Annual Report • Feb 25, 2009
Annual Report
Open in ViewerOpens in native device viewer
| Citycon and Year 2008 in Brief | 2 |
|---|---|
| CEO's Review | 4 |
| Business Environment | 8 |
| Strategy | 12 |
| Property Portfolio | 14 |
| Business Units | 22 |
| Finland | 24 |
| Sweden | 28 |
| Baltic Countries | 32 |
| Human Resources | 34 |
| Profit Performance and | |
| Financial Position | 37 |
| Risks and Risk Management | 39 |
| Corporate Governance | 42 |
| Citycon as an Investment and | |
| Information for Shareholders | 48 |
| Financial Statements | 51 |
Citycon's shopping centres in Sweden and in the Baltic Countries are presented in the inner page of the back cover.
More information on Citycon's shopping centre classifications can be found on page 25.
Citycon's gross leasable area 14,800 sq.m. Built in 1972/2001. Extended and/or renovated in 2004.
Rovaniemi Citycon's gross leasable area 14,000 sq.m. Built in 1989/1990.
Forum Jyväskylä Citycon's gross leasable area 17,500 sq.m. Built in 1953/1972/1980. Extended and/or renovated in 1991.
IsoKristiina
Lappeenranta Citycon's gross leasable area 18,700 sq.m. Built in 1987/1993.
Trio
Seinäjoki Citycon's gross leasable area 11,500 sq.m. Built in 1992. Extended and/or renovated in 2007.
Galleria Oulu Citycon's gross leasable area 3,500 sq.m. Built in 1987.
Tampere Citycon's gross leasable area 26,100 sq.m. Built in 1988. Extended and/or renovated in 1995/2007.
Lahti Citycon's gross leasable area 45,700 sq.m. Incl. Hansa Built in 1987. Extended and/or renovated in 1992/2008.
Espoo, Matinkylä Citycon's gross leasable area 60,600 sq.m. Built in 2001.
Shopping centre Iso Omena is not classified.
Espoo, Tapiola Citycon's gross leasable area 5,800 sq.m. Built in 1968.
Jyväskeskus
Helsinki, Vuosaari Citycon's gross leasable area 21,100 sq.m. Built in 1997. Extended and/or renovated in 2007.
Citycon's gross leasable area 40,300 sq.m. Built in 1994. Extended and/or renovated in 2007.
Espoo, Espoon keskus Citycon's gross leasable area 17,300 sq.m. Built in 1987.
Duo Tampere, Hervanta Citycon's gross leasable area 13,000 sq.m. Built in 1979. Extended and/or renovated in 2007.
Tikkuri Vantaa, Tikkurila Citycon's gross leasable area 10,700 sq.m.
Built in 1984/1991.
Koskikara Valkeakoski Citycon's gross leasable area 5,800 sq.m. Built in 1993.
Kouvola Citycon's gross leasable area 7,600 sq.m. Built in 1994. Extended and/or renovated in 2002.
Salo Citycon's gross leasable area 9,300 sq.m. Built in 1971–1975. Extended and/or renovated in 2007.
Lippulaiva
Citycon's gross leasable area 23,000 sq.m. Incl. Ulappatori Built in 1993. Extended and/or renovated in 2007.
Linjuri
Citycon's gross leasable area 10,300 sq.m. Built in 1930. Extended and/or renovated in 1990.
Citycon is an active owner and long-term developer of shopping centres, laying the foundation for a successful retail business. Citycon's retail properties serve both consumers and retailers. The company takes account of environmental aspects and well-being in the areas surrounding its retail properties. The market leader in the Finnish shopping centre business, Citycon also has a strong position in Sweden and a firm foothold in the Baltic countries.
At the end of 2008, Citycon owned a total of 33 shopping centres and 50 other retail properties. The fair value of the company's property portfolio totalled EUR 2,023.6 million.
Citycon Oyj's shares are listed on the Helsinki exchange. Citycon's trading code is CTY1S and the company is classified under Financials, Real Estate Operating Companies.
Some statements in this Annual Report are not historical facts and are "forward-looking". Words such as "believes", "expects", "estimates", "may", "intends", "will", "should", or "anticipates" and similar expressions or their negatives frequently identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or industry results to be materially different from those expressed or implied by those forward-looking statements.
| 2008 | 2007 | |
|---|---|---|
| Turnover, EUR million | 178.3 | 151.4 |
| Operating loss/profit, EUR million | -105.0 | 298.7 |
| % of turnover | – | 197.3 |
| Loss/profit before taxes, EUR million | -162.3 | 253.5 |
| Loss/profit for the period, EUR million | -138.9 | 203.9 |
| Fair market value of investment properties, EUR million | 2,023.6 | 2,215.7 |
| Earnings per share (basic), EUR | -0.56 | 1.00 |
| Earnings per share (diluted), EUR | -0.56 | 0.91 |
| Direct result per share (diluted), (Diluted EPRA EPS), EUR | 0.20 | 0.19 |
| Dividend and return from invested unrestricted equity fund per share, total, EUR | 0.14 *) |
0.14 *) |
| Net cash from operating activities per share, EUR | 0.21 | 0.20 |
| Equity per share, EUR | 3.62 | 4.44 |
| Net asset value (EPRA NAV) per share, EUR | 3.88 | 4.82 |
| EPRA NNNAV, EUR | 3.80 | 4.42 |
| P/E (price / earnings) ratio | -3 | 3 |
| Return on equity (ROE), % | -15.0 | 23.3 |
| Return on investment (ROI), % | -1.5 | 16.3 |
| Equity ratio, % | 38.5 | 43.9 |
| Gearing, % | 141.3 | 111.8 |
| Interest-bearing net debt, EUR million | 1,194.6 | 1,147.3 |
| Net rental yield, % | 5.8 | 5.8 |
| Average net yield requirement, defined by external appraiser | 6.4 | 5.6 |
| Occupancy rate, % | 96.0 | 95.7 |
| Personnel (average for the period) | 109 | 93 |
| Personnel at the end of the period | 113 | 102 |
*) The figure includes a per-share dividend of EUR 0.04 and a return of equity from invested unresticted equity fund of EUR 0.10 per share. Year 2008 figure is a proposal by the Board of Directors.
Direct result per share (diluted), (Diluted EPRA EPS)
Fair market value of investment properties
Net asset value (EPRA NAV) per share
Yield requirement for property portfolio
6.4%
Equity ratio
38.5%
In 2008, Citycon achieved the best direct result in its history. The turnover grew, and so did the company's cash flow per share and net rental income. The sales of our shopping centres increased and the occupancy rate remained at a good level.
Turbulence on the financial markets dominated our business environment. Securing financing was difficult and credit margins multiplied within a short period of time. In spite of the exceptionally challenging market conditions, we were still able to maintain our stable financing status. The rapid fall of the interest rates and the successful repurchase of our convertible capital bonds reduced our interest expenditure during the last quarter. The financing of the ongoing development and redevelopment projects has been secured with long-term credit facilities. Therefore, in the near future, Citycon has no significant refinancing needs. The fair value of our property portfolio decreased, but our equity ratio still remained at a good level. The changes in the business environment and the general uncertainty hindered the demand for retail premises and the market rents stopped rising.
The company continued growing and will continue to do so also in the near future through development and redevelopment of shopping centres. Our main projects were Trio in Lahti, Rocca al Mare in Tallinn and Liljeholmstorget in Stockholm. Trio was completed in schedule in November, and the shopping centre's success on the Christmas market was excellent. Trio has regained its position as the leading shopping centre in Lahti, and it was reborn to be a real meeting point in city centre. The construction of the new Liljeholmstorget shopping centre continued in Stockholm and it will be completed towards the end of this year. The Rocca project is advancing faster than expected. The first new section was completed in October, and the next opening of new retail premises will take place in May. All in all, the whole shopping centre will be completed for the Christmas sales this year.
The development and redevelopment projects reflect our company's strong design and construction competence, which is combined with our solid shopping centre management. We offer our tenants well-planned and -managed shopping centres with good sales figures. Citycon's shopping centres are managed by our own on-site personnel adhering to consistent principles. This generates efficiency and guarantees knowledge of the local markets. This way we will be able to meet the needs and expectations of our customers.
The rapid change in the market conditions was reflected in the amount of real property transactions. Unlike in previous years, in 2008, Citycon did not make any individual major property acquisitions. Instead, the company acquired more minority shares in several partly-owned properties and made one significant property divestment at the beginning of the year. The sale of 40% share of Iso Omena was important both from the financing and risk management perspective.
The demand of various expensive consumer durables faded during the second half of the year. The grocery sales, on the other hand, grew significantly in all our markets. Grocery stores and related service operators are anchor tenants in many of Citycon's shopping centres, which is a real strength in the current market conditions.
At the end of the year, Citycon owned 33 shopping centres and 50 other retail properties. In Finland, our market share was 24 per cent and the total sales of our shopping centres amounted to approximately 1.2 billion euros. Our market position will be further strengthened in both Stockholm and Tallinn, once our construction projects are completed.
Sustainable development in the management, maintenance and construction of shopping centres is an important part of Citycon's strategy. Green construction continued in our three major projects, and we will apply for a LEED environmental certification for them immediately after their completion.
I should like to take this opportunity to thank our shareholders, customers and partners for the confidence you have shown in our operations. I would also like to express my special thanks to every Citycon employee for their contribution in our company and its continued success.
In Helsinki, 12 February 2009
Petri Olkinuora CEO
The completely refurbished shopping centre Trio was opened as scheduled in November 2008. Trio's Shopping Centre Manager Terhi Heinilä is very pleased with the outcome: along with the refurbishment, Trio regained its position as the leading shopping centre in Lahti.
8:52 a.m.
The financial environment saw significant changes in 2008. Just one year ago, the financial crisis seemed a disruption in the US housing market only, but during the year gone by its impacts spread across Europe.
Towards the end of 2008, the availability of financing deteriorated and the financial crisis began to affect the real economy. Decelerating demand and decreasing investment activity led to difficulties in manufacturing industry and, thereby, downsizing. The declining employment situation, in turn, will affect consumer demand and retail trade.
Towards the year end, banks issued gloomier estimates of the GDP growth, and unemployment is expected to increase in 2009. On the other hand, the general interest rate level took a downward turn in the autumn and this decline is anticipated to continue during 2009. Furthermore, the arrival of the financial crisis levelled off growth in the inflation rate in the Nordic countries and pushed it downwards. Construction costs and raw material prices are also decreasing.
Nonetheless, Citycon's financial position remained good throughout the year. Citycon's total liquidity will cover its approved investments and scheduled debt interests and repayments at least until 2010. More detailed information on Citycon's profit performance and financial position can be found on pages 37–38 of this Annual Report.
In all of Citycon's operating countries, the economic outlook deteriorated during 2008. The greatest changes occurred in Estonia and Lithuania, which account for some 5 per cent of Citycon's net rental income. The estimate for Estonian GDP for 2009 is -4.5 per cent and for Lithuanian -3.0 per cent, respectively 1). Inflation rates in the Baltic countries, being net importers, have remained much higher than inflation rates in the Nordic countries. Nordea predicts that consumer demand will fall in Estonia by 5.5 per cent and 3.5 per cent in Lithuania.
During the first half of the year, the retail trade was still growing strongly but, during the second half, the dour economic mood began to affect this sector too.
Source: Newsec
Source: Jones Lang LaSalle
Source: Re&Solution
24%
In Sweden, economic difficulties have translated into rising redundancies, waning consumer demand and a slowing real economy. GDP estimates predict a decline for Sweden in 2009. The inflation rate has levelled off, and was 0.9 per cent in December2). Meanwhile, the Swedish crown has weakened in relation to the euro.
Finland, Citycon's home country, probably enjoys the most positive situation among the company's operating countries. Growth in Finnish GDP has, however, also clearly slowed and unemployment has increased. The inflation rate has begun to fall, similarly to raw material prices and construction costs.
Changes in trends in the real economy are likely to reflect on retail trade. During the first half of the year, the retail trade was growing strongly but, during the second half, the dour economic mood began to affect this sector too. In 2008, retail sales in Finland grew by 5.6 per cent and grocery sales by 5.8 per cent 3). In Sweden, the corresponding figures were 3.3 per cent and 3.0 per cent 2). The greatest slowdown in sales was seen in the Baltic countries. Following its high-growth years, Estonia's retail sales declined by 4.0 per cent 4) and Lithuanian by 4.1 per cent 5).
Among retailers in Finland, the S Group in particular increased its market share in grocery retail, to more than 40 per cent of all grocery retail in Finland. Kesko ranked second largest in Finland, with its market share of approximately 35 per cent and, among the rest of the retailers, Suomen Lähikauppa Oy's (previously Tradeka) market share was approximately 10 per cent. The rest of the market is split between several retailers 6).
In Sweden, ICA is the grocery market leader with its nearly 40 per cent share, while COOP has an approximately 20 per cent share of the market. In the Baltic countries, the largest grocery retailers include the Swedish Rimi and local co-operative ETK. Both retailers have more than 20 per cent market share of the Estonian grocery business. Other significant players include among others Selver and Maxima. Prisma, Rocca al Mare's largest tenant, has some 7–8 per cent market share. The Lithuanian grocery market leader with approximately 50 per cent market share is local VP Market with its Maxima concept 7).
Source: Jones Lang LaSalle
Source: Eurostat
→
While grocery sales have suffered least from the economic turmoil, specialty retail and the hardware trade in particular have suffered in all of Citycon's operating countries. In accordance with its strategy, grocery stores are usually anchor tenants in Citycon's shopping centres. By rental income more than 20 per cent of the company's shopping centre tenants are food retailers.
Early in the year, Finland and Sweden were still seeing a high frequency in property deals, but the property market slowed downtowards the second half of the year as financing opportunities all but vanished. The reasons behind the reduction of transaction volume are pan-European. The views on property values still differ significantly between the buying and selling parties. In addition to the more difficult financing opportunities, financing costs have increased and interest margins widen considerably. The few property deals conducted in Finland towards the end of the year were mainly concluded between domestic institutional investors. Deals in Sweden, too, were mainly carried out by local parties. In the Baltic countries, the property market has come to an almost complete standstill. 8)
The difference in yield requirements between prime and riskier properties widened furthermore in 2008. Yield requirements for prime properties showed only a slight increase, whereas yield requirements of risker properties increased clearly. According to Catella, this trend will continue. In general, yield requirements are increasing in all of Citycon's operating countries 9).
The rents of prime-assets in retail sector continued to rise in Finland during 2008. The occupancy rate is also high. In general, the demand of retail space is highly dependent on consumer confidence and on the outlook of consumers' capability and desire to spend. 10)
Citycon is the market leader in the Finnish shopping centre business. Citycon's market share is 24 per cent of the Finnish shopping centre market 11). Finland has a total of 56 shopping centres as defined by the Finnish Counsel of Shopping Centres, while the number of shopping centres in Sweden is four times higher, depending on the definition used. In Estonia and Lithuania, there are some 50 shopping centres. Many properties in the Baltic countries are owned by local and Nordic construction and property development companies.
In its Government Programme issued in 2007, the Finnish Government expressed its intent to review real estate investment funds and to remove tax barriers in order to maintain the competitiveness of Finnish property funds that are organised as limited companies. Several European countries have already conducted similar reforms whereby, under certain conditions, a REIT – Real Estate Investment Trust – is not liable to pay any income taxes as a corporation. Instead, a REIT is required to distribute most of its profits as dividends to its shareholders. Dividends paid by REITs and capital gains from holdings are then taxed based on the shareholders' income.
In October, the Finnish Government issued a proposal to Parliament on amending the Finnish Real Estate Funds Act and certain related Acts (HE 175/2008). According to this proposal, only companies investing in residential premises fulfilling certain criteria would be considered as REITs in Finland. It is proposed that these amendments enter into force in September 2009.
It is believed that REIT type legislation concerning real estate funds will increase investors' interest in the Finnish property market. However, since the REIT model includes several limitations and would, according to the proposal, focus only on residential properties, adopting the proposed REIT model would be neither possible nor suitable for Citycon.
Citycon wants to lead the way and promote sustainable development in the shopping centre business. The location of Citycon's
shopping centres in city centres, local centres or generally adjacent to major traffic flows as well as diverse public transport connections to the centres makes them well positioned to face the demands of sustainable development.
Environmental issues are increasingly affecting the selection of a retail property, and as general awareness of such issues grows, customers are becoming more demanding. Furthermore stricter legislation regarding emissions, waste and energy efficiency will affect operations in the future.
Property Manager Mika Lehtonen gives tenants instructions on more ecological procedures. Shopping centre Myyrmanni in Vantaa is a forerunner in recycling in shopping centres. Eeva Pääkkönen from Lindex at left and Kirsi Borg, Manager, Sustainability, from Citycon in the middle.
Our mission is to ensure that people shop in Citycon's shopping centres. By combining property investment and shopping centre business, Citycon creates sustainable shareholder value.
Citycon is a shopping centre business leader, an active owner and a long-term developer aiming to increase the value of its properties. Citycon's properties represent the most desired retail venues and they attract consumers. The company is the preferred employer in its field.
1) Includes acquisitions exceeding EUR 10 million. 2) Citycon has sold 40% of Iso Omena to GIC.
Citycon owns a total of 33 shopping centres: 22 in Finland, eight in Sweden, two in Estonia and one in Lithuania. In addition to shopping centres, Citycon owns 50 other retail properties. The value of the company's property portfolio totalled approximately two billion euros at the end of 2008.
In 2008, Citycon purchased more minority shares in many of the properties partially owned by it. These share acquisitions are linked to the planned redevelopment projects of the Lippulaiva and Espoontori shopping centres. In addition, the company sold some of its properties.
Other retail properties
Citycon sold a 40 per cent minority interest in the Iso Omena shopping centre to an affiliate of GIC Real Estate. The debt-free disposal price, EUR 131.6 million, is equivalent to 40 per cent of the original acquisition price of EUR 329 million paid by Citycon.
More details on acquisitions and divestments is available on page 6 of the enclosed Financial Statements.
At the turn of the year, the average remaining duration of Citycon's lease agreements was 3.2 years. A relatively brief average duration enables the improvement of shopping centres' service offerings and the realisation of development measures on a rapid schedule. Citycon aims to have a versatile and efficiently manageable lease portfolio, in order to be able to change, if needed, the tenant mix and structure of rental agreements of its properties without risking their cash flow.
Shopping centres' anchor tenants typically have long-term leases with a duration of 5–10 years, which stabilise Citycon's cash flow while providing tenants with the opportunity to develop their business in co-operation with Citycon on a long-term basis. Medium-term leases of 3–5 years are typical of secondary anchor tenants, such as fashion chains and restaurants, and generate a steady cash flow and provide the tenant mix with stability. Shortterm (1–24 months) leases or leases valid until further notice provide the required flexibility and the opportunity to alter the lease portfolio. Currently, leases valid until further notice are concluded less frequently, although this has been a common practice, particularly in Finland.
Most of Citycon's leases are based on agreements, whereby the rent is split between the base rent and the maintenance fee. The base rent is normally tied to the cost-of-living index. The maintenance fee, charged separately from the lessee, covers operating
→
Fixed-term contract Initially fixed-term contract Valid until further notice
Enclosed chart illustrates Citycon's lease agreements divided into fixedterm contracts, contracts valid until further notice and initially fixed-term contracts.
In Myllypuro, Helsinki, Citycon aims to develop an attractive modern service complex, a Partner in Everyday Life Shopping Centre, to replace the existing centre. Shopkeeper Milla Lamminluoto from the K-Market in Myllypuro retail centre offers a versatile selection of groceries for the everyday needs of familiar customers.
expenses incurred by the property owner due to property maintenance while enabling the provision of any additional services requested by the lessee.
Since the retail properties' success results from Citycon's and its tenants' joint efforts, Citycon aims to increase the portion of turnover-based lease agreements, in which the rental rates consist of a base rent and a maintenance fee. In addition, the lessor has the possibility of obtaining a percentage of a lessee's turnover, if the rent calculated based on turnover exceeds the minimum base rent. The portion tied to turnover is defined according to the lessee's field of business and estimated sales. It does not reduce the base rent, thus representing only an optional plus for Citycon. These turnover-linked lease agreements support both the lessee's and Citycon's shared goal of boosting the lessee's sales. Currently, turnover-based lease agreements account for roughly 24.2 per cent of Citycon's lease portfolio. Last year, the corresponding share was 16.1 per cent. The calculation of percentages is based on the lease portfolio's value in euros. The company aims to tie all new agreements on shopping centre premises to the lessee's turnover.
Most of these lease agreements require that lessees must report their sales to Citycon on a monthly basis. This enables the company to actively monitor the performance of its shopping centres and develop their sales in co-operation with lessees by means of retail property management and marketing. Citycon monitors the lessee's ability to pay rents and reports a figure for like-for-like shopping centre properties indicating the percentage of a tenant's turnover paid as rent. At the end of the year, this figure was 8.5 per cent.
In accordance with the International Accounting Standards (IAS) and the International Valuation Standards (IVS), an external professional appraiser conducts a valuation of Citycon's property portfolio on a property-by-property basis at least once a year. In recent years, this valuation has been conducted on a quarterly basis, due to market activity and rapidly changing market conditions. The valuation has principally been conducted using a cash-flow method for a period of 10 years. For vacant lots and properties clearly involving amendments to land use plans, the market values have been determined according to the building rights available under the currently valid local detailed plan. Development projects have been appraised using a specially designed project calculation model.
The most recent valuation statement on the situation at the end of 2008 by Realia Management Oy can be found in the Financial Statements, on page 61. Realia Management Oy works in association with the leading provider of real estate services, the international company CB Richard Ellis. The valuation statements include a description of the valuation process, factors influencing the valuation as well as the valuation results and sensitivity analysis.
Citycon can contribute to its investment properties' value by, for example, increasing rental cash flow through the means of property development, commercial planning and marketing. The factor with the most significant effect on the fair value of retail properties, however, has proven to be the increased yield requirements, resulting from the general economic downturn in the property and financial markets and a rise in interest rate levels. This has lowered the properties' value.
On 31 December 2008, Realia Management Oy evaluated the average yield requirement for Citycon's property portfolio at 6.4 per cent. The yield requirement for properties in Finland, Sweden and the Baltic countries stood at 6.4 per cent, 6.4 per cent and 7.4 per cent, respectively.
Citycon recognises its investment property at fair value in accordance with IAS 40. Its properties' combined market value (fair value) on the balance sheet date is recorded in the balance sheet and any changes in their fair value are recognised in the income statement and shown as a separate item under operating profit or loss. As a result, the change in fair value also has an impact on the periodic earnings and results.
In addition to the property portfolio's total value, determined by the external appraiser, the fair value of the company's investment properties in the balance sheet includes capital expenditure on development projects that the external appraiser does not take into account in the valuation as well as the acquisition cost of new properties acquired during the last three months.
In 2008, the fair value of Citycon's property portfolio decreased by a total of EUR 216.1 million while, in 2007, the portfolio saw a fair value increase of EUR 211.4 million. This year's decrease was caused by the general economic downturn in the property and financial markets as well as an increased yield requirements. The year saw a total increase of EUR 15.3 million in the value of five properties and a total decrease of EUR 231.4 in the value of 80 properties. The net impact of the changes in the income statement was EUR -216.1 million.
| Market value, EUR million |
Share of total portfolio, % |
Number of properties |
|---|---|---|
| over 100 | 42 | 5 |
| 80–100 | 5 | 1 |
| 60–80 | 7 | 2 |
| 40–60 | 14 | 6 |
| 20–40 | 14 | 10 |
| 10–20 | 11 | 16 |
| 5–10 | 5 | 13 |
| 0–5 | 4 | 32 |
16 Citycon Oyj Annual Report 2008
| Average | Average | Rental income | Occupancy rate, % | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Citycon's | Number of lease |
length of lease |
rent, EUR/sq.m/ |
Market value, | Gross rental | Net rental | |||||
| Total portfolio | Location | GLA | agreements | agreements | year | EUR million | income | income | EUR | sq.m. | |
| 31 Dec. 08 | 31 Dec. 07 | Year 08 | Year 08 | 31 Dec. 08 | 31 Dec. 08 | ||||||
| Finland | |||||||||||
| Shopping centres, Helsinki Metropolitan Area | |||||||||||
| Columbus | Helsinki | 21,000 | 69 | 74.7 | 83.9 | 98.3 | 96.8 | ||||
| Espoontori | Espoo | 17,300 | 53 | 31.6 | 29.6 | 96.7 | 94.7 | ||||
| Heikintori | Espoo | 5,800 | 41 | 11.8 | 14.2 | 94.7 | 90.7 | ||||
| Isomyyri | Vantaa | 10,900 | 20 | 20.6 | 22.4 | 96.6 | 92.7 | ||||
| Iso Omena | Espoo | 60,600 | 205 | 305.6 | 329.3 | 99.6 | 98.7 | ||||
| Lippulaiva | Espoo | 23,000 | 82 | 48.3 | 58.9 | 98.0 | 97.7 | ||||
| Myyrmanni | Vantaa | 40,300 | 118 | 158.4 | 176.7 | 97.6 | 97.1 | ||||
| Tikkuri | Vantaa | 10,700 | 51 | 27.5 | 30.2 | 96.4 | 93.6 | ||||
| Shopping centres, Helsinki Metropolitan Area, total | 189,700 | 639 | 2.6 | 299 | 678.6 | 745.3 | 54.3 | 40.9 | 98.3 | 96.8 | |
| Shopping centres, other areas in Finland | |||||||||||
| Duo | Tampere | 13,000 | 41 | 32.3 | 35.2 | 97.3 | 94.4 | ||||
| IsoKarhu | Pori | 14,800 | 50 | 42.4 | 44.2 | 94.0 | 89.8 | ||||
| IsoKristiina | Lappeenranta | 18,700 | 57 | 34.2 | 39.2 | 93.2 | 91.5 | ||||
| Jyväskeskus | Jyväskylä | 5,800 | 75 | 15.1 | 16.1 | 98.6 | 97.3 | ||||
| Jyväskylän Forum | Jyväskylä | 17,500 | 63 | 57.6 | 60.7 | 98.8 | 98.5 | ||||
| Koskikara | Valkeakoski | 5,800 | 37 | 5.7 | 7.4 | 98.4 | 97.6 | ||||
| Koskikeskus | Tampere | 26,100 | 154 | 114.8 | 114.7 | 98.4 | 96.7 | ||||
| Linjuri | Salo | 9,300 | 10 | 15.8 | 17.7 | 90.7 | 91.1 | ||||
| Oulun Galleria | Oulu | 3,500 | 30 | 8.9 | 10.2 | 92.4 | 89.4 | ||||
| Sampokeskus | Rovaniemi | 14,000 | 90 | 25.0 | 26.7 | 88.2 | 81.9 | ||||
| Torikeskus | Seinäjoki | 11,500 | 64 | 12.5 | 12.9 | 92.9 | 90.3 | ||||
| Trio | Lahti | 45,700 | 179 | 150.7 | 124.5 | 95.8 | 90.4 | ||||
| Tullintori | Tampere | 10,300 | 45 | 8.9 | 9.9 | 82.3 | 79.4 | ||||
| Valtari | Kouvola | 7,600 | 19 | 5.0 | 6.0 | 75.6 | 69.6 | ||||
| Shopping centres, other areas in Finland, total | 203,600 | 914 | 3.3 | 238 | 529.0 | 525.5 | 40.1 | 28.7 | 94.8 | 90.7 | |
| Other retail properties, total | 207,450 | 242 | 3.3 | 143 | 272.5 | 316.2 | 28.1 | 21.3 | 92.2 | 88.6 | |
| Finland, total | 600,750 | 1,795 | 3.1 | 224 | 1,480.2 | 1,587.0 | 122.5 | 90.9 | 95.7 | 91.9 | |
| Sweden | |||||||||||
| Shopping centres, Stockholm area and Umeå | |||||||||||
| Fruängen Centrum | Stockholm | 14,600 | 95 | 12.2 | 15.4 | 93.8 | 90.6 | ||||
| Jakobsbergs Centrum | Järfälla | 67,400 | 501 | 93.3 | 121.8 | 96.1 | 92.9 | ||||
| Liljeholmstorget | Stockholm | 20,200 | 36 | 66.6 | 77.9 | 100.0 | 100.0 | ||||
| Strömpilen | Umeå | 25,700 | 27 | 42.0 | 54.6 | 97.8 | 95.3 | ||||
| Tumba Centrum | Stockholm | 31,400 | 295 | 47.4 | 63.8 | 94.8 | 98.1 | ||||
| Åkermyntan Centrum | Hässelby | 8,400 | 42 | 10.0 | 12.8 | 84.3 | 89.6 | ||||
| Åkersberga Centrum | Österåker | 33,100 | 238 | 42.6 | 57.6 | 97.3 | 97.3 | ||||
| Shopping centres, Stockholm area and Umeå, total | 200,800 | 1,234 | 2.5 | 314.1 | 403.8 | 96.0 | 95.1 | ||||
| Shopping centres, Gothenburg area | |||||||||||
| Stenungs Torg | Stenungsund | 37,600 | 330 | 38.4 | 56.3 | 96.6 | 96.2 | ||||
| Shopping centres, Sweden, total | 238,400 | 1,564 | 2.4 | 158 | 352.5 | 460.1 | 37.2 | 21.9 | 96.1 | 95.3 | |
| Other retail properties, total | 44,300 | 149 | 2.6 | 114 | 43.6 | 57.4 | 3.9 | 2.2 | 94.7 | 92.9 | |
| Sweden, total | 282,700 | 1,713 | 2.4 | 153 | 396.1 | 517.5 | 41.1 | 24.1 | 96.0 | 95.0 | |
| Baltic Countries | |||||||||||
| Estonia | |||||||||||
| Rocca al Mare | Tallinn | 36,700 | 117 | 117.1 | 74.7 | 100.0 | 100.0 | ||||
| Magistral | Tallinn | 9,500 | 59 | 15.2 | 18.5 | 98.7 | 98.9 | ||||
| Lithuania | |||||||||||
| Mandarinas | Vilnius | 8,000 | 58 | 15.0 | 18.0 | 100.0 | 100.0 | ||||
| Baltic Countries, total | 54,200 | 234 | 6.8 | 228 | 147.3 | 111.2 | 9.3 | 6.8 | 99.8 | 99.8 | |
| Total portfolio | 937,650 | 3,742 | 3.2 | 202 | 2,023.6 | 2,215.7 | 173.0 | 121.8 | 96.0 | 93.4 |
Citycon Oyj Annual Report 2008 17
| Average | Average | Market value, EUR million |
Rental income, EUR million | Occupancy rate, % | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Citycon's GLA |
Number of lease agreements |
length of lease agreements |
rent, EUR/sq.m./ year |
Gross rental income |
Net rental income |
EUR | sq.m. | ||||
| 31 Dec. 08 | 31 Dec. 07 | Year 08 | Year 08 | 31 Dec. 08 | 31 Dec. 08 | ||||||
| Finland | |||||||||||
| Helsinki Metropolitan Area | 182,990 | 470 | 2.3 | 238 | 422.5 | 475.4 | 37.3 | 28.1 | 97.1 | 95.0 | |
| Other areas in Finland | 21,560 | 709 | 2.6 | 189 | 435.0 | 464.7 | 40.0 | 29.8 | 94.3 | 90.6 | |
| Finland, total | 204,550 | 1,179 | 2.5 | 211 | 857.5 | 940.2 | 77.3 | 57.9 | 95.7 | 92.6 | |
| Sweden | |||||||||||
| Stockholm area | 12,700 | 877 | 2.1 | 150 | 162.6 | 213.5 | 18.7 | 10.7 | 95.3 | 93.8 | |
| Gothenburg area | 71,100 | 473 | 2.9 | 122 | 65.1 | 91.9 | 8.3 | 4.4 | 95.5 | 94.3 | |
| Sweden, total | 198,100 | 1,350 | 2.2 | 140 | 227.7 | 305.4 | 27.0 | 15.1 | 95.4 | 94.0 | |
| Baltic Countries | |||||||||||
| Vilnius | 8,000 | 58 | 5.1 | 239 | 15.0 | 18.0 | 1.8 | 1.2 | 100.0 | 100.0 | |
| Like-for-like portfolio, total | 320,680 | 2,587 | 2.4 | 188 | 1,100.2 | 1,263.6 | 106.1 | 74.2 | 95.7 | 93.3 |
Like-for-like portfolio = Properties held by Citycon throughout the 24-month reference period. Properties under development and expansion as well as lots are eliminated from the figures.
| Change in market value, year 2008, EUR million | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Total portfolio | Market value, EUR million |
Total | Average yield requirement, % |
Average market rent, EUR/ sq.m./month |
Average operating ex penses, EUR/ sq.m./month |
||||
| 31 Dec. 08 | 31 Dec. 07 | 31 Dec. 08 | 31 Dec. 07 | 31 Dec. 08 | 31 Dec. 08 | ||||
| Finland | |||||||||
| Helsinki Metropolitan Area | 793.1 | 878.3 | 0.4 | -90.2 | -89.8 | 6.1 | 5.4 | 24.30 | 5.50 |
| Other areas in Finland | 687.1 | 708.6 | 0.4 | -64.8 | -64.5 | 6.7 | 6.0 | 19.10 | 3.90 |
| Finland, total | 1,480.2 | 1,587.0 | 0.7 | -155.0 | -154.3 | 6.4 | 5.7 | 21.90 | 4.80 |
| Sweden | |||||||||
| Stockholm area and Umeå | 331.0 | 425.6 | 0.0 | -54.3 | -54.3 | 6.3 | 5.3 | 12.80 | 4.00 |
| Gothenburg area | 65.1 | 91.9 | 0.0 | -15.8 | -15.8 | 7.1 | 5.9 | 9.80 | 3.40 |
| Sweden, total | 396.1 | 517.5 | 0.0 | -70.1 | -70.1 | 6.4 | 5.4 | 12.30 | 3.90 |
| Baltic Countries | |||||||||
| Estonia | 132.3 | 93.2 | 14.6 | -3.3 | 11.3 | 7.3 | 6.3 | 20.30 | 4.40 |
| Lithuania | 15.0 | 18.0 | 0.0 | -3.0 | -3.0 | 8.1 | 6.7 | 19.90 | 6.80 |
| Baltic Countries, total | 147.3 | 111.2 | 14.6 | -6.3 | 8.3 | 7.4 | 6.4 | 20.20 | 4.60 |
| Total portfolio | 2,023.6 | 2,215.7 | 15.3 | -231.4 | -216.1 | 6.4 | 5.6 | 19.90 | 4.60 |
| Like-for-like properties | |||||||||
| Finland | |||||||||
| Helsinki Metropolitan Area | 422.5 | 475.4 | 0.0 | -58.7 | -58.7 | ||||
| Other areas in Finland | 435.0 | 464.7 | 0.4 | -32.7 | -32.4 | ||||
| Finland, total | 857.5 | 940.2 | 0.4 | -91.4 | -91.0 | ||||
| Sweden | |||||||||
| Stockholm area | 162.6 | 213.5 | 0.0 | -24.3 | -24.3 | ||||
| Gothenburg area | 65.1 | 91.9 | 0.0 | -15.8 | -15.8 | ||||
| Sweden, total | 227.7 | 305.4 | 0.0 | -40.1 | -40.1 | ||||
| Baltic Countries | |||||||||
| Lithuania | 15.0 | 18.0 | 0.0 | -3.0 | -3.0 | ||||
| Like-for-like properties, total | 1,100.2 | 1,263.6 | 0.4 | -134.5 | -134.1 |
| Number of lease | Citycon's GLA, | Leased area, | Average rent, | |
|---|---|---|---|---|
| agreements | sq.m. | sq.m. | EUR/sq.m./month | |
| Finland | ||||
| Status 1 Jan. 2008 | 1,758 | 594,180 | 532,390 | 17.6 |
| Leases started | ||||
| New or extended leases | 452 | 2,700 | 79,130 | 21.1 |
| Acquisitions | 11 | 4,500 | 3,450 | 12.9 |
| Leases ended | ||||
| Expired, fixed-term leases | 137 | 22,280 | 19.2 | |
| Terminated, until-further-notice leases | 240 | 50,160 | 16.6 | |
| Leases terminated due to development projects | 49 | 8,500 | 13.6 | |
| Divestments | 630 | |||
| Status 31 Dec. 2008 | 1,795 | 600,750 | 534,030 | 18.6 |
| Sweden Status 1 Jan. 2008 |
1,713 | 283,700 | 270,090 | 12.5 |
| Leases started | ||||
| New or extended leases | 58 | 15,340 | 17.0 | |
| Acquisitions | ||||
| Leases ended | ||||
| Expired, fixed-term leases | 31 | 8,310 | 16.5 | |
| Terminated, until-further-notice leases | 26 | 7,040 | 9.8 | |
| Leases terminated due to development projects | 1 | 200 | 12.1 | |
| Status 31 Dec. 2008 | 1,713 | 282,700 | 269,880 | 12.8 |
| Baltic Countries | ||||
| Status 1 Jan. 2008 Leases started |
229 | 46,100 | 44,450 | 15.8 |
| New or extended leases | 62 | 8,100 | 30,490 | 15.7 |
| Acquisitions | ||||
| Leases ended | ||||
| Expired, fixed-term leases | ||||
| Terminated, until-further-notice leases | 8 | 430 | 27.1 | |
| Leases terminated due to development projects | 49 | 20,590 | 11.1 | |
| Status 31 Dec. 2008 | 234 | 54,200 | 53,920 | 19.0 |
| Completed development projects in 2007–2008 | Actual cumulative |
||||||
|---|---|---|---|---|---|---|---|
| Property | Location | Country | Area, sq.m.1) |
Post development area, sq.m. |
Total estimated investment, EUR million 2) |
CAPEX by the end of the period, EUR million |
Additional information |
| Total refurbishment and extension of the retail premises of the existing shopping | |||||||
| Trio | Lahti | Finland | 32,300 | 35,000 | 60 | 58.3 | centre. The project was carried out in two stages and the entire project was completed in autumn 2008 as planned. Citycon's LEED pilot project. |
| New shopping centre consisting of two parts: new development and redevel- | |||||||
| opment of the old retail centre. The new section was opened in April 2007 as | |||||||
| Duo | Tampere | Finland | 5,000 | 13,000 3) | 27.3 | 25.9 | planned and redevelopment of the existing premises was completed in Oct. 2007. |
| New retail centre consisting of two buildings including four retail premises. | |||||||
| All premises are leased. The title to the centre was transferred to Citycon as | |||||||
| Lillinkulma | Kaarina | Finland | - | 7,500 | 8.2 | 10.9 | the project was completed in May 2007 as scheduled. |
| New retail building. The title to the property was transferred to Citycon after | |||||||
| Lentola | Kangasala | Finland | - | 12,000 | 16.6 | 16.6 | the completion of the project in Nov. 2007. |
| Redevelopment of a retail property (redevelopment area approx. 4,000 sq.m.) | |||||||
| Linjuri | Salo | Finland | 9,000 | 9,300 | 1.8 | 1.8 | into a shopping centre was completed in Dec. 2007. |
1) Leasable area owned by Citycon before the project start. 2) New capital tied on the project. 3) Owned by Citycon.
| Development projects in progress on 31 Dec. 2008 | Actual | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Property | Location | Market value, EUR million Country 31 Dec. 2008 |
Area, sq.m. 1) |
Post development area, sq.m. |
Total estimated investment, EUR million 2) |
cumulative CAPEX by the end of the year, EUR million |
Target year of completion |
Additional information | |
| Liljeholmstorget | Stockholm | Sweden | 67 | 20,100 | 29,000 retail + 11,800 offices |
130 | 70.7 | 2009 | Construction of a new shopping centre south of Stockholm city centre. A major traffic hub and the whole area is being redeveloped into an attractive residential neighbourhood. The existing building is totally refurbished and a new shopping centre is currently being build adjacent to a subway station. Underground parking. Post-development area incl. parking 91,000 sq.m. Citycon's LEED pilot project. |
| Rocca al Mare | Tallinn | Estonia | 117 | 28,600 | 53,500 | 64.3 | 36.6 | 2009 | Refurbishment and major extension of the existing shopping centre. The first phase, which included the extended Prisma-hypermarket, was opened fully let on 1 October 2008. Citycon's LEED pilot project. The second phase of the project will open in May 2009 and the entire new Rocca al Mare is expected to open for Chirstmas 2009. |
| Torikeskus | Seinäjoki | Finland | 13 | 11,300 | 11,500 | 4 | 2.6 | 2009 | Refurbishment of the interiors of the shopping centre underway. |
1) Leasable area owned by Citycon. 2) New capital tied on the project.
Citycon is analysing opportunities for the development and/extension of for example the properties below. Neither an alteration of city plan has been applied for nor any other official decisions made.
| Property | Location | Country | Market value, EUR million 31 Dec. 2008 |
Area, sq.m. |
Additional information |
|---|---|---|---|---|---|
| Vacant plot of approximately 42,000 sq.m. with 20,000 sq.m. in current permitted residential building right. | |||||
| Ultima | Vantaa | Finland | 4 | 0 | Possibility to use the property as a consideration in potential transactions. |
| Valtari | Kouvola | Finland | 5 | 7,600 | Opportunities to redevelop the property are analysed. |
| Columbus | Helsinki | Finland | 75 | 20,400 | Opportunities to expand the shopping centre are reviewed. |
| Sampokeskus | Rovaniemi | Finland | 25 | 13,600 | Opportunities to redevelop the property are analysed. |
| Kaarinan liiketalo | Kaarina | Finland | 7 | 9,400 | The redevelopment of the existing retail property in line with the development plan of the town centre is analysed. |
| Tullintori | Tampere | Finland | 9 | 10,300 | Refurbishment on the property is under consideration. |
| Hakunila | Vantaa | Finland | 5 | 3,000 | Opportunities to redevelop the property are analysed. |
| Backa | Gothenburg | Sweden | 6 | 7,800 | Opportunities to develop the property are analysed. |
| Fruängen Centrum | Stockholm | Sweden | 12 | 15,000 | Opportunities to refurbish and possibly extend the property are analysed. |
| Lindome | Gothenburg | Sweden | 6 | 7,800 | Possibilities to build residential units adjoining the retail centre under review. |
| Liljeholmstorget, phase II | Stockholm | Sweden | 67 | 20,000 | Possibilities to extend existing centre and build residential units adjoining the shopping centre under review. |
Citycon's Board of Directors has not yet made a decision on the development project, but it is under planning, an alteration of the city plan is pending or Citycon (or its partner) has a site reservation.
| EUR million Project investment 31 Dec. area,, need, project year of Property Location Country 2008 sq.m. 1) EUR mill.2) launch completion Additional information Refurbishment and extension of the existing shopping centre. The refurbishment of interior premises completed. Lippulaiva Espoo Finland 48.3 35,000 60-70 2010 2012 Planning of the extension project continues. Åkersberga Centrum6) Österåker Sweden 42.6 31,000 45 2009 2011 Refurbishment and extension of the shopping centre. Redevelopment and extension of the shopping centre. In the first phase the centre will be refurbished and extented slightly, the project (approx. EUR 6 million) is on-going and included in the figure. The second phase includes remarkable Tumba Centrum Stockholm Sweden 47.4 38,500 35–37 2009 2012 redevelopment and extension and is planned to start 2011. Extension of the shopping centre in two stages, the first stage is planned to begin and to be completed in 2009, Iso Omena Espoo Finland 305.6 5,000, 4) 15 2009 2010 and the second phase in 2010. The shopping centre may offer further possibilities for extension in the future. Refurbishment of interior premises planned to be carried out in 2009 (EUR 6 -7 million). Alteration of city plan pending, Espoontori Espoo Finland 31.6 24,000 60–70 2012 2014 facilitating the extension and refurbishment of the existing shopping centre. 3) Myyrmanni Vantaa Finland 158.4 11,000 11–13 2010 2010 The second floor of the shopping centre will be refurbished into a fashion world. Extension of the shopping centre. The City of Vantaa granted a site reservation to Citycon in January 2009 for the Myyrmanni 25,000–30,000 30–35 2011 2013 former health care centre's plot. The extension will also include residential units but Citycon will not invest in them. The second phase of the shopping centre Myyrmanni's extension, including the construction of Prisma hypermarket to the shopping centre's immediate vicinity. In January 2009, the City of Vantaa granted a site reservation to Citycon also for a so called Paalutori plot, located on the other side of the centre. Parking is planned to be transferred underground. The extension will also include residential units, but Citycon will not invest in them. Planned to launch the project Myyrmanni 30,000–35,000 30–35 2011 2014 following the extension to be carried out on the health care centre's plot. 3) Redevelopment of the Galleria block into a shopping centre in co-operation with the block's and the adjacent block's other property owners. The other main owner is retail cooperative Arina. The estimated investment need for the whole, project totals 130-140 EUR million, final allocation of the costs not agreed upon. The project includes the acquisition and refurbishment of the adjoining property (approx. 11,000 sq.m.) and its connection to the existing centre as well as Galleria Oulu Finland 8.9 17,000 50–55 2011 2013 an underground parking facility. A new commercial concept ready. 3) Koskikeskus Tampere Finland 114.8 2,0005) 8–12 2009 2010 Refurbishment of interior premises of the shopping centre underway, the project started in 2007. Myllypuro Helsinki Finland 0.5 7,400 20 2010 2012 Building a new retail centre replacing the existing one. Redevelopment and extension of the existing building into a new shopping centre. Commercial concept of the project Kuopion Anttila Kuopio Finland 22.0 15,000 35–40 2011 2013 ready. The project has been postponed due to more difficult market conditions. 3) Refurbishment of interior premises of the existing shopping centre. The contemplated redevelopment and extension project as well as the related zoning has not proceeded according to the earlier plans since the shareholders of Heikintori 6) Espoo Finland 11.8 23,000 2–4 2010 2010 the shopping centre company do not have a common understanding on the project. Building a new shopping centre replacing the existing retail centre. Negotiations with the possible final owners of Martinlaakso Vantaa Finland 3.9 7,000–8,000 25–30 2009 2011 the residential units on-going. Laajasalo Helsinki Finland 3.8 8,000 25–30 2012 2013 Building a new retail centre replacing the existing one. 3) Refurbishment and extension of the existing shopping centre under planning. Citycon purchased the adjacent plot for IsoKristiina Lappeenranta Finland 34.2 25,000 60–70 2010 2013 the extension in February 2009. Commercial concept as well as the city plan ready. The refurbishment of Hansa property located next to Trio. The goal is to connect the property better and more commercially to Trio. Alteration of the city plan pending to allow building of retail premises on the bridge connecting Hansa-keskus Lahti Finland 21.3 8,000 8 2009 2009 Trio and Hansa, over the street of Vapaudenkatu. Jyväskylän Forum Jyväskylä Finland 57.6 10,000 15 2010 2011 Refurbishment of interior premises of the shopping centre. Refurbisment of the retail premises in two phases. The first EUR 1.5 million and 2,500 sq.m. phase is on-going and Porin Anttila Pori Finland 4.6 7,600 3 2009 2010 ready in March 2009. The entire project ready in 2010. Citycon has agreed with the shopping centre's minority shareholder on the redevelopment and extension of the shopping Stenungs Torg 6) Stenungsund Sweden 38.4 30,000 25–30 2009 2011 centre. The estimated investment refers to Citycon's share. First phase started in January 2009. Strömpilen 6) Umeå Sweden 42.0 40, 000 54 2009 2011 Refurbishment and extension of the shopping centre. Länken 6) Umeå Sweden 12.4 5,000 4 2009 2009 Refurbishment and extension of the retail property. Jakobsbergs Centrum Järfälla Sweden 93.3 8,000 3 2009 2009 Redevelopment and extension of the shopping centre. Started in January 2009. Åkermyntan Centrum Hässelby Sweden 10.0 8,500 2–10 2010 2011 Redevelopment of the shopping centre, building of new residential units adjoining the centre under review. Magistral Tallinn Estonia 15.2 10,000 10 2010 2011 Refurbishment and extension of the shopping centre. |
Market value, | Estimated | Target year of |
Target | ||
|---|---|---|---|---|---|---|
1) The project area refers to the combination of the area of the existing premises under refurbishment owned by Citycon and the area of the extension. 2) The amount of investment needed will change and become more precise as the planning process proceeds. The figure is the best current estimate. 3) The schedule for the project completion and/or launch involves risks associated with city planning. 4) The project area refers only to the area of the planned extension. 5) The leasable area may be larger than indicated. 6) Partly-owned property.
