to grow during
the reporting period, and the company's direct result improved.
Meanwhile, the value of properties decreased due to changes in market
conditions. During the reporting period, Citycon focused on
maintaining a strong cash flow and on active retail property
management.
Taking into account the current volatility in the international
financial markets, the company's current financial standing provides
an adequate basis for business development and for the completion of
the ongoing development and redevelopment projects.
The first stage of the Rocca al Mare shopping centre extension and
redevelopment project was opened on 1 October ahead of schedule, and
the new premises are fully let. Citycon acquired Rocca al Mare in
2005 with the objective of making it the largest shopping centre in
Tallinn. Once the project is fully finalised, we will have achieved
this goal. At the same time, Rocca al Mare will become Citycon's
largest shopping centre measured by retail space.
The Rocca al Mare project is one of the company's three pilot
projects in sustainable construction. We will continue to employ
sustainable construction practices in our other projects in
accordance with the company strategy."
Business Environment
During the reporting period, the retail trade continued to grow in
Finland and Sweden. According to Statistics Finland's preliminary
data, retail sales grew by 4.4 per cent in August compared to August
the year before. The corresponding figures for Sweden and Estonia
were 3.0 per cent and -6.0 per cent, respectively (sources:
Statistics Sweden, Statistics Estonia). Consumer confidence in
personal financial development has clearly weakened. However, in
Finland the consumer confidence in September was positive (Finland
8.5, Euro area average -18.9). During the period, the rise in
inflation was sharper than anticipated in all operating countries
(sources: Statistics Finland, Statistics Sweden, Statistics Estonia).
Economic growth is expected to decelerate in all of Citycon's
operating countries (source: Nordea).
Volatility in the international financial markets has resulted in
higher short term interest rates, reduced availability of debt and
higher loan margins. At the same time, long-term co-operation with
banks, relationship banking, has become a key factor when making
financing decisions.
The property market has slowed down in all of Citycon's operating
countries. The unit size of transactions is also significantly
smaller than before. Meanwhile, rents on retail premises continued to
rise during the period, and vacancy rates continue to be very low.
(JLL, Nordic City Report, Autumn 2008)
Construction cost increases came to a halt during the period, and
costs are expected to start falling in the future. (Source:
Statistics Finland, Statistics Sweden, Statistics Estonia)
Business and Property Portfolio Summary
Citycon's core business includes the redevelopment and management of
shopping centres and other large retail units. The company aims to
increase its net yield from shopping centres over the long term
through active redevelopment efforts and retail property management.
Citycon is an active real estate company, assuming responsibility for
the business operations and administration of its investment
properties. This differentiates Citycon from most real estate
companies, whose principal focus is on ownership.
Citycon is involved in the day-to-day operations of its shopping
centres and, in co-operation with its tenants, aims continuously to
increase the attractiveness, footfall, sales and profits of its
shopping centres. Citycon is a pioneer in the Nordic shopping centre
market, aiming to factor environmental considerations into its
shopping centre management as well as its redevelopment and
development projects. Three sustainable construction pilot projects
are currently underway, with the first phase of the Rocca al Mare
shopping centre expansion and refurbishment at the end of the period
being the first one to be completed.
Citycon operates in Finland, Sweden and the Baltic countries. In
Finland, Citycon is the market leader in the shopping centre
business, while in Sweden it is one of the leading operators in the
shopping centre sector. The company has established a firm foothold
in the Baltic countries. Thanks to careful market research and good
local knowledge, Citycon has been able to acquire shopping centres in
major growth centres in the countries in which it operates. Citycon's
investments are focused on areas with expected population and
purchasing power growth.
At the end of the reporting period, Citycon owned 33 (32) shopping
centres and 51 (53) other properties. Of the shopping centres, 22
(21) were located in Finland, eight (8) in Sweden and three (3) in
the Baltic countries.
At the end of the reporting period, the market value of the company's
property portfolio totalled EUR 2,094.4 million (EUR 2,191.2 million)
with Finnish properties accounting for 72.5 per cent (71.0%), Swedish
properties for 22.2 per cent (24.0%) and Baltic properties for
5.3 per cent (5.0%). The gross leasable area at the end of the
reporting period totalled 928,450 square metres.
Changes in the Fair Value of Investment Properties
Citycon measures its investment properties at fair value, under the
IAS 40 standard, according to which changes in the fair value of
investment properties are recognised through profit or loss. In
accordance with the International Accounting Standards (IAS) and the
International Valuation Standards (IVS), an external professional
appraiser conducts a valuation of Citycon's property portfolio on a
property-by-property basis at least once a year. However, in 2008,
Citycon will have its properties valued by an external appraiser on a
quarterly basis, due to increased market volatility.
Citycon's property portfolio is valued by Realia Management Oy, a
part of the Realia Group. Realia Management Oy works in association
with the world's leading provider of real estate services, the
international company CB Richard Ellis. A summary of Realia
Management Oy's Property Valuation Statement at the end of September
status can be found at www.citycon.com. The valuation statement
includes a description of the valuation process and the factors
contributing to the valuation, as well as the results of the
valuation, and a sensitivity analysis.
The first phase of Rocca al Mare's development project was completed
on 1 October and therefore the whole centre was valued as a
development project using the so-called project model. The project
model is presented in more detail in the Valuation Statement.
During the reporting period, the fair value of Citycon's property
portfolio decreased. This decrease was due to changes in general
market conditions in the property and financial market and to higher
interest rates. The period saw a total value increase of EUR 4.3
million and a total value decrease of EUR 158.4 million. The net
effect of these changes on the company's profit was EUR -154.1
million (EUR 212.7 million).
The average net yield requirement defined by Realia Management Oy for
Citycon's property portfolio came to 6.2 per cent (Q3/2007: 5.7%).
The average net yield requirement increased compared to the previous
quarter (Q2/2008: 6.0%) due to changes in property market conditions.
Lease Portfolio and Occupancy Rate
At the end of the reporting period, Citycon had a total of 3,647
(3,730) leases. The average remaining length of the lease agreements
was 3.0 (2.8) years. At the end of the reporting period, Citycon's
property portfolio's net rental yield was 5.6 per cent (6.1%) and the
occupancy rate was 95.6 per cent (96.3%). The occupancy rate reduced
as the result of an increase in the number of premises temporarily
vacated due to redevelopment projects.
The company's net rental income grew during the reporting period by
20.1 per cent to EUR 91.6 million. Leasable area rose by 2.4 per cent
to 928,450 square metres. Net rental income from like-for-like
properties grew by 1.8 per cent. Net rental income from like-for-like
properties, excluding the accrual generated by the timing difference
of repair costs, grew by 2.6 per cent. Net rental income from
like-for-like shopping centres grew by 2.7 per cent, and excluding
the timing difference of repair costs the increase was 3.0 per cent.
Like-for-like properties are properties held by Citycon throughout
the 24-month reference period, excluding properties under
refurbishment and redevelopment as well as undeveloped lots. 79 per
cent of like-for-like properties are located in Finland. The
calculation method for net yield and standing (like-for-like)
investments is based on guidelines issued by the KTI Institute for
Real Estate Economics and the Investment Property Databank (IPD).
Lease Portfolio Summary
Q3/ Q3/ Q2/ Q1-Q3/ Q1-Q3/ Change-
2008 2007 2008 2008 2007 % 2007
Number of leases
started during the
period 81 112 112 317 348 -8.9 512
Total area of
leases
started, sq.m. 12,810 28,884 18,170 55,230 75,589 -26.9 103,408
Occupancy rate at end of the
period, % 95.7 95.6 96.3 -0.7 95.7
Average remaining length of
lease
portfolio at the end of the
period, year 2.8 3.0 2.8 7.1 3.0
Acquisitions and Divestments
Citycon continues to focus on the development and redevelopment of
the company's shopping centres, and follows developments in the
shopping centre market across its operating regions. In the reporting
period, no new shopping centres were acquired, but the company
acquired more minority shares in several partially-owned properties.
