Quarterly Report • Apr 17, 2019
Quarterly Report
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Citycon adjusted its guidance for 2019 on March 18, 2019 to reflect the change in the number of shares following the reverse share split. Only the outlook for EPRA Earnings per share (basic) was adjusted, otherwise outlook remained unchanged.
Citycon forecasts the 2019 EPRA Earnings per share (basic) to be EUR 0.775–0.875. Furthermore, the Direct operating profit is expected to be in the range of EUR 188–206 million and EPRA Earnings in the range of EUR 138–156 million.
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.
| Comparable | ||||||
|---|---|---|---|---|---|---|
| Q1/2019 | Q1/2018 | % 1) | change % 3) | 2018 | ||
| Net rental income | MEUR | 53.6 | 53.3 | 0.6% | 1.8% | 214.9 |
| Direct Operating profit 2) | MEUR | 47.7 | 47.4 | 0.5% | 1.8% | 187.6 |
| IFRS Earnings per share (basic) 4) | EUR | 0.07 | 0.11 | -35.2% | -33.9% | 0.09 |
| Fair value of investment properties | MEUR | 4,213.5 | 4,141.2 | 1.7% | - | 4,131.3 |
| Loan to Value (LTV) 2) | % | 48.7 | 46.8 | 4.2% | - | 48.7 |
| EPRA based key figures 2) | ||||||
| EPRA Earnings | MEUR | 35.8 | 36.1 | -0.8% | 0.9% | 143.5 |
| EPRA Earnings per share (basic) 4) | EUR | 0.201 | 0.203 | -0.8% | 0.9% | 0.806 |
| EPRA NAV per share 4) | EUR | 12.98 | 13.53 | -4.1% | - | 12.95 |
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) new guidelines.
More information is presented in Basis of Preparation and Accounting Policies in the notes to the accounts.
3) Change from previous year (comparable exchange rates). Change-% is calculated from exact figures.
4) Key ratios have been adjusted in the comparison periods to reflect the new number of shares after the reversed share split executed in March 2019.
"During our first 100 days, Citycon's new management has hit the ground running. During the first quarter of 2019 we completed an organizational change in order to intensify our focus on asset management, which included the establishment of one shopping center management function for all countries and introducing a new specialty leasing business unit as well as centralized purchasing. The new organization provides consistency across the portfolio and ensures we have the necessary resources in place to spend more time at the assets with the ultimate aim of increasing the value of our portfolio. We have assets with tremendous footfall across the Nordics and we see significant future potential with our expanded specialty leasing business, which includes common area leasing and media sales. Thanks to our urban locations with public transportation connections, our assets have great densification potential going forward and we have many interesting opportunities in our development pipeline.
Operational performance in January-March 2019 was solid and our net rental income totaled EUR 53.6 million. Our EPRA earnings remained stable and EPRA EPS was EUR 0.201, which included some remaining one-time restructuring costs related to organizational changes. Excluding these one-off costs, the EPRA EPS grew and amounted to EUR 0.207. The tight cost control continued during the quarter and administrative expenses declined 12% year-on-year excluding restructuring costs. Leasing spread of renewals and re-lettings was also positive during the first quarter of the year and we were particularly pleased to see a positive leasing spread in Finland for the first time in a number of years. Looking at our guidance for 2019, we have kept our guidance unchanged.
Strengthening balance sheet remains a priority for us. Currently we are in active discussions regarding the potential disposal of some secondary assets. During the first quarter we agreed to sell a land plot adjacent to our Columbus shopping centre in Helsinki, Finland. We will continue to recycle capital going forward as our vision is to focus on multi-functional shopping centres that are connected to public transportation in growing urban areas.
In March, our Annual General Meeting was held in the Iso Omena shopping centre in Espoo, Finland. The AGM approved the Board of Director's proposal of carrying out a reverse split on the Citycon share and trading with the new shares started on March 18, 2019. Due to the reverse split, conducted in a 5:1 ratio, the per share figures of January-March 2019 have changed accordingly. In addition, the AGM approved the Board of Director's asset distribution proposal and the first distribution was paid in March 2019.
After the reporting period in early April, our Iso Omena shopping centre in Finland was awarded the best large expansion project in Europe by the International Council of Shopping Centres. We are very proud of this great accomplishment, which is also an acknowledgment to our development capabilities."
The net rental income increased to EUR 53.6 million (53.3). The increase was mainly due to successful opening of development project in Mölndal in September 2018 and positive impact on net rental income from applying IFRS 16 standard from Q1/2019 onwards. Planned divestments conducted during 2018 decreased the net rental income expectedly.
Like-for-like gross rental and service charge income were in line with previous year. On the other hand, like-for-like property operating expenses and other expenses from leasing operations increased from the corresponding period slightly by EUR 0.1 million. As a result, like-for-like net rental income decreased by EUR 0.1 million or -0.3%.
Like-for-like NRI Development (at comparable exchange rates) NRI Development (at historical exchange rates)
Net rental income from the Finnish & Estonian operations decreased by 3.5% compared to Q1/2018 mainly due to planned divestments of non-core assets in 2018. This was partly offset by positive impact from applying the IFRS 16 standard from Q1/2019 onwards. Net rental income from the like-for-like portfolio decreased by 0.9% due to the competitive market environment in some properties outside Helsinki metropolitan area which put pressure on rents and increased vacancy.
Net rental income from Norwegian operations increased by 2.6 % compared to Q1/2018 due to steady like-for-like net rental income growth of 0.8 % and positive impact from applying the IFRS 16 standard from Q1/2019 onwards. Planned divestments of non-core assets in 2018 and weaker NOK compared to previous year impacted the net rental income development negatively.
Net rental income from Swedish & Danish operations increased by 6.5% due to successful opening of development project in Mölndal in September 2018. On the other hand, divestment of a non-core asset in 2018, and weaker SEK compared to previous year impacted the net rental income development negatively. Like-for-like net rental income decreased by 0.8% mainly as result of positive one-off items in Q1/2018.
| Net rental income | Gross rental income |
|||||
|---|---|---|---|---|---|---|
| MEUR | Finland & Estonia |
Norway | Sweden & Denmark |
Other | Total | Total |
| Q1/2018 | 23.4 | 18.9 | 10.9 | 0.1 | 53.3 | 60.7 |
| Acquisitions | - | - | 0.0 | - | 0.0 | 0.0 |
| (Re)development projects | -0.1 | 0.0 | 1.2 | - | 1.1 | 1.4 |
| Divestments | -0.7 | -0.7 | -0.3 | - | -1.8 | -2.3 |
| Like-for-like properties 1) | -0.2 | 0.1 | -0.1 | - | -0.1 | 0.4 |
| Other (incl. IFRS 16 and exchange rate differences) | 0.2 | 1.1 | -0.1 | -0.1 | 1.2 | -0.7 |
| Q1/2019 | 22.6 | 19.4 | 11.6 | 0.0 | 53.6 | 59.4 |
1) Like-for-like properties are properties held by Citycon throughout two full preceding periods. Like-for-like properties exclude properties under (re)development or extension.
The economic occupancy rate declined slightly during the period, but remained at a good level of 95.9%. The slight decline was mainly due to Finland & Estonia and Norway. The average rent per sq.m. increased to EUR 23.3 (23.2). With comparable rates, the average rent per sq.m. increased by EUR 0.3. The year-to-date leasing spread of renewals and re-lettings was 1.0% due to positive development in Sweden & Denmark.
During the period, total sales in Citycon's shopping centres increased by 2.1% and footfall 2.9% compared to the corresponding period of the previous year.
1) Including Kista Galleria 50%.
Like-for-like footfall
Total footfall (including Kista Galleria 50%)
1) Footfall figures include estimates.
Like-for-like sales
Total sales (including Kista Galleria 50%)
1) Sales figures include estimates. Sales figures exclude VAT and the change has been calculated using comparable exchange rates.
| 31 March 2019 | 31 March 2018 31 December 2018 | |||
|---|---|---|---|---|
| Number of leases | pcs | 4,400 | 4,512 | 4,454 |
| Average rent | EUR/sq.m. | 23.3 | 23.0 | 23.2 |
| Finland & Estonia | EUR/sq.m. | 25.7 | 25.4 | 25.6 |
| Norway | EUR/sq.m. | 21.8 | 21.1 | 21.8 |
| Sweden & Denmark | EUR/sq.m. | 21.9 | 22.1 | 21.8 |
| Average remaining length of lease portfolio | years | 3.5 | 3.5 | 3.4 |
| Occupancy cost ratio 2) | % | 9.2 | 8.7 | 9.1 |
| Leasing spread, renewals and re-lettings | % | 1.0 | 1.9 | -0.3 |
1) Including Kista Galleria 50%.