Citycon is the market leader in the Finnish shopping centre business and holds a strong position in Sweden and a firm foothold in the Baltic Countries. The company's geographic business units are divided into two business areas, Retail Properties and Property Development. The Finnish unit also has a Commercial Development function.
Citycon combines property investment with shopping centre business. This differentiates Citycon from many other real estate investment companies which principally focus on buying, selling and owning properties.
Citycon's core operations in property investment include acquisitions and divestments carried out based on its knowledge of the local markets, sustainable property development and financing. These operations form the foundation of Citycon's shopping centre business.
Cafes and Restaurants 8% Health and Beauty 8% Other Specialty Stores 2% Services and Offices 5% Clothes and Fashion 22% Groceries 24% Department Stores 11%
Leisure, Home Supplies 20%
Shopping centre business refers to the management and development of Citycon's products: shopping centres. In practice, this means ensuring that these shopping centres attract consumers, thus creating foundation for the tenant's success. Key operations include leasing retail premises, and marketing and maintenance using Citycon's own, local personnel. Citycon steers the management and development of shopping centres in a centralised manner, using common operating models and thus creating synergies. Knowledge of the local retail business, purchasing power and consumer behaviour enable success in competition between retail properties.
Citycon's primary products are shopping centres. However, the company's offering also includes other retail properties such as retail centres, supermarkets and other large retail units.
Citycon's income mainly comes from the rental income generated by its retail properties. The company's major lessees include speciality and grocery chains as well as cafés, restaurants, banks and financial institutions.
In Finland, key tenants include the various Kesko chains, such as the K-citymarket hypermarkets, the K-market supermarkets and the Anttila department stores, accounting for 26.6 per cent (2007: 28.2%) of the company's total rental income. These leases are based on agreements concluded on a premises-by-premises basis, which is why the number of lease agreements between Citycon and Kesko totals 83 covering 45 premises. Other major tenants include grocery retailers HOK-Elanto and S-Group, fashion and clothing chain stores such as Seppälä (Stockmann), H&M, KappAhl and Lindex and the bank Nordea.
In Sweden, the grocery chains ICA, COOP and Axfood represent the most significant commercial tenants. However, due to the diversity of Swedish shopping and retail centres, the Stockholm County Council (Stockholms Läns Landsting) was one of the largest tenants.
In the Baltic countries, the largest single tenant was Prisma, a Finnish hypermarket chain, while both the Magistral and Mandarinas shopping centres' anchor tenant was the Swedish RIMI.
Citycon wants to lead the way and promote sustainable development in the shopping centre business. The location of Citycon's shopping centres in city centres, local centres or generally adjacent to major traffic flows as well as diverse public transport connections to the centres makes them well positioned to face the demands of sustainable development.
Environmental issues are increasingly affecting the selection of retail property, and as general awareness of such issues grows, customers are becoming more demanding. Furthermore stricter legislation regarding emissions, waste and energy efficiency will affect operations in the future.
To further develop its operations, Citycon has surveyed its tenants' views on measures that promote sustainable development and has assembled a list of tangible proposals for improvement. The survey covered 350 tenants and store managers in Finland and Sweden, and interviews of another 13 persons responsible for environmental affairs in major retail companies.
| Baltic | ||||
|---|---|---|---|---|
| Finland | Sweden | Countries | Total | |
| Number of leases started | ||||
| during the year | 452 | 58 | 62 | 572 |
| Total area of leases | ||||
| started, sq.m. | 79,130 | 15,340 | 30,490 | 124,960 |
| Occupancy rate at the end | ||||
| of the year, % | 95.7 | 96.0 | 99.8 | 96.0 |
| Average length of | ||||
| lease portfolio at the end | ||||
| of the year, year | 3.1 | 2.4 | 6.8 | 3.2 |
The survey indicated that retailers have a positive attitude towards developing environmental affairs in shopping centres and consider it as an increasing requirement in their operations. Forerunners in the retail sector are already placing demands on their partners, such as shopping centres.
| Total, EUR million | |
|---|---|
| Finland | |
| Helsinki Metropolitan Area | 793.1 |
| Other areas in Finland | 687.1 |
| Sweden | |
| Stockholm area and Umeå | 331.0 |
| Gothenburg area | 65.1 |
| Baltic Countries | |
| Estonia and Lithuania | 147.3 |
| Total | 2,023.6 |
Based on market value of property portfolio on 31 Dec. 2008.
| Finland | Sweden | Baltic Countries |
Total | |
|---|---|---|---|---|
| Citycon's GLA, sq.m. | 600,750 | 282,700 | 54,200 | 937,650 |
| Gross rental income, | ||||
| EUR million | 122.5 | 41.1 | 9.3 | 173.0 |
| Net rental income, EUR million | 90.9 | 24.1 | 6.8 | 121.8 |
| Net rental income yield, % | 6.0 | 5.0 | 6.2 | 5.8 |
| Net rental income yield, | ||||
| like-for-like properties, % | 6.5 | 5.4 | 7.2 | 6.3 |
| Proportion of rental income, % | |
|---|---|
| Kesko | 26.6 |
| S-Group | |
| Stockmann | |
| ICA Sverige AB | |
| Tokmanni | |
| Top 5, total | 38.4 |
Citycon has initiated a Green Shopping Centre Management programme to foster sustainable development in all shopping centres owned by the company. The programme, to be implemented in 2009, aims to promote energy efficiency, waste processing, recycling and other operations that support sustainable development. Green Shopping Centre Management programme aims for concrete action, financial incentives and clear communications about environmental issues.
In 2009, Citycon participates in the largest climate change campaign in Finland called Ilmastotalkoot.
74.7% Finland of the total net rental income
Citycon is the market leader in the Finnish shopping centre business. Shopping centre ownership and development is an independent line of business, and Citycon is the only player in the field exclusively focused on long-term investment in shopping centres. Citycon can offer international and Finnish retail and service operators an extensive retail property network in Finland. In addition to shopping centres, Citycon owns 43 other retail properties in Finland, which constitute an important element in its property portfolio. Citycon sees high potential in the redevelopment of these properties, particularly old retail centres in the Helsinki Metropolitan Area.
Citycon's market share of the Finnish shopping centremarket was around 24 per cent in 2008 (source: Entrecon). The company's 22 shopping centres attracted a total of some 82.6 million customers.
Citycon's largest project in Finland, the redevelopment of the Trio shopping centre, proceeded as planned. Citycon's total investment
Cafes and Restaurants 9% Health and Beauty 8% Other Specialty Stores 2% Services and Offices 5% Clothes and Fashion 23% Groceries 21% Department Stores 16% Leisure, Home Supplies 16% in Trio is around EUR 60 million. The second stage of the project was completed on schedule and new premises were opened to the public in November. At the year-end, 95.3 per cent of Trio's premises were leased. As a meeting point in city centre, Trio's offerings focus on fashion and beauty, and on cafeteria and restaurant services. Plans are in the pipeline regarding the commercial development of the adjacent so-called Hansa property and linking it more closely with Trio. The shopping centre has been open for business during the entire redevelopment project. Trio is an excellent example of how a shopping centre that meets the customers' needs and expectations can bring life to a city centre.
Citycon sold a 40 per cent minority interest in the Iso Omena shopping centre to a subsidiary of GIC Real Estate. The debt-free sale price of EUR 131.6 million represents 40 per cent of the EUR 329 million purchase price Citycon originally paid. This divestment released capital for the development of other retail properties. Co-ownership with a major international investor was originally Citycon's objective when it acquired Iso Omena in September 2007. Citycon is responsible for the operations and management of Iso Omena. The first stage of Iso Omena's extension is being prepared with the objective of starting the extension project in the first half of 2009. In addition to building an extension, other development objectives include improving the functionality of the shopping centre and expanding the specialty store service offerings on the second floor. The construction of the subway line from Helsinki to Espoo will provide excellent infrastructure support to the Iso Omena extension. The Matinkylä subway station will be located right next to the shopping centre.
During the year, a large number of research and development projects such as market studies associated with the commercial concept and projects to promote sustainable development were carried out in Finland. In addition, measures were taken to improve shopping centre operations, including tenant mix arrangements, supplementary services such as parking and recycling facilities, and shopping centre marketing by cluster. All shopping centres took part in the Safe and Clean Shopping Centre project. Within this framework, measures will be taken to increase the attractiveness and functionality of shopping centres and enhance co-operation with tenants, which in turn will help secure customer flows and cash flows in the future. →
| 2008 | 2007 | |
|---|---|---|
| Gross rental income, EUR million | 122.5 | 100.7 |
| Turnover, EUR million | 126.8 | 104.3 |
| Net rental income, EUR million | 90.9 | 75.7 |
| Net fair value losses/gains on investment property, EUR million | -154.3 | 148.1 |
| Operating loss/profit, EUR million | -62.9 | 218.4 |
| Capital expenditure (gross), EUR million | 69.2 | 429.1 |
| Market value of investment properties, EUR million | 1,480.2 | 1,587.0 |
| Net rental yield, % | 6.0 | 6.2 |
| Net rental yield, like-for-like properties, % | 6.5 | 6.6 |
Shopping centres have different roles in a consumer's life. On this basis Citycon has classified its shopping centres and applies common marketing and management methods within these categories. This creates efficiency and synergies. Now introduced in Finland, the operating model will be extended to the company's other business units in the near future. The shopping centre Iso Omena features many characteristics of Local Shopping Centres. However, its catchment area is wider and offering more extensive than Citycon's other Local Shopping Centres.
| Meeting Points in City Centres | Local Shopping Centres | Partners in Everyday Life Centres | |
|---|---|---|---|
| Forum • Galleria • Heikintori IsoKarhu • IsoKristiina • Jyväskeskus Koskikeskus • Sampokeskus Torikeskus • Trio |
Columbus • Duo • Koskikara Lippulaiva • Myyrmanni Tikkuri • Valtari |
Espoontori • Isomyyri Linjuri • Tullintori |
|
| Brand's role in life |
Beating heart of the city, offering irresistible satisfaction of shopping. |
Close to its community, fulfilling all basic family needs. |
Everyday service centre for busy people. |
| Properties | Entertaining. Offering is deep, not neces sarily that wide. Perfect for "hanging around". |
Offering is wide, not necessarily that deep. Public services. |
Convenient and "easy going". Fast. Limited assortment. "Compact" size. |
| Territory | Leasure time. Social interaction. |
Family everyday and festivities. |
Everyday routines. |
| SEILAA SUNNUNTAINA SHOPPAILEMAAN. ALKAA! PYSY SYYSMUODIN KYYDISSÄ KESÄALE |
Kukita ja kakuta äiti 11.5. MATKAN VARRELTA KAIKKI SUJUVAN |
AVOINNA ark. 7–21.30, la 7–19, su 10–21.30. Liikekohtaiset aukioloajat www.columbus.fi .
Avoinna: K-supermarket Kulinaari ma–pe 7-21, la 7–18, muiden liikkeiden aukioloajat liikekohtaisia.
ARJEN TYKÖTARPEET JA PALVELUT.
www.columbus.fi
KOSKIKESKUKSEN MYYMÄLÄT PALVELEVAT ARKISIN 10-20, LAUANTAISIN 10-18 JA KESÄSUNNUNTAISIN 12-17. Osalla yrityksistämme on poikkeavat aukioloajat.
www.kauppakeskusforum.fi www.jyvaskeskus.fi
In the near future, the Finnish business operations will focus on overall development of the properties. While major extension projects are in development pipeline, the number of small scale development efforts aimed at improving the functionality and attractiveness of the retail properties is also remarkable. Costefficient maintenance and continuous commercial development of the retail properties will strengthen their position.
Finnish operations will also focus on integrating speciality leasing, in other words leasing of RMUs (Retail Merchandising Units) and media space in shopping centres, more closely into the overall service palette of the centres. The service is entitled Citycon Media and its objective is to centrally offer customers RMUs and media space in all Citycon-owned and operated shopping centres. The key idea underlying Citycon Media's operations is that shopping centres themselves are media that attract the attention of millions of consumers annually, in other words provide vital contacts for advertisers.
Location is one of the major strengths of Citycon's shopping centres. When markets slow down, commercial centres tend to shrink, which makes the location of a retail property all the more important. The location of Citycon's shopping centres in city centres, in local centres or in general adjacent to major traffic flows makes them well positioned to face the toughening competitive situation and to enhance sustainable development.
| Proportion of rental income, % | |
|---|---|
| Kesko | |
| S-Group | |
| Stockmann/Seppälä/Lindex | |
| Tokmanni | |
| Rautakirja | |
| Top 5, total | 48.1 |
Cafes and Restaurants 12% Health and Beauty 11% Other Specialty Stores 6% Services and Offices 2% Clothes and Fashion 35% Groceries 6% Department Stores 9% Leisure, Home Supplies 19%
Cafes and Restaurants 6% Health and Beauty 5% Other Specialty Stores 3% Services and Offices 7% Clothes and Fashion 10% Groceries 31% Department Stores 24% Leisure, Home Supplies 14%
Cafes and Restaurants 8% Health and Beauty 6% Other Specialty Stores 1% Services and Offices 8% Clothes and Fashion 7% Groceries 32% Department Stores 19% Leisure, Home Supplies 19%
In several shopping centres, grocery retailing is the anchor that maintains a steady footfall.
| Entire retail property | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Property | Location | Gross leasable area, total, sq.m. |
Retail premises, total, sq.m. |
Sales, EUR million | Number of visitors, million | Catchment area population |
Citycon's gross leasable area, sq.m. |
||
| 2008 | 2007 | 2008 | 2007 | ||||||
| Helsinki Metropolitan Area | |||||||||
| Columbus | Helsinki | 21,100 | 19,200 | 99.7 | 92.8 | 7.5 | 7.5 | 33,000 | 21,100 |
| Iso Omena | Espoo | 60,600 | 47,900 | 222.9 | 212.2 | 8.4 | 8.4 | 193,400 | 60,600 |
| Espoontori 1) | Espoo | 23,800 | 12,000 | 30.9 | 31.1 | 3.3 | 3.2 | 52,400 | 17,300 |
| Heikintori | Espoo | 9,500 | 7,000 | 20.5 | 27.0 * | 2.2 | 2.2 | 187,100 | 5,800 |
| Lippulaiva 2) | Espoo | 23,000 | 19,400 | 70.8 | 65.6 | 3.7 | 3.6 | 44,500 | 23,000 |
| Isomyyri | Vantaa | 14,800 | 8,800 | 34.2 | 32.9 | 2.6 | 2.5 | 47,500 | 10,900 |
| Myyrmanni | Vantaa | 42,000 | 32,000 | 159.3 | 157.2 | 7.0 | 6.9 | 67,400 | 40,300 |
| Tikkuri | Vantaa | 15,300 | 8,100 | 31.9 | 29.9 | 2.9 | 2.7 | 166,900 | 10,700 |
| Other areas in Finland | |||||||||
| Jyväskeskus | Jyväskylä | 12,000 | 7,600 | 22.5 | 21.8 | 4.0 | 4.0 | 134,200 | 5,800 |
| Forum | Jyväskylä | 23,000 | 18,800 | 66.1 | 64.5 | 6.9 | 6.5 | 134,200 | 17,500 |
| Trio | Lahti | 48,900 | 34,600 | 62.2 | 61.4 | 5.8 | 6.2 | 118,600 | 45,700 |
| IsoKristiina | Lappeenranta | 19,800 | 14,100 | 47.0 | 46.7 | 2.2 | 2.2 | 85,000 | 18 ,700 |
| Galleria | Oulu | 4,200 | 2,600 | 8.0 | 8.2 | 1 | 1.0 | 197,700 | 3,500 |
| IsoKarhu | Pori | 14,800 | 12,300 | 37.4 | 42.1 | 3.4 | 3.8 | 91,500 | 14,800 |
| Koskikeskus | Tampere | 28,800 | 23,900 | 117.8 | 119.5 | 5.7 | 5.7 | 274,800 | 26,100 |
| Tullintori | Tampere | 23,800 | 9,100 | 15.8 | 14.9 | 2.7 | 3.0 | 166,000 | 10,300 |
| Duo | Tampere | 13,500 | 11,900 | 48.2 | 29.6 | 3.7 | 2.5 | 21,200 * | 13,000 |
| Sampokeskus | Rovaniemi | 14,000 | 7,800 | 20.0 | 21.7 | 2.8 | 3.3 | 87,500 | 14,000 |
| Torikeskus | Seinäjoki | 11,400 | 7,100 | 16.3 | 15.4 | 1.3 | 1.3 | 109,600 | 11,500 |
| Koskikara | Valkeakoski | 10,400 | 10,000 | 32.7 | 32.3 | 2.2 | 2.2 | 20,500 | 5,800 |
| Valtari | Kouvola | 7,600 | 6,400 | 4.0 * | 3.8 * | 0.5 | 0.5 | 32,000 * | 7,600 |
| Linjuri | Salo | 10,600 | 8,100 | 34.5 | - | 2.8 | - | 25,900 * | 9,300 |
| Largest other retail properties | |||||||||
| Porin Asema-Aukio Koy | Pori | 18,900 | 10,900 | ||||||
| Sinikalliontie 1 | Espoo | 15,700 | 10,600 | ||||||
| Lentola | Kangasala | 11,900 | 11,700 | ||||||
| Kauppakatu 41 | Kuopio | 11,200 | 7,300 | ||||||
| Talvikkitie 7–9 | Vantaa | 9,800 | 9,700 | ||||||
| Kaarinan Liiketalo Koy | Kaarina | 9,200 | 5,200 | ||||||
| Total | 529,600 | 383,200 | 1,202.7 | 1,130.6 | 82.6 | 79.2 | 393,300 |
1) Incl. gross leasable area of Espoon Asemakuja and Asematori. 2) Incl. gross leasable area of Ulappatori. *) Estimate
Citycon's operations in Sweden concentrate on the country's major growth centres Stockholm and Gothenburg, and in addition to this, Umeå. During its three years of operation in Sweden, Citycon has achieved a substantial position in the Swedish shopping centre market, particularly owing to the company's shopping centre acquisitions conducted in 2006 and 2007, its development-oriented business and its operating methods fostering sustainable development. Currently, Citycon is Sweden's ninth largest retail property owner (source: Fastighets Värden).
The Swedish operations have specialised in the modernisation and redevelopment of shopping centres originally constructed by municipal authorities. Within this specialisation, there are only a few development-oriented players. These centres provide extensive development potential, particularly with regard to their location, since they are often situated in the middle of dense settlements and benefit from good transport connections.
Citycon's strength lies in its ability to develop an extensive range of services and offerings for the whole community in co-operation with its lessees and other players. Consequently, Citycon's activities have attracted positive comments from Swedish municipal and elected officials, among others. Citycon also stands out
Cafes and Restaurants 6% Health and Beauty 6% Services and Offices 10% Clothes and Fashion 22% Groceries 35% Leisure, Home Supplies 21% positively thanks to its sustainable development projects such as the Green Shopping Centre Management programme, Liljeholmstorget's LEED project and the company's active efforts in the new Green Group of the Nordic Council of Shopping Centers (NCSC).
Citycon's Swedish operations focused on the construction of the shopping centre Liljeholmstorget. Liljeholmstorget is Citycon's largest ever development project, with a total investment of approximately EUR 180 million, including the shopping centre project's acquisition price. Liljeholmstorget is located in northwest Stockholm, in the heart of a popular, modernised and growing residential area. Liljeholmen is a public transport hub and one of Stockholm's liveliest metro and local train stops.
During the year, the project advanced within the planned budget and schedule, and approximately 60 per cent of Liljeholmstorget's leases had been agreed on by the end of the year. After having secured the anchor tenants, Citycon now concentrates on negotiations with secondary anchors and specialty shops, which form an equally important part of a successful commercial concept. It is estimated that the new shopping centre will open its doors in late 2009, by which time it will host some 90 shops and
In addition, Liljeholmstorget is Citycon's main sustainable construction project and the company is applying the international LEED (Leadership in Energy and Environmental Design) certification for it. Its possibilities of obtaining this certification are good since the shopping centre is being built sustainably, using the latest technologies for conserving energy and improving water efficiency.
Citycon continued to build up its Swedish organisation in 2008. Recruitments and operational development focused on shopping-centre management and preparation, planning and implementation of (re)development projects.
The Swedish operations' main target for year 2009 is to lease all of Liljeholmstorget's retail premises, open the shopping centre according to the planned schedule and budget and to ensure the centre's effective marketing.
Another target is to increase cost efficiency in retail properties' maintenance and administration, with the priority on rene-
| 2008 | 2007 | |
|---|---|---|
| Gross rental income, EUR million | 41.1 | 35.4 |
| Turnover, EUR million | 41.9 | 39.0 |
| Net rental income, EUR million | 24.1 | 21.6 |
| Net fair value losses/gains on investment property, EUR million | -70.1 | 54.7 |
| Operating loss/profit, EUR million | -49.1 | 73.4 |
| Capital expenditure (gross), EUR million | 65.6 | 142.4 |
| Fair market value of investment properties, EUR million | 396.1 | 517.5 |
| Net rental yield, % | 5.0 | 4.6 |
| Net rental yield, like-for-like properties, % | 5.4 | 4.9 |
Citycon organised its first ever Capital Markets Day in Stockholm on 3 September 2008. To close the day, the attending investors, analysts and journalists visited the construction site of the shopping centre Liljeholmstorget.
gotiating expiring lease agreements and reviewing maintenance fees included in agreements.
Nearly all of the Swedish properties provide modernisation and extension potential in the long term. Planned redevelopment projects include the modernisation and extension of the shopping centres Åkersberga Centrum and Stenungs Torg. Citycon intents to launch Åkersberga Centrum's project in 2009 and that of Stenungs Torg in 2011. Information concerning other development and redevelopment projects is provided on pages 20–21 of this Annual Report. The initiation of these projects requires an investment decision by the Citycon's Board of Directors.
Citycon also owns residential premises in connection with Åkersberga Centrum. Since residential business is not included in Citycon's strategy, the company aims to sell these premises prior to launching the redevelopment project.
| Proportion of rental income, % | |||
|---|---|---|---|
| ICA Sverige AB | |||
| Stockholms Läns Landsting | |||
| Axfood Sverige AB | |||
| Coop Sverige AB | |||
| Västra Götalands Läns Landsting | |||
| Top 5, total | 22.4 |
Strömpilen shopping centre is a former industrial building dating back to 1920's.
| Entire retail property | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Property | Location | Gross leasable area total, sq.m |
Retail premises total, sq.m. |
Sales, EUR million | Number of visitors, million | Catchment area population |
Citycon's gross leasable area sq.m. |
||
| 2008 | 2007 | 2008 | 2007 | ||||||
| Stockholm area | |||||||||
| Åkersberga Centrum | Österåker | 33,100 | 19,700 | 55.8 | 58.4 * | 4.3 | 3.8 | 37,000 * | 33,100 |
| Åkermyntan Centrum | Hässelby | 8,400 | 6,300 | 19.5 * | 19.5 * | 0.9 * | 0.9 * | 32,000 * | 8,400 |
| Jakobsbergs Centrum | Järfälla | 67,400 | 27,300 | 61.7 | 67.3 | 5.5 | 5.5 | 82,000 | 67,400 |
| Fruängen Centrum | Stockholm | 14,600 | 6,600 | 9.0 * | 9.0 * | - | - | 33,400 * | 14,600 |
| Liljeholmstorget | Stockholm | 20,200 | 8,600 | - | - | - | - | 104,000 | 20,200 |
| Tumba Centrum | Botkyrkan | 31,400 | 14,800 | 35.1 | 35.4 | 3.4 | 3.3 | 55,000 | 31,400 |
| Umeå | |||||||||
| Strömpilen | Umeå | 25,700 | 22,300 | 103.1 | 104.5 | - | - | 109,800 | 25,700 |
| Gothenburg area | |||||||||
| Stenungs Torg | Stenungsund | 37,600 | 17,100 | 52.9 | 54.6 | 3.2 | 3.3 | 74,000 | 37,600 |
| Total | 238,400 | 122,700 | 337.1 | 348.7 | 17.3 | 16.8 | - | 238,400 |
*) Estimate
The opening of the first stage of Rocca al Mare's redevelopment and extension project on 1 October 2008 resulted in a rush. Once all three stages of the project have been completed, Rocca al Mare will be the largest shopping centre in Estonia. The entire centre, completely redeveloped, is expected to open its doors for 2009 Christmas sales, around three months earlier than originally planned.
99.8% Occupancy rate in the Baltic countries
Citycon's Baltic operations comprise shopping centres in Estonia and Lithuania, with a stronger focus being placed on the shopping centre markets in Tallinn, Estonia. After the completion of the Rocca al Mare shopping centre redevelopment project, Citycon's share of Tallinn's shopping centre markets will grow to approximately one fourth. In Tallinn, Citycon is the only active owner and long-term investor specialising in shopping centres.
Citycon monitors the Baltic market development very closely and explores opportunities to expand its business. However, the company has proceeded at a moderate pace due to the relatively small size of the markets, the turbulence experienced in the real estate and financial markets, and the limited availability of suitable properties.
The main strength of the Citycon-owned shopping centres, especially in times of slower economic growth, is their emphasis on the grocery sales.
Baltic business focused on the redevelopment of the Rocca al Mare shopping centre. This project is ahead of its original schedule and the first new section was opened to customers in October. All new
Cafes and Restaurants 2% Health and Beauty 5% Other Specialty Stores 1% Services and Offices 1% Clothes and Fashion 16% Groceries 31% Leisure, Home Supplies 44% premises have been leased. Offerings were complemented with retailers offering home decoration and leisure items, services for children, and Estonia's largest Prisma hypermarket.
Rocca al Mare is one of Tallinn's largest shopping centres in terms of its size and product and service offering. It is a conveniently located shopping centre for the whole family. Rocca al Mare is located in a fast-developing area close to Tallinn city centre, in a residential area with the highest purchasing power in Estonia. Furthermore, the nearby recreational areas and services increase Rocca al Mare's overall attraction in Tallinn.
Rocca al Mare will remain open throughout the redevelopment project, which is requiring close co-operation between Citycon, the tenants and the constructors. To minimise any inconvenience to customers and tenants and thereby to prevent any negative cash flow impacts, the order in which various redevelopment stages are completed and the relocations of tenants to new premises take place will be carefully planned and optimised. The redevelopment project is scheduled for completion in time for the Christmas season in 2009, about three months earlier than originally planned. The new Rocca al Mare will be Estonia's largest and Citycon's largest shopping centre in terms of its sales area.
General environmental awareness is only just emerging in
| 2008 | 2007 | |
|---|---|---|
| Gross rental income, EUR million | 9.3 | 7.7 |
| Turnover, EUR million | 9.6 | 8.0 |
| Net rental income, EUR million | 6.8 | 6.0 |
| Net fair value losses/gains on investment property, EUR million | 8.3 | 8.7 |
| Operating loss/profit, EUR million | 14.4 | 13.8 |
| Capital expenditure (gross), EUR million | 22.7 | 31.7 |
| Fair market value of investment properties, EUR million | 147.3 | 111.2 |
| Net rental yield, % | 6.2 | 6.2 |
| Net rental yield, like-for-like properties, % | 7.2 | 7.3 |
the Baltic countries. Citycon is a forerunner in this field, applying the principles of responsible and sustainable construction to the Rocca al Mare redevelopment project. Special attention will be paid to environmental factors such as recycling and energy consumption. Citycon is applying for international LEED certification for Rocca al Mare.
After the Rocca al Mare project has been completed, Citycon plans to launch the redevelopment of the Magistral shopping centre. Magistral can be extended by one half of its present size and turned into a versatile regional shopping centre. Magistral is also ideally located: it is right in the heart of a large residential area and accessible to more than 60,000 people. The planned project launch is 2010, but this will require an investment decision by Citycon's Board of Directors.
A major operational development area is so-called speciality leasing, in other words increasing the number of RMUs (Retail Merchandising Units) and use of media space in the shopping centres. The company has positive experiences of RMUs in Magistral and especially in Mandarinas. Tried and tested best practices will be adopted and further developed in Rocca al Mare.
At the end of 2008, nearly all of Citycon's business facilities in the Baltic countries were leased. This is a good starting point for operational development. Despite the uncertain future outlook, Citycon has full confidence in its operative viability and believes the economic trend will turn around in the long term.
Citycon aims to increase its market share in the Baltic countries. However, it will proceed with caution in a challenging market environment where it is difficult to secure financing for investments, consumer confidence in household economies is weak, and property prices are still high.
| Proportion of rental income, % | ||
|---|---|---|
| Prisma Peremarket AS | ||
| RIMI | ||
| Stockmann Oyj Abp | ||
| Olympic Invest OÜ | ||
| Olympic Casino Group AS | ||
| Top 5, total | 37.4 | The anchor of Rocca al Mare is Prisma hypermarket, which is the largest in Estonia. |
| Total | 54,200 | 53,300 | 103.1 | 107.2 | 10.7 | 10.6 | 454,000 | 54,200 | |
|---|---|---|---|---|---|---|---|---|---|
| Mandarinas | Vilnius | 8,000 | 7,900 | 22.5 | 21.9 * | 2.7 | 2.7 | 50,000 | 8,000 |
| Lithuania | |||||||||
| Magistral | Tallinn | 9,500 | 9,400 | 18.3 | 17.7 | 3.5 | 3.5 | 64,000 | 9,500 |
| Estonia Rocca al Mare |
Tallinn | 36,700 | 36,000 | 62.3 | 67.6 | 4.5 | 4.4 | 340,000 | 36,700 |
| 2008 | 2007 | 2008 | 2007 | ||||||
| Property | Location | Gross leasable area total, sq.m. |
Retail premises total, sq.m. |
Sales, EUR million | Number of visitors, million | Catchment area population |
Citycon's gross leasable area, sq.m. |
||
| Entire retail property |
*) Estimate Citycon Oyj Annual Report 2008 33
In contrast to previous years, the number of personnel at Citycon grew more moderately in 2008 and totalled 113 at the end of the year. To strengthen the organisation, new employees were recruited to support business operations as well as Group functions. Citycon continued to attract several interested job applicants, which ensured successful recruitment and an increase in Citycon's competence capital.
Over the years Citycon has grown considerably and is now in a position to provide good in-house job rotation opportunities. Several in-house transfers took place during the year, and in-house candidates were prioritised when recruiting for entirely new positions. An example of an entirely new position is that of Manager, Sustainability, which became available in Group functions at the year-end. This position was established to reinforce the selected environment-focused practices based on sustainable development, as stated in the strategy.
Citycon employs a multi-skilled group of professionals. Key competence areas include retail property management, and knowledge of the construction industry, real estate transactions and international financing. Personnel skills and competences are maintained and developed by providing training customised to address each employee's needs. In fact, it is a fairly common practice that employees attend long-term training or coaching programmes to acquire broader or deeper professional skills. Training intended for the entire personnel was offered in 2008 on a number of issues, including the renewed IT systems. In addition, the English language courses offered in small groups to everyone wishing to participate have been extremely popular.
A personnel survey conducted annually showed that personnel appreciated interesting job opportunities, the ability to work independently, and the great team spirit in their unit. The company's powerful growth accentuates the need to develop common policies and practices, and to support co-operation between units within business areas as well as between country organisations. Exchange of knowledge and experiences, especially between countries, is considered very important when operating models based on best practices are being created.
At the beginning of 2008, Citycon's first intranet was introduced to improve the Group's in-house communications and cooperation between business units. The intranet development work continues, but already in its first year the intranet was actively used by employees in their daily work. Other joint development projects worth mentioning include the revised and warmly welcomed new development discussion practice, and the equal opportunities scheme covering the entire Group. A coaching programme to support supervisor roles was organised for the Group's Finnish supervisors. In response to the positive feedback, this programme will be continued.
In 2008, Citycon established a co-operation group to address issues affecting the entire personnel. This team quickly proved to be an excellent forum for enhancing the flow of information and dialogue between employees and the employer. In addition to statutory topics, the team has been able to constructively discuss other new operating methods to be introduced, as well as current issues.
34 Citycon Oyj Annual Report 2008
→
Knowledge of the construction industry
Project management competencies
Retail property management
Knowledge of the retail business
Knowledge of land use issues
Property law
Property transactions
International financing
Marketing
Core areas of competence within Citycon
In 2008, Citycon organised its traditional Citycon Day events once again. This spring's Citycon Day was a joint event open to all personnel working for the company in different countries. This international Citycon Day covered topics that were relevant for the entire organisation. The autumn Citycon Day was arranged locally for each country organisation. In spring 2008, the Citycon Day coincided with the company's 20th anniversary.
To motivate and encourage its personnel to pursue best performances, Citycon works to improve its operations based on the development needs identified in the personnel survey. Other methods include support to supervisor work and revision of induction and development discussion practices. Citycon also values its personnel's well-being, and therefore offers employees extensive occupational health care services and financial support to fitness activities.
The company's incentive schemes provide further motivational support. Citycon's annual performance bonus scheme covers the Group's entire personnel. Bonuses are based on the Group's and the business areas' financial performance, the successful implementation of construction projects, and the employee's personal performance. The bonus payable under this bonus scheme can represent up to 10-30 per cent of the employee's annual salary. The company's long-term share-based incentive plan is intended for Group management and key personnel, and its objective is to motivate key personnel to pursue an increase in shareholder value on a long-term basis and to strengthen their commitment to the Group's business development. The reward payable under the share-based incentive plan is determined on the basis of Citycon's adjusted net cash flow from operating activities per share for 2007–2009 and the increase in net rental income, and will be paid to key personnel in 2008–2012. For more information regarding the remuneration schemes, please visit the company website at www.citycon.com/ remuneration.
In late 2008, Citycon began to prepare its human resources strategy. The objective is to prepare a human resources strategy that optimally supports the company's business strategy, translates into everyday actions, and offers a foundation and guidelines for a quality human resources policy. The strategy work has crystallised the vision of Citycon's uniqueness as a hub of skilled professionals, and the significance of common practices, collaboration and leadership skills of experts as elements that will safeguard Citycon's future success.
Citycon's income comes mainly from the rental income generated by its retail properties. In 2008, Citycon's gross rental income accounted for 97.0 per cent of its turnover. The company's turnover grew by 17.7 per cent, to EUR 178.3 million (EUR 151.4 million in 2007).
The Finnish business operations accounted for 74.7 per cent (73.2%) of net rental income, while Sweden accounted for 19.8 per cent (20.9%) and the Baltic countries for 5.6 per cent (5.8%). Net rental income totalled EUR 121.8 million (EUR 103.4 million). The property portfolio's net rental yield stood at 5.8 per cent (5.8%). The net rental yield was 6.0 per cent (6.2%) in Finland, 5.0 per cent (4.6%) in Sweden and 6.2 per cent (6.2%) in the Baltic countries.
Operating loss/profit decreased to EUR -105.0 million (EUR 298.7 million), due mainly to a change in the fair value of the property portfolio, totalling EUR -216.1 million (EUR 211.4 million). On the other hand, as a result of the completed redevelopment projects, the operating profit rose due to net rental income generated by increased and refurbished premises.
The direct result grew by 14.4 per cent, to EUR 43.8 million. This growth in the direct result derives mostly from increased net rental income. The indirect result includes EUR 5.9 million in compensation from the City of Helsinki for a premature termination of the land lease agreement in order to advance the Myllypuro development project. Furthermore, a gain of EUR 1.6 million, including tax effect, was recognised in the direct result for repurchases of convertible bonds.
Current taxes on the direct result were higher during the financial year than during the reference period, due to direct result growth and buyback of convertible bonds.
Earnings per share amounted to EUR -0.56 (EUR 1.00). The direct result per share, diluted, (undiluted EPRA EPS) came to EUR 0.20 (EUR 0.19). Net cash from operating activities per share amounted to EUR 0.21 (EUR 0.20).
Return on investment (ROI) was -1.5 per cent (16.3%) and
return on equity (ROE) stood at -15.0 per cent (23.3%). The company's per-share net asset value (NAV) was EUR 3.88 (EUR 4.82) and the per-share triple net asset value (NNNAV) was EUR 3.80 (EUR 4.42).
Citycon's reported gross capital expenditure during the year totalled EUR 157.9 million (EUR 603.9 million). Of this, property acquisitions accounted for EUR 17.4 million (EUR 531.3 million), property development for EUR 139.7 million (EUR 71.8 million) and other investments for EUR 0.8 million (EUR 0.8 million). These investments were financed with the cash flow from operating activities and existing financing arrangements.
Citycon sold a 40 per cent minority interest in the Iso Omena shopping centre to an affiliate of GIC Real Estate. The debt-free selling price, EUR 131.6 million, is equivalent to 40 per cent of the original acquisition price of EUR 329 million paid by Citycon in September 2007.
At the end of 2008, Citycon owned 33 shopping centres and 50 other retail properties. The property portfolio's year-end fair value totalled EUR 2,023.6 million, showing a total annual fair value decrease of EUR 216.1 million.
The year-end balance sheet total stood at EUR 2,178.5 million (EUR 2,308.6 million), and Group liabilities totalled EUR 1,341.2 million (EUR 1,297.7 million), with short-term liabilities accounting for EUR 109.5 million (EUR 157.8 million). The Group's financial position remained at a good level throughout the financial year in spite of the significant weakening of the financial market.
Citycon's total liquidity at the end of the year was EUR 203.7 million, of which EUR 187.0 million consisted of undrawn, committed credit facilities and EUR 16.7 million of cash and cash equivalents. At the end of the reporting period, Citycon's liquidity, commercial papers and short-term credit limits excluded, Citycon's financial position remained at a good level in spite of the significant weakening of the financial market.
stood at EUR 158.7 million. Due to more difficult market conditions, Citycon repaid all of its commercial papers at the end of the year by drawing funds from its committed long-term credit limits. Consequently, Citycon's financing at the end of the financial year was mainly arranged on a long-term basis, with short-term interest-bearing debt constituting approximately 4.2 per cent of the Group's total interest-bearing debt. The available liquidity will cover the authorised investments and scheduled debt interest and repayments at least until 2010, without the need for additional financing sources.
From the reference period, interest-bearing debt increased by EUR 45.5 million to EUR 1,199.5 million (EUR 1,154.0 million). The fair value of Group's interest-bearing debt stood at EUR 1,211.3 million (EUR 1,171.4 million).
The year-to-date weighted average interest rate increased, to 4.85 per cent (4.68% during reference period). The average loan maturity, weighted according to principals of the loans, stood at 4.6 years (4.7 years). The average interest-rate fixing period was 3.3 years (3.1 years).
The weighted interest rate, interest-rate swaps included, averaged 4.75 per cent on 31 December 2008. The Group's equity ratio was 38.5 per cent (43.9%). Year-end gearing stood at 141.3 per cent (111.8%).
Of Citycon's year-end interest-bearing debt, 75.8 per cent (81.6%) was in floating-rate loans, of which 66.4 per cent (61.1%) had been converted into fixed-rate loans by means of interest-rate swaps. Fixed-rate debt accounted for 74.5 per cent (68.3%) of the Group's year-end interest-bearing debt, interest-rate swaps included. The loan portfolio's hedging ratio is in line with the Group's financing policy, and the company increased the hedging ratio during the year.
On 31 December 2008, the nominal amount of all of the Group's derivative contracts totalled EUR 614.8 million (EUR 674.8 million), and their fair market value was EUR -9.8 million (EUR 9.1 million). The decline of market rates towards the end of the year decreased the fair value of Citycon's interest rate derivatives. Hedge accounting is applied to the majority of interest rate derivatives, meaning that any changes in their fair value will be recognised directly in shareholders' equity. Thereby, the fair value loss for these derivatives does not affect the profit for the financial year but the change is recognised in the consolidated shareholders' equity, thus weakening the consolidated equity ratio. The fair value loss recognised in the fair value reserve under shareholders' equity, taking account of the tax effect totals EUR -17.7 million (30 September 2008 : EUR 5.1 million).
Net financial expenses totalled EUR 57.3 million (EUR 45.3 million) The increase was primarily attributed to the rise in interest rates in the first nine months of the year and increased amount of interest-bearing debt.
In 2008, the net financial expenses in the income statement include EUR3.1million in non-cash expenses related to derivative valuation but also EUR2.4million in one-off gains for the repurchases of convertible bonds. In addition, EUR1.8million (EUR1.8million) in non-cash expenses related to the option component on convertible bonds is also included in the net financial expenses.
Citycon signed three long-term loan agreements during the reporting period. Local financing for the Magistral shopping centre, acquired in the summer of 2007, was finalised through the signing of a loan agreement for EEK 280 million, for a term of approximately five years. Additionally, the company increased its committed long-term credit limits by signing a EUR 50 million five-year revolving credit facility agreement.
In June, Citycon and the Nordic Investment Bank (NIB) agreed on a loan amounting to EUR 30 million to be used to finance the development of the Liljeholmstorget shopping centre, located in Stockholm. Liljeholmstorget is Citycon's main sustainable development project, which was an essential factor in the loan arrangement. The maturity of the loan is 10 years. The company managed to conclude all three loan agreements on competitive loan margins.
In addition, on 15 April 2008, Citycon signed a commercial paper programme in Sweden worth SEK one billion (approximately EUR 102.1 million) with a Nordic bank group. Citycon intends to use the proceeds from the commercial paper programme for the short-term liquidity management of the Group's Swedish operations. Under the programme, commercial papers may be issued either in Swedish crowns or in euros.
During the period between 28October 2008 and 10 December 2008, Citycon Oyj repurchased its subordinated convertible capital bonds issued on 2 August 2006 for an aggregate consideration of EUR 14.8 million (including accrued interest). The repurchases of the bonds were executed in the open market in accordance with the terms and conditions of the convertible bonds. In accordance with said terms and conditions, the company cancelled the repurchased bonds. The repurchases were carried out because the market situation enabled the company to repurchase the bonds at a price clearly below their face value and because the repurchases will enable the company to strengthen its balance sheet and decrease its net financial expenses.
Citycon Oyj has prepared its interim reports and financial statements for 2008 in accordance with IAS/IFRS (International Financial Reporting Standards). The company also complies with financial reporting recommendations for listed real estate com-
panies published by the European Public Real Estate Association (EPRA), which complement, but do not replace, IAS/IFRS. These recommendations are available in their entirety on EPRA's website at www.epra.com.
Citycon applies a holistic Enterprise Risk Management (ERM) programme. Risk management aims to ensure that Citycon meets its strategic and operational targets. Successful risk management identifies key risks, reliably analyses their impacts prior to their realisation and initiates preventive measures in order to lower the probability of an identified risk being realised and in order to mitigate its impact.
Citycon's ERM process takes account of the risk management objectives as well as Citycon's willingness to take risks. The ERM's purpose is to generate up-to-date and consistent information for the company's senior executives and Board of Directors on any risks threatening strategic and annual plan targets.
The following contains a description of the most important risks which, if realised, could jeopardise the attainment of Citycon's targets for financial year 2009. Risk management within Citycon is also discussed on pages 32–34 of the attached Financial Statements.
A number of factors contribute to the value of retail properties, such as national and local economic development, investment demand and interest rates. At the moment, investment property value trends are subject to untypical instability due to the global financial crisis and dramatically weakened economic outlook in the company's operating areas.
The credit crunch has lead to a fall in property prices and Citycon, too, has recognised fair value losses on its investment properties during the financial year 2008. Trading activity in the property market clearly diminished during the year and, furthermore, the weakening economic situation is creating uncertainty with regard to properties' fair value changes in the future. While changes in properties' fair value have an effect on the company's profit for the financial year, they do not have an immediate impact on cash flow.
The yield requirement, gross income, vacancy rate and operating expenses form the key variables used in an investment property's fair value measurement, based on a ten-year cash-flow analysis. Sensitivity to change in the properties' fair value, or the risk associated with fair value, can be tested by altering the above key parameters. The sensitivity analysis below uses the investment properties' fair value of EUR 2,021.0 million defined by the external appraiser on 31 December 2008 as the starting value. Accordingly, various changes would alter the investment properties' fair value as follows:
| Yield requirement +5% | → | Fair value EUR -95 million |
|---|---|---|
| Gross income +5% | → | Fair value EUR 143 million |
| Vacancy rate +5% | → | Fair value EUR -16 million |
| Operating expenses +5% | → | Fair value EUR -36 million |
While the company cannot influence yield requirement, it seeks to have an impact on the other fair value variables through active shopping centre management, a cornerstone of Citycon's business. Citycon aims to optimise the profitability of its shopping centres by conducting the entire shopping-centre management process in-house with the help of its own employees.
