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Citycon Oyj (“Citycon” or the “Company”) announced on 25 May 2015 that it had entered into an agreement to acquire all the shares in the Norwegian shopping centre company Sektor Gruppen AS ("Sektor") (the "Transaction"). On 15 June 2015, the extraordinary general meeting of Citycon (the "EGM") passed the necessary resolutions and the Company's Board of Directors decided on a rights issue of approximately EUR 600 million based on the authorization granted by the EGM (the "Rights Issue") as part of the financing arrangements relating to the Transaction.
The Finnish Financial Supervisory Authority has today, on 18 June 2015, approved the Company’s Finnish language prospectus relating to the Rights Issue, whereby Citycon will offer a maximum of 296,664,209 new shares ("New Shares") in accordance with the shareholders' pre-emptive subscription right. The subscription period of the Rights Issue will commence on 23 June 2015 at 9:30 a.m. and expire on 7 July 2015 at 4:30 p.m. (Finnish time). The subscription rights are freely transferable and will be subject to public trading on NASDAQ OMX Helsinki Ltd. between 23 June 2015 and 1 July 2015.
The Finnish language prospectus will be available as of today, 18 June 2015, at the website of the Company at www.citycon.com/fi. In addition, the Finnish language prospectus will be available on or about 22 June 2015 at the offices of the Company at Korkeavuorenkatu 35, FI-00130 Helsinki, Finland as well as at the service point of NASDAQ OMX Helsinki Ltd. at Fabianinkatu 14, FI-00100 Helsinki. In addition, the Finnish language prospectus is available as of 22 June 2015 until the listing of the New Shares on or about 14 July 2015 at www.op.fi/merkinta and at www.sebgroup.com/prospectuses.
The Finnish language prospectus contains following previously unpublished information (terms used in this release shall have the meanings assigned to them in the prospectus):
Citycon after the completion of the Transaction
Business opportunities in the combined company
Citycon is a leading owner, manager and developer of urban typically grocery-anchored shopping centres in the Nordic and Baltic regions. After the completion of the Transaction, Citycon's assets under management will increase from EUR 3.4 billion to EUR 4.9 billion.1 Headquartered in Helsinki, Citycon is the number one shopping centre owner in Finland and Estonia, and will with the acquisition of Sektor be the second largest shopping centre company in Norway. Citycon is also among the market leaders in Sweden, and it also has established a foothold in Denmark. On 31 March 2015, Citycon owned 35 shopping centres and 25 other retail properties. As a result of the Transaction, Citycon expects to own 55 shopping centres and 25 other retail properties.
Citycon focuses on shopping centres with a strong position in the Nordic and Baltic Countries. Citycon's properties are urban, typically grocery-anchored and necessity-based. They are located close to where people live and work and are easily accessible. Citycon actively develops its properties to ensure their vitality and competitiveness.
Citycon's major tenants include specialty and grocery chains as well as cafés and restaurants, banks and financial institutions and municipal and other public tenants.
With the acquisition of Sektor, Citycon will become a true Nordic retail operator. Citycon will seek to implement the “Urban crosspoints” strategy in Norway, and share best practices within Sektor and Citycon. Citycon's increased size and geographical footprint will provide both operational and financial synergies.
1 Includes only GAV (gross asset value) for majority owned centres, and does not include rented, minority owned or managed centres. Includes Kista Galleria.
Competitive strengths
Citycon is a pure retail player with exposure in the Nordic and Baltic countries. Following the completion of the Transaction, Citycon will be a true pan-Nordic retail player with a complete Nordic exposure and a strengthened position as a leading shopping centre owner in the Nordics. The operational focus will remain to be in capital cities and major cities with strong demographics. Citycon will have meaningful size, in addition to Finland, Sweden, Estonia, also in Norway. The Transaction allows increased portfolio diversification, which is expected to further support the amount and stability of cash flows. Through the Transaction, Citycon will increase its total annual footfall from 150 million to 200 million. The increased footprint across countries is expected to provide improved possibilities for tenants to expand their businesses to the other countries in which Citycon operates. Citycon estimates that its five largest tenants after the completion of the Transaction will be Kesko, S-Group, Varner Gruppen, NorgesGruppen and H&M.
Key performance indicators of the property portfolio
Certain property portfolio KPIs for Citycon and Sektor individually and on a combined basis using values as at and for the year ended 31 December 2014 can be found in the table below:
KPI | Citycon2 | Sektor | Combined |
Gross Asset Value (GAV, BEUR)1 | 2.8 | 1.33 | 4.1 |
Net Rental Income (NRI, MEUR) | |||
Finland NRI | 103.0 | - | 103.0 |
Norway NRI | - | 74.04 | 74.0 |
Sweden NRI | 38.9 | - | 38.9 |
Baltic Countries and New Business NRI | 27.5 | - | 27.5 |
Total NRI (MEUR) | 169.4 | 74.0 | 243.4 |
Occupancy Rate (%) | 96.3 | 97 | N/A |
Gross Leasable Area (GLA, sq.m.) | 933,0405 | 400,0006 | 1,333,040 |
Average Lease Length (years) 7 | 3.2 | 3.5 | N/A |
Annual footfall (million) | 150 | 628 | 212 |
1Gross Asset Value (GAV) refers to IFRS fair value. 2 Excluding Kista Galleria. 3 For owned and leased shopping centres and other retail properties. 4 Based on Citycon's pro forma figures. 5 1,030,000 sq.m. including Kista Galleria. 6 This figure is an estimate derived from the Net Leasable Area of Sektor's owned and leased properties and calculated on the basis of Citycon's calculation method in order to make the figure comparable with Citycon's figures. 7 The figure states the average remaining lease length of the contracts. 8 Including managed shopping centres. | |||
Unaudited pro forma financial information
The Finnish language prospectus contains previously unpublished information. The pro forma information presented below has been based on the audited 2014 annual financial statements for Citycon and Sektor.
