Annual Report • Feb 12, 2009
Annual Report
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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
Valuation Statement 62
Key figures
| Turnover, EUR million | Q4/2008 45.2 |
Q4/2007 5) 43.3 |
Q3/2008 5) 44.6 |
2008 178.3 |
2007 5) 151.4 |
Change-% 1) 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 the area planned for the extension of the shopping centre, located in Espoo, Finland. Citycon continues to have right of possession over the leasable areas of Kiinteistö Oy Ulappatori. This right of possession will terminate when the redevelopment project is completed or during 2011 at the latest. Kiinteistö Oy Majakka merged with MREC Kiinteistö Oy Lippulaiva in the beginning of July 2008.
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.
Lease portfolio summary, Baltic Countries
| 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.
| 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 publication 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 | -124.1 | 200.3 | |
| Minority interest | -14.8 | 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 |
| EUR million | Note | 31 Dec. 2008 | 31 Dec. 2007 |
|---|---|---|---|
| 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 | 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 | Share | Share premium |
Fair value |
Invested unrestricted |
Other | Translation | Retained | Total Minority shareholders' |
|||
| EUR million Balance at 31 Dec. 2006 |
capital 225.7 |
issue 0.1 |
fund 131.1 |
reserve -1.3 |
equity fund - |
reserves 0.0 |
reserve 0.0 |
earnings 209.7 |
Total 565.3 |
interest 15.0 |
equity 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 | 0.0 | 11.0 | 11.0 | ||||||||
| Balance at 31 Dec. 2007 | 259.6 | - | 131.1 | 4.9 | 199.3 | 0.0 | -0.3 | 387.3 | 982.0 | 28.9 | 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
| 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 |
external appraiser. The valuation of properties 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 optionpricing 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 invest ment 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 disregarding 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 fair value losses/gains on | ||
| investment property | -216.1 | 211.4 |
| Profit/loss on disposal of | ||
| investment property | 0.1 | -0.1 |
| Indirect administrative expenses | -0.4 | - |
| Indirect other operating income and | ||
| expenses | 6.0 | - |
| Movement in fair value of financial | ||
| instruments | -3.1 | -0.6 |
| Indirect current taxes | -1.8 | - |
| Change in indirect deferred taxes | 29.7 | -46.0 |
| Indirect minority interest | 17.6 | -2.7 |
| Total | -167.9 | 162.1 |
| 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 Investments |
1,908.9 571.4 |
352.8 31.7 |
46.9 0.8 |
2,308.6 603.9 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Heating and electricity | 19.4 | 15.1 |
| Maintenance expenses | 18.4 | 15.2 |
| Property personnel expenses | 0.6 | 0.7 |
| Administrative and management fees | 2.9 | 2.8 |
| Marketing expenses | 2.5 | 1.4 |
| Property insurances | 0.7 | 0.5 |
| Property taxes | 4.9 | 4.3 |
| Repair expenses | 6.7 | 7.2 |
| Other property operating expenses | 0.2 | 0.5 |
| Total | 56.3 | 47.8 |
| 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.
| 2008 | 2007 |
|---|---|
| 9.3 | 8.3 |
| 2.9 | 3.2 |
| 4.3 | 4.5 |
| 0.5 | 0.5 |
| 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 | 2008 | 2007 |
|---|---|---|
| Salaries and emoluments of | ||
| 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 Other liabilities and receivables |
-20.8 0.1 |
-3.8 -0.1 |
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 |
| Indirect result | -167.9 | -164.4 | 162.1 | 164.0 |
| Loss/profit before taxes Loss/profit for the period Direct result |
-162.3 -138.9 43.8 |
-162.3 -138.9 40.3 |
253.5 203.9 38.3 |
253.5 203.9 36.3 |
| 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.
| 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.
28
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:
| Yield requirement (%) | Market rents (EUR/m2/month) | |
|---|---|---|
| 2007 | ||
| 21.1 | ||
| 13.2 | ||
| 16.4 | ||
| 19.9 | 19.0 | |
| 2008 6.4 6.4 7.4 6.4 |
2007 2008 5.7 21.9 5.4 12.3 6.4 20.2 5.6 |
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).
| 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.
| EUR million | 2008 | 2007 |
|---|---|---|
| Trade receivables | 2.4 | 2.5 |
| Accrued income and prepaid | ||
| expenses | 1.7 | 3.2 |
| Tax receivables | ||
| (incl. VAT-receivables) | 10.5 | 16.3 |
| Other receivables | 7.2 | 0.7 |
| Total | 21.7 | 22.7 |
| 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.