2) The rolling twelve-month occupancy cost ratio for like-for-like shopping centres.
| Q1/2019 | Q1/2018 | 2018 | ||
|---|---|---|---|---|
| Total area of leases started | sq.m. | 41,177 | 43,955 | 186,576 |
| Average rent of leases started | EUR/sq.m. | 27.2 | 23.2 | 22.5 |
| Total area of leases ended | sq.m. | 51,344 | 57,055 | 220,202 |
| Average rent of leases ended | EUR/sq.m. | 27.5 | 24.0 | 22.1 |
1) Including Kista Galleria 50%. Leases started and ended do not necessarily refer to the same premises.
Administrative expenses increased to EUR 6.5 million (6.2) mainly driven by one-off expenses related to organizational changes. Excluding the one-off expenses, administrative expenses decreased 12.0%. At the end of the reporting period, Citycon Group employed a total of 253 (250) full-time employees (FTEs), of whom 41 worked in Finland & Estonia, 111 in Norway, 56 in Sweden, and 46 in Group functions.
Operating profit declined to EUR 29.7 million (39.3) due to divestments and fair value losses of EUR 17.6 million (-7.9).
Net financial expenses decreased by EUR 0.9 million to EUR 12.0 million (12.8) mainly due to a lower average cost of debt and despite a higher amount of debt, a lower interest income and interest expenses resulting from lease liability recognized according to IFRS 16.
Share of loss of joint ventures totalled EUR 0.6 million (-2.9). The improvement was due to lower deferred taxes in joint ventures.
Profit for the period was EUR 12.9 million (20.0).
The fair value of investment properties increased by EUR 72.4 million to EUR 4,213.5 million (31 March 2018: 4,141.2). The fair value of investment properties increased by EUR 82.3 million from year-end (31 December 2018: 4,131.3) due to the adoption of IFRS 16, which increased the value of investment properties by EUR 57.4 million. In addition, investments increased the fair value by EUR 13.9 million and changes in exchange rates by EUR 28.2 million. On the contrary, fair value losses decreased the value of investment properties by EUR 17.6 million.
| No. of | Gross leasable | Properties held | |||
|---|---|---|---|---|---|
| 31 March 2019 | properties | area Fair value, MEUR | for sale, MEUR | Portfolio, % | |
| Shopping centres, Finland & Estonia | 14 | 429,750 | 1,833.7 | 77.6 | 45% |
| Other properties, Finland & Estonia | 1 | 2,240 | 2.5 | - | 0% |
| Finland & Estonia, total | 15 | 431,990 | 1,836.2 | 77.6 | 45% |
| Shopping centres, Norway | 15 | 387,500 | 1,364.9 | - | 32% |
| Rented shopping centres, Norway 1) | 1 | 14,000 | - | - | - |
| Norway, total | 16 | 401,500 | 1,364.9 | - | 32% |
| Sweden & Denmark, total | 10 | 269,300 | 956.6 | - | 23% |
| Shopping centres, total | 40 | 1,100,550 | 4,155.2 | 77.6 | 100% |
| Other properties, total | 1 | 2,240 | 2.5 | - | 0% |
| Investment properties, total | 41 | 1,102,790 | 4,157.7 | 77.6 | 100% |
| Right-of-use assets classified as investment properties (IFRS 16) |
- | - | 55.9 | - | - |
| Investment properties in the statement of financial position, total |
- | - | 4,213.5 | - | - |
| Kista Galleria (50%) | 1 | 46,300 | 286.6 | - | - |
| Investment properties and Kista Galleria (50%), total | 42 | 1,149,090 | 4,500.1 | 77.6 | - |
1) Value of rented properties is recognised within intangible rights based on IFRS rules.
| MEUR | Q1/2019 | Q1/2018 | 2018 |
|---|---|---|---|
| Finland & Estonia | -9.3 | -17.1 | -58.8 |
| Norway | -8.0 | -3.7 | -22.2 |
| Sweden & Denmark | 1.1 | 12.8 | 8.5 |
| Right-of-use assets classified as investment properties (IFRS 16) | -1.5 | - | - |
| Investment properties, total | -17.6 | -7.9 | -72.5 |
| Kista Galleria (50%) | -1.0 | -0.5 | -8.6 |
| Investment properties and Kista Galleria (50%), total | -18.7 | -8.4 | -81.1 |
The fair value change of investment properties amounted to EUR -17.6 million (-7.9). The company recorded a total value increase of EUR 10.0 million (25.0) and a total value decrease of EUR 26.1 million (32.9). In addition, the application of IFRS 16 standard had an impact of EUR -1.5 million to the fair value change of investment properties during the reporting period.
Citycon measures the fair values of the properties internally in the first and third quarter. External appraiser, CBRE, measures the fair values for the half-yearly report and financial statements.
CBRE's Valuation Advisory Report for the property market, yields and market rents is available on Citycon's website below Investors.
During Q1/2019 Citycon continued to implement its divestment strategy and agreed to sell one land plot in Helsinki, Finland for approximately EUR 3.5 million.
Since the strategy update in 2011, Citycon has divested 68 non-core properties and five residential portfolios for a total value of approximately EUR 779 million. Strengthening the balance sheet remains a key priority and the company will continue its capital recycling actions going forward.
| Gross leasable | |||||
|---|---|---|---|---|---|
| Location | Date | area, sq.m. | Price, MEUR | ||
| Divestments | |||||
| A land plot next to Columbus shopping centre | Helsinki, Finland | 22 February 2019 | - | 3.5 1) | |
| Divestments, total | - | 3.5 |
1) The total value of preliminary agreement is approximately MEUR 3.5. On the signing date company received a prepayment amounting to MEUR 0.75.
At the end of the reporting period, Citycon had one major (re)development project underway: the Lippulaiva project in the Helsinki Metropolitan area.
Further information on Citycon's completed, ongoing and planned (re)developments can be found in the company's Financial Review 2018.
| Location | Area before/ after, sq.m. |
Expected gross investment, MEUR |
Actual gross investment by 31 March 2019, MEUR |
Completion | |
|---|---|---|---|---|---|
| Helsinki metropolitan | |||||
| Lippulaiva | area, Finland | 19,200/44,300 | TBC 1) | 85.1 | 2022 |
1) Negotiations regarding construction of main part of shopping centre are ongoing. Impact on expected investment to be confirmed after the agreement has been signed.
Equity per share was EUR 11.73 (31 December 2018: 11.74). Profit for the period and positive translation gains had a positive impact on the equity per share, while dividends and equity return paid of EUR 28.9 million decreased the equity per share.
At period-end, shareholders' equity attributable to parent company's shareholders was EUR 2,088.5 million (31 December 2018: 2,088.9). This figure decreased by EUR 0.5 million from the end of 2018 due to the above-mentioned reasons.
| 31 March 2019 | 31 March 2018 | 31 December 2018 | ||
|---|---|---|---|---|
| Fair value of debt | MEUR | 2,169.9 | 2,087.6 | 2,154.6 |
| Interest-bearing liabilities, carrying value 1) | MEUR | 2,216.0 | 2,074.9 | 2,140.0 |
| Available liquidity | MEUR | 561.0 | 561.3 | 556.4 |
| Average loan maturity | years | 4.8 | 4.9 | 5.0 |
| Loan to Value (LTV) 2) | % | 48.7 | 46.8 | 48.7 |
| Equity ratio (financial covenant > 32.5) 3) | % | 44.4 | 47.2 | 45.4 |
| Interest cover ratio (financial covenant > 1.8) | x | 3.8 | 3.9 | 3.8 |
| Solvency ratio (financial covenant < 0.65) 3) | x | 0.47 | 0.46 | 0.48 |
| Secured solvency ratio | ||||
| (financial covenant < 0.25) 3) | x | 0.02 | 0.02 | 0.02 |
| Average interest-rate fixing period | years | 4.7 | 4.8 | 5.0 |
| Interest rate hedging ratio | % | 91.7 | 94.4 | 91.7 |
1) Including EUR 60.1 million lease liabilities due to adoption of IFRS 16 beginning 1 January 2019.
2) Excluding both right-of-use assets recognised as part of investment properties, as well as lease liabilities pertaining to these right-of-use assets, which are based on IFRS 16 requirements. Thus, IFRS 16 has no impact on LTV calculations as compared to earlier periods.
3) Not comparable to earlier periods due to impact of IFRS 16 items.
In March, Standard & Poor's downgraded Citycon's credit rating from BBB (negative outlook) to BBB- (stable outlook).
During the first quarter there were no major property transactions and no new major financing transactions. The dividend in March was financed by issuing new commercial papers.
The fair value of interest-bearing debt increased by EUR 15.3 million during the quarter to EUR 2,169.9 million, mainly due to a stronger NOK currency rate. The carrying amount of interest-bearing liabilities in balance sheet increased more due to EUR 60.1 million of lease liabilities arising from the adoption of IFRS 16 from the beginning of 2019. The weighted average loan maturity was relatively stable at 4.8 years as EUR 281 million of the Eurobond maturing in 2020 was refinanced in September 2018 with the issuance of a new EUR 300 million Eurobond maturing in 2027.