Citycon's audited consolidated financial statements are prepared according to International Financial Reporting Standards as adopted by the EU. The audited consolidated financial statements of Sektor Gruppen AS are prepared according to Norwegian Generally Accepted Accounting Principles ("NGAAP"). Sektor's unaudited consolidated IFRS statement of comprehensive income for the year ended 31 December 2014 and unaudited statement of financial position as of 31 December 2014, and a description of identified differences between NGAAP and the IFRS accounting policies of Citycon are presented below. Sektor's NGAAP financial statements are originally presented in NOK and have been converted to EUR after conversion to IFRS using the rate NOK/EUR 9.0365 for the balance sheet and NOK/EUR 8.35340 for the statement of comprehensive income.
The following tables present Citycon's unaudited pro forma financial information for the year ended 2014 and as of 31 December 2014, as described above. The presentation used in the pro forma financial information is Citycon's IFRS presentation format. Following the tables is a discussion of the pro forma adjustments. The first table below sets out the unaudited pro forma income statement information for Citycon for the year ended 31 December 2014, as if the Transaction had taken place on 1 January 2014. The second and third tables below set out the unaudited pro forma balance sheet information for Citycon as of 31 December 2014, as if the Transaction had taken place on 31 December 2014.
Unaudited pro forma income statement for the year ended 31 December 2014
All figures in EUR million, unaudited unless otherwise stated | Citycon consolidated IFRS | Sektor consolidated IFRS | Basis for Pro forma financial information | Adjustments 1 & 2 Amortisation of intangible assets acquired from Sektor and transaction costs associated with the acquisition | Citycon Pro forma |
Gross rental Income | 232.0 | 88.1 | 320.1 | - | 320.1 |
Service charge Income | 13.3 | 38.9 | 52.2 | - | 52.2 |
Turnover | 245.3 | 127.0 | 372.3 | - | 372.3 |
Property operating expenses | 74.4 | 53.0 | 127.4 | 1.3 | 128.8 |
Other expenses from leasing operations | 1.6 | 0.0 | 1.6 | - | 1.6 |
Net rental income | 169.4 | 74.0 | 243.4 | -1.3 | 242.0 |
Administrative expenses | 20.7 | 11.5 | 32.2 | 7.6 | 39.8 |
Other operating income and expenses | 1.0 | 5.6 | 6.6 | - | 6.6 |
Net fair value /(gains) losses on investments property | 15.7 | 35.3 | 51.0 | - | 51.0 |
Net (gains)/losses on sale of investment property | 0.3 | 0.1 | 0.4 | - | 0.4 |
Operating profit | 165.0 | 103.5 | 268.5 | -8.9 | 259.5 |
Financial income | 55.3 | 5.2 | 60.5 | - | 60.5 |
Financial expenses | -132.8 | -54.2 | -187.0 | - | -187.0 |
Net financial income and expenses | -77.5 | -49.0 | -126.5 | - | -126.5 |
Share profit of joint venture | 14.9 | 2.6 | 17.5 | - | 17.5 |
Profit before taxes | 102.4 | 57.0 | 159.4 | -8.9 | 150.5 |
Current taxes | -0.3 | -0.3 | -0.6 | -0.4 | -0.2 |
Change in deferred taxes | -12.4 | -16.5 | -28.9 | - | -28.9 |
Income taxes | -12.7 | -16.8 | -29.5 | -0.4 | -29.2 |
Profit for the period | 89.7 | 40.2 | 129.9 | -8.6 | 121.3 |
Unaudited pro forma balance sheet as of 31 December 2014, Total Assets
All figures in EUR million, unaudited unless otherwise stated | Citycon IFRS Audited | Sektor IFRS | Basis for Pro forma | Adjust-ment 3 PPA | Adjust-ment 4 Equity financing & Trans-action costs | Total adjust-ments | Citycon Pro forma |
Non-current assets | |||||||
Investment properties | 2,769.1 | 1,308.3 | 4,077.4 | 104.5 | - | 104.5 | 4,181.9 |
Investments in joint ventures | 182.8 | 19.1 | 201.9 | 2.0 | - | 2.0 | 203.9 |
Goodwill | - | - | - | 118.8 | - | 118.8 | 118.8 |
Intangible assets | 5.3 | - | 5.3 | 12.4 | - | 12.4 | 17.7 |
Property, plant and equipment | 0.7 | 9.2 | 9.9 | - | - | - | 9.9 |
Deferred tax assets | 5.7 | 18.8 | 24.5 | - | - | - | 24.5 |
Derivative financial instruments and other non-current assets | 1.7 | 4.2 | 5.9 | - | - | - | 5.9 |
Total non-current assets | 2,965.2 | 1,359.5 | 4,324.8 | 237.6 | - | 237.6 | 4,562.4 |
Investment properties held for sale | 7.2 | - | 7.2 | - | - | - | 7.2 |
Current assets | |||||||
Derivative financial instruments | 0.2 | - | 0.2 | - | - | - | 0.2 |
Current tax receivables | 0.4 | - | 0.4 | - | - | - | 0.4 |
Trade and other receivables | 29.8 | 7.4 | 37.2 | - | - | - | 37.2 |
Cash and cash equivalents | 34.4 | 31.8 | 66.2 | -502.5 | 604.0 | 101.5 | 167.7 |
Total current assets | 64.8 | 39.2 | 104.0 | -502.5 | 604.0 | 101.5 | 205.5 |
Total assets | 3,037.2 | 1,398.8 | 4,436.0 | -264.8 | 604.0 | 339.2 | 4,775.2 |
