2012-04-25 08:00:03 CEST
2012-04-25 08:00:14 CEST
REGULATED INFORMATION
Citycon Oyj - Interim report (Q1 and Q3)
Citycon Oyj's Interim Report for 1 January–31 March 2012
Citycon Oyj Stock Exchange Release 25 April 2012 at 09.00 hrs
The year started with good like-for-like net rental income performance of 5.0
per cent and improved occupancy rate of 95.5 per cent.
Summary of the First Quarter of 2012 Compared with the Previous Quarter
- Turnover increased to EUR 57.8 million (Q4/2011: EUR 56.0 million).
- Net rental income increased by EUR 0.3 million, or 0.8 per cent, to EUR 37.5
million (EUR 37.3 million), mainly due to completed (re)development projects
and CPI-indexations offset by higher property operating expenses reflecting the
common seasonal variations.
- EPRA operating profit increased by EUR 2.1 million, or 7.2 per cent to EUR
31.0 million (EUR 28.9 million) due mainly to lower administrative expenses,
which decreased mainly because of lower restructuring costs. EPRA earnings per
share was EUR 0.05 (EUR 0.05). EPRA key figures exclude non-recurring items
such as fair value changes of investment properties.
- The fair value change of investment properties was EUR 5.9 million (EUR -17.0
million), the fair value of investment properties totalled EUR 2,547.8 million
(EUR 2,522.1 million). The average net yield requirement for investment
properties was 6.4 per cent (6.4%).
Summary of the First Quarter of 2012 Compared with the Corresponding Period of
2011
- Turnover increased to EUR 57.8 million (Q1/2011: EUR 52.0 million).
- Net rental income increased by EUR 5.1 million, or 15.9 per cent, to EUR 37.5
million (EUR 32.4 million). Completion of redevelopment projects and the
acquisitions of the Kristiine and Högdalen Centrum shopping centres increased
net rental income by EUR 4.2 million.
- Net rental income from like-for-like properties increased by EUR 1.3 million,
or 5.0 per cent, excluding the impact of the strengthened Swedish krona.
- Earnings per share were EUR 0.06 (EUR 0.05).
- EPRA EPS (basic) was EUR 0.05 (EUR 0.05).
- Net cash from operating activities per share decreased to EUR 0.05 (EUR 0.09)
due mainly to positive non-recurring items in the comparison period as well as
timing differences.
Key Figures
IFRS based key figures Q1/2012 Q1/2011 Change- Q4/201 2011
% 1) 1
Turnover, EUR million 57.8 52.0 11.3% 56.0 217.1
Net rental income, EUR million 37.5 32.4 15.9% 37.3 144.3
Profit/loss attributable to parent 15.8 11.2 40.8% -5.4 13.0
company shareholders, EUR million
Earnings per share (basic), EUR 0.06 0.05 24.0% -0.02 0.05
Net cash from operating activities 0.05 0.09 -42.3% 0.04 0.25
per share, EUR
Fair value of investment properties, 2,547.8 2,386.2 6.8% 2,522.1
EUR million
Equity ratio, % 35.9 36.3 -1.1% 36.0
EPRA based key figures
EPRA operating profit, EUR million 31.0 27.0 14.8% 28.9 117.4
% of turnover 53.6% 51.9% 3.1% 51.6% 54.1%
EPRA Earnings, EUR million 14.3 12.6 13.2% 12.5 53.3
EPRA Earnings per share (basic), EUR 0.05 0.05 -0.3% 0.05 0.21
EPRA NAV per share, EUR 3.54 3.70 -4.3% 3.62
EPRA NNNAV per share, EUR 3.19 3.44 -7.2% 3.29
1) Change-% is calculated from exact figures and refers to the change between
2012 and 2011.
CEO's Comment
Comments from Citycon Oyj's Chief Executive Officer Marcel Kokkeel on the
beginning of the year:
”The beginning of 2012 was positive: we were able to increase our like-for-like
net rental income.
During the period, we continued to focus on our internal improvement and cost
efficiency programme not forgetting the customer focus. We are seeing signs
from improved and faster leasing processes and additional income generation by
specialty leasing and internal extensions as well as cost management. These
positive signs were reflected in higher income which in turn resulted in
positive revaluation in our shopping centres; EUR 8.9 million for the quarter.
We also succeeded in clearly decreasing the energy consumption in our shopping
centres through our active measures. Unfortunately, due to increased energy
taxes and prices the energy saving was not fully reflected in our figures. We
will continue pursuing this viable alliance between sustainability and
economical results.
We are pleased with the clear improvement in both shopping centre sales and net
rental income in all the shopping centres that we have redeveloped or
refurbished recently.
The management will maintain its focus on income enhancement and solid cash
flows going forward. Refinancing and finding alternative funding sources will
also remain the top priority.”