| Total | 1,149.2 | 1,049.3 | |||
|---|---|---|---|---|---|
| Total | 50.3 | 104.7 | |||
| over 5 years | 358.2 | 671.2 | |||
| 4–5 years | 485.0 | 72.4 | LTL | 0.8 | 0.8 |
| 3–4 years | 44.6 | 193.6 | SEK | 0.1 | 7.8 |
| 2–3 years | 170.6 | 91.8 | EEK | 1.2 | 1.2 |
| 1–2 years | 90.7 | 20.4 | EUR | 48.3 | 94.9 |
| EUR million | 2008 | 2007 | EUR million | 2008 | 2007 |
| 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.
4) The holder of the loan has the right during 12 September 2006–27 July 2013 convert the loan nominal amount into shares of the company. The conversion price of the loan is EUR 4.2000 per share. The conversion price is subject to amendments in certain circumstances as specified in the terms of the loan. Based on the initial conversion price, the conversion of the whole loan nominal would result in the issue of a maximum of 19,738,095 shares.
5) The company has the right to repay the loan in full on or after 23 August 2010 at its principal amount if the closing price of the share on each of at least 20 dealing days in any period of 30 consecutive dealing days is 140 per cent of the conversion price in effect on such dealing day.
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 |
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.
| EUR million | 2008 1 Jan. |
Income statement charge |
Tax charged to equity |
Exchange differences |
Acquired/ disposed subsidiaries |
2008 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 |
| Income | Tax | Acquired/ | ||||
|---|---|---|---|---|---|---|
| 2007 | statement | charged to | Exchange | disposed | 2007 | |
| EUR million | 1 Jan. | charge | equity | differences | subsidiaries | 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 |
| 2008 | 2007 | |
|---|---|---|
| NOT past due nor impaired | 15.2 | 30.0 |
| Past due, less than 1 month | 26.2 | 14.0 |
| Past due, 1–3 months | 5.4 | 8.7 |
| Past due, 3–6 months | 0.8 | 0.0 |
| Past due, 6–12 months | 5.9 | 0.0 |
| Past due, 1–2 years | 0.2 | 0.0 |
| Past due, 2–5 years | 0.0 | 0.4 |
| Past due, over 5 years | 0.5 | 0.1 |
| Total | 54.3 | 53.1 |
| 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 maximum number of shares that can be subscribed for by exercising the outstanding 2004 option rights totals 3,437,913. The subscription of shares will not result in an increase in the company's share capital, since the entire subscription price is recognised under invested unrestricted equity fund.
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:
Additional information on the 2004 stock option scheme
| 2004A stock options | 2004B stock options | 2004C stock options | |
|---|---|---|---|
| Share-based options, | Share-based options, | Share-based options, | |
| granted to all staff | granted to all staff | granted to all staff | |
| Type of scheme | Granted stock options | Granted stock options | Granted stock options |
| Grant date | 26 May 2004 | 13 Sept. 2005 | 27 April 2006 |
| No. of instruments granted | 1,135,000 | 1,195,000 | 1,250,000 |
| Exercise price, EUR | 2.51 | 2.91 | 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 Exercise price, weighted average EUR/share |
2007 Exercise price, weighted average EUR/share |
2008 No. of stock options |
2007 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:
| EUR million | 2008 | 2007 |
|---|---|---|
| YNot later than 1 year | 53.1 | 51.4 |
| 1–5 years | 90.2 | 78.2 |
| Over 5 years | 28.2 | 27.4 |
| Total | 171.5 | 157.0 |
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 | - | |
| 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% |
| Fastighets AB Fartyget i Åkersberga | |||
|---|---|---|---|
| Lappeenrannan Villimiehen Vitonen Oy | |||
Vantaan Kivivuorenlaki As Oy 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%
| Big Apple Mid Oy | |
|---|---|
| Big Apple Acquisition Oy | |
Majakka Koy Real Estate Iso Omena S.à.r.l.