Unaudited pro forma balance sheet as of 31 December 2014, Total Shareholders’ equity & liabilities
All figures in EUR million, unaudited unless otherwise stated | Citycon IFRS Audited | Sektor IFRS | Basis for Pro forma financial information | Adjust-ment 3 PPA | Adjust-ment 4 Equity financing & Trans-action costs | Total adjust-ments | Citycon Pro forma |
Equity attributable to parent company shareholders | |||||||
Share capital | 259.6 | 10.6 | 270.2 | -10.6 | - | -10.6 | 259.6 |
Share premium fund | 131.1 | 343.5 | 474.6 | -343.5 | - | -343.5 | 131.1 |
Fair value reserve | -7.1 | - | -7.1 | - | - | - | -7.1 |
Invested unrestricted equity fund | 841.2 | - | 841.2 | - | 604.0 | 604.0 | 1,445.2 |
Translation differences | -19.7 | - | -19.7 | - | - | - | -19.7 |
Retained earnings | 445.7 | -41.5 | 404.2 | 41.5 | -7.6 | 33.9 | 438.1 |
Total equity attributable to parent company shareholders | 1,650.7 | 312.6 | 1,963.3 | -312.6 | 596.4 | 283.8 | 2,247.1 |
Non-controlling interests | 1.8 | 32.1 | 33.9 | 3.5 | - | 3.5 | 37.3 |
Total shareholders' equity | 1,652.5 | 344.7 | 1,997.2 | -309.2 | 596.4 | 287.2 | 2,284.4 |
Long-term liabilities | |||||||
Loans | 1,094.5 | 784.9 | 1,879.4 | 18.8 | - | 18.8 | 1,898.2 |
Derivative financial instruments | 6.0 | 22.6 | 28.6 | - | - | - | 28.6 |
Deferred tax liabilities | 129.6 | 163.2 | 292.8 | 25.5 | - | 25.5 | 318.3 |
Other liabilities | 0.6 | 2.1 | 2.7 | - | - | - | 2.7 |
Total long-term liabilities | 1,230.7 | 972.9 | 2,203.6 | 44.3 | - | 44.3 | 2,247.9 |
Short-term liabilities | |||||||
Loans | 83.1 | 50.7 | 133.8 | - | - | - | 133.8 |
Derivative financial instruments | 2.2 | - | 2.2 | - | - | - | 2.2 |
Current tax liabilities | 0.8 | 0.2 | 1.0 | - | - | - | 1.0 |
Trade and other payables | 67.9 | 30.3 | 98.2 | - | 7.6 | 7.6 | 105.8 |
Total short-term liabilities | 154.1 | 81.2 | 235.3 | - | 7.6 | 7.6 | 242.9 |
Total liabilities | 1,384.8 | 1,054.1 | 2,438.9 | 44.3 | 7.6 | 51.9 | 2,490.8 |
Total liabilities and equity | 3,037.2 | 1,398.8 | 4,436.0 | -264.8 | 604.0 | 339.2 | 4,775.2 |
Combined loan-to-value (LTV) of Citycon and Sektor is approximately 45 %.
Overview of the pro forma adjustments
The following information summarises the adjustments related to the unaudited pro forma income statement for 2014 and the unaudited pro forma balance sheet as of 31 December 2014. The adjustments are referenced in the table columns above.
Notes to the pro forma adjustments:
1. Adjustment 1) in the income statement relates to the annual amortisation expense for the intangible assets acquired in the transaction. The intangible assets, except goodwill, are amortised over their average estimated useful life. Pro forma amortisation expense is estimated at EUR 1.3 million for 2014. Deferred taxes related to the amortisation expense are estimated at EUR 0.4 million.
These pro forma adjustments have continuing impact.
2. Adjustment 2) in the income statement relates to the transaction costs associated with the purchase of Sketor. The Citycon Group has incurred costs in the estimated amount of EUR 7.6 million for execution of the Transaction which are not considered directly related to the issue of equity, and therefore deemed as profit and loss expense items under IFRS as part of administrative expenses. The transaction costs are reflected in the pro forma balance sheet as an adjustment to retained earnings and accrued as part of Trade and other payables. There is no deferred tax or current tax associated with the transaction costs.
These pro forma adjustments do not have continuing impact.
3. Adjustment 3) is the purchase price allocation (PPA).2In connection with the acquisition, Citycon is required to perform a purchase price allocation in accordance with IFRS. The PPA exercise has identified the following adjustments, shown in the table below. This resulted in an increase in the carrying value of investment properties by EUR 104 million and a net change in other assets and liabilities of EUR 4 million. Total goodwill from the acquisition is EUR 118.8 million.3
2 PPA is preliminary by nature, not final. The final PPA is drafted after closing of the Transaction based on Sektor's accounts on the closing date.
3 Changes due to the allocation of the acquisition cost in the value of investment property and other items, as well as deferred taxes related to them, reflect changes in the fair value between 31 December 2014 and the allocation of the acquisition cost.
Citycon has elected the accounting principle option to not measure non-controlling interests at acquisition-date fair value.
These pro forma adjustments have continuing impact.
