Citycon Oyj's Interim Report for 1 January-31 March 2011

Stock exchange releases - 4 May 2011


 Citycon has renewed the structure and content of its interim report to better meet the feedback from investors. The Interim Report for the period 1 January–31 March 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 First Quarter of 2011 Compared with the Previous Quarter

 

 - Turnover increased to EUR 52.0 million (Q4/2010: EUR 49.9 million).



 - Net rental income increased by EUR 0.6 million or 2.0 per cent to EUR 32.4 million (EUR 31.8 million). Net rental income increased due to completion of redevelopment projects such as Espoontori, Forum in Jyväskylä and Åkersberga Centrum and reduced by higher property operating expenses, reflecting common seasonal variations.



 - The fair value change of investment properties was EUR 1.2 million (EUR 11.3 million), with the fair value of investment properties totalling EUR 2,386.2 million (EUR 2,367.7 million). The average net yield requirement for investment properties was 6.4 per cent (6.4%).

  - Earnings per share fell to EUR 0.05 (EUR 0.06), mainly due to lower fair value changes as well as the reference period’s lower taxes.



 - Direct result per share (diluted) decreased to EUR 0.05 (EUR 0.06), due mainly to higher direct income taxes, while higher net rental income and lower administrative expenses contributed positively.

 

 Summary of the First Quarter of 2011 Compared with the Corresponding Quarter of 2010

 

 - Turnover increased to EUR 52.0 million (Q1/2010: EUR 49.5 million).



 - Net rental income increased by 5.8 per cent to EUR 32.4 million (EUR 30.6 million). With comparable exchange rates, net rental income grew by EUR 1.0 million or 3.2 per cent. The completion of redevelopment projects such as Espoontori, Forum in Jyväskylä and Åkersberga Centrum increased net rental income by EUR 0.7 million. Net rental income from like-for-like properties increased by EUR 0.8 million or 3.2 per cent, excluding the impact of the strengthened Swedish krona.



 - Earnings per share fell to EUR 0.05 (EUR 0.06). The decrease was mainly due to lower gains on sale, higher administration expenses and higher financial expenses. The share issue taken place in September 2010 also increased the number of shares.



 - The direct result per share (diluted) was EUR 0.05 (EUR 0.05).



 - Net cash from operating activities per share increased to EUR 0.09 (EUR 0.03) due to higher direct operating profit, extraordinary items and timing differences.



 - The company agreed to acquire shopping centre Kristiine in Tallinn for EUR 105 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



 
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
  
   
   
   
   
   
   
  
 

     

    Q1/2011

    Q1/2010

    Change-% 1)

    Q4/2010

    2010

    Turnover, EUR million

    52.0

    49.5

    5.0 %

    49.9

    195.9

    Net rental income, EUR million

    32.4

    30.6

    5.8 %

    31.8

    127.2

    Operating profit, EUR million

    28.2

    30.3

    -7.1%

    35.4

    157.7

       % of turnover

    54.2%

    61.3%

    -

    70.9%

    80.5%

    Profit/loss before taxes, EUR million

    14.4

    17.2

    -16.1%

    22.0

    102.8

    Profit/ loss attributable to parent company shareholders, EUR million

    11.2

    13.0

    -13.4%

    14.4

    78.3

     

     

     

     

     

     

    Direct operating profit, EUR million

    27.0

    26.4

    2.4%

    24.3

    105.0

       % of turnover

    51.9%

    53.3%

    -

    48.8%

    53.6%

    Direct result, EUR million

    12.6

    11.4

    11.4%

    13.5

    47.3

    Indirect result, EUR million

    -1.4

    1.6

    -

    0.9

    31.1

     

     

     

     

     

     