Economic fluctuations and trends have a significant influence on demand for leasable premises as well as rental rates. These constitute one of the key near-term risks for the company. Economic growth underwent a distinct slowdown in all of the company's operating areas in 2008. Many economists predict that the growth of economy in 2009 will remain negative in Sweden and the Baltic countries and that Finland would see either near-zero or negative economic growth. If such an economic environment were realised, this might reduce demand for retail premises, weaken the lessees' ability to pay rent and increase the vacancy rate of the company's properties, which could have an adverse effect on Citycon's business and profit performance.
Citycon's good financial position ensures the completion of the ongoing investments.
The refurbishment and redevelopment of retail properties lies at the core of Citycon's growth, supported by selected acquisitions in major cities and growth centres. Implementation of this strategy requires access to both equity and debt financing.
The financial market weakened markedly in 2008. The banks' own funding costs have clearly risen in the Nordic countries and elsewhere in Europe, and the banking crisis and tighter capital requirements have caused further difficulties in the banks' own funding. This, together with the write-downs already conducted in the banking sector and the increasing credit losses expected, has reduced the banks' willingness to lend money to companies.
Declining prices on the stock exchange have impacted on the share value of many real estate companies, which are currently trading at a share price markedly below per-share net asset value. Equity investors have faced losses in their investment activities, and many investors have reduced the equity allocation in their investment portfolios. All of these factors combined have eroded publicly listed companies' opportunities to obtain equity through new share issues.
Citycon has a good financial position. At the end of 2008, the company's available liquid capital totalled EUR 203.7 million, consisting mainly of committed long-term credit limits and cash and cash equivalents. Citycon is capable of financing its current projects in their entirety as planned. In order to finance new investments and growth in the future, the company will need new funding, whose terms will naturally be affected by the financial market crisis. In spite of the highly challenging situation in the financial market, based on its discussions with banks, the company is of the understanding that financing for investments can still be arranged under terms enabling the profitable implementation of investments. In general, however, the volume of available debt financing has reduced in recent months and credit margins for companies have increased throughout the year.
In addition to the availability of financing, Citycon's main financial risk refers to the interest-rate risk of its debt portfolio. A total of 25.5 per cent of Citycon's interest-bearing debt comprises floating-rate loans, and a rise in market-rates will increase their interest expenses. In the course of 2008, the 6-month rate within the euro area increased by 1.74 percentage points while, in Sweden, the equivalent interest rate decreased by 2.25 percentage points. During the same period, Citycon's average interest rate increased by 0.17 percentage points, because the sharp decrease in interest rates took place during the last quarter of the year and thereby the lower interest rates could only have a limited impact on the full-year average interest rate. The average interest rate in likely to decrease during 2009 as a consequence of lower interest rates.
Citycon attempts to safeguard its financing costs and liquidity by applying a conservative but active funding policy. This policy focuses on long-term financing and a solid balance sheet structure showing an equity ratio of at least 40 per cent. Interest-rate risk management aims to reduce or eliminate the adverse effect of increased market rates on the company's profit, balance sheet and cash flow. Under the company's financing policy, the interest position must be tied to fixed interest rates at a minimum level of 70 per cent and at a maximum level of 90 per cent.
More information on financial risks is provided on pages 33–34 of the attachede Financial Statements.
A key element in Citycon's strategy lies in the development of existing properties to meet the lessees' needs more effectively. Shortterm risks related to development projects include leasing new premises and implementing construction projects.
On 31 December 2008, development investments approved by the Board of Directors totalled approximately EUR 252 million, accounting for around 12.5 per cent of the entire investment property portfolio's fair value on the same date. With major construction projects underway in Sweden and Estonia, the leasable area in Citycon's shopping centres will increase significantly in the forthcoming years. Planned rental of the respective new retail premises is of primary importance with regard to Citycon's financial development. For the time being, leasing has progressed as planned both in terms of rental rates and the occupancy rate. A key risk includes reduced demand for retail premises due to the deteriorating economic outlook or other reasons, which might prevent the leasing of new premises at planned rental rates, or which would result in a lower than anticipated occupancy rate.
The company's construction projects in Sweden and Estonia are scheduled for completion towards the end of 2009. Both projects have progressed on schedule. Since their completion is still some way off, they remain subject to a certain degree of uncertainty. If Citycon were unable to implement the development projects underway within the planned schedule and budget, the profitability of these centres might remain below the expected levels.
Leasing risks in projects are minimised by securing the allocation of sufficient resources to the leasing operations of new properties, investing in new shopping centres' marketing and concluding agreements with anchor tenants prior to a project's commencement or at its initial stage. The risk associated with project implementation is being managed through sufficient resourcing. Responsibility for projects lies with experienced in-house Project Development Managers.
Store Manager Milja Tammi was opening the first Finnish store for the international cosmetics chain Lush. The store was opened in Iso Omena, Espoo, in March 2008. In November 2008, Lush opened their second Finnish store in Trio, Lahti.
In its corporate governance, Citycon complies with the Finnish Limited Liability Companies Act and the Finnish Corporate Governance Code issued on 20October 2008 by the Securities Market Association. The Code is available on the Securities Market Association's website at www.cgfinland.fi.
This Corporate Governance Code is accompanied by Citycon's own guidelines for the division of tasks between the company's decision-making bodies and for the arrangement of internal control and risk management. Citycon's decision-making bodies assuming ultimate responsibility for the Group's management and business include the General Meeting of shareholders, the Board of Directors and the CEO. The Corporate Management Committee assists the CEO in managing the company's operative business. The Board of Directors' work is supported by four Board committees.
In their General Meeting, the shareholders exercise the highest decision-making power in the company. The Annual General Meeting (AGM) convenes every year by the end of April, once the financial statements have been prepared. Extraordinary General Meetings (EGM) will be held whenever necessary for decisionmaking purposes.
Citycon provides its shareholders with sufficient information on the items to be discussed at the General Meeting of shareholders. On its website, the company publishes the notice of a General Meeting, the documents to be presented to the General Meeting and the resolution proposals by the Board of Directors, at least 21 days prior to the meeting. Upon request, the meeting material can be sent to a shareholder by post. By any reasonable means available to it, the company will attempt to facilitate the participation of its international shareholders in General Meetings and to arrange such meetings in a manner enabling shareholders' participation and exercising of their rights to vote and speak in the meeting as extensively as possible.
Following a General Meeting, the company will publish the decisions taken by the General Meeting, without delay, as a stock exchange release and on the company's website. The minutes of the General Meeting will be made available on the company's website within two weeks of the meeting. More information on General Meetings and shareholders' rights is available on the company's website at www.citycon.com/GM.
The Chairman of the Board of Directors and the CEO attend the General Meeting of shareholders, and members of the Board of Directors attend the meeting to the extent deemed necessary. A first-time nominee for the Board shall attend the General Meeting that decides on his/her election unless there are cogent reasons for his/her absence. The chief auditor of the company shall also be present at the General Meeting of shareholders.
The General Meeting of shareholders decides the number of members of the Board of Directors and elects them for a term of one year. Under the Articles of Association, the Board of Directors consists of a minimum of five and a maximum of eight non-executive members. The Articles of Association do not contain other limitations concerning the election of the members of the Board of Directors. An eligible Board nominee must have the qualifications required for membership and sufficient time to manage his/ her Board duties. A majority of the members of the Board of Directors must be independent of the company. In addition, a minimum of two members belonging to this majority must be independent of the company's major shareholders. The Board of Directors shall annually assess its members' independence.
Citycon's AGM of 13 March 2008 decided to re-elect the following Board members: Gideon Bolotowsky, Raimo Korpinen, Tuomo Lähdesmäki, Claes Ottosson, Dor J. Segal and Thomas W. Wernink. Amir Bernstein and Per-Håkan Westin were elected as new members to the Board of Directors. Personal details of the Board members and their shareholdings in the company are provided in these pages, while further details concerning their careers and key positions of trust are presented on the company's website at www.citycon.com/Board.
The Board of Directors elects the Chairman and Deputy Chairman from among its members. In 2008, Thomas W. Wernink acted as Chairman and Tuomo Lähdesmäki as the Deputy Chairman of the Board of Directors.
Chairman of the Board of Directors Thomas W. Wernink
M.A. (General Economics) Dutch citizen, born 1945 Chairman of the Board since 2006 and Deputy Chairman 2005–2006 Board member since 2005 Independent of the company and significant shareholders Main occupation: Wernink Consultancy & Investment B.V., Managing Director since 2003
Deputy Chairman of the Board of Directors Tuomo Lähdesmäki
M.Sc. (Eng.), MBA Finnish citizen, born 1957 Deputy Chairman since 2006 Board member since 2004 Independent of the company and significant shareholders Main occupation: Boardman Oy, Founding and Senior Partner since 2002
In the view of the Board of Directors, all Board members are independent of the company. Furthermore, the Board of Directors holds the view that Gideon Bolotowsky, Raimo Korpinen, Tuomo Lähdesmäki, Thomas W. Wernink and Per-Håkan Westin are independent of major shareholders.
In 2008, Citycon's Board of Directors met 10 times. The average attendance rate stood at 93.8 per cent.
The Finnish Limited Liability Companies Act, the Articles of Association and the Board of Directors' written Rules of Procedure determine the Board of Directors' duties and responsibilities. The essential content of the Rules of Procedure is explained on the company's website at www.citycon.com/CG. The Board of Directors is responsible, for example, for the Citycon Group's strategic policies and the due organisation of its business operations and Group administration. The Board of Directors constitutes a quorum if more than half of its members are present.
In addition to duties provided under the applicable legislation and the company's Articles of Association, Citycon's Board of Directors shall:
property acquisitions and divestments and other major investments
The Board of Directors evaluates its performance and working methods once a year.
The Board of Directors' work is assisted by the following four Board committees: the Audit Committee, Nomination Committee, Remuneration Committee and Investment Committee. The Board committees prepare matters discussed by the Board of Directors, and Board members sitting on the committees are able to examine the matters discussed by the committee in greater detail than the entire Board. The Rules of Procedure for the company's decisionmaking bodies, approved by the Board of Directors, lay down the Board committees' main duties and working principles. These are also presented on the company's website at www.citycon.com/CG. The Board of Directors elects the Board committees' chairmen and members from among Board members. A Board committee always has at least three members. The committee's Chairman reports on issues discussed by the committee to the Board of Directors.
The enclosed table contains information on the Board committees' composition, number of meetings and attendance in 2008.
The AGM confirms the remuneration of the Board members every year, in advance.
The AGM 2008 decided that the Board Chairman, Deputy Chairman and ordinary Board members be paid an annual remuneration of EUR 160,000, EUR 60,000 and EUR 40,000, respec-
| Audit Committee | Nomination Committee | Remuneration Committee | Investment Committee | |
|---|---|---|---|---|
| Members | Bolotowsky Gideon | Bernstein Amir | Bolotowsky Gideon | Bernstein Amir |
| Korpinen Raimo (Ch.) | Lähdesmäki Tuomo (Ch.) | Lähdesmäki Tuomo (Ch.) | Korpinen Raimo | |
| Wernink Thomas W. | Ottosson Claes | Wernink Thomas W. | Segal Dor J. | |
| Westin Per-Håkan | Wernink Thomas W. | Wernink Thomas W. (Ch.) | ||
| Westin Per-Håkan | ||||
| Number of meetings | Five | Three | Two | Five |
| Attendance-% | 100 | 92 | 100 | 96 |
Member of the Board of Directors Amir Bernstein
Master of Laws, ESQ Israeli citizen, born 1969 Board member since 2008 Independent of the company Main occupation: Gazit Europe (Netherlands) B.V., Managing Director since 2008
Member of the Board of Directors Gideon Bolotowsky
M.Sc. (Eng.) Finnish citizen, born 1947 Board member since 2006 Independent of the company and significant shareholders Main occupation: OsakeTieto FSMI Oy, CEO and Chairman of the Board since 2003
| EUR | Annual fee | Meeting fees | Total |
|---|---|---|---|
| Bernstein Amir | 40,000 | 7,000 | 47,000 |
| Bolotowsky Gideon | 40,000 | 8,100 | 48,100 |
| Korpinen Raimo | 40,000 | 10,200 | 50,200 |
| Lähdesmäki Tuomo | 60,000 | 8,300 | 68,300 |
| Ottosson Claes | 40,000 | 5,800 | 45,800 |
| Segal Dor J. | 40,000 | 7,200 | 47,200 |
| Wernink Thomas W. | 160,000 | 14,200 | 174,200 |
| Westin Per-Håkan | 40,000 | 7,500 | 47,500 |
| Total | 460,000 | 68,300 | 528,300 |
tively. It also decided that the Board Chairman and the Chairman of each Board committee receive a meeting fee of EUR 700 and other Board and Board committee members EUR 500 for each meeting.
The enclosed table shows the remunerations paid to Citycon's Board members in 2008. The remunerations were paid in cash. Meeting fees include those paid for both the Board's and its committees' meetings. Citycon's Board members are not involved in the company's share-based incentive schemes. The Board of Directors has issued a recommendation according to which each Board member should, during his/her term of office, own the company's shares to a value corresponding at least to his/her remuneration for one year.
The CEO is responsible for the day-to-day management and supervision of the company in accordance with the provisions of the Finnish Limited Liability Companies Act, the Rules of Procedure for the company's decision-making bodies as well as in accordance with authorisations and guidelines received from the Board of Directors.
The CEO oversees compliance with the guidelines, procedures and strategic plans on which the Board of Directors has decided, and he or she must see to it that these guidelines, procedures and plans are submitted when necessary to the Board of Directors for update or review. The CEO attends the Board of Directors' meetings and is responsible for ensuring that the documentation related to information and resolution proposals to be discussed at the Board meetings have been duly prepared. The CEO also ensures that, on a continuous basis, Board members receive information necessary to monitoring the company's financial position, liquidity, financing and development, and he or she informs the Board of Directors of any major events, decisions and future projects related to the company's business.
Citycon's Board of Directors appoints the CEO and decides
on the terms and conditions of his/her executive contract, in writing. Since 2002, Petri Olkinuora has functioned as Citycon Oyj's CEO. He is entitled to retire upon turning 62, provided that he will remain in the company's employ until he reaches that age. The company has taken out pension insurance to cover his pension plan. Both the CEO and the company may terminate the CEO's executive contract at six months' notice. If the company terminates the contract for a reason not attributable to the CEO, it will pay the CEO lump-sum compensation equalling his 18-month salary in cash, in addition to the salary payable for the notice period.
Citycon has a Corporate Management Committee comprising at least three members. Upon the CEO's proposal, the Board of Directors is responsible for appointing members of the Corporate Management Committee. The CEO convenes the Corporate Management Committee whenever he or she deems necessary and chairs its meetings. In 2008, the Corporate Management Committee convened on 11 occasions. Minutes are kept on the Corporate Management Committee's meetings.
The Rules of Procedure for the company's decision-making bodies, approved by the Board of Directors, lay down the Corporate Management Committee's main duties and working principles. As an expert body, the Corporate Management Committee's main duty is to assist the CEO in the management of the company's operative business. It co-ordinates and develops the company's various operations in accordance with set goals, promotes intraorganisational communication and co-operation, monitors the profitability of the company's business and promotes and maintains the best practices of the company. In addition, the Corporate Management Committee prepares resolution proposals pertaining
Member of the Board of Directors Raimo Korpinen
LL.M. Finnish citizen, born 1950 Board member since 2004 Independent of the company and significant shareholders Main occupation: Solidium Oy, Managing Director since 1998
Member of the Board of Directors Claes Ottosson
Electrical Engineer Swedish citizen, born 1961 Board member since 2004 Independent of the company Main occupation: ICA Kvantum Hovås, Managing Director since 1989 to the company's strategy, business plan, budget and organisation for the Board's discussion, in accordance with the guidelines issued by the Board of Directors.
In 2008, the Corporate Management Committee had six members. Their personal details as well as information on their share and stock option holdings are presented on these pages. The members' careers and any positions of trust are described on the company's website at www.citycon.com/management.
The Board of Directors confirms the CEO's salary and other benefits and, upon the CEO's proposal, determines other senior executives' salaries and benefits.
Remuneration of the CEO and other members of the Corporate Management Committee consists of a fixed monthly salary and fringe benefits as well as an annual performance bonus. In addition, the CEO and the other members of the Corporate Management Committee are included both in the long-term share-based incentive plan directed to the Group's key individuals and in the stockoption scheme 2004 designed for the personnel. Further details on the management's remuneration are available on the company's website at www.citycon.com/CG.
In 2008, the CEO received EUR 342,549 in salary, fringe benefits and performance bonus. Additionally, the CEO was granted a total of 1,012 shares in the context of the company's long-term share-based incentive plan. In 2008, the CEO received no income from stock options.
The company complies with the Guidelines for Insiders issued by
| Stock options | Stock options | Stock options | |||
|---|---|---|---|---|---|
| 2008 | Shares | 2004A | 2004B | 2004C | |
| Board of Directors | |||||
| Bernstein Amir, Board member | 1 Jan. | - | - | - | - |
| 31 Dec. | - | - | - | - | |
| Bolotowsky Gideon, Board member | 1 Jan. | 4,626 | - | - | - |
| 31 Dec. | 4,626 | - | - | - | |
| Korpinen Raimo, Board member | 1 Jan. | 14,456 | - | - | - |
| 31 Dec. | 14,456 | - | - | - | |
| Lähdesmäki Tuomo, Board Deputy Chairman | 1 Jan. | 37,289 | - | - | - |
| 31 Dec. | 37,289 | - | - | - | |
| Ottosson Claes, Board member | 1 Jan. | 10,336 | - | - | - |
| 31 Dec. | 10,336 | - | - | - | |
| Segal Dor J. , Board member | 1 Jan. | 7,174 | - | - | - |
| 31 Dec. | 7,174 | - | - | - | |
| Wernink Thomas W. , Board Chairman | 1 Jan. | 28,571 | - | - | - |
| 31 Dec. | 45,000 | - | - | - | |
| Westin Per-Håkan, Board member | 1 Jan. | - | - | - | - |
| 31 Dec. | 10,000 | - | - | - | |
| Corporate Management Committee | |||||
| Olkinuora Petri, CEO | 1 Jan. | 137,143 | 75,000 | 140,000 | 140,000 |
| 31 Dec. | 138,155 | 75,000 | 140,000 | 140,000 | |
| Attebrant Ulf, Vice President, Swedish Operations | 1 Jan. | - | - | - | - |
| 31 Dec. | 330 | - | - | - | |
| Holmström Harri, Vice President, Baltic Operations | 1 Jan. | - | - | 70,000 | 70,000 |
| 31 Dec. | 826 | - | 70,000 | 70,000 | |
| Raekivi Outi, Head of Legal Affairs, Board secretary | 1 Jan. | - | 75,000 | 70,000 | 70,000 |
| 31 Dec. | 826 | 75,000 | 70,000 | 70,000 | |
| Sihvonen Eero, CFO | 1 Jan. | - | - | 70,000 | 70,000 |
| 31 Dec. | 2,026 | - | 70,000 | 70,000 | |
| Vuorio Kaisa, Vice President, Finnish Operations | 1 Jan. | 1,372 | 75,000 | 70,000 | 70,000 |
| 31 Dec. | 3,698 | 75,000 | 70,000 | 70,000 | |
| Chief Auditor | |||||
| Korpelainen Tuija | 1 Jan. | - | - | - | - |
| 31 Dec. | - | - | - | - |
The company's public insider register is available on the company's website and at Euroclear Finland Ltd's customer service outlet, Urho Kekkosen katu 5 C, Helsinki, Finland.
Member of the Board of Directors Dor J. Segal
High school American citizen, born 1962 Board member since 2004 Independent of the company Main occupation: First Capital Realty Inc., President and CEO and Board member since 2000
M.Sc. (Civil engineering) Swedish citizen, born 1946 Board member since 2008 Independent of the company and significant shareholders Main occupation: PH WESTIN Real Management AB, Board member since 2007
CEO Petri Olkinuora
M.Sc. (Eng.), MBA Finnish citizen, born 1957 CMC member since 2002
CFO Eero Sihvonen
M.Sc. (Econ.) Finnish citizen, born 1957 CMC member since 2005
Head of Legal Affairs Outi Raekivi
LL.M., Certified Property Manager Finnish citizen, born 1968 CMC member since 2002
Vice President, Finnish Operations Kaisa Vuorio
M.Sc. (Eng.), APA Finnish citizen, born 1967 CMC member since 2003
Vice President, Baltic Operations Harri Holmström
M.Sc. (Surveying), APA Finnish citizen, born 1956 CMC member since 2005
Vice President, Swedish Operations Ulf Attebrant
Swedish citizen, born 1963 CMC member since 2007
the Helsinki exchange and applies Citycon's own Insider Guidelines covering insiders' obligations, disclosure requirements and insider registers as well as specifying the company's insider administration procedures.
The company's statutory insiders include Board members, the CEO and the auditor. Statutory insiders also comprise Corporate Management Committee members, whom the Board of Directors has defined as other senior executives, as referred to in the Securities Market Act. Holdings in the company by statutory insiders and those closely associated with them are regarded as public information. The enclosed table shows changes in holdings in 2008. Up-to-date information on changes in shareholdings can be found on the company's website at www.citycon.com/insiders.
In addition to statutory insiders, Citycon also has so-called permanent insiders entered in the company's company-specific insider register, based on their position or duties, or another contract they have concluded with the company. These company-specific insiders include the secretaries and assistants of the Board members, CEO and Corporate Management Committee members, and those in charge of corporate finances and financial reporting, financing, legal affairs, investment and development activities, corporate communications, investor relations, IT functions, as well as internal and external audit. The company-specific insider register is not available for public review.
Citycon maintains its insider register of statutory and company-specific insiders within Euroclear Finland Ltd's SIRE extranet system. The company verifies the data on its statutory insiders by asking the insiders to check the accuracy of the information on the extracts from the insider register twice a year, and regularly supervises its insiders' trading on the basis of the transaction data registered by Euroclear Finland Ltd. It also supervises its insiders' trading on a case-by-case basis, if necessary.
As stipulated by Citycon's Insider Guidelines, the company's statutory and permanent insiders may not trade in Citycon shares or instruments entitling to Citycon shares, for 21 days prior to the release of the company's annual accounts or interim reports. Insiders must also present the company's Compliance Officer with a request for an opinion on the legality and permissibility of any securities transaction in which they plan to engage. The Compliance Officer records each contact made.
The supervision and control of Citycon's business operations are primarily based on the governance and management system described above. The principles of the company's internal control and risk management are laid down in the guidelines for the arrangement of internal control and risk management, approved by the Board of Directors. The efficiency of internal control and risk management is evaluated by internal audit.
Citycon's internal control includes financial and other control. Internal control is carried out in-house by the senior and executive management as well as by other personnel. Citycon seeks to foster such corporate culture which accepts internal control as a normal and necessary part of day-to-day business.
Internal control is intended to ensure the following:
The company's Board of Directors is responsible for arranging and maintaining adequate and functional internal control. It is the CEO's duty to attend to the implementation of practical actions vis-à-vis internal control. The CEO must maintain an organisational structure in which responsibilities, authorisations and reporting relationships are clearly and comprehensively defined in writing.
The CEO and the members of the company's Corporate Management Committee are responsible for ensuring that laws and regulations in force as well as the company's business principles and the decisions of the Board of Directors are complied with in the Group's day-to-day business.
The company has appropriate and reliable accounting and other data systems in place to monitor business activities and supervise treasury operations. The attainment of the set targets is monitored through a planning and reporting system in use throughout the Group, this system monitoring the actual performance and forecasts in a rolling manner. The system also permits long-term planning and serves as a tool for budgeting.
Risk management forms part of the company's internal control and its purpose is to ensure that the company meets its business targets. The Board of Directors has approved the company's guidelines for risk management specifying the principles of the company's risk management and the risk management process. The company's risk management process includes the recognition, assessment, measurement, limitation and monitoring of risks arising from business operations and those closely related thereto. The guidelines also define the monitoring of such a process and of the risk management organisation.
The company's risk management process is constantly evaluated and developed. The risk management process is examined annually at the company by updating the company's risk map and its annual action plan to correspond with the targets of the annual plan and by presenting the same to the Board of Directors at a separately agreed meeting in the autumn. The risk map is also updated as part of the business strategy process during the first half of the year.
The arrangement of the company's financial risk management is documented in the company's treasury policy and key financial risks are reported quarterly to the Board of Directors. Furthermore, the company's Board of Directors regularly monitors the company's business risks and uncertainties and reports them as required under the legislation in force and regulations or guidelines issued by the Financial Supervisory Authority.
More detailed information on the company's risk management process and risks associated with the company's business operations can be found on pages 39–40 of the present Annual Report, as well as on the company's website at www.citycon.com/ riskmanagement.
Internal audit aims to independently and systematically evaluate and improve the company's internal control and risk management. For internal audit purposes, the Audit Committee draws up an annual audit plan, which forms the basis for the performance of the audit. An internal audit charter has been prepared for internal audit operations. Auditors responsible for internal audit shall report the internal audit results to the Audit Committee, which must without delay initiate any actions necessitated by audit findings made. The internal audit 2008 was outsourced to KPMG Oy Ab. The audit conducted by Citycon's auditor also involves auditing the company's corporate governance, on which the auditor reports to the Board of Directors and the CEO.
For the auditing of the administration and accounts of the company, the General Meeting annually elects one auditor, which must be an audit firm approved by the Central Chamber of Commerce of Finland. In connection with the company's annual financial statements, the auditor provides the company's shareholders with a statutory auditor's report. The main function of the statutory auditor's report is to verify that the consolidated financial statements, the parent company's financial statements and the report by the Board of Directors give a true and fair view of the Group's and the company's net profit and financial position for each financial year. In addition to providing the auditor's report in connection with the annual financial statements, the auditor also reports to the company's CEO and the Audit Committee as necessary.
Upon the Audit Committee's invitation, the auditor may attend the committee meetings as an expert.
The AGM 2008 elected Ernst & Young Oy (a firm of authorised public accountants) the company's auditor, with Tuija Korpelainen (Authorised Public Accountant) acting as the chief auditor appointed by the firm.
In 2008, Citycon paid EUR 0.2 million in remuneration to its auditor, related to its general audit. In addition, Citycon paid a total of EUR 0.2 million for internal expert services related to IFRS, property transactions and taxation.
The purpose of Citycon's corporate communications is to inform the company's stakeholders of company-related matters, with the aim of providing all of the relevant parties with correct, sufficient and topical information regularly, equitably and simultaneously. The company's key communication channel is its website, which includes all financial reports, releases and other investor information required by the Finnish Corporate Governance Code.
Investing in Citycon means an investment in a Finnish real estate company combining property investment with shopping centre business. Citycon is specialised in retail properties i.e. shopping centres, hypermarkets and retail centres in Finland, Sweden and in the Baltic countries.
Citycon is a proactive owner and a long-term developer of its retail properties laying the foundation for a successful retail business. Citycon takes account of environmental aspects and well-being of the areas surrounding its retail properties, which provides solid foundations for the company's success and growth in the future.
In the international markets, the year 2008 proved to be a highly exceptional one in all respects, reflected in Citycon's share price development too. Citycon's market capitalisation at the end of 2008 totalled EUR 371.3 million, whereas it reached EUR 806.6 million at the end of 2007. However, the proportion of international investors remains high, accounting for 95.3 per cent
of the company's shareholders. At the end of the year, Citycon had a total of 2,190 registered shareholders.
Citycon is included in international real estate indices. For example, the FTSE EPRA/NAREIT Global Real Estate Index serves as a benchmarking index for international investors, tracking shareprice performance and total return. Citycon is also represented in the GPR 250 Property Securities Index consisting of the 250 most liquid real estate companies worldwide. In 2008, the number of Citycon shares traded on the NASDAQ OMX Helsinki totalled 150.9 million (153.7 million) at a total value of EUR 443.1 million (EUR 738.1 million).
The Board of Directors has set the following financial targets for the company:
Market capitalisation,
EUR million
The profit distribution for 2007 totalled EUR 0.14 per share, consisting of a per-share dividend of EUR 0.04 and an equity return of EUR 0.10 per share from the invested unrestricted equity fund. Equity ratio stood at 38.5 per cent at year-end 2008.
The Board of Directors proposes that a per-share dividend EUR 0.04 be paid out for the year 2008, and that EUR 0.10 be returned from the invested unrestricted equity fund. The dividend and equity return will be paid on 3 April 2009 to a shareholder registered in the company's shareholders' register on 23 March 2009.
The primary objective of Citycon's investor relations is to increase interest in the company's share as an investment target. The company aims to increase shareholder value by providing more transparent investor information and improving the company's business profile. Investor communications focus on long-term value creation rather than seeking short-term benefits.
Citycon FTSE EPRA NAREIT index OMX Helsinki CAP index
The investor communications' principle is to continuously provide the market with accurate, consistent, transparent and upto-date information on the company. Adhering to the principle of objectivity and simultaneousness in its investor communications, Citycon publishes all releases and other material on its website in English and in Finnish.
During 2009, Citycon will release financial reports as follows:
→ Interim Report for January–September, 15 October 2009 The company will publish its printed Annual Report at the latest in week 10.
The key channel for Citycon's investor communications is the company's website. All stock exchange releases and press releases, financial statements, interim reports, annual reports and notices to general meetings will be published on the website. Also available on the website are the executive presentations on the financial results, webcast recordings of these events as well as the presentation material for regular investor meetings. Web access to the company's financial results presentation events and Capital Markets Day is also enabled. Investor-information material published by Citycon can be ordered from the company's website at www.citycon.com/materialrequest, by e-mail from [email protected] or by phone at +358 207 664 400.
Citycon's representatives meet with investors both in and outside Finland. In 2008, the company executives carried out presentations of Citycon as an investment target in approximately 40 events, and met with some 260 institutional investors either in one-on-one or small-group meetings. In addition, the company's representatives meet investors in seminars arranged by different associations or banks, in broader public events and during asset tours to the company's shopping centres.
In September, Citycon organised a Capital Markets Day in Stockholm, the first in the company's 20-year history. The theme of this event, opened by Thomas W. Wernink, Chairman of Citycon's Board of Directors, was the company's strategy and market situation in Citycon's operating countries. Following the presentations, the attending investors, analysts and journalists visited the construction project for the Liljeholmstorget shopping centre. Encouraged by the abundant and positive feedback on the Capital Markets Day, Citycon aims to organise an equivalent event every year.
The company's IR contacts are the CEO, the CFO and the Investor Relations Officer.
Citycon Oyj will hold its AGM at Finlandia Hall, Helsinki Auditorium, Mannerheimintie 13e, Helsinki, Finland, on Wednesday 18 March 2009, starting at 2.00 p.m.
A notice to the AGM will be issued as a stock exchange announcement at the earliest two months and at the latest 21 days prior to the meeting, and will also be announced on the company's website and in at least one national newspaper appearing in Helsinki.
A shareholder is entitled to propose a certain matter for discussion at a general meeting of shareholders, if such a matter belongs to the competence of a general meeting of shareholders according to the Finnish Limited Liability Companies Act and if (s)he gives notice of this in writing to the Board of Directors in sufficient time for it to be included in the notice of the meeting. Such notices can be mailed to [email protected].
Company shareholders listed in the shareholders' register by the AGM record date of 6 March 2009 are entitled to attend the AGM if they have notified the company of their intention to do so by 4.00 p.m. on 13 March 2009. If you wish to attend the AGM,
please visit our website www.citycon.com/AGM2009 or contact us by telephone +358 207 664 400.
A shareholder whose shares have been entered in his/her personal book-entry securities account is listed on the shareholders' register. A shareholder holding nominee-registered shares should contact his/her account manager if (s)he wishes to attend the AGM.
The shareholders' register is available for public review at Euroclear Finland Ltd's customer-service outlet, Urho Kekkosen katu 5 C, Helsinki, Finland.
Shareholders should notify their book-entry account manager of any changes in their name or address. This will also automatically update information in the shareholders' register maintained by Euroclear Finland Ltd.
| CEO |
|---|
| Mr Petri Olkinuora |
| Tel. +358 207 664 401 or |
| +358 400 333 256 |
| [email protected] |
CFO Mr Eero Sihvonen Tel. +358 207 664 459 or +358 50 557 9137 [email protected]
Investor Relations Officer Ms Hanna Jaakkola Tel. +358 207 664 421 or +358 40 566 6070 [email protected]
Analysts from the following banks, brokerage and other firms monitor Citycon Oyj and its performance, based on the information received by the company. However, the list below does not necessarily include all providers of such investment analysis. Analysts monitor Citycon on their own initiative and can also choose to cease doing so whenever they wish. Recommendations issued by analysts are available on Citycon's website at the "Consensus estimates" service. Citycon is not responsible for analysts' comments and statements.
United Kingdom
FI-00020 Nordea
Kempen & Co N.V. Tel. +31 20 348 8000 Beethovenstraat 300 P.O. Box 75666
NL-1070 AR Amsterdam The Netherlands
Helsinki
Finland
Nordea Bank Finland Plc Tel. +358 9 1651 Nordea Markets Aleksis Kiven katu 9,
Tel. +33 1 53 89 53 75 15-17 rue Vivienne F-75002 Paris France
Tel. +44 207 986 4000 Canada Square London E14 5LB United Kingdom
Tel +47 22 94 8845 Stranden 21, Aker Brygge NO-0021 Oslo Norway
Tel. +358 9 476 690 Aleksanterinkatu 19 A, 3rd floor P.O. Box 1080 FI-00101Helsinki Finland
Tel. +44 20 7039 9496 20 St. James Street London SW1A 1ES United Kingdom
Tel. +358 9 613 4600 Pohjoisesplanadi 33 A FI-00100 Helsinki Finland
Real Estate team Tel. +44 207 552 5986 Peterborough Court 133 Fleet Street London EC4A 2BB Tel. +47 22 87 87 00 P.O. Box 1411 Vika NO-0115 Oslo Norway
Tel. +358 10 252 7390 Teollisuuskatu 1b, P.O. Box 362 FI-00101 Helsinki Finland
Pareto Securities ASA
Tel. +31 20 460 4747 Amstelplein 1 NL-1096 HA Amsterdam The Netherlands
Royal Bank of Scotland Tel. +31 20 383 6786 Gustav Mahlerlaan 10 P.O. Box 283 NL-1000 EA Amsterdam The Netherlands
Tel. +46 8 453 73 30 Regeringsgatan 38, 7th floor P.O. Box 1722 S-111 87 Stockholm Sweden
Tel. +358 9 8866 6000 Aleksanterinkatu 44 FI-00100 Helsinki Finland
Fruängen Centrum Stockholm Citycon's gross leasable area 14,600 sq.m. Built in 1965.
Åkersberga Centrum Österåker
Citycon's gross leasable area 25,000 sq.m. Built in 1985. Extended and/or renovated in 1995/1996.
Magistral
Tallinn
Citycon's gross leasable area 9,500 sq.m. Built in 2000.
Liljeholmstorget Stockholm Citycon's gross leasable area 39,800 sq.m. after completion of the development project in 2009. Built in 1973.
Tumba Centrum Botkyrkan Citycon's gross leasable area 30,900 sq.m.
Citycon's gross leasable area 53,500 sq.m. after completion of the development project in 2009. Built in 1998.
Åkermyntan Centrum Hässelby Citycon's gross leasable area 8,400 sq.m. Built in 1977.
renovated in 2002. Gothenburg area
Stenungsund Citycon's gross leasable area 26,300 sq.m. Built in 1967. Extended and/or renovated in 1993.
Citycon's gross leasable area 20,300 sq.m. Built in 1927. Extended and/or
Mandarinas Vilnius
Citycon's gross leasable area 8, 000 sq.m. Built in 2005.
Jakobsbergs Centrum Järfälla
Citycon's gross leasable area 67,400 sq.m. Built in 1959. Extended and/or renovated in 1993.
Built in 1952. Extended and/or
Stenungs Torg
renovated in 1997.
Citycon Oyj Pohjoisesplanadi 35 AB, FI-00100 Helsinki, Finland, Tel. +358 (0)207 664 400, [email protected], www.citycon.com
Report by the Board of Directors 4 Consolidated Income Statement, IFRS 14 Consolidated Balance Sheet, IFRS 15 Consolidated Cash Flow Statement, IFRS 16 Consolidated Statement of Changes in Shareholders' Equity, IFRS 17 Notes to the Consolidated Financial Statements, IFRS 18 Accounting policies 18
| Key figures |
|---|
| Q4/2008 | Q4/2007 5) | Q3/2008 5) | 2008 | 2007 5) | Change-% 1) | |
|---|---|---|---|---|---|---|
| Turnover, EUR million | 45.2 | 43.3 | 44.6 | 178.3 | 151.4 | 17.7% |
| Net rental income, EUR million | 30.2 | 27.1 | 31.5 | 121.8 | 103.4 | 17.8% |
| Operating loss/profit, EUR million | -27.9 | 23.7 | -44.1 | -105.0 | 298.7 | − |
| % of turnover | − | 54.7% | − | − | 197.3% | − |
| Loss/profit before taxes, EUR million | -40.9 | 10.0 | -59.3 | -162.3 | 253.5 | − |
| Loss/profit attributable to parent company shareholders, EUR million | -30.7 | 9.3 | -46.0 | -124.1 | 200.3 | − |
| Direct result, EUR million 2) | 11.8 | 14.6 | 11.3 | 43.8 | 38.3 | 14.4% |
| Indirect result, EUR million | -42.5 | -5.4 | -57.3 | -167.9 | 162.1 | − |
| Earnings per share (basic), EUR | -0.14 | 0.04 | -0.21 | -0.56 | 1.00 | − |
| Earnings per share (diluted), EUR | -0.14 | 0.04 | -0.21 | -0.56 | 0.91 | − |
| Direct result per share (diluted), (diluted EPRA EPS), EUR 2) | 0.05 | 0.07 | 0.05 | 0.20 | 0.19 | 3.3% |
| Net cash from operating activities per share, EUR | 0.07 | 0.06 | 0.02 | 0.21 | 0.20 | 8.3% |
| Fair market value of investment properties, EUR million | 2,094.4 | 2,023.6 | 2,215.7 | -8.7% | ||
| Equity per share, EUR | 3.87 | 3.62 | 4.44 | -18.6% | ||
| Net asset value (EPRA NAV) per share, EUR 2) | 4.16 | 3.88 | 4.82 | -19.6% | ||
| EPRA NNNAV per share, EUR | 4.05 | 3.80 | 4.42 | -14.0% | ||
| Equity ratio, % | 40.3 | 38.5 | 43.9 | − | ||
| Gearing, % | 133.8 | 141.3 | 111.8 | − | ||
| Net interest-bearing debt (fair value), EUR million | 1,221.1 | 1,194.6 | 1,147.3 | 4.1% | ||
| Net rental yield, % 3) | 5.6 | 5.8 | 5.8 | − | ||
| Net rental yield, like-for-like properties, % | 6.0 | 6.3 | 6.2 | − | ||
| Occupancy rate, % | 95.6 | 96.0 | 95.7 | − | ||
| Personnel (at the end of the period) | 112 | 113 | 102 | 10.8% | ||
| Dividend per share, EUR | 0.04 4) | 0.04 | 0.0% | |||
| Return from invested unrestricted equity fund per share, EUR | 0.10 4) | 0.10 | 0.0% | |||
| Dividend and return from invested unrestricted equity fund per share total, EUR | 0.14 4) | 0.14 | 0.0% |
1) Change-% is calculated from exact figures and refers to the change between 2008 and 2007.
2) In comparison to previous practice direct result excludes the changes in fair value of financial instruments that are recognized in the income statement. Please see the Note 3 "Reconciliation between direct and indirect result" for direct result calculations and Note 14 "Earnings per share and net asset value per share" for calculation of direct result and net asset value per share.
3) Includes the lots for development projects.
4) Proposal by the Board.
5) Restated according to the New IAS 23 Borrowing Costs Standard. Please see the Note 12 "Restatement of the financial information in 2007 and 2008 due to the new IAS 23 Borrowing Cost standard".
Key figures for the past five years can be found on page 42 in the Notes to the Financial Statements.
value changes of the investment properties and higher level of debt due to capital expenditure.
• Citycon signed three long-term loan agreements on competitive terms.
"Citycon reached its all-time high direct result in 2008. The company's cash flow per share grew, and so did the turnover and net rental income. The shopping centres' sales rose and the occupancy rate was 96.0 per cent up from 95.7 per cent at the end of the year 2007. Grocery sales continued to grow in all our markets. In most of our shopping centres, grocery retailing is the anchor that maintains a steady footfall.
The construction of the Liljeholmstorget and Rocca al Mare shopping centres proceeded as scheduled. Both projects will be completed late 2009. The leasing of premises is progressing well, and all anchor tenant agreements have been signed. Financing for the projects is secured.
In November, the Trio shopping centre in Lahti was opened after having been redeveloped for almost two years. The opening was a big success and the centre has regained its position as the leading shopping centre in Lahti.
During the year, we invested in sustainable construction and we are applying international certification for our most important construction projects. We seek to comply with the principles of sustainable development in our operations.
In the last quarter, the decrease in interest rates and the successful buyback of the convertible bonds reduced our financial expenses.
The fair value of properties continued to fall following a rise in the current yield requirements in the markets. In 2008, the decline of property values did offset the fair value gains in 2007. Citycon's financial position is good and the company focuses on strong operative cash flow."
Significant changes took place in financial environment in 2008. The escalation of the financial crisis from the US housing markets into a global economic crisis quickly led to tighter financial markets in Finland as well. Towards the year-end, the financial crisis began to affect the real economy, and it will not be long before the business fluctuations are likely to reflect on retail sales too.
At the beginning of the year, retail trade was showing strong growth but slowed down towards the year-end. In total, in cumulative terms retail trade grew by 5.6 per cent in Finland and by 3.3 per cent in Sweden in 2008. Trade slow down was the most significant in the Baltic countries. After years of considerable growth, the December retail sales decreased by 9.0 per cent in Estonia and by 8.8 per cent in Lithuania (Sources: Statistics Finland, Statistics Sweden, Statistics Estonia, Statistics Lithuania).
Consumer confidence in personal financial development has clearly weakened in Citycon's operating countries. Inflation took a downward turn and market interest rates fell quickly from the high levels seen early in the year. At the end of the year, construction costs and raw material prices also fell. Economic growth is expected to decelerate in all of Citycon's operating countries (source: Nordea).
Volatility in the global financial markets has reduced the availability of debt and clearly raised the margins on new loans. At the same time, longterm relationship with banks has become a key factor in financing decisions.
The property markets were active in Finland and Sweden at the beginning of the year. However, as financing opportunities almost disappeared towards the year-end, the property market slowed down. The few property deals closed in Finland at the year-end were primarily conducted between domestic institutional investors. Also, in Sweden deals were closed largely between domestic
players. In the Baltic countries, the property markets are almost at a complete standstill. (Source: Catella)
Citycon is an active owner and long-term developer of shopping centres, laying the foundation for a successful retail business. The company aims to increase its net yield from shopping centres over the long term through active retail property management and redevelopment efforts. Citycon's retail properties serve both consumers and retailers.
Citycon is the market leader in the Finnish shopping centre business and holds a strong position in Sweden and a firm foothold in the Baltic Countries. It assumes responsibility for the business operations and administration of its investment properties. This differentiates Citycon from many other real estate companies, with principal focus on ownership.
Citycon is involved in the day-to-day operations of its shopping centres and, in co-operation with its tenants, aims continuously to increase the attractiveness, footfall, sales and profits of its shopping centres. Citycon is a pioneer in the Nordic shopping centre market, as it aims to factor environmental considerations into its shopping centre management as well as its redevelopment and development projects. The company has three sustainable development pilot projects, and the redevelopment of shopping centre Trio was the first one to be completed at the end of the year.
Citycon operates in Finland, Sweden and the Baltic countries. Thanks to careful market research and good local knowledge, Citycon has been able to acquire shopping centres in major growth centres in the countries in which it operates. Citycon's investments are focused on areas with expected population and purchasing power growth.
At the end of 2008, Citycon owned 33 (33) shopping centres and 52 (53) other properties. Of the shopping centres, 22 (22) were located in Finland, eight (8) in Sweden and three (3) in the Baltic countries.
At the end of the year, the market value of the company's property portfolio totalled EUR 2,023.6 million (EUR 2,215.7 million) with Finnish properties accounting for 73.1 per cent (71.6%), Swedish properties for 19.6 per cent (23.4%) and Baltic properties for 7.3 per cent (5.0%). The gross leasable area at the end of the year totalled 937,650 square metres.
Citycon measures its investment properties at fair value, under the IAS 40 standard, according to which changes in the fair value of investment properties are recognised through profit or loss. In accordance with the International Accounting Standards (IAS) and the International Valuation Standards (IVS), an external professional appraiser conducts a valuation of Citycon's property portfolio on a property-by-property basis at least once a year. However, in 2008, Citycon had its properties valued by an external appraiser on a quarterly basis, due to increased market volatility.
Citycon's property portfolio is valued by Realia Management Oy, part of the Realia Group. Realia Management Oy works in association with the leading provider of real estate services, the international company CB Richard Ellis. A summary of Realia Management Oy's Property Valuation Statement at the end of 2008 can be found at www.citycon.com/valuation. The valuation statement includes a description of the valuation process and the factors contributing to the valuation, as well as the results of the valuation, and a sensitivity analysis.
During the financial year, the fair value of Citycon's property portfolio decreased. This decrease was due to changes in general market conditions on the property and financial market and to higher yield requirements resulting from the general economic recession. The period saw a total value increase of EUR 15.3 million and a total value decrease of EUR 231.4 million. The net effect of these changes on the company's profit was EUR -216.1 million (EUR 211.4 million).
On 31 December 2008, the average net yield requirement defined by Realia Management Oy for Citycon's property portfolio came to 6.4 per cent (Q3/2008: 6.2% and 31 December 2007: 5.6%).
At the end of the year, Citycon had a total of 3,742 (3,700) leases. The average remaining length of the lease agreements was 3.2 (3.0) years. Citycon's property portfolio's net rental yield was 5.8 per cent (5.8%) and the occupancy rate was 96.0 per cent (95.7%).
Citycon's net rental income grew by 17.8 per cent to EUR 121.8 million during the year. The leasable area rose by 1.5 per cent to 937,650 square metres. Net rental income from like-forlike properties grew by 3.6 per cent.