The LTV remained stable at 48.7% (Q4/2018: 48.7%).
| Q1/2019 | Q1/2018 | 2018 | |
|---|---|---|---|
| Financial expenses 1) MEUR |
-13.9 | -15.3 | -79.1 |
| Financial income MEUR |
2.0 | 2.5 | 8.7 |
| Net financial expenses (IFRS) MEUR |
-12.0 | -12.8 | -70.5 |
| Direct net financial expenses (EPRA) MEUR |
-12.6 | -13.1 | -50.1 |
| Weighted average interest rate 2) % |
2.38 | 2.78 | 2.35 |
| Weighted average interest rate excluding | |||
| derivatives % |
2.40 | 2.61 | 2.36 |
| Year-to-date weighted average interest rate 2) % |
2.39 | 2.81 | 2.69 |
1) Q1/2019 including EUR 0.5 million interest expenses due to adoption of IFRS 16 so not comparable to earlier periods.
2) Including interest rate swaps and cross-currency swaps
The direct net financial expenses (EPRA) declined year-on-year mainly due to a lower average cost of debt and despite a higher amount of debt, a lower interest income and interest expenses resulting from lease liability recognized according to IFRS 16. Net financial expenses (IFRS) decreased by EUR 0.9 million to EUR 12.0 million (12.8) for the same reasons and in addition due to indirect financial gains of EUR 0.6 million (0.2) from positive fair value changes of cross-currency swaps not under hedge accounting.
The financial income mainly consisted of interest income on a loan to Kista Galleria. The foreign exchange differences are netted in financial expenses in the table above.
The average cost of debt decreased clearly following refinancing transactions in Q3 2018 and was 2.38% (Q1/2018: 2.78%).
Citycon uses interest rate swaps to hedge the floating interest rate risk exposure. According to the company's treasury policy, the currency net transaction risk exposure with profit and loss impact is fully hedged through currency forwards and cross-currency swaps that convert EUR debt into SEK and NOK.
| 31 March 2019 | 31 March 2018 | 31 December 2018 | ||
|---|---|---|---|---|
| Average interest-rate fixing period | years | 4.7 | 4.8 | 5.0 |
| Interest rate hedging ratio | % | 91.7 | 94.4 | 91.7 |
| Finland | Norway | Sweden | Denmark | Estonia | Euro area | |
|---|---|---|---|---|---|---|
| GDP growth forecast, 2019 | 1.9% | 2.5% | 2.2% | 1.6% | 2.7% | 1.3% |
| Unemployment, 2/2019 | 6.7% | 3.9% | 6.2% | 5.0% | 4.2% | 7.8% |
| Inflation, 2/2019 | 1.3% | 3.0% | 1.9% | 1.1% | 2.3% | 1.4% |
| Retail sales growth, 1–2/2019 | 1.0% | 1.7% | 2.2% | 1.1% | 6.0% | 3.3% |
Sources: SEB Nordic Outlook, European Commission, Eurostat, Statistics Finland/Norway/Sweden/Estonia/Denmark
In Finland, both retail sales and retail rents were stable during the reporting period. Some larger prime centres saw modest rent growth, however for the most part rents remained flat or declined. The prime shopping centre yield in the Helsinki Metropolitan Area remained relatively stable at approximately 4.5%. There was one reported shopping centre sale during Q1/2019. Demand for non-prime properties was affected by investors' caution in the shopping centre sector as well as significant shopping centre development pipeline in the Helsinki Metropolitan Area.
In Norway, the January-February 2019 GLA adjusted sales declined 0.2% compared to the same period last year. According to a report by Kvarud Analyse overall shopping centre footfall in Norway decreased slightly in January and February but the average shopping basket size increased slightly compared to the same period of 2018. Retail transactions amounted to around 31% of the preliminary transactions volume for Q1 2019, mainly related to one large deal in Oslo. Yields in prime shopping centres remained at 4.25%, while there continued to be some pressure on secondary yields. There was also some pressure on market rents, particularly in the secondary centres.
In Sweden, there was some pressure on market rents on secondary assets outside major urban areas. The prime shopping centre yields remained unchanged at 4.25%, and the gap between prime and secondary assets widened somewhat. During Q1 2019, retail represented 7% of the total transaction volume, which is less than the 2018 average of 10%.
In Denmark, retail sales grew during the reporting period. There were no major changes in rental levels and the prime shopping centre yields were stable at approximately 4.50% while good secondary yield increased slightly to 6.00%.
In Estonia, retail sales grew in many segments, especially in textiles, clothing and footwear. In Tallinn, prime shopping centre rents remained stable. Despite recent and expected additions to the shopping centre stock, solid overall retail performance, a competitive environment in prime locations and inflation kept rent rates up. The prime shopping centre yield in Estonia was 6.25%. The market was impacted by new capacity coming to the market during 2018.
(Sources: SEB Nordic Outlook, European Commission, CBRE, Statistics Finland/Norway/Sweden/Estonia/Denmark, Eurostat)
F. Scott Ball started on 1 January 2019 as CEO of Citycon. At the same time, Henrica Ginström started as Citycon's new Chief Operating Officer. Both are part of the company's Corporate Management Committee.
Anu Tuomola, Citycon's General Counsel and member of the Corporate Management Committee, left the company based on a mutual understanding on 16 March 2019. Furthermore, on 11 February 2019 was disclosed that Tom Lisiecki, Citycon's Chief Development Officer and member of the Corporate Management Committee has decided to leave the company.
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 locally or from e-commerce might affect demand for retail premises, which could lead to lower rental levels or increased vacancy, especially outside capital city regions. Costs of development projects could increase due to rising construction costs or projects could be delayed due to unforeseeable challenges.
The main risks that can materially affect Citycon's business and financial results, along with the main risk management actions, are presented in detail on pages 37–38 in the Financial Statements 2018, in Note 3.5 A) as well as on Citycon's website in the Corporate Governance section.
Citycon's Annual General Meeting (AGM) was held in Espoo, Finland on 13 March 2019. A total of 354 shareholders attended the AGM either personally or through a proxy representative, representing 81.6% of shares and votes in the company.
The AGM adopted the company's Financial Statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 2018. The General Meeting decided that no dividend is distributed by a resolution of the AGM and 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 0.05 per share and the maximum amount of equity repayment to be distributed from the invested unrestricted equity fund shall not exceed EUR 0.60 per share. The authorisation is valid until the opening of the next AGM.
The AGM resolved the number of members of the Board of Directors to be nine. Chaim Katzman, Bernd Knobloch, Arnold de Haan, David Lukes, Andrea Orlandi, Per-Anders Ovin, Ofer Stark and Ariella Zochovitzky were re-elected to the Board of Directors and Alexandre (Sandy) Koifman was elected as new member to the Board of Directors.
Ernst & Young Oy, a firm of authorised public accountants, was re-elected as the auditor of the company for 2019.
The AGM resolved that the number of shares in the company will be reduced by merging each five shares in the company to one share. Further information available in the next chapter.
The AGM decisions and the minutes of the AGM are available on the company's website at citycon.com/agm2019.
The company has a single series of shares, with each share entitling to one vote at a General Meeting of shareholders. At the end of March 2019, the total number of shares outstanding in the company was 177,998,525. The shares have no nominal value.
The number of shares in Citycon Oyj changed due to the reverse share split. The number of shares in the company was reduced from 889,992,628 to 177,998,525 by merging each five (5) shares into one (1) share. The new number of shares was registered with the Trade Register on 16 March 2019 and trading with the merged shares commenced on 18 March 2019.
At the end of March 2019, Citycon had a total of 18,014 (16,819) registered shareholders, of which ten were account managers of nominee-registered shares. Holders of the nominee-registered shares held approximately 141.6 million (143.5) shares, or 79.6% (80.6%) of shares and voting rights in the company. The most significant registered shareholders at year-end can be found on company's website citycon.com/major-shareholders.
| Q1/2019 | Q1/2018 | % | 2018 | ||
|---|---|---|---|---|---|
| Share capital at period-start | MEUR | 259.6 | 259.6 | - | 259.6 |
| Share capital at period-end | MEUR | 259.6 | 259.6 | - | 259.6 |
| Number of shares at period-start | 889,992,628 | 889,992,628 | - | 889,992,628 | |
| Number of shares at period-end | 177,998,525 | 889,992,628 | - | 889,992,628 |
| Q1/2019 | Q1/2018 | % | 2018 | ||
|---|---|---|---|---|---|
| Low | EUR | 8.10 | 8.97 | -9.6% | 7.98 |
| High | EUR | 9.45 | 11.24 | -15.9% | 11.24 |
| Average | EUR | 8.75 | 10.14 | -13.7% | 9.29 |
| Latest | EUR | 9.12 | 9.14 | -0.1% | 8.08 |
| Market capitalisation at period-end | MEUR | 1,624.1 | 1,626.0 | -0.1% | 1,437.3 |
| Number of shares traded | million | 11.6 | 16.3 | -28.7% | 49.2 |
| Value of shares traded | MEUR | 101.9 | 162.1 | -37.1% | 456.6 |
1) Comparative figures adjusted to reflect the reverse split on March 18, 2019.