Main Events
Leasing Activity
The occupancy rate for shopping centres increased to 97.0 per cent (96.4%).
Especially, the acquisition of shopping centre Kristiine and decreased vacancy
in Finnish and Swedish shopping centres increased the occupancy. The occupancy
rate for the entire property portfolio was 95.5 per cent (94.9%)
Acquisitions and Disposals
The company divested three non-core properties, two in Sweden and one in
Finland. No new properties were acquired during the period.
Redevelopment projects
Redevelopment project of the shopping centre Koskikeskus in Tampere is
Citycon's largest on-going project with an estimated investment of EUR 37.9
million. The project is proceeding as planned. The shopping centre is open and
continues to serve customers during the entire project.
Events after the Reporting Period
Citycon changed its Group structure as of 1 April 2012. The change was executed
through business transfers where Citycon's Finnish real estate operations were
transferred to two new holding companies Citycon Finland Oy and Etelä-Suomen
Kauppakiinteistöt Oy. Following the business transfers these companies own,
manage and maintain Citycon's properties in Finland. This change will not
impact any other operations of Citycon.
On 4 April, Citycon acquired the shopping centre Arabia in Helsinki, Finland,
for EUR 19.5 million from Tapiola Group. The property fits into the company's
Helsinki portfolio and provides good opportunities for earnings growth in the
future. This shopping centre has a gross leasable area of approximately 14,000
square metres, with 11,400 square metres of retail premises. The net initial
yield on the acquisition price is around 6 per cent but it is expected to grow
rapidly to 7 per cent after planned commercial development measures. More
information on the transaction is available in the stock exchange release
issued on 4 April 2012.
On 11 April, the company announced that Nils Styf had been appointed Citycon
Oyj's Chief Investment Officer and a member of the Corporate Management
Committee. Mr. Styf (M.Sc., b. 1976) is a Swedish citizen. He will join Citycon
from the Swedish real estate fund Areim AB and is expected to take up his
position in June 2012 at the latest.
On 20 April, the company agreed to acquire 41.7 per cent of the shares in MREC
Kiinteistö Oy Tampereen Koskenranta in Tampere, Finland, for EUR 6.2 million.
Closing of the transaction is expected to take place by the end of April.
Following the acquisition, the company owns the entire shopping centre
Koskikeskus, which will facilitate the smooth completion of the redevelopment
project going on in the centre.
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 is pursuing value-added activities, selected acquisitions
and proactive asset management.
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 2012, Citycon expects to continue generating solid cash flow and anticipates
that its turnover will grow by EUR 12-19 million and its EPRA operating profit
by EUR 11-18 million compared with the previous year, based on the existing
property portfolio including recent acquisitions and divestments. The company
expects its EPRA Earnings to increase by EUR 4-11 million from the previous
year. Furthermore, it forecasts that its EPRA EPS (basic) will be EUR 0.21-0.23
based on the existing property portfolio and number of shares. 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, and current interest rates. Properties taken offline for planned
development projects will reduce net rental income during the year.
Business Environment
On the whole, the first part of 2012 showed positive signs in Citycon's
operating countries with growing retail. However, great uncertainty persists in
the markets due to sovereign debt problems in the euro area.
Retail sales grew in both Finland and Sweden. Total retail sales growth rate
for the first two months was 8.1 per cent in Finland, 4.0 per cent in Sweden
and 16.0 per cent in Estonia. (Sources: Statistics Finland, Statistiska Central
Byrån, Statistics Estonia)
Household consumer confidence remained strong. In Finland and Sweden, the
household consumer confidence indicator was still positive, unlike in Estonia
and Lithuania (Eurostat).
Retail sales growth and the inflation rate are key factors for Citycon's
business and have an impact on the rents from retail premises. Consumer prices
continued to rise at the beginning of the year in all of Citycon's operating
countries. In March, inflation was 2.9 per cent in Finland, 1.5 per cent in
Sweden, 4.4 per cent in Estonia and 3.6 per cent in Lithuania. (Statistics
Finland, Statistiska Central Byrån, Statistics Estonia, Statistics Lithuania)
In Finland and Sweden, seasonally adjusted unemployment is lower than the
European Union average (10.2%): at the end of February, the unemployment rate
in Finland was 7.4 per cent and in Sweden 7.5 per cent. In Estonia and
Lithuania, the unemployment rates remain high: 11.7 per cent in Estonia and
14.6 per cent in Lithuania. (Eurostat)
The instability of the financial market in Europe is affecting the availability
and margins of debt financing.
Property Market
The Finnish property investment market has witnessed low levels of transactions
since the slowdown of the market in 2008. Although demand for investment has
been increasing, the supply of prime assets has limited transactional
activities and no major increase in transaction volumes in forecast for 2012.
The short term forecast for prime yields is stable. As a consequence of
relatively strong development in retail sales, retail rents have also been
increasing, although such increases have been concentrated in the very best
locations only.