    Earnings per share (basic), EUR

    0.05

    0.06

    -21.7%

    0.06

    0.34

    Earnings per share (diluted), EUR

    0.05

    0.06

    -21.6%

    0.06

    0.34

    Direct result per share (diluted), (diluted EPRA EPS), EUR

    0.05

    0.05

    0.8%

    0.06

    0.21

    Net cash from operating activities per share, EUR

    0.09

    0.03

    166.9%

    0.00

    0.09

     

     

     

     

     

     

    Fair value of investment properties, EUR million

    2,386.2

    2,193.5

    8.8%

     

    2,367.7

     

     

     

     

     

     

    Equity per share, EUR

    3.43

    3.20

    7.2%

     

    3.47

    Net asset value (EPRA NAV) per share, EUR 2)

    3.70

    3.57

    3.8%

     

    3.79

    EPRA NNNAV per share, EUR

    3.44

    3.22

    6,8%

     

    3.49

    Equity ratio, %

    36.3

    32.7

    10.9%

     

    37.1

    Gearing, %

    154.8

    175.9

    -12.0%

     

    153.1

    Net interest-bearing debt (fair value), EUR million

    1,389.5

    1,327.2

    4.7%

     

    1,386.0

    Net rental yield, %

    5.8

    6.0

    -

     

    5.8

    Net rental yield, like-for-like properties, %

    6.1

    6.0

    -

     

    6.1

    Occupancy rate (economic), %

    94.9

    94.5

    -

     

    95.1

    Personnel (at the end of the period)

    130

    120

    8.3%

     

    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

 

 Citycon Oyj’s Chief Executive Officer Marcel Kokkeel comments on the reporting period:

 

 The positive market trend continued in the beginning of the year. The company’s like-for-like net rental growth was a positive sign. Especially Citycon’s core business, shopping centres, performed well in the like-for-like portfolio. The negative result in the Finnish like-for-like portfolio was due mainly to two largely vacant properties in the supermarkets and shops category in Helsinki Metropolitan Area and one in Pori. One of these properties was the main reason behind the 20 basis point decrease in the company’s occupancy rate compared to the year-end 2010 and these properties also showed fair value losses.

 

 The 3.2 per cent growth in the like-for-like net rents was mainly thanks to Liljeholmstorget’s improved performance compared to the year before. Also in the Baltic shopping centres, the sales have increased during the period and we were able to fully charge the indexations from the tenants, although some temporary rental rebates are still in place.

 

 During the period Citycon entered a new line of business by taking up the management responsibility for the commercial management – including the leasing of retail premises – and marketing of Kämp Galleria, a shopping centre in the heart of Helsinki. This fits well into our ambition to better serve the tenants by offering the top downtown location in addition to the retail range of our own shopping centres.

 

 Citycon strengthened its position in Tallinn market by signing an agreement to acquire the centrally located shopping centre Kristiine for approximately EUR 105 million. With a gross leasable area of 42,600 square metres, Kristiine is Tallinn’s second-largest shopping centre after Citycon’s Rocca al Mare. This acquisition shows Citycon’s commitment for growth if and when interesting opportunities arise.

 

 I started as the CEO of the company this March and have been exploring the company and the market these past few weeks. During that time I have already discussed with most of the people working for Citycon as well as familiarized myself with most of the Citycon’s properties. I see opportunities in Citycon’s portfolio and in the market for further growth.

 

 Business Environment



 

 Retail sales have grown both in Finland and in Sweden. In February, sales grew by 6.5 per cent in Finland and 3.0 per cent in Sweden compared to the previous year. During the first months of the year, the retail sales grew in Finland by 6.0 per cent and in Sweden by 2.7 per cent. In Estonia, retail sales grew by 2.0 per cent in February. (Sources: Statistics Finland, Statistics Sweden, Statistics Estonia)

 

 Household consumer confidence remained strong in Sweden and Finland. Even in Estonia, household consumer confidence took a turn for the positive, whereas in Lithuania, confidence was significantly lower than in the Eurozone. (Source: Eurostat)

 

 Unemployment remained high, being 8.4 per cent in Finland and 7.9 per cent in Sweden at the end of February. The unemployment remained high in Estonia as well, being 13.6 per cent at the end of 2010. The changeover to the euro had a positive impact on the Estonian economy, however. (Sources: Statistics Finland, Statistics Sweden, Statistics Estonia)

 

 In Finland and Sweden, consumer prices continued to rise during the first quarter. The inflation rate in March was 3.3 per cent in Finland, 2.9 per cent in Sweden and 5.2 per cent in Estonia. Interest rates continued to be low but were on the rise. (Source: Ibid.)