During the reporting period, Citycon sold 40 per cent of the Iso
Omena shopping centre to an affiliate of GIC Real Estate, the
property investment arm of the Government of Singapore Investment
Corporation. The purchase price totalled EUR 131.6 million,
equivalent to 40 per cent of the purchase price at which Citycon
bought Iso Omena in September 2007. The parties have agreed that
Citycon will continue to be responsible for the management of Iso
Omena and continue its development according to Citycon's operating
concept.
Related to the Lippulaiva shopping centre's redevelopment project,
Citycon acquired all the shares in Kiinteistö Oy Majakka and, at the
same time, divested its entire holding in Kiinteistö Oy Ulappatori.
Kiinteistö Oy Majakka owns undeveloped land in the surroundings of
Lippulaiva, in the area planned for the extension of the shopping
centre in Espoo, Finland. Citycon continues to have a right of
possession for the leasable areas of Kiinteistö Oy Ulappatori. This
right of possession will terminate when the redevelopment project is
completed or during 2011 at the latest. Kiinteistö Oy Majakka merged
with Kiinteistö Oy Lippulaiva in the beginning of July 2008.
In addition, in early July Citycon acquired an approximately 54%
holding in Kiinteistö Oy Espoon Asematori. This acquisition is
related to the Espoontori shopping centre's refurbishment and
redevelopment project currently in the pipeline. In January, Citycon
sold its 44 per cent holding in Pukinmäki retail centre in Helsinki,
Finland.
Development Projects
Keeping its shopping centres competitive both for customers and
lessees constitutes the core of Citycon's strategy. The company is
pursuing a long-term increase in the footfall and cash flow, as well
as in efficiency and return of its retail properties. In the short
term, redevelopment projects may weaken returns from some properties,
as some retail premises may have to be temporarily vacated for
refurbishment, which affects rental income. Citycon aims to carry out
any redevelopment projects phase by phase so that the whole shopping
centre does not have to be closed during the works, thus ensuring
continuous cash flow.
Sustainable Construction and Management
In its redevelopment projects, Citycon is paying increasing attention
to environmental management methods and solutions. Three pilot
projects are currently under way, aimed at identifying best practices
to be implemented in the sustainable construction and management of
shopping centres. The pilot projects include building a new shopping
centre at Liljeholmen, Stockholm, Sweden, and the redevelopment and
extension of the Rocca al Mare shopping centre in Tallinn, Estonia,
and the Trio shopping centre in Lahti, Finland.
The assessment applied in the pilot projects comprises a total of
over 60 points, reviewing various factors such as the energy
efficiency of the property, indoor air quality, the choice of
materials, the utilisation of public transport and minimising the
environmental impacts of construction work. On the basis of the
assessment, practical development measures will be introduced in
order to establish systematic, sustainable construction practices.
Citycon seeks to obtain the international LEED (Leadership in Energy
and Environmental Design) environmental certification for its
projects. Citycon remains confident that in the long term a
responsible approach in business operations will enhance Citycon's
reputation as a responsible player in the shopping centre markets and
its attraction as an international investment.
The table below lists the most significant development and
redevelopment projects in progress, as approved by the Board of
Directors. More information on planned projects can be found on
Citycon's website at www.citycon.com, in management presentations and
the Annual Report 2007.
Capital expenditure during the reporting period on all development
projects amounted to EUR 52.9 million in Finland, EUR 36.9 million in
Sweden and EUR 16.1 million in the Baltic countries.
Redevelopment Projects in Progress
Estimated Actual gross Estimated
total cost expenditure final year
(EUR up to 30 Sept. 2008 of
Property Location million) (EUR million) completion
Projects approved by the Board of
Directors
Stockholm,
Liljeholmstorget Sweden 120 49.6 2009
Tallinn,
Rocca al Mare Estonia 68 29.3 2009
Lahti,
Trio Finland 60 53.0 2008
Seinäjoki,
Torikeskus Finland 4 2.3 2009
Citycon's redevelopment projects progressed according to plan during
the reporting period.
The company's largest development project and the main sustainable
construction project is the construction of a new shopping centre in
Liljeholmen, Stockholm. During the reporting period, the project
proceeded to the frame-building stage and is moving ahead within the
planned budget and schedule. The new shopping centre is expected to
open in October 2009, and the leasing of retail premises is also
proceeding as planned.
The first stage of the redevelopment of the Rocca al Mare shopping
centre acquired in Tallinn started in February 2007, and new premises
were opened ahead of schedule on 1 October 2008. The refurbished
premises are fully leased, and the shopping centre has stayed open
during the project. The next stage of the redevelopment project has
already been launched. The completely renovated Rocca al Mare is
expected to open in the autumn of 2009.
The second stage of the redevelopment of the Trio shopping centre in
downtown Lahti is proceeding as planned, and completion is scheduled
for November 2008 in time for the Christmas season. Trio, too, has
remained open during the whole redevelopment project, which was
launched in 2007.
Citycon's Board of Directors has also approved a redevelopment
project involving the Torikeskus in Seinäjoki. During the reporting
period, preparations for the second phase of the project proceeded as
planned.
Other projects that continue to be under planning, but have not yet
been approved by the Board of Directors, include shopping centre
Lippulaiva's extension as well as Åkersberga Centrum's and Tumba
Centrum's redevelopment projects. However, these or other possible
development projects will be started only once financing and leasing
are adequately secured.
During the reporting period, Citycon and the City of Helsinki signed
a preliminary agreement on the purchase of land in Myllypuro,
Helsinki. The agreement covers four lots zoned for commercial and
residential development. The aim is to develop an attractive modern
retail centre at Myllypuro.
Business Units
Citycon's business operations are divided into three business units:
Finland, Sweden and the Baltic Countries. These are sub-divided into
two business areas: Retail Properties and Property Development. The
Finnish business unit also includes a Commercial Development
function, responsible for the commercial development of Citycon's
Finnish shopping centres and the development of new commercial
concepts.
Finland
Citycon is the market leader in the Finnish shopping centre business.
During the reporting period, the company's net rental income from
Finnish operations grew by 24.9 per cent, to EUR 68.2 million, in
spite of the ongoing redevelopment projects. The business unit
accounted for 74.5 per cent of the company's total net rental income.
During the last 12 months, the rolling twelve-month occupancy cost
ratio for like-for-like properties was 8.8 per cent (Q2/2008: 8.8%).
The occupancy cost ratio is calculated as a share of net rent and
potential service charges paid by a tenant to Citycon out of the
tenant's sales excluding VAT (estimate).
The key figures of the Finnish property portfolio are presented
below. The ongoing redevelopment projects in Finland are presented on
pages 5-6.
Lease Portfolio Summary, Finland
Q3/ Q3/ Q2/ Q1-Q3/ Q1-Q3/ Change-
2008 2007 2008 2008 2007 % 2007
Number of leases
started
during the period 66 84 93 259 291 -11.0 442
Total area of
leases
started, sq.m. 11,090 14,510 14,310 47,200 55,760 -15.4 74,400
Occupancy rate at end of the
period, % 95.6 95.7 95.9 -0.2 95.6
Average remaining length of lease
portfolio at the end of the
period, year 3.1 3.1 3.1 0.0 3.1
Financial Performance, Finland
Q3/ Q3/ Q2/ Q1-Q3/ Q1-Q3/ Change-
2008 2007 2008 2008 2007 % 2007
Gross rental
income,
EUR million 30.8 24.6 30.5 91.7 71.6 28.0 100.7
Turnover, EUR
million 31.9 25.5 31.6 94.8 74.1 28.0 104.3
Net rental
income,
EUR million 23.4 18.9 22.5 68.2 54.7 24.9 75.7
Net fair value
gains/losses
on investment
property,
EUR million -44.8 16.2 -58.4 -105.0 150.5 - 148.5
Operating
profit/loss,
EUR million -22.7 33.9 -37.2 -40.6 201.2 - 218.7
Capital
expenditure,
EUR million 18.0 353.2 17.8 58.6 396.5 -85.2 429.1
Fair market value of
investment properties,
EUR million 1,546.2 1,519.3 1,555.5 -2.3 1,587.0
Net rental yield,
% (1 5.6 5.8 6.6 - 6.2
Net rental yield,
like-for-like properties, % 6.2 6.3 6.9 - 6.7
1) Includes the lots for development projects.