% of shares and voting rights
| Record date | Payment date | EUR / share | |
|---|---|---|---|
| Dividend for 2018 | 22 March 2019 | 29 March 2019 | 0.05 |
| Equity repayment Q1 | 22 March 2019 | 29 March 2019 | 0.1125 |
| Total | 0.1625 |
| Preliminary record date |
Preliminary payment date |
EUR / share | |
|---|---|---|---|
| Equity repayment Q2 | 21 June 2019 | 28 June 2019 | 0.1625 |
| Equity repayment Q3 | 23 September 2019 | 30 September 2019 | 0.1625 |
| Equity repayment Q4 | 19 December 2019 | 30 December 2019 | 0.1625 |
| Total | 0.4875 |
1) Board decision based on the authorisation issued by the AGM 2019. 2) The AGM 2019 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 0.05 per share and the maximum amount of equity repayment distributed from the invested unrestricted equity fund shall not exceed EUR 0.60 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.
In addition to the above explained asset distribution authorisation of the Board of Directors, the Board of Directors of the company had two valid authorisations at the period-end granted by the AGM held on 13 March 2019:
During January–March 2019, Citycon neither used its authorisations to issue shares or special rights entitling to shares nor repurchased or accepted as pledge its own shares.
During the reporting period, the company or its subsidiaries held no shares in the company.
The company did not receive any notifications of changes in shareholding during the first quarter.
Gazit-Globe Ltd. and Canada Pension Plan Investment Board European Holdings S.à r.l (CPPIBEH) have signed an agreement regarding certain governance matters relating to Citycon on 12 May 2014. Further information on the agreement between Gazit-Globe Ltd. and CPPIBEH is available on the company's website at citycon.com/shareholder-agreements.
The company has no knowledge of any other shareholder agreements.
Citycon has five long-term share-based incentive plans for the Group key employees:
Due the reverse split of shares in March 2019, gross shares allocated from all ongoing plans were technically adjusted in line with their terms and conditions.
The full terms and conditions of share-based incentive plans are available on the company's website at citycon.com/remuneration.
No material events after the reporting period.
Citycon adjusted its guidance for 2019 on March 18, 2019 to reflect the change in the number of shares following the reverse share split. Only the outlook for EPRA Earnings per share (basic) was adjusted, otherwise outlook remained unchanged.
Citycon forecasts the 2019 EPRA Earnings per share (basic) to be EUR 0.775–0.875. Furthermore, the Direct operating profit is expected to be in the range of EUR 188–206 million and EPRA Earnings in the range of EUR 138–156 million.
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.
Citycon forecasts the 2019 EPRA Earnings per share (basic) to be EUR 0.155–0.175. Furthermore, the Direct operating profit is expected to be in the range of EUR 188–206 million and EPRA Earnings in the range of EUR 138–156 million.
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.
For more investor information, please visit the company's website at www.citycon.com.
Helsinki, 16 April 2019 Citycon Oyj Board of Directors
Eero Sihvonen Executive VP and CFO Tel. +358 50 557 9137 [email protected]
Mikko Pohjala IR and Communications Director Tel. +358 40 838 0709 [email protected]
Citycon is a leading owner, manager and developer of urban, grocery-anchored shopping centres in the Nordic region, managing assets that total almost EUR 4.5 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 (Baa2) and Standard & Poor's (BBB-). Citycon Oyj's share is listed in Nasdaq Helsinki.
Citycon applies to the best practices policy recommendations of EPRA (European Public Real Estate Association) for financial reporting. More information about EPRA's performance measures is available in Citycon's Financial Statements 2018 in section "EPRA performance measures".
| Q1/2019 | Q1/2018 | % | 2018 | ||
|---|---|---|---|---|---|
| EPRA Earnings | MEUR | 35.8 | 36.1 | -0.8% | 143.5 |
| EPRA Earnings per share (basic) 1) | EUR | 0.201 | 0.203 | -0.8% | 0.806 |
| EPRA NAV per share 1) | EUR | 12.98 | 13.53 | -4.1% | 12.95 |
| EPRA NNNAV per share 1) | EUR | 11.76 | 11.98 | -1.9% | 11.90 |
1) Key ratios have been adjusted in the comparison periods to reflect the new number of shares after the reversed share split executed in March 2019.
The following tables present how EPRA Performance Measures are calculated.
| MEUR | Q1/2019 | Q1/2018 | % | 2018 |
|---|---|---|---|---|
| Earnings in IFRS Consolidated Statement of Comprehensive Income | 12.9 | 20.0 | -35.2% | 16.6 |
| +/- Net fair value losses/gains on investment property | 17.6 | 7.9 | 123.3% | 72.5 |
| +/- Net losses/gains on sale of investment property | 0.3 | -3.2 | - | 0.2 |
| + Indirect other operating expenses | - | 3.4 | - | 10.3 |
| +/- Early close-out costs of debt and financial instruments | - | 0.6 | - | 21.4 |
| -/+ Fair value gains/losses of financial instruments | -0.6 | -0.8 | -24.8% | -1.1 |
| -/+ Indirect losses/gains of joint ventures and associated companies | 1.2 | 4.4 | -73.4% | 17.9 |
| +/- Change in deferred taxes arising from the items above | 4.4 | 3.8 | - | 5.7 |
| + Non-controlling interest arising from the items above | - | 0.0 | - | - |
| EPRA Earnings | 35.8 | 36.1 | -0.8% | 143.5 |
| Weighted average number of ordinary shares, million | 178.0 | 178.0 | - | 178.0 |
| EPRA Earnings per share (basic), EUR | 0.201 | 0.203 | -0.8% | 0.806 |
The table below presents an alternative calculation of EPRA Earnings from the statement of comprehensive income from top to bottom.
| MEUR | Q1/2019 | Q1/2018 | % | 2018 |
|---|---|---|---|---|
| Net rental income | 53.6 | 53.3 | 0.6% | 214.9 |
| Direct administrative expenses | -6.5 | -6.2 | 5.5% | -28.0 |
| Direct other operating income and expenses | 0.5 | 0.2 | 105.9% | 0.8 |
| Direct operating profit | 47.7 | 47.4 | 0.5% | 187.6 |
| Direct net financial income and expenses | -12.6 | -13.1 | -3.8% | -50.1 |
| Direct share of profit/loss of joint ventures and associated companies | 0.6 | 1.5 | -60.0% | 5.3 |
| Direct current taxes | -0.1 | -0.1 | 73.4% | -0.2 |
| Direct deferred taxes | 0.2 | 0.3 | -28.3% | 0.9 |
| Direct non-controlling interest | - | 0.0 | - | 0.0 |
| EPRA Earnings | 35.8 | 36.1 | -0.8% | 143.5 |
| EPRA Earnings per share (basic), EUR | 0.201 | 0.203 | -0.8% | 0.806 |
| 31 March 2019 | 31 March 2018 | 31 December 2018 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| MEUR | Number of shares on the balance sheet date (1,000) |
per share, EUR |
MEUR | Number of shares on the balance sheet date (1,000) |
per share, EUR |
MEUR | Number of shares on the balance sheet date (1,000) |
per share, EUR |
||
| Equity attributable to parent company shareholders |
2,088.5 | 177,999 | 11.73 | 2,202.5 | 177,999 | 12.37 | 2,088.9 | 177,999 | 11.74 | |
| Deferred taxes from the dif ference of fair value and fiscal value of investment properties |
310.5 | 177,999 | 1.74 | 302.7 | 177,999 | 1.70 | 302.6 | 177,999 | 1.70 | |
| Goodwill as a result of deferred taxes |
-87.6 | 177,999 | -0.49 | -93.5 | 177,999 | -0.53 | -85.1 | 177,999 | -0.48 | |
| Fair value of financial instruments |
-1.4 | 177,999 | -0.01 | -2.8 | 177,999 | -0.02 | -1.1 | 177,999 | -0.01 | |
| Net asset value (EPRA NAV) | 2,310.0 | 177,999 | 12.98 | 2,408.9 | 177,999 | 13.53 | 2,305.3 | 177,999 | 12.95 | |
| Deferred taxes from the dif ference of fair value and fiscal value of investment properties |
-310.5 | 177,999 | -1.74 | -302.7 | 177,999 | -1.70 | -302.6 | 177,999 | -1.70 | |
| Goodwill as a result of deferred taxes |
87.6 | 177,999 | 0.49 | 93.5 | 177,999 | 0.53 | 85.1 | 177,999 | 0.48 | |
| The difference between the secondary market price and carrying value of bonds 1) |
4.2 | 177,999 | 0.02 | -70.0 | 177,999 | -0.39 | 29.3 | 177,999 | 0.16 | |
| Fair value of financial | ||||||||||
| instruments | 1.4 | 177,999 | 0.01 | 2.8 | 177,999 | 0.02 | 1.1 | 177,999 | 0.01 | |
| EPRA NNNAV | 2,092.6 | 177,999 | 11.76 | 2,132.5 | 177,999 | 11.98 | 2,118.2 | 177,999 | 11.90 |
1) When calculating the EPRA NNNAV in accordance with EPRA's recommendations, the shareholders' equity is adjusted using EPRA's guidelines so that bonds are valued based on secondary market prices. In accordance with Citycon's accounting policies, the carrying amount and fair value of bonds are different from this secondary market price. The difference between the secondary market price and the carrying value of the bonds was EUR 4.2 million (-70.0) as of 31 March 2019.