Excess value to be allocated to parent company shareholders | |
Calculation of excess purchase price | EUR million |
Estimated purchase price | 502.5 |
Total equity attributable to parent company shareholders | -312.6 |
Excess value to be allocated to majority share holders | 189.8 |
Summary of purchase price adjustments, EUR million | |||
Asset / liability included in the PPA analysis | 31 December 2014 IFRS unaudited consolidated Sektor balance sheet items | PPA adjustments1 | 31 December 2014 Adjusted IFRS unaudited consolidated Sektor balance sheet items |
Contracts (center management) | - | 3.0 | 3.0 |
Contracts (rented centers) | - | 9.4 | 9.4 |
Investment properties | 1,308.3 | 104.5 | 1,412.8 |
Investments in joint ventures | 19.1 | 2.0 | 21.1 |
Bond fair value adjustment | - | -18.8 | -18.8 |
Deferred tax liability | -163.2 | -25.5 | -188.7 |
Goodwill | - | 118.8 | 118.8 |
Total PPA adjustments before non-controlling interest | - | 193.4 | - |
Non-controlling interest portion of fair value PPA adjustments | -32.1 | -3.5 | -35.6 |
Total PPA adjustments | - | 189.8 | - |
1 Valuations of investment property, bonds, etc. are adjusted in the PPA adjustments to comply with the time of acquisition (when the PPA has been made). | |||
4. The Group has incurred costs for execution of the Transaction which are not considered directly related to the issue of equity, and therefore deemed as profit and loss expense items under IFRS, which are reflected in the pro forma balance sheet as an adjustment to retained earnings, in the estimated amount of EUR 7.6 million. Net cash to be received from the issuance of new equity is estimated at EUR 604 million, based on the Rights Issue being fully subscribed. The Rights Issue is not underwritten. The Company has agreed on bridge financing facilities of EUR 400 million, to be used to partly finance the Transaction.
This pro forma adjustment is considered as non-recurring.
5. Sektor Gruppen AS is subject to corporate income tax in Norway. The Group has chosen to give effect in the pro forma adjustments by using the relevant statutory rate which would be expected to apply to the adjustments had they happened in the period presented. Since pro forma information is hypothetical information, the actual deductibility and eventual tax impact of the Transaction will not mirror the tax effect included here and may be subject to discussion with relevant tax authorities. However, consistent with IFRS, the Group has given effect to possible taxation on the adjustments by using the relevant statutory rate of 27 %.
This pro forma adjustment is considered as non-recurring.
Citycon's management has not identified any other adjustments that would materially affect Citycon's pro forma financial information for use in the Finnish language prospectus, or any other adjustments that were necessary in order for the pro forma consolidated information of the Group to be stated in accordance with IFRS for pro forma purposes.
Sektor's unaudited historical financial information according to IFRS
The Citycon audited consolidated financial statements are prepared according to IFRS as adopted by the EU. The audited consolidated financial statements of Sektor are prepared according to NGAAP.
Based on an analysis performed by Citycon's management of the applied NGAAP accounting principles of Sektor, differences between NGAAP and Citycon's IFRS accounting policies and financial statement presentation were identified. All NGAAP to IFRS differences as of 31 December 2014 and for the year then ended evaluated by management as relevant and significant for the purposes of the pro forma presentation have been adjusted in the unaudited IFRS consolidated financial statements presented below. All presentation and line item classification differences considered relevant have been reclassified. The purpose of these unaudited consolidated IFRS financial information is to provide a basis for the presentation of the pro forma financial information for Citycon and not to report Sektor as a separate entity in accordance with IFRS as adopted by the EU.
The tables below include:
the Sektor audited NGAAP NOK consolidated income statement and the undaudited Sektor Gruppen AS NGAAP NOK income statement together with the presentation reclassifications and the IFRS adjustments identified by Citycon for the year ended 31 December 2014;
the unaudited Sektor NGAAP and IFRS consolidated income statement for the year ended 31 December 2014 reclassified using Citycon's IFRS presentation format;
the audited Sektor Gruppen AS NGAAP NOK balance sheet 31 December 2014 and the unaudited Sektor NGAAP NOK balance sheet reclassified using Citycon's IFRS presentation format;
the unaudited Sektor NGAAP and IFRS consolidated balance sheet for the year ended 31 December 2014 reclassified using Citycon's IFRS presentation format.
The audited NOK NGAAP financial statements are reclassified to Citycon presentation format in NOK thousands, as this is the presentation currency used as reflected in the audited financial statements. Sektor IFRS financial information is presented using Citycon's presentation format and presentation currency EUR. Following the Sektor IFRS financial information is a discussion of the NGAAP to IFRS adjustments and reclassifications.
The NGAAP to IFRS conversion was performed by first converting the 2014 beginning balance sheet to IFRS. All identified opening balance sheet differences were posted as adjustments to opening retained earnings, for a total adjustment of EUR -93.8 million. The conversion effect from NGAAP to IFRS on the 31 December 2014 NGAAP retained earnings was an increase of EUR 40.5 million, for a total conversion effect on retained earnings of EUR -53.2 million. This EUR -53.2 million decrease is discussed in further detail below.
For presentation purposes, the NOK functional currency financial information of Sektor and the IFRS adjustments are converted to EUR at the 31 December 2014 rate of NOK to EUR of 9.0365 for balance sheet items and the 2014 average exchange rate NOK to EUR of 8.3534 for the income statement items.
The following Sektor NGAAP accounting policies and the corresponding Citycon IFRS accounting policies were identified as accounting policies that created a material difference in the Sektor financial information for the purposes of presenting pro forma information in the Finnish language prospectus, and the Sektor financial information has been accordingly adjusted for these items. Other differences evaluated as not having a material impact on the financial information presented in the Finnish language prospectus are not included in this section.