Sweden
Citycon has achieved a substantial position in the Swedish shopping
centre market and has eight (8) shopping centres and seven (7) other
retail properties in Sweden, located in the Greater Stockholm and
Greater Gothenburg areas and in Umeå. During the reporting period,
the net rental income from Swedish operations increased by
10.6 per cent to EUR 18.8 million, and the business unit's net rental
income accounted for 20.5 per cent of Citycon's total net rental
income.
The key figures of the Swedish property portfolio are presented
below. The ongoing redevelopment projects in Sweden are presented on
pages 5-6.
Lease Portfolio Summary, Sweden
Q3/ Q3/ Q2/ Q1-Q3/ Q1-Q3/ Change-
2008 2007 2008 2008 2007 % 2007
Number of leases
started
during the period 13 18 18 39 36 8.3 49
Total area of
leases
started, sq.m. 1,670 12,213 3,760 6,280 16,621 -62.2 25,800
Occupancy rate at end of the
period, % 95.2 94.8 96.9 -2.2 95.1
Average remaining length of lease
portfolio
at the end of the period, year 2.1 2.4 2.0 20.0 2.4
Financial Performance, Sweden
Q3/ Q3/ Q2/ Q1-Q3/ Q1-Q3/ Change-
2008 2007 2008 2008 2007 % 2007
Gross rental income,
EUR million 11.3 9.7 10.8 31.3 26.0 20.3 35.4
Turnover, EUR million 10.5 10.1 10.6 31.8 28.0 13.6 39.0
Net rental income,
EUR million 6.5 6.5 6.4 18.8 17.0 10.6 21.6
Net fair value
gains/losses
on investment property,
EUR million -28.8 2.3 -20.6 -47.3 52.9 - 55.6
Operating profit/loss,
EUR million -22.8 7.6 -15.2 -30.9 67.0 - 74.3
Capital expenditure,
EUR million 18.5 3.0 15.9 42.6 136.9 -68.9 142.4
Fair market value of investment
properties,
EUR million 503.0 464.1 526.4 -11.8 517.5
Net rental yield, % (1 4.6 4.7 4.8 - 4.6
Net rental yield, like-for-like
properties, % 5.1 5.3 5.4 - 5.1
1) Includes the lots for development projects.
Baltic Countries
At the end of the reporting period, Citycon owned three (3) shopping
centres in the Baltic countries: Rocca al Mare and Magistral in
Tallinn, Estonia and Mandarinas in Vilnius, Lithuania. Due to the
limited size of the Baltic market, the turbulence in property and
financial markets and the limited availability of suitable
properties, Citycon has been selective in making investments in the
region. During the reporting period, net rental income from Baltic
operations increased by 0.2 per cent, to EUR 4.6 million. The
business unit accounted for 5.0 per cent of Citycon's total net
rental income.
The key figures of the Baltic property portfolio are presented below.
The ongoing redevelopment projects in the Baltic countries are
presented on pages 5-6.
Lease Portfolio Summary, Baltic Countries
Q3/ Q3/ Q2/ Q1-Q3/ Q1-Q3/ Change-
2008 2007 2008 2008 2007 % 2007
Number of leases
started
during the period 2 10 1 19 21 -9.5 21
Total area of leases
started, sq.m. 50 2,161 100 1,750 3,208 -45.4 3,208
Occupancy rate at end of the
period, % 100.0 99.8 100.0 -0.2 100.0
Average remaining length of lease
portfolio at the end of the period,
year 2.3 2.2 3.2 -31.3 2.8
Financial Performance, Baltic Countries
Q3/ Q3/ Q2/ Q1-Q3/ Q1-Q3/ Change-
2008 2007 2008 2008 2007 % 2007
Gross rental income,
EUR million 2.1 2.1 2.1 6.3 5.6 13.0 7.7
Turnover, EUR million 2.1 2.3 2.1 6.5 6.0 7.3 8.0
Net rental income,
EUR million 1.5 1.8 1.5 4.6 4.6 0.2 6.0
Net fair value
gains/losses
on investment property,
EUR million 2.8 2.5 -5.7 -1.8 9.3 - 9.3
Operating profit/loss,
EUR million 4.2 4.2 -4.3 2.4 13.3 - 14.5
Capital expenditure,
EUR million 3.8 22.2 6.5 16.1 26.1 -38.4 31.7
Fair market value of investment
properties,
EUR million 107.8 111.0 109.3 1.5 111.2
Net rental yield, % (1 5.9 5.8 6.4 - 6.2
Net rental yield, like-for-like
properties, % 7.0 7.1 7.7 - 7.3
1) Includes the lots for development projects.
Turnover and Profit
Turnover for the reporting period totalled EUR 133.1 million (EUR
108.1 million), principally derived from the rental income generated
by Citycon's retail premises. Gross rental income accounted for 97.1
per cent (95.4%) of turnover.
Operating profit/loss decreased to EUR -74.5 million (EUR 276.2
million). Profit/loss before taxes came to EUR -121.4 million (EUR
243.5 million) and profit/loss after taxes was EUR -103.4 million
(EUR 194.0 million). The decrease in operating profit was due mainly
to the fair value losses of the property portfolio. On the other
hand, operating profit rose due to net rental income from acquired
properties.
The effect of changes in the fair value of the property portfolio, of
gains on sales and of other indirect items on the profit attributable
to the parent company's shareholders was EUR -122.8 million
(EUR 168.6 million), tax effects included. Taking this effect into
account, the direct result after taxes was EUR 6.9 million above the
reference period level (cf. Note Reconciliation between direct and
indirect result). The growth in direct profit resulted from increased
net rental income and lower administrative expenses. Current taxes on
direct results were lower during the reporting period than during the
reference period, despite profit growth. The lower current taxes
during the reporting period resulted principally from the amended
depreciation policy applied since the end of 2007, which resulted in
higher depreciation of buildings in Finland, reducing the parent
company's result under local Finnish Accounting Standards (FAS) and
thereby also current taxes on direct profit during the reporting
period.
Earnings per share amounted to EUR -0.42 (EUR 0.99). Direct result
per share, diluted (diluted EPRA EPS) amounted to EUR 0.14
(EUR 0.12). Net cash flow from the operating activities per share
amounted to EUR 0.14 (EUR 0.14).
Human Resources and Administrative Expenses
At the end of the reporting period, Citycon Group employed a total of
112 (95) persons, of whom 76 were employed in Finland, 29 in Sweden
and seven in the Baltic countries. Administrative expenses decreased
to EUR 12.3 million (EUR 12.6 million), including EUR 0.3 million
(EUR 0.7 million) calculated non-cash expenses related to employee
stock options and the company's share-based incentive scheme. The
lower expenses when compared to the reference period were due to
lower annual employee bonuses and capitalisation of wages and
salaries relating to development and redevelopment projects.
Capital Expenditure and Divestments
Citycon's reported gross capital expenditure totalled EUR 117.8
million (EUR 559.8 million). Of this, property acquisitions accounted
for EUR 11.1 million (EUR 518.6 million), property development
EUR 105.9 million (EUR 40.9 million) and other investments
EUR 0.8 million (EUR 0.3 million). These investments were financed
with the cash flow from operations and existing financing
arrangements.
The reporting period saw a partial divestment of the shopping centre
Iso Omena, involving the sale of a 40 per cent holding to a company
in the GIC Real Estate Group. The purchase price amounted to EUR
131.6 million.
Balance Sheet and Financial Position
The balance sheet total at the end of the reporting period stood at
EUR 2,238.3 million (EUR 2,318.5 million). Liabilities totalled
EUR 1,337.4 million at the end of the reporting period (EUR 1,364.5
million), with short-term liabilities accounting for EUR 158.6
million (EUR 449.3 million). The Group's financial position remained
solid during the period. At the end of the reporting period,
Citycon's liquidity was EUR 310.7 million, of which EUR 292.0 million
consisted of undrawn, committed long-term credit facilities and EUR
18.7 million of cash and cash equivalents. At the end of the
reporting period, Citycon's liquidity, commercial papers and
short-term credit limits excluded, stood at EUR 202.6 million (Q2
2008: EUR 227.6 million).