Net rental income from like-for-like shopping centres grew by 4.5 per cent. Like-for-like properties are properties held by Citycon throughout the 24-month reference period, excluding properties under refurbishment and redevelopment as well as undeveloped lots. 77.9 per cent of like-for-like properties are located in Finland. The calculation method for net yield and standing (likefor-like) investments is based on guidelines issued by the KTI Institute for Real Estate Economics and the Investment Property Databank (IPD).
During the last 12 months, the rolling twelve-month occupancy cost ratio for like-forlike properties was 8.5 per cent. The occupancy cost ratio is calculated as the share of net rent and potential service charges paid by a tenant to Citycon out of the tenant's sales, excluding VAT. The VAT percentage is an estimate.
Citycon continues to focus on the development and redevelopment of the company's shopping centres, and follows developments in the shopping centre market across its operating regions. During the year, no new shopping centres were acquired, but the company acquired more minority shares in several partially-owned properties. Acquisitions totalled EUR 17.4 million during the year.
In February, Citycon sold 40 per cent of the Iso Omena shopping centre to an affiliate of GIC Real Estate, the property investment arm of the Government of Singapore Investment Corporation. The purchase price totalled EUR 131.6 million, equivalent to 40 per cent of the purchase price at which Citycon bought Iso Omena in September 2007. The parties have agreed that Citycon will continue to be responsible for the management of Iso Omena and continue its development according to Citycon's operating concept against agreed consideration.
Related to the Lippulaiva shopping centre's redevelopment project, Citycon acquired all the shares in MREC Kiinteistö Oy Majakka and, at the same time, divested its entire holding in MREC Kiinteistö Oy Ulappatori. Kiinteistö Oy Majakka owns undeveloped land adjacent to Lippulaiva, in
In addition, in early July Citycon acquired an approximately 54 per cent holding in MREC Kiinteistö Oy Espoon Asematori. This acquisition is related to the shopping centre Espoontori's refurbishment and redevelopment project currently in the pipeline. In January, Citycon sold its 44 per cent holding in Pukinmäki retail centre in Helsinki, Finland.
Changes in the Group structure during 2008 are presented in more detail in Note 30 of the Notes to the Financial Statements.
Keeping its shopping centres competitive for both customers and tenants constitutes the core of Citycon's strategy. The company is pursuing a long-term increase in the footfall and cash flow, as well as in the efficiency and return of its retail properties. In the short term, redevelopment projects may weaken returns from some properties, as some retail premises may have to be tem-
| Q4/2008 | Q4/2007 | Q3/2008 | 2008 | 2007 | Change-% | |
|---|---|---|---|---|---|---|
| Number of leases started | ||||||
| during the period | 255 | 164 | 81 | 572 | 512 | 11.7 |
| Total area of leases started, sq.m. | 69,730 | 27,854 | 12,810 | 124,960 | 103,408 | 20.8 |
| Occupancy rate at end of the period, % | 95.6 | 96.0 | 95.7 | 0.3 | ||
| Average remaining length of lease port | ||||||
| folio at the end of the period, year | 3.0 | 3.2 | 3.0 | 6.7 |
porarily vacated for refurbishment, which affects rental income. Citycon aims to carry out any redevelopment projects phase by phase so that the whole shopping centre does not have to be closed during the works in question, thus ensuring continuous cash flow.
In its development projects, Citycon is paying increasing attention to environmental management methods and solutions. The company has three pilot projects, aimed at identifying the best practices to be implemented in the sustainable construction and management of shopping centres. These pilot projects include building a new shopping centre at Liljeholmen in Stockholm, Sweden, and the redevelopment and extension of the Rocca al Mare shopping centre in Tallinn, Estonia, and of the Trio shopping centre in Lahti, Finland.
The assessment applied in the pilot projects comprises a total of over 60 points, reviewing various factors such as the energy efficiency of the property, indoor air quality, the choice of materials, the utilisation of public transport and minimising the environmental impacts of construction work. On the basis of this assessment, practical development measures will be introduced in order to establish systematic, sustainable construction practices.
Citycon seeks to obtain the international LEED (Leadership in Energy and Environmental Design) environmental certification for its projects. Furthermore, Citycon remains confident that in the long term a responsible approach to its business operations will enhance its reputation as a responsible player in the shopping centre markets and its attraction as an international investment.
The table below lists the most significant development and redevelopment projects in progress, as approved by the Board of Directors. More information on planned projects can be found on Citycon's website at www.citycon.com, in management presentations and the Annual Report 2008 to be published in February.
Capital expenditure during the year on all development projects amounted to EUR 56.5 million in Finland, EUR 60.5 million in Sweden and EUR 22.7 million in the Baltic countries.
The company's largest development project and its main sustainable construction project involves the construction of a new shopping centre in Liljeholmen, Stockholm. During the year, the project advanced within the planned budget and schedule. The new shopping centre is expected to open in October 2009, and the leasing of retail premises is also proceeding as planned, although the contract process is taking longer in the current market conditions.
The first stage of the redevelopment of the Rocca al Mare shopping centre in Tallinn was completed ahead of schedule, with new premises opening on 1 October 2008. The refurbished premises are fully leased, and the shopping centre has stayed open during the project. The next stage of the redevelopment project has already been launched, and the majority of the premises leased. In completely renovated form, Rocca al Mare is expected to open in the autumn of 2009.
The second stage of the redevelopment of the Trio shopping centre in downtown Lahti proceeded as planned and the totally refurbished Trio was completed in November 2008 in time for the Christmas sales. Trio, too, remained open during the whole redevelopment project, which was launched in 2007.
Citycon's Board of Directors has also approved a redevelopment project involving the Torikeskus in Seinäjoki.
During the year, Citycon and the City of Helsinki signed a preliminary agreement on the purchase of land for a planned new retail centre in Myllypuro, Helsinki. The agreement covers four lots zoned for commercial and residential development. The aim is to develop an attractive retail property in Myllypuro.
Other projects being planned but not yet approved by the Board of Directors include the extension of the Lippulaiva shopping centre as well as Åkersberga Centrum's and Tumba Centrum's redevelopment projects. However, these or other possible development projects will be started only once financing and leasing are adequately secured.
Citycon's business operations are divided into three business units: Finland, Sweden and the Baltic Countries. These are sub-divided into two business areas: Retail Properties and Property Development. The Finnish business unit also includes a Commercial Development function, responsible for the commercial development of Citycon's Finnish shopping centres and the development of new commercial concepts.
Citycon is the market leader in the Finnish shopping centre business. Citycon's market share is 24 per cent of the Finnish shopping centre market (source: Entrecon). In 2008, the company's net rental income from Finnish operations grew by 20.1 per cent to EUR 90.9 million in spite of the ongoing redevelopment projects. The business unit accounted for 74.7 per cent of the company's total net rental income.
The key figures of the Finnish property portfolio are presented on the following page. Ongoing development projects have been covered previously in this document.
Citycon has achieved a substantial position in the Swedish shopping centre market and has eight shopping centres and seven other retail properties in Sweden, located in the Greater Stockholm and Greater Gothenburg areas and in Umeå. The net rental income from Swedish operations increased by 11.3 per cent to EUR 24.1 million. The business unit's net rental income accounted for 19.8 per cent of Citycon's total net rental income.
The key figures for the Swedish property portfolio are presented on the following page. Ongoing redevelopment projects have been covered previously in this document.
At the end of 2008, Citycon owned three shopping centres in the Baltic countries: Rocca al Mare and Magistral in Tallinn, Estonia and Mandarinas in Vilnius, Lithuania. Due to the limited size of the Baltic market, the turbulence in property and financial markets, and the limited availability of suitable
| Actual | ||||
|---|---|---|---|---|
| Estimated | gross expenditure | Estimated | ||
| total cost | 31 Dec. 2008 up to | final year | ||
| Location | (EUR million) | (EUR million) | of completion | |
| Liljeholmstorget | Stockholm, Sweden | 130 | 70.7 | 2009 |
| Rocca al Mare | Tallinn, Estonia | 64.3 | 36.6 | 2009 |
| Trio | Lahti, Finland | 60 | 58.3 1) | Completed |
| Torikeskus | Seinäjoki, Finland | 4 | 2.6 | 2009 |
1) Current expenditure before the final project report.
| Q4/2008 | Q4/2007 | Q3/2008 | 2008 | 2007 | Change-% | |
|---|---|---|---|---|---|---|
| Number of leases started during | ||||||
| the period | 193 | 151 | 66 | 452 | 442 | 2.3 |
| Total area of leases started, sq.m. | 31,930 | 18,640 | 11,090 | 79,130 | 74,400 | 6.4 |
| Occupancy rate at end of the period, % | 95.7 | 95.7 | 95.6 | 0.1 | ||
| Average remaining length of lease | ||||||
| portfolio at the end of the period, year | 3.1 | 3.1 | 3.1 | 0.0 |
| Q4/2008 | Q4/2007 | Q3/2008 | 2008 | 2007 | Change-% | |
|---|---|---|---|---|---|---|
| Gross rental income, EUR million | 30.8 | 29.1 | 30.8 | 122.5 | 100.7 | 21.7 |
| Turnover, EUR million | 32.0 | 30.2 | 31.9 | 126.8 | 104.3 | 21.6 |
| Net rental income, EUR million | 22.6 | 21.0 | 23.4 | 90.9 | 75.7 | 20.1 |
| Net fair value losses/gains on investment | ||||||
| property, EUR million | -48.6 | -2.3 | -45.0 | -154.3 | 148.1 | − |
| Operating loss/profit, EUR million | -21.7 | 17.3 | -22.9 | -62.9 | 218.4 | − |
| Capital expenditure, EUR million | 10.6 | 32.5 | 18.0 | 69.2 | 429.1 | -83.9 |
| Fair market value of investment | ||||||
| properties, EUR million | 1,519.3 | 1,480.2 | 1,587.0 | -6.7 | ||
| Net rental yield, % (1 | 5.8 | 6.0 | 6.2 | − | ||
| Net rental yield, like-for-like | ||||||
| properties, % | 6.3 | 6.5 | 6.6 | − | ||
(1 Includes the lots for development projects.
| Q4/2008 | Q4/2007 | Q3/2008 | 2008 | 2007 | Change-% | |
|---|---|---|---|---|---|---|
| Number of leases started during | ||||||
| the period | 19 | 13 | 13 | 58 | 49 | 18.4 |
| Total area of leases started, sq.m. | 9,060 | 9,179 | 1,670 | 15,340 | 25,800 | -40.5 |
| Occupancy rate at end of the period, % | 94.8 | 96.0 | 95.1 | 0.9 | ||
| Average remaining length of lease | ||||||
| portfolio at the end of the period, year | 2.4 | 2.4 | 2.4 | 0.0 |
| Q4/2008 | Q4/2007 | Q3/2008 | 2008 | 2007 | Change-% | |
|---|---|---|---|---|---|---|
| Gross rental income, EUR million | 9.9 | 9.4 | 11.3 | 41.1 | 35.4 | 16.4 |
| Turnover, EUR million | 10.1 | 11.1 | 10.5 | 41.9 | 39.0 | 7.2 |
| Net rental income, EUR million | 5.3 | 4.7 | 6.5 | 24.1 | 21.6 | 11.3 |
| Net fair value losses/gains on investment | ||||||
| property, EUR million | -21.4 | 2.3 | -29.3 | -70.1 | 54.7 | − |
| Operating loss/profit, EUR million | -16.9 | 6.9 | -23.3 | -49.1 | 73.4 | − |
| Capital expenditure, EUR million | 23.0 | 5.5 | 18.5 | 65.6 | 142.4 | -53.9 |
| Fair market value of investment | ||||||
| properties, EUR million | 464.1 | 396.1 | 517.5 | -23.5 | ||
| Net rental yield, % (1 | 4.7 | 5.0 | 4.6 | − | ||
| Net rental yield, like-for-like | ||||||
| properties, % | 5.2 | 5.4 | 4.9 | − |
(1 Includes the lots for development projects.
Financial performance, Baltic Countries
| Q4/2008 | Q4/2007 | Q3/2008 | 2008 | 2007 | Change-% | |
|---|---|---|---|---|---|---|
| Number of leases started during | ||||||
| the period | 43 | - | 2 | 62 | 21 | 195.2 |
| Total area of leases started, sq.m. | 28,740 | - | 50 | 30,490 | 3,208 | 850.4 |
| Occupancy rate at end of the period, % | 99.8 | 99.8 | 100.0 | -0.2 | ||
| Average remaining length of lease | ||||||
| portfolio at the end of the period, year | 2.2 | 6.8 | 2.8 | 142.9 |
| Q4/2008 | Q4/2007 | Q3/2008 | 2008 | 2007 | Change-% | |
|---|---|---|---|---|---|---|
| Gross rental income, EUR million | 3.0 | 2.1 | 2.1 | 9.3 | 7.7 | 20.7 |
| Turnover, EUR million | 3.1 | 2.0 | 2.1 | 9.6 | 8.0 | 19.4 |
| Net rental income, EUR million | 2.2 | 1.4 | 1.5 | 6.8 | 6.0 | 13.8 |
| Net fair value gains/losses on investment | ||||||
| property, EUR million | 10.6 | -0.1 | 2.6 | 8.3 | 8.7 | -5.2 |
| Operating profit/loss, EUR million | 12.6 | 1.0 | 4.0 | 14.4 | 13.8 | 4.3 |
| Capital expenditure, EUR million | 6.7 | 5.6 | 3.8 | 22.7 | 31.7 | -28.3 |
| Fair market value of investment | ||||||
| properties, EUR million | 111.0 | 147.3 | 111.2 | 32.5 | ||
| Net rental yield, % (1 | 5.8 | 6.2 | 6.2 | − | ||
| Net rental yield, like-for-like | ||||||
| properties, % | 7.1 | 7.2 | 7.3 | − |
(1 Includes the lots for development projects.
properties, Citycon has been selective in making investments in the region. Net rental income from Baltic operations increased by 13.8 per cent, to EUR 6.8 million. The business unit accounted for 5.6 per cent of Citycon's total net rental income.
The key figures for the Baltic property portfolio are presented on the previous page. Ongoing redevelopment projects have been covered previously in this document.
Turnover for the financial year came to EUR 178.3 million (EUR 151.4 million), principally derived from the rental income generated by Citycon's retail premises. Gross rental income accounted for 97.0 per cent (94.9%) of turnover.
Operating profit came to EUR -105.0 million (EUR 298.7 million). Profit before taxes was EUR -162.3 million (EUR 253.5 million) and profit after taxes attributable to the parent company's shareholders EUR -124.1 million (EUR 200.3 million). The decrease in operating profit was mainly due to the fair value loss of the property portfolio. On the other hand, as a result of the completed redevelopment projects, the operating profit rose due to net rental income generated by increased and refurbished premises.
The effect of changes in the fair value of the property portfolio, of gains on sales and of other indirect items on the profit attributable to the parent company's shareholders, was EUR 167.9 million (EUR 162.1 million), tax effects included. Taking this into account, the direct result after taxes was EUR 5.5 million above the reference period level (cf. Note Reconciliation between direct and indirect result). The growth in direct result resulted mainly from increased net rental income. Indirect result includes a EUR 5.9 million compensation from the City of Helsinki for the premature termination of the land lease agreement, in order to advance the Myllypuro development project. In addition, a gain of EUR 1.6 million, including tax effect, for the buyback of convertible bonds was recognised under direct result.
Current taxes on direct result were higher during the financial year than during the reference period, due to direct result growth and buyback of convertible bonds.
Earnings per share amounted to EUR -0.56 (EUR 1.00). Direct result per share, diluted, (diluted EPRA EPS) was EUR 0.20 (EUR 0.19). Net cash flow from operating activities per share amounted to EUR 0.21 (EUR 0.20).
Due to the new IAS 23 standard Borrowing costs, Citycon has revised its accounting principles with respect to the capitalisation of interest expenses. As a result of the introduction of the new accounting principles, Citycon has adjusted its financial statements for 2007 and 2008. The new standard was published by the International Accounting Standards Board IASB. More information on the effects of the adjustment is available in Note 12 of the Notes to the Financial Statements.
At the end of the year, Citycon Group employed a total of 113 (102) persons, of whom 76 were employed in Finland, 29 in Sweden and eight in the Baltic countries. Administrative expenses increased to EUR 16.9 million (EUR 16.5 million), including EUR 0.3 million (EUR 0.7 million) calculated non-cash expenses related to employee stock options and the company's share-based incentive scheme. The higher expenses when compared to the reference period were due to organisation growth.
Wages and salaries paid by the Citycon Group totalled MEUR 7.6 (EUR 6.6 million), of which those paid to the CEO accounted for EUR 0.3 million (EUR 0.3 million) and those paid to the Board of Directors EUR 0.6 million (MEUR 0.5 million). Wages and salaries paid by the parent company totalled EUR 5.8 million (EUR 5.2 million), of which those paid to the CEO accounted for EUR 0.3 million (EUR 0.3 million) and those paid to the Board of Directors EUR 0.6 million (EUR 0.5 million).
| 2008 | 2007 | 2006 | ||
|---|---|---|---|---|
| Average number during | ||||
| the year | 109 | 93 | 62 | |
| Wages and salaries | ||||
| during the year, | ||||
| EUR million | 7.6 | 6.6 | 4.6 |
Citycon's reported gross capital expenditure during the year totalled EUR 157.9 million (EUR 603.9 million). Of this, property acquisitions accounted for EUR 17.4 million (EUR 531.3 million), property development EUR 139.7 million (EUR 71.8 million) and other investments EUR 0.8 million (EUR 0.8 million). These investments were financed through cash flow from operations and existing financing arrangements.
The financial year saw the partial divestment of the shopping centre Iso Omena, involving the sale of a 40 per cent holding to a company in the GIC Real Estate Group. The selling price amounted to EUR 131.6 million.
The balance sheet total at the end of the reporting period stood at EUR 2,178.6 million (EUR 2,308.6 million). Liabilities totalled EUR 1,341.5 million (EUR 1,297.7 million) with short-term liabilities accounting for EUR 109.5 million (EUR 157.8 million). The Group's financial position remained good during the year. At the end of the year, Citycon's liquidity was EUR 203.7 million, of which EUR 187.0 million consisted of undrawn, committed credit facilities and EUR 16.7 million of cash and cash equivalents. At the end of the year, Citycon's liquidity, short-term credit limits excluded, stood at EUR 158.7 million (Q3/2008: EUR 202.6 million).
For the purpose of short-term liquidity management, the company uses a EUR 100 million non-committed Finnish commercial paper programme and a non-committed Swedish commercial paper programme worth SEK one billion. Due to more difficult market conditions, Citycon repaid all of its commercial papers at the end of the year by drawing funds from its committed long-term credit facilities. Consequently, Citycon's financing is mainly arranged on a long-term basis, with short-term interest-bearing debt constituting approximately 4.2 per cent of the Group's total interest-bearing debt at the end of the financial year .
From the reference period, interest-bearing debt increased by EUR 45.5 million to EUR 1,199.5 million (EUR 1,154.0 million). The fair value of Group's interest-bearing debt stood at EUR 1,211.3 million (EUR 1,171.4 million).
The Group's cash and cash equivalents totalled EUR 16.7 million (EUR 24.2 million). The fair value of the Group's interest-bearing net debt stood at EUR 1,194.6 million (EUR 1,147.3 million).
The year-to-date weighted average interest rate increased compared to the previous year and was 4.85 per cent (4.68% during reference period). The average loan maturity, weighted according to the principal amount of the loans stood at 4.6 years (4.7 years). The average interest-rate fixing period was 3.3 years (3.1 years).
The weighted interest rate, interest-rate swaps included, averaged 4.75 per cent on 31 December 2008.
The Group's equity ratio was 38.5 per cent (43.9%). Year-end gearing stood at 141.3 per cent (111.8%).
Of Citycon's year-end interest-bearing debt, 75.8 per cent (81.6%) was in floating-rate loans, of which 66.4 per cent (61.1%) had been converted into fixed-rate loans by means of interest-rate swaps. Fixed-rate debt accounted for 74.5 per cent (68.3%) of the Group's year-end interest-bearing debt, interest-rate swaps included. The loan portfolio's hedging ratio is in line with the Group's financing policy, and the company increased the hedging ratio during the year.
Citycon applies hedge accounting, whereby changes in the fair value of interest-rate swaps subject to hedge accounting are recognised under equity. The period-end nominal amount of interest-rate swaps totalled EUR 591.7 million (EUR 634.5 million), with hedge accounting applied to interest-rate swaps whose nominal amount totalled EUR 568.7 million (EUR 558.0 million).
On 31 December 2008, the nominal amount of all of the Group's derivative contracts totalled EUR 614.8 million (EUR 674.8 million), and their fair value was EUR -9.8 million (EUR 9.1 million). The decline of market rates towards the end of the year decreased the fair value of Citycon's interest rate derivatives. Hedge accounting is applied for the majority of interest rate derivatives, meaning that any changes in their fair value will be recognised directly in shareholders' equity. Thereby, the fair value loss for these derivatives does not affect the profit for the financial year but the change is recognised in the consolidated shareholders' equity, thus weakening the consolidated equity ratio. The fair value loss recognised in the fair value reserve under shareholders' equity, taking account of the tax effect, totals EUR -17.7 million (30 September 2008: EUR 5.1 million).
Net financial expenses totalled EUR 57.3 million (EUR 45.3 million). The increase was primarily attributed to the rise in interest rates in the first nine months of the year and increased amount of interest-bearing debt.
Net financial expenses in the income statement for 2008 include EUR 3.1 million in non-cash expenses related to derivative valuation, but also non-recurring income worth EUR 2.4 million for the buyback of the convertible bonds was recorded in net financial expenses. In addition, net financial expenses in the income statement include EUR 1.8 million (EUR 1.8 million) in noncash expenses related to the option component on convertible bonds.
The IFRS standard IAS 23 was adjusted during the year with respect to the recognition of interest expenses relating to redevelopment projects. The adjustment of the IAS 23 standard most importantly affects the company's financial expenses in the income statement, as the new IAS 23 standard enables the capitalization of interest expenses arising from the redevelopment of existing properties and from the acquisition of lots for development projects in the balance sheet. This effect is discussed in greater detail in Note 12 of the Notes to the Financial Statements.
Regardless of the prevailing uncertainty in the financial market, Citycon signed three long-term loan agreements during the year. Local financing for the Magistral shopping centre, acquired in the summer of 2007, was finalised through the signing of a loan agreement for EEK 280 million, for a term of approximately five years. Additionally, the company increased its committed long-term credit limits by signing a EUR 50 million five-year credit facility agreement.
In June, Citycon and the Nordic Investment Bank (NIB) agreed on a loan amounting to EUR 30 million to be used to finance the development of the Liljeholmstorget shopping centre, located in Stockholm. Liljeholmstorget is Citycon's main sustainable development project, which was an essential factor in the loan arrangement. The maturity of the loan is 10 years. The company managed to conclude all three loan agreements with competitive loan margins.
In addition, on 15 April 2008, Citycon signed a commercial paper programme in Sweden worth SEK one billion (approximately EUR 102.1 million) with a Nordic bank group. Citycon intends to use the proceeds from the commercial paper programme for short-term liquidity management of the Group's Swedish operations. Under the programme, commercial papers may be issued either in Swedish crowns or in euros.
In July of 2006, Citycon's Board of Directors decided to issue directed subordinated convertible bonds to the amount of EUR 110 million to international institutional investors. The issue of the convertible bonds waiving the shareholders' pre-emptive subscription rights was based on the authorisation given at Citycon's Annual General Meeting on 14 March 2006. These convertible bonds have been listed on the NASDAQ OMX Helsinki since 22 August 2006. The maturity of the bonds is 7 years and they will pay a coupon of 4.5 per cent annually in arrears. Furthermore, the conversion period is from 12 September 2006 to 27 July 2013 and the maturity date is 2 August 2013. The current conversion price is EUR 4.20.
In November-December 2008, Citycon repurchased a total of 442 bonds of the convertible bonds in several lots. The repurchased bonds were cancelled on 9 December 2008. After this cancellation, the number of bonds issued under the convertible bonds is 1,758 and the maximum number of shares to be subscribed for with bonds is 20,928,571. As a result of the cancellation, the maximum increase of Citycon's share capital on the basis of the convertible bonds decreased from EUR 35,357,142.60 to EUR 28,253,570.85. The amendments to Citycon's convertible bonds were registered in the Trade Register on 19 December 2008.
On 10 December, Citycon repurchased
another 100 bonds of the same convertible bonds. By the end of the financial year, these had not yet been cancelled.
In November-December, Citycon repurchased a total principal amount of EUR 27.1 million of the convertible bonds, corresponding to approximately 25 per cent of the aggregate amount of the convertible bonds. The weighted average repurchase price was 53.5 per cent of the face value of the bonds. These repurchases were carried out because the market situation enabled the company to repurchase the bonds at a price clearly below their face value and because the repurchases enabled the company to strengthen its balance sheet and decrease its net financial expenses.
The terms and conditions of the convertible bonds in more detail as well as the accrued interest are presented in the Notes to the Financial Statements under Note 22, Interest-bearing debt. The terms and conditions and the accrued interest of Citycon's capital loan are presented in the Note 22 as well.
For its risk management purposes, Citycon has a holistic Enterprise Risk Management (ERM) programme in place. Citycon's risk management aims to ensure that the company can meet its strategic and operational goals while the ERM's purpose is to generate up-to-date and consistent information for the company's senior executives and Board of Directors on any risks threatening the targets set in strategic and annual plans.
Citycon's Board of Directors estimates that major short-term risks and uncertainties are associated with economic developments in the company's operating regions, availability of financing as well as changes in the fair value of investment properties and interest rates. Redevelopment and construction of the company's own properties means that also the risks associated with project management and with the leasing of new premises will increase.
A number of factors contribute to the value of retail properties, such as general and local economic development, investment demand, and interest rates. At present, investment property values are subject to abnormally high uncertainty due to the global financial crisis and the dramatically weaker economic outlook in the company's operating regions.
As a result of the credit crisis, property prices have gone down, and Citycon has also recorded fair value losses for 2008 from the lower values of investment properties. During the year, trading activity in the property markets decreased significantly. Furthermore, the weakening economic conditions make the future development of properties' fair value even more uncertain. While changes in the investment properties' fair value have an effect on the company's profit for the financial year, they do not have an immediate impact on cash flow.
Economic fluctuations and developments materially affect the demand for rental premises and rental rates. These represent one of the company's key short-term risks. All of the company's operating regions experienced a marked slowdown of economic growth in 2008. Several economists forecast negative economic growth for almost all of the company's operating regions for 2009. These economic conditions could reduce the demand for business premises, weaken tenants' ability to pay rent and raise the vacancy rate in the company's properties, which might have a negative impact on the company's business and financial performance.
Citycon's growth relies on the refurbishment and redevelopment of retail properties. Implementation of this strategy requires both equity and debt financing. Difficulties in the banking sector have made banks more reluctant to lend money to enterprises. Furthermore, due to falling share prices and investors' reluctance to invest in shares, it is more difficult for listed companies to acquire equity through share issues. Fortunately Citycon's financial position is strong, enabling it to finance its ongoing projects in full as planned. The company will need new financing for future new investments and growth efforts, and the terms of such arrangements will naturally be affected by the financial crisis.
In addition to the availability of financing, Citycon's main financial risk is the interestrate risk of the company's loan portfolio. In the course of 2008, the six-month interest rate in the euro area fell by 1.74 percentage points while in Sweden the equivalent interest rate dropped 2.25 percentage points. During this period, Citycon's average interest rate rose by 0.17 percentage points because the sharp decrease in interest rates took place in the final quarter and thereby the lower interest rates could only have a limited impact on the full-year average interest rate. The average interest rate is likely to decrease during 2009 as a consequence of lower interest rates.
The short-term risks involved in (re)development projects are associated with the leasing of new premises and the implementation of construction projects. Leasing risks in projects are minimised by securing the allocation of sufficient resources to the leasing operations of new properties, investing in the marketing of new shopping centres and concluding agreements with anchor tenants prior to a project's commencement or in its initial stage. Project implementation risks are managed by sufficient resources. Responsibility for projects is carried by experienced in-house project managers.
More details of the company's risk management are available on the company's website at www.citycon.com/riskmanagement and on pages 32–34 of the Financial Statements.
Citycon wants to lead the way in responsible shopping centre business and to promote sustainable development in the business. The location of Citycon's shopping centres in city centres, local centres or generally adjacent to major traffic flows, combined with excellent public transport connections, makes them well positioned to face the demands of sustainable development.
To further develop its operations, Citycon surveyed its tenants' views in 2008 on measures that promote sustainable development and has assembled a list of tangible proposals for improvement. The survey covered 350 tenants and store managers in Finland and Sweden, and another 13 persons responsible for environmental affairs in major retail companies were also interviewed.
The survey indicated that, up to the present day, environmental affairs have not been a key priority in sales activities conducted in shopping centres, but in this respect the retail sector may well put pressure on shopping centre operators in the future. Forerunners in the retail sector are already placing demands on partners such as shopping centres.
Citycon has initiated a Green Shopping Centre Management programme to foster sustainable development in all shopping centres owned by the company. The programme, to be implemented in 2009, aims to promote energy efficiency, recycling and other operations that support sustainable development.
Citycon is currently engaged in sustainable construction through three pilot projects, for which the company is seeking the international LEED (Leadership in Energy and Design) certification. These projects form an essential element of Citycon's efforts towards sustainable development and include the redevelopment of the Trio shopping centre in Lahti, the redevelopment and extension of the Rocca al Mare shopping centre in Tallinn, and the construction of the Liljeholmstorget shopping centre in Stockholm.
Related to Citycon's business operations, there are claims that have been submitted to the company and which may potentially lead to legal proceedings. In the opinion of the company, it is not likely that aggregate potential liabilities related to these actions have significance on the financial position or results of the Group.
Citycon Oyj's Annual General Meeting (AGM) 2008 took place in Helsinki, Finland, in March. The AGM adopted the consolidated financial statements and the parent company's financial statements for the financial year 2007 and discharged the members of the Board of Directors and the Chief Executive Officer from liability. The AGM decided on a dividend of EUR 0.04 per share for the financial year 2007 and, in addition, on an equity return of EUR 0.10 per share from the invested unrestricted equity fund. The dividend and equity return were paid on 2 April 2008.
Under the Articles of Association, the Board consists of a minimum of five and a maximum of eight members, elected by the AGM for a term of one year at a time. A member of the Board of Directors may be discharged only upon a decision by the general meeting of shareholders. A decision to amend the Articles of Association requires a 2/3 majority vote at a general meeting.
The number of Board members remained at eight with Gideon Bolotowsky, Raimo Korpinen, Tuomo Lähdesmäki, Claes Ottosson, Dor J. Segal and Thomas W. Wernink being re-elected to the Board for a one-year-term. Per-Håkan Westin, M.Sc. (Eng.), and Amir Bernstein, LL.M., were elected as new members to the Board. Thomas W. Wernink continued as the Board Chairman and Tuomo Lähdesmäki as the Deputy Chairman.
Ernst & Young Oy, a firm of authorised public accountants, continues as the company auditor with Authorised Public Accountant Tuija Korpelainen as the chief auditor.
Citycon shares have been listed on the Helsinki exchange since 1988. Citycon is a Mid Cap company in the Financials sector, sub-industry Real Estate Operating Companies. Its trading code is CTY1S and shares are traded in euros. The ISIN code used in international securities clearing is FI0009002471.
In 2008, the number of Citycon shares traded on the NASDAQ OMX Helsinki totalled 150.9 million (153.7 million) at a total value of EUR 443.1 million (EUR 738.1 million). The highest quotation during the year was EUR 4.28 (EUR 6.09) and the lowest EUR 1.26 (EUR 3.24). The reported tradeweighted average price was EUR 2.94 (EUR 4.76), and the share closed at EUR 1.68 (EUR 3.65). The company's market capitalisation at the end of the financial year totalled EUR 371.3 million (EUR 806.6 million).
On 31 December 2008, Citycon had a total of 2,190 (2,090) registered shareholders, of which ten were account managers of nominee-registered shares. Nominee-registered and other international shareholders held 210.7 million (210.9 million) shares, or 95.3 per cent (95.5%) of shares and voting rights in the company. Information on the company's major shareholders and sharehold-
ing is presented on page 52 of the Financial Statements.
During the year, Citycon received three notifications regarding changes in shareholdings:
FIL Limited (formerly Fidelity International Limited) notified the company in March that the holdings of its direct and indirect subsidiaries in Citycon Oyj had fallen below the five per cent threshold. According to the notification, FIL Limited and its direct and indirect subsidiaries held a total of 10,904,704 Citycon shares on 5 March 2008, equivalent to 4.93 per cent of the company's share capital and voting rights.
AXA Investment Managers notified the company in March that the holdings of AXA S.A. and its subsidiaries in Citycon Oyj's voting rights and share capital had risen above the threshold of five per cent. According to the notification, the AXA Group held 11,892,688 shares on 21 March 2008, equivalent to 5.38 per cent of the company's voting rights and share capital. In May, AXA Investments Managers notified the company that the holdings of AXA S.A. and its subsidiaries in Citycon Oyj's voting rights and share capital had fallen below the five per cent threshold, to 4.99 per cent, due to stock transactions that took place on 13 May 2008. According to the notification, the AXA Group held 11,017,656 Citycon shares at the time.
At the beginning of 2008, the company's registered share capital totalled EUR 259,570,510.20 and the number of shares 220,981,211. During the reporting period, the number of shares increased by 10,738 shares as a result of exercise of stock option rights and by 7,040 shares that were granted to the company's key personnel under a directed share issue without payment relating to the company's share-based incentive plan. At the end of the year, the company's registered share capital totalled EUR 259,570,510.20, and the number of shares amounted to 220,998,989. The company has a single series of shares, with each share entitling to one vote at general meetings of shareholders. The shares have no nominal value.
The AGM for 2007 authorised the Board of Directors to decide on issuing new shares and disposing of treasury shares through paid or free share issues. New shares can be issued and treasury shares can be transferred to shareholders in proportion to their existing shareholding or through a directed share issue waiving the pre-emptive rights of shareholders, if a weighty financial reason exists for doing so. The Board can also decide on a free share issue to the company itself. In addition, the Board was authorised to grant special rights referred to in Section 1 of Chapter 10 of the Finnish Limited Liability Companies Act, entitling their holders to receive, against payment, new shares in the company or treasury shares. The combined number of new shares to be issued and treasury shares to be transferred, including the shares granted on the basis of the special rights, may not exceed 100 million.
The Board exercised this authorisation in September 2007, when it decided on a share issue based on the shareholders' pre-emptive subscription right, and in May 2008, when it decided on a directed share issue without payment relating to the company's share-based incentive plan. As a result of these decisions, the number of shares that can be issued or disposed of on the basis of the authorisation now totals 72,398,178. This authorisation is valid until 13 March 2012.
At the end of the year, the Board had no other authorisations.
During the financial year, Citycon Oyj held no treasury shares.
The Annual General Meeting held on 15 March 2004 authorised the issue of a maximum of 3,900,000 stock options to the personnel of the Citycon Group. Stock options 2004 A/B/C are listed on the NASDAQ OMX Helsinki. Trading in stock options 2004 C began on 1 September 2008.
The terms and conditions of the company's stock option plan 2004 were amended during the
| 2004 A | 2004 B | 2004 C | |
|---|---|---|---|
| No. of options granted | 1,040,000 | 1,090,000 | 1,050,000 |
| No. held by Veniamo-Invest Oy ¹) | 260,000 | 210,000 | 250,000 |
| Subscription ratio, option/shares | 1:1.2127 | 1:1.2127 | 1:1.2127 |
| Subscription price per share, EUR ²) | 2.2732 | 2.6608 | 4.3613 |
| Subscription period began | 1.9.2006 | 1.9.2007 | 1.9.2008 |
| Subscription period ends | 31.3.2009 | 31.3.2010 | 31.3.2011 |
| No. of options exercised | 345,075 | - | - |
| No. of shares subscribed with options | 386,448 | - | - |
¹) Veniamo-Invest Oy, a wholly-owned subsidiary of Citycon Oyj, cannot subscribe for its parent company's shares. ²) Following the dividend payment and equity return in 2008. The share subscription prices are reduced by half of the per-share dividends paid and per-share equity returned. However, the share subscription price is always at least EUR 1.35.
year under a decision taken by the AGM. The terms and conditions were supplemented with a clause stating that the subscription prices of options 2004 A/B/C are to be reduced by half of potential per-share equity returns. The table below includes information on the number of stock options 2004 and their subscription ratios and prices at the year-end. The full terms and conditions of the stock option plan are available on the company's website at www.citycon.com/options.
During the reporting period, 10,132 shares were subscribed based on the A stock options relating to Citycon's stock option plan 2004, at a per-share subscription price of EUR 2.2732. Shares subscribed entitle their holders to a divi dend for the financial year 2008.
The maximum number of shares that can be further subscribed for exercising the outstanding stock options 2004 amounts to 3,437,913 new shares.
On 31 December 2008, members of the Board of Directors, the CEO and other members of the Cor porate Management Committee and their related parties held a total of 274,742 Citycon shares, accounting for 0.12 per cent of all shares and vot ing rights.
At year-end 2008, the number of stock options 2004 A/B/C held by Citycon's CEO totalled 75,000, 140,000 and 140,000, respec tively. The number of 2004 option rights held by other members of the Corporate Management Committee totalled 150,000, 280,000 and 280,000, respectively. These option rights enti tle the company's CEO and other members of the Corporate Management Committee to subscribe for a maximum of 1,291,525 Citycon shares. Board members are not included in the company's share-based incentive schemes.
Up-to-date information on the share and stock option holdings of the members of Citycon's Board of Directors and Corporate Management Committee is available on the company's website at www.citycon.com/insiders.
The main terms of the CEO's executive con tract are described on page 41 of these Financial Statements.
At the end of January, Citycon divested all shares in its subsidiary MREC Kiinteistö Oy Keijutie 15. The debt-free sales price of this non-core property in Lahti amounted to approximately EUR 3 million.
The parent company's retained earnings amount to EUR 17.8 million, of which profit for the period accounts for EUR 14.1 million. On the date of pub lication of the Financial Statements, funds in the parent company's invested unrestricted equity fund total EUR 179.0 million.
The Board of Directors proposes to the Annual General Meeting of 18 March 2009 that a per-share dividend of EUR 0.04 be paid out for the financial year ending on 31 December 2008, corresponding to a total of EUR 8.8 million, and that EUR 0.10 per share be returned from the invested unrestricted equity fund, corresponding to a total of EUR 22.1 million. The Board of Direc tors proposes that the record date for dividend payment and equity return be 23 March 2009 and that the dividend and equity return be paid on 3 April 2009.
The Board of Directors further proposes that the remaining balance of EUR 8.9 million of the retained earnings be recorded under retained earnings.
It is the Board of Directors' opinion that the proposed profit distribution and equity return do not pose a risk to the company's solvency.
Citycon continues to focus on increasing its cash flow and operating profit (excluding fair value changes). In order to implement its strategy, the company will focus on value-added activities while cautiously monitoring the market for poten tial acquisitions.
Due to market changes and tight financing conditions, any project will be re-evaluated before its launch. Citycon intends to continue the divest ment of its non-core properties to improve the property portfolio and to strengthen the balance sheet. The company is also considering alterna tive property financing sources.
The company expects its net rental income to increase in 2009 from the previous year's level based on at the end of 2008 completed and ongo ing extension and redevelopment projects that will increase the leasable area, as well as on fur ther improvements in shopping centre manage ment.
Helsinki, 11 February 2009
Citycon Oyj Board of Directors
| EUR million | Note | 1 Jan.–31 Dec. 2008 | 1 Jan.–31 Dec. 2007 |
|---|---|---|---|
| Total revenues | 1 | 207.4 | 371.1 |
| Total expenses excluding financial expenses | 2 | -312.5 | -72.4 |
| Gross rental income | 173.0 | 143.7 | |
| Service charge income | 5.3 | 7.7 | |
| Turnover | 4 | 178.3 | 151.4 |
| Property operating expenses | 5, 8 | 56.3 | 47.8 |
| Other expenses from leasing operations | 6 | 0.2 | 0.3 |
| Net rental income | 121.8 | 103.4 | |
| Administrative expenses | 7, 8, 9 | 16.9 | 16.5 |
| Other operating income and expenses | 10 | 6.1 | 0.5 |
| Fair value gains on investment property | 15.3 | 219.0 | |
| Fair value losses on investment property | -231.4 | -7.5 | |
| Net fair value losses/gains on investment property | -216.1 | 211.4 | |
| Investment property disposal proceeds | 7.7 | 0.2 | |
| Carrying value of investment property disposals | -7.6 | -0.3 | |
| Profit/losses on disposal of investment property | 0.1 | -0.1 | |
| Operating loss/profit | -105.0 | 298.7 | |
| Financial income | 72.3 | 10.6 | |
| Financial expenses | -129.6 | -55.9 | |
| Net financial income and expenses | 11, 12 | -57.3 | -45.3 |
| Loss/profit before taxes | -162.3 | 253.5 | |
| Current taxes | 13 | -6.6 | -3.4 |
| Change in deferred taxes | 13, 24 | 30.0 | -46.2 |
| Income tax expense | 23.4 | -49.6 | |
| Loss/profit for the period | -138.9 | 203.9 | |
| Attributable to | |||
| Parent company shareholders Minority interest |
-124.1 -14.8 |
200.3 3.6 |
|
| Earnings per share attributable to parent company shareholders: | |||
| Earnings per share (basic), EUR | 14 | -0.56 | 1.00 |
| Earnings per share (diluted), EUR | 14 | -0.56 | 0.91 |
| Direct result | 3 | 43.8 | 38.3 |
| Indirect result | 3 | -167.9 | 162.1 |
| Loss/profit for the period attributable to parent company shareholders | -124.1 | 200.3 |
| ASSETS Non-current assets Investment property 15 2,023.6 2,215.7 Development property 16 88.1 33.2 Property. plant and equipment 17 0.7 0.9 Intangible assets 18 0.9 0.5 Deferred tax assets 24 6.8 - Derivative financial instruments and other non-current assets 23 6.0 10.1 Total non-current assets 2,126.1 2,260.5 Current assets Trade and other receivables 19 21.7 22.7 Derivative financial instruments 23 13.9 1.2 Cash and cash equivalents 20 16.7 24.2 Total current assets 52.4 48.1 Total assets 2,178.5 2,308.6 LIABILITIES AND SHAREHOLDERS' EQUITY Equity attributable to parent company shareholders 21 Share capital 259.6 259.6 Share premium fund 131.1 131.1 Fair value reserve -17.7 4.9 Invested unrestricted equity fund 177.3 199.3 Other reserves 0.0 0.0 Translation reserve -10.3 -0.3 Retained earnings 259.1 387.2 Total equity attributable to parent company shareholders 799.1 982.0 Minority interest 38.2 28.9 Total shareholders' equity 837.3 1,010.9 Long-term liabilities Interest-bearing liabilities 22 1,149.2 1,049.3 Derivative financial instruments 23 24.7 2.3 Other non-interest-bearing liabilities 0.8 0.2 Deferred tax liabilities 24 57.1 88.1 Total long-term liabilities 1,231.7 1,139.9 Short-term liabilities Interest-bearing liabilities 22 50.3 104.7 Derivative financial instruments 23 4,9 - Trade and other payables 25 54.3 53.1 Total short-term liabilities 109.5 157.8 Total liabilities 1,341.2 1,297.7 Total liabilities and shareholders' equity 2,178.5 2,308.6 |
EUR million | Note | 31 Dec. 2008 | 31 Dec. 2007 |
|---|---|---|---|---|
| EUR million | Note | 1 Jan.–31 Dec. 2008 | 1 Jan.–31 Dec. 2007 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Loss/profit before taxes | -162.3 | 253.5 | |
| Adjustments: | |||
| Depreciation and amortization | 9 | 0.5 | 0.5 |
| Net fair value losses and gains on investment property | 15 | 216.1 | -211.4 |
| Profit/losses on disposal of investment property | 15 | -0.1 | 0.1 |
| Financial income | 11 | -72.3 | -10.6 |
| Financial expenses | 11 | 129.6 | 55.9 |
| Other adjustments | -5.6 | 0.6 | |
| Cash flow before change in working capital | 105.8 | 88.5 | |
| Change in working capital | -2.1 | 0.2 | |
| Cash generated from operations | 103.7 | 88.8 | |
| Interest and other financial expenses paid | -63.1 | -42.7 | |
| Interest income, exchange rate gains and other financial income received | 6.3 | 3.1 | |
| Taxes received/paid | 0.2 | -10.0 | |
| Net cash from operating activities | 47.2 | 39.3 | |
| Cash flow from investing activities | |||
| Acquisition of subsidiaries, less cash acquired | 15 | -24.0 | -517.6 |
| Acquisition of investment properties | 15 | - | -16.0 |
| Capital expenditure on investment properties | 15 | -58.2 | -39.3 |
| Capital expenditure on development properties, PP&E and intangible assets | 16, 17, 18 | -68.8 | -24.5 |
| Sale of investment properties | 15 | 7.0 | 0.3 |
| Net cash used in investing activities | -144.1 | -597.1 | |
| Cash flow from financing activities | |||
| Proceeds from share issue | - | 232.4 | |
| Equity contribution from minority shareholder | 25.9 | - | |
| Proceeds from short-term loans | 72.1 | 773.1 | |
| Repayments of short-term loans | -125.8 | -727.9 | |
| Proceeds from long-term loans | 623.3 | 535.8 | |
| Repayments of long-term loans | -473.6 | -228.9 | |
| Dividends paid and return from the invested unrestricted equity fund | -30.9 | -23.4 | |
| Net cash from financing activities | 90.9 | 561.1 | |
| Net change in cash and cash equivalents | -6.1 | 3.3 | |
| Cash and cash equivalents at period-start | 20 | 24.2 | 21.3 |
| Effects of exchange rate changes | -1.4 | -0.4 | |
| Cash and cash equivalents at period-end | 20 | 16.7 | 24.2 |
| Equity attributable to parent company shareholders | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Share | Fair | Invested | Total | ||||||||
| Share | Share | premium | value | unrestricted | Other | Translation | Retained | Minority shareholders' | |||
| EUR million | capital | issue | fund | reserve | equity fund | reserves | reserve | earnings | Total | interest | equity |
| Balance at 31 Dec. 2006 | 225.7 | 0.1 | 131.1 | -1.3 | - | 0.0 | 0.0 | 209.7 | 565.3 | 15.0 | 580.3 |
| Cash flow hedges | 6.3 | 6.3 | 6.3 | ||||||||
| Net gains recognised in equity | 6.3 | 6.3 | 0.0 | 6.3 | |||||||
| Profit for the period | 200.3 | 200.3 | 3.6 | 203.9 | |||||||
| Total recognised income and expense for the period | 6.3 | 200.3 | 206.6 | 3.6 | 210.2 | ||||||
| Share issues | 33.8 | 197.6 | 231.3 | 231.3 | |||||||
| Share subscriptions based on stock options | 0.1 | -0.1 | 0.0 | 1.8 | 1.8 | 1.8 | |||||
| Dividends | -23.4 | -23.4 | -23.4 | ||||||||
| Translation differences | -0.3 | -0.3 | -0.7 | -1.0 | |||||||
| Share-based payments (Note 26) | 0.6 | 0.6 | 0.6 | ||||||||
| Other changes Balance at 31 Dec. 2007 |
259.6 | - | 131.1 | 4.9 | 199.3 | 0.0 | -0.3 | 387.3 | 0.0 982.0 |
11.0 28.9 |
11.0 1,010.9 |
| Cash flow hedges | -22.6 | -22.6 | -22.6 | ||||||||
| Net gains recognised in equity | -22.6 | -22.6 | -22.6 | ||||||||
| Profit for the period | -124.1 | -124.1 | -14.8 | -138.9 | |||||||
| Total recognised income and expense for the period | -22.6 | -124.1 | -146.7 | -14.8 | -161.5 | ||||||
| Share subscriptions based on stock options | 0.0 | 0.0 | 0.0 | ||||||||
| Recognized gain in the equity arising from convertible bond buybacks | 4.6 | 4.6 | 4.6 | ||||||||
| Dividends and return from the invested unrestricted equity fund | -22.1 | -8.8 | -30.9 | -30.9 | |||||||
| Translation differences | -10.0 | -10.0 | -3.0 | -13.0 | |||||||
| Share-based payments (Note 26) | 0.3 | 0.3 | 0.3 | ||||||||
| Other changes | 0.0 | 27.0 | 27.0 | ||||||||
| Balance at 31 Dec. 2008 | 259.6 | - | 131.1 | -17.7 | 177.3 | 0.0 | -10.3 | 259.1 | 799.1 | 38.2 | 837.3 |
As a real estate company specialising in retail properties, Citycon operates largely in the Helsinki Metropolitan Area and Finland's major regional centres as well as in Sweden and the Baltic Countries. Citycon is a Finnish, public limited company established under Finnish law and domiciled in Helsinki, the address of its registered office being Pohjoisesplanadi 35 AB, FI-00100 Helsinki. The Board of Directors approved the financial statements on 11 February 2009.