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 Current assets |
2,126,1 52,4 |
2,260.5 48.1 |
1,453.3 33.1 |
957.6 25.5 |
745.6 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 Net fair value losses/gains on investment property |
17 | -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 | -1.4 | -1.0 | -1.2 | -1.2 | 3.2 | -2.4 | -2.8 | -1.4 | |
| Direct change in deferred taxes | 0.0 | 0.2 | 0.0 | -0.1 | 1.7 | -0.5 | -0.7 | -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 | 5.6 | 6.8 | 7.0 | -1.8 | -0.4 | 0.1 | -0.9 | -1.5 | |
| Total | -42.5 | -57.3 | -66.8 | -1.3 | -5.4 | 14.5 | 126.6 | 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 | 5.3 | 6.5 | 6.4 | 5.8 | 4.7 | 6.5 | 6.0 | 4.4 |
| Baltic Countries | 2.2 | 1.5 | 1.5 | 1.6 | 1.4 | 1.8 | 1.4 | 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 |
| the following building-management | ||
|---|---|---|
| and administrative fees received | ||
| from Group companies: | 1,1 | 1,0 |
| Total | 0.1 | 0.1 |
|---|---|---|
| Credit losses | 0.1 | 0.1 |
| commissions | 0.1 | 0.1 |
| Tenant improvements and | ||
| EUR million | 2008 | 2007 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Average number of employees | ||
| during period | 75 | 67 |
| Personnel expenses | ||
| Wages and salaries | 5.8 | 5.2 |
| Pension charges | 0.9 | 0.7 |
| Other social expenses | 0.5 | 0.5 |
| Total | 7.2 | 6.5 |
| Personnel expenses include | ||
| management salaries and | ||
| emoluments | ||
| CEO's salary and emoluments | 0.3 | 0.3 |
| Board salaries and emoluments | 0.6 | 0.5 |
| Total | 1.0 | 0.8 |
| EUR million | 2008 | 2007 |
|---|---|---|
| The following depreciation and | ||
| amortization as well as impairments are included in the administrative |
||
| expenses: | ||
| Amortization on intangible assets Depreciation on buildings and |
2.1 | 0.9 |
| 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 |
| Total | 5.6 | 0.3 |
|---|---|---|
| Other operating income | 0.2 | 0.3 |
| Group companies | 1.3 | - |
| Property management fees from | ||
| subsidiaries and other investments | 4.1 | 0.1 |
| Profit on disposal of shares in | ||
| EUR million | 2008 | 2007 |
| 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 | 7.1 | |
| 13.1 | ||
| Foreign exchange losses | 68.9 | 9.3 |
| Interest and other financial | ||
| expenses Total financial expenses |
52.5 134.5 |
47.5 63.9 |
| Total net financial income and expenses |
-16.4 | -19.5 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Taxes for the period | -6.9 | -2.1 |
| Total intangible assets 31 Dec. | 11.4 | 6.0 |
|---|---|---|
| Net carrying amount 31 Dec. | 10.4 | 5.3 |
| Accumulated depreciation 31 Dec. | 6.2 | 4.3 |
| Accumulated depreciation 1 Jan. Depreciation for the period |
4.3 1.9 |
3.4 0.8 |
| 31 Dec. | 16.6 | 9.6 |
| Transfer between items Accumulated acquisition costs |
0.0 | 0.0 |
| Disposals during the period | - | 0.0 |
| Additions during the period | 7.0 | 4.3 |
| Acquisition cost 1 Jan. | 9.6 | 5.3 |
| Other non-current assets | ||
| Net carrying amount 31 Dec. | 0.2 | 0.2 |
| Acquisition cost 1 Jan. | 0.2 | 0.2 |
| Connection fees | ||
| Net carrying amount 31 Dec. | 0.8 | 0.4 |
| Accumulated depreciation 31 Dec. | 0.6 | 0.5 |
| Accumulated depreciation 1 Jan. Depreciation for the period |
0.5 0.2 |
0.3 0.1 |
| 31 Dec. | 1.4 | 0.9 |
| Additions during the period Accumulated acquisition costs |
0.5 | 0.3 |
| Acquisition cost 1 Jan. | 0.9 | 0.6 |
| Intangible rights | ||
| EUR million | 2008 | 2007 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Land | ||
| Acquisition cost 1 Jan. | 3.3 | 3.3 |
| Accumulated acquisition costs | ||
| 31 Dec. | 3.3 | 3.3 |
| Buildings and constructions Acquisition cost 1 Jan. |
68.3 | 66.5 |
| Additions during the period | 0.4 | 1.4 |
| Transfer between items | - | 0.4 |
| Accumulated acquisition costs | ||
| 31 Dec. | 68.6 | 68.3 |