In Sweden the retail property transaction volume for the first half of 2012 is
likely to be lower than in the previous two years due to the low transaction
volume for the first quarter. Prime yields for shopping centres and retail
warehouse parks have remained stable over the last 3 quarters.
Despite global turmoil the outlook for Estonian retail is positive. The largest
shopping centres have enjoyed a rental rate recovery of 3-5 per cent and the
vacancy rate remains near 0 per cent.
(Source: Jones Lang LaSalle Finland Oy)
Tenants' Sales and Footfall in Citycon's Shopping Centres
During the period, total sales in Citycon's shopping centres grew by 9 per cent
and the footfall increased by 3 per cent, year-on-year. There was sales growth
in all of the company's operating countries: 9 per cent in Finland, 7 per cent
in Sweden and 16 per cent in the Baltic countries. In Finland, the footfall
increased by 5 per cent, in Sweden by 6 per cent and decreased in the Baltic
countries by 11 per cent as one centre is currently closed due to
redevelopment. Positive developments in sales and footfall are mainly
attributable to redevelopment projects completed in recent years. Like-for-like
shopping centre sales grew by 6 per cent and footfall by 3 per cent and both
were positive in all operating countries.
Short-Term Risks and Uncertainties
Citycon's Board of Directors considers the company's major short-term risks and
uncertainties to be associated with economic development in the company's
operating regions, which affects demand, vacancy rates and market rents in
retail premises. In addition, key near-term risks include any rise in loan
margins, weaker availability of debt financing and the fair value development
of properties in uncertain economic conditions.
Although the financial crisis' effects on rent levels for retail premises, and
on occupancy rates, have so far been minor in Citycon's operating areas, demand
for retail premises, reduction of vacancy rates and market rent levels pose
challenges in a sluggish economic environment. Economic developments,
particularly trends impacting on consumer confidence and consumer behaviour,
inevitably affect demand for retail premises. Sovereign debt problems in the
euro area continued at the beginning of 2012, and as a result, financial growth
forecasts for 2012 involve more uncertainty than normally is the case. Risks to
financial growth are still present and in conditions of weak economic growth,
rental levels typically fall in the case of retail premises, demand for new
premises is lower, and vacancy rates rise.
Implementation of Citycon's growth strategy requires new financing, which means
that risks associated with the availability and cost of financing are of
fundamental importance to Citycon. Banks' willingness to lend money to real
estate companies is still rather moderate, availability of financing is limited
and loan margins have remained on a high level. In the future, tightening
regulation of the banking and insurance sectors (Basel III and Solvency II
regulations) is likely to push the costs of debt financing upwards, and to
limit the availability of long-term bank loans. This will probably raise the
cost of Citycon's new loan financing. So far this change in margins has been
mitigated by reduced underlying base rates and Citycon's active financing
policy. In 2012, the company has no major refinancing needs, whereas over the
next few years, Citycon will have to refinance some loan agreements signed at
low margins before the financial crisis, entailing that the margins on these
loans will rise. Such a rise in loan margins is likely to push Citycon's
average interest rate upwards in the future, even if market interest rates
remain largely unchanged.
The company is actively seeking to diversify its funding sources in order to
mitigate the risks related to bank financing, but there are no guarantees, that
such alternative funding sources would be available at cost efficient margins.
The fair value development of investment properties continue to be
characterised by high uncertainty caused by the sovereign debt crisis and the
resulting harsh economic conditions. Several factors are affecting the fair
value of the investment properties owned by Citycon, such as general and local
economic development, interest rate levels, foreseeable inflation, the market
rent trend, vacancy rates, property investors' yield requirements and the
competitive environment. This uncertainty will reflect most strongly on retail
properties located outside major cities, or in otherwise less attractive
properties, because investor demand is not currently focused on these
properties, and banks are not particularly keen to offer financing for such
projects. Yet, at the same time, the fair value of winning shopping centres,
which attract investor interest in uncertain conditions, remained stable or
even increased during the opening months of 2012.
The company's short-term risks and uncertainties, as well as its risk
management and risk management principles, are discussed in more depth at
www.citycon.com/riskmanagement, on pages 40-42 of the Financial Statements for
2011, and on pages 73-74 of the Annual Report for 2011.
The Interim Report for the period 1 January-31 March 2012 in its entirety is
enclosed to this release and it is also available on the corporate website at
www.citycon.com.
Helsinki, 24 April 2012
Citycon Oyj
Board of Directors
Financial Reports in 2012
Citycon will issue two more interim reports during the financial year 2012 as
follows:
January-June 2012 on Wednesday, 11 July 2012 at about 9.00 a.m. and
January-September 2012 on Wednesday, 10 October 2012 at about 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 50 557 9137
eero.sihvonen@citycon.fi
Distribution:
NASDAQ OMX Helsinki
Major media
www.citycon.com
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