Selected Sektor NGAAP accounting policies | Corresponding Citycon IFRS accounting policies |
Investment property at historical cost and depreciated | Investment property at fair value with fair value changes over the P&L |
Goodwill from business combinations amortised over the useful life | Goodwill not amortised but tested for impairment annually |
Derivative financial instruments recognised in accordance with NGAAP hedge accounting practice | Derivative financial instruments at fair value over the P&L and recognised in the balance sheet and recognised at fair value over the profit or loss |
Deferred taxes at net present value | Deferred taxes as nominal value in accordance with IAS 12 |
Long-term debt at nominal values, and origination fees capitalised and amortised over the life of the loan | Long-term debt at amortised cost, effective interest includes the origination fees |
Long-term debt is classified 100 % as long-term, and accrued interest on inflation adjusted bonds is short-term | Long-term debt is classified in accordance with IAS 1 as short-term for the portion that falls due within one operating cycle, and accrued interest on inflation-adjusted bonds is classified as long-term. |
Adjusting associate companies' financial statements to comply with NGAAP and IFRS principles affects Citycon's share profit of the associate companies' results.
Sektor NGAAP NOK audited income statement converted to Citycon IFRS presentation format (unaudited)
Sektor Gruppen AS NGAAP income statement Audited | NOK 1,000 | Sektor Gruppen AS NGAAP income statement reclassified using Citycon IFRS presentation and classification Unaudited | NOK 1,000 | |
Rental income | 734,938 | Gross rental income | 736,027 | |
Other operating revenue | 373,052 | Service charge income | 325,266 | |
Net fair value gains/losses on investment property | - | Turnover | 1,061,293 | |
Gain on sale of fixed assets | 511 | Property operating expenses | 629,667 | |
Other expenses from leasing operations | 350 | |||
Turnover | 1,108,501 | Net rental income | 431,276 | |
Employee benefit expense | 155,248 | Administrative expenses | 96,141 | |
Depreciation | 202,186 | Other operating income and expenses | 46,696 | |
Gains/loss derivatives | - | Net fair value gains/losses on investment property | - | |
Loss on sale of fixed assets | 45 | Net gains/losses on sale of investment property | 466 | |
Other operating expenses | 368,723 | |||
Total operating expenses | 726,203 | |||
Operating profit | 382,298 | Operating profit | 382,298 | |
Financial income and expenses | ||||
Financial income | 51,144 | Financial income | 43,723 | |
Financial expense | (369,343) | Financial expenses | -369,343 | |
Net financial items | (318,199) | Net financial income and expenses | -325,620 | |
Share profit of joint venture | 7,421 | |||
Profit before taxes | 64,100 | Profit before taxes | 64,100 | |
Current taxes | ||||
Change in deferred taxes | -33,192 | |||
Income taxes | (33,192) | Income taxes | -33,192 | |
Profit for the year | 30,908 | Profit for the period | 30,908 |
Sektor NGAAP to IFRS consolidated statement of comprehensive income for the financial year ended 31 December 2014
EUR million, unaudited | Sektor NGAAP reclassified and using Citycon IFRS presentation format | IFRS adjustments | Sektor IFRS |
Gross rental income | 88.1 | - | 88.1 |
Service charge income | 38.9 | - | 38.9 |
Turnover | 127.0 | - | 127.0 |
Property operating expenses 1) | 75.4 | -22.3 | 53.0 |
Other expenses from leasing operations | 0.0 | - | 0.0 |
Net rental income | 51.6 | -22.3 | 74.0 |
Administrative expenses | 11.5 | - | 11.5 |
Other operating income and expenses | 5.6 | - | 5.6 |
Net fair value gains/losses on investments property 1) | - | 35.3 | 35.3 |
Net gains/losses on sale of investment property | 0.1 | - | 0.1 |
Operating profit | 45.8 | 57.7 | 103.5 |
Financial income | 5.2 | - | 5.2 |
Financial expenses 4) | -44.2 | -10.0 | -54.2 |
Net financial income and expenses | -39.0 | -10.0 | -49.0 |
Share profit of joint venture 2) | 0.9 | 1.7 | 2.6 |
Profit before taxes | 7.7 | 49.4 | 57.0 |
Current taxes | - | -0.3 | -0.3 |
Change in deferred taxes | -4.0 | -12.5 | -16.5 |
Income taxes | -4.0 | -12.8 | -16.8 |
Profit for the period | 3.7 | 36.5 | 40.2 |
Sektor NGAAP NOK audited balance sheet to Citycon IFRS presentation format
Sektor Gruppen AS NGAAP Balance sheet Audited | 31 December 2014 NOK 1,000 | Sektor Gruppen AS NGAAP Balance sheet reclassified and using Citycon IFRS presentation format Unaudited | 31 December 2014 NOK 1,000 | |
Intangible assets | Non-current assets | |||
Goodwill | 2,466 | Investment properties | 11,247,915 | |
Deferred tax assets | 168,134 | Investments in joint ventures | 158,231 | |
Total intangible assets | 170,600 | Intangible assets | - | |
Property, plant and equipment | 82,694 | |||
Tangible assets | Deferred tax assets | 168,134 | ||