For the purpose of short-term liquidity management, the company uses
a EUR 100 million non-committed Finnish commercial paper programme
and a non-committed Swedish commercial paper programme worth SEK one
billion. At the end of the reporting period, the company had issued
Finnish commercial papers worth approximately EUR 58 million and
Swedish commercial papers worth approximately SEK 50 million.
From the reference period, interest-bearing debt decreased by EUR
21.9 million to EUR 1,224.2 million (EUR 1,246.1 million). The fair
value of Group's interest-bearing debt stood at EUR 1,239.8 million
(EUR 1,263.7 million). Short-term interest-bearing debt constitutes
approximately nine per cent of the Group's total interest-bearing
debt.
The Group's cash and cash equivalents totalled EUR 18.7 million
(EUR 79.4 million). The fair value of the Group's interest-bearing
net debt stood at EUR 1,221.1 million (EUR 1,184.3 million).
The year-to-date weighted average interest rate increased compared to
the first half of the year and was 4.92 per cent (4.61% during
reference period). The average loan maturity, weighted according to
the principal amount of the loans, increased to 4.7 years (3.6
years). The average interest-rate fixing period was 3.5 years (3.0
years).
The weighted interest rate, interest-rate swaps included, averaged
5.04 per cent on 30 September 2008.
The Group's equity ratio was 40.3 per cent (41.2%). Period-end
gearing stood at 133.8 per cent (122.3%).
Of Citycon's period-end interest-bearing debt, 74.1 per cent (82.9%)
was in floating-rate loans, of which 67.3 per cent (59.0%) had been
converted into fixed-rate loans by means of interest-rate swaps.
Fixed-rate debt accounted for 75.8 per cent (66.0%) of the Group's
period-end interest-bearing debt, interest-rate swaps included. The
loan portfolio's hedging ratio is in line with the Group's financing
policy, and the company increased the hedging ratio during the
reporting period.
Citycon applies hedge accounting, whereby changes in the fair value
of interest-rate swaps subject to hedge accounting are recognised
under equity. The period-end nominal amount of interest-rate swaps
totalled EUR 669.7 million (EUR 668.4 million), with hedge accounting
applied to interest-rate swaps whose nominal amount totalled
EUR 593.3 million (EUR 591.2 million).
On 30 September 2008, the nominal amount of all the Group's
derivative contracts totalled EUR 826.8 million (EUR 745.3 million),
and their fair market value was EUR 16.1 million (EUR 6.2 million).
Net financial expenses increased by EUR 14.1 million to EUR 46.9
million (EUR 32.7 million). This increase was primarily attributed to
the higher level of interest-bearing debt, mark-to-market loss from
derivatives and a higher weighted-average interest rate.
Excluding the non-cash profit effect of derivatives during the third
quarter, net financial expenses increased by EUR 0.6 million to EUR
15.5 million. Net financial expenses in the income statement include
EUR 1.4 million (EUR 1.3 million) in non-cash expenses related to the
option component of convertible bonds.
The IFRS standard IAS 23 was adjusted during the reporting period
with respect to the recognition of interest expenses relating to
redevelopment projects. In order to enter into force, the adjustment
still needs to be endorsed by the EU and thus has no effect on the
figures presented in this interim report. After entering into force,
this adjustment will have retrospective effect as of 1 January 2007.
The adjustment of the IAS 23 standard will, most importantly, affect
the company's financial expenses in the income statement as the new
IAS 23 standard enables the capitalization of interest expenses
arising from the redevelopment of existing properties and from the
acquisition of lots for development projects in the balance sheet.
The effect is discussed in greater detail in the Notes to this
interim report.
Loan Market Transactions
Citycon signed three long-term loan agreements during the reporting
period. Local financing for the Magistral shopping centre, acquired
in the summer of 2007, was finalised through the signature of a loan
agreement for EEK 280 million, for a term of approximately five
years. Additionally, the company increased its committed long-term
credit limits by signing a EUR 50 million five-year revolving credit
facility agreement.
In June, Citycon and the Nordic Investment Bank (NIB) agreed on a
loan amounting to EUR 30 million to be used to finance the
development of the Liljeholmstorget shopping centre, located in
Stockholm. Liljeholmstorget is Citycon's main sustainable development
project, which was an essential factor in the loan arrangement. The
maturity of the loan is 10 years. The company managed to conclude all
three loan agreements on competitive loan margins.
In addition, on 15 April 2008, Citycon signed a commercial paper
programme in Sweden worth SEK one billion (approximately EUR 102.1
million) with a Nordic bank group. Citycon intends to use the
proceeds from the commercial paper programme for short-term liquidity
management of the Group's Swedish operations. Under the programme,
commercial papers may be issued either in Swedish crowns or in euros.
Short-term Risks and Uncertainties
Citycon's risk management aims to ensure that the company can meet
its strategic and operational goals. The company's risk-management
process involves identifying business-related risks, analysing their
significance, planning and implementing risk-management actions,
reporting on risks on a regular basis, and controlling risks. During
2007, Citycon rolled out its holistic Enterprise Risk Management
(ERM) programme. The company updates its guidelines on
risk-management principles, approved by the Board of Directors, on a
regular basis in response to possible changes in its business.
Citycon estimates that major short-term risks and uncertainties are
associated with economic developments in the company's operating
regions and changes in the fair value of investment properties and
interest rates. Due to the increasing amount of redevelopment and
construction of its own properties, the risks associated with project
management and with increasing construction costs will be more
significant. A marked increase in interest rates, a decline in the
fair value of investment properties, materialisation of major project
risks, considerably higher construction costs, or a sharp economic
slowdown in Finland, Sweden or the Baltic countries could have an
adverse effect on Citycon's business and profit performance.
The international financial market crisis has resulted in a clear
increase in interest rates, particularly short-term rates, and
difficulties in banks' own funding activities, which will affect the
availability of funding for Citycon and increase credit margins and
financing costs in the future. This may have a negative effect on the
implementation of Citycon's strategy and on the company's business
and profits. The company strives to hedge against the risk of changes
in the financial market by applying a conservative funding policy,
which has thus far kept the company's financial expenses from rising
significantly.
More details of the company's risk management are available in the
Annual Report 2007 and, concerning financing risks, in the Financial
Statements 2007, on pages 35-36.
Annual General Meeting 2008
Citycon Oyj's Annual General Meeting (AGM) took place in Helsinki,
Finland, on 13 March 2008. The AGM decided on a dividend of
EUR 0.04 per share for the financial year 2007 and, in addition, on
an equity return of EUR 0.10 per share from the invested unrestricted
equity fund. The record date for the dividend payment was 18 March
2008, and the dividend and equity return were paid on 2 April 2008.
Other decisions taken by the AGM have been reported in the interim
report issued on 24 April 2008.
Shareholders, Share Capital and Shares
Trading and Share Performance
During the January-September period, the value of Citycon shares
traded on the NASDAQ OMX Helsinki totalled EUR 380.2 million (EUR
580.3 million), equivalent to 114.1 million (114.8 million) shares.
The highest quotation during the reporting period was EUR 4.28
(EUR 6.09) and the lowest EUR 2.25 (EUR 4.11). The reported
trade-weighted average share price was EUR 3.33 (EUR 5.03), and the
shares closed at EUR 2.30 (EUR 4.47). The company's market
capitalisation at the end of September totalled EUR 508.3 million
(EUR 863.4 million).
Notifications of Changes in Shareholdings
During the reporting period, Citycon Oyj received three notifications
of changes in shareholdings from two different shareholders:
FIL Limited (formerly Fidelity International Limited) notified the
company in March that the holdings of its direct and indirect
subsidiaries in Citycon Oyj had fallen below the five per cent
threshold. According to the notification, FIL Limited and its direct
and indirect subsidiaries held a total of 10,904,704 Citycon shares
on 5 March 2008, equivalent to 4.93 per cent of the company's share
capital and voting rights.
