Citycon Oyj - Half Year financial report

Citycon H1/2017: Solid first half of the year – good performance in Sweden and Norway

Citycon Oyj   Half-Yearly Report   13 July 2017 at 09:00 hrs
APRIL—JUNE 2017
- Net rental income increased to EUR 59.4 million (Q2/2016: 57.0) mainly due to
(re)development projects coming online (mainly Iso Omena extension) and the
acquisition of the adjacent building to Oasen shopping centre in Bergen, Norway.
In addition, positive like-for-like growth contributed to net rental income
growth by EUR 0.6 million. The non-core property divestments in 2016 and 2017
decreased net rental income by EUR 1.0 million.
- EPRA Earnings increased by EUR 2.2 million, or 5.7%, to EUR 40.9 million,
especially due to the growth in net rental income and lower direct
administrative expenses. EPRA Earnings per share (basic) increased to EUR 0.046
(0.043).
- Earnings per share decreased to EUR 0.03 (0.04) mainly due to fair value
losses recorded in the second quarter of 2017.
-The company specifies its guidance relating to Direct operating profit, EPRA
Earnings and EPRA Earnings per share.

JANUARY—JUNE 2017
-Net rental income increased to EUR 116.0 million (Q1-Q2/2016: 112.2) mainly due
to (re)development projects coming online (mainly Iso Omena extension) and the
acquisition of the adjacent building to Oasen shopping centre in Bergen, Norway.
In addition, positive like-for-like growth contributed to net rental income
growth by EUR 1.2 million. The non-core property divestments in 2016 and 2017
decreased net rental income by EUR 3.2 million.
-EPRA Earnings increased by EUR 4.6 million, or 6.1%, to EUR 79.2 million,
especially due to the growth in net rental income and lower direct
administrative expenses. EPRA Earnings per share (basic) increased to EUR 0.089
(0.084).
-Earnings per share decreased to EUR 0.07 (0.11) mainly due to fair value losses
recorded in 2017.

KEY FIGURES

                  Q2/2017  Q2/2016    %1)  Q1–Q2/20  Q1–Q2/2016   % 1)     2016
                                                 17
Net rental  MEUR     59.4     57.0    4.1     116.0       112.2    3.3    224.9
income
Direct      MEUR     52.7     50.5    4.4     103.0        98.4    4.7    198.5
operating
profit2)
Earnings    EUR      0.03     0.04  -18.9      0.07        0.11  -37.9     0.18
per
share
(basic)
Fair value  MEUR  4,156.1  4,110.0    1.1   4,156.1     4,110.0    1.1  4,337.6
of
investment
properties
Loan to     %        47.3     45.4    4.1      47.3        45.4    4.1     46.6
Value
(LTV)2)
EPRA based
key
figures2)
EPRA        MEUR     40.9     38.7    5.7      79.2        74.6    6.1    151.1
Earnings
EPRA        EUR     0.046    0.043    5.7     0.089       0.084    6.1    0.170
Earnings
per share
(basic)
EPRA NAV    EUR      2.78     2.80   -0.6      2.78        2.80   -0.6     2.82
per share

1) Change from previous year. 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.

CEO, MARCEL KOKKEEL:
The first half of the year 2017 was solid with continued strong like-for-like
net rental income growth in Sweden and Norway.  Like-for-like performance
remained weak in Finland as most of Citycon’s stronger shopping centres in the
Helsinki area were under (re)development. Overall, like-for-like net rental
income growth including Kista Galleria (50%) totalled 1.6%. Supported by strong
net rental income and tight cost control EPRA Earnings per share increased by 6
% and we have hence specified our guidance for 2017.  We expect the retail
sentiment in Finland to continue to improve especially in the Helsinki area as
the economy has started to pick up.
A clear highlight of the quarter was the opening of the second part of the Iso
Omena extension in Espoo. Since the first opening in August 2016, footfall has
increased by 28%, even though the new metro line is yet to start running.
Especially our new restaurant concept M.E.E.T (Meet, Eat, Enjoy, Together) has
been well received and Iso Omena was ranked the most recommended and enjoyable
shopping centre in the Helsinki area by Taloustutkimus research company.
Recycling of capital and non-core disposals remain a top priority for
management. During the first half of the year we have divested assets altogether
for approximately EUR 118 million and expect to be able to divest more in the
coming year.

BUSINESS ENVIRONMENT
In Finland, consumer confidence has reached its long-term average for the first
time in five years and also the Finnish economy grew last year at its fastest
pace in five years. Construction and consumption remain the main factors for
growth; however, growth in consumption comes at a time when wage levels have not
increased. Exports remain temperate, but are expected to pick up due to the
strengthening of global demand. Unemployment is expected to continue to decrease
due to the above-mentioned reasons. Retail real estate investment demand
continued to be high during the first half of the year, however, transaction
volume decreased due to limited supply. This has also resulted in increased
yield gap between prime and secondary assets.
The Norwegian economy is expected to continue to grow, mainly due to
consumption, housing investment and strong export growth. Unemployment is
expected to decrease and inflation continues to be high, well above the Euro
area average. Retail sales have increased significantly during the last quarter
and shopping centre rents have remained stable over the last twelve months. The
Norwegian commercial real estate investment volume was the second highest of all
time in 2016 and the trend has continued during the first half of 2017 when
retail transactions amounted to approximately 22% of the total transaction
volume.
The Swedish economy continues to display positive signs of growth driven by
strong macro fundamentals, strong domestic demand and exports. The growth of
domestic demand is expected to be relatively steady in 2017, but exports should
provide support to overall growth. In the real estate market, strong investment
demand for retail properties and low supply assisted by low interest rates has
compressed prime shopping centre yields further during the past year.
Additionally, retail rents for prime shopping centres have increased by 2-4%
over the past year assisted by strong retail turnover growth.
Denmark and Estonia are expected to have positive GDP growth due to private
consumption and gradually increasing investment activity. In Estonia, continuous
growth of retail sales has been positively influencing the commercial real
estate market, which is expressed in terms of higher demand for retail space and
reduced vacancies in prime assets. However, in Tallinn the increased competition
is expected to put pressure on profits of retailers and additionally cause
vacancies to shopping centres with secondary locations. In Denmark, prime
shopping centre rents, vacancy rates and investment demand has been quite stable
for a few years and are expected to remain at previous levels in the best
performing shopping centres.
(Sources: Nordea Economic Outlook, Danske Bank Nordic Outlook, European
Commission, CBRE, Statistics Finland/Norway/Sweden/Estonia/Denmark, Eurostat)

