Citycon Q2: Stable results, cost savings programme implemented
Citycon Oyj Stock Exchange Release 14 July 2016 at 09:00 hrs
- Gross rental income increased to EUR 62.2 million (Q2/2015: 46.6) mainly due to the acquisition of Norwegian shopping centre company Sektor Gruppen AS (Sektor) in July 2015. Gross rental income of Citycon’s Norwegian operations amounted to EUR 20.9 million. The acquisition also increased net rental income by EUR 18.1 million.
- EPRA Earnings increased by EUR 8.4 million, or 27.9%, to EUR 38.7 million especially due to the acquisition of the Norwegian operations. EPRA Earnings per share (basic) was EUR 0.043 (EUR 0.047).
- Earnings per share was EUR 0.04 (EUR 0.06). The decrease resulted mainly from higher net financing expenses, deferred taxes and higher number of shares.
- The company specifies its guidance relating to EPRA Operating profit, EPRA Earnings and EPRA Earnings per share.
- Gross rental income increased to EUR 125.4 million (Q1-Q2/2015: 92.6) mainly due to the acquisition of Sektor. Gross rental income of Citycon’s Norwegian operations amounted to EUR 41.6 million. The acquisition also increased net rental income by EUR 36.4 million.
- EPRA Earnings increased by EUR 17.2 million, or 29.9%, to EUR 74.6 million especially due to the Norwegian acquisition. EPRA Earnings per share (basic) decreased slightly to EUR 0.084 (0.090) due to the substantially higher number of shares.
- Earnings per share (basic) increased to EUR 0.11 (0.10). The increase was mainly a result of higher fair value gains.
|Net rental income||MEUR||57.0||42.6||33.9||112.2||82.3||36.3||199.6|
|Direct Operating profit3)||MEUR||50.5||37.6||34.3||98.4||72.5||35.8||175.4|
|Earnings per share (basic)1)||EUR||0.04||0.06||-24.1||0.11||0.10||9.0||0.14|
|Fair value of investment properties||MEUR||4,110.0||2,819.6||45.8||4,110.0||2,819.6||45.8||4,091.6|
|Loan to Value (LTV)3)||%||45.4||41.5||9.5||45.4||41.5||9.5||45.7|
|EPRA based key figures3)|
|EPRA Earnings per share (basic)1)||EUR||0.043||0.047||-8.5||0.084||0.090||-7.0||0.173|
|EPRA NAV per share||EUR||2.80||2.99||-6.3||2.80||2.99||-6.3||2.74|
1) Calculated with the issue-adjusted number of shares resulting from the rights issue completed in July 2015.
2) Change from previous year. Change-% is calculated from exact figures.
3) New ESMA (European Securities and Markets Authority) guidelines on alternative performance measures are effective for the financial year 2016. Citycon presents alternative performance measures, such as EPRA performance measures and loan to value, to reflect the underlying business performance and to enhance comparability between financial periods. Alternative performance measures presented in this report should not be considered as a substitute for measures of performance in accordance with the IFRS.
CEO, MARCEL KOKKEEL:
The first half of 2016 showed stable financial results driven by the good performance in Sweden and Norway. Despite the weaker economic environment in Finland we still see good tenant demand for high quality properties. Our like-for-like net rental income including Norway and Kista Galleria was 0.9%.
The solid demand for prime properties is reflected in our leasing success in Iso Omena where we signed an agreement with Zara, the first and only one in the western Helsinki area. We have been successful in attracting appealing fashion, design and restaurant brands to Iso Omena that, so far, have exclusively been featured in central Helsinki. The first phase of Iso Omena, to be opened in mid-August, is now 95% pre-let.
The integration of the Norwegian operations has proceeded well and is completed. We have been able to achieve much better results than initially targeted. During the quarter, we completed a cost savings programme of EUR 5 million through further reorganisation measures and synergies. The savings, to be achieved in 2017, are in addition to the already materialised administrative cost savings in Norway of approximately EUR 1.5 million.
We successfully continued the recycling of capital in line with our strategy to focus on urban, grocery-anchored shopping centres. During 2016, we have divested a shopping centre in Tallinn and a portfolio of five assets in Finland for a total value of EUR 100 million, both above their IFRS fair value. Citycon aims to divest an additional EUR 200-250 million of non-core assets, mainly in Finland, within the coming 1-2 years.
The macroeconomic environment in Citycon’s operating countries remained unchanged during the second quarter of 2016. The countries are still on diverging macroeconomic courses: the business environment in Norway, Sweden, Estonia and Denmark remains strong or relatively strong, while the Finnish economy is showing weaker growth.
In 2016, the European Commission forecasts Euro area GDP growth to reach 1.6%. Sweden and Estonia are showing stronger growth figures than the Euro area average while Norway and Denmark are predicted to grow slightly below the Euro area forecast. The GDP growth for Finland is still expected to remain modest, although the trend is positive also in Finland. Finland’s GDP growth is dependent on domestic demand, structural reforms and recovery of the country’s stagnating export markets.
