Citycon Oyj´s Interim Report for 1 January-30 September 2021: Continued strong operational and capital recycling performance

Citycon Oyj   Interim Report   28 October 2021 at 09:00 hrs

- Net rental income in Q3/2021 was 51.3 MEUR and increased by +0.4% compared to Q3/2020 on like-for-like basis.
- Q3/2021 is the third consecutive quarter with quarter over quarter net rental income growth while the net rental income is close to pre-covid levels.
- The disposal of Columbus, a non-core asset, at gross pricing of 106.2 MEUR vs. valuation of 96.3 MEUR in Q4/2020. Consider to use some of the proceeds to repurchase shares.
- Rent collection for YTD stands currently at 96 %, Q3/2021 currently at 96% and Q2/2021 at 97%
- Like-for-like tenant sales 2.2% above previous year level and only -1.4% below comparable pre-covid levels in 2019.

JULY—SEPTEMBER 2021
- Net rental income was 51.3 MEUR (Q3/2020: 52.9). The decrease was primarily due to the divestments made in Q1/2021. Stronger currencies increased net rental income by 0.8 MEUR. On a like-for-like basis, net rental income increased by 0.4% compared to previous year.
- EPRA Earnings decreased to 32.5 MEUR (33.5) due to divestments and lower direct share of profit of joint ventures and associated companies, which were compensated by lower direct financial expenses. EPRA Earnings per share (basic) was 0.183 EUR (0.188).
- Adjusted EPRA earnings were 24.9 MEUR (29.4) and were impacted by the newly issued hybrid bond coupons.
- IFRS-based earnings per share was 0.01 EUR (-0.00)

JANUARY—SEPTEMBER 2021
- Net rental income was 152.5 MEUR (Q1-Q3/2020: 155.5). The quarterly trend is positive as Q3/2021 net rental income exceeds Q2/2021 levels.  Net rental income continued to be affected negatively by COVID-19 pandemic and its impact on vacancy, as well as straight-lined discounts from 2020. Higher property operating expenses also decreased the net rental income. However, there was positive development in specialty leasing.
- EPRA Earnings were 96.8 MEUR (104.5) as a result of higher direct financial expenses due to hybrid issuance and lower direct share of profit of joint ventures and associated companies. EPRA Earnings per share (basic) was 0.544 EUR (0.587) impact from stronger currencies being 0.017 EUR per share.

- Adjusted EPRA earnings were 80.1 MEUR (92.4) due to hybrid bond coupons.
- IFRS earnings per share improved to 0.32 EUR (-0.18) mainly due to stronger result in property valuations.

KEY FIGURES

Q3/2021 Q3/2020 % FX Adjusted % 1)
Net rental income MEUR 51.3 52.9 -3.1 % -4.5 %
Direct Operating profit  2) MEUR 44.7 47.1 -5.1 % -6.5 %
IFRS Earnings per share (basic) 3) EUR 0.01 0.00 - -
Fair value of investment properties MEUR 4215.3 4155.1 1.4 % -
Loan to Value (LTV) 2) 4) % 39.6 46.8 -15.3 % -
EPRA based key figures 2)
EPRA Earnings MEUR 32.5 33.5 -3.0 % -4.6 %
Adjusted EPRA Earnings 3) MEUR 24.9 29.4 -15.2 % -16.8 %
EPRA Earnings per share (basic) EUR 0.183 0.188 -3.0 % -4.6 %
Adjusted EPRA Earnings per share (basic) 3) EUR 0.140 0.165 -15.2 % -16.8 %
EPRA NRV per share EUR 11.58 11.32 2.3 % -
Q1-Q3/2021 Q1-Q3/2020 % FX Adjusted % 1) 2020
Net rental income MEUR 152.5 155.5 -1.9 % -4.3 % 205.4
Direct Operating profit  2) MEUR 133.7 137.3 -2.6 % -5.1 % 180.4
IFRS Earnings per share (basic) 3) EUR 0.32 -0.18 - - -0.25
Fair value of investment properties MEUR 4215.3 4155.1 1.4 % - 4152.2
Loan to Value (LTV) 2) 4) % 39.6 46.8 -15.3 % - 46.9
EPRA based key figures 2)
EPRA Earnings MEUR 96.8 104.5 -7.4 % -10.1 % 136.6
Adjusted EPRA Earnings 3) MEUR 80.1 92.4 -13.3 % -16.1 % 120.3
EPRA Earnings per share (basic) EUR 0.544 0.587 -7.4 % -10.1 % 0.767
Adjusted EPRA Earnings per share (basic) 3) EUR 0.450 0.519 -13.3 % -16.1 % 0.676
EPRA NRV per share EUR 11.58 11.32 2.3 % - 11.48
1) Change from previous year (comparable exchange rates). Change-% is calculated from exact figures.
2) Citycon presents alternative performance measures according to the European Securities and Markets Authority (ESMA) guidelines. More information is presented in Basis of Preparation and Accounting Policies in the notes to the accounts.
3) The adjusted key figure includes hybrid bond coupons and amortized fees.
4) Highly liquid cash investments have been taken into account in net debt.