BUSINESS ENVIRONMENT KEY FIGURES

%               Finland  Norway  Sweden  Estonia  Denmark  Euro area
GDP growth          2.8     2.0     2.0      3.2      1.9        1.7
forecast, 2017
GDP growth          1.5     2.3     2.0      2.9      1.7        1.8
forecast, 2018
Unemployment,       8.8     4.6     6.7      6.2      5.7        9.3
5/2017
Inflation,          0.7     2.1     1.7      3.3      0.8        1.4
5/2017
Retail sales        1.8     2.7     2.2      1.0      0.2        2.5
growth,
1–5/2017

Sources: Danske Bank Nordic Outlook, European Commission, Eurostat, Statistics
Finland/ Norway/Sweden/ Estonia/ Denmark

RISKS AND UNCERTAINTIES
The most significant near-term risks and uncertainties in Citycon's business
operations are associated with the general development of the economy and
consumer confidence in the Nordic countries and Estonia as well as how this
affects the fair values, occupancy rates and rental levels of the shopping
centres and thereby Citycon’s financial result. Increased competition might
affect demand for retail premises, which could lead to lower rental levels or
increased vacancy, especially outside capital city regions.
The main risks that can materially affect Citycon's business and financial
results, along with the main risk management actions, are presented in detail in
Note 3.5 A) and on pages 73-74 in the Financial Statements 2016 as well as on
Citycon’s website in the Corporate Governance section. No material changes are
estimated to have taken place during the first half of the year in the risks
described.

DIVIDEND AND EQUITY REPAYMENT
Citycon’s dividends and equity repayments in 2017:

Dividends and    Record date              Payment date              EUR/ share
equity
repayments
paid on 30 June
20171)
Dividend for     24 March 2017            31 March 2017             0.01
2016
Equity           24 March 2017            31 March 2017             0.0225
repayment Q1
Equity           22 June 2017             30 June 2017              0.0325
repayment Q2

Remaining Board  Preliminary record date  Preliminary payment date  0.065
authorisation
for equity
repayment2)
Equity           22 September 2017        29 September 2017
repayment Q3
Equity           14 December 2017         29 December 2017
repayment Q4

1) Board decision based on the authorisation issued by the AGM 2017
2) The AGM 2017 authorised the Board of Directors to decide in its discretion on
the distribution of dividend and assets from the invested unrestricted equity
fund. Based on the authorisation the maximum amount of dividend to be
distributed shall not exceed EUR 0.01 per share and the maximum amount of equity
repayment distributed from the invested unrestricted equity fund shall not
exceed EUR 0.12 per share. Unless the Board of Directors decides otherwise for a
justified reason, the authorisation will be used to distribute dividend and/or
equity repayment four times during the period of validity of the authorisation.
In this case, the Board of Directors will make separate resolutions on each
distribution of the dividend and/or equity repayment so that the preliminary
record and payment dates will be as stated above. Citycon shall make separate
announcements of such Board resolutions.

EVENTS AFTER THE REPORTING PERIOD
The divestment of shopping centre Lietorvet in Skien, Norway, was closed on 7
July. Citycon’s proceeds from the transaction were approximately EUR 13 million.
Additionally, Citycon acquired on 4 July the first part of the shopping centre
Straedet in Køge in the greater Copenhagen area. The purchase price of the first
part was approximately EUR 12 million.

OUTLOOK
Citycon forecasts the 2017 Direct operating profit to change by EUR -1 to 9
million (previously -7-12) and EPRA Earnings to change by EUR -4 to 5
(previously -13-5) million from the previous year. Additionally, the company
expects EPRA EPS (basic) to be EUR 0.165–0.175 (previously 0.155-0.175).
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. Premises taken offline for planned or ongoing
(re)development projects reduce net rental income during the year.

FINANCIAL CALENDAR
Citycon will issue an interim report of the third quarter, for the period of
January–September 2017, on Thursday, 19 October 2017 at about 9:00 a.m.

Espoo, 12 July 2017
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

Henrica Ginström
VP, IR and Communications
Tel. +358 50 554 4296
henrica.ginstrom@citycon.com

Citycon is a leading owner, manager and developer of urban, grocery-anchored
shopping centres in the Nordic and Baltic region, managing assets that total EUR
5 billion and with market capitalisation of EUR 2 billion. Citycon is No. 1
shopping centre owner in Finland and among the market leaders in Norway, Sweden
and Estonia. 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.
www.citycon.com

Attachments:

07120005.pdf

Citycon_half_yearly_report_H1_2017.pdf