AXA Investment Managers notified the company in March that the
holdings of AXA S.A. and its subsidiaries in Citycon Oyj's voting
rights and share capital had risen above the threshold of
five per cent. According to the notification, AXA Group held
11,892,688 shares on 21 March 2008, equivalent to 5.38 per cent of
the company's voting rights and share capital. In May, AXA
Investments Managers notified the company that the holdings of AXA
S.A. and its subsidiaries in Citycon Oyj's voting rights and share
capital had fallen below the five per cent threshold to 4.99 per cent
due to stock transactions that took place on 13 May 2008. According
to the notification, the AXA Group held 11,017,656 Citycon shares at
the time.
Share Capital
At the beginning of 2008, the company's registered share capital
totalled EUR 259.6 million and the number of shares 221.0 million.
During the reporting period, the number of shares increased by
10,738 shares as a result of exercise of stock option rights and by
7,040 shares that were granted to the company's key personnel by a
directed share issue without payment relating to the company's
share-based incentive plan. At the end of the reporting period, the
company's registered share capital totalled EUR 259,570,510.20, and
the number of shares amounted to 220,998,989. The company has a
single series of shares, with each share entitling to one vote at
general meetings of shareholders. The shares have no nominal value.
Board Authorisations
The AGM for 2007 authorised the Board of Directors to decide on
issuing new shares and disposing of treasury shares through paid or
free share issues. New shares can be issued and treasury shares can
be transferred to shareholders in proportion to their existing
shareholding or through a directed share issue waiving the
pre-emptive rights of shareholders, if a weighty financial reason
exists for doing so. The Board can also decide on a free share issue
to the company itself. In addition, the Board was authorised to grant
the special rights referred to in Section 1 of Chapter 10 of the
Finnish Limited Liability Companies Act, entitling their holders to
receive, against payment, new shares in the company or treasury
shares. The combined number of new shares to be issued and treasury
shares to be transferred, including the shares granted on the basis
of the special rights, may not exceed 100 million.
The Board exercised this authorisation in September 2007, when it
decided on a share issue based on the shareholders' pre-emptive
subscription right, and in May 2008, when it decided on a directed
share issue without payment relating to the company's share-based
incentive plan. As a result of these decisions, the number of shares
that can be issued or disposed of on the basis of the authorisation
now totals 72,398,178. This authorisation is valid until 13 March
2012.
The Board of Directors has no other authorisations.
Stock Options 2004
The Annual General Meeting held on 15 March 2004 authorised the issue
of a maximum of 3,900,000 stock options to the personnel of the
Citycon Group. The stock options 2004 A/B/C are listed on the NASDAQ
OMX Helsinki. Trading in stock options 2004 C began on 1 September
2008.
The terms and conditions of the company's stock option plan 2004 were
amended during the reporting period under a decision taken by the
AGM. Valid basic information on the option plan 2004 is presented in
the enclosed table.
Basic Information on Stock Options 2004 as at 30 September 2008
2004 A 2004 B 2004 C
No. of options granted 1,040,000 1,090,000 1,050,000
No. held by Veniamo-Invest Oy ¹) 260,000 210,000 250,000
Subscription ratio, option/shares 1:1.2127 1:1.2127 1:1.2127
Subscription price per share, EUR ²) 2.2732 2.6608 4.3613
Subscription period began 1.9.2006 1.9.2007 1.9.2008
Subscription period ends 31.3.2009 31.3.2010 31.3.2011
No. of options exercised 345,075 - -
No. of shares subscribed with options 386,448 - -
¹) Veniamo-Invest Oy, a wholly-owned subsidiary of Citycon Oyj,
cannot subscribe for its parent company's shares.
²) Following the dividend payment and equity return in 2008. The
share subscription prices are reduced by half of the per-share
dividends paid and per-share equity returned. However, the share
subscription price is always at least EUR 1.35.
During the reporting period, 10,132 shares were subscribed based on
the A stock options relating to Citycon's stock option plan 2004, at
a per-share subscription price of EUR 2.2732. Shares subscribed
entitle their holders to a dividend for the financial year 2008.
The outstanding stock options under the 2004 option scheme entitle
their holders to subscribe for a further maximum of 3,437,913 new
shares.
Outlook
Citycon continues to focus on increasing net operating income and
cash flow. Seeking to implement its strategy, the company will focus
on developing and redeveloping its shopping centres while cautiously
monitoring the market for potential acquisitions.
Citycon is considering the divestment of its non-core properties such
as its residential properties in Sweden. To ensure the long term
growth of Citycon, the company will consider alternative financial
structures such as joint ventures.
In 2008, the company expects its year-on-year net rental income and
direct profit excluding fair value changes to increase. This estimate
is based on expansion and redevelopment projects in progress, on
further improvements in shopping centre management, and on property
portfolio growth due to completed acquisitions.