Machinery and equipment | 25,900 | Derivative financial instruments and other non-current assets | 17,909 | |
Investment property | 10,969,739 | |||
Investment projects | 334,970 | |||
Total tangible assets | 11,330,609 | |||
Non-current assets | ||||
Investments in associated companies | 137,971 | |||
Investments in joint ventures | 20,172 | |||
Investments in shares | 88 | |||
Long-term receivables | 15,443 | |||
Total non-current assets | 173,674 | |||
Total non-current assets | 11,674,883 | Total non-current assets | 11,674,883 | |
Current assets | ||||
Current assets | Derivative financial instruments | - | ||
Work in progress | 573 | Current tax receivables | - | |
Accounts receivable | 66,246 | Trade and other receivables | 66,819 | |
Cash and cash equivalents | 287,177 | Cash and cash equivalents | 287,177 | |
Total current assets | 353,995 | Total current assets | 353,996 | |
Total assets | 12,028,879 | Total assets | 12,028,879 | |
Equity and liabilities | Equity attributable to parent company shareholders | |||
Equity | Share capital | 96,000 | ||
Share capital | 96,000 | Share premium fund | 3,103,981 | |
Share premium | 1,103,981 | Fair value reserve | - | |
Other contributed equity | 2,000,000 | Translation reserve | - | |
Invested unrestricted equity fund | - | |||
Retained earnings | 135,040 | |||
Total paid in equity | 3,199,981 | Total equity attributable to parent company shareholders | 3,335,021 | |
Retained earnings | 135,040 | |||
Non-controlling interests | 260,986 | Non-controlling interests | 260,986 | |
Total equity | 3,596,008 | Total shareholders' equity | 3,596,008 | |
Non-current liabilities | Long-term liabilities | |||
Deferred tax liabilities | 502,713 | Loans | 7,634,941 | |
Other liabilities | 11,609 | Derivative financial instruments | - | |
Total non-current liabilities | 514,323 | Deferred tax liabilities | 502,713 | |
Other liabilities | 11,609 | |||
Long-term debt | ||||
Loans | 7,634,941 | |||
Total long-term debt | 7,634,941 | Total long-term liabilities | 8,149,263 | |
Loans | - | |||
Current liabilities | Derivative financial instruments | - | ||
Short-term debt | 283,608 | Trade and other payables | 283,608 | |
Total current liabilities | 283,608 | Total short-term liabilities | 283,608 | |
Total liabilities | 8,432,872 | Total liabilities | 8,432,871 | |
Total equity and liabilities | 12,028,879 | Total equity and liabilities | 12,028,879 |
Sektor NGAAP to IFRS consolidated balance sheet as of 31 December 2014
EUR million, unaudited | 31 December 2014 NGAAP Citycon presentation format | IFRS adjustments | IFRS Presentation reclassifications | 31 December 2014 IFRS |
Non-current assets | ||||
Investment properties 1) | 1,244.7 | 63.6 | 1,308.3 | |
Investments in joint ventures 2) | 17.5 | 1.6 | 19.1 | |
Property, plant and equipment | 9.2 | - | 9.2 | |
Deferred tax assets 3) | 18.6 | 0.2 | 18.8 | |
Derivative financial instruments and other non-current assets 4) 5) | 2.0 | 2.2 | 4.2 | |
Total non-current assets | 1,292.0 | 67.6 | 1,359.6 | |
Current assets | ||||
Derivative financial instruments | - | - | ||
Current tax receivables | - | - | ||
Trade and other receivables | 7.4 | 7.4 | ||
Cash and cash equivalents | 31.8 | 31.8 | ||
Total current assets | 39.2 | 39.2 | ||
Total assets | 1,331.1 | 67.6 | 1,398.8 | |
Equity attributable to parent company shareholders | - | |||
Share capital | 10.6 | 10.6 | ||
Share premium fund | 343.5 | 343.5 | ||
Fair value reserve | - | - | ||
Invested unrestricted equity fund | - | - | ||
Retained earnings | 14.9 | -56.4 | -41.5 | |
Total equity attributable to parent company shareholders | 369.1 | -56.4 | 312.6 | |
Non-controlling interests | 28.9 | 3.2 | 32.1 | |
Total shareholders' equity 6) | 397.9 | -53.2 | 344.7 | |
Long-term liabilities | - | |||
Loans 7) | 844.9 | -9.3 | -50.7 | 784.9 |
Derivative financial instruments 4) | - | 22.6 | - | 22.6 |
Deferred tax liabilities 3) | 55.6 | 107.6 | - | 163.2 |
Other liabilities 8) | 1.3 | 0.9 | 2.1 | |
Total long-term liabilities | 901.8 | 120.9 | -49.8 | 972.9 |
Short-term liabilities | ||||
Loans | - | 50.7 | 50.7 | |
Derivative financial instruments | - | - | - | |
Current tax liabilities | - | 0.2 | 0.2 | |
Trade and other payables 8) | 31.4 | -1.1 | 30.3 | |
Total short-term liabilities | 31.4 | 49.8 | 81.2 | |
Total liabilities | 933.2 | 120.9 | - | 1,054.1 |
Total liabilities and equity | 1,331,1 | 67.6 | 1,398.8 |
Overview of the NGAAP to IFRS adjustments and reclassifications
The following information summarises the NGAAP – IFRS adjustments related to the unaudited Sektor consolidated statement of income for 2014 and the 31 December 2014 consolidated statement of financial position. The numbering is referenced from the numbered line items in the balance sheet. Conversion from NOK to EUR is at the average exchange rate of NOK/EUR 8.3544 for the profit or loss and NOK/EUR 9.0365 for the balance sheet.