Citycon has prepared its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) and applied the IFRS/IAS standards, effective as of 31 December 2008, which refer to the approved applicable standards and their interpretations under European Union Regulation No. 1606/2002. Notes to the consolidated financial statements are also in compliance with Finnish accounting legislation and Community legislation. In addition, the best practices policy recommendations of the European Public Real Estate Association (EPRA) have been applied in preparing Citycon's financial statements. EPRA is the representative body of the publicly traded real estate sector in Europe, publishing recommendations on the presentation of financial information for the sector.
Citycon has used IFRS as the primary basis of its financial statements preparation from the beginning of 2005. Available-for-sale financial assets, derivative contracts and investment properties, are measured at fair value following their initial recognition. In other respects, the consolidated financial statements are prepared at historical cost. The financial statements are shown in millions of euros.
Preparing the financial statements under IFRS requires that the company's management make certain accounting estimates and assumptions, which have an effect on the application of the accounting policies and the reported amounts of assets, liabilities, income and expenses, as well as notes to the accounts. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making management judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised for the period in which the estimate is revised if the revision affects only that period, or in the period and future periods if the revision affects both current and future periods. The section 'Management's judgement in applying the most significant accounting policies and other key assumptions about future risks and uncertainties' below provides a more detailed description of the factors underlying judgements and assumptions.
Citycon has not applied any new interpretations during 2008. However, Citycon has early adopted IAS 23 (Amendment), 'Borrowing costs' (effective from 1 January 2009). The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. However, the standard allows, but not requires, that the borrowing costs directly attributable to the construction or production of the assets measured at fair value are capitalized. Citycon will apply IAS 23 (Amendment) retrospectively from 1 January 2007. Before the adoption of the new standard, Citycon capitalised the interest expenses arising only from the development projects, in which significant extensions or new self-constructed properties were built and measured at cost in accordance with IAS 16. After applying the new standard in its 2008 Financial Statements, Citycon has expanded its policy of capitalizing the interest expenses into the redevelopment projects, in which the existing investment properties are refurbished and measured at fair value. The new IAS 23 had no impact on the profit for the period nor the balance sheet in 2008 and 2007 financial statements, since the change in financial expenses was offset by the change in net fair value gains/losses on investment property.
The following interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2008 but is not relevant to the group's operations: IFRIC 14, IAS 19 – 'The limit on a defined benefit asset, minimum funding requirements and their interaction' , IFRIC 11, IFRS 2 – 'Group and treasury share transactions', IFRIC 12, 'Service concession arrangements' and IFRIC 13, 'Customer loyalty programmes'.
IFRS 8, 'Operating segments' replaces IAS 14, 'Segment reporting'. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. This has not changed the number of reportable segments presented.
IAS 1 (Revised), 'Presentation of financial statements' (effective from 1 January 2009). The revised standard will prohibit the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity, requiring these 'non-owner changes in equity' to be presented separately from owner changes in equity. The group will apply IAS 1 (Revised) from 1 January 2009.
IFRS 2 (Amendment), 'Share-based payment' (effective from 1 January 2009). The amended standard deals with vesting conditions and cancellations. It clarifies that vesting conditions are service conditions and performance conditions only and that all cancellations should receive the same accounting treatment. The group will apply IFRS 2 (Amendment) from 1 January 2009. It is not expected to have a material impact on the group's financial statements.
IAS 27 (Revised), 'Consolidated and separate financial statements', (effective from 1 July 2009). The revised standard requires the effects of all transactions with noncontrolling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss.
IFRS 3 (Revised), 'Business combinations' (effective from 1 July 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed.
IFRS 5 (Amendment), 'Non-current assets held-for-sale and discontinued operations' (effective from 1 July 2009). The amendment clarifies that all of a subsidiary's assets and liabilities are classified as held for sale if a partial disposal sale plan results in loss of control. Relevant disclosure should be made for this subsidiary if the definition of a discontinued operation is met.
IAS 36 (Amendment), 'Impairment of assets' (effective from 1 January 2009). Where fair value less costs to sell is calculated on the basis of discounted cash flows, disclosures equivalent to those for value-in-use calculation should be made.
IAS 40 (Amendment), 'Investment property' and consequential amendments to IAS 16 (effective from 1 January 2009). Property that is under construction or development is within the scope of IAS 40. These are measured at fair value when applying the fair value model. If the fair value is not reliably measurable, the property is measured at cost until the construction is completed or when the fair value can be measured reliably.
The consolidated financial statements include Citycon Oyj and its subsidiaries, as well as holdings in its associated and joint-venture companies.
Subsidiaries refer to companies in which the Group holds a controlling interest. This controlling interest implies that the Group has the power to govern the entity's financial and operating policies for the purpose of profiting from its operations. The consolidated financial statements have been prepared in accordance with the historical cost convention under which the historical cost of subsidiary shares in the parent company's non-current assets has been eliminated against the shareholders' equity of the subsidiary on the date of the subsidiary's acquisition. The portion of the acquired company's net assets exceeding their carrying amounts on the acquisition date has primarily been allocated to land and buildings up to their fair value. Subsidiaries are consolidated from the date on which control is transferred to the Group until the date on which said control ceases.
Intra-Group transactions and profit allocation are eliminated in the consolidated financial statements.
Mutual real estate companies refer to jointly controlled assets included in the consolidated financial statements using proportionate consolidation, as required by IAS 31 Interests in Joint Ventures, whereby the Group's share of assets, liabilities, income and expenses are included in the consolidated financial statements. The proportionate consolidation method applies to all joint ventures of this kind, regardless of the Group's holding in the joint venture.
Citycon has no associated companies as referred to in IFRS since all mutual real estate companies are stated as jointly controlled assets, as described above.
Property acquisition is treated as such when the Group actually acquires a holding in a property. This acquisition does not generate goodwill, but the entire acquisition cost is allocated to land, buildings and other assets and liabilities.
If the property is included in the acquired business, IFRS 3 Business Combinations will apply, whereby the acquisition cost is allocated to the acquired assets and liabilities at their fair value. Goodwill is the residual stemming from the fair value of the acquired net assets exceeding that of the consideration given.
Transactions denominated in foreign currencies are measured at the exchange rate quoted on the transaction date. Any exchange rate differences resulting from currency translation are entered under financial expenses and income in the income statement.
Monetary receivables and payables denominated in foreign currencies on the balance sheet date are measured at the exchange rate quoted on the balance sheet date. Non-monetary items denominated in foreign currencies and measured at fair value are translated into euros using the exchange rates quoted on the valuation date, while other non-monetary items are measured at the exchange rate quoted on the transaction date.
Foreign subsidiaries' income statements have been translated into euros using average exchange rates quoted for the financial period and balance sheets using the exchange rate quoted on the balance sheet date. Any resulting exchange rate difference is recognised as a translation difference under shareholders' equity. Translation differences resulting from the elimination of the historical cost of foreign subsidiaries and items included in shareholders' equity following their acquisitions are recognised under shareholders' equity.
Investment property refers to land or a building, or part of a building, held to earn rental income or capital appreciation, or both. Under IAS 40, investment property is measured at fair value, with gains and losses arising from changes in fair values being included in the income statement.
The investment properties are measured initially at cost including transaction costs such as consultant fees and transfer taxes. After their initial measurement the investment properties are subject to a fair value model valuation, which is conducted by an external appraiser for the first time at the end of the quarter following the acquisition.
Fair value is defined as the amount for which an asset could be exchanged between knowledgeable, willing parties in an arms' length transaction. An investment property's fair value reflects the actual market position and circumstances on the balance-sheet date, best manifested in prices paid for properties on the active market on the review date, the location and condition of these properties corresponding to those of the property under review while applying similar lease or other contracts.
Using International Valuation Standards (IVS), an external professional appraiser conducts the valuation of the company's property at least once a year, or at more regular intervals due to any major changes in the market. In the event of no major market changes, the company updates these valuations using the basic quarterly data and the market variables used by the external appraiser for the latest valuation.
A ten-year cash flow analysis based on the net rental income is used to determine the fair value of investment properties. The basic cash flow is determined by the company's lease agreements valid at the valuation date. Upon lease expiry, the market rent assessed by an external appraiser is used to replace the contract rent. Gross rental income less operating expenses and investments equals cash flow, which is then discounted at the property-specific yield requirements. Yield requirements are determined for each property in view of property-specific and market risks. The total value of the property portfolio is calculated as the sum of the individual properties based on the cash- flow method.
Citycon redevelops its investment properties. When Citycon begins to redevelop its existing investment property, the property remains as an investment property, which is measured based on a fair value model in accordance with IAS 40. The significant extension projects for existing investment properties are exceptions and are treated in accordance with the IAS 16 Property, Plant and Equipment standard until the project is completed.
The fair value of development projects is determined under IAS 40 and Citycon uses a special project model to measure the fair value of its development projects. This project model is a cash flow analysis, which takes account of capital expenditure on the development project and the property's future cash flows according to the development project's schedule. Citycon considers using the model on a case-by-case basis. As a rule, Citycon makes use of the model as soon as the Board of Directors has made a positive investment decision on the project and the external appraiser considers that all information required for a reliable valuation is available.
All potential development projects have been left out of the valuation conducted by the external appraiser. The valuation of properties
| Standard | Recognition principle In the balance sheet | In the income | Other | ||
|---|---|---|---|---|---|
| statement | |||||
| Property held to | IAS 40 | Initially at cost and | Investment property | Fair value change | |
| earn rental income or | Investment Property | subsequently at fair | recognised as valua | ||
| capital appreciation | value using the cash | tion gain or loss | |||
| flow analysis model | |||||
| Ordinary deve | IAS 40 | Initially at cost and | Investment property | Fair value change | |
| lopment project | Investment Property | subsequently at | recognised as valua | ||
| aimed at improving | fair value using the | tion gain or loss | |||
| premises within the | project model based | ||||
| existing investment | on the cash flow | ||||
| property | analysis | ||||
| Property which is | IAS 16 | At cost, including | Development | Impairment losses | Upon completion, |
| currently under | Property, plant and | financing costs ari | property | accounting treatment | |
| construction and | equipment | sing from the project | under IAS 40 | ||
| which will be used | |||||
| as an investment | |||||
| property upon | |||||
| completion | |||||
| Major development | IAS 16 | Development project | Development | Impairment losses | Upon completion, |
| project, based on | Property, plant and | (new building or | property | accounting treatment | |
| constructing either | equipment | an extension) is | under IAS 40 | ||
| a new building or | recognized at cost, | ||||
| an extension to the | including financing | ||||
| existing investment | costs arising from the | ||||
| property | project |
with potential development projects is based on the situation and the estimated rental value on the valuation date. All undeveloped lots, or those under development, are evaluated based on their zoning on the valuation date. The value in each case was set based on market observations.
The fair value of Citycon's investment properties in the balance sheet equals the property portfolio's total value determined by the external appraiser, capital expenditure on development projects that have not been taken into account by the external appraiser, as well as the value of new properties acquired during the reporting quarter.
Gains and losses resulting from fair-value changes for investment properties are stated as separate items in the income statement. Investment property is derecognised when it is disposed of or withdrawn from use permanently and its disposal has no future economic value.
The IAS 16 Property, Plant and Equipment standard is applied until the completion of investment properties under construction and built for future use as investment properties. After their completion, these properties are transferred to the investment property at cost, which is the accumulated capital expenditure up to the completion date. Subsequently, they are measured at fair value in accordance with IAS 40.
Property, plant and equipment (PPE) are measured at historical cost less straight-line depreciation and any impairment losses. These assets consist mainly of office machinery and equipment and other tangible assets such as artworks. Machines and equipment leased under finance leases are also recognised within property, plant and equipment.
PPEs are depreciated on a straight-line basis over the asset's expected useful economic life. The asset's useful economic life and estimated residual values are reviewed on an annual basis, and if any major differences occur between the values, the depreciation plan will be revised to correspond to these new values. The following depreciation periods apply:
Capital gains or losses on the sale of PPEs are recognised in the income statement.
An intangible asset is recognised in the balance sheet, provided its historical cost can be measured reliably and it is probable that its expected economic benefits flow to the company.
Intangible assets are measured at cost less amortisation and any impairment losses.
These assets include computer software amortised on a straight-line basis over five years.
On each balance-sheet date property, plant and equipment and intangible assets are assessed to determine whether there is any indication of impairment. If any indication of an impaired asset exists, the asset's recoverable amount must be calculated. Should the asset's carrying amount exceed its recoverable amount, it is impaired, and the resulting impairment loss is recognised in the income statement.
As required by IAS 39, financial assets are classified into the following categories for measurement purposes: originated loans and other receivables not held for trading, available-for-sale assets and financial assets at fair value through profit or loss. The classification of a financial asset is determined by the purpose for which the asset is purchased at the time of its purchase.
Originated loans and other receivables not held for trading include financial assets which the company has created by providing money, goods or services directly to the debtor. Initially recognised at cost, these assets under short-term and long-term financial assets are carried at amortised cost. Their balance sheet value is impaired by the amount of any credit loss.
Investments intended to be held for an indefinite period are classified as available-forsale assets, which can be sold at the time deemed appropriate. These financial assets are carried at fair value subsequent to their initial recognition. Changes in their fair value are recognised in the fair value reserve under shareholders' equity and in the income statement when the asset is disposed of or it has lost its value to the extent that an impairment loss must be recognised for the asset.
Citycon concludes derivative contracts for hedging purposes only. Derivative contracts not fulfilling the criteria set for hedge accounting or for which Citycon has decided not to apply hedge accounting, are classified as financial assets or liabilities at fair value through profit or loss.
Financial liabilities are classified as financial liabilities at fair value through profit or loss or as other liabilities. Non-derivative debt contracts concluded for purposes other than trading are classified as other financial liabilities.
Financial assets and liabilities are recognised in the balance sheet on the basis of the settlement date. They are initially measured at cost, and are recognised at amortised cost using the effective yield method.
Cash and cash equivalents consist of cash, bank deposits withdrawable on call, and other short-term, highly liquid investments. A maximum maturity of three months from the date of acquisition applies to cash and cash equivalents.
Derivatives are initially measured at cost (if available) and re-measured at fair value on each balance sheet date.
Citycon uses interest rate swaps to hedge the interest rate cash flow risk. These interest rate swaps hedge against volatility in future interest payment cash flows (cash flow hedging) resulting from interest rate fluctuations, and the resulting profit fluctuations. Citycon applies hedge accounting to the majority of its interest rate swaps, under IAS 39, according to which the amount of financial instruments' fair value change stemming from effective hedging is recognised in the fair value reserve under shareholders' equity, whereas the amount stemming from ineffective hedging is recognised in the income statement. The amount in the fair value reserve is recognised in the income statement during the period when the cash flow from the hedged item is realised and affects earnings. If the criteria for hedge accounting are not met, changes in fair value are recognised in full through profit or loss.
Interest payments based on interest rate swaps are included in interest expenses. Changes in fair value through profit or loss are recognised as financial expenses or income. The fair value of interest rate swaps is shown in current or noncurrent receivables or short-term or long-term liabilities in the balance sheet. The fair value of interest rate swaps is based on the present value of estimated future cash flows.
The company uses foreign exchange derivatives to hedge against exchange rate risk relating to financial assets and liabilities denominated in foreign currency. Fair value changes related to foreign exchange derivatives are recognised in the income statement, since fair value changes
related to financial assets and liabilities denominated in foreign currencies are also recognised therein.
Under IAS 39, an embedded derivative – a derivative instrument included in another contract, or a host contract, whose financial characteristics are not closely related to those of its host contract – must be separated from the host contract under certain circumstances, accounted for at fair value and changes in its fair value must be recognised in the income statement. The Group has no embedded derivatives.
A financial asset is impaired if its carrying amount exceeds its estimated recoverable amount. If there is objective evidence that a financial asset measured at amortised cost is impaired, this resulting impairment loss must be recognised in the income statement. If the amount of impairment loss decreases during a subsequent financial period and this fall can be regarded as relating to an event after the date of impairment recognition, the asset's impairment will be reversed.
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of this obligation can be made.
Long-term provisions shown in the financial statements are based on net present values.
Borrowing costs are expensed as incurred. Borrowing costs, such as interest expenses and arrangement fees, directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready its intended use or sale. Capitalisation commences when refurbishment of a property, the construction of a new building or extension begins and ceases once the building is ready for lease. Capitalisable borrowing costs include costs of funds borrowed for a construction project or costs attributable to a construction project multiplied by the capitalisation rate. The capitalisation rate is the weighted average cost of Citycon's borrowings for the financial year.
Loan-related transaction expenses clearly associated with a specific loan are included in the loan's cost on an accrual basis and recognised as interest expenses using the effective interest method.
Income taxes include taxes based on taxable income of Group companies for the financial period, adjustments for previous periods' taxes and changes in deferred taxes. Tax based on taxable income for the period is calculated in accordance with the tax legislation enacted in each country.
Deferred tax assets and liabilities are calculated on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. A major temporary difference may arise between the fair value and taxable value of investment properties. In such a case, taxes are calculated on the difference between property's fair value and the debt-free acquisition cost of shares in the mutual real estate company in question, or the non-depreciated residual value of the directly owned property.
It is the company's policy to realise its shareholding in property companies by selling the shares it holds. For properties owned abroad, such deferred taxes are not recognised because property disposal does not lead to tax implications, due to the ownership structure.
No deferred tax on subsidiaries' retained earnings is recognised to the extent that the difference is unlikely to be discharged in the foreseeable future.
Deferred tax assets are recognised to the extent that it appears probable that future taxable profit will be available against which the temporary differences can be utilised.
If the recognition of deferred taxes is attributable to an item recognised in shareholders' equity, such as a change in the fair value of a derivative instrument used for hedging purposes, deferred taxes will also be recognised in shareholders' equity.
The tax rate enacted by the balance sheet date is used to determine deferred tax.
Citycon's income consists mainly of rental income from investment properties. Rental income is recognised in the income statement on a straight-line basis over the term of the lease.
Leases based on Citycon as a lessor renting out investment properties are not classified as finance leases.
Leases, for which Citycon acts as a lessee, are classified as finance leases and recognised as assets and liabilities if the risks and rewards related to the property have been passed on to the company. Leases are classified at their inception and recognised at the lower of the present value of the minimum lease payments and the fair value of the asset under PPE and financial liabilities. PPE is depreciated over its useful economic life or during the lease term. Lease payments in the income statement are recognised as interest or the repayment of financial liabilities.
Leases are classified as operating leases if
substantially all of the risks and rewards inherent in holding such leased assets have not been transferred to the lessee.
Citycon mainly uses alteration work on leased premises as lease incentives. On behalf of the lessee, Citycon performs alteration work on premises rented by the lessee and charges the lessee for the resulting costs in terms of a rent increase. The Group recognises the alteration-related rent increase as rental income over the lease term. Rent increase and the expense arising from the alteration work are taken into account when measuring the fair value of investment property.
Citycon has no significant leases that would involve rent-free periods or rent reductions.
The Group's employee pension cover is based on statutory pension insurance. Pension schemes are classified into two categories: defined contribution plans and defined benefit plans. Where contributions under defined contribution plans are recognised in the income statement for the period during which such contributions are made, defined benefit pension plans are based on actuarial calculations. Currently, Citycon has no defined benefit pension plan in place.
Citycon has applied IFRS 2 Share-based Payment to its stock options granted after 7 November 2002 and not vested before 1 January 2005, and to the long-term share-based incentive plan decided by the Board of Directors on 26 April 2007. Such stock options and share-based incentive plans are measured at fair value on the grant date and expensed over their vesting period. Stock options granted before the above date have not been expensed.
Citycon uses the Black & Scholes option-
pricing model to measure the fair value of stock options.
The preparation of the financial statements in accordance with IFRS requires management to make estimates and assumptions. When accounting policies are applied, also judgement is required from management. These may affect the reported assets and liabilities, recognition of income and expense for the period and other information such as presentation of contingent liabilities. Eventhough these estimates base on management's best knowledge and current information available, the actual results may differ from the estimates.
Measuring the fair value of investment property forms one of the most significant accounting policy aspects, which involves the management's judgement and assumptions about future uncertainties. Market rents, occupancy rate, operating expenses and yield requirement form the key variables used in the investment property's fair-value measurement, whose measurement involves the management's judgement and assumptions.
Citycon uses a net rental income based cash flow analysis to measure the fair value of its investment properties. Net rental income and the yield requirement of each property must be defined for the cash flow analysis. Net rental income equals gross rental income less operating expenses. The yield requirement is used for discounting the yearly net rental income less investments, to which the discounted residual value and other assets, such as unused building rights and lots, are added to obtain the fair value of investment property. The key parameters of the cash flow analysis are the following items:
Other variables involving judgment and assumptions are the current leases' extension probability, the duration of vacant areas, invest ments, the inflation rate and the rental growth assumptions.
Citycon uses a special project model to measure the fair value of its development projects. This project model is a cash flow analy sis, which takes account of capital expenditure on the development project and the property's future cash flows according to the development project's schedule. Although the model applies principles similar to those used in the cash flow analysis measuring the investment property's fair value, it is better suited to modelling changes, in many cases significant ones, in premises and contracts during the development project. In the project model, the property can be divided into different parts and the current leases, future leases, project schedules and capital expenditure can be defined for each of these parts, which may comprise the various floors, areas or a larger space within the building. In addition, risks associated with the development project and the property's future use can be defined for the yield requirement for development projects. Following this, each part is subject to the cash flow analysis and the parts' combined cash flow constitutes the development project's fair value.
The use of a special project model in the valuation of development projects requires the management's judgement or assumptions about future investments, rental agreements and the project's timetable.
Deferred tax assets and liabilities are calculated on temporary differences arising from the differ ence between carrying amounts used for financial reporting purposes and amounts used for taxation purposes. The tax rate used is the rate enacted on the balance sheet date in each jurisdiction.
The most significant temporary difference relates to the difference between the fair value and taxable value of investment properties. Other main temporary differences relate to unused tax losses and financial instruments.
When recognizing deferred tax assets, man agement exercises judgement, as the deferred tax asset is recognized only to the extent it is consid ered probable that future taxable income will be available against which the deductible temporary difference can be utilized.
No deferred tax is recognized on subsidiar ies' retained earnings to the extent that such dif ference is considered unlikely to be discharged in the future.
Citycon purchases investment properties through asset acquisitions and business acquisitions. It applies IAS 40 Investment Property to the accounting treatment of asset acquisitions and IFRS 3 Business Combinations to the account ing treatment of business acquisitions. Citycon's management exercises judgement in assess ing whether the purchase of an investment prop erty or an investment property portfolio is clas sified as an asset acquisition or business acquisi tion. Criteria for business acquisitions identified by Citycon include acquired access to new market areas, a new business line, brand or another intan gible asset related to customer relationships etc. However, this is not an exhaustive list, since City con's management assesses each investment property purchase on a case-by-case basis.
| Total | 207.4 | 371.1 |
|---|---|---|
| proceeds | 7.7 | 0.2 |
| Investment property disposal | ||
| property | 15.3 | 219.0 |
| Fair value gains on investment | ||
| Other operating income | 6.1 | 0.5 |
| Service charge income | 5.3 | 7.7 |
| Gross rental income | 173.0 | 143.7 |
| EUR million | 2008 | 2007 |
Total revenues disclosure is in accordance with the EPRA Recommendations.
| Total | 312.5 | 72.4 |
|---|---|---|
| property disposals | 7.6 | 0.3 |
| Carrying value of investment | ||
| property | 231.4 | 7.5 |
| Fair value losses on investment | ||
| Administrative expenses | 16.9 | 16.5 |
| operations | 0.2 | 0.3 |
| Other expenses from leasing | ||
| Property operating expenses | 56.3 | 47.8 |
| EUR million | 2008 | 2007 |
Total expenses disclosure is in accordance with the EPRA Recommendations.
Total revenues deducted by total expenses equals to operating loss/profit in the consolidated income statement.
Due to the nature of Citycon's business and the requirement to apply IFRS, the consolidated income statement includes a large number of items related to non-operating activities. In addition to the consolidated income statement under IFRS, Citycon also presents its profit for the period with direct result and indirect result separately specified, in an attempt to enhance the transparency of its operations and to facilitate comparability of financial years. Direct result describes the profitability of the Group's operations during the financial year dis-
regarding the effects of fair value changes, gains or losses on sales and other extraordinary items. Earnings per share calculated based on direct result corresponds to the earnings per share definition recommended by EPRA. In the notes of Consolidated Key Figures and Ratios the direct and indirect keyfigures have been presented for five financial years and quarterly for years 2008 and 2007.
| EUR million | 2008 | 2007 |
|---|---|---|
| Net rental income | 121.8 | 103.4 |
| Direct administrative expenses | -16.5 | -16.5 |
| Direct other operating income and | ||
| expenses | 0.1 | 0.5 |
| Direct net financial income and | ||
| expenses | -54.2 | -44.7 |
| Direct current taxes | -4.8 | -3.4 |
| Direct change in deferred taxes | 0.2 | -0.2 |
| Direct minority interest | -2.8 | -0.9 |
| Total | 43.8 | 38.3 |
| Direct result per share, diluted | ||
|---|---|---|
| (Diluted EPRA EPS) ¹) | 0.20 | 0.19 |
| Total | -167.9 | 162.1 |
|---|---|---|
| Indirect minority interest | 17.6 | -2.7 |
| Change in indirect deferred taxes | 29.7 | -46.0 |
| Indirect current taxes | -1.8 | - |
| instruments | -3.1 | -0.6 |
| Movement in fair value of financial | ||
| expenses | 6.0 | - |
| Indirect other operating income and | ||
| Indirect administrative expenses | -0.4 | - |
| investment property | 0.1 | -0.1 |
| Profit/loss on disposal of | ||
| investment property | -216.1 | 211.4 |
| Net fair value losses/gains on | ||
| EUR million | 2008 | 2007 |
| Indirect result per share, diluted ¹) | -0.76 | 0.71 |
|---|---|---|
| Loss/Profit for the period | ||
| attributable to parent company |
| shareholders | -124.1 | 200.3 | |
|---|---|---|---|
¹) Calculation of the number of the shares is presented in the note 14 Earnings per share an net asset value per share .
The presentation of segment information is based on geographical segments and business segments. Geographical segments are based on the Group's organisational structure and internal financial reporting. Segment assets and liabilities consist of operating items which the segment uses in its operations or which, on reasonable basis, can be allocated to the segment. Unallocated items include tax and financial items, as well as corporate items. Capital expenditure includes additions to the investment properties, development properties as well as property, plant and equipment and intangible assets in the balance sheet.
Geographical segments are Finland, Sweden and the Baltic countries. Other segment includes mainly the expenses of the Group's finance and other administration.
Citycon is Finland's largest company in the shopping-centre business. It owns 22 shopping centres in addition to 45 other retail properties, of which 32 are located in the Helsinki Metropolitan Area and 35 elsewhere in Finland.
Citycon has expanded especially in Sweden during the last three years. It now owns eight shopping centres and seven other retail properties.
Seven of the sites in Sweden are located in the Greater Stockholm Area, six in the Greater Gothenburg Area and two in Umeå.
Citycon owns three shopping centres in the Baltic region, two in Estonia and one in Lithuania.
Business segments comprise shopping centres and other retail properties
The Shopping centres segment consists of 33 shopping and retail centre properties, 22 of which are located in Finland, eight in Sweden, two in Estonia and one in Lithuania. Shopping Centres form the core of Citycon's business. Citycon leads the Finnish property market for shopping centres.
The Other retail properties segment consists of 52 properties. It serves the grocery and speciality shop sector by leasing and developing supermarket and shop properties.
| 1 Jan.–31 Dec. 2008 | Baltic | ||||
|---|---|---|---|---|---|
| EUR million | Finland | Sweden | Countries | Other | Total |
| Gross rental income | 122.5 | 41.1 | 9.3 | - | 173.0 |
| Service charge income | 4.3 | 0.7 | 0.3 | 0.0 | 5.3 |
| Turnover | 126.8 | 41.9 | 9.6 | 0.0 | 178.3 |
| Property operating expenses | 35.8 | 17.7 | 2.8 | 0.0 | 56.3 |
| Other expenses from leasing operations | 0.1 | 0.1 | 0.0 | 0.0 | 0.2 |
| Net rental income | 90.9 | 24.1 | 6.8 | 0.0 | 121.8 |
| Administrative expenses | 5.5 | 3.2 | 0.6 | 7.2 | 16.5 |
| Other operating income and expenses | 0.0 | 0.1 | 0.0 | 0.0 | 0.1 |
| Direct operating profit | 85.4 | 21.0 | 6.2 | -7.2 | 105.3 |
| Indirect administrative expenses | 0.0 | - | - | 0.4 | 0.4 |
| Indirect other operating income and expenses | 5.9 | - | - | 0.1 | 6.0 |
| Net fair value losses/gains | |||||
| on investment property | -154.3 | -70.1 | 8.3 | 0.0 | -216.1 |
| Profit on disposal of investment property | 0.1 | 0.0 | 0.0 | 0.0 | 0.1 |
| Operating loss/profit | -62.9 | -49.1 | 14.4 | -7.4 | -105.0 |
| Net financial income and expenses | -57.3 | -57.3 | |||
| Income tax expense | 23.4 | 23.4 | |||
| Loss for the period | -138.9 | ||||
| Assets | 1,504.2 | 466.9 | 156.3 | 51.1 | 2,178.5 |
| Liabilities | 10.4 | 7.9 | 1.1 | 1,321.8 | 1,341.2 |
| Capital expenditure | 69.2 | 65.6 | 22.7 | 0.3 | 157.9 |
| 1 Jan.–31 Dec. 2007 | Baltic | ||||
|---|---|---|---|---|---|
| EUR million | Finland | Sweden | Countries | Other | Total |
| Gross rental income | 100.7 | 35.4 | 7.7 | - | 143.7 |
| Service charge income | 3.6 | 3.7 | 0.4 | - | 7.7 |
| Turnover | 104.3 | 39.0 | 8.0 | 0.0 | 151.4 |
| Property operating expenses | 28.5 | 17.3 | 2.1 | -0.1 | 47.8 |
| Other expenses from leasing operations | 0.1 | 0.1 | 0.0 | 0.0 | 0.3 |
| Net rental income | 75.7 | 21.6 | 6.0 | 0.1 | 103.4 |
| Administrative expenses | 5.5 | 3.2 | 0.9 | 6.9 | 16.5 |
| Other operating income and expenses | 0.2 | 0.2 | 0.1 | 0.0 | 0.5 |
| Direct operating profit | 70.4 | 18.7 | 5.1 | -6.8 | 87.4 |
| Net fair value gains on investment property | 148.1 | 54.7 | 8.7 | 0.0 | 211.4 |
| Losses on disposal of investment property | -0.1 | 0.0 | 0.0 | 0.0 | -0.1 |
| Operating profit | 218.4 | 73.4 | 13.8 | -6.8 | 298.7 |
| Net financial income and expenses | -45.3 | -45.3 | |||
| Income tax expense | -49.6 | -49.6 | |||
| Profit for the period | 203.9 | ||||
| Assets | 1,594.2 | 542.2 | 125.3 | 46.9 | 2,308.6 |
| Liabilities | 14.7 | 11.8 | 3.2 | 1,268.1 | 1,297.7 |
| Capital expenditure | 429.1 | 142.4 | 31.7 | 0.8 | 603.9 |
| 1 Jan.–31 Dec. 2008 | Shopping | Other retail | ||
|---|---|---|---|---|
| EUR million | centres | properties | Other | Total |
| Turnover | 146.3 | 31.9 | - | 178.3 |
| Assets | 1,826.6 | 300.8 | 51.1 | 2,178.5 |
| Investments | 152.3 | 4.8 | 0.8 | 157.9 |
| 1 Jan.–31 Dec. 2007 | Shopping | Other retail | ||
| EUR million | centres | properties | Other | Total |
| Turnover | 120.6 | 30.8 | - | 151.4 |
| Assets | 1,908.9 | 352.8 | 46.9 | 2,308.6 |
| Investments | ||||
| 571.4 | 31.7 | 0.8 | 603.9 |
| Total | 56.3 | 47.8 |
|---|---|---|
| Other property operating expenses | 0.2 | 0.5 |
| Repair expenses | 6.7 | 7.2 |
| Property taxes | 4.9 | 4.3 |
| Property insurances | 0.7 | 0.5 |
| Marketing expenses | 2.5 | 1.4 |
| Administrative and management fees | 2.9 | 2.8 |
| Property personnel expenses | 0.6 | 0.7 |
| Maintenance expenses | 18.4 | 15.2 |
| Heating and electricity | 19.4 | 15.1 |
| EUR million | 2008 | 2007 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Tenant improvement expenses and | ||
| commissions | 0.1 | 0.1 |
| Credit losses | 0.1 | 0.2 |
| Total | 0.2 | 0.3 |
Significant tenant improvements are recognized as investments.
| EUR million | 2008 | 2007 |
|---|---|---|
| Personnel expenses | 9.3 | 8.3 |
| Consulting fees, advisory fees | ||
| and outside services | 2.9 | 3.2 |
| Office and other administrative | ||
| expenses | 4.3 | 4.5 |
| Depreciation and amortization | 0.5 | 0.5 |
| Total | 16.9 | 16.5 |
Consulting and advisory fees in the administration expenses include the following audit fees and services:
| EUR million | 2008 | 2007 |
|---|---|---|
| Audit fees | 0.2 | 0.2 |
| Other advisory services | 0.2 | 0.4 |
| Total | 0.4 | 0.6 |
| EUR million Salaries and emoluments of |
2008 | 2007 |
|---|---|---|
| management | ||
| CEO | 0.3 | 0.3 |
| Management committee | 1.2 | 1.1 |
| Board | 0.6 | 0.5 |
| Other wages and salaries | 5.4 | 4.6 |
| Pension charges: defined | ||
| contribution plans | 1.1 | 0.8 |
| Social charges | 1.0 | 1.0 |
| Expense of share based payments | 0.3 | 0.6 |
| Total | 9.9 | 9.0 |
Personnel expenses of EUR 0.6 million (EUR 0.7 million) is included in property operating expenses and EUR 9.3 million (EUR 8.3 million) in administrative expenses.
The share based payments plans are described in the Note 26, Employee benefits.
| 2008 | 2007 | |
|---|---|---|
| Finland | 75 | 68 |
| Sweden | 27 | 19 |
| The Baltic Countries | 7 | 6 |
| Total | 109 | 93 |
Information on management benefits are presented in the notes to the consolidated financial statements under 29. Related party transactions.
Depreciation and amortization of EUR 0.5 million (EUR 0.5 million) on machinery and equipment as well as on intangible assets is included in the administrative expenses.
| Total | 6.1 | 0.5 |
|---|---|---|
| Other operating expenses | -0.3 | 0.0 |
| Other operating income | 6.5 | 0.6 |
| EUR million | 2008 | 2007 |
Other operating income includes EUR 5.9 million compensation from city of Helsinki relating to early termination of land lease agreement in Myllypuro retail premises.
| EUR million | 2008 | 2007 |
|---|---|---|
| Interest income | 0.8 | 1.4 |
| Foreign exchange gains | 68.7 | 9.2 |
| Fair value gain from derivatives | 0.4 | - |
| Other financial income | 2.4 | 0.1 |
| Financial income, total | 72.3 | 10.6 |
| Interest expenses | 60.6 | 45.3 |
| Foreign exchange losses | 68.9 | 9.3 |
| Fair value loss from derivatives | 3.5 | 0.6 |
| Development interest capitalized | -7.1 | -2.6 |
| Other financial expenses | 3.8 | 3.3 |
| Financial expenses, total | 129.6 | 55.9 |
| Net financial income and expenses | 57.3 | 45.3 |
| Of which attributable to financial | ||
| instrument categories: | ||
| Interest-bearing loans and | ||
| receivables | 77.9 | 49.1 |
| Finance lease liabilities | 0.0 | 0.0 |
| Derivative financial instruments | -20.8 | -3.8 |
| Other liabilities and receivables | 0.1 | -0.1 |
| Net financial income and expenses | 57.3 | 45.3 |
In 2008, foreign exchange gains of EUR 21.0 million (gains of EUR 4.4 million) were recognised in the income statement from foreign exchange derivative agreements.
Interest on development expenditure is capitalized at a rate of 5.12% as at 31 December 2008 (4.91% as at 31 December 2007).
Due to the new IAS 23 Borrowing Costs standard, Citycon has re-evaluated its accounting policy regarding the capitalisation of the interest expenses and has concluded to revise the policy. As a result of adopting the revised accounting policy relating to the capitalisation of interest expenses, Citycon has restated its 2007 and 2008 financial statements. The new standard has been issued by the IASB and been endorsed by the EU on 10 December 2008. Before the adoption of the new standard, Citycon capitalised the interest expenses arising only from the development projects, in which significant extensions or new self-constructed properties were built and measured at cost in accordance with IAS 16.
After applying the new standard in its 2008 Financial Statements, Citycon expanded its policy of capitalizing the interest expenses into the redevelopment projects, in which the existing investment properties are refurbished and measured at fair value. The following table presents the impact of the new IAS 23 on the financial information for 2007 and 2008. The new IAS 23 had no impact on the profit for the period nor the balance sheet, since the change in financial expenses is offset by the change in net fair value gains/losses on investment property.
Due to the new IAS 23 -standard, Citycon capitalized an additional financial expenses of EUR 3.5 million in 2008 (EUR 2.0 million in 2007) than before the application of a new standard.
| EUR million | 2008 | 2008 Before Restatement |
2007 | 2007 Before Restatement |
|---|---|---|---|---|
| Net fair value losses/gains on | ||||
| investment property | -216.1 | -212.6 | 211.4 | 213.4 |
| Operating loss/profit | -105.0 | -101.5 | 298.7 | 300.7 |
| Net financial income and expenses | 57.3 | 60.8 | 45.3 | 47.3 |
| Loss/profit before taxes | -162.3 | -162.3 | 253.5 | 253.5 |
| Loss/profit for the period | -138.9 | -138.9 | 203.9 | 203.9 |
| Direct result | 43.8 | 40.3 | 38.3 | 36.3 |
| Indirect result | -167.9 | -164.4 | 162.1 | 164.0 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Current tax | 6.6 | 3.4 |
| Tax for prior periods | -0.1 | 0.0 |
| Deferred tax | -30.0 | 46.2 |
| Income tax expense | -23.4 | 49.6 |
Reconciliation between tax charge and Group tax at Finnish tax rate (26%)
| EUR million | 2008 | 2007 |
|---|---|---|
| Loss/profit before taxes | -162.3 | 253.5 |
| Taxes at Finnish tax rate | -42.2 | 65.9 |
| Fair value gains and losses | ||
| from subsidiaries owned abroad | 22.2 | -16.7 |
| Difference in foreign subsidiaries' | ||
| tax rate | -1.0 | -0.8 |
| Undistributed profit of subsidiaries | 0.0 | -0.7 |
| Unrecognised tax receivables | ||
| from losses | 3.8 | 3.0 |
| Difference between fair value | ||
| and tax base | -6.5 | -1.9 |
| Utilisation of previously | ||
| unrecognised tax losses | 0.1 | 0.1 |
| Other | 0.3 | 0.7 |
| Income tax expense | -23.4 | 49.6 |
| Effective tax rate | 14.4 % | 19.6 % |
Earnings per share (basic) is calculated by dividing the net profit attributable to parent company shareholders by the share issue adjusted weighted average number of shares.
| 2008 | 2007 | |
|---|---|---|
| Earnings per share, basic | ||
| Loss/profit attributable to parent company shareholders (EUR million) | -124.1 | 200.3 |
| Issue-adjusted average number of shares (1,000) | 220,991.5 | 199,403.7 |
| Earnings per share (basic) (EUR) | -0.56 | 1.00 |
| Earnings per share, diluted | ||
| Loss/profit attributable to parent company shareholders (EUR million) | -124.1 | 200.3 |
| Expenses from convertible loan, the tax effect deducted (EUR million) | - | 5.7 |
| Loss/profit used in the calculation of diluted earnings per share (EUR million) | -124.1 | 206.0 |
| Issue-adjusted average number of shares (1,000) | 220,991.5 | 199,403.7 |
| Convertible capital loan impact (1,000) | - | 26,190.5 |
| Adjustments for stock options (1,000) | - | 1,527.8 |
| Issue-adjusted average number of shares used in the calculation of diluted earnings | ||
| per share (1,000) | 220,991.5 | 227,122.0 |
| Diluted earnings per share (EUR) | -0.56 | 0.91 |
The incremental shares from assumed conversions or any income or cost related to dilutive potential shares are not included in calculating year 2008 diluted per-share amounts because the profit attributable to parent company shareholders was negative.
| 2008 | 2007 | |
|---|---|---|
| Direct result per share, diluted (Diluted EPRA EPS) | ||
| Direct result (EUR million) (Note 3) | 43.8 | 38.3 |
| Expenses from convertible loan, the tax effect deducted (EUR million) | 5.6 | 5.7 |
| Profit used in the calculation of diluted earnings per share (EUR million) | 49.4 | 43.9 |
| Issue-adjusted average number of shares used in the calculation of diluted earnings | ||
| per share (1,000) | 247,222.5 | 227,122.0 |
| Direct result per share, diluted (Diluted EPRA EPS) | 0.20 | 0.19 |
The diluted earnings per share is calculated adjusting the weighted average number of shares to assume conversion of all dilutive potential shares. The Group has currently two categories of dilutive shares in place: stock options and convertible capital loan.
• Stock options have dilutive potential when the subscription price of shares based on the stock options is lower than the share's fair value. The dilutive potential of stock options is calculated by taking into account the total number of shares that can be subscribed based on stock options, less the number of shares that group could acquire by using the assets received from the exercise of the stock options.
• The holder of the convertible loan has the right during 12 September 2006–27 July 2013 to convert the loan nominal amount into shares of the company. Based on the conversion price applicable on the balance sheet date, the dilution from full conversion of the loan nominal is approximately 19.7 million shares. When calculating the dilution effect, the loss/profit for the period is adjusted with the expenses arising from the convertible loan (including the tax effect).
| Days | Number of shares | |
|---|---|---|
| 1/1/08 | 48 | 220,981,211 |
| 2/19/08 | 70 | 220,981,817 |
| 4/29/08 | 21 | 220,985,546 |
| 5/20/08 | 64 | 220,992,586 |
| 7/23/08 | 163 | 220,998,989 |
| 366 | ||
| Weighted average (daily) number of shares | 220,991,482 |
Citycon presents the net asset value (EPRA NAV) and adjusted net asset value per share (EPRA NNNAV) in accordance with the recommendations of the European Public Real Estate Association (EPRA).
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| Issue adjusted | Per | Issue adjusted | Per | |||
| number of | share, | number of | share, | |||
| EUR million shares (1,000) | EUR | EUR million | shares (1,000) | EUR | ||
| Equity attributable to parent | ||||||
| company shareholders | 799.1 | 220,991.5 | 3.62 | 982.0 | 220,981.2 | 4.44 |
| Deferred taxes from the | ||||||
| difference of fair value and fiscal | ||||||
| value of investment properties | 56.0 | 220,991.5 | 0.25 | 84.8 | 220,981.2 | 0.38 |
| Fair value of financial | ||||||
| instruments 1) | 2.1 | 220,991.5 | 0.01 | -1.4 | 220,981.2 | -0.01 |
| Net asset value (EPRA NAV) | 857.1 | 220,991.5 | 3.88 | 1,065.4 | 220,981.2 | 4.82 |
| Deferred taxes from the | ||||||
| difference of fair value and fiscal | ||||||
| value of investment properties | -56.0 | 220,991.5 | -0.25 | -84.8 | 220,981.2 | -0.38 |
| The difference between the | ||||||
| mark-to-market and book | ||||||
| value of debt | 40.8 | 220,991.5 | 0.18 | -5.8 | 220,981.2 | -0.03 |
| Fair value of financial | ||||||
| instruments | -2.1 | 220,991.5 | -0.01 | 1.4 | 220,981.2 | 0.01 |
| EPRA NNNAV | 839.9 | 220,991.5 | 3.80 | 976.2 | 220,981.2 | 4.42 |
1) In comparison to previous practice net asset value excludes the fair value of financial instruments which are not under hedge accounting.