Helsinki, 15 October 2008
Citycon Oyj
Board of Directors
UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS 1 January - 30
September 2008
Condensed Consolidated Income Statement, IFRS
Q3/ Q3/ Change- Q1-Q3/ Q1-Q3/ Change-
EUR million 2008 2007 % 2008 2007 % 2007
Gross rental income 44.1 36.3 21.4% 129.2 103.2 25.2% 143.7
Service charge
income 0.5 1.6 -70.7% 3.9 5.0 -22.2% 7.7
Turnover (Note 3) 44.6 38.0 17.4% 133.1 108.1 23.1% 151.4
Property operating
expenses 13.1 10.7 22.3% 41.4 31.8 30.4% 47.8
Other expenses from
leasing operations 0.1 0.0 - 0.1 0.1 -9.6% 0.3
Net rental income 31.5 27.3 15.3% 91.6 76.3 20.1% 103.4
Administrative
expenses 3.9 4.0 -3.0% 12.3 12.6 -3.0% 16.5
Other operating
income
and expenses 0.0 0.0 20.1% 0.2 0.0 - 0.5
Net fair value
gains/losses
on investment
property -70.8 21.1 - -154.1 212.7 - 213.4
Net gains on sale of
investment property 0.0 -0.1 - 0.1 -0.1 - -0.1
Operating profit/loss -43.2 44.3 - -74.5 276.2 - 300.7
Net financial income
and
expenses 16.1 13.3 20.8% 46.9 32.7 43.1% 47.3
Profit/loss before
taxes -59.3 31.0 - -121.4 243.5 - 253.5
Current taxes -1.0 -2.4 -58.7% -4.4 -6.6 -33.3% -3.4
Change in deferred
taxes 8.4 -5.0 - 22.4 -42.9 - -46.2
Profit/loss for the
period -51.9 23.6 - -103.4 194.0 - 203.9
Attributable to
Parent company
shareholders -46.0 23.4 - -93.5 191.0 - 200.3
Minority interest -5.9 0.2 - -10.0 3.0 - 3.6
Earnings per share
(basic),
EUR (Note 5) -0.21 0.12 - -0.42 0.99 - 1.00
Earnings per share
(diluted),
EUR (Note 5) -0.21 0.11 - -0.42 0.89 - 0.91
Direct result (Note 4) 10.4 8.2 27.0% 29.3 22.5 30.6% 36.3
Indirect result (Note
4) -56.4 15.2 - -122.8 168.6 - 164.0
Profit/loss for the
period
attributable to parent
company shareholders -46.0 23.4 - -93.5 191.0 - 200.3
Condensed Consolidated Balance Sheet, IFRS
30 Sept. 30 Sept. 31 Dec.
EUR million Note 2008 2007 2007
Assets
Non-current assets
Investment property 6 2,094.4 2,191.2 2,215.7
Development property 7 90.4 21.1 33.2
Other property, plant and equipment 1.0 0.7 0.9
Derivative financial instruments and
other non-current assets 9 8.3 10.9 10.7
Total non-current assets 2,194.1 2,224.0 2,260.5
Current assets
Derivative financial instruments 9 9.5 0.1 1.2
Trade and other receivables 15.9 15.0 22.7
Cash and cash equivalents 8 18.7 79.4 24.2
Total current assets 44.2 94.5 48.1
Total assets 2,238.3 2,318.5 2,308.6
Liabilities and Shareholders' Equity
Equity attributable to parent company shareholders
Share capital 259.6 259.6 259.6
Share issue - 51.2 -
Share premium fund and other
restricted reserves 131.1 131.1 131.1
Fair value reserve 9 5.1 4.9 4.9
Invested unrestricted equity fund 10 177.3 100.2 199.3
Retained earnings 10 282.6 377.7 387.0
Total equity attributable to parent
company shareholders 855.6 924.9 982.0
Minority interest 45.3 29.0 28.9
Total shareholders' equity 900.9 953.9 1,010.9
Liabilities
Long-term interest-bearing debt 11 1,111.2 827.5 1,049.3
Derivative financial instruments and
other non-interest bearing
liabilities 9 1.8 2.7 2.4
Deferred tax liabilities 65.8 85.1 88.1
Total long-term liabilities 1,178.8 915.2 1,139.9
Short-term interest-bearing debt 11 113.0 418.6 104.7
Trade and other payables 45.6 30.7 53.1
Total short-term liabilities 158.6 449.3 157.8
Total liabilities 1,337.4 1,364.5 1,297.7
Total liabilities and shareholders' equity 2,238.3 2,318.5 2,308.6
Condensed Consolidated Statement of Changes in Shareholders' Equity,
IFRS
Equity attributable to parent company
shareholders
Share
premium Invested
fund and Fair unrestricted
Share Share other value equity Retained
EUR million capital issue reserves reserve fund earnings
Balance at
1 Jan. 2007 225.7 0.1 131.1 -1.3 - 209.7
Cash flow
hedges 6.3
Profit/loss
for the period 191.0
Total recognized income
and expense for the
period 6.3 191.0
Share issues 33.8 51.2 98.8
Share
subscriptions
based on stock
options 0.1 -0.1 0.0 1.4
Dividends (Note 10) -23.4
Translation
differences -0.3
Share-based payments 0.7
Other changes 0.0
Balance at
30 Sept. 2007 259.6 51.2 131.1 4.9 100.2 377.7
Balance at
1 Jan. 2008 259.6 - 131.1 4.9 199.3 387.0
Cash flow
hedges 0.1
Profit/loss for the
period -93.5
Total recognized income
and expense for the
period 0.1 -93.5
Share subscriptions
based
on stock options 0.0
Dividends and return
from the
invested unrestricted
equity
fund (Note 10) -22.1 -8.8
Translation
differences -2.3
Share-based payments 0.3
Other changes
Balance at
30 Sept. 2008 259.6 - 131.1 5.1 177.3 282.6
Equity Minority Shareholders'
attributable to interest equity, total
parent company
shareholders
Balance at 1 Jan. 2007 565.3 15.0 580.3
Cash flow hedges 6.3 6.3
Profit/loss for the period 191.0 3.0 194.0
Total recognized income
and expense for the period 197.3 3.0 200.3
Share issues 183.8 183.8
Share subscriptions
based on stock options 1.4 1.4
Dividends (Note 10) -23.4 -23.4
Translation differences -0.3 -0.1 -0.5
Share-based payments 0.7 0.7
Other changes 0.0 11.2 11.2
Balance at 30 Sept. 2007 924.9 29.0 953.9
Balance at 1 Jan. 2008 982.0 28.9 1,010.9
Cash flow hedges 0.1 0.1
Profit/loss for the period -93.5 -10.0 -103.4
Total recognized income
and expense for the period -93.3 -10.0 -103.3
Share subscriptions based
on stock options 0.0 0.0
Dividends and return from
the invested unrestricted
equity fund (Note 10) -30.9 -30.9
Translation differences -2.3 -0.9 -3.2
Share-based payments 0.3 0.3
Other changes 0.0 27.1 27.1
Balance at 30 Sept. 2008 855.6 45.3 900.0
Condensed Consolidated Cash Flow Statement, IFRS
EUR million Note Q1-Q3/2008 Q1-Q3/2007 2007
Operating activities
Profit/loss before taxes -121.4 243.5 253.5
Adjustments 201.5 -178.9 -164.9
Cash flow before change in working
capital 80.1 64.6 88.5
Change in working capital -5.2 -4.2 0.2
Cash generated from operations 74.9 60.4 88.8
Paid interest and other financial
charges -46.8 -28.8 -42.7
Received interest and other
financial income 3.4 2.0 3.1
Taxes paid -0.3 -7.4 -10.0
Cash flows from operating
activities 31.2 26.2 39.3
Investing activities
Acquisition of subsidiaries, less
cash acquired 6, 7 -24.0 -509.2 -517.6
Acquisition of investment
properties 6 - -15.9 -16.0
Capital expenditure on investment
properties 6 -44.1 -26.1 -39.3
Capital expenditure on
development
properties, other PP&E and
intangible assets 7 -47.6 -14.8 -24.5
Sale of investment property 7.0 0.3 0.3
Cash flows from investing
activities -108.7 -565.7 -597.1
Financing activities
Proceeds from share issue - 133.6 232.4
Proceeds from pending share issue - 51.2 -
Equity contribution from minority
shareholder 25.9 - -
Proceeds from short-term loans 11 69.3 481.6 773.1
Repayments of short-term loans 11 -60.0 -120.5 -727.9
Proceeds from long-term loans 11 386.5 266.9 535.8
Repayments of long-term loans 11 -318.1 -191.5 -228.9
Dividends paid 10 -30.9 -23.4 -23.4
Cash flows from financing
activities 72.5 597.8 561.1
Net change in cash and cash
equivalents -5.0 58.3 3.3
Cash and cash equivalents at
period-start 8 24.2 21.3 21.3
Effects of exchange rate changes -0.4 -0.2 -0.4
Cash and cash equivalents at
period-end 8 18.7 79.4 24.2
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basic Company Data
Citycon is a real estate company investing in retail premises.
Citycon operates mainly in Finland, Sweden and the Baltic countries.
Citycon is a Finnish public limited company established under Finnish
law and domiciled in Helsinki. The Board of Directors has approved
the interim financial statements on 15 October 2008.
2. Basis of Preparation and Accounting Policies
Citycon prepares its consolidated financial statements in accordance
with the International Financial Reporting Standards (IFRS). The
interim condensed consolidated financial statements for the nine
months ended 30 September 2008 have been prepared in accordance with
IAS 34 Interim Financial Reporting. Same accounting principles and
policies are followed in the interim financial statements as in the
annual financial statements for the year 2007. The interim financial
statements do not include all the disclosures required in the annual
financial statements. Therefore, they should be read in conjunction
with Citycon's annual financial statements for the year 2007.
Restatement of the Financial Information in 2007 and 2008 due to the
New IAS 23 Borrowing Costs Standard
Due to the new IAS 23 Borrowing Costs standard, Citycon has
re-evaluated its accounting policy regarding the capitalisation of
the interest expenses and has concluded to revise the policy. As a
result of adopting the revised accounting policy relating to the
capitalisation of interest expenses, Citycon is going to restate its
2007 and 2008 financial statements. The new standard has been issued
by the IASB but has not been endorsed by the EU. The EU is expected
to endorse the new standard by the end of 2008. Consequently, Citycon
is not able to apply the new standard in the current interim report,
but will do it in the 2008 Financial Statements.
Currently, Citycon capitalises the interest expenses arising from the
development projects, in which significant extensions or new
self-constructed properties are built and measured at cost in
accordance with IAS 16. After applying the new standard in its 2008
Financial Statements, Citycon will expand its policy of capitalizing
the interest expenses into the redevelopment projects, in which the
existing investment properties are refurbished and measured at fair
value. The following table presents the potential impact of the new
IAS 23 on the financial information for 2007 and 2008. The new IAS 23
will have no impact on the profit for the period nor the balance
sheet, since the change in financial expenses is offset by the change
in net fair value gains/losses on investment property.
