The Interim Report for the period 1 January–30 September 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 Third Quarter of 2011 Compared with the Previous Quarter
- Turnover increased to EUR 55.0 million (Q2/2011: EUR 54.1 million).
- Net rental income increased by EUR 1.9 million, or 5.3 per cent, to EUR 38.3 million (EUR 36.3 million). The acquisitions of Kristiine and Högdalen Centrum shopping centres increased net rental income by EUR 0.9 million and completion of redevelopment projects by EUR 0.7 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 –14.4 million (EUR –5.0 million): EUR –5.5 million for shopping centres and EUR –8.9 million for supermarkets and shops, with the fair value of investment properties totalling EUR 2,512.6 million (EUR 2,506.4 million). The average net yield requirement for investment properties was 6.4 per cent (6.4%).
- Earnings per share fell to EUR 0.00 (EUR 0.03), mainly due to higher negative fair value changes.
- Direct operating profit increased by EUR 1.0 million to EUR 31.3 million (EUR 30.2 million) due to higher net rental income partly offset by higher direct administrative expenses that increased by EUR 0.9 million largely due to changes in organisation.
- Direct result per share (diluted) (diluted EPRA EPS) increased slightly and was EUR 0.06 (EUR 0.05) as higher direct operating profit increased the direct result while higher number of shares impacted the per share figure.
- The company specifies its guidance regarding turnover, direct operating profit and direct result.
Summary of the Period January–September 2011 Compared with the Corresponding Period of 2010
- Turnover increased to EUR 161.0 million (Q1–Q3/2010: EUR 146.1 million).
- Net rental income increased by EUR 11.6 million, or 12.1 per cent, to EUR 107.0 million (EUR 95.4 million). With comparable exchange rates, net rental income grew by EUR 10.1 million or 10.5 per cent. The completion of redevelopment projects such as Espoontori, Forum in Jyväskylä and Åkersberga Centrum increased net rental income by EUR 4.6 million. The acquisitions of the Kristiine and Högdalen Centrum shopping centres increased net rental income by EUR 4.3 million.
- Net rental income from like-for-like properties increased by EUR 2.0 million, or 2.7 per cent, excluding the impact of the strengthened Swedish krona. Like-for-like net rental income from shopping centres increased by EUR 3.7 million, or 6.4 per cent while like-for-like net rental income from supermarkets and shops decreased by EUR 1.8 million, or 11.3 per cent.
- Earnings per share were EUR 0.07 (EUR 0.29). The decrease was mainly due to negative fair value changes. In addition, the share issues taken place in July 2011 have increased the number of shares.
- The direct result per share (diluted) (diluted EPRA EPS) increased and was EUR 0.16 (EUR 0.15).
- Net cash from operating activities per share increased to EUR 0.21 (EUR 0.09) due to higher direct operating profit, positive changes in working capital, received tax returns, extraordinary items and timing differences.
- Citycon acquired 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.
- In May, Citycon signed a EUR 330 million long-term unsecured credit facility agreement with a Nordic bank group. The facility consists of a bullet term loan of EUR 220 million and a EUR 110 million revolving credit facility. The loan period is five years.
- The company strengthened its balance sheet and improved liquidity by raising approximately EUR 99 million in new equity through a directed share offering arranged in July by issuing 33 million new shares. In August, the company signed a 7-year unsecured term loan facility for a minimum committed amount of EUR 50 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. At the end of July the company announced that Ulf Attebrant, the company’s Vice President, Swedish Operations, would leave his position by 1 December and that Johan Elfstadius would start as new Head of Swedish Operations on or about 1 December 2011.