Citycon divides its investment properties into two categories: properties under redevelopment and operative investment properties.
Properties under redevelopment included during 2008 the projects in the following shopping centers Lahden Trio, Liljeholmstorget, Linjurin kauppakeskus, Lippulaiva, Rocca al Mare, Åkersberga, Torikeskus and Tumba.
| 2008 | Operative | Investment | |
|---|---|---|---|
| Properties | investment | properties | |
| EUR million | under redevelopment | properties | total |
| At period-start | 511.2 | 1,704.4 | 2,215.7 |
| Acquisitions during the period | - | 10.6 | 10.6 |
| Investments during the period | 50.6 | 12.0 | 62.7 |
| Disposals during the period | - | -7.6 | -7.6 |
| Capitalized interest | 3.3 | - | 3.3 |
| Fair value gains on investment property | 4.8 | 10.5 | 15.3 |
| Fair value losses on investment property | -44.5 | -186.9 | -231.4 |
| Exchange differences | -26.2 | -41.6 | -67.8 |
| Transfer into development/operative investment | |||
| properties | -315.6 | 338.5 | 22.9 |
| At period-end | 183.7 | 1,839.9 | 2,023.6 |
| 2007 | Operative | Investment | |
| Properties | investment | properties | |
| EUR million | under redevelopment | properties | total |
| At period-start | 152.4 | 1,295.5 | 1,447.9 |
| Acquisitions during the period | 59.4 | 471.9 | 531.3 |
| Investments during the period | 35.6 | 9.2 | 44.8 |
| Disposals during the period | - | -0.3 | -0.3 |
| Capitalized interest | 2.0 | - | 2.0 |
| Fair value gains on investment property | 54.8 | 164.2 | 219.0 |
| Fair value losses on investment property | -2.1 | -5.4 | -7.5 |
| Exchange differences | -5.1 | -10.0 | -15.1 |
| Transfer into development/operative investment | |||
| properties | 214.3 | -220.7 | -6.4 |
| At period-end | 511.2 | 1,704.4 | 2,215.7 |
Under IAS 40 Investment Property -standard, Citycon measures its investment properties at fair value. An external professional appraiser has conducted the valuation of the company's properties with a net rental income based cash flow analysis. Market rents, occupancy rate, operating expenses and yield requirement form the key variables used in the cash flow analysis. The impact of key variables on the fair value of properties have been tested with the sensitivity analysis presented in note 23 Financial instruments.
Analysis indicates that the market value is most sensitive to the yield requirement and gross income levels. A ten percent decrease in the yield requirement results in an approximately 11 percent increase in total value. Correspondingly, a ten percent increase in gross income increases the value by approximately 14 percent. The segments' yield requirements and market rents used by the external appraiser in the cash flow analysis were as follows at 31 December 2008 and at 31 December 2007:
Realia Management Oy within Realia Group conducted the valuation of Citycon's properties for the Annual Report 2008 and 2007 and the Q2 and Q3/2007 Interim Reports while Aberdeen Property Investors Finland Oy did the same for the Q1/2007 Interim Report. The resulting fixed fees based on the 2008 valuations total EUR 0.1 million (EUR 0.1 million in 2007).
The fair value of Citycon's investment properties in the balance sheet equals the property portfolio's total value determined by the external appraiser, capital expenditure on development projects that haven't been taken into account by the external appraiser as well as the value of new properties acquired during the reporting quarter. The reconciliation between the fair value determined by the external appraiser and the fair value of investment properties in Citycon's balance sheet is as follows:
| EUR million | 2008 | 2007 |
|---|---|---|
| Value determined by the external appraiser as at Dec. 31 |
2,021.0 | 2,194.8 |
| Capital expenditure on development projects |
2.6 | 4.7 |
| Acquisition of new properties | - | 16.2 |
| Fair value of investment properties as at Dec. 31 |
2,023.6 | 2,215.7 |
When Citycon redevelops its existing investment properties, the properties remain as the investment properties in the balance sheet, and they are measured based on fair value model in accordance with IAS 40. The significant development projects, in which a new building or significant extension is constructed, are exceptions and they are treated in accordance with IAS 16 Property, Plant and Equipment standard. The significant extension projects are presented as development properties separately from the property, plant and equipment in the balance sheet based on the recommendations of the European Public Real Estate Association (EPRA). As at 31 December 2008, the development properties consisted of the capital expenditure relating to extension projects in Rocca al Mare, Åkersberga, Liljeholmen and Lippulaiva shopping centres.
| EUR million | 2008 | 2007 |
|---|---|---|
| At period-start | 33.2 | - |
| Acquisitions during the period | 6.8 | - |
| Investments during the period | 70.3 | 26.4 |
| Capitalized interest | 3.5 | 0.6 |
| Exchange differences | -2.6 | - |
| Transfer from/to investment | ||
| property | -23.1 | 6.2 |
| At period-end | 88.1 | 33.2 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Acquisition cost Jan. 1 | 1.8 | 1.4 |
| Additions during the period | 0.2 | 0.4 |
| Accumulated acquisition cost | ||
| Dec. 1 | 2.0 | 1.8 |
| Accumulated depreciation and | ||
| impairment losses, Jan. 1 | 1.0 | 0.7 |
| Depreciation during the period | 0.2 | 0.3 |
| Accumulated depreciation and | ||
| impairment losses, Dec 31. | 1.3 | 1.0 |
| Net carrying amount Jan 1. | 0.9 | 0.6 |
| Net carrying amount Dec 31. | 0.7 | 0.9 |
Property, plant and equipment consisted mainly of machinery and equipment.
Machinery and equipment acquired through financial leases amounted to EUR 0.3 million (EUR 0.5 million).
| Yield requirement (%) | Market rents (EUR/m2/month) | |||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| Finland | 6.4 | 5.7 | 21.9 | 21.1 |
| Sweden | 6.4 | 5.4 | 12.3 | 13.2 |
| the Baltic Countries | 7.4 | 6.4 | 20.2 | 16.4 |
| Total | 6.4 | 5.6 | 19.9 | 19.0 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Acquisition cost Jan. 1 | 1.0 | 0.6 |
| Additions during the period | 0.6 | 0.4 |
| Accumulated acquisition cost | ||
| Dec. 1 | 1.6 | 1.0 |
| Accumulated depreciation and | ||
| impairment losses, Jan. 1 | 0.4 | 0.3 |
| Depreciation during the period | 0.2 | 0.1 |
| Accumulated depreciation and | ||
| impairment losses, Dec 31. | 0.6 | 0.4 |
| Net carrying amount Jan 1. | 0.5 | 0.3 |
| Net carrying amount Dec 31. | 0.9 | 0.5 |
Intangible assets consisted mainly of computer softwares.
| Total | 21.7 | 22.7 |
|---|---|---|
| Other receivables | 7.2 | 0.7 |
| (incl. VAT-receivables) | 10.5 | 16.3 |
| expenses Tax receivables |
1.7 | 3.2 |
| Accrued income and prepaid | ||
| Trade receivables | 2.4 | 2.5 |
| EUR million | 2008 | 2007 |
| EUR million | 2008 | 2007 |
|---|---|---|
| NOT past due nor impaired | 0.4 | 0.6 |
| Past due, less than 1 month | 1.4 | 1.4 |
| Past due, 1–3 months | 0.3 | 0.2 |
| Past due, 3–6 months | 0.1 | 0.1 |
| Past due, 6–12 months | 0.1 | 0.1 |
| Past due, 1–5 years | 0.1 | 0.0 |
| Total | 2.4 | 2.5 |
| Total | 16.7 | 24.2 |
|---|---|---|
| Short-term deposits | - | - |
| Cash in hand and at bank | 16.7 | 24.2 |
| EUR million | 2008 | 2007 |
Cash and cash equivalents comprise in the cash flow statement comprise the items presented above.
| Share | Invested | |||||
|---|---|---|---|---|---|---|
| Number of | Share capital | Share issue | premium fund | unrestricted equity | Total | |
| shares | (EUR million) | (EUR million) | (EUR million) | fund (EUR million) | (EUR million) | |
| 1 Jan. 2007 | 167,183,180 | 225.7 | 0.1 | 131.1 | - | 356.9 |
| Directed share issue | 25,000,000 | 33.8 | - | - | 98.8 | 132.6 |
| Rights issue | 27,594,782 | - | - | - | 98.7 | 98.7 |
| Share subscriptions based on stock options | 1,203,249 | 0.1 | -0.1 | - | 1.8 | 1.8 |
| 31 Dec. 2007 | 220,981,211 | 259.6 | - | 131.1 | 199.3 | 590.0 |
| Directed share issue without payment | 7,040 | - | - | - | - | - |
| Share subscriptions based on stock options | 10,738 | - | - | - | 0.0 | 0.0 |
| Return from the invested unrestricted equity fund | - | - | - | - | -22.1 | -22.1 |
| 31 Dec. 2008 | 220,998,989 | 259.6 | - | 131.1 | 177.3 | 567.9 |
Since the entry into force of the new Finnish Companies Act, no new items are recognised in the share premium fund. The share premium fund accumulated before 2007 due to option schemes and share issues.
Pursuant to the new Finnish Companies Act, which came into force in 2007, Citycon presents the invested unrestricted equity fund as a separate equity item. The invested unrestricted equity fund is credited, for instance, with that part of the subscription price of the shares that according to the Memorandum of Association or the share issue decision is not to be credited to the share capital. The invested unrestricted equity fund accumulated in 2008 and 2007 due to subscriptions under option schemes, a directed share issue and a rights issue.
Translation reserve contains translation differences arising from the currency translation of foreign subsidiaries' financial statements.
Fair value reserve contains fair value changes of derivative instruments used to hedge cash flows.
| Effective | Carrying | Carrying | |
|---|---|---|---|
| interest | amount | amount | |
| EUR million | rate (%) | 2008 | 2007 |
| Long-term interest-bearing liabilities | |||
| Loans from financial institutions | |||
| EUR 435 million term loan facility | EURIBOR + 0,850 | 353.5 | 392.4 |
| EUR 165 million revolving credit facility | EURIBOR + 0,650 | 142.7 | 162.4 |
| EUR 200 million term loan facility | EURIBOR + 0,825 | 194.2 | 199.2 |
| SEK 500 million bank loan | STIBOR + 0,750 | 46.0 | 53.0 |
| EEK 470 million bank loan | 5.599 | 28.8 | 28.8 |
| LTL 52 million bank loan | VILIBOR + 0,525 | 11.3 | 13.5 |
| EUR 30 million term loan facility | EURIBOR + 0,750 | 30.0 | - |
| EUR 50 million revolving credit facility | EURIBOR + 0,600 | 45.0 | - |
| Other loans from financial institutions | - | 154.2 | 34.4 |
| Convertible capital loan 1/2006 | 7.58 | 73.3 | 95.0 |
| Subordinated capital loan 1/2005 | 4.7 | 70.0 | 70.0 |
| Finance lease liabilities | - | 0.1 | 0.5 |
| Total long-term interest-bearing liabilities | 1,149.2 | 1,049.3 | |
| Short-term interest-bearing liabilities | |||
| Loans from financial institutions | |||
| Commercial papers | EURIBOR + 0,1 | - | 54.5 |
| Current portion of loans from financial institutions | - | 20.1 | 20.0 |
| Other loans from financial institutions | - | 30.0 | 30.2 |
| Finance lease liabilities | - | 0.2 | 0.0 |
| Total short-term interest-bearing liabilities | 50.3 | 104.7 |
Carrying amount of term loan facility and convertible capital loan are stated at amortised cost using the effective yield method. The fair values of liabilities are shown in the note 23. Financial Instruments.
The market value of the option component at issue date of the Convertible capital loan of EUR 15.1 million is recognized in shareholders' equity under share premium fund.
| EUR million | 2008 | 2007 | EUR million | 2008 | 2007 |
|---|---|---|---|---|---|
| 1–2 years | 90.7 | 20.4 | EUR | 48.3 | 94.9 |
| 2–3 years | 170.6 | 91.8 | EEK | 1.2 | 1.2 |
| 3–4 years | 44.6 | 193.6 | SEK | 0.1 | 7.8 |
| 4–5 years | 485.0 | 72.4 | LTL | 0.8 | 0.8 |
| over 5 years | 358.2 | 671.2 | Total | 50.3 | 104.7 |
| Total | 1,149.2 | 1,049.3 |
| Total | 1,149.2 | 1,049.3 |
|---|---|---|
| LTL | 10.6 | 13.5 |
| SEK | 341.6 | 336.2 |
| EEK | 45.5 | 28.8 |
| EUR | 751.5 | 670.8 |
| EUR million | 2008 | 2007 |
Citycon Oyj issued on 17 June 2005 five-year subordinated capital loan 1/2005 of EUR 70 million at a fixed annual nominal interest rate of 4.70 per cent. The loan's issue price accounted for 99.956 per cent of the nominal loan amount, and its maturity date is 17 June 2010.
The main terms and conditions of the subordinated capital loan 1/2005:
the remaining cash flows up to the repayment date. The interest rate to be used for discounting is the Finnish government reference rate for the same period plus 1.5 percentage points.
Citycon Oyj issued on 2 August 2006 seven-year convertible capital loan 1/2006 of EUR 110 million at a fixed annual nominal interest rate of 4.50 per cent. After the buyback transactions performed during 2008, the outstanding amount was EUR 82.9 million. The loan's conversion price is EUR 4.2000 per share and a full conversion of the loan would result in the issue of 19,738,095 shares. The loan's issue price accounted for 100.00 per cent of the nominal loan amount, and its maturity date is 2 August 2013.
The main terms and conditions of the convertible capital loan 1/2006:
percentage points. Interest can be paid only if this amount can be allocated to profit distribution based on the company's and its Group's latest adopted balance sheet. In the event, that the interest is not fully paid in any interest payment date, the interest on the unpaid interest amount after the interest payment date is 3-month Euribor plus 5 percentage points.
During 2008 Citycon has repurchased from the open markets the convertible capital bond for a nominal amount of EUR 27.1 million with a weighted average purchase price of 53.5%. The amount repurchased by Citycon equals approximately 25% of the initial nominal amount of the bonds issued. The income statement includes the gain after taxes of EUR 1.6 million and the group equity a gain after taxes of EUR 4.6 million from the repurchases.
| EUR million | 2008 | 2007 |
|---|---|---|
| Finance lease liabilities | ||
| - minimum lease payments | ||
| Not later than 1 year | 0.2 | 0.3 |
| 1–5 years | 0.1 | 0.4 |
| Over 5 years | 0.0 | 0.0 |
| Total | 0.4 | 0.7 |
| Finance lease liabilities - present value of minimum lease |
||
|---|---|---|
| payments | ||
| Not later than 1 year | 0.2 | 0.2 |
| 1–5 years | 0.1 | 0.3 |
| Over 5 years | 0.0 | 0.0 |
| Total | 0.4 | 0.5 |
| Future finance charges on | ||
| finance leases | 0.0 | 0.0 |
| Total finance lease liabilities | 0.4 | 0.5 |
Citycon's finance leases mainly apply to computer hardware and machinery and equipment.
Derivative financial instruments are initially measured at cost in the balance sheet and subsequently re-measured at their fair value on each balance-sheet date. The fair value of interestrate swaps is calculated using the present value of estimated future cash flows. The fair value of a forward agreement is based on the difference between the exchange rate of the agreement and the prevailing exchange rate fixing on each balance-sheet date. The fair value of derivative financial instruments is the estimated amount that the Group would receive or pay to settle the related agreements.
Fair value of interest rate derivative financial instruments are determined by the counterparty banks using customary valuation techniques used by market participants in the OTC derivative market. The fair value of foreign exchange derivative contracts are based on quoted market prices.
Citycon's loans from financial institutions are floating rate loans which have fair value equal to
| EUR million | Note | Carrying amount 2008 |
Fair value 2008 |
Carrying amount 2007 |
Fair value 2007 |
|---|---|---|---|---|---|
| Financial assets | |||||
| Cash and cash equivalents | 20 | 16.7 | 16.7 | 24.2 | 24.2 |
| Investments | 0.0 | 0.0 | 0.0 | 0.0 | |
| Trade and other receivables | 19 | 21.7 | 21.7 | 22.7 | 22.7 |
| Derivative financial instruments | 19.8 | 19.8 | 11.4 | 11.4 | |
| Financial liabilities | |||||
| Loans from financial institutions | 22 | 1,055.9 | 1,058.1 | 988.5 | 990.9 |
| Convertible capital loan 1/2006 | 22 | 73.3 | 82.9 | 95.0 | 110.0 |
| Subordinated capital loan 1/2005 | 22 | 70.0 | 70.0 | 70.0 | 70.0 |
| Finance lease liabilities | 22 | 0.4 | 0.4 | 0.5 | 0.5 |
| Trade and other payables and liabilities | 25 | 54.3 | 54.3 | 53.1 | 53.1 |
| Derivative financial instruments | 29.6 | 29.6 | 2.3 | 2.3 |
the nominal amount of the loan. The difference between the fair value and carrying amount is the unamortized capitalized arrangement fees of the loans.
Convertible capital loan 1/2006 is a fixed rate loan which has fair value equal to the nominal amount of the loan. The difference between the fair value and carrying amount is the unamortized capitalized arrangement fees of the loan together with the market value of the option component at issue date. When calculating the NNNAV in accordance with EPRA's recommendations the Subordinated capital loan 1/2005 and Convertible capital loan 1/2006 have been market-to-market using valuation from the secondary market on the balance sheet date. The secondary market valuation for Subordinated capital loan 1/2005 was 91.45 per cent and for Convertible capital loan 1/2006 58.0 per cent as of 31 December 2008.
Subordinated capital loan 1/2005 is a fixed rate loan which has fair value equal to the nominal amount of the loan. The carrying amount of the loan equals the fair value.
The fair value of finance leases is based on discounted future cash flows. The discount rate used corresponds to that applied to similar leases.
Due to their short maturity, the fair value of trade payables and receivables and other short-term receivables and payables is regarded as corresponding to their original carrying amount.
| Nominal | Fair | Nominal | Fair | |
|---|---|---|---|---|
| amount | value | amount | value | |
| EUR million | 2008 | 2008 | 2007 | 2007 |
| Interest rate derivatives | ||||
| Interest rate swaps | ||||
| Maturity: | ||||
| less than 1 year | 86.0 | 1.4 | 40.0 | 0.2 |
| 1–2 years | 46.0 | -1.5 | 112.5 | -0.6 |
| 2–3 years | 70.0 | 3.5 | 83.0 | -1.1 |
| 3–4 years | 41.8 | -1.9 | 70.0 | 1.7 |
| 4–5 years | 228.8 | -10.1 | 20.0 | 0.2 |
| over 5 years | 119.0 | -8.9 | 309.0 | 8.5 |
| Subtotal | 591.7 | -17.5 | 634.5 | 8.8 |
| Foreign exchange derivatives | ||||
| Forward agreements | ||||
| Maturity: | ||||
| less than 1 year | 23.1 | 7.6 | 40.4 | 0.3 |
| Total | 614.8 | -9.8 | 674.8 | 9.1 |
Interest on floating-rate loans is mainly fixed every six months and the interest-rate swaps have been concluded for the same days to ensure the optimum interest cash flow hedging.
Citycon uses interest rate swaps to hedge the interest rate cash flow risk. The Group applies hedge accounting to majority of its interest rate swaps, under IAS 39, according to which the amount of financial instruments' fair value change stemming from effective hedging is recognised in the fair value reserve under shareholders' equity.
The fair value of derivative financial instrument represent the market value of the instrument with prices prevailing on the balance sheet date. Derivative financial instruments are used in hedging the interest rate risk of the interest bearing liabilities and foreign currency risk.
The fair values include foreign exchange gain of EUR 16.2 million (EUR 1.0 million) which is recognized in income statement.
Hedge accounting is applied for interest rates swaps which have nominal amount of EUR 568.7 million (EUR 558.0 million). The fair value gain recognized in the fair value reserve under shareholders' equity taking account the tax effect totals EUR -17.7 million (EUR 4.9 million).
The average fixed interest rate of the interest rate swaps as at December 31, 2008 was 4.20% (4.38%).
| EUR million Interest rate |
2008 | 2008 | 2007 | 2007 |
|---|---|---|---|---|
| derivatives | Assets | Liabilities | Assets | Liabilities |
| Fair value | 0.0 | -23.9 | 8.9 | -2.3 |
Citycon's cash flow hedges consist of interest rate and cross-currency swaps which are used to protect against exposure of changes in Citycon's interest expense cash outflow for variable rate interest bearing debt. Hedged instruments consist of long term floating rate debt and short term floating rate debt which is expected to be refinanced at maturity on similar terms.
The critical terms of the interest rate derivatives have been negotiated to match the respective terms of the variable rate loans.
The cash flow from all hedged liabilities over time is the basis for determining the gain and loss on the effective portions of derivatives designed as cash flow hedges. Gains and losses are initially recognized in equity and are transferred to the income statement when the forecast cash flows affect the income statement.
At 31 December 2008, interest rate derivatives assigned as cash flow hedges were assessed to be highly effective and the fair values recognized in the fair value reserve under shareholders' equity taking account the tax effect totals EUR -17.7 million. At 31 December 2007, interest rate derivatives assigned as cash flow hedges were assessed to be highly effective and the fair values recognized in the fair value reserve under shareholders' equity taking account the tax effect totals EUR 4.9 million.
Citycon uses a holistic Enterprise Risk Management (ERM) programme. The objective of the risk management is to ensure that Citycon will reach its business targets and identify the key risks which may threaten the ability to meet the targets before they realize.
Citycon's risk management process involves identifying, analysing, measuring, mitigating and controlling business-related risks. The Board of Directors has approved the company's risk management guidelines specifying risk management principles, which is subject to updating in order to take into account changes in the business operations. During the ERM process for each business unit a risk management policy has been prepared which outlines objectives, responsibilities and development plans within the unit.
Part of ERM process includes identification of existing and planning of new risk mitigation plans in the event that current action are not deemed sufficient for each risk identified. Successful risk management decreases the likelihood of risk realizing and mitigate the negative effects from realized risks.
Risk management under ERM in Citycon comprises of three main elements, namely 1) risk management implemented into the main business processes 2) risk reporting and 3) continuous improvement of risk management.
Citycon has analyzed and identified five main business processes during the implementation of ERM which are property acquisitions, takeover of acquired properties, shopping centre management, property development and planning and control. Each main process has been carefully analyzed from a risk management angle and a detailed process description has been prepared for each process determining the target state of the process after implementation of improvement measures and taken into account risk management requirements. The implementation of these common best practices into the daily operations forms an essential part of the daily risk management throughout the whole organization is to adhere to these practices.
Risk reporting process gathers analytical data on risks and the respective mitigation plans which are used when risks are reported to the Board of Directors. During the risk reporting period each business unit and legal and finance units independently define their near term targets, risks threatening these targets and mitigation plans which relate to the risks. In order to evaluate the importance of each risk, an estimate on the loss associated with the risk is determined together with probability of risk realization and effectiveness of each mitigation plan on the loss and/or probability. Additional feature of the risk reporting is for each business unit to report the potentially realized risks during the previous year and mitigation plans which have been put into effect during the period. Risk data is inputted into one group wide risk register from which the business unit risk reports are prepared to the Board of Directors and Audit Committee. In addition, from the risk register also a consolidated Citycon Group risk report and analysis is prepared which aims to recognize the group level risk concentrations cross the business units. Risk reports to the Board of Directors and Audit Committee are prepared in conjunction with budgeting during Autumn and strategy review during Spring. Risk management and business unit risk reports are additionally discussed four times a year in Corporate Management Committee.
Citycon aims to a continuous evaluate and develop its ERM process and risk management in general. Four times a year a risk management supervisory group meets and its tasks include the acceptance of the risk reports, evaluate annually the sufficiency of the risk management measures taken in the light of the identified risks, monitor the progress in implementation of the mitigation plans and annually asses the adequacy of the risk management capabilities of Citycon.
Each business unit and legal and finance units have a dedicated person responsible for the ERM process who is in charge of the reporting the risks and mitigation plans and follow-up on the implementation of the plans. Group Treasurer prepares the risk report to the Board of Directors and Audit Committee. Members of the risk management supervisory group are CEO, CFO, Head of Legal Affairs, Group Treasurer and business unit directors or the dedicated risk management person from each business unit.
Financial risks have been defined to be business critical risks for Citycon. Financial risk of Citycon arises from financial instruments which are mainly used to raise financing for operations. The group also has interest rate and foreign exchange derivatives which are used in used to manage the interest rate and currency risks arising from the operations and financing sources. The Board of Directors has approved a Treasury Policy which defines the objectives, responsibilities and risk management indicators applicable for interest rate, foreign exchange, counterparty, liquidity and electricity risk management. The execution of interest rate risk management is done by the Group Treasurer under the supervision of the CFO. Group Treasurer reports the compliance with the objectives in conjunction with the interim and annual report to the Board of Directors and CFO.
Citycon's identified, key financial risks include interest rate risk related to cash flow, liquidity risk, credit risk and foreign currency risk. These risks are summarised below.
Citycon's key financial risk is the interest rate risk of its interest bearing liabilities where the changes in money market interest rates lead to fluctuations in future interest cash flows on floating rate borrowings. Interest rate risk management aims to reduce or eliminate the adverse effect of interest rate fluctuations on the company's profit and cash flow. The company aims to a loan portfolio which has a right mix between fixed and variable rate debts. Under the company's interest rate risk management policy, the target debt portfolio is such where a minimum of 70 and a maximum of 90 per cent of the interest bearing liabilities are based on fixed interest rates.
The company uses interest rate swaps to manage its interest rate risks and to convert floating rate loans into fixed rate loans. Portion of the hedges can also be done using inflation derivatives. The interest sensitivity of Citycon's loan portfolio at the end of 2008 is depicted by the fact that a one-percentage point rise in money market interest rates would increase its interest expenses for 2009 by EUR 2.8 million, while a fall of onepercentage point in money market interest rates would decrease them by EUR 2.8 million in 2009.
The following table shows the sensitivity to a 100 basis point change in short term interest rates assuming all other variables constant. The impact is shown as a change in interest expenses resulting from changes in interest rate which relate to floating rate debt.
| EUR million | 2008 | 2007 |
|---|---|---|
| Euro | 1.2 | 1.3 |
| Swedish krona | 1.3 | 1.5 |
| Other currencies | 0.3 | 0.1 |
| Total | 2.8 | 2.9 |
Given that Citycon's strategy is to expand in Finland, the Baltic countries and Sweden, the company will need both equity capital and borrowings. The minimum shareholders' equity is determined by the company's loan covenants. The Group uses cash-flow forecasts to continuously assess and monitor financing required for its business. The goal is to arrange financing on a long term basis and avoid large concentration of due dates of the loan agreements. Citycon aims to guarantee the availability and flexibility of financing through unused credit limits and by using several banks and financing methods as sources of finance.
Citycon's financing policy states that company's commited credit limits or liquid assets should cover all approved and on-going investments. In addition, available liquidity should provide a sufficient buffer for unexpected payments based on the assesment of the management and the company arranges committed back-up limits for all funds drawn under commercial paper programmes. On 31 December 2008, unused credit limits amounted to EUR 187 million.
Table below summarizes the maturity profile of the Group's financial liabilities based on contractual payments. The table includes both interest and principal flows of loans and payments arising from derivative financial instruments. Future interest payments of floating rate loans have been determined based on the interest rate applicable on balance sheet date and are not discounted. The future interest payments of derivative financial instruments are based on discounted net present values and the future interest rates are obtained through interpolation from the yield curve prevailing on the balance sheet date.
| Less than | 1 to12 | 1–5 | Over 5 | ||
|---|---|---|---|---|---|
| EUR million | 1 month | month | years | years | Total |
| 2008 | |||||
| Loans from financial institutions | 3.5 | 92.3 | 793.1 | 413.3 | 1,302.3 |
| Convertible capital loan 1/2006 | - | 3.7 | 97.8 | - | 101.6 |
| Subordinated capital loan 1/2005 | - | 3.3 | 73.3 | - | 76.6 |
| Finance lease liabilities | - | 0.2 | 0.1 | 0.0 | 0.4 |
| Derivative financial instruments | -4.9 | -1.1 | 15.7 | 3.2 | 12.8 |
| Trade and other payables (excl. interest liabilities) | 38.8 | 5.8 | - | - | 44.6 |
| Less than | 1 to12 | 1–5 | Over 5 | ||
| EUR million | 1 month | month | years | years | Total |
| 2007 | |||||
| Loans from financial institutions | 46.9 | 100.4 | 418.7 | 606.8 | 1,172.7 |
| Convertible capital loan 1/2006 | - | 5.0 | 19.8 | 115.0 | 139.7 |
| Subordinated capital loan 1/2005 | - | 3.3 | 76.6 | - | 79.9 |
| Finance lease liabilities | - | 0.3 | 0.1 | - | 0.4 |
| Derivative financial instruments | 1.5 | 6.6 | 6.9 | 15.1 | |
| Trade and other payables (excl. interest liabilities) | 32.3 | 9.2 | - | - | 41.5 |
Citycon's rent revision procedures, long leases and high occupancy ratio generate a stable long term cash flow profile. Citycon expects to meet its liabilities shown in the table above from this stable cash flow and undrawn committed credit facilities. In a long term debt refinancings and disposals of investment properties can be considered. The table below shows the maturity profile of the undrawn committed credit facilities.
| EUR million | Less than 1 month |
1 to12 month |
1–5 years |
Over 5 years |
Total |
|---|---|---|---|---|---|
| 2008 | |||||
| Undrawn committed credit facilities | - | 15.0 | 172.0 | - | 187.0 |
| EUR million | Less than 1 month |
1 to12 month |
1–5 years |
Over 5 years |
Total |
| 2007 | |||||
| Undrawn committed credit facilities | - | - | 151.0 | - | 151.0 |
The above mentioned credit facilities are freely available to Citycon based on group's financing needs.
The Group's most significant credit-risk concentration relates to receivables from Kesko Group. Citycon controls its receivables within the framework of the given credit limits and does not currently identify any major credit risk associated with them. Credit-risk management caters for tenant-risk management, which is aimed at minimising the adverse effect of any unexpected changes in the customers' financial standing on Citycon's business and financial results. Customer-risk management focuses on the knowledge of the customers' business and active monitoring of customer data. Citycon's lease agreements include lease deposit provisions used to contribute to managing customers risks.
The maximum exposure from trade receivables is the carrying amount as disclosed in Note 19. Trade and other receivables.
Credit risk arising from cash and cash equivalents and certain derivative agreements relate to a default of the counterparty with a maximum exposure equal to the carrying amount of these instruments. Citycon invests its liquidity in a manner which does not put the nominal amount at risk. Citycon does not for example invest in equity markets. Citycon's cash and cash equivalents are primarily placed in short term money market deposit in which the counterparties are commercial banks which participate in Citycon's credit agreements. Citycon's financing policy also sets forth the approved financial instruments in which the company can invest in and includes counterparty limits for those investments.
Citycon's entry into counties outside the eurozone exposes the company to exchange rate risk. Exchange rate risk stems from transaction risks resulting from the conversion of foreign currency denominated transactions into local currency, on the one hand, and from translation risks in the balance sheet associated with investments in foreign subsidiaries. The company hedges against exchange rate risk in the balance sheet by aiming to finance its foreign investments mainly in the local currency. The company uses foreign exchange derivatives to manage the transaction risk on committed transactions. Foreign exchange derivatives are also used to hedge a possible mismatch between assets and liabilities denominated in the same currency in the balance sheet. Currently the company's exchange rate risk relates mainly to fluctuations in the euro/ Swedish krona exchange rate.
The following table shows the sensitivity in income statement to a five percent change in foreign exchange rates assuming all other variables constant. The impact is attributable to a change in fair value of financial instruments given the assumed change in foreign exchange rates.
| EUR million | 2008 | 2007 |
|---|---|---|
| Swedish krona | 0.5 | 0.2 |
| Other currencies | - | - |
| Total | 0.5 | 0.2 |
Other currencies comprise of currencies in Estonia and Lithuania. The foreign exchange rate in these countries is tied to euro with a fixed peg.
A number of factors contribute to the value of retail properties, such as national and local economic development, investment demand created
| +10% | |||||
|---|---|---|---|---|---|
| 1,839.0 | |||||
| 2,306.0 | |||||
| 1,949.0 | |||||
| 2,053.0 | 2,037.0 | 2,021.0 | 2,005.0 | 1,989.0 | |
| -10% 2,244.0 1,736.0 2,094.0 |
-5% 2,127.0 1,878.0 2,058.0 |
±0% 2,021.0 2,021.0 2,021.0 |
Value of properties +5% 1,926.0 2,164.0 1,985.0 |
by property investors, and interest rates. While changes in investment properties' fair value have an effect on the company's profit for the financial year, they do not have an immediate impact on cash flow.
The yield requirement, rents, the occupancy rate and operating expenses form the key variables used in an investment property's fair-value measurement, based on a ten-year cash-flow analysis. Sensitivity to change in the properties' fair value, or the risk associated with fair value, can be tested by altering the above key parameters. The sensitivity analysis below uses the investment properties' fair value of EUR 2,021.0 million defined by the external appraiser at 31 December 2008 as the starting value. The reconciliation between the fair value used by the external appraiser and Citycon Oyj is disclosed in note 15 Investment property. Sensitivity analysis indicates that the market value is most sensitive to the yield requirement and gross income levels. A ten percent decrease in the yield requirement results in an approximately 11 percent increase in market value. Correspondingly, a ten percent increase in gross income increases the value by approximately 14 percent. The value is not as sensitive to changes in long-term vacancy or expenses.
The objective of the company's capital management is to support the growth strategy, maximise shareholder value, comply with loan agreement provisions and ensure the company's ability to pay dividends. Company's capital structure is managed in an active manner and the capital structure requirements are taken into consideration when considering various financing alternatives. The company can adjust the capital structure by deciding on issuance of new shares, raising debt financing or making adjustments to the dividend.
The long term equity ratio target of the company is 40 per cent and the current syndicated loan agreements require a minimum equity ratio of 32.5 per cent. The equity ratio of the loan agreements is calculated by making certain adjustments to the IFRS equity ratio by, among other things, adding the capital loan and convertible capital loan issued by the company to the shareholders' equity. The company's equity ratio as of 31 December 2008 stood at 38.5 per cent and the equity ratio as defined in the loan agreement was 45.1 per cent.
| 2008 | Income statement |
Tax charged to |
Exchange | Acquired/ disposed |
2008 | |
|---|---|---|---|---|---|---|
| EUR million | 1 Jan. | charge | equity | differences | subsidiaries | 31 Dec. |
| Deferred tax assets | ||||||
| Tax losses | 0.2 | -0.1 | - | - | - | 0.1 |
| Measurement of interest-rate swaps at fair value | -1.7 | 0.5 | 8.0 | - | - | 6.8 |
| Deferred tax assets, total | -1.5 | 0.4 | 8.0 | - | - | 6.8 |
| Offset against deferred tax liabilities | 1.5 | - | - | - | - | - |
| Deferred tax assets, total | 0.0 | 0.4 | 8.0 | - | - | 6.8 |
| Deferred tax liabilities | ||||||
| Measurement of investment property at fair value | 84.8 | -28.8 | - | - | - | 56.0 |
| Undistributed profit of subsidiaries | - | - | - | - | - | - |
| Measurement of interest-rate swaps at fair value | 0.4 | -0.4 | - | - | - | - |
| Temporary difference in financial expenses | 1.3 | -0.2 | - | - | - | 1.1 |
| Temporary difference in provisions | 0.2 | -0.1 | - | 0.0 | - | - |
| Deferred tax liabilities, total | 86.6 | -29.5 | - | 0.0 | - | 57.1 |
| Offset against deferred tax assets | 1.5 | - | - | - | - | - |
| Deferred tax liabilities, total | 88.1 | -29.5 | - | 0.0 | - | 57.1 |
| EUR million | 2007 1 Jan. |
Income statement charge |
Tax charged to equity |
Exchange differences |
Acquired/ disposed subsidiaries |
2007 31 Dec. |
|---|---|---|---|---|---|---|
| Deferred tax assets | ||||||
| Tax losses | 0.3 | -0.1 | - | - | - | 0.2 |
| Measurement of interest-rate swaps at fair value | 0.5 | - | -2.2 | - | - | -1.7 |
| Deferred tax assets, total | 0.8 | -0.1 | -2.2 | - | - | -1.5 |
| Offset against deferred tax liabilities | -0.8 | 0.1 | 2.2 | - | - | 1.5 |
| Deferred tax assets, total | 0.0 | 0.0 | 0.0 | - | - | 0.0 |
| Deferred tax liabilities | ||||||
| Measurement of investment property at fair value | 38.8 | 46.0 | - | - | - | 84.8 |
| Undistributed profit of subsidiaries | 0.7 | -0.7 | - | - | - | 0.0 |
| Measurement of interest-rate swaps at fair value | 0.5 | -0.1 | - | - | - | 0.4 |
| Temporary difference in financial expenses | 1.1 | 0.8 | -0.6 | - | - | 1.3 |
| Temporary difference in provisions | 0.1 | 0.1 | - | 0.0 | 0.0 | 0.2 |
| Deferred tax liabilities, total | 41.2 | 46.0 | -0.6 | 0.0 | 0.0 | 86.6 |
| Offset against deferred tax assets | -0.8 | 0.1 | 2.2 | - | - | 1.5 |
| Deferred tax liabilities, total | 40.4 | 46.2 | 1.6 | 0.0 | 0.0 | 88.1 |
Citycon's deferred taxes mainly arise from changes in the fair value of investment properties. In 2008, deferred taxes resulting from the changes in the investment properties' fair value recognised in the income statement totalled EUR 28.8 million (EUR -46.0 million).
The fair value of an investment property reflects the market price that would be paid for the property on the date of measurement, while deferred taxes refer to taxes imposed on any gain on sale if the property were to be sold.
Citycon's policy is to realise its properties' sales by selling its shares representing ownership in the property. The ownership structure is mainly organised so that one real estate company owns one building. The sale of shares representing ownership in properties owned by subsidiaires abroad does not have tax implications. Consequently, Citycon does not recognise deferred taxes related to the fair value of investment properties owned abroad. If Citycon would recognize the deferred taxes from the changes in fair values in subsidiaires owned abroad, the tax impact would have been EUR 22.2 million in 2008 (EUR -16.7 million) (See the Note 13. Income tax expense).
On the contrary, divesting a property in Finland through an asset or share sale does have tax implications and, therefore, Citycon recognises deferred taxes arising from the fair value changes of its investment properties located in Finland. Deferred taxes are calculated on the difference between an investment property's fair value and its taxable value. The taxable value consists of the acquisition cost of shares in the mutual real estate company and loans receivable from the company or a directly owned property's undepreciated, residual value.
The change in deferred taxes between the opening and closing balance sheets is recognised in the income statement as expense/income.
The fair value of the investment properties
is measured in accordance with IFRS (International Financial Reporting Standards). The provisions of the Finnish accounting and tax legislation affect the value of shares in, and loans receivable from, the mutual real estate company. For instance, investments conducted by the mutual real estate company or depreciation recorded by subsidiaries with outstanding debt entail a change in the value of shares and loans receivable."
On 31 December 2008, Group companies had confirmed losses for which tax assets of EUR 6 million (EUR 2 million in 2007) were not recognised since these Group companies are unlikely to record taxable profit, before the expiration of carry forwards of these losses, against which loss carry forwards can be utilised.
| Total | 54.3 | 53.1 |
|---|---|---|
| Other short-term payables | 4.7 | 16.1 |
| Accrued expenses | 20.9 | 19.5 |
| Advanced received | 5.1 | 4.4 |
| Trade payables | 23.5 | 13.1 |
| EUR million | 2008 | 2007 |
| Total | 54.3 | 53.1 |
|---|---|---|
| Past due, over 5 years | 0.5 | 0.1 |
| Past due, 2–5 years | 0.0 | 0.4 |
| Past due, 1–2 years | 0.2 | 0.0 |
| Past due, 6–12 months | 5.9 | 0.0 |
| Past due, 3–6 months | 0.8 | 0.0 |
| Past due, 1–3 months | 5.4 | 8.7 |
| Past due, less than 1 month | 26.2 | 14.0 |
| NOT past due nor impaired | 15.2 | 30.0 |
| 2008 | 2007 | |
| Total | 20.9 | 19.5 |
|---|---|---|
| Other liabilities | 11.2 | 7.9 |
| Interest liabilities | 9.7 | 11.6 |
| EUR million | 2008 | 2007 |
Citycon Group has had stock-option schemes in place since 1999. The Group has applied IFRS 2 Share-based Payment to its stock options granted after 7 November 2002 and not vested before 1 January 2005.
In 1999, the EGM decided to grant a maximum of 5,500,000 stock options. This stock-option scheme ended on 30 September 2007.
In 2004, the AGM decided to grant a maximum of 3,900,000 stock options. At year-end 2008, Citycon Group employees held a total of 2,834,925 options rights. By the end of the reporting year, 345,075 option rights had been exercised for share subscription. The remaining 720,000 stock options 2004 A/B/C are held by Veniamo-Invest Oy, a wholly-owned subsidiary of Citycon Oyj. If an employee left the Group prior to 1 September 2008, (s)he forfeited his/her right to exercise stock options for which the share subscription period had not have begun on the date of the termination of his/her employment/executive contract. However, the Board of Directors could specifically decide that the stock-option holder retained his/her stock options or some of them. Subsequently, changes in the number of granted stock options took place before the said date. The forfeited stock options are held by Veniamo-
| 2004 A | 2004 B | 2004 C | |
|---|---|---|---|
| Number of options granted | 1,040,000 | 1,090,000 | 1,050,000 |
| Held by Veniamo-Invest Oy, number | 260,000 | 210,000 | 250,000 |
| Subscription ratio, stock option/share | 1:1.2127 | 1:1.2127 | 1:1.2127 |
| Subscription price/share, EUR | 2.2732 | 2.6608 | 4.3613 |
| Share subscription period started | 1.9.2006 | 1.9.2007 | 1.9.2008 |
| Share subscription period ends | 31.3.2009 | 31.3.2010 | 31.3.2011 |
| Number of exercised option rights | 345,075 | - | - |
| Number of subscribed shares | 386,448 | - | - |
Invest Oy, which, however, is not entitled to subscribe parent company shares. The number of granted stock options can no longer change, since the share subscription period of all stock options has commenced.
Stock options entitle their holders to subscribe for company shares at the price and within the period specified in the terms and conditions of the stock-options. The terms and conditions of the 2004 scheme were amended during the reporting period by the resolution of the General Meeting. The General Meeting decided to amend the terms and conditions of the 2004 option scheme so that the share subscription prices of the 2004 A/B/C options shall also be reduced by half of any pershare equity returns in addition to per-share dividends. The number of 2004 stock options as well as the subscription ratios and subscription prices are specified in the enclosed table. The terms and conditions of the 2004 stock-option scheme in their entirety are available on the company's website at www.citycon.fi/options.
Citycon uses the Black & Scholes optionpricing model to measure the fair value of stock options at the grant date and reports them under personnel expenses in the income statement allocated over the instrument's vesting period. In 2008, the expense recognised in the income statement totalled EUR 0.2 million (EUR 0.6 million in 2007). The expected volatility is determined by calculating the company share price's historical volatility.
The initial subscription prices of the shares to be subscribed for by exercising the 2004 stock options were determined on the basis of the trade-weighted average price of Citycon share quoted on the Helsinki exchange as follows:
| 2004A | during 1–30 April 2004 |
|---|---|
| 2004B | during 1–30 April 2005 |
| 2004C | during 1–30 April 2006 |
added with 20%. The share subscription prices will be reduced by 50 per cent of the amount of the per-share dividends and per-share equity returns paid before share subscription. The share subscription prices have been changed also due to the rights issues carried out in 2006 and 2007.
The following table provides additional information on the 2004 stock option scheme.
| Type of scheme Grant date No. of instruments granted Exercise price, EUR |
2004A stock options Share-based options, granted to all staff Granted stock options 26 May 2004 1,135,000 2.51 |
2004B stock options Share-based options, granted to all staff Granted stock options 13 Sept. 2005 1,195,000 2.91 |
2004C stock options Share-based options, granted to all staff Granted stock options 27 April 2006 1,250,000 4.62 |
|---|---|---|---|
| Share subscription price at grant date, EUR | 2.09 | 2.48 | 3.86 |
| Vesting period as per agreement (No. of days) | 1,770 | 1,660 | 1,799 |
| Employment during | Employment during | Employment during | |
|---|---|---|---|
| vesting period. In case of prior | vesting period. In case of prior | vesting period. In case of prior | |
| employment termination, | employment termination, | employment termination, | |
| stock options forfeited | stock options forfeited | stock options forfeited | |
| Exercise | In terms of shares | In terms of shares | In terms of shares |
| Expected volatility, % | 18.60 | 31.18 | 27.84 |
| Expected vesting period at grant date (No. of days) | 943 | 943 | 856 |
| Risk-free interest rate, % | 3.56 | 2.58 | 3.79 |
| Expected dividend/share, EUR | 0.05* | 0.05* | 0.07* |
| Expected personnel reduction (at grant date), % | 0 | 0 | 0 |
| Instrument fair value determined at grant date, EUR | 0.09 | 0.96 | 0.75 |
| Option-pricing model | Black&Scholes | Black&Scholes | Black&Scholes |
* Expected dividend is EUR 0.10 for stock options 2004A and 2004B and EUR 0.14 for stock options 2004C. EUR 0.05 (for 2004A and 2004B stock options) and EUR 0.07 (for 2004C stock options) are used in the option-pricing model, based on the distributed dividends' and equity returns' reducing effect on the subscription price.
| 2008 | 2007 | |||
|---|---|---|---|---|
| Exercise price, | Exercise price, | 2008 | 2007 | |
| weighted average EUR/share |
weighted average EUR/share |
No. of stock options |
No. of stock options |
|
| At period-start | 3.28 | 2.92 | 2,883,280 | 4,051,368 |
| New stock options granted | - | - | - | - |
| Forfeited stock options | 4.38 | 4.43 | -40,000 | -160,000 |
| Exercised stock options | 2.27 | 1.58 | -8,355 | -1,008,088 |
| Lapsed stock options | - | - | - | - |
| At period-end | 3.20 | 3.28 | 2,834,925 | 2,883,280 |
| Exercisable stock options | ||||
| at period-end | 2,834,925 | 1,793,280 |
The per-share exercise price of the stock options exercised during the financial year averaged EUR 2.2732 (EUR 1.58 in 2007) and these were exercised in April and July of 2008. The stock options exercised during 2008 brought in EUR 0.0 million (EUR 1.8 million in 2007), which were recognised in invested unrestricted equity fund.
| 2008 (No. of shares, |
2007 (No. of shares, |
||
|---|---|---|---|
| Year of lapse | Exercise price, EUR | 1,000 ) | 1,000 ) |
| 2009 | 2.27 | 843 | 852 |
| 2010 | 2.66 | 1,322 | 1,322 |
| 2011 | 4.36 | 1,273 | 1,322 |
The Board of Directors decided 26 April 2007 on a long-term share-based incentive plan for key personnel of the Citycon Group. The aim of the plan is to encourage the key personnel to sustained efforts to increase shareholder value and to strengthen their commitment to the development of the Group's operations. The potential incentive is determined on the basis of the growth of Citycon Group's adjusted net cash flow from operating activities per share and net rental income in 2007–2009. The incentive plan is divided into three incentive periods of 2007, 2008 and 2009.