| MEUR | Note | Q1/2019 | Q1/2018 | % | 2018 |
|---|---|---|---|---|---|
| Gross rental income | 3 | 59.4 | 60.7 | -2.0% | 237.0 |
| Service charge income | 3 | 19.3 | 19.9 | -3.4% | 79.2 |
| Property operating expenses | -24.7 | -27.1 | -8.9% | -98.9 | |
| Other expenses from leasing operations | -0.4 | -0.2 | 71.9% | -2.4 | |
| Net rental income | 3 | 53.6 | 53.3 | 0.6% | 214.9 |
| Administrative expenses | -6.5 | -6.2 | 5.5% | -28.0 | |
| Other operating income and expenses | 0.5 | -3.2 | - | -9.5 | |
| Net fair value losses on investment property | 3 | -17.6 | -7.9 | 123.3% | -72.5 |
| Net losses/gains on sale of investment property | -0.3 | 3.2 | - | -0.2 | |
| Operating profit | 3 | 29.7 | 39.3 | -24.3% | 104.7 |
| Net financial income and expenses | -12.0 | -12.8 | -6.8% | -70.5 | |
| Share of loss/profit of joint ventures and associated companies | -0.6 | -2.9 | -80.4% | -12.5 | |
| Profit before taxes | 17.2 | 23.6 | -27.1% | 21.7 | |
| Current taxes | -0.1 | -0.1 | -4.9% | -0.2 | |
| Deferred taxes | -4.2 | -3.5 | 19.5% | -4.8 | |
| Profit for the period | 12.9 | 20.0 | -35.3% | 16.6 | |
| Profit/loss attributable to | |||||
| Parent company shareholders | 12.9 | 20.0 | -35.2% | 16.6 | |
| Non-controlling interest | 0.0 | 0.0 | - | 0.0 | |
| Earnings per share attributable to parent company shareholders | |||||
| Earnings per share (basic), EUR 1) | 4 | 0.07 | 0.11 | -35.2% | 0.09 |
| Earnings per share (diluted), EUR 1) | 4 | 0.07 | 0.11 | -34.9% | 0.09 |
| Other comprehensive income | |||||
| Items that may be reclassified subsequently to profit or loss | |||||
| Net gains on cash flow hedges | 0.3 | 4.3 | -92.9% | 2.0 | |
| Income taxes relating to cash flow hedges | -0.1 | -0.9 | -92.9% | -0.4 | |
| Share of other comprehensive income of joint ventures and associated companies | 0.0 | 0.2 | -76.5% | 0.3 | |
| Exchange gains/losses on translating foreign operations | 14.6 | -0.4 | - | -22.7 | |
| Net other comprehensive income to be reclassified to profit or loss in subsequent periods | 14.9 | 3.2 | - | -20.9 | |
| Other comprehensive income for the period, after taxes | 14.9 | 3.2 | - | -20.9 | |
| Total comprehensive profit/loss for the period | 27.9 | 23.2 | 19.9% | -4.2 | |
| Total comprehensive profit/loss attributable to | |||||
| Parent company shareholders | 27.9 | 23.2 | 19.8% | -4.2 | |
| Non-controlling interest | 0.0 | 0.0 | - | 0.0 |
1) Key ratios have been adjusted in the comparison periods to reflect the new number of shares after the reversed share split executed in March 2019.
| MEUR | Note | 31 March 2019 | 31 March 2018 | 31 December 2018 |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Investment properties | 5 | 4,213.5 | 4,141.2 | 4,131.3 |
| Goodwill | 148.5 | 155.0 | 145.7 | |
| Investments in joint ventures and associated companies | 165.6 | 223.9 | 164.8 | |
| Intangible and tangible assets, and other non-current assets | 43.0 | 55.7 | 37.6 | |
| Deferred tax assets | 9.6 | 6.2 | 9.0 | |
| Total non-current assets | 4,580.3 | 4,582.0 | 4,488.4 | |
| Investment properties held for sale | 7 | 77.6 | 45.6 | 78.1 |
| Current assets | ||||
| Derivative financial instruments | 9, 10 | 0.3 | 5.4 | 1.5 |
| Trade and other current assets | 55.1 | 35.2 | 43.3 | |
| Cash and cash equivalents | 8 | 10.7 | 10.7 | 11.4 |
| Total current assets | 66.1 | 51.4 | 56.2 | |
| Total assets | 3 | 4,724.0 | 4,679.0 | 4,622.7 |
| Shareholders' Equity and Liabilities | ||||
| Equity attributable to parent company shareholders | ||||
| Share capital | 259.6 | 259.6 | 259.6 | |
| Share premium fund | 131.1 | 131.1 | 131.1 | |
| Fair value reserve | 1.4 | 2.8 | 1.1 | |
| Invested unrestricted equity fund | 11 | 996.7 | 1,103.5 | 1,016.7 |
| Retained earnings | 11 | 699.7 | 705.5 | 680.4 |
| Total equity attributable to parent company shareholders | 2,088.5 | 2,202.5 | 2,088.9 | |
| Non-controlling interest | 0.1 | 1.2 | 0.1 | |
| Total shareholders' equity | 2,088.6 | 2,203.7 | 2,089.0 | |
| Long-term liabilities | ||||
| Loans | 2,029.6 | 1,957.5 | 1,961.4 | |
| Derivative financial instruments and other non-interest bearing liabilities |
9, 10 | 5.6 | 3.2 | 9.3 |
| Deferred tax liabilities | 312.5 | 306.8 | 304.4 | |
| Total long-term liabilities | 2,347.6 | 2,267.6 | 2,275.1 | |
| Short-term liabilities | ||||
| Loans | 186.4 | 117.4 | 178.6 | |
| Derivative financial instruments | 9, 10 | 2.3 | 1.0 | 0.9 |
| Trade and other payables | 99.1 | 89.3 | 79.1 | |
| Total short-term liabilities | 287.8 | 207.7 | 258.6 | |
| Total liabilities | 3 | 2,635.4 | 2,475.3 | 2,533.7 |
| Total liabilities and shareholders' equity | 4,724.0 | 4,679.0 | 4,622.7 |
| MEUR | Note | Q1/2019 | Q1/2018 | 2018 |
|---|---|---|---|---|
| Cash flow from operating activities | ||||
| Profit before taxes | 17.2 | 23.6 | 21.7 | |
| Adjustments to profit before taxes | 32.0 | 25.0 | 169.9 | |
| Cash flow before change in working capital | 49.2 | 48.6 | 191.6 | |
| Change in working capital | -2.6 | -3.5 | 1.5 | |
| Cash generated from operations | 46.6 | 45.1 | 193.1 | |
| Paid interest and other financial charges | -5.5 | -2.4 | -101.5 | |
| Interest income and other financial income received | 0.1 | 0.1 | 4.1 | |
| Current taxes paid | -1.0 | -1.0 | -0.2 | |
| Net cash from operating activities | 40.1 | 41.9 | 95.5 | |
| Cash flow from investing activities | ||||
| Acquisition of subsidiaries, less cash acquired | 5, 6, 7 | - | - | -68.4 |
| Capital expenditure on investment properties, investments in joint ventures, intangible assets and tangible assets |
5, 6, 7 | -10.4 | -25.4 | -98.4 |
| Sale of investment properties | 5, 6, 7 | -0.3 | 27.2 | 87.7 |
| Net cash used in investing activities | -10.7 | 1.9 | -79.0 | |
| Cash flow from financing activities | ||||
| Proceeds from short-term loans | 365.0 | 256.3 | 1,131.8 | |
| Repayments of short-term loans | -366.2 | -255.0 | -1,029.9 | |
| Proceeds from long-term loans and receivables | 0.0 | 0.1 | 297.3 | |
| Repayments of long-term loans | 0.0 | -11.0 | -292.4 | |
| Acquisition of non-controlling interests | - | - | -1.4 | |
| Dividends and return from the invested unrestricted equity fund | 11 | -28.9 | -28.2 | -115.7 |
| Realized exchange rate gains/losses | 0.1 | -3.9 | -4.0 | |
| Net cash used in financing activities | -30.0 | -41.8 | -14.3 | |
| Net change in cash and cash equivalents | -0.6 | 2.0 | 2.2 | |
| Cash and cash equivalents at period-start | 8 | 11.4 | 10.1 | 10.1 |
| Effects of exchange rate changes | -0.1 | -1.4 | -0.9 | |
| Cash and cash equivalents at period-end | 8 | 10.7 | 10.7 | 11.4 |
| Equity attributable |
|||||||||
|---|---|---|---|---|---|---|---|---|---|
| MEUR | Share capital |
Share premium fund |
Fair value reserve |
Invested unrestricted equity fund |
Translation reserve |
Retained earnings |
to parent company share holders |
Non controlling interest |
Shareholders' equity, total |
| Balance at 1 January 2018 | 259.6 | 131.1 | -0.8 | 1,123.5 | -93.2 | 787.9 | 2,208.1 | 1.2 | 2,209.4 |
| Total comprehensive profit/ loss for the period |
3.6 | -0.3 | 20.0 | 23.2 | 0.0 | 23.2 | |||
| Dividends paid and equity return (Note 11) |