Key Figures
Q3/2011 | Q3/2010 | Q2/2011 | Q1-Q3/2011 | Q1-Q3/2010 | Change-% 1) | 2010 | |
Turnover, EUR million | 55.0 | 48.0 | 54.1 | 161.0 | 146.1 | 10.3% | 195.9 |
Net rental income, EUR million | 38.3 | 33.0 | 36.3 | 107.0 | 95.4 | 12.1% | 127.2 |
Operating profit, EUR million | 17.0 | 42.8 | 26.0 | 71.2 | 122.3 | -41.8% | 157.7 |
% of turnover | 30.9% | 89.2% | 48.1% | 44.2% | 83.8% | -47.3% | 80.5% |
Profit/loss before taxes, EUR million | 1.0 | 28.8 | 9.5 | 25.0 | 80.8 | -69.1% | 102.8 |
Loss/profit attributable to parent company shareholders, EUR million | -0.7 | 22.5 | 7.9 | 18.3 | 63.9 | -71.3% | 78.3 |
Direct operating profit, EUR million | 31.3 | 28.0 | 30.2 | 88.5 | 80.7 | 9.7% | 105.0 |
% of turnover | 56.8% | 58.4% | 56.0% | 55.0% | 55.3% | -0.5% | 53.6% |
Direct result (EPRA earnings), EUR million | 14.9 | 12.3 | 13.2 | 40.7 | 33.8 | 20.7% | 47.3 |
Indirect result, EUR million | -15.6 | 10.2 | -5.3 | -22.4 | 30.1 | - | 31.1 |
Earnings per share (basic), EUR | 0.00 | 0.10 | 0.03 | 0.07 | 0.29 | -74.8% | 0.34 |
Earnings per share (diluted), EUR | 0.00 | 0.10 | 0.03 | 0.08 | 0.28 | -71.6% | 0.34 |
Direct result per share (diluted), (diluted EPRA EPS), EUR | 0.06 | 0.06 | 0.05 | 0.16 | 0.15 | 5.6% | 0.21 |
Net cash from operating activities per share, EUR | 0.14 | 0.04 | -0.01 | 0.21 | 0.09 | 143.1% | 0.09 |
Fair value of investment properties, EUR million | 2,506.4 | 2,512.6 | 2,299.9 | 9.3% | 2,367.7 | ||
Equity per share, EUR | 3.43 | 3.29 | 3.36 | -2.2% | 3.47 | ||
Net asset value (EPRA NAV) per share, EUR 2) | 3.73 | 3.64 | 3.71 | -1.8% | 3.79 | ||
EPRA NNNAV per share, EUR | 3.43 | 3.31 | 3.37 | -1.8% | 3.49 | ||
Equity ratio, % | 34.8 | 37.7 | 35.9 | 4.8% | 37.1 | ||
Gearing, % | 171.2 | 148.3 | 153.4 | -3.3% | 153.1 | ||
Net interest-bearing debt (fair value), EUR million | 1,540.1 | 1,445.2 | 1,343.1 | 7.6% | 1,386.0 | ||
Net rental yield, % | 5.8 | 5.9 | 5.9 | - | 5.8 | ||
Net rental yield, like-for-like properties, % | 6.0 | 6.0 | 6.0 | - | 6.0 | ||
Occupancy rate (economic), % | 95.1 | 95.4 | 94.5 | - | 95.1 | ||
Personnel (at the end of the period) | 134 | 129 | 123 | 4.9% | 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:
“The first three quarters of 2011 have been a period of solid performance: the company’s net rental income grew by 12.1 per cent, like-for-like net rental income by 2.7 per cent, occupancy rate remained at high level and was 95.4 per cent, shopping centre footfall has grown by 6 per cent and sales by 7 per cent. Especially Liljeholmstorget Galleria in Sweden has improved during this year.
Our property portfolio is now more clearly split into prime, consisting of a large majority of our portfolio, and the non-prime properties. This difference can be seen in leasing and rental development, as well as in valuation of properties. In general, demand for the best properties is solid and their fair values remain stable, whereas non-prime properties show an opposite trend.
The company is in transition phase: our strategy has been updated and changes have taken place in the management. This transition is also reflected in our results: While managing an ongoing business improvement program which will also lead to a lower cost base, 2011 will still show an increase in costs due to this transition. The key part of Citycon’s clarified strategy is improving the direct result and rigorous cost control in all our operations. The aim is to be close to customers, tenants and market places and to become a more pro-active partner.
During the reporting period, the company has strengthened its property portfolio by both acquisitions and redevelopment projects. In May, Citycon acquired two new shopping centres: Kristiine in Tallinn, and Högdalen Centrum in Stockholm. Kristiine has out-performed our expectations. The most significant on-going redevelopment projects are in Finland: Koskikeskus in Tampere, Martinlaakso in Vantaa and Myllypuro in Helsinki. Also some non-core properties have been sold and their disposals will continue and – when possible – be accelerated.
Citycon’s financial position is good. The directed share issue arranged by the company in July was completed successfully. At the period end, available liquidity totalled EUR 292.8 million and equity ratio was 37.7 per cent.”