Notes to IFRS adjustments and reclassifications:
1. In accordance with NGAAP, Sektor has recognised investment property at historical cost with annual depreciation. Under IFRS there is an accounting policy choice to recognise investment property at historical cost or fair value. Citycon has decided to use the fair value model in compliance with IAS 40, which results in changes in fair value being posted to the income statement and no recognition of depreciation. The investment property is therefore recognised at a fair value of EUR 1,308.3 million (NOK 11,823 million) as of 31 December 2014 and NGAAP 2014 depreciation of EUR 22.3 million (NOK 186 million) is adjusted in the profit or loss, as well as the 2014 change in fair value of the investment property is recognised as a gain in fair value of EUR 35.3 million (NOK 295 million). An increase in deferred tax liabilities related to investment property is recognised in the amount of EUR 14.4 million (NOK 130 million).
Leased investment property operated under an operating lease is not recognised at fair value in the statement of financial position. Leasehold improvements are at historical cost less depreciation. Citycon uses the IFRS accounting principle option to present leased investment property at fair value, as if it was a financial lease, with a corresponding in increase in the interest-bearing debt related to the leased property.
Development projects are included in the same balance sheet line item as investment property and are measured for under IFRS at fair value.
2. In accordance with NGAAP, Sektor has accounted for their 20 % investment in an associated company using the equity method and based upon underlying NGAAP financial statements. IFRS also requires use of the equity method, but with application based on underlying IFRS financial statements for the associate that are consistent with those of the group. Therefore, the associate's financial statements were converted to IFRS before application of the equity method. Adjustments were made to recognise investment property and derivative financial instruments at fair value, as well as the related deferred tax effect of these adjustments. These adjustments, including the effect of the deferred taxes, resulted in an increase in the share of the result in the associate of EUR 1.7 million (NOK 14,174 thousand) and a similar increase in the balance sheet in the investments in associated companies. There is no deferred tax impact related to the equity method posting of EUR 1.7 million in the financial statements.
3. In accordance with NGAAP, Sektor has accounted for deferred taxes at net present value. In accordance with IAS 12, an adjustment has been made to present deferred taxes under IFRS at nominal value. This adjustment resulted in a net increase in deferred tax liabilities of EUR 93.2 million (NOK 842 million). The net effect of all deferred tax asset and deferred tax liability adjustments is a decrease of retained earnings of EUR 107.4 million (NOK 970 million).
4. In accordance with NGAAP hedge accounting, Sektor has not recognised their interest rate swap derivative contracts in the financial statements. Under IFRS, these derivative contracts do not qualify for hedge accounting, and are therefore recognised at fair value over the profit or loss. Interest rate swaps are recognised in the balance sheet as assets and liabilities, respectively with a value of EUR 2.2 million (NOK 19 million) and EUR 22.6 million (NOK 205 million) as of 31 December 2014. A net deferred tax asset of EUR 5.5 million (NOK 50 million) is recognised in the balance sheet related to all of the derivatives, of which the majority is presented net of deferred tax liabilities. The net profit or loss effect from the derivative financial instruments in 2014 is a loss of EUR 11.7 million (NOK 98 million). A net decreased tax expense of EUR 3.1 million (NOK 26 million) is recognised in the 2014 IFRS income statement.
5. In accordance with NGAAP, Sektor has recognised goodwill in connection with business combinations, which is amortised over the useful life of five years. IFRS does not permit goodwill amortisation and instead requires goodwill to be tested annually for impairment. Accumulated amortisation as of 31 December 2014 of EUR 0.1 million (NOK 1 million) has been reversed. IFRS goodwill as of 31 December is EUR 0.4 million (NOK 3.5 million), and is considered not to be impaired. There is no deferred tax impact related to the goodwill adjustment.
6. The change in total shareholders' equity of EUR 53.1 million (NOK 480 million) is further detailed in the NGAAP to IFRS equity reconciliation given below. Non-controlling interests has been adjusted by EUR 3.2 million (NOK 29 million) to reflect the transition to IFRS within the sub-consolidation group where there is a minority interest.
Sektor NGAAP to IFRS equity reconciliation, EUR million | ||
NGAAP – Equity 31 December 2014 | 397.9 | |
Effects on IFRS adjustments | ||
IFRS conversion effect on equity 1 January 2014 (cf. above) | -93.8 | |
Derivatives – assets (change in fair value) | 1.3 | |
Derivatives – liabilities (change in fair value) | -9.9 | |
Goodwill (reversal of NGAAP amortisation) | 0.1 | |
Investment property – reversal of NGAAP investment property depreciation | 16.3 | |
Investment property – 2014 change in fair value | 25.8 | |
Investment in associated companies | 1.7 | |
IAS 39 – loans at amortised cost | 1.2 | |
Presentation currency translation effect NOK to EUR | 4.0 | |
Total net conversion effect on retained earnings | -53.2 | |
IFRS – Equity 31 December 2014 | 344.7 |
IFRS Equity 1 January 2014 | 341.1 |
Profit for the year | 40.2 |
2014 purchase of minority interest (no IFRS – NGAAP difference; please see 2014 NGAAP financial statements note 11) | -9.6 |
Presentation currency translation effect NOK to EUR | -27.0 |
IFRS Equity 31 December 2014 | 344.7 |
7. In accordance with NGAAP, Sektor has recognised long-term debt at nominal values, as well as capitalised the debt origination fees, and amortised these fees straight-line over the life of the loan. Sektor has also classified accrued interest as part of short-term debt in the statement of financial position. IFRS requires recognition of interest expense and debt at amortised cost (or fair value), and Citycon elects to measure debt at amortised cost. All long-term loans were converted to an amortised cost model, and the capitalised origination fee and related NGAAP amortisation reversed. EUR 1.1 million (NOK 10 million) of accrued interest has been reclassified to IFRS long-term debt. The total NGAAP to IFRS adjustment was an increase in 31 December 2014 long-term debt of EUR 9.3 million (NOK 84 million) and a profit or loss decrease in financial expense of EUR 1.7 million (NOK 14 million).