-20.0 | -8.9 | -28.9 | -28.9 | |||||
| Share-based payments | 0.0 | 0.0 | 0.0 | ||||||
| Balance at 31 March 2018 | 259.6 | 131.1 | 2.8 | 1,103.5 | -93.5 | 799.0 | 2,202.5 | 1.2 | 2,203.7 |
| Balance at 1 January 2019 | 259.6 | 131.1 | 1.1 | 1,016.7 | -115.9 | 796.3 | 2,088.9 | 0.1 | 2,089.0 |
| Total comprehensive profit/ loss for the period |
0.3 | 14.6 | 12.9 | 27.9 | 0.0 | 27.9 | |||
| Dividends paid and equity return (Note 11) |
-20.0 | -8.9 | -28.9 | -28.9 | |||||
| Share-based payments | 0.6 | 0.6 | 0.6 | ||||||
| Balance at 31 March 2019 | 259.6 | 131.1 | 1.4 | 996.7 | -101.3 | 801.0 | 2,088.5 | 0.1 | 2,088.6 |
Citycon prepares its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). The interim financial statements for the three month period ended on 31 March 2019 have been prepared, apart from the exceptions listed below, in accordance with the same accounting policies and methods as in previous annual financial statements and in accordance with IAS 34 Interim Financial Reporting standard. The figures are unaudited.
Citycon prepares its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). The interim financial statements for the three month period ended on 31 March 2019 have been prepared, apart from the exceptions listed below, in accordance with the same accounting policies and methods as in previous annual financial statements and in accordance with IAS 34 Interim Financial Reporting standard. The figures are unaudited.
The IFRS 16 Leases standard has replaced the IAS 17 standard at the beginning of the 2019 financial period. First and foremost, the standard has provided reporting entities with instructions on the accounting treatment of leases in the lessee's financial statements, changes the definition of leasing and sets the principles regarding the recognition of leases in the balance sheet both as a right-of-use asset and a lease liability. The application of the standard did not result in any changes to the accounting treatment of leases where Citycon Group acts as the lessor. Nonetheless, with regard to the majority of the Group's leases where Citycon acts as the lessee, in the 2019 financial period Citycon has recognized assets and liabilities to the Group's balance sheet pertaining to these leases.
Citycon Group has recognized right-of-use assets from the leases subject to the scope of the standard as part of the 'Investment properties' and 'Tangible assets' balance sheet items. The right-of-use assets recognized as part of investment properties consist of leases subject to Citycon Group's core business, such as the leases of shopping centres, shopping centre land areas and shopping centre machinery. The right-of-use assets recognized as tangible assets, on the other hand, have primarily been recognized for leases included in administrative expenses, such as office leases, IT assets and leased cars. The lease liability of Citycon Group has been valued by discounting the lease payment liabilities of the leases subject to the scope of the IFRS 16 standard to their present value using as the discounting factor the view of the company's management on the incremental borrowing rate at the starting time of the lease.
The majority of the leased right-of-use assets of Citycon Group are fixedly linked to Citycon's investment properties. As a result, Citycon has disclosed its lease expenses primarily as part of the fair value changes of its investment properties (comparable to straight-line depreciations) and as interest expenses determined by the interest rate factor of the lease liability. The impacts on profit pertaining to the right-of-use assets classified as 'Tangible assets' are disclosed in the profit and loss account as interest expenses and as depreciations included in the line item 'Administrative expenses'.
With regard to the implementation of the IFRS 16 Leases standard, Citycon has applied a simplified approach and, hence, has not adjusted the comparative information from corresponding reporting period. In addition, Citycon has applied the recognition exemptions permitted by the standard and, hence, has not applied the standard to short-term leases with a duration of less than a year or leases of a low value, such as leases applicable to specific office equipment.
The impact from the standard to Citycon's reporting in the first quarter of 2019 is as follows:
| MEUR | Q1/2019 |
|---|---|
| Property operating expenses | 1.8 |
| Net rental income | 1.8 |
| Administrative expenses | 0.0 |
| Net fair value losses on investment property | -1.5 |
| Other operating income and expenses | 0.0 |
| Operating profit | 0.3 |
| Net financial income and expenses | -0.5 |
| Profit before taxes | -0.2 |
| Deferred taxes | 0.0 |
| Loss/profit for the period | -0.1 |
| Investment properties | Tangible assets | Total right-of-use assets | Lease liabilities | |
|---|---|---|---|---|
| 1 January 2019 | 57.3 | 4.4 | 61.7 | 61.7 |
| 31 March 2019 | 55.9 | 4.1 | 59.9 | 60.1 |
| MEUR | Q1/2019 |
|---|---|
| Net cashflows from operating activities | 1.6 |
| Net cashflows from financing activities | -1.6 |
When calculating loan to value (LTV) , both the right-of-use assets classified as part of investment properties, as well as lease liabilities pertaining to these right-of-use assets, have not been taken into account. Thus, IFRS 16 has no impact on LTV calculations as compared to earlier periods. The updated formula is as follows:
Interest bearing liabilities - lease liabilities (IFRS 16) - cash x 100
Fair value of investment properties + properties held for sale + investments in joint ventures - right-of-use assets classified as investment properties (IFRS 16)
Additional information on the otherwise unchanged accounting policies is available in Citycon's annual financial statements 2018.
ESMA (European Securities and Markets Authority) guidelines on alternative performance measures are effective for the financial year 2016. Citycon also 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.
Citycon's business consists of the regional business units Finland & Estonia, Norway and Sweden & Denmark.
In Citycon's reporting, Kista Galleria is treated as a joint venture and the shopping centre's result or fair value will not impact on the gross rental income, net rental income or fair value of investment properties of the group. Kista Galleria is consolidated in Citycon's financial statements based on the equity method, meaning that Citycon's share of Kista Galleria's profit for the period is recognised in the line 'Share of result in joint ventures' and associated companies in the statement of comprehensive income and Citycon's share of Kista Galleria's total assets is recognised in the line 'Investments in joint ventures and associated companies' in the statement of financial position. In addition, the management fee received by Citycon is reported in the line 'other operating income and expenses' and the interest income on the shareholder loan is reported in 'net financial income and expenses'. Kista Galleria contributed to the IFRS based profit for the period by approximately EUR 0.7 million.