The incentives will be granted to the key personnel during the years 2008–2012 so that the incentives earned during 2007 are paid in 2008, 2009 and 2010. The Board of Directors decides annually on the key personnel participating in the long-term incentive plan and on setting of the incentive goals. The incentive granted will comprise Citycon shares, cash or both. In the incentive period 2007, the maximum number of shares granted is determined by their volume weighted average price during the first quarter in the period. The incentives paid in shares are charged to administration expenses and recognized as an increase in shareholders' equity, and incentives paid in cash are charged to administration expenses and recognized as liabilities. In 2008, the expense recognised in the income statement amounted to EUR 0.1 million (EUR 0.0 million in 2007).
| Incentive period 2008 | Incentive period 2007 | |
|---|---|---|
| Grant date | 12.6.2008 | 26.4.2007 |
| No. of key personnel | 25 | 16 |
| Maximum no. of shares *) | 205,500 | 103,958 |
| Shares given in 2008 | - | 7,012 |
*) If incentive paid completely in shares
| 2008 | 2007 | |
|---|---|---|
| Profit before income tax including discontinued operations | -162.3 | 253.5 |
| Adjustments for: | ||
| – Depreciation and amortisation | 0.5 | 0.5 |
| – Net fair value losses (+) /gains (-) on investment property | 216.1 | -211.4 |
| – Investment property disposal proceeds | -7.7 | -0.2 |
| – Carrying value of investment property disposals | 7.6 | 0.3 |
| – Share-based payment | 0.3 | 0.6 |
| – Other non-cash income | -5.9 | - |
| – Foreign exchange losses (+)/gains (-) on operating activities | 0.1 | 0.1 |
| – Fair value changes of derivatives | 3.1 | 0.6 |
| – Interest and other financing expenses | 54.1 | 44.6 |
| Changes in working capital | ||
| – Trade and other receivables | 3.2 | 1.9 |
| – Trade and other payables | -5.3 | -1.6 |
| Cash generated from operations | 103.7 | 88.8 |
Other non-cash income includes a compensation of EUR 5.9 million from the City of Helsinki relating to a premature termination of the land lease agreement in Myllypuro retail premises. This compensation will be received during 2009.
The future minimum lease payments under noncancellable other leases are as follows:
| EUR million | 2008 | 2007 |
|---|---|---|
| Not later than 1 year | 1.2 | 0.7 |
| 1–5 years | 1.9 | 1.0 |
| Over 5 years | 0.0 | - |
| Total | 3.1 | 1.7 |
Other leases with an average length of three years include mainly leases on office premises, cars and office equipment.
The future minimum lease payments receivable under non-cancellable leases are as follows:
| Total | 171.5 | 157.0 |
|---|---|---|
| Over 5 years | 28.2 | 27.4 |
| 1–5 years | 90.2 | 78.2 |
| YNot later than 1 year | 53.1 | 51.4 |
| EUR million | 2008 | 2007 |
The majority of Citycon's leases falls into the category of valid-until-further-notice agreements, whereby the rental rate is determined by the absolute net lease tied to the cost-of-living index, and the maintenance rent. The maintenance rent, charged separately from the lessee, covers operating expenses incurred by the property owner due to property maintenance while enabling the provision any additional services requested by the lessee. The Shopping Centres division also has leases tied to turnover generated by retailers, these accounting for roughly 24 per cent (16 per cent) of Citycon's lease portfolio. The share of the leases tied to the lessee's turnover will increase in the future.
| EUR million | 2008 | 2007 |
|---|---|---|
| Loans, for which mortgages are | ||
| given in security and shares pledged | ||
| Loans from financial institutions | 31.3 | 36.0 |
| Contingent liabilities for loans | ||
| Mortgages on land and buildings | 40.6 | 46.4 |
| Bank guarantees | 45.6 | 49.8 |
| Capital commitments | 13.0 | 31.0 |
| VAT refund liabilities | 21.3 | 15.6 |
Capital commitments relate mainly to development projects.
There are value-added tax refund liabilities arising from capitalized renovations and new investments in Citycon's investment properties. The VAT refund liabilities will realize if the investment property is sold or transferred to non-VATliability use within 5 years.
Changes in the VAT Act has become in force as of 1st of January 2008 in Finland. This change in the Act applies to VAT deduction of new investments that have been completed on the 1st of January 2008 or later. A 10 year review period applies to these investments from the day of completion. Transfer period rules apply to investments that have been completed prior to year 2008 and the review period is 5 years.
Related to Citycon's business operations, there are claims that have been submitted to the company and which may potentially lead to legal proceedings. In the opinion of the company, it is not likely that aggregate potential liabilities related to these actions have significance on the financial position or results of the Group.
Under a commitment given in the terms of the syndicated loan facilities, Citycon Group undertakes to maintain its equity ratio at above 32.5% and its interest coverage ratio at a minimum of 1.8. For the calculation of the equity ratio, the shareholders' equity includes the capital loans and excludes non-cash valuation gain/loss from derivative contracts recognized in equity and the minority interest. The interest coverage ratio is calculated by dividing the EBITDA – adjusted by extraordinary gains/losses, provisions and non-cash items – by net financial expenses.
Accordingly, equity ratio on 31 December 2008 stood at approximately 45.1% and interest coverage ratio at approximately 2.0 (2007: equity ratio was around 50.1 per cent and interest coverage ratio around 2.0).
Citycon Group's related parties comprise the parent company, subsidiaries, associated companies, minority companies, Board members, CEO, Corporate Management Committee members and Gazit-Globe Ltd., whose shareholding in Citycon Oyj accounted for 43.42% on 31 December 2008 (31 December 2007: 39.35% ).
| Group companies | Group | Parent company | |
|---|---|---|---|
| Country | holding,% | holding,% | |
| Parent company: Citycon Oyj | Finland | ||
| Asolantien Liikekiinteistö Oy | Finland | 100.0 | 100.0 |
| BHM Centrumfastigheter AB | Sweden | 100.0 | - |
| Citycon AB | Sweden | 100.0 | 100.0 |
| Citycon Centrum Sverige AB | Sweden | 100.0 | - |
| Citycon Estonia OÜ | Estonia | 100.0 | - |
| Citycon Göteborg AB | Sweden | 100.0 | - |
| Citycon Sverige AB | Sweden | 100.0 | - |
| Espoon Asemakuja 2 Koy | Finland | 100.0 | 100.0 |
| Forssan Hämeentie 3 Koy | Finland | 100.0 | 100.0 |
| Jakobsbergs 565 Fastighets AB | Sweden | 100.0 | - |
| Jakobsbergs Centrum Fastighets AB | Sweden | 100.0 | - |
| Jakobsbergs Centrum Galleria AB | Sweden | 100.0 | - |
| Jyväskylän Forum Koy | Finland | 100.0 | 100.0 |
| Jyväskylän Kauppakatu 31 Koy | Finland | 100.0 | 100.0 |
| Järfalla 7055 Fastighets AB | Sweden | 100.0 | - |
| Kaarinan Liiketalo Koy | Finland | 100.0 | 100.0 |
| Karjaan Ratakatu 59 Koy | Finland | 100.0 | 100.0 |
| Karjalan Kauppakeskus Koy | Finland | 100.0 | 100.0 |
| Kauppakeskus Columbus Koy | Finland | 100.0 | 100.0 |
| Kauppakeskus Isokarhu Oy | Finland | 100.0 | 100.0 |
| Keijutie 15 Koy | Finland | 100.0 | 100.0 |
| Kivensilmänkuja 1 Koy | Finland | 100.0 | 100.0 |
| Kotkan Keskuskatu 11 Koy | Finland | 100.0 | 100.0 |
| Kouvolan Valtakadun Kauppakeskus Koy | Finland | 100.0 | 100.0 |
| Kuopion Kauppakatu 41 Koy | Finland | 100.0 | 100.0 |
| Kuusankosken Kauppakatu 7 Koy | Finland | 100.0 | 100.0 |
| Kuvernöörintie 8 Koy | Finland | 100.0 | 100.0 |
| Lahden Hansa Koy | Finland | 100.0 | 100.0 |
| Lahden Kauppakatu 13 Koy | Finland | 100.0 | 100.0 |
| Lappeenrannan Villimiehen Vitonen Oy | Finland | 100.0 | 100.0 |
| Lentolan Perusyhtiö Oy | Finland | 100.0 | 100.0 |
| Liljeholmsplan Bostadsfastigheter AB | Sweden | 100.0 | - |
| Liljeholmsplan Fastighets AB | Sweden | 100.0 | - |
| Liljeholmsplan Hotellfastigheter AB | Sweden | 100.0 | - |
| Liljeholmstorget Development Services AB | Sweden | 100.0 | - |
| Lillinkulma Koy | Finland | 100.0 | 100.0 |
| Lintulankulma Koy | Finland | 100.0 | 100.0 |
| Lippulaiva Koy | Finland | 100.0 | 100.0 |
| Magistral Kaubanduskeskuse OÜ | Estonia | 100.0 | - |
| Martinlaakson Kivivuorentie 4 Koy | Finland | 100.0 | 100.0 |
| Minkkikuja 4 Koy | Finland | 100.0 | 100.0 |
| Montalbas B.V. | The Netherlands | 100.0 | 100.0 |
| Myllypuron Ostoskeskus Oy | Finland | 100.0 | 100.0 |
| Myyrmanni Koy | Finland | 100.0 | 100.0 |
| Naantalin Tullikatu 16 Koy | Finland | 100.0 | 100.0 |
| Oulun Galleria Koy | Finland | 100.0 | 100.0 |
| Porin Asema-Aukio Koy | Finland | 100.0 | 100.0 |
| Porin Isolinnankatu 18 Koy | Finland | 100.0 | 100.0 |
| Riddarplatsen Fastigheter HB | Sweden | 100.0 | - |
| Rocca al Mare Kaubanduskeskuse AS | Estonia | 100.0 | - |
| Runeberginkatu 33 Koy | Finland | 100.0 | 100.0 |
| Group companies | Group | Parent company | Group companies | Group | Parent company | ||
|---|---|---|---|---|---|---|---|
| Country | holding,% | holding,% | Country | holding,% | holding,% | ||
| Sinikalliontie 1 Koy | Finland | 100.0 | 100.0 | Myyrmäen Kauppakeskus Koy | Finland | 74.0 | 74.0 |
| Sverige 7059 Fastighets AB | Sweden | 100.0 | - | Stenungs Torg Fastighets AB | Sweden | 70.0 | - |
| Säkylän Liiketalo Oy | Finland | 100.0 | 100.0 | Kirkkonummen Liikekeskus Oy | Finland | 66.7 | 66.7 |
| Talvikkitie Koy 7-9 | Finland | 100.0 | 100.0 | Espoontori Koy | Finland | 66.6 | 66.6 |
| Tampereen Hatanpää Koy | Finland | 100.0 | 100.0 | Heikintori Oy | Finland | 65.3 | 65.3 |
| Tampereen Hermanni Koy | Finland | 100.0 | 100.0 | Tampereen Koskenranta Koy | Finland | 63.7 | 63.7 |
| Tampereen Suvantokatu Koy | Finland | 100.0 | 100.0 | Vantaan Säästötalo Koy | Finland | 61.2 | 61.2 |
| Tenrot Fastighets AB | Sweden | 100.0 | - | Espoontorin Pysäköintitalo Oy | Finland | 60.1 | - |
| Tumba Centrumfastigheter AB | Sweden | 100.0 | - | Big Apple Top Oy | Finland | 60.0 | - |
| UAB Citycon | Lithuania | 100.0 | - | Manhattan Acquisition Oy | Finland | 60.0 | - |
| UAB Prekybos Centras Mandarinas | Lithuania | 100.0 | - | Tullintori Koy | Finland | 57.4 | 57.4 |
| Ultima Oy | Finland | 100.0 | 100.0 | Espoon Asematori Koy | Finland | 54.1 | 54.1 |
| Valkeakosken Torikatu 2 Koy | Finland | 100.0 | 100.0 | Laajasalon Liikekeskus Oy | Finland | 50.4 | 50.4 |
| Vantaan Kivivuorenlaki As Oy | Finland | 100.0 | 100.0 | Retail Park Oy | Finland | 50.0 | 50.0 |
| Vantaan Laajavuorenkuja 2 Koy | Finland | 100.0 | 100.0 | Espoon Louhenkulma Koy | Finland | 48.9 | 48.9 |
| Varkauden Relanderinkatu 30 Koy | Finland | 100.0 | 100.0 | Pihlajamäen Liiketalo Oy | Finland | 42.7 | 42.7 |
| Wavulinintie 1 Koy | Finland | 100.0 | 100.0 | Länsi-Keskus Koy | Finland | 41.4 | 41.4 |
| Veniamo-Invest Oy | Finland | 100.0 | 100.0 | Hakunilan Keskus Oy | Finland | 41.1 | 41.1 |
| Vaakalintu Koy | Finland | 95.8 | 95.8 | Otaniemen Liikekeskus Oy | Finland | 39.2 | 39.2 |
| Lahden Trio Koy | Finland | 89.7 | 89.7 | Kontulan Asemakeskus Koy | Finland | 34.8 | 34.8 |
| Linjurin Kauppakeskus Koy | Finland | 88.5 | 88.5 | Puijonlaakson Palvelukeskus Koy | Finland | 31.3 | 31.3 |
| Mäntyvuoksi Koy | Finland | 86.8 | 86.8 | Salpausseläntie 11 Koy | Finland | 31.3 | 31.3 |
| Lappeenrannan Brahenkatu 7 Koy | Finland | 84.5 | 84.5 | Valtakatu 5-7 Koy | Finland | 31.3 | 31.3 |
| Tikkurilan Kauppakeskus Koy | Finland | 83.8 | 83.8 | Soukan Itäinentorni As Oy | Finland | 27.3 | 27.3 |
| Koskikeskuksen Huolto Oy | Finland | 81.7 | 81.7 | Valkeakosken Liikekeskus Koy | Finland | 25.4 | 25.4 |
| Orimattilan Markkinatalo Oy | Finland | 77.3 | 77.3 | Lauttasaaren Liikekeskus Oy | Finland | 23.7 | 23.7 |
| Lappeen Liikekeskus Koy | Finland | 80.2 | 80.2 | Hakucenter Koy | Finland | 18.7 | 18.7 |
| Strömpilen AB | Sweden | 75.0 | - | Helsingin Autotalo Oy | Finland | 8.9 | 8.9 |
| Åkersberga Centrum AB | Sweden | 75.0 | - | ||||
| Fastighets AB Fartyget i Åkersberga | Sweden | 75.0 | - | Partnership for taxation purposes: | |||
| Hervannan Liikekeskus Oy | Finland | 74.6 | 74.6 | Hakarinne 4 | Finland | 55.6 | 55.6 |
Group companies have paid to each other a.o. maintenance and financial charges, interest expenses, loan repayments and other administrative service charges.
This income and these expenses have been eliminated in the consolidated financial statements. There has been no other related party transactions between the group companies.
| Personnel expenses for | ||
|---|---|---|
| corporate management | ||
| committee, EUR million | 2008 | 2007 |
| Wages and salaries | 1.2 | 1.1 |
| Pensions: defined | ||
| contribution plans | 0.3 | 0.3 |
| Social charges | 0.1 | 0.1 |
| Total | 1.5 | 1.5 |
| Remuneration, EUR | 2008 | 2007 |
| CEO | 342,549 | 338,707 |
| Board members | ||
| Bernstein Amir | 47,000 | - |
| Bolotowsky Gideon | 48,100 | 45,400 |
| Gal Amir (Board member until | ||
| 13 March 2008) | - | 44,200 |
| Korpinen Raimo | 50,200 | 45,200 |
| Lähdesmäki Tuomo | 68,300 | 73,200 |
| Nordman Carl G. (Board | ||
| member until 13 March 2008) | 1,200 | 43,800 |
| Ottosson Claes | 45,800 | 43,000 |
| Segal Dor J. | 47,200 | 44,200 |
| Wernink Thomas W. | 174,200 | 166,600 |
| Westin Per-Håkan | 47,500 | - |
| Total | 529,500 | 505,600 |
The CEO is entitled to retire upon turning 62, provided that he will remain in the company's employ until that date. The Group has pension insurance to cover this pension plan. Both the CEO and the company may terminate the CEO's executive contract at six months' notice. If the company terminates the contract for a reason not attributable to the CEO, it will pay the CEO lump-sump compensation equalling his 18-month salary in cash, in addition to the salary.
Based on his executive contract, the CEO was granted 1,500,000 stock options under the 1999 stock-option scheme in 2002, and, under the 2004 stock-option scheme, 150,000 2004A stock options in 2004, 140,000 2004B stock options in 2005, and 140,000 2004C stock options in 2006.
On 31 December 2008, the CEO held 75,000 2004A stock options, 140,000 2004B stock options and 140,000 2004C stock options.
Board members do not participate in the company's share-based incentive schemes.
The company's main shareholder, Gazit-Globe Ltd, holding approximately 43 per cent of the shares in the company, has announced that it applies International Financial Reporting Standards (IFRS) in its financial reporting starting from the year 2007. According to IFRS one company may exercise a controlling interest in another company even if its shareholding it that company does not exceed 50 per cent. Gazit-Globe Ltd. holds the view that it exercises controlling interest, as defined in IFRS, in Citycon Oyj based on the fact that it has been able to exercise controlling interest in Citycon Oyj's shareholders' meetings pursuant to its shareholding. In accordance with an agreement concluded between the companies, Citycon Oyj will provide Gazit-Globe Ltd. with a more detailed breakdown of the accounting information it discloses in its interim and full-year reports so that Gazit-Globe Ltd. can consolidate Citycon Group figures into its own IFRS financial statements.
| Majakka Koy, increase of ownership 100.00% |
|---|
| Espoontorin Pysäköintitalo Oy, |
| increase of ownership 28.99% |
| Espoon Asematori Koy, |
| increase of ownership 54.12% |
| Myllypuron Ostoskeskus Oy, |
| increase of ownership 26,54% |
| Lappeen Liikekeskus Koy, |
| increase of ownership 4.95% |
| Myyrmäen Kauppakeskus Koy, |
| increase of ownership 3.62% |
Tenrot Fastighets AB
| Manhattan Acquisition Oy, | |
|---|---|
| sold ownership 40.00% | |
| Ulappapaikoitus Oy, | |
| sold ownership 59.85% Ulappatori Koy, sold ownership 100.00% Pukinmäen Liikekeskus Oy, sold ownership 43.92% |
At the end of January, Citycon divested all shares in its subsidiary MREC Kiinteistö Oy Keijutie 15. The debt-free sales price of this non-core property in Lahti amounted to approximately EUR 3 million.
| EUR million | Formula | IFRS 2008 |
IFRS 2007 |
IFRS 2006 |
IFRS 2005 |
IFRS 2004 |
|---|---|---|---|---|---|---|
| Income statement data | ||||||
| Turnover | 178.3 | 151.4 | 119.4 | 92.2 | 84.7 | |
| Other operating income and expense Depreciation according to plan |
6.1 0.5 |
0.5 0.5 |
0.6 0.2 |
0.6 0.2 |
0.7 0.3 |
|
| Operating loss/profit | -105.0 | 298.7 | 196.5 | 105.2 | 51.8 | |
| Loss/profit before taxes | -162.3 | 253.5 | 165.6 | 74.2 | 25.7 | |
| Loss/profit attributable to parent company shareholders | -124.1 | 200.3 | 124.9 | 59.2 | 19.9 | |
| Balance sheet data | ||||||
| Non-current assets | 2,126,1 | 2,260.5 | 1,453.3 | 957.6 | 745.6 | |
| Current assets | 52,4 | 48.1 | 33.1 | 25.5 | 12.2 | |
| Equity attributable to parent company shareholders | 799,1 | 982.0 | 565.3 | 356.6 | 237.7 | |
| Minority interest | 38.2 | 28.9 | 15.0 | 3.6 | 0.0 | |
| Liabilities | 1,341.2 | 1,297.7 | 906.1 | 622.9 | 520.0 | |
| Total liabilities and shareholders' equity | 2,178.5 | 2,308.6 | 1,486.4 | 983.1 | 757.7 | |
| Key performance ratios | ||||||
| Equity ratio, % | 1 | 38.5 | 43.9 | 39.1 | 36.7 | 31.4 |
| Equity ratio for bank, % | 45.1 | 50.1 | 49.8 | 40.8 | 41.2 | |
| Gearing, % | 2 | 141.3 | 111.8 | 136.6 | 156.8 | 201.3 |
| Return on equity, % (ROE) | 3 | -15.0 | 23.3 | 25.8 | 22.5 | 9.5 |
| Return on investment, % (ROI) | 4 | -1.5 | 16.3 | 16.8 | 13.5 | 7.2 |
| Quick ratio | 5 | 0.5 | 0.3 | 0.2 | 0.3 | 0.5 |
| Gross capital expenditure, EUR million | 157.9 | 603.9 | 436.4 | 178.5 | 18.8 | |
| % of turnover | 88.6 | 398.9 | 365.5 | 193.6 | 22.2 | |
| Per-share figures and ratios | ||||||
| Earnings per share, EUR | 6 | -0.56 | 1.00 | 0.76 | 0.46 | 0.17 |
| Earnings per share,diluted, EUR | 7 | -0.56 | 0.91 | 0.73 | 0.45 | 0.17 |
| Equity per share, EUR | 8 | 3.62 | 4.44 | 3.30 | 2.39 | 1.95 |
| Net asset value (EPRA NAV) per share, EUR | 9 | 3.88 | 4.82 | 3.52 | 2.46 | 2.14 |
| EPRA NNNAV per share, EUR | 10 | 3.80 | 4.42 | 3.14 | 2.40 | 2.03 |
| P/E (price/earnings) ratio | 11 | -3 | 3 | 7 | 7 | 14 |
| Return from invested unrestricted equity fund per share, EUR | 0.101) | 0.10 | - | - | - | |
| Dividend per share, EUR | 0.041) | 0.04 | 0.14 | 0.14 | 0.14 | |
| Dividend and return from invested unrestricted equity fund | ||||||
| per share total, EUR | 0.141) | 0.14 | 0.14 | 0.14 | 0.14 | |
| Dividend and return of equity per earnings, % | 12 | -24.91) | 13.9 | 18.4 | 30.7 | 80.2 |
| Effective dividend and return of equity yield, % | 13 | 0.11) | 4.3 | 2.8 | 4.5 | 5.7 |
1) Board proposal
| EUR million | Formula | 2008 | 2007 | 2006 | 2005 | 2004 |
|---|---|---|---|---|---|---|
| Direct result | 16 | |||||
| Net rental income | 121.8 | 103.4 | 82.8 | 67.0 | 62.3 | |
| Direct administrative expenses | -16.5 | -16.5 | -12.3 | -8.3 | -5.5 | |
| Direct other operating income and expenses | 0.1 | 0.5 | 0.6 | 0.3 | 0.7 | |
| Direct net financial income and expenses | -54.2 | -44.7 | -32.0 | -25.6 | -26.1 | |
| Direct current taxes | -4.8 | -3.4 | -5.5 | -4.6 | -6.8 | |
| Direct change in deferred taxes | 0.2 | -0.2 | -3.0 | -2.8 | -0.6 | |
| Direct minority interest | -2.8 | -0.9 | -0.3 | -0.3 | 0.0 | |
| Total | 43.8 | 38.3 | 30.4 | 25.7 | 24.0 | |
| Direct result per share (diluted), (diluted EPRA EPS), EUR | 18 | 0.20 | 0.19 | 0.19 | 0.19 | 0.22 |
| Indirect result | 17 | |||||
| Net fair value losses/gains on investment property | -216.1 | 211.4 | 120.1 | 45.9 | -5.7 | |
| Loss/profit on disposal of investment property | 0.1 | -0.1 | 5.9 | 0.3 | 0.1 | |
| Indirect administrative expenses | -0.4 | 0.0 | -0.6 | 0.0 | 0.0 | |
| Indirect other operating income and expenses | 6.0 | 0.0 | - | - | 0.0 | |
| Indirect one-off financial income and expenses (net) | - | - | -0.9 | -5.5 | - | |
| Movement in fair value of financial instruments | -3.1 | -0.6 | 2.0 | - | - | |
| Indirect current taxes | -1.8 | 0.0 | -1.9 | 1.3 | 0.0 | |
| Change in indirect deferred taxes | 29.7 | -46.0 | -28.8 | -8.3 | 1.5 | |
| Indirect minority interest | 17.6 | -2.7 | -1.3 | -0.4 | 0.0 | |
| Total | -167.9 | 162.1 | 94.5 | 33.5 | -4.1 | |
| Indirect result per share, diluted, EUR | -0.76 | 0.71 | 0.54 | 0.25 | -0.05 | |
| Loss/profit for the period attributable to parent company shareholders | -124.1 | 200.3 | 124.9 | 59.2 | 19.9 |
| EUR million | Formula | Q4/2008 | Q3/2008 | Q2/2008 | Q1/2008 | Q4/2007 | Q3/2007 | Q2/2007 | Q1/2007 |
|---|---|---|---|---|---|---|---|---|---|
| Direct result | 16 | ||||||||
| Net rental income | 30.2 | 31.5 | 30.5 | 29.7 | 27.1 | 27.3 | 25.8 | 23.2 | |
| Direct administrative expenses | -4.6 | -3.9 | -4.2 | -3.8 | -3.9 | -4.0 | -4.3 | -4.3 | |
| Direct other operating income and expenses | 0.1 | 0.0 | 0.0 | 0.0 | 0.6 | 0.0 | -0.1 | 0.1 | |
| Direct net financial income and expenses | -11.7 | -14.6 | -14.1 | -13.8 | -13.9 | -11.2 | -9.7 | -9.9 | |
| Direct current taxes Direct change in deferred taxes |
-1.4 0.0 |
-1.0 0.2 |
-1.2 0.0 |
-1.2 -0.1 |
3.2 1.7 |
-2.4 -0.5 |
-2.8 -0.7 |
-1.4 -0.6 |
|
| Direct minority interest | -0.7 | -0.9 | -0.7 | -0.4 | -0.2 | -0.3 | -0.2 | -0.1 | |
| Total | 11.8 | 11.3 | 10.2 | 10.4 | 14.6 | 8.9 | 8.0 | 6.7 | |
| Direct result per share (diluted), (diluted EPRA EPS), EUR | 18 | 0.05 | 0.05 | 0.05 | 0.05 | 0.07 | 0.05 | 0.04 | 0.04 |
| Indirect result | 17 | ||||||||
| Net fair value losses/gains on investment property | -59.3 | -71.7 | -85.5 | 0.5 | -0.1 | 20.4 | 159.8 | 31.4 | |
| Loss/profit on disposal of investment property | 0.0 | 0.0 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Indirect administrative expenses | -0.1 | 0.0 | -0.2 | -0.2 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Indirect other operating income and expenses | 5.9 | 0.0 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Movement in fair value of financial instruments | -1.4 | -0.6 | 0.2 | -1.4 | 0.2 | -1.4 | 0.1 | 0.6 | |
| Indirect current taxes | -0.8 | 0.0 | 0.0 | -1.1 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Change in indirect deferred taxes | 7.5 | 8.2 | 11.6 | 2.4 | -5.0 | -4.5 | -32.3 | -4.2 | |
| Indirect minority interest Total |
5.6 -42.5 |
6.8 -57.3 |
7.0 -66.8 |
-1.8 -1.3 |
-0.4 -5.4 |
0.1 14.5 |
-0.9 126.6 |
-1.5 26.3 |
|
| Indirect result per share, diluted, EUR | -0.19 | -0.26 | -0.30 | -0.01 | -0.02 | 0.08 | 0.66 | 0.15 | |
| Loss/profit for the period attributable to parent company shareholders | -30.7 | -46.0 | -56.6 | 9.1 | 9.3 | 23.4 | 134.6 | 33.0 |
| EUR million | Q4/2008 | Q3/2008 | Q2/2008 | Q1/2008 | Q4/2007 | Q3/2007 | Q2/2007 | Q1/2007 |
|---|---|---|---|---|---|---|---|---|
| Turnover | ||||||||
| Finland | 32.0 | 31.9 | 31.6 | 31.4 | 30.2 | 25.5 | 24.7 | 23.9 |
| Sweden | 10.1 | 10.5 | 10.6 | 10.7 | 11.1 | 10.1 | 9.3 | 8.6 |
| Baltic Countries | 3.1 | 2.1 | 2.1 | 2.2 | 2.0 | 2.3 | 1.9 | 1.8 |
| Total | 45.2 | 44.6 | 44.2 | 44.3 | 43.3 | 38.0 | 35.9 | 34.2 |
| Net rental income | ||||||||
| Finland | 22.6 | 23.4 | 22.5 | 22.3 | 21.0 | 18.9 | 18.2 | 17.5 |
| Sweden Baltic Countries |
5.3 2.2 |
6.5 1.5 |
6.4 1.5 |
5.8 1.6 |
4.7 1.4 |
6.5 1.8 |
6.0 1.4 |
4.4 1.3 |
| Other | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 | 0.0 |
| Total | 30.2 | 31.5 | 30.5 | 29.7 | 27.1 | 27.3 | 25.8 | 23.2 |
| Direct operating profit | ||||||||
| Finland | 21.0 | 22.1 | 21.2 | 21.1 | 19.6 | 17.8 | 16.9 | 16.2 |
| Sweden | 4.5 | 6.0 | 5.4 | 5.0 | 4.6 | 5.3 | 5.1 | 3.7 |
| Baltic Countries | 2.0 | 1.4 | 1.4 | 1.5 | 1.1 | 1.7 | 1.2 | 1.1 |
| Other | -1.9 | -1.9 | -1.7 | -1.6 | -1.5 | -1.5 | -1.7 | -2.1 |
| Total | 25.6 | 27.6 | 26.2 | 25.9 | 23.8 | 23.2 | 21.5 | 18.9 |
| Operating loss/profit | ||||||||
| Finland | -21.7 | -22.9 | -37.4 | 19.0 | 17.3 | 33.8 | 137.1 | 30.2 |
| Sweden | -16.9 | -23.3 | -15.7 | 6.7 | 6.9 | 7.2 | 40.5 | 18.8 |
| Baltic Countries | 12.6 | 4.0 | -4.5 | 2.3 | 1.0 | 4.0 | 5.4 | 3.4 |
| Other | -2.0 | -1.9 | -1.9 | -1.6 | -1.5 | -1.5 | -1.7 | -2.1 |
| Total | -27.9 | -44.1 | -59.5 | 26.4 | 23.7 | 43.6 | 181.2 | 50.3 |
| EUR million | Note | 1 Jan.–31 Dec. 2008 | 1 Jan.–31 Dec. 2007 |
|---|---|---|---|
| Gross rental income | 100.8 | 89.5 | |
| Service charge income | 3.4 | 2.9 | |
| Turnover | 1 | 104.2 | 92.4 |
| Property operating expenses | 50.6 | 48.5 | |
| Other expenses from leasing operations | 2 | 0.1 | 0.1 |
| Net rental income | 53.5 | 43.8 | |
| Administrative expenses | 3, 4 | 21.7 | 14.0 |
| Other operating income and expenses | 5 | 5.6 | 0.3 |
| Operating profit | 37.3 | 30.0 | |
| Financial income | 118.2 | 44.4 | |
| Financial expenses | -134.5 | -63.9 | |
| Net financial income and expenses | 6 | -16.4 | -19.5 |
| Profit before taxes | 21.0 | 10.6 | |
| Income tax expense | 7 | 6.9 | 2.1 |
| Profit for the period | 14.1 | 8.4 |
| EUR million | Note | 31 Dec. 2008 | 31 Dec. 2007 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 8 | 11.4 | 6.0 |
| Tangible assets | 9 | 32.1 | 31.6 |
| Investments | |||
| Shares in subsidiaries | 10 | 826.4 | 733.8 |
| Shares in associated companies | 11 | 34.8 | 34.7 |
| Other investments | 12 | 746.6 | 915.4 |
| Total investments | 1,607.8 | 1,683.9 | |
| Total non-current assets | 1,651.3 | 1,721.5 | |
| Current assets | |||
| Short-term receivables | 14 | 43.1 | 29.6 |
| Cash and cash equivalents | 0.7 | 3.7 | |
| Total current assets | 43.9 | 33.3 | |
| Total assets | 1,695.1 | 1,754.8 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||
| Shareholders' equity | 15 | ||
| Share capital | 259.6 | 259.6 | |
| Share premium fund | 133.1 | 133.1 | |
| Invested unrestricted equity fund and other reserves | 179.0 | 201.1 | |
| Retained earnings | 3.7 | 4.1 | |
| Profit for the period | 14.1 | 8.4 | |
| Total shareholders' equity | 589.4 | 606.3 | |
| Liabilities | 16 | ||
| Subordinated loan | 70.0 | 70.0 | |
| Convertible capital loan | 73.3 | 95.0 | |
| Long-term liabilities | 860.6 | 832.4 | |
| Short-term liabilities | 101.8 | 151.1 | |
| Total liabilities | 1,105.7 | 1,148.5 | |
| Total liabilities and shareholders' equity | 1,695.1 | 1,754.8 | |
| EUR million | 1 Jan.–31 Dec. 2008 | 1 Jan.–31 Dec. 2007 | |
|---|---|---|---|
| Cash flow from operating activities | |||
| Profit before taxes | 21.0 | 10.6 | |
| Adjustments: | |||
| Depreciation and impairment loss | 3.0 | 1.8 | |
| Non-cash property operating expenses | 21.7 | 23.5 | |
| Net financial income and expenses | 16.4 | 19.5 | |
| Other adjustments | -4.1 | -0.1 | |
| Cash flow before change in working capital | 57.9 | 55.3 | |
| Change in working capital | 1.0 | 1.7 | |
| Cash generated from operations | 58.8 | 57.0 | |
| Interest and other financial expenses paid | -64.8 | -40.6 | |
| Interest income, exchange rate gains and other financial income received | 24.9 | 11.6 | |
| Income tax received/paid | 0.6 | -7.2 | |
| Net cash from operating activities | 19.6 | 20.7 | |
| Cash flow from investing activities | |||
| Investment in tangible and intangible assets | -2.1 | -7.0 | |
| Other investments | - | -0.1 | |
| Proceeds from sale of tangible assets | 0.7 | 0.2 | |
| Loans granted | -399.5 | -555.5 | |
| Repayments of loans receivable | 510.7 | 83.2 | |
| Increase in subsidiary shares | -101.9 | -59.9 | |
| Sale of subsidiary shares | 4.3 | - | |
| Purchase of minority and associate company shares | -0.7 | -0.6 | |
| Sale of associate company shares | 0.6 | - | |
| Net cash from investing activities | 12.1 | -539.7 | |
| Cash flow from financing activities | |||
| Proceeds from share issue | - | 232.4 | |
| Proceeds from short-term loans | 72.0 | 773.1 | |
| Repayments of short-term loans | -125.8 | -727.9 | |
| Proceeds from long-term loans | 516.8 | 479.2 | |
| Repayments of long-term loans | -469.3 | -223.7 | |
| Dividends paid and return from the invested unrestricted equity fund | -30.9 | -23.4 | |
| Net cash used in financing activities | -37.2 | 509.7 | |
| Net change in cash and cash equivalents | -5.5 | -9.3 | |
| Cash and cash equivalents at period-start | -6.8 | 2.5 | |
| Effects of exchange rate changes | 1.4 | - | |
| Cash and cash equivalents at period-end 1) | -10.9 | -6.8 | |
1) Cash and cash equivalents of Citycon Oyj were negative as at 31 December 2008 and as at 31 December 2007 due to group cash pool in which the parent company's bank account can have a negative balance. Cash pool balance of EUR -11.6 million as at 31 December 2008 and EUR -10.5 million as at 31 December 2007 has been recognized in the parent company's balance sheet under short-term liabilities.
The parent company's financial statements are prepared in accordance with the finnish law.
The income statement is presented in accordance with the function-based format and it includes both gross and net rental income.
Non-current assets are recognized in the balance sheet at acquisition cost less impairment losses and depreciation/amortisation.
The buildings' acquisition cost is depreciated annually on a straight line basis at 2–4 per cent. Repair costs are expensed as incurred.
Other non-current assets include capitalised costs related to the acquisition of properties, which are amortised over three years, and tenant improvements, which are amortised during the lease term.
Machinery and equipment is depreciated at 25 per cent annually using the reducing balance method of depreciation. The machinery and equipment category includes also technical equipment in buildings and the depreciation is made accordingly.
The company's employee pension cover is based on statutory pension insurance.
Receivables and payables denominated in foreign currencies as well as forward rate agreements are measured at the exchange rate quoted on the balance sheet date. Any exchange rate differences resulting from currency translations are recognized as exchange rate differences in the income statement.
The subordinated loan and convertible capital loan are shown as separate items in liabilities.
Taxes are recognized on an accrual basis.
Individual figures and sum totals presented in the financial statements have been rounded to the nearest million euros; this may cause minor discrepancies between the sum totals and the sums of individual figures as given.
| EUR million | 2008 | 2007 |
|---|---|---|
| Turnover by business segments: | ||
| Shopping centres | ||
| Helsinki metropolitan area | 34.0 | 28.0 |
| other cities in Finland | 40.4 | 36.1 |
| Other retail properties | 29.8 | 28.3 |
| Total | 104.2 | 92.4 |
| Geographically the parent company's | ||
| turnover is generated in Finland. | ||
| Parent company turnover includes | ||
| the following building-management | ||
| and administrative fees received | ||
| from Group companies: | 1,1 | 1,0 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Tenant improvements and | ||
| commissions | 0.1 | 0.1 |
| Credit losses | 0.1 | 0.1 |
| Total | 0.1 | 0.1 |
| Personnel expenses include | ||
|---|---|---|
| Total | 7.2 | 6.5 |
| Other social expenses | 0.5 | 0.5 |
| Pension charges | 0.9 | 0.7 |
| Wages and salaries | 5.8 | 5.2 |
| Personnel expenses | ||
| during period | 75 | 67 |
| Average number of employees | ||
| EUR million | 2008 | 2007 |
| Total | 1.0 | 0.8 |
|---|---|---|
| Board salaries and emoluments | 0.6 | 0.5 |
| CEO's salary and emoluments | 0.3 | 0.3 |
| emoluments | ||
| management salaries and |
| EUR million | 2008 | 2007 |
|---|---|---|
| The following depreciation and | ||
| amortization as well as impairments | ||
| are included in the administrative | ||
| expenses: | ||
| Amortization on intangible assets | 2.1 | 0.9 |
| Depreciation on buildings and | ||
| constructions | 0.5 | 0.5 |
| Depreciation on machinery and | ||
| equipment | 0.4 | 0.4 |
| Impairment of shares in | ||
| subsidiaries | 5.0 | - |
| Total | 8.0 | 1.8 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Profit on disposal of shares in subsidiaries and other investments |
4.1 | 0.1 |
| Property management fees from | ||
| Group companies | 1.3 | - |
| Other operating income | 0.2 | 0.3 |
| Total | 5.6 | 0.3 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Dividend income | ||
| From Group companies | 0.1 | 1.4 |
| From others | 0.0 | 0.0 |
| Total | 0.1 | 1.4 |
| Interest and other financial income | ||
| From Group companies | 39.3 | 33.0 |
| Gain from convertible bond | ||
| buybacks | 9.4 | - |
| Foreign exchange gains | 68.7 | 9.2 |
| Other interest and financial | ||
| income | 0.8 | 0.9 |
| Total | 118.2 | 43.1 |
| Total financial income | 118.2 | 44.4 |
| Interest and other financial expenses | ||
| To Group companies | 13.1 | 7.1 |
| Foreign exchange losses | 68.9 | 9.3 |
| Interest and other financial | ||
| expenses | 52.5 | 47.5 |
| Total financial expenses | 134.5 | 63.9 |
| Total net financial income and | ||
| expenses | -16.4 | -19.5 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Taxes for the period | -6.9 | -2.1 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Intangible rights Acquisition cost 1 Jan. Additions during the period |
0.9 0.5 |
0.6 0.3 |
| Accumulated acquisition costs 31 Dec. |
1.4 | 0.9 |
| Accumulated depreciation 1 Jan. Depreciation for the period Accumulated depreciation 31 Dec. |
0.5 0.2 0.6 |
0.3 0.1 0.5 |
| Net carrying amount 31 Dec. | 0.8 | 0.4 |
| Connection fees Acquisition cost 1 Jan. Net carrying amount 31 Dec. |
0.2 0.2 |
0.2 0.2 |
| Other non-current assets | ||
| Acquisition cost 1 Jan. Additions during the period |
9.6 7.0 |
5.3 4.3 |
| Disposals during the period Transfer between items |
- 0.0 |
0.0 0.0 |
| Accumulated acquisition costs 31 Dec. |
16.6 | 9.6 |
| Accumulated depreciation 1 Jan. Depreciation for the period |
4.3 1.9 |
3.4 0.8 |
| Accumulated depreciation 31 Dec. | 6.2 | 4.3 |
| Net carrying amount 31 Dec. | 10.4 | 5.3 |
| Taxes for the period | -6.9 | -2.1 | Land | ||
|---|---|---|---|---|---|
| Acquisition cost 1 Jan. | 3.3 | 3.3 | |||
| 8. Intangible assets | Accumulated acquisition costs 31 Dec. |
3.3 | 3.3 | ||
| EUR million | 2008 | 2007 | |||
| Intangible rights | Buildings and constructions Acquisition cost 1 Jan. |
68.3 | 66.5 | ||
| Acquisition cost 1 Jan. | 0.9 | 0.6 | Additions during the period | 0.4 | 1.4 |
| Additions during the period | 0.5 | 0.3 | Transfer between items | - | 0.4 |
| Accumulated acquisition costs | Accumulated acquisition costs | ||||
| 31 Dec. | 1.4 | 0.9 | 31 Dec. | 68.6 | 68.3 |
| Accumulated depreciation 1 Jan. | 0.5 | 0.3 | Accumulated depreciation 1 Jan. | 43.1 | 42.6 |
| Depreciation for the period | 0.2 | 0.1 | Depreciation for the period | 0.5 | 0.5 |
| Accumulated depreciation 31 Dec. | 0.6 | 0.5 | Accumulated depreciation 31 Dec. | 43.6 | 43.1 |
| Net carrying amount 31 Dec. | 0.8 | 0.4 | Net carrying amount 31 Dec. | 25.0 | 25.1 |
| Connection fees | Machinery and equipment | ||||
| Acquisition cost 1 Jan. | 0.2 | 0.2 | Acquisition cost 1 Jan. | 4.9 | 4.0 |
| Net carrying amount 31 Dec. | 0.2 | 0.2 | Additions during the period | 0.4 | 0.6 |
| Transfer between items | - | 0.2 | |||
| Other non-current assets | Accumulated acquisition costs | ||||
| Acquisition cost 1 Jan. | 9.6 | 5.3 | 31 Dec. | 5.3 | 4.9 |
| Additions during the period | 7.0 | 4.3 | |||
| Disposals during the period | - | 0.0 | Accumulated depreciation 1 Jan. | 3.5 | 3.0 |
| Transfer between items | 0.0 | 0.0 | Depreciation for the period | 0.4 | 0.4 |
| Accumulated acquisition costs | Accumulated depreciation 31 Dec. | 3.9 | 3.5 | ||
| 31 Dec. | 16.6 | 9.6 | |||
| Net carrying amount 31 Dec. | 1.4 | 1.4 | |||
| Accumulated depreciation 1 Jan. | 4.3 | 3.4 | |||
| Depreciation for the period | 1.9 | 0.8 | Machinery and equipment also | ||
| Accumulated depreciation 31 Dec. | 6.2 | 4.3 | include technical equipment | ||
| in buildings. | |||||
| Net carrying amount 31 Dec. | 10.4 | 5.3 | Other tangible assets | ||
| Acquisition cost 1 Jan. | 0.2 | 0.2 | |||
| Total intangible assets 31 Dec. | 11.4 | 6.0 | Additions during the period | - | 0.0 |
| Accumulated acquisition costs | |||||
| 31 Dec. | 0.2 | 0.2 | |||
| Accumulated depreciation 1 Jan. | 0.2 | 0.2 | |||
| Accumulated depreciation 31 Dec. | 0.2 | 0.2 | |||
| Net carrying amount 31 Dec. | 0.1 | 0.1 | |||
| Construction in progress | |||||
| Acquisition cost 1 Jan. | 1.7 | 2.2 | |||
| Additions during the period | 1.4 | 0.3 | |||
| Reductions during the period | 0.7 | 0.2 | |||
| Transfer between items | 0.0 | -0.7 | |||
| Net carrying amount 31 Dec. | 2.4 | 1.7 | |||
| Total tangible assets 31 Dec. | 32.1 | 31.6 |
EUR million 2008 2007
| EUR million | 2008 | 2007 |
|---|---|---|
| Acquisition cost 1 Jan. | 733.8 | 673.1 |
| Additions during the period | 101.9 | 59.9 |
| Impairment | 5.0 | - |
| Reductions during the period | 4.3 | - |
| Transfer between items | - | 0.8 |
| Accumulated acquisition costs | ||
| 31 Dec. | 826.4 | 733.8 |
| Accumulated depreciation 1 Jan. | - | 0.5 |
| Transfer between items | - | -0.5 |
| Accumulated depreciation 31 Dec. | - | 0.5 |
| Net carrying amount 31 Dec. | 826.4 | 733.8 |
| Net carrying amount 31 Dec. | 34.8 | 34.7 |
|---|---|---|
| Accumulated acquisition costs 31 Dec. |
34.8 | 34.7 |
| Reductions during the period | 0.6 | - |
| Additions during the period | 0.7 | 0.6 |
| Acquisition cost 1 Jan. | 34.7 | 34.2 |
| EUR million | 2008 | 2007 |
| Total other investments 31 Dec. | 746.6 | 915.4 |
|---|---|---|
| From Group companies | 742.9 | 911.7 |
| Loans receivable | ||
| Net carrying amount 31 Dec. | 3.7 | 3.7 |
| 31 Dec. | 3.7 | 3.7 |
| Accumulated acquisition costs | ||
| Transfer between items | - | -1.3 |
| Additions during the period | - | 0.1 |
| Acquisition cost 1 Jan. | 3.7 | 4.9 |
| Minority holdings | ||
| EUR million | 2008 | 2007 |
Parent company's subsidiaries and associated companies are presented in the notes to the consolidated financial statements 29. Related party transactions.