8. Under NGAAP all debt was classified in the balance sheet as long-term. IFRS requires the portion of debt due and payable within the next operating cycle to be classified as short-term. EUR 52.9 million (NOK 478 million) of debt was therefore reclassified as short-term loans. Additionally, the NGAAP balance sheet classified accrued interest related to the inflation-adjusted debt as short-term, and this has been reclassified as long-term for IFRS presentation purposes.
Sektor has presented their financial statements using a NGAAP presentation format. For purposes of the NGAAP to IFRS conversion and subsequent presentation of the pro forma financial statements, the Sector NGAAP financial statements were reclassified to the Citycon presentation format. Reclassifications were made from a NGAAP line item to the Citycon IFRS balance sheet line item for goodwill, derivatives, debt and current tax liabilities, such that the starting point for the presentation of the financial information given above is the Citycon presentation format. In the profit or loss, the Sektor NGAAP line item Depreciation is included in the Citycon line item Administrative expenses, and Sektor NGAAP line item Other operating expenses are reclassified to Property operating expenses. The gain/loss on derivatives is classified as a financial expense and financial income related to the associate is reclassified to the Citycon presentation line item Share of profit joint venture.
Citycon management has not identified any other adjustments from NGAAP to IFRS that would materially affect the Citycon pro forma information to be stated in accordance with IFRS for pro forma purposes for use in the Finnish language prospectus.
Helsinki, 18 June 2015
CITYCON OYJ
Investor enquiries:
Henrica Ginström
Tel. +358 50 554 4296
henrica.ginstrom@citycon.com
About Citycon
Citycon is a leading owner, manager and developer of urban grocery-anchored shopping centres in the Nordic and Baltic region, managing assets that total approximately EUR 3.4 billion and with market capitalisation of EUR 1.8 billion. Citycon is the No. 1 shopping centre owner in Finland and Estonia and among the market leaders in Sweden. Citycon has also established a foothold in Denmark. www.citycon.com
About Sektor
Sektor Gruppen AS is the second largest company in managing, developing and marketing of shopping centres in Norway. Sektor’s portfolio consists of 20 fully and majority-owned shopping centres, 4 minority-owned centres, 2 rented shopping centres and 8 managed shopping centres. With these 34 shopping centres, Sektor creates excellent shopping experiences for its customers in partnership with tenants. Sektor’s total portfolio under management has a gross leasable area of more than 600,000 sq.m. www.sektor.no
DISCLAIMER
This announcement is not an offer for sale of securities in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration under the U.S. Securities Act of 1933, as amended. Citycon does not intend to register any portion of the Rights Issue in the United States or to conduct a public offering of securities in the United States. The Joint Global Coordinators and Joint Bookrunners will not engage in any actions or assume any responsibility with regard to the Rights Issue within the United States. The offering of the Subscription Rights and the New Shares to the eligible shareholders in the United States will be the sole responsibility of the Company.
The Company has not authorized any offer to the public of securities in any Member State of the European Economic Area other than Finland. With respect to each Member State of the European Economic Area other than Finland and which has implemented the Prospectus Directive (each, a “Relevant Member State”), no action has been undertaken or will be undertaken to make an offer to the public of securities requiring publication of a prospectus in any Relevant Member State. As a result, the securities may only be offered in Relevant Member States (a) to any legal entity which is a qualified investor as defined in the Prospectus Directive; or (b) in any other circumstances falling within Article 3(2) of the Prospectus Directive. For the purposes of this paragraph, the expression an “offer of securities to the public” means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to exercise, purchase or subscribe the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
No public offer or invitation to acquire securities of Citycon is being made by or in connection with this release. Any such offer will be made solely by means of a prospectus once it has been approved by the Finnish Financial Supervisory Authority and published in accordance with the law, and any supplement thereto. This document is being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons in (i), (ii) and (iii) above together being referred to as “relevant persons”). Any invitation, offer or agreement to subscribe, purchase or otherwise acquire securities will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
This announcement is not for publication, distribution or release, directly or indirectly, in or into the United States, Canada, South Africa, Australia, Hong Kong or Japan or to any other jurisdiction where such announcement or publication would be unlawful. The distribution of this announcement may be restricted by law in certain jurisdictions and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
Each of the Joint Global Coordinators and Joint Bookrunners and their respective affiliates are acting exclusively for the Company and no one else in connection with the Rights Issue. They will not regard any other person (whether or not a recipient of this release) as their respective clients in relation to the Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients, nor for giving advice in relation to the Rights Issue or any transaction or arrangement referred to herein. No representation or warranty, express or implied, is made by the Joint Global Coordinators and Joint Bookrunners as to the accuracy, completeness or verification of the information set forth in this release, and nothing contained in this release is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. The Joint Global Coordinators and Joint Bookrunners assume no responsibility for its accuracy, completeness or verification and, accordingly, disclaim, to the fullest extent permitted by applicable law, any and all liability which they may otherwise be found to have in respect of this release.
The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purposes whatsoever on the information contained in this announcement or on its completeness, accuracy or fairness. The information in this announcement is subject to change. Any subscription for shares in the proposed Rights Issue should be made solely on the basis of the information contained in the prospectus to be issued by Citycon in due course.
This announcement contains certain forward-looking statements. These forward-looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward-looking statements. Due to these uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this announcement. Citycon disclaims any obligation to update any forward-looking statements contained in this announcement, except as required pursuant to applicable law.