The Board of Directors follows IFRS segment result and in addition Kista Galleria's financial performance separately, and therefore, segment information includes both IFRS segment results and Kista Galleria result.
| MEUR | Q1/2019 | Q1/2018 | % | 2018 |
|---|---|---|---|---|
| Gross rental income | ||||
| Finland & Estonia | 25.2 | 26.3 | -4.2% | 102.8 |
| Norway | 20.8 | 21.6 | -3.7% | 84.7 |
| Sweden & Denmark | 13.4 | 12.7 | 5.4% | 49.5 |
| Total Segments | 59.4 | 60.7 | -2.0% | 237.0 |
| Kista Galleria (50%) | 3.2 | 3.6 | -12.5% | 13.6 |
| Service charge income | ||||
| Finland & Estonia | 8.7 | 9.1 | -4.0% | 35.2 |
| Norway | 6.6 | 7.0 | -5.9% | 29.4 |
| Sweden & Denmark | 4.0 | 3.9 | 2.4% | 14.5 |
| Total Segments | 19.3 | 19.9 | -3.4% | 79.2 |
| Kista Galleria (50%) | 0.9 | 1.0 | -12.1% | 3.8 |
| Net rental income | ||||
| Finland & Estonia | 22.6 | 23.4 | -3.5% | 96.9 |
| Norway | 19.4 | 18.9 | 2.6% | 74.3 |
| Sweden & Denmark | 11.6 | 10.9 | 6.5% | 43.5 |
| Other | 0.0 | 0.1 | -50.0% | 0.2 |
| Total Segments | 53.6 | 53.3 | 0.6% | 214.9 |
| Kista Galleria (50%) | 2.4 | 3.1 | -23.3% | 11.7 |
| Direct operating profit | ||||
| Finland & Estonia | 22.2 | 22.9 | -2.8% | 93.9 |
| Norway | 18.6 | 17.7 | 5.0% | 69.8 |
| Sweden & Denmark | 11.3 | 10.3 | 9.8% | 39.7 |
| Other | -4.4 | -3.4 | 28.8% | -15.8 |
| Total Segments | 47.7 | 47.4 | 0.5% | 187.6 |
| Kista Galleria (50%) | 2.2 | 3.0 | -25.1% | 11.1 |
| Net fair value losses/gains on investment property | ||||
| Finland & Estonia | -9.4 | -17.1 | -44.9% | -58.8 |
| Norway | -9.1 | -3.7 | 148.5% | -22.2 |
| Sweden & Denmark | 0.9 | 12.8 | -93.3% | 8.5 |
| Total Segments | -17.6 | -7.9 | 123.3% | -72.5 |
| Kista Galleria (50%) | -1.0 | -0.5 | 98.9% | -8.6 |
| Operating profit/loss | ||||
| Finland & Estonia | 12.6 | 5.3 | 136.0% | 31.4 |
| Norway | 9.5 | 14.0 | -32.3% | 39.8 |
| Sweden & Denmark | 12.1 | 23.4 | -48.2% | 49.3 |
| Other | -4.4 | -3.4 | 28.8% | -15.8 |
| Total Segments | 29.7 | 39.3 | -24.3% | 104.7 |
| Kista Galleria (50%) | 1.2 | 2.5 | -50.4% | 2.4 |
| MEUR | 31 March 2019 | 31 March 2018 | % | 2018 |
|---|---|---|---|---|
| Assets | ||||
| Finland & Estonia | 1,929.2 | 1,964.9 | -1.8% | 1,924.2 |
| Norway | 1,611.1 | 1,603.4 | 0.5% | 1,522.2 |
| Sweden & Denmark | 1,137.0 | 1,044.2 | 8.9% | 1,128.6 |
| Other | 46.7 | 66.5 | -29.7% | 47.7 |
| Total Segments | 4,724.0 | 4,679.0 | 1.0% | 4,622.7 |
| Kista Galleria (50%) | 296.3 | 300.5 | -1.4% | 300.7 |
| Liabilities | ||||
| Finland & Estonia | 19.4 | 13.8 | 41.0% | 13.3 |
| Norway | 70.0 | 19.7 | - | 20.7 |
| Sweden & Denmark | 32.1 | 12.5 | 157.0% | 22.2 |
| Other | 2,513.9 | 2,429.3 | 3.5% | 2,477.5 |
| Total Segments | 2,635.4 | 2,475.3 | 6.5% | 2,533.7 |
| Kista Galleria (50%) | 243.4 | 241.1 | 1.0% | 246.2 |
The change in segment assets was due to the fair value changes in investment properties as well as investments.
| Q1/2019 | Q1/2018 | % | 2018 | ||
|---|---|---|---|---|---|
| Earnings per share, basic | |||||
| Profit attributable to parent company shareholders | MEUR | 12.9 | 20.0 | -35.2% | 16.6 |
| Weighted average number of ordinary shares 1) | million | 178.0 | 178.0 | 0.0% | 178.0 |
| Earnings per share (basic) 1) | EUR | 0.07 | 0.11 | -35.2% | 0.09 |
| Earnings per share, diluted | |||||
| Profit attributable to parent company shareholders | MEUR | 12.9 | 20.0 | -35.2% | 16.6 |
| Weighted average number of ordinary shares 1) | million | 178.0 | 178.0 | 0.0% | 178.0 |
| Adjustment from share-based incentive plans and | |||||
| options | million | 0.8 | 1.7 | -54.1% | 0.9 |
| Weighted average number of ordinary shares, diluted 1) | million | 178.8 | 179.7 | -0.5% | 178.9 |
| Earnings per share (diluted) 1) | EUR | 0.07 | 0.11 | -34.9% | 0.09 |
1) Key ratios have been adjusted in the comparison periods to reflect the new number of shares after the reversed share split executed in March 2019.
Citycon divides its investment properties into two categories: Investment Properties Under Construction (IPUC) and Operative Investment Properties. On reporting date and the comparable period 31 March 2018, the first mentioned category included Lippulaiva in Finland.
IPUC-category includes the fair value of the whole property even though only part of the property may be under construction.
| MEUR | Investment properties under construction (IPUC) |
Operative investment properties |
Investment properties, total |
|---|---|---|---|
| At period-start | 149.6 | 3,981.6 | 4,131.3 |
| Investments | 3.3 | 9.8 | 13.1 |
| Capitalized interest | 0.6 | 0.1 | 0.7 |
| Fair value gains on investment property | - | 10.0 | 10.0 |
| Fair value losses on investment property | -3.6 | -22.5 | -26.1 |
| Exchange differences | - | 28.2 | 28.2 |
| Transfer between IPUC , operative investment properties and | |||
| transfer into investment properties held for sale | - | 0.5 | 0.5 |
| Right-of-use assets classified as investment properties (IFRS 16) | - | 55.9 | 55.9 |
| At period-end | 149.9 | 4,063.6 | 4,213.5 |
| MEUR | Investment properties under construction (IPUC) |
Operative investment properties |
Investment properties, total |
|---|---|---|---|
| At period-start | 121.0 | 4,062.4 | 4,183.4 |
| Investments | 5.8 | 13.2 | 19.0 |
| Disposals | - | -23.6 | -23.6 |
| Capitalized interest | 0.4 | 0.0 | 0.4 |
| Fair value gains on investment property | - | 25.0 | 25.0 |
| Fair value losses on investment property | -0.2 | -32.7 | -32.9 |
| Exchange differences | - | -10.4 | -10.4 |
| Transfers between items | - | -19.7 | -19.7 |
| At period-end | 127.0 | 4,014.1 | 4,141.2 |
| MEUR | Investment properties under construction (IPUC) |
Operative investment properties |
Investment properties, total |
|---|---|---|---|
| At period-start | 121.0 | 4,062.4 | 4,183.4 |
| Acquisitions | 4.3 | 64.0 | 68.4 |
| Investments | 22.7 | 58.0 | 80.7 |
| Disposals | - | -24.5 | -24.5 |
| Capitalized interest | 1.8 | 1.2 | 3.0 |
| Fair value gains on investment property | - | 39.2 | 39.2 |
| Fair value losses on investment property | -0.2 | -111.5 | -111.7 |
| Exchange differences | - | -45.9 | -45.9 |
| Transfers between items | - | -61.3 | -61.3 |
| At period-end | 149.6 | 3,981.6 | 4,131.3 |
The fair value of investment properties has been measured internally for the interim reporting on 31 March 2019 and 31 March 2018. The fair value measurement for the financial statements for 2018 was conducted by external appraiser, CBRE.
When measuring the values internally, Citycon has based the valuations on the yields and market rent indications received from the external appraiser. In addition, the external appraiser conducts the fair value evaluation of properties under (re)development. Also, the first fair value measurement of the acquired properties is always conducted externally.
The fair value is calculated by a net rental income based cash flow analysis. Market rents, the yield requirement, the occupancy rate and operating expenses form the key variables used in the cash flow analysis. The segments' yield requirements and market rents used in the cash flow analysis were as follows:
| Weighted average yield requirement, % |
Weighted average market rents, EUR/sq.m./mo |
|||||
|---|---|---|---|---|---|---|
| 31 March 2019 | 31 March 2018 31 December 2018 | 31 March 2019 | 31 March 2018 31 December 2018 | |||
| Finland & Estonia | 5.5 | 5.4 | 5.5 | 30.0 | 29.5 | 29.9 |
| Norway | 5.4 | 5.4 | 5.4 | 22.9 | 22.6 | 22.3 |
| Sweden & Denmark | 5.2 | 5.1 | 5.2 | 25.4 | 25.1 | 25.7 |
| Investment properties, average | 5.4 | 5.4 | 5.4 | 26.6 | 26.2 | 26.4 |
| Investment properties and Kista Galleria | ||||||
| (50%), average | 5.3 | 5.3 | 5.3 | 27.0 | 26.7 | 26.9 |
| MEUR | Q1/2019 | Q1/2018 | 2018 |
|---|---|---|---|
| Acquisitions of properties 1) | - | - | 68.4 |
| Acquisitions of and investments in joint ventures | 2.6 | 6.6 | 14.4 |
| Property development | 13.9 | 19.4 | 83.7 |
| Goodwill and other investments | 0.5 | 0.4 | 2.4 |
| Total capital expenditure incl. acquisitions | 17.0 | 26.4 | 168.8 |
| Divestments 2) | - | 23.8 | 93.1 |
|---|---|---|---|
| Total capital expenditure incl. acquisitions | 17.0 | 26.4 | 168.8 |
| Group administration | 0.4 | 0.3 | 1.2 |
| Sweden & Denmark | 4.8 | 9.2 | 91.7 |
| Norway | 4.6 | 3.0 | 21.1 |
| Finland & Estonia | 7.2 | 14.0 | 54.9 |
1) Capital expenditure takes into account deduction in the purchase price calculations and FX rate changes
2) Excluding transfers into 'Investment properties held for sale' -category
On 31 March 2019 the Investment Properties Held for Sale comprised of two properties in Finland. Properties transactions are expected to be finalized during Q2 of 2019. On 31 March 2018 the Investment Properties Held for Sale comprised of one property in Norway and one property in Finland.