CEO F. SCOTT BALL:
Citycon achieved another solid quarter on both the operational and transactional fronts amidst an improving macro-economic environment in our Nordic markets.  We are encouraged to see continued performance and valuation improvement at our centres, with operations nearly back to pre-covid levels.

Citycon’s operational performance showed continued improvement in the quarter with like-for-like net rental income in Q3 0.4% above in the same period last year for properties excluding divestments.  While certainly a positive trend, we are even more pleased to note that performance at our properties is nearly back to pre-covid levels.  On an unadjusted basis, we would also point out a consistent, quarter-over-quarter improvement, with Q3/2021 representing the third consecutive quarter of growth over the prior, with unadjusted net rental income of 51.3 MEUR, which is 1.0 % points over Q2/2021. The direct operating profit is similarly ahead of Q2/2021, standing at 44.7 MEUR in Q3/2021.

On the transaction front, the Nordic real estate transaction market has continued to be very active with a great deal of both domestic and foreign capital flooding the space and cap rates continuing to compress.  One trade of note this quarter was the recently announced Akelius residential transaction for over 9 billion euros, at indicative pricing yields approaching 2%. Looking through to our portfolio and residential development rights, this appears to indicate that our existing residential building rights are significantly more valuable, while also suggesting that cap rates for our well located, necessity-based retail should be declining as well as global investors search for stability and yield. As for our Q3 valuations, the operating properties recorded a third consecutive quarter of uplift, however we were negatively impacted by an IFRS16 adjustment as well as additional construction expense at Lippulaiva where we have decided to build the remaining two residential towers ourselves. This will now mean that we will construct 6 of the 8 towers ourselves for residential rental units.

Speaking of valuations, post quarter end, we agreed to sell our Columbus shopping centre in Finland, for a gross price of 106.2 MEUR, which is 10 MEUR above its Q4/2020 valuation. This deal is a great example of Citycon´s comprehensive ability to create value at every stage of an asset’s life cycle.  Our asset management team has done a tremendous job activating the center and establishing the optimal tenant mix while working hand in hand with our development team to execute a disposition at an attractive price, increasing valuations, as well as the demand for high-quality Nordic real estate assets.  The last step in the capital recycling process is to allocate capital effectively and, as noted in our release yesterday, we are considering using a proportion of the Columbus sale proceeds to repurchase shares. This opportunistic capital recycling will take advantage of our large discount to NRV and emphasizes our belief that our current share price does not reflect the inherent value of our unique portfolio and development opportunities.

These development opportunities will provide significant organic growth for us going forward, particularly on the residential front and serves to enhance and improve our existing hubs. As we have stated previously, increasing the densification and diversity of our urban hubs improves both the stability of our existing assets while providing to excellent growth and value enhancement from the newly developed buildings coming online. The first milestone of this strategy is our exciting Lippulaiva project (opening spring 2022), which includes in total approx. 550 apartments and will bring our existing residential component of the portfolio to 2.8% of our total GLA. 