| EUR million | 2008 | 2007 | |
|---|---|---|---|
| Receivables from outside the Group | |||
| Trade receivables | 0.7 | 0.8 | |
| Other receivables | 19.9 | 8.2 | |
| Accrued income and prepaid | |||
| expenses | 0.2 | 1.4 | |
| Total | 20.7 | 10.4 | |
| Receivables from Group companies | |||
| Trade receivables | 0.9 | 1.5 | |
| Other receivables | 11.0 | 2.8 | |
| Accrued income and prepaid | |||
| expenses | 10.5 | 14.9 | |
| Total | 22.4 | 19.2 | |
| Total short-term receivables | 43.1 | 29.6 | |
| Significant other receivables from | |||
| outside the Group | |||
| Derivative financial instruments | 19.8 | 1.0 | |
| Other | 0.1 | 7.2 | |
| Total | 19.9 | 8.2 | |
| Significant other receivables from | |||
| Group companies | |||
| Loan receivables | 5.9 | 0.1 | |
| Maintenance charge receivables | 4.2 | 2.7 | |
| Other | 0.9 | 0.0 | |
| Total | |||
| 11.0 | 2.8 | ||
| Significant accrued income and | |||
| prepaid expenses from Group | |||
| companies Interest receivables |
10.4 | 14.8 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Share capital 1 Jan. | 259.6 | 225.7 |
| Directed share issue | ||
| 2/15/07 | - | 33.8 |
| Stock options | ||
| 2/9/07 | - | 0.1 |
| Share capital 31 Dec. | 259.6 | 259.6 |
| Share issue 1 Jan. | - | 0.1 |
| Registered to share capital | - | -0.1 |
| Share issue 31 Dec. | - | 0.0 |
| Share premium fund 1 Jan. Stock options |
133.1 - |
133.0 0.0 |
| Share premium fund 31 Dec. | 133.1 | 133.1 |
| Invested unrestricted equity fund | ||
| 1. Jan | 201.1 | - |
| Directed share issue | - | 100.0 |
| Rights issue | - | 99.3 |
| Stock options | 0.0 | 1.8 |
| Return from the invested | ||
| unrestricted equity fund | -22.1 | - |
| Invested unrestricted equity fund 31.12. |
179.0 | 201.1 |
| Retained earnings 1 Jan. | 12.6 | 27.5 |
| Dividends | -8.8 | -23.4 |
| Net profit for the period 31 Dec. | 14.1 | 8.4 |
| Retained earnings 31 Dec. | 17.8 | 12.6 |
| Total shareholders' equity 31 Dec. | 589.4 | 606.3 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Fixed-rate loans | ||
| Subordinated loan 1) | 70.0 | 70.0 |
| Convertible capital loan 1) | 73.3 | 95.0 |
| Floating-rate loans, which are | ||
| converted into fixed rates through | ||
| interest-rate swaps | 591.7 | 584.5 |
| tied to market interest rates | 257.7 | 240.6 |
| Total | 849.4 | 825.1 |
| Current portion of long-term | ||
| loans | -18.0 | -18.0 |
| Total | 831.4 | 807.1 |
| Long-term loans | ||
| Loans from financial institutions | 831.4 | 807.1 |
| Loans from Group companies | 29.2 | 25.4 |
| Total long-term liabilities | 860.6 | 832.4 |
| Loans maturing later than 5 years | 270.7 | 653.8 |
| Total | 66.9 | 113.0 |
|---|---|---|
| Loans from Group companies | 18.9 | 10.5 |
| Loans from financial institutions | 48.0 | 102.5 |
| Short-term interest-bearing liabilities |
||
| EUR million | 2008 | 2007 |
Significant other payables to outside the Group
| Total short-term liabilities | 101.8 | 151.1 |
|---|---|---|
| Total | 15.4 | 22.6 |
| Accruals | 1.1 | 2.5 |
| Other payables | 14.3 | 20.1 |
| Payables to Group companies | ||
| Total | 19.4 | 15.4 |
| Accruals | 10.2 | 12.5 |
| Other payables | 8.1 | 2.1 |
| Accounts payable | 0.9 | 1.1 |
| Advances received | 0.2 | -0.2 |
| Payables to outside the Group | ||
| liabilities |
The parent company doesn't have any mortgages nor given securities. Given bank guarantees were EUR 45.6 million (EUR 49.8 million in 2007).
| EUR million | 2008 | 2007 |
|---|---|---|
| Payables on lease commitments | ||
| Maturing next financial year | 1.1 | 0.8 |
| Maturing later | 1.1 | 0.8 |
| Total | 2.2 | 1.6 |
Citycon's finance leases mainly apply to computer hardware, machinery and equipment, cars and office premises.
| 5 year checking period |
10 year checking period |
||||
|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | ||
| Capital expenditure (net) |
0,9 | 1,1 | 0,5 | - | |
| VAT on capital expenditure 100%) |
0,3 | 0,3 | 0,1 | - | |
| Annual adjustment amount |
0,3 | 0,3 | 0,1 | - | |
| VAT deducted at completion date |
0,1 | 0,1 | 0,0 | - | |
| VAT adjustment liability 31.12.2008 |
0,1 | 0,2 | 0,1 | - |
| Total liabilities | 1,105.7 | 1,148.5 |
|---|---|---|
| Charge-for-financial cost payables |
12.3 | 18.6 |
| Significant other payables to Group companies |
||
| Significant accruals to outside the Group Interest liability |
8.2 | 10.6 |
| Total | 8.1 | 2.1 |
| Derivative financial instruments Other accruals |
3.6 0.3 |
- 1.2 |
| VAT liability | 1.2 | 0.9 |
| Tax liability | 3.1 | - |
1) The terms and conditions of subordinated loan and convertible capital loan are presented in the notes to the consolidated financial statements 22. Interest-bearing liabilities.
All derivative financial instruments in Citycon are executed by the parent company Citycon Oyj. The fair values of derivative financial instruments are presented in the notes to the consolidated financial statements 23. Financial instruments.
| % of shares | ||
|---|---|---|
| Name | Number of shares | and votes |
| Gazit-Globe Ltd *) | 48,088,742 | 21.76 |
| Ilmarinen Mutual Pension Insurance Company | 1,568,914 | 0.71 |
| Odin Finland | 1,402,085 | 0.63 |
| von Fieandt Johan | 480,000 | 0.22 |
| Tudeer Lauri | 406,810 | 0.18 |
| Odin Eiendom | 240,285 | 0.11 |
| Investment Fund Nordea Finland Index Fund | 212,597 | 0.10 |
| Aventum European REIT Fund | 200,000 | 0.09 |
| Tallberg Carl-Johan | 180,000 | 0.08 |
| Nordea Bank Finland Plc | 173,858 | 0.08 |
| 10 major, total | 52,953,291 | 23.96 |
| Percentage | ||||
|---|---|---|---|---|
| Number of | Percentage | Number of | of shares and | |
| owners | of owners | shares | voting rights | |
| Financial and insurance corporations | 13 | 0.59 | 161,319,266 | 73.00 |
| Corporations | 139 | 6.35 | 1,566,840 | 0.71 |
| Households | 1,995 | 91.09 | 6,024,967 | 2.73 |
| General government | 2 | 0.09 | 1,651,914 | 0.75 |
| Foreign | 24 | 1.10 | 50,143,097 | 22.69 |
| Non-profit institutions | 17 | 0.78 | 292,905 | 0.13 |
| Total | 2,190 | 100.00 | 220,998,989 | 100.00 |
| of which nominee-registered | 10 | 160,979,215 | 72.84 | |
| Issued stock, total | 220,998,989 |
| Percentage | ||||
|---|---|---|---|---|
| Number of | Percentage | Number of | of shares and | |
| Number of shares | shareholders | of owners | shares | voting rights |
| 11–1,000 | 1,204 | 54.98 | 446,214 | 0.20 |
| 1,001–5,000 | 708 | 32.33 | 1,622,013 | 0.73 |
| 5,001–10,000 | 131 | 5.98 | 912,045 | 0.41 |
| 10,001–50,000 | 115 | 5.25 | 2,549,847 | 1.15 |
| 50,001–100,000 | 9 | 0.41 | 638,398 | 0.29 |
| 100,001–500,000 | 16 | 0.73 | 3,355,899 | 1.52 |
| 500,001–1,000,000 | 1 | 0.05 | 750,375 | 0.34 |
| 1,000,001– | 6 | 0.27 | 210,724,198 | 95.35 |
| Total | 2,190 | 100.00 | 220,998,989 | 99.99 |
| of which nominee-registered | 10 | 160,979,215 | 72.84 | |
| Issued stock, total | 220,998,989 |
*) Gazit-Globe Ltd. has notified the company that the number of shares held by it on 31 December 2008 totalled 95,977,709 shares accounting for 43.42 per cent of the shares and voting rights in the company at the year-end of 2008. Gazit-Globe Ltd.'s shares are partly nominee-registered.
| Date of change |
New holding, No |
% of shares and votes on the |
|
|---|---|---|---|
| Shareholder | in holding | of shares | date of change |
| AXA S.A. and its subsidiaries | 13 May 2008 | 11,017,656 | 4.99 |
| AXA S.A. and its subsidiaries | 21 March 2008 | 11,892,688 | 5.38 |
| FIL Limited and its direct and indirect subsdiaries | 5 March 2008 | 10,904,704 | 4.93 |
| Formula | Note | IFRS 2008 |
IFRS 2007 |
IFRS 2006 |
IFRS 2005 |
IFRS 2004 |
|
|---|---|---|---|---|---|---|---|
| Share price, transactions, EUR | |||||||
| Low | 1.26 | 3.24 | 3.02 | 2.36 | 1.52 | ||
| High | 4.28 | 6.09 | 5.09 | 3.50 | 2.65 | ||
| Average | 12 | 2.94 | 4.76 | 3.86 | 2.95 | 1.94 | |
| Market capitalisation, EUR million | 13 | 1) | 371.3 | 806.6 | 844.3 | 424.1 | 273.9 |
| Share trading volume | |||||||
| No. of shares traded as of year-start, 1,000 | 150,852 | 153,696 | 51,193 | 40,695 | 115,056 | ||
| Percentage of total | 68.3 | 69.6 | 30.6 | 29.8 | 102.5 | ||
| Issue-adjusted average number of shares, 1,000 | 1) | 220,991 | 199,404 | 163,339 | 129,903 | 113,767 | |
| Issue-adjusted average number of shares, diluted, 1,000 | 1) | 247,223 | 227,122 | 175,345 | 132,427 | 114,881 | |
| Issue-adjusted average number of shares on 31. Dec., 1,000 | 1) | 220,999 | 220,981 | 171,233 | 149,029 | 121,998 | |
| Treasury shares, EUR million | 0.0 | 0.0 | 0.0 | 0.0 | 4.7 | ||
| Treasury shares, 1,000 | 0 | 0 | 0 | 0 | 3,874 |
1) When calculating this figure, treasury shares are deducted from shareholders' equity and the number of shares.
| 1) | Equity ratio,% | Shareholders' equity | X 100 |
|---|---|---|---|
| Balance sheet total - advances received | |||
| 2) | Gearing,% | Interest-bearing liabilities - cash and cash equivalents Shareholders' equity |
X 100 |
| 3) | Return on equity (ROE), % | Profit/loss for the period Shareholders' equity (weighted average) |
X 100 |
| 4) | Return on investment (ROI), % | Profit/loss before taxes + interest and other financial expenses Balance sheet total (weighted average) - (non-interest-bearing liabilities on the balance sheet date + opening balance of non-interest-bearing liabilities)/2 |
X 100 |
| 5) | Quick ratio | Current assets Short-term liabilities |
|
| 6) | Earnings per share (EPS), EUR | Profit/loss for the period attributable to parent company shareholders Issue-adjusted average number of shares for the period |
X 100 |
| 7) | Earnings per share, diluted, EUR | Profit/loss for the period attributable to parent company shareholders Diluted, issue-adjusted average number of shares for the period |
X 100 |
| 8) | Equity per share, EUR | Equity attributable to parent company shareholders Issue-adjusted number of shares on the balance sheet date |
|
| 9) | Net asset value (EPRA NAV) per share, EUR | Equity attributable to parent company shareholders +/- Deferred taxes from the difference of fair value and fiscal value of investment properties +/- Fair value of financial instruments |
|
| 10) | EPRA NNNAV per share, EUR | Issue-adjusted number of shares on the balance sheet date Net asset value (EPRA NAV) -/+ Deferred taxes from the difference of fair value and fiscal value of investment properties +/- The difference between the mark-to-market and book value of debt -/+ Fair value of financial instruments |
|
| 11) | P/E ratio (price/earnings) | Issue-adjusted number of shares on the balance sheet date Issue-adjusted closing price at year-end EPS |
|
| 12) | Dividend and return of equity per earnings,% | Dividend per share EPS |
X 100 |
| 13) | Effective dividend and return of equity yield,% | Dividend per share Issue-adjusted closing price at year-end |
|
|---|---|---|---|
| 14) | Average share price, EUR | Value of shares traded (EUR) | X 100 |
| Average number of shares traded | |||
| 15) | Market capitalisation | Number of shares x closing price for the period excl. treasury shares | |
| 16) | Direct result, EUR million | Net rental income | |
| - Direct administrative expenses | |||
| +/- Direct other operating income and expenses | |||
| - Direct net financial income and expenses | |||
| - Direct current taxes | |||
| -/+ Change in direct deferred taxes | |||
| - Direct minority interest | |||
| 17) | Indirect result, EUR million | Net fair value gains/losses on investment property | |
| +/- Profit/loss on disposal of investment property | |||
| - Indirect administrative expenses | |||
| +/- Indirect other operating income and expenses | |||
| - Indirect one-off financial income and expenses | |||
| - Movement in fair value of financial instruments | |||
| - Indirect current taxes | |||
| -/+ Change in indirect deferred taxes | |||
| - Indirect minority interest | |||
| 18) | Direct result per share, diluted, EUR | Direct result + expenses from convertible loan, the tax effect deducted | |
| Diluted, issue-adjusted average number of shares for the period | |||
| 19) | Net cash from operations per share, EUR | Net cash from operating activities | |
| Issue-adjusted average number of shares for the period | |||
| 20) | Net interest-bearing debt (fair value), EUR million | Fair value of debts - cash and cash equivalents | |
| 21) | Occupancy rate,%, sq.m. | Leased space | X 100 |
| Leasable space | |||
| 22) | Occupancy rate,%, EUR | Rental income as per leases | X 100 |
| Estimated market rent of vacant premises + rental income as per leases | |||
| 23) | Net income,% | Net rental income (last 12 months) | X 100 |
| Average fair value of investment property |
Signatures to the Financial Statements 1 January –31 December 2008
Helsinki, 11 February 2009
Thomas W. Wernink Tuomo Lähdesmäki Raimo Korpinen Claes Ottosson
Amir Bernstein Gideon Bolotowsky Dor J. Segal Per-Håkan Westin
Petri Olkinuora CEO
Our auditors' report has been issued today.
Helsinki, 11 February 2009
Ernst & Young Oy Authorized Public Accountants
Tuija Korpelainen Authorized Public Accountant
We have audited the accounting records, the finan cial statements, the report of the Board of Direc tors, and the administration of Citycon Oyj for the year ended on 31 December, 2008. The financial statements comprise the consolidated balance sheet, income statement, cash flow statement, statement of changes in equity and notes to the consolidated financial statements, as well as the parent company's balance sheet, income state ment, cash flow statement and notes to the finan cial statements.
The Board of Directors and the Managing Direc tor are responsible for the preparation of the financial statements and the report of the Board of Directors and for the fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the fair presentation of the parent company's finan cial statements and the report of the Board of Directors in accordance with laws and regulations governing the preparation of the financial state ments and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company's accounts and finances, and the Manag ing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a relia ble manner.
Our responsibility is to perform an audit in accord ance with good auditing practice in Finland, and to express an opinion on the parent company's financial statements, on the consolidated finan cial statements and on the report of the Board of Directors based on our audit. Good auditing prac tice requires that we comply with ethical require ments and plan and perform the audit to obtain reasonable assurance whether the financial state ments and the report of the Board of Directors are free from material misstatement and whether the members of the Board of Directors and the Managing Director have complied with the Lim ited Liability Companies Act.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor's judgment, includ ing the assessment of the risks of material mis statement of the financial statements, whether due to fraud or error. In making those risk assess ments, the auditor considers internal control rele vant to the entity's preparation and fair presenta tion of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors.
The audit was performed in accordance with good auditing practice in Finland. We believe that the audit evidence we have obtained is suf ficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial state ments give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
In our opinion, the financial statements, together with the consolidated financial statements included therein, and the report of the Board of Directors give a true and fair view of the financial performance and financial position of the com pany in accordance with the laws and regulations governing the preparation of the financial state ments and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.
Helsinki, 11 February 2009
Ernst & Young Oy Authorized Public Accountants
Tuija Korpelainen Authorized Public Accountant
| Property | Address | Built in/ renovated in |
Holding, % | Citycon's GLA, sq.m. |
Occupancy rate, %, sq.m 1) |
Occupancy rate, %, EUR 1) |
||
|---|---|---|---|---|---|---|---|---|
| Finland | ||||||||
| Helsinki Metropolitan area | ||||||||
| 1 | Asolantien Liikekiinteistö Oy | Asolanväylä 50 | 01360 VANTAA |
1986 | 100 | 1,900 | 55.1 | 58.8 |
| 2 | Columbus | 21,100 | 96.8 | 98.3 | ||||
| Kauppakeskus Columbus Koy | Vuotie 45 | 00980 HELSINKI |
1997/2007 | 100 | ||||
| 3 | Espoon Louhenkulma Koy | Louhentie 2 | 02130 ESPOO |
1963 | 49 | 880 | 100.0 | 100.0 |
| 4 | Espoontori | 17,300 | 94.7 | 96.7 | ||||
| Espoon Asemakuja 2 Koy | Asemakuja 2 | 02770 ESPOO |
1991 | 100 | 6,300 | |||
| Espoon Asematori Koy | Kamreerintie 5 | 02770 ESPOO |
1989 | 54 | 1,900 | |||
| Espoontori Koy | Kamreerintie 3 | 02770 ESPOO |
1987 | 67 | 9,100 | |||
| 5 | Hakarinne 4 | Hakarinne 4 | 02120 ESPOO |
1985 | 56 | 380 | 100.0 | 100.0 |
| 6 | Hakunilan Keskus | 3,780 | 84.1 | 82.2 | ||||
| Hakucenter Koy | Laukkarinne 6 | 01200 VANTAA |
1986 | 19 | 780 | |||
| Hakunilan Keskus Oy | Laukkarinne 4 | 01200 VANTAA |
1982 | 41 | 3,000 | |||
| 7 | Heikintori | 5,800 | 90.7 | 94.7 | ||||
| Heikintori Oy | Kauppamiehentie 1 | 02100 ESPOO |
1968 | 65 | ||||
| 8 | Helsingin Autotalo Oy | Salomonkatu 17 | 00100 HELSINKI |
1958 | 9 | 1,300 | 100.0 | 100.0 |
| 9 | Iso Omena | 60,600 | 98.7 | 99.6 | ||||
| Big Apple Top Oy | Piispansilta 9 | 02230 ESPOO |
2001 | 60 | ||||
| 10 | Isomyyri | 10,900 | 92.7 | 96.6 | ||||
| Myyrmäen Kauppakeskus Koy | Liesitori 1 | 01600 VANTAA |
1987 | 74 | ||||
| 11 | Kirkkonummen Liikekeskus Oy | Asematie 3 | 02400 KIRKKONUMMI |
1991 | 67 | 5,000 | 100.0 | 100.0 |
| 12 13 |
Kontulan Asemakeskus Koy Laajasalon Liikekeskus |
Keinulaudankuja 4 | 00940 HELSINKI |
1988/2007 | 35 | 4,500 2,660 |
100.0 100.0 |
100.0 100.0 |
| Laajasalon Liikekeskus Oy | Yliskyläntie 3 | 00840 HELSINKI |
1972/1995 | 50 | 2,300 | |||
| Kuvernöörintie 8 Koy | Kuvernöörintie 8 | 00840 HELSINKI |
1982 | 100 | 360 | |||
| 14 | Lauttasaaren Liikekeskus Oy | Lauttasaarentie 28-30 | 00200 HELSINKI |
1970 | 24 | 1,500 | 100.0 | 100.0 |
| 15 | Lippulaiva | 23,000 | 97.7 | 98.0 | ||||
| Lippulaiva Koy | Espoonlahdenkatu 4 | 02320 ESPOO |
1993/2007 | 100 | ||||
| 16 | Länsi-Keskus Koy | Pihatörmä 1 | 02210 ESPOO |
1989 | 41 | 8,600 | 100.0 | 100.0 |
| 17 | Martinlaakson Kivivuorentie 4 Koy | Kivivuorentie 4 | 01620 VANTAA |
1976 | 100 | 3,800 | 63.9 | 72.6 |
| 18 | Minkkikuja 4 Koy | Minkkikuja 4 | 01450 VANTAA |
1989 | 100 | 2,300 | 100.0 | 100.0 |
| 19 | Myllypuron Ostoskeskus | 7,700 | 57.3 | 63.5 | ||||
| Kivensilmänkuja 1 Koy | Kivensilmänkuja 1 | 00920 HELSINKI |
1988 | 100 | 1,400 | |||
| Myllypuron Ostoskeskus Oy | Kiviparintie 2 | 00920 HELSINKI |
1966 | 100 | 6,300 | |||
| 20 | Myyrmanni | 40,300 | 97.1 | 97.6 | ||||
| Myyrmanni Koy | Iskoskuja 3 | 01600 VANTAA |
1994/2007 | 100 | ||||
| 21 | Otaniemen Liikekeskus Oy | Otakaari 11 | 02150 ESPOO |
1969 | 39 | 340 | 100.0 | 100.0 |
| 22 | Pihlajamäen liiketalo Oy | Meripihkatie 1 | 00710 HELSINKI |
1970 | 43 | 1,700 | 75.6 | 82.3 |
| 23 | Salpausseläntie 11 Koy | Salpausseläntie 11 | 00710 HELSINKI |
1973 | 31 | 600 | 100.0 | 100 |
| 24 | Sampotori | Heikintori, Kauppamiehentie 102100 | ESPOO | lot | 100 | 50 | 100.0 | 100.0 |
| 25 | Sinikalliontie 1 Koy | Sinikalliontie 1 | 02630 ESPOO |
1964/1992 | 100 | 15,700 | 92.2 | 96.3 |
| 26 | Soukan Itäinentorni As Oy | Soukantie 16 | 02360 ESPOO |
1972 | 27 | 1,600 | 100.0 | 100.0 |
| 27 | Talvikkitie 7-9 Koy | Talvikkitie 7-9 | 01300 VANTAA |
1989 | 100 | 9,800 | 100.0 | 100.0 |
| 28 | Tikkuri | 10,700 | 93.6 | 96.4 | ||||
| Tikkurilan Kauppakeskus Koy | Asematie 4-10 | 01300 VANTAA |
1984/1991 | 84 | ||||
| 29 | Ultima Oy | Äyritie 1 | 01510 VANTAA |
lot | 100 | |||
| 30 | Vantaan Laajavuorenkuja 2 Koy | Laajavuorenkuja 2 | 01620 VANTAA |
1976 | 100 | 2,000 | 100.0 | 100.0 |
| Property | Address | Built in/ renovated in |
Holding, % | Citycon's GLA, sq.m. |
Occupancy rate, %, sq.m 1) |
Occupancy rate, %, EUR 1) |
||
|---|---|---|---|---|---|---|---|---|
| 31 | Vantaan Säästötalo Koy | Kielotie 20 | 01300 VANTAA |
1983 | 61 | 3,800 | 98.1 | 98.4 |
| 32 | Wavulinintie 1 Koy | Wavulinintie 1 | 00210 HELSINKI |
1950/1992 | 100 | 1,700 | 14.0 | 10.8 |
| Other areas in Finland | ||||||||
| 33 | Forssan Hämeentie 3 Koy | Hämeentie 3 | 31100 FORSSA |
1978 | 100 | 4,500 | 1.9 | 2.2 |
| 34 | Forum | 17,500 | 98.5 | 98.8 | ||||
| Jyväskylän Forum Koy | Asemakatu 5 | 40100 JYVÄSKYLÄ |
1953/1972/1980/1991 | 100 | ||||
| 35 | Galleria Oulun Galleria Koy |
Isokatu 23 | 90100 OULU |
1987 | 100 | 3,500 | 89.4 | 92.4 |
| 36 | Isokarhu | 14,800 | 89.8 | 94.0 | ||||
| Kauppakeskus IsoKarhu Oy | Yrjönkatu 14 | 28100 PORI |
1972/2001/2004 | 100 | ||||
| 37 | IsoKristiina | 18,700 | 91.5 | 93.2 | ||||
| Karjalan Kauppakeskus Koy | Brahenkatu 3 | 53100 LAPPEENRANTA |
1987 | 100 | 8,400 | |||
| Lappeen Liikekeskus Koy | Brahenkatu 5 | 53100 LAPPEENRANTA |
1987 | 80 | 6,600 | |||
| Lappeenrannan Brahenkatu 7 Koy | Brahenkatu 7 | 53100 LAPPEENRANTA |
1993 | 84 | 3,700 | |||
| 38 | Isolinnankatu 18 Koy | Isolinnankatu 18 | 28100 PORI |
1986 | 100 | 5,200 | 35.3 | 46.6 |
| 39 | Jyväskeskus | 5,800 | 97.3 | 98.6 | ||||
| Jyväskylän Kauppakatu 31 Koy | Kauppakatu 31 | 40100 JYVÄSKYLÄ |
1955/1993 | 100 | ||||
| 40 41 |
Kaarinan Liiketalo Koy Karjaan Ratakatu 59 Koy |
Oskarinaukio 5 Ratakatu 59 |
20780 KAARINA 10320 KARJAA |
1979/1982 1993 |
100 100 |
9,200 3,100 |
98.4 100.0 |
99.0 100.0 |
| 42 | Duo | 13,000 | 94.4 | 97.3 | ||||
| Hervannan Liikekeskus Oy | Insinöörinkatu 23 | 33720 TAMPERE |
1979 | 75 | 4,700 | |||
| Tampereen Hermanni Koy | Pietilänkatu 2 | 33720 TAMPERE |
2007 | 100 | 8,300 | |||
| 43 | Kiinteistö Oy Keijutie 15 | Keijutie 15 | 15700 LAHTI |
1975 | 100 | 7,200 | 100.0 | 100.0 |
| 44 | Koskikara | 5,800 | 97.6 | 98.4 | ||||
| Valkeakosken Liikekeskus Koy | Valtakatu 9-11 | 37600 VALKEAKOSKI |
1993 | 25 | 1,500 | |||
| Valkeakosken Torikatu 2 Koy | Valtakatu 9-11 | 37600 VALKEAKOSKI |
1993 | 100 | 4,300 | |||
| 45 | Koskikeskus | 26,100 | 96.7 | 98.4 | ||||
| Tampereen Koskenranta Koy | Hatanpäänvaltatie 1 | 33100 TAMPERE |
1988/1995 | 64 | 10,700 | |||
| Tampereen Hatanpää Koy | Hatanpään Valtatie 1 | 33100 TAMPERE |
1988 | 100 | 7,000 | |||
| Tampereen Suvantokatu Koy | Hatanpään Valtatie 1 | 33100 TAMPERE |
1988 | 100 | 8,400 | |||
| 46 | Kotkan Keskuskatu 11 Koy | Keskuskatu 11 | 48100 KOTKA |
1976 | 100 | 4,300 | 100.0 | 100.0 |
| 47 48 |
Kuopion Kauppakatu 41 Koy Kuusankosken Kauppakatu 7 Koy |
Kauppakatu 41 Kauppakatu 7 |
70100 KUOPIO 45700 KUUSANKOSKI |
1977 1980 |
100 100 |
11,200 2,100 |
96.7 100.0 |
98.5 100.0 |
| 49 | Lahden Kauppakatu 13 Koy | Kauppakatu 13 | 15140 LAHTI |
1971 | 100 | 8,600 | 100.0 | 100.0 |
| 50 | Lentolan Perusyhtiö Oy | Mäkirinteentie 4 | 36220 KANGASALA |
2007 | 100 | 11,900 | 100.0 | 100.0 |
| 51 | Lillinkulma Koy | Jännekatu 2-4 | 20760 PIISPANRISTI |
2007 | 100 | 7,400 | 100.0 | 100.0 |
| 52 | Linjuri | 9,300 | 91.1 | 90.7 | ||||
| Linjurin Kauppakeskus Koy | Vilhonkatu 14 | 24100 SALO |
1993/2007 | 89 | ||||
| 53 | Mäntyvuoksi Koy | Vuoksenniskantie 50 | 55800 IMATRA |
1974 | 87 | 1,300 | 100.0 | 100.0 |
| 54 | Naantalin Tullikatu 16 Koy | Tullikatu 16 | 21100 NAANTALI |
1985 | 100 | 3,100 | 12.9 | 15.3 |
| 55 | Orimattilan Markkinatalo Oy | Erkontie 3 | 16300 ORIMATTILA |
1983 | 77 | 3,500 | 100.0 | 100.0 |
| 56 | Porin Asema-aukio Koy | Satakunnankatu 23 | 28130 PORI |
1957/1993 | 100 | 18,900 | 81.8 | 89.2 |
| 57 | Puijonlaakson Palvelukeskus Koy | Sammakkolammentie 6 | 70200 KUOPIO |
1971 | 31 | 1,500 | 100.0 | 100.0 |
| 58 | Runeberginkatu 33 Koy | Runeberginkatu 33 | 06100 PORVOO |
1988 | 100 | 6,300 | 100.0 | 100.0 |
| 59 | Sampokeskus Rovaniemen Sampotalo |
Maakuntakatu 29-31 | 96200 ROVANIEMI |
1990 | 100 | 14,000 12,000 |
81.9 | 88.2 |
| Lintulankulma Koy | Rovakatu 28 | 96200 ROVANIEMI |
1989/1990 | 100 | 2,000 | |||
| 60 | Kiinteistö Oy Säkylän Liiketalo | Pyhäjärventie | 27800 SÄKYLÄ |
1969 | 100 | 1,200 | 100.0 | 100.0 |
| Built in/ | Citycon's | Occupancy | Occupancy | |||||
|---|---|---|---|---|---|---|---|---|
| Property | Address | renovated in | Holding, % | GLA, sq.m. | rate, %, sq.m 1) | rate, %, EUR 1) | ||
| 61 | Torikeskus | Kauppatori 1 | 60100 SEINÄJOKI |
1992/2007 | 100 | 11,500 | 90.3 | 92.9 |
| 62 | Trio | 45,700 | 90.4 | 95.8 | ||||
| Lahden Hansa Koy | Kauppakatu 10 | 15140 LAHTI |
1992 | 100 | 10,700 | |||
| Lahden Trio Koy | Aleksanterinkatu 20 | 15140 LAHTI |
1977/1985-1987 /1992/2007 | 90 | 35,000 | |||
| 63 | Tullintori | 10,300 | 79.4 | 82.3 | ||||
| Tullintori Koy | Hammareninkatu 2 | 33100 TAMPERE |
1930/1990 | 57 | ||||
| 64 | Vaakalintu Koy | Keskuskatu 15 | 11100 RIIHIMÄKI |
1980 | 96 | 6,700 | 100.0 | 100.0 |
| 65 | Valtakatu 5-7 Koy | Valtakatu 5-7 | 37600 VALKEAKOSKI |
1938/1992 | 31 | 460 | 100.0 | 100.0 |
| 66 | Valtari | 7,600 | 69.6 | 75.6 | ||||
| Kouvolan Valtakadun Kauppakeskus Koy | Valtakatu 15 | 45100 KOUVOLA |
1971-1975/1994-2002 | 100 | ||||
| 67 | Varkauden Relanderinkatu 30 Koy | Relanderinkatu 28-34 | 78200 VARKAUS |
1990 | 100 | 8,200 | 100.0 | 100.0 |
| 67 | Finland total | 600,750 | 91.9 | 95.7 | ||||
| The Baltic Countries | ||||||||
| Estonia | ||||||||
| 1 | Rocca al Mare | 36,700 | 100.0 | 100.0 | ||||
| Rocca al Mare Kaubanduskeskuse AS | Paldiski mnt. 102 | 13522 TALLINN |
1998/2000/2007 | 100 | ||||
| 2 | Magistral | 9,500 | 98.9 | 98.7 | ||||
| Magistral Kaubanduskeskuse Oü | Sõpruse pst 201/203 | 13419 TALLINN |
2000 | 100 | ||||
| Lithuania | ||||||||
| 3 | Mandarinas | 8,000 | 100.0 | 100.0 | ||||
| UAB Prekybos Centras Mandarinas | Ateities g. 91 | 06324 VILNIUS |
2005 | 100 | ||||
| 3 | The Baltic Countries total | 54,200 | 99.8 | 99.8 | ||||
| Sweden | ||||||||
| Stockholm Area and Umeå | ||||||||
| 1 | Åkersberga Centrum | 33,100 | 97.3 | 97.3 | ||||
| Åkersberga Centrum AB | Storängsvägen | 18430 ÅKERSBERGA |
1985/1995/1996 | 75 | ||||
| Fastighets AB Fartyget i Åkersberga | Storängsvägen | 18430 ÅKERSBERGA |
1985/1995/1996 | 75 | ||||
| 2 | Åkermyntan Centrum | Drivbänksvägen 1 | 16574 HÄSSELBY |
1977 | 100 | 8,400 | 89.6 | 84.3 |
| 3 | Kallhäll | Skarprättarvägen 36-38 | 17677 JÄRFALLA |
1991 | 100 | 3,500 | 100.0 | 100.0 |
| 4 | Jakobsbergs Centrum | 67,400 | 92.9 | 96.1 | ||||
| Jakobsbergs Centrum Fastighets AB | Tornérplatsen 30 | 17730 JÄRFALLA |
1959/1993 | 100 | ||||
| Jakobsbergs Centrum Galleria AB | Tornérplatsen 30 | 17730 JÄRFALLA |
1959/1993 | |||||
| Jakobsberg 565 Fastighets AB | Tornérplatsen 30 | 17730 JÄRFALLA |
1959/1993 | |||||
| 5 | Fruängen Centrum | Fruängsgången | 12952 HÄGERSTEN |
1965 | 100 | 14,600 | 90.6 | 93.8 |
| 6 | Liljeholmstorget | 20,200 | 100.0 | 100.0 | ||||
| Liljeholmsplan Fastighets AB | Liljeholmstorget 7 | 11763 STOCKHOLM |
1973/1986 | 100 | ||||
| 7 | Strömpilen | Strömpilsplatsen | 90743 UMEÅ |
1927/1997 | 75 | 25,700 | 95.3 | 97.8 |
| 8 | Länken | Gräddvägen 1 | 90620 UMEÅ |
1978/2004/2006 | 75 | 7,300 | 100.0 | 100.0 |
| 9 | Tumba Centrum | 31,400 | 98.1 | 94.8 | ||||
| Tumba Centrumfastigheter Aktiebolag | Tumba Torg 115 | 14730 BOTKYRKA |
1954/ 2000 | 100 |
| Property | Address | Built in/ renovated in |
Holding, % | Citycon's GLA, sq.m. |
Occupancy rate, %, sq.m 1) |
Occupancy rate, %, EUR 1) |
||
|---|---|---|---|---|---|---|---|---|
| Gothenburg area | ||||||||
| 10 | Stenungs Torg | 37,600 | 96.2 | 96.6 | ||||
| Stenungs Torg Fastighets AB | Östra Köpmansgatan 2-16, 18A-C |
44430 STENUNGSUND |
1967/1993 | 70 | ||||
| 11 | Backa | Backavägen 3-5 | 41705 GÖTEBORG |
1990 | 100 | 7,800 | 77.9 | 86.8 |
| 12 | Floda | Rurik Holms väg | 44830 FLODA |
1960/1990 | 100 | 11,400 | 91.0 | 92.3 |
| 13 | Hindås | Hindås Stationväg 41-47 | 43063 HINDÅS |
1978/1999 | 100 | 1,700 | 93.4 | 94.8 |
| 14 | Landvetter | Brattåsvägen | 43832 LANDVETTER |
1975/1988/1999 | 100 | 4,800 | 100.0 | 100.0 |
| 15 | Lindome | Almåsgången | 43730 LINDOME |
1974 | 100 | 7,800 | 100.0 | 100.0 |
| 15 | Sweden total | 282,700 | 94.3 | 95.5 | ||||
| 85 | Total all | 937.650 | 93.3 | 96.0 |
Realia Management Oy has made a valuation of Citycon's property portfolio as at 31st of December 2008. The valuation was carried out as a cash flow analysis of the net operating income for a period of 10-years. For unbuilt lots and for properties affected by significant town plan alterations the market value is defined by the amount of building right in the existing town plan.
The year-on-year cash flow was calculated on Citycon's existing leases, upon the expiry of which, the contract rent has been replaced with Realia Management Oy's view of the market rent. Potential Gross Rental Income (PGI) equals leased space with respect to contract rents and vacant space with respect to market rents. Deducting both the market rent for the idle time between the expired contract and assumed new contract, and the assumed general vacancy level, results in the Effective Gross Rental Income. Effective Gross Rental Income less operating expenses (incl. repairs and tenant improvements) equals the Net Operating Income (NOI). NOI less any investment type of repairs (CAPEX) equals the bottom level cash flow that has been discounted (IRR) to reach the present value of the income stream.
The exit value at the end of the valuation period was calculated by capitalizing the 11th year cash flow (base year) with an exit yield. The total value of the property was calculated as the sum of the yearly discounted net income stream, the discounted residual value at the end of the calculation period and any other value added assets such as unused building rights or unbuilt lots.
All variables were estimated based on
Realia Management's market observations, such as transactions, rental levels and other observations. All of this was done in close cooperation with Citycon's property management, where Realia Management used its objective veto on the data provided.
Growth in the world economy slowed more abruptly than expected during the autumn of 2008. The gross domestic product has contracted in the US, the Euro zone, Sweden and in Japan, and the outlook for the world economy in 2009 is largely thought of as being rather bleak. In Finland, where domestic demand, consisting of both investment and consumption, has so far kept the economy afloat, forecasts for the short term are also bleak. Finnish economic growth is expected to gradually grind to a halt and turn negative during 2009. The employment rate will also see a fall, but, on the positive side, purchasing power is forecast to increase due to tax reductions and abating inflation.
As the economy deteriorates, central banks have cut their rates with exceptional aggressiveness and swiftness. The ECB cut its base rate by half a percentage point in November, and, in December, by a record breaking 0.75 percentage points. At the turn of the year, ECB's base rate was at 2.5 percent, but a further cut is expected in January 2009. In a similar manner, the Bank of England and the central bank of Sweden have resorted to exceptionally aggressive rate cuts. Following base rates, market rates have also fallen rapidly towards the end of the fall, 2008.
Consumer confidence had remained above its long term average, and also above European average, between 2002 and 2007. However, during 2008, confidence began to decline rapidly.
Real property investment transaction volume first began to decline during summer 2007, due to the credit crisis unfolding in the USA. However, the real crash in volume was felt during the first two quarters of 2008 when transactions ground to a halt.
The reasons behind the reduction of transaction volume are pan-European. The views on property values still differ significantly between the buying and selling parties. In addition, credit availability has suffered tremendously during year 2008, with financing costs rising and interest margins widening considerably. The market positioning of capital intensive investors has improved in conjunction with the changes in the financing market. In the boom years of cheap credit, institutions were largely taking part in the property market indirectly, mostly through funds. However, during 2009, it is expected that e.g. pension and insurance companies will considerably increase their direct investments in property when compared to the last few years. There have been signs of this development at the turn of the year, when the buyer had been a domestic institution in practically all the Finnish transactions.
When talking about market change, one must keep in mind that so far the market disturbances have almost entirely stemmed from the investment market. The user market has held up remarkably well, and, so far, no discernable changes have been detected in vacancy rates or rent levels, for example. The drop in market value of properties has been caused specifically by changes in yield requirement, not rental levels. Then again, the risks of disturbances also in the occupant market have increased substantially. Rental levels in retail premises have risen to a rather high level as the economy expanded. In case of a change in consumer behaviour, as predicted by the consumer confidence index, downward pressure on rent levels may become relevant. In addition, retail vacancy rates have remained very low for a long time and new premises have been built at an ever increasing pace recently. The risk is that in a downturn, retail occupancy rate will also take a turn for the worse. Some relief to this situation comes from the fact that many of the unveiled plans for large scale shopping centre projects have been postponed for now, or even cancelled altogether. Of different asset classes grocery stores and shopping centres in good and traditional retail locations and with a good mix of different tenants will most likely prove to be most defensive in declining economical environment.
Some development projects were valued by using a separate project model. This model is only used in a project accompanied by: 1) a Citycon's board decision, and 2) enough information for a reliable valuation. Such information includes e.g. an extensive project plan, several new rental agreements, future investments, etc. The appraiser makes the final decision on the use of the model.
The project model is a 10-year cash flow model which also takes the projects' future investments and changing cash flows into consideration. It includes present cash flows up to the end of the development phase and future cash flows after the development.
The project model was used in the valuation of one property in this quarter. The property was the shopping centre Rocca Al Mare in Tallinn. In other potential development assets the valuation was based on current situation and properties were evaluated based on the current rental situation and current allocation of premises. If necessary future development potential has been taken into account, in the form of expected cash flow increase or in the value of unused building rights. At the same necessary costs for develop ment have been added as investment costs in the calculation.
All undeveloped lots or those under devel opment were evaluated based on their current zoning and the amount of unused building right. The value in each case was set based on market observations of similar lots.
The portfolio consists of a wide range of proper ties with different market values and varying in quality. The value of the total portfolio is calcu lated as the sum of the individual properties. A separate portfolio premium has not been applied. In the sections below we have presented the val uation result on a total and portfolio level. The different portfolios have been further grouped based on their geographical locations.
Citycon primarily owns retail properties. Only in a few selected properties the main use is other than retail. A large majority of portfolio value is in shopping centres. Especially in Finland Citycon has a strong position in the shopping cen tre market by owning five of the 20 largest shop ping centres and having 22 properties which have been classified as shopping centres.
Citycon has announced that its strategic focus is the development of existing property volume. Especially in HMA, Citycon owns several shopping centres and retail premises in the sub urbs. Examples are, the Myllypuro, Martinlaakso and Laajasalo retail properties. In these proper ties, it is expected that there will be major devel opment and reworking of town plans in the coming years. This often means the demolishing of old buildings and building new ones from the ground up. These properties are always evaluated on a case by case basis. In case a new, updated town plan is enforced, and as a result the schedule for the development becomes clear, the valuation will take the building right into account, or if nec -
essary, the valuation will be done through the socalled development model cash flow analysis.
Several retail properties, both in Finland and Sweden, have either major development plans or considerable potential for development. These properties include e.g. Tumba, Åkersberga, Koskikeskus, Iso Omena and Isokristiina. The development of these properties is always con sidered on a case by case basis, often advancing in phases. This type of development is taken into account in valuation when credible plans exists and there is evidence of high likelihood for letting. In appraisal, the development potential signifies a potential increase in rental income levels through an increase in average rent or by an increase in the lettable floor area, which require investment for realization and a feasible construction or develop ment time frame. The market value of the portfolio in total has been calculated at EUR 2.021 billion.
The sensitivity analysis of the fair value of the portfolio was tested by creating a so-called port folio cash flow statement based on individual cash flow calculations. Changes in fair value have then been examined by modifying key input parame ters of the calculations one at a time. The parame ters tested were required yield, market rent level, operational costs and vacancy rate. The current market value of the properties is used as a refer ence for the analysis. The analysis is performed by changing one parameter at a time while all oth ers remain unchanged and calculating the corre sponding market value of the total portfolio. The sensitivity analysis is a simplified model intended to facilitate understanding of the effect of differ ent parameters on portfolio valuation.
The results indicate that the market value is most sensitive to yield requirement and mar ket rent levels. A ten percent decrease in yield requirement results in an approximately 11 per cent increase in value. Correspondingly, a ten per -
cent increase in rental income increases the value by approximately 14 percent.
The value is not as sensitive to changes in the levels of expenses or long term vacancy. A ten percent increase in the expenses decreases the market value of portfolio by ca. four percents. It should also be noted that in retail premises the rental levels and expenses levels have a con nection as the rental level increases if expenses increase via the maintenance rent charged from tenant. This connection is not comprehensive, but still strong enough to decrease the expenses risk in the valuation.
The effects of changes in the vacancy rate are not studied on a similar scale as other param eters – vacancy level is altered by 50 or 100 basis points at a time. Therefore the relative change is higher than 5 and 10 percent at a time as is the case in other parameters. Still the effect of changes in the vacancy level is smaller than in the other parameters – a change of 100 basis points (one percentage point) in the vacancy level alters the value of portfolio by less than two percent.
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.