Restated Restated
Q1-Q3/ Q1-Q3/ Q1-Q2/ Q1-Q2/ Restated
EUR million 2008 2008 2008 2008 Q1/2008 Q1/2008
Net fair value
gains/losses
on investment
property -154.1 -156.7 -83.3 -85.1 1.4 0.5
Operating
profit/loss -74.5 -77.1 -31.3 -33.0 27.4 26.4
Net financial income
and
expenses 46.9 44.2 30.8 29.0 16.1 15.1
Profit/loss before
taxes -121.4 -121.4 -62.1 -62.1 11.3 11.3
Profit/loss for the
period -103.4 -103.4 -51.6 -51.6 11.3 11.3
Direct result 29.3 31.9 18.9 20.6 9.5 10.4
Indirect result -122.8 -125.4 -66.4 -68.1 -0.4 -1.3
Restated Q1-Q3/ Restated
EUR million 2007 2007 2007 Q1-Q3/2007
Net fair value gains/losses on
investment property 213.4 211.4 212.7 211.5
Operating profit/loss 300.7 298.7 276.2 275.1
Net financial income and expenses 47.3 45.3 32.7 31.6
Profit/loss before taxes 253.5 253.5 243.5 243.5
Profit/loss for the period 203.9 203.9 194.0 194.0
Direct result 36.3 38.3 22.5 23.6
Indirect result 164.0 162.1 168.6 167.4
Restated Restated
EUR million Q1-Q2/2007 Q1-Q2/2007 Q1/2007 Q1/2007
Net fair value gains/losses on
investment property 191.6 191.2 31.5 31.4
Operating profit/loss 231.9 231.5 50.4 50.3
Net financial income and
expenses 19.4 19.0 9.5 9.4
Profit/loss before taxes 212.5 212.5 40.9 40.9
Profit/loss for the period 170.4 170.4 34.6 34.6
Direct result 14.3 14.7 6.7 6.7
Indirect result 153.3 152.9 26.3 26.3
3. Segment Information
Citycon's business consists of the regional business units Finland,
Sweden and the Baltic Countries.
Q3/ Q3/ Q1-Q3/ Q1-Q3/
EUR million 2008 2007 Change-% 2008 2007 Change-% 2007
Turnover
Finland 31.9 25.5 25.1% 94.8 74.1 28.0% 104.3
Sweden 10.5 10.1 4.1% 31.8 28.0 13.6% 39.0
Baltic Countries 2.1 2.3 -8.8% 6.5 6.0 7.3% 8.0
Total 44.6 38.0 17.4% 133.1 108.1 23.1% 151.4
Operating
profit/loss
Finland -22.7 33.9 - -40.6 201.2 - 218.7
Sweden -22.8 7.6 - -30.9 67.0 - 74.3
Baltic Countries 4.2 4.2 - 2.4 13.3 - 14.5
Other -1.9 -1.4 36.0% -5.5 -5.3 3.5% -6.8
Total -43.2 44.3 - -74.5 276.2 - 300.7
Assets 30 Sept. 2008 30 Sept. 2007 Change-% 31 Dec. 2007
Finland 1,539.2 1,562.3 -1.5% 1,594.2
Sweden 520.6 543.9 -4.3% 542.2
Baltic Countries 139.4 119.0 17.1% 125.3
Other 39.1 93.2 -58.1% 46.9
Total 2,238.3 2,318.5 -3.5% 2,308.6
The change in segment assets is mainly due to the fair value losses
in investment properties offset by the capital expenditure.
4. Reconciliation Between Direct and Indirect Result
Due to the nature of Citycon's business and the obligation to apply
IFRS, the consolidated income statement includes several items
related to non-operating activities. In addition to the consolidated
income statement under IFRS, Citycon also presents its profit for the
period with direct result and indirect result separately specified,
in an attempt to enhance the transparency of its operations and to
facilitate comparability of financial periods. Direct result
describes the profitability of the Group's operations during the
financial period disregarding the effects of fair value changes,
gains or losses on sales and other extraordinary items. Earnings per
share calculated based on direct result corresponds to the earnings
per share definition recommended by EPRA.
In comparison to previous practice direct result excludes the changes
in fair value of financial instruments that are recognized in the
income statement. In order to hedge against interest rate risk,
Citycon has entered into, in accordance with its interest rate risk
management policy, interest rate and inflation derivatives which do
not qualify under hedge accounting treatment under IFRS. Changes in
fair value of such derivatives are recognized in the income
statement. These derivatives hedge the group against interest rate
risk and in accordance with the terms of the derivatives Citycon
receives floating money market interest rate which has a matching
interest rate determination procedure with group's floating rate
debt. The interest rate which Citycon pays under these derivatives
does not depend on the money market interest rate which means that
these derivatives hedge Citycon against rising floating interest
rates. The aim is to ensure effectiveness of the hedges by matching
the interest rate fixing procedure between the derivatives recognized
in the income statement and floating rate debt of Citycon.
Q3/ Q2/ Q1/ Q4/ Q3/
EUR million 2008 2008 2008 2007 2007
Direct result
Net rental income 31.5 30.5 29.7 27.1 27.3
Administrative expenses -3.9 -4.2 -3.8 -3.9 -4.0
Other operating income and expenses 0.0 0.0 0.0 0.6 0.0
Net financial income and expenses -15.5 -14.9 -14.7 -14.7 -11.9
Current taxes -1.0 -1.2 -1.2 3.2 -2.4
Change in deferred taxes 0.2 0.0 -0.1 1.7 -0.5
Minority interest -0.9 -0.7 -0.4 -0.2 -0.3
Total 10.4 9.5 9.5 13.8 8.2
Direct result per share (diluted),
(diluted EPRA EPS), EUR 1) 0.05 0.04 0.04 0.06 0.04
Indirect result
Net fair value gains/losses on
investment
property -70.8 -84.7 1.4 0.7 21.1
Profit on disposal of investment
property 0,0 0,0 0,1 0,0 -0,1
Administrative expenses related to
disposals 0,0 -0,2 -0,2 - -
Other operating income and expenses 0,0 0,0 0,1 - -
Movement in fair value of financial
instruments -0,6 0,2 -1,4 0,2 -1,4
Current taxes related to disposals 0,0 0,0 -1,1 - -
Change in deferred taxes 8.2 11.6 2.4 -5.0 -4.5
Minority interest 6.8 7.0 -1.8 -0.4 0.1
Total -56.4 -66.0 -0.4 -4.6 15.2
Indirect result per share, diluted -0.26 -0.30 0.00 -0.02 0.07
Profit/loss for the period attributable
to
parent company shareholders -46.0 -56.6 9.1 9.3 23.4
¹) The calculation of the direct result per share is presented in the
Note 5. Earnings per share.
5. Earnings per Share
A) Earnings per share calculated from the profit/loss for the
period
Q1-Q3/2008 Q1-Q3/2007 2007
Earnings per share, basic
Profit/loss attributable to parent
company
shareholders, EUR million -93.5 191.0 200.3
Issue-adjusted average number of
shares, Million 221.0 192.8 199.4
Earnings per share (basic), EUR -0.42 0.99 1.00
Earnings per share, diluted
Profit/loss attributable to parent
company
shareholders, EUR million -93.5 191.0 200.3
Expenses arising from convertible loan,
adjusted
with the tax effect deduction, EUR
million - 4.2 5.7
Profit/loss used in the calculation of
diluted
earnings per share, EUR million -93.5 195.3 206.0
Issue-adjusted average number of
shares, Million 221.0 192.8 199.4
Convertible capital loan impact,
Million - 25.3 26.2
Issue-adjusted adjustment for stock
options, Million - 2.0 1.5
Issue-adjusted average number of shares
used in
the calculation of diluted earnings per
share, Million 221.0 220.2 227.1
Earnings per share (diluted), EUR -0.42 0.89 0.91
The incremental shares from assumed conversions or any income or cost
related to dilutive potential shares are not included in calculating
the Q1-Q3/2008 diluted per-share amounts because the profit
attributable to parent company shareholders was negative.