On the operating front, like-for-like tenant sales have picked up year-to-date and now stand at 2.2% above the same period last year.  Once again, it is worth noting that we are seeing like-for-like tenant sales reaching pre-covid levels, which we believe sets us apart from our retail peers and is a testament to our strategy of owning necessity-based retail in growing locations with access to excellent public transportation. This is evident in tenant demand for our urban hubs as we continued to demonstrate strong leasing activity in the quarter with approximately 41,000 square meters leased.   We are particularly pleased with the improvement in specialty leasing, which has shown significant growth recently as tenant interest in pop-ups and common area leasing has dramatically picked up in line with the economic recovery. Specialty leasing is an important operational initiative for us as it offers not only additional income and new GLA but also serves as an important ‘farm system’ to find, identify and build a relationship with tomorrow’s long-term tenants.

As has remained the case throughout the pandemic, Citycon´s non-adjusted rent collection remained at a high level, and stands at 96%, year-to-date. Final collection rates are again expected to increase beyond this already high level. We would also note that this strong level of collection continues to be a result of our necessity-based tenant focus, in addition to our excellent Nordic city locations.

Continuing with the balance sheet, we announced our intentions in September to redeem the 161.7 MEUR remaining on our senior notes maturing in 2022. In addition, we redeemed nearly all of our outstanding CP and now have no significant near-term maturities until 2024.  This additional balance sheet strength provides us the ability to pursue our long-term strategic goals.

We believe the company is well positioned for today and our future, as demonstrated by our solid Q3 results. We continue to demonstrate the strength of our strategy, focusing on necessity-based retail hubs in top Nordic locations. Our tenant mix, of municipal and grocery anchor tenants, brings resilience to our portfolio, which distinguishing against our more fashion-oriented peers through the pandemic and should continue to do so going forward. This stable cash flow combined with the significant value creation associated with our development pipeline provides an attractive value proposition for all stakeholders. Finally, we were pleased to see the lifting of government restrictions in our operating countries in September, which gives us confidence for the rest of the year.  As a result of our year-to-date results, confident in tightening our full year guidance and now anticipate EPRA EPS to be in the range of EUR 0.683-0.723 for the full year 2021.

OUTLOOK 2021 SPECIFIED
Citycon forecasts the 2021 direct operating profit to be in range EUR 173–180 million, EPRA EPS EUR 0.683–0.723 and adjusted EPRA EPS EUR 0.558-0.598. Adjusted EPRA Earnings per share outlook includes also the coupons of the recently issued EUR 350 million hybrid issued in June 2021.

Previously
Direct operating profit MEUR 173–180 173–184
EPRA Earnings per share (basic) EUR 0.683–0.723 0.676–0.726
Adjusted EPRA Earnings per share (basic) EUR 0.558-0.598 0.558–0.608


The outlook assumes that there are no major changes in macroeconomic factors and that there will not be another wave of COVID-19 with restrictions resulting in significant store closures. These estimates are based on the existing property portfolio as well as on the prevailing level of inflation, the EUR–SEK and EUR–NOK exchange rates, and current interest rates.

AUDIOCAST
Citycon's investor, analyst and press conference call and live audiocast will be arranged on Thursday 28 October 2021 at 10 am EEST. The audiocast can be participated by calling in and followed live on the following website: https://citycon.videosync.fi/2021-q3-results

Conference call numbers are:
Participants from Europe +44 3333 000 804        PIN: 66105049#
Participants from the US +1 6319 131 422          PIN: 66105049#



For more investor information, please visit the company’s website at www.citycon.com.


Helsinki, 28 October 2021
Citycon Oyj
Board of Directors

For further information, please contact:
Eero Sihvonen
Executive VP and CFO
Tel. +358 50 557 9137

eero.sihvonen@citycon.com


Laura Jauhiainen
Vice President, Strategy & Investor Relations
Tel. +358 40 823 9497

laura.jauhiainen@citycon.com



Citycon is a leading owner, manager and developer of mixed-use centres for urban living including retail, office space and housing. We are committed to sustainable property management in the Nordic region with assets that total approximately EUR 4.5 billion. Our centres are located in urban hubs with a direct connection to public transport. Placed in the heart of communities, our centres are anchored by groceries, healthcare and services to cater for the everyday needs of customers.

Citycon has investment-grade credit ratings from Moody's (Baa3), Fitch (BBB-) and Standard & Poor's (BBB-). Citycon Oyj’s share is listed in Nasdaq Helsinki.

www.citycon.com

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