Business Environment
After the summer, economic sentiment turned negative, due to the euro area's problems in particular. While this change was primarily visible on the stock market, it did not yet have major impacts on consumer spending. During the year, retail sales have grown both in Finland and Sweden. For the first eight months, retail sales grew by 5.8 per cent in Finland, by 1.2 per cent in Sweden and by 3.0 per cent in Estonia. In August, retail sales in Finland grew by 6.0 per cent, in Sweden by 1.7 per cent and in Estonia by 4.0 per cent year-on-year. (Sources: Statistics Finland, Statistics Sweden, Statistics Estonia)
Household consumer confidence has deteriorated during the past months in all of the company's operating countries. In Finland and Sweden, the household consumer confidence indicator was still positive unlike in Estonia and Lithuania. (Source: Eurostat)
In Finland and Sweden, unemployment is lower than the European Union average: at the end of August, unemployment rate in Finland was 7.8 per cent and in Sweden 7.4 per cent. In Estonia, unemployment is still high, at 12.8 per cent at the end of June. The changeover to the euro has, however, had a positive impact on the Estonian economy, through tourism and foreign investment. (Sources: Statistics Finland, Statistics Sweden, Statistics Estonia)
Consumer prices continued to rise during the reporting period. In August, inflation was 3.8 per cent in Finland, 3.4 per cent in Sweden and 5.5 per cent in Estonia. Interest rates remained low. (Source: ibid)
Property Markets
General uncertainty in the global economy has cast its shadow on real estate market and the general sentiment is cautious and waiting. In the beginning of the year, it was expected that the demand for average properties and properties in regional towns would increase, but development after the summer has shifted investors’ and financiers’ interest even more firmly towards prime properties in major cities. The number of completed transactions has been low and it is expected that transaction volumes will remain moderate during the rest of the year. The current view is, that the relative position of prime properties will strengthen and they will keep their value rather well, but there will be downwards pressure on average and non-prime investment properties and on their values. (Source: Realia Management Oy)
Tenants’ Sales and Footfall in Citycon’s Shopping Centres
During the first nine months of the year, total sales in Citycon’s shopping centres grew by 7 per cent and the footfall increased by 6 per cent, year-on-year. There was sales growth in all of the company’s operating countries: 5 per cent in Finland, 7 per cent in Sweden and 21 per cent in the Baltic countries. In Finland, the footfall increased by 4 per cent, in Sweden by 9 percent and in the Baltic countries by 9 per cent. Positive developments in sales and footfall are mainly attributable to redevelopment projects completed during recent years. Like-for-like shopping centre sales (sales excluding the impact of redevelopment projects) grew by 5 per cent and were positive in all operating countries. Like-for-like footfall rose by 1 per cent, being positive in Swedish shopping centres in particular.
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 now faced by the company relate to general economic development, the success of leasing activities for retail premises, reducing the vacancy rate, as well as the cost and availability of financing.
During the first half of the year, the general economic climate was still relatively positive and, for instance, consumer confidence increased in Citycon's operating countries. In the summer, economic activity slowed down while the mounting sovereign-debt crisis has led to major fluctuations in the financial market. Recent economic forecasts for the current and next year have been lowered markedly and the current outlook for the euro area is replete with risks. However, regardless of slower economic growth, several forecasts still expect the economic growth to remain positive next year in all of Citycon's operating countries. Since the risks associated with economic development have undoubtedly increased significantly, we cannot exclude the scenario of a sharp economic downturn coupled with negative economic growth next year.
In such a challenging economic environment, demand for retail premises is unlikely to grow significantly from the current level, which will make leasing activities challenging. Leasing of retail premises was particularly challenging in certain supermarket and shop properties owned by Citycon where the occupancy rate is still clearly below the occupancy rate of the entire property portfolio.
The availability of financing is still good, although greater uncertainty since the summer of 2011 started to affect the cost of financing. Credit ratings of certain European banks have already declined and, in general, banks' funding costs clearly increased during the summer. Nordic banks, however, hold a relatively stronger position and, in spite of the uncertainty, are still willing to finance property companies, although they require slightly higher loan margins than in the spring.
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, in order 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 18–23 million and its direct operating profit by EUR 10–15 million compared with the previous year, based on the existing property portfolio. The company expects its direct result to increase by EUR 4–8 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, 11 October 2011
Citycon Oyj
Board of Directors
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
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