B) Earnings per share calculated from the direct result for the
period
Direct result per share (diluted), (diluted EPRA EPS)
Q1-Q3/2008 Q1-Q3/2007 2007
Direct result, EUR million (Note 4) 29.3 22.5 36.3
Expenses arising from convertible loan,
adjusted
with the tax effect deduction, EUR
million 4.3 4.2 5.7
Profit used in the calculation of direct
result per
share, EUR million 33.7 26.7 42.0
Issue-adjusted average number of shares
used in the
calculation of diluted earnings per
share, Million 248.0 220.2 227.1
Direct result per share (diluted),
(diluted EPRA EPS), EUR 0.14 0.12 0.18
6. Investment Property
EUR million 30 Sept. 2008 30 Sept. 2007 31 Dec. 2007
At period-start 2,215.7 1,447.9 1,447.9
Acquisitions 11.1 518.6 531.3
Investments 49.9 25.1 44.8
Disposals -7.6 -0.3 -0.3
Transfer into the
development properties -1.9 -6.4 -6.2
Fair value gains on
investment property 4.3 222.3 220.8
Fair value losses on
investment property -158.4 -9.3 -7.5
Exchange differences -18.6 -6.7 -15.1
At period-end 2,094.4 2,191.2 2,215.7
An external professional appraiser has conducted the valuation of the
company's properties with a net rental income based cash flow
analysis. Market rents, occupancy rate, operating expenses and yield
requirement form the key variables used in the cash flow analysis.
The segments' yield requirements and market rents used by the
external appraiser in the cash flow analysis were as follows:
Yield requirement (%) Market rents (€/m²)
30 Sept. 30 Sept. 31 Dec. 30 Sept. 30 Sept. 31 Dec.
2008 2007 2007 2008 2007 2007
Finland 6.2 5.8 5.7 21.7 18.8 21.1
Sweden 6.0 5.4 5.4 13.4 13.1 13.2
Baltic Countries 7.1 6.3 6.4 20.7 16.3 16.4
Average 6.2 5.7 5.6 19.8 17.1 19.0
7. Development Property
As at 30 September 2008, the development properties consisted of the
capital expenditure relating to extension projects in Rocca al Mare,
Åkersberga, Liljeholmen and Lippulaiva shopping centres.
EUR million 30 Sept. 2008 30 Sept. 2007 31 Dec. 2007
At period-start 33.2 - -
Acquisitions 6.8 - -
Investments 46.8 14.3 26.4
Capitalized interest 2.4 0.4 0.6
Transfer from investment
property 1.9 6.4 6.2
Exchange differences -0.7 - -
At period-end 90.4 21.1 33.2
8. Cash and Cash Equivalents
EUR million 30 Sept. 2008 30 Sept. 2007 31 Dec. 2007
Cash in hand and at bank 17.0 27.7 24.2
Short-term deposits 1.8 51.7 -
Total 18.7 79.4 24.2
9. Derivative Financial Instruments
EUR million 30 Sept. 2008 30 Sept. 2007 31 Dec. 2007
Nominal Fair Nominal Fair Nominal Fair
amount value amount value amount value
Interest rate derivatives
Interest rate swaps
Maturity:
less than 1 year 86.4 0.9 50.0 0.1 40.0 0.2
1-2 years 66.0 -0.4 87.1 -0.8 112.5 -0.6
2-3 years 70.0 3.0 149.0 -1.6 83.0 -1.1
3-4 years 40.0 0.9 70.0 0.7 70.0 1.7
4-5 years 178.0 2.0 0.0 0.0 20.0 0.2
over 5 years 229.3 3.3 312.2 8.7 309.0 8.5
Total 669.7 9.7 668.4 7.1 634.5 8.8
Foreign exchange
derivatives
Forward agreements
Maturity:
less than 1 year 157.1 6.3 76.9 -0.9 40.4 0.3
Total 157.1 6.3 76.9 -0.9 40.4 0.3
The fair value of derivative financial instruments represents the
market value of the instrument with prices prevailing on the balance
sheet date. Derivative financial instruments are used in hedging the
interest rate risk of the interest bearing liabilities and foreign
currency risk.
The fair values include foreign exchange gain of EUR 9.6 million (EUR
-1.8 million) which is recognized in the income statement.
Hedge accounting is applied for interest rates swaps which have
nominal amount of EUR 593.3 million (EUR 591.2 million). The fair
value gain recognized in the fair value reserve under shareholders'
equity taking account the tax effect totals EUR 5.1 million (EUR 4.9
million).
10. Dividends and Return From the Invested Unrestricted Equity Fund
In accordance with the proposal by the Board of Directors and the
decision by the Annual General Meeting held on 13 March 2008 dividend
for the financial year 2007 amounted to EUR 0.04 per share and EUR
0.10 per share was decided to be returned from the invested
unrestricted equity fund (dividend of EUR 0.14 for the financial year
2006).
Dividends and equity returns paid amounted to EUR 30.9 million (EUR
23.4 million) during the period.
11. Interest-bearing Liabilities
During the period, Citycon has agreed on a new long-term bank loan in
the amount of EUR 30 million as part of the Liljeholmstorget shopping
center development project in Stockholm. The loan bears a floating
interest rate and is repayable within 10 years. Also, the EUR 17.9
million loan for financing Magistral shopping centre in Tallinn was
drawn, and is repayable approximately in five years. The long-term
credit limit (a EUR 50 million five-year revolving credit facility)
remained undrawn. During the period, repayments of other bank loans
amounting to EUR 10.9 million were made in line with previously
disclosed repayment terms.
Other proceeds and repayments from/of long-term loans in the
cash-flow statement arose from the use of revolving credit
facilities.
12. Contingent Liabilities
EUR million 30 Sept. 2008 30 Sept. 2007 31 Dec. 2007
Mortgages on land and
buildings 44.8 47.7 46.4
Bank guarantees 48.0 19.9 49.8
Capital commitments 23.2 58.1 31.0
At 30 September 2008, Citycon had capital commitments of EUR 23.2
million relating mainly to several development and redevelopment
projects.
13. Related Party Transactions
There were no significant transactions with the related parties
during the period.
14. Key Figures
Q3/ Q3/ Change- Q1-Q3/ Q1-Q3/ Change-
2008 2007 % 2008 2007 % 2007
Earnings per share
(basic), EUR -0.21 0.12 - -0.42 0.99 - 1.00
Earnings per share
(diluted), EUR -0.21 0.11 - -0.42 0.89 - 0.91
Equity per share, EUR 3.87 4.42 -12.3% 4.44
Net asset value (EPRA NAV) per share, EUR 4.16 4.82 -13.7% 4.83
Equity ratio, % 40.3 41.2 - 43.9
The formulas for key figures can be found from the 2007 annual
financial statements.
The figures are unaudited.
Financial Statements and Financial Statements Bulletin 2008
Citycon will publish its financial statements and a financial
statements bulletin for the financial year 1 January to 31 December
2008 on Thursday, 12 February 2009 at approximately 9:00 a.m.
More information for investors is available at Citycon's website,
www.citycon.com.
For further information, please contact:
Mr Petri Olkinuora, CEO
Tel. +358 9 6803 6738 or +358 400 333 256
petri.olkinuora@citycon.fi
Mr Eero Sihvonen, CFO
Tel. +358 9 6803 6730 or +358 400 557 9137
eero.sihvonen@citycon.fi
Distribution:
NASDAQ OMX Helsinki
Major media
www.citycon.com
Report on the Review of Citycon Oyj's Interim Financial Information
for the period January 1 - September 30, 2008
To the Board of Directors of Citycon Oyj
Introduction
We have reviewed the accompanying consolidated balance sheet of
Citycon Oyj as of September 30, 2008 and the related statements of
income, changes in equity and cash flows for the nine-month period
then ended, and explanatory notes prepared in accordance with
International Financial Reporting Standards as adopted by the EU. The
Board of Directors and the Managing Director are responsible for the
preparation and fair presentation of this interim financial
information in accordance with the Securities Market Act, chapter 2,
paragraph 5 a. Based on our interim review we express at the request
of the Board of Directors a report in accordance with the Securities
Market Act, chapter 2, paragraph 5 a, sub-paragraph 7.
Scope of Review
We conducted our review in accordance with International Standard on
Review Engagements 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity." A review of
interim financial information consists of making inquiries, primarily
of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with Standards on Auditing and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Opinion
Based on our review, nothing has come to our attention that causes us
to believe that the accompanying interim financial information,
prepared in accordance with International Financial Reporting
Standards as adopted by the EU, does not give a true and fair view of
the financial position of the entity as at September 30, 2008, and of
its financial performance and its cash flows for the nine-month
period then ended in accordance with the Securities Market Act.
Helsinki, October 15, 2008
Ernst & Young Oy
Authorized Public Accountants
Tuija Korpelainen, Authorized Public Accountant