 

 Availability of financing continued improving compared with previous years. The Nordic banks in particular have adopted a more active approach to financing transactions.

 

 Property Market

 

 The atmosphere in the Finnish property market was expectant and cautiously optimistic. For the time being, the number of executed transactions has been low and investment demand has focused mainly on high-quality city-centre or newly built properties. The Swedish property market has recovered faster than the Finnish one and demand and trading have spread beyond the metropolitan area as well. Also foreign investment demand grew in Sweden, but the property market is, however, still mainly domestic-led. The Baltic countries are gradually coming out of the worst recession but the rental market is still extremely challenging. In spite of this, the first major post-recession property transactions have already been made in Estonia. (Source: Realia Management Oy)

 

 Tenants’ Sales and Footfall in Citycon’s Shopping Centres

 

 Total sales in Citycon’s shopping centres grew by 4 per cent and footfall increased by 3 per cent in the first quarter, compared with the same period in the previous year. There was growth in sales in all of the company’s countries of operation: 2 per cent in Finland, 8 per cent in Sweden and 5 per cent in the Baltic countries. Footfall increased in Finland by 2 per cent and in Sweden by 6 per cent, while in the Baltic region it fell by 2 per cent. Most of the growth in sales and footfall is attributable to the (re)development projects completed in recent years. Like-for-like shopping centre sales (sales without the effect of (re)development projects) grew by 4.0 per cent and were positive in all of the countries of operation. Like-for-like footfall grew by 1.0 per cent, being positive especially in the company’s Swedish shopping centres.

 

 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 major risks of these for the company are related to the development of market interest rates, successful leasing of retail premises, and reduction of vacancy.

 

 The credit margins for new bank loans fell during the first quarter of 2011, but market interest rates began to rise due to both the European Central Bank and Sweden’s Riksbank raising their rates. The three-month EURIBOR rate, which is commonly used as a reference rate, rose by 0.32 percentage points during the first quarter, while the three-month STIBOR rose by 0.48 percentage points. The high hedging ratio of Citycon’s debt portfolio reduces but does not completely eliminate the impact of interest rate rises on financial expenses.

 

 Generally speaking, the economic situation was favourable during the quarter, but demand for retail premises still did not grow significantly, which made leasing activities difficult. During Q1 2011, the vacancy rate in Citycon’s properties increased, and the occupancy rate fell to 94.9 per cent when compared to the last quarter of 2010. The market rents for retail premises developed moderately and even fell in some areas. The average rent level of new lease agreements made during the quarter fell compared to the previous quarter. Leasing of retail premises was particularly challenging in certain supermarket and shop properties owned by Citycon.

 

 The company’s short-term risks and uncertainties are discussed in more depth in the Report by the Board of Directors 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 its net cash from operating activities and 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 10–22 million and its direct operating profit by EUR 6–15 million compared with the previous year, based on the existing property portfolio. The company expects its direct result to increase by EUR 1–7 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 euro-krona exchange rate. Properties taken offline for planned (re)development projects will reduce net rental income during the year.

 

 Helsinki, 3 May 2011

 

 Citycon Oyj

 Board of Directors

 

 Financial Reports in 2011

 

 In 2011, Citycon will publish another two interim reports:

 

 January–June 2011 on Wednesday 13 July 2011, at approximately 9:00 a.m., and

 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

  

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