BUSINESS ENVIRONMENT KEY FIGURES
|GDP growth forecast for 2016||0.7||1.2||3.4||1.9||1.2||1.6|
|Unemployment, May 2016||9.0||4.6||7.2||6.4||6.1||10.1|
|Retail sales growth, Jan–May 2016||0.4||3.0||4.5||6.0||-1.0||1.6|
Sources: European Commission, Eurostat, Statistics Finland/ Norway/Sweden/ Estonia/ Denmark
The unemployment rates in all Citycon’s operating countries remain below the Euro area average (10.1%). During the first half of 2016 consumer confidence levels have stayed stable in Citycon’s operating countries, however, with a positive trend in Finland. The consumer confidence levels in Finland, Sweden and Denmark remain positive, while the consumer confidence in Norway, Estonia and on average in Euro area is still slightly negative. (Source: Eurostat) Consumer prices have remained relatively unchanged compared to the previous year in all Citycon’s operating countries apart from Norway where prices have increased. (Source: Statistics Finland/Norway/Sweden/Estonia/Denmark)
Retail sales growth for the first five months of 2016 has been strong in Estonia, Sweden and Norway, mildly positive in Finland, but negative in Denmark. (Source: Statistics Finland/Norway/Sweden/Estonia/Denmark)
In Finland and in Norway prime rents are forecasted to remain unchanged in 2016. In Sweden, prime shopping centre rents are forecasted to increase during the year while in Estonia downwards pressure on rents has increased due to intensifying competition. (Source: JLL)
In Finland the demand for prime properties is strong and the demand for secondary properties has increased. In Norway the investment market is expected to remain active and yields to remain stable in the short-term. In Sweden the investors' risk-taking has changed to more opportunistic direction and besides prime shopping centres, also yields for secondary shopping centres have decreased. Prime yields are also expected to continue decreasing in Estonia. (Source: JLL)
The company’s core risks and uncertainties, along with its main risk management actions and principles, are described in detail in the Annual and Sustainability Report 2015 and in the Financial Statements 2015.
Citycon’s Board of Directors believes there have been no material changes to the key risk areas outlined in the Annual and Sustainability Report 2015. The main risks are associated with property values, leasing, development projects, operations, environment and people and the availability and cost of financing.
DIVIDEND AND EQUITY REPAYMENT
Citycon’s dividend paid in 2016 for the financial year 2015 and equity repayment in 2016:
|Dividends and equity repayments paid on 30 June 2016|
|(record date 18 March 2016, payment date 29 March 2016) 1||EUR / share||0.01|
|(record date 18 March 2016, payment date 29 March 2016) 1||EUR / share||0.0275|
|Equity repayment Q2|
|(record date 22 June 2016, payment date 30 June 2016) 2||EUR / share||0.0375|
|Board's authorisation remaining for equity repayments 3|
|Equity repayments Q3 and Q4 in total maximum||EUR / share||0.0750|
|- equity repayment Q3 (possible payment date 30 September 2016)|
|- equity repayment Q4 (possible payment date 30 December 2016)|
1) AGM 2016 decision.
2) AGM 2016 authorised the Board to decide on the distribution of assets from the invested unrestricted equity fund. The amount to be distributed based on the authorisation shall not exceed EUR 0.1125 per share.
3) Unless the Board of Directors decides otherwise for a justified reason, the authorisation granted by AGM 2016 can be used to distribute equity repayment three times. Following equity repayment of 30 June 2016 the payment dates of the possible further equity repayments in 2016 will be on 30 September 2016 and 30 December 2016. The equity repayment will be paid to a shareholder registered in the company’s shareholders’ register maintained by Euroclear Finland Ltd on the record date for the equity repayment. The Board of Directors will decide on the record date in connection with each equity repayment decision. Citycon shall make separate announcements of such Board resolutions.
The company specifies its outlook. Citycon forecasts the 2016 Direct Operating profit to change by EUR 17 to 26 million (previously 16–30) and EPRA Earnings to change by EUR 11 to 20 million (previously 9–23) from previous year. Additionally, the company expects EPRA EPS (basic) to be EUR 0.1575–0.1725 (previously 0.155–0.175).
The specified outlook acknowledges the impact of the completed non-core portfolio divestment in Finland as well as the weaker Norwegian krone and the impact of the metro delay in Iso Omena. These estimates are also 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. Premises taken offline for planned or ongoing (re)development projects reduce net rental income during the year.
Interim report Jan–Sept 2016 20 October around 9 a.m.
Helsinki, 13 July 2016
Board of Directors
For further information, please contact:
Eero Sihvonen, Executive VP and CFO
Tel. +358 50 557 9137
Henrica Ginström, VP, IR and Communications
Tel. +358 50 554 4296
Citycon is an owner, developer and manager of urban grocery-anchored shopping centres in the Nordic and Baltic region, managing assets that total EUR 4.7 billion and with market capitalisation of close to EUR 2 billion. Citycon is the No. 1 shopping centre owner in Finland and Estonia and among the market leaders in Norway and Sweden. Citycon has also established a foothold in Denmark.
Citycon has investment-grade credit ratings from Moody's (Baa1) and Standard & Poor's (BBB). Citycon Oyj’s share is listed in Nasdaq Helsinki.