| EUR million | 31 March 2019 | 31 March 2018 | 31 December 2018 | |
|---|---|---|---|---|
| At period-start | 78.1 | 25.4 | 25.4 | |
| Disposals | - | - | -65.4 | |
| Changes in fair value; transfer from investment properties | -0.5 | -1.8 | -2.6 | |
| Exchange differences | - | 0.4 | -0.3 | |
| Transfer from investment properties | - | 21.5 | 121.0 | |
| At period-end | 77.6 | 45.6 | 78.1 |
| MEUR | 31 March 2019 | 31 March 2018 | 31 December 2018 |
|---|---|---|---|
| Cash in hand and at bank | 5.1 | 5.0 | 4.2 |
| Restricted cash | 5.6 | 5.7 | 7.2 |
| Total | 10.7 | 10.7 | 11.4 |
Cash and cash equivalents in the cash flow statement comprise the items presented above. Restricted cash mainly relates to gift cards.
Classification of financial instruments and their carrying amounts and fair values
| 31 March 2019 | 31 March 2018 | 31 December 2018 | ||||
|---|---|---|---|---|---|---|
| MEUR | Carrying amount |
Fair value | Carrying amount |
Fair value | Carrying amount |
Fair value |
| Financial assets | ||||||
| I Financial assets at fair value through profit and loss |
||||||
| Derivative financial instruments | 17.8 | 17.8 | 32.3 | 32.3 | 16.7 | 16.7 |
| II Derivative contracts under hedge accounting |
||||||
| Derivative financial instruments | 1.7 | 1.7 | 8.9 | 8.9 | 1.4 | 1.4 |
| Financial liabilities | ||||||
| I Financial liabilities amortised at cost | ||||||
| Loans | ||||||
| Loans from financial institutions | 283.3 | 283.7 | 220.3 | 220.7 | 278.7 | 279.1 |
| Bonds | 1,872.6 | 1,886.2 | 1,854.6 | 1,866.8 | 1,861.3 | 1,875.5 |
| Lease liabilities (IFRS 16) | 60.1 | 60.1 | - | - | - | - |
| II Financial liabilities at fair value through profit and loss |
||||||
| Derivative financial instruments | 6.7 | 6.7 | 3.8 | 3.8 | 8.2 | 8.2 |
| III Derivative contracts under hedge accounting |
||||||
| Derivative financial instruments | - | - | 0.0 | 0.0 | - | - |
| 31 March 2019 | 31 March 2018 | 31 December 2018 | ||||
|---|---|---|---|---|---|---|
| Nominal | Nominal | Nominal | ||||
| MEUR | amount | Fair value | amount | Fair value | amount | Fair value |
| Interest rate swaps | ||||||
| Maturity: | ||||||
| less than 1 year | - | - | - | - | - | - |
| 1–5 years | 232.9 | 1.7 | 232.5 | 2.4 | 226.2 | 1.4 |
| over 5 years | - | - | - | - | - | - |
| Subtotal | 232.9 | 1.7 | 232.5 | 2.4 | 226.2 | 1.4 |
| Cross-currency swaps | ||||||
| Maturity: | ||||||
| less than 1 year | - | - | - | - | - | - |
| 1–5 years | - | - | 457.9 | 30.6 | - | - |
| over 5 years | 316.8 | 13.0 | - | - | 316.8 | 8.0 |
| Subtotal | 316.8 | 13.0 | 457.9 | 30.6 | 316.8 | 8.0 |
| Foreign exchange forward agreements | ||||||
| Maturity: | ||||||
| less than 1 year | 141.9 | -2.0 | 44.1 | 4.4 | 269.6 | 0.5 |
| Total | 691.6 | 12.7 | 734.6 | 37.4 | 812.6 | 9.9 |
Derivative financial instruments are used in hedging the interest rate and foreign currency risk. Hedge accounting is applied for interest swaps which have a nominal amount of EUR 232.9 million (232.5). The change in fair values of these derivatives is recognised under other comprehensive income, taking the tax effect into account. In addition, EUR 0.0 million (-0.1) have been recognised in 'Share of other comprehensive income of joint ventures and associated companies' from interest rate swaps hedging the loan of Sektor Portefølje II AS.
Citycon also has cross-currency swaps to convert EUR debt into SEK debt and currency forwards. Changes in fair values of these are reported in the profit and loss statement as hedge accounting is not applied.
Furthermore, changes in fair values of interest rate caps hedging Kista Galleria's loans are recognised under 'Share of profit of joint ventures and associated companies'.
Citycon's AGM 2019 decided that no dividend is distributed by a resolution of the AGM and 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 for the financial year 2018 shall not exceed EUR 0.05 per share and the maximum amount of equity repayment to be distributed from the invested unrestricted equity fund shall not exceed EUR 0.60 per share. The authorisation is valid until the opening of the next AGM.
On the basis of the authorisation mentioned above and explained in interim report sections 12 and 13 the Board of Directors decided in March 2019 to distribute divided of EUR 0.05 per share, or EUR 8.9 million and equity repayment of EUR 0.1125 per share, or EUR 20.0 million. Following the dividend and equity repayment paid on 29 March 2019, the Board's authorization for dividend distribution is used in its entirety and the remaining authorisation for equity repayment is EUR 0.4875 per share. Preliminary payment dates for equity repayments to be distributed on basis of the authorization are 28 June 2019, 30 September 2019 and 28 December 2019. The Board of Directors will make separate resolutions on each distribution of the equity repayment and the company shall make separate announcements of such Board resolutions.
Total amount of dividend EUR 8.9 million and equity repayment EUR 106.8 million were distributed during the financial year 2018, of which EUR 8.9 million dividend and EUR 20.0 million equity repayment were distributed during the first quarter of 2018.
| MEUR | 31 March 2019 | 31 March 2018 | 31 December 2018 |
|---|---|---|---|
| Mortgages on land and buildings | 134.6 | 134.3 | 130.7 |
| Bank guarantees and parent company guarantees | 33.5 | 32.6 | 33.2 |
| Capital commitments | 37.5 | 261.7 | 23.7 |
At period-end, Citycon had capital commitments of EUR 37.5 million (261.7) relating mainly to on-going (re)development projects. Citycon owns 50% of Kista Galleria joint venture. Shares in the joint venture have been pledged as security for the loans of the joint venture.
Citycon Group's related parties comprise the parent company Citycon Oyj and its subsidiaries, associated companies, joint ventures; Board members; CEO and other Corporate Management Committee members; and the company's largest shareholder Gazit-Globe Ltd., whose shareholding in Citycon Oyj accounted for 48.6% on 31 March 2019 (31 March 2018: 45.5%).
Over the period, Citycon paid no expenses to Gazit-Globe Ltd and its subsidiaries, but invoiced EUR 0.0 million expenses forward to Gazit-Globe Ltd and its subsidiaries (0.0).
Citycon has made a consultant agreement with the company owned by Board member Ofer Stark and paid consulting fees of EUR 0.0 million (-) during the reporting period.
We have reviewed the accompanying consolidated condensed statement of financial position of Citycon Oyj as of March 31st, 2019 and the related condensed statement of comprehensive income, condensed statement of changes in shareholders' equity, condensed cash flow statement and ex-planatory notes for the three-month period then ended. The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of interim financial information in accordance with International Accounting Standard 34 Interim Financial Reporting and in accordance with other laws and regulations governing the preparation of the interim financial information in Fin-land. Our responsibility is to express a conclusion on this interim financial information based on our review.
We conducted our review in accordance with International Standard on Review Engagements ISRE 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the accompa-nying interim financial information has not been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and in accordance with other laws and regulations governing the preparation of the interim financial information in Finland.
Helsinki, April 16th 2019
Ernst & Young Oy Accountant Firm
Mikko Rytilahti Authorized Public Accountant
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