| Accumulated depreciation 1 Jan. | 43.1 | 42.6 |
| Depreciation for the period | 0.5 | 0.5 |
| Accumulated depreciation 31 Dec. | 43.6 | 43.1 |
| Net carrying amount 31 Dec. | 25.0 | 25.1 |
| Machinery and equipment Acquisition cost 1 Jan. |
4.9 | 4.0 |
| Additions during the period | 0.4 | 0.6 |
| Transfer between items | - | 0.2 |
| Accumulated acquisition costs | ||
| 31 Dec. | 5.3 | 4.9 |
| Accumulated depreciation 1 Jan. | 3.5 | 3.0 |
| Depreciation for the period | 0.4 | 0.4 |
| Accumulated depreciation 31 Dec. | 3.9 | 3.5 |
| Net carrying amount 31 Dec. | 1.4 | 1.4 |
| Machinery and equipment also | ||
| include technical equipment | ||
| in buildings. | ||
| Other tangible assets | ||
| Acquisition cost 1 Jan. | 0.2 | 0.2 |
| 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 |
|---|---|---|
| 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 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Acquisition cost 1 Jan. | 34.7 | 34.2 |
| Additions during the period | 0.7 | 0.6 |
| Reductions during the period | 0.6 | - |
| Accumulated acquisition costs 31 Dec. |
34.8 | 34.7 |
| Net carrying amount 31 Dec. | 34.8 | 34.7 |
| 915.4 | |
|---|---|
| 911.7 | |
| 3.7 | |
| 3.7 | |
| - | -1.3 |
| - | 0.1 |
| 4.9 | |
| 2007 | |
| 2008 3.7 3.7 3.7 742.9 746.6 |
| EUR million | 2008 | 2007 |
|---|---|---|
| Receivables from outside the Group Trade receivables Other receivables Accrued income and prepaid |
0.7 19.9 |
0.8 8.2 |
| 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 |
Interest receivables 10.4 14.8
| 7 T Z.J 746.6 |
フエエイ 915.4 |
|---|---|
| 1,607.8 1,683.9 |
Parent company's subsidiaries and associated companies are presented in the notes to the consolidated financial statements 29. Related party transactions.
| 16. Liabilities | ||
|---|---|---|
| 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. | 133.1 | 133.0 |
| Stock options | - | 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 |
| A) Long-term liabilities | ||
|---|---|---|
| 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 tied to market interest rates |
591.7 257.7 |
584.5 240.6 |
| Total | 849.4 | 825.1 |
| Current portion of long-term | ||
| loans | -18.0 | -18.0 |
| Total | 831.4 | 807.1 |
Loans maturing later than 5 years 270.7 653.8
| EUR million | 2008 | 2007 |
|---|---|---|
| Short-term interest-bearing liabilities |
||
| Loans from financial institutions | 48.0 | 102.5 |
| Loans from Group companies | 18.9 | 10.5 |
| Total | 66.9 | 113.0 |
| liabilities | ||
|---|---|---|
| Payables to outside the Group Advances received |
0.2 | -0.2 |
| Accounts payable | 0.9 | 1.1 |
| Other payables | 8.1 | 2.1 |
| Accruals | 10.2 | 12.5 |
| Total | 19.4 | 15.4 |
| Payables to Group companies | ||
| Other payables | 14.3 | 20.1 |
| Accruals | 1.1 | 2.5 |
| Total | 15.4 | 22.6 |
| Total short-term liabilities | 101.8 | 151.1 |
| Significant other payables to | ||
| outside the Group | ||
| Tax liability | 3.1 | - |
| VAT liability Derivative financial instruments |
1.2 3.6 |
0.9 - |
| Other accruals | 0.3 | 1.2 |
| Total | 8.1 | 2.1 |
| Significant accruals to outside | ||
| the Group Interest liability |
8.2 | 10.6 |
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 |
|---|---|---|
| payables | 12.3 | 18.6 |
| Charge-for-financial cost | ||
| companies | ||
| Significant other payables to Group | ||
| Interest liability | 8.2 | 10.6 |
| the Group | ||
| Significant accruals to outside | ||
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 |
| Nominee-registered shares | ||
| Nordea Bank Finland Plc | 95,077,935 | 43.02 |
| Skandinaviska Enskilda Banken AB | 51,373,169 | 23.25 |
| Svenska Handelsbanken AB (publ.) Filialverksamheten i Finland | 13,213,353 | 5.98 |
| Other nominee-registered shares | 1,314,758 | 0.59 |
| Nominee-registered shares, total | 160,979,215 | 72.84 |
| 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.
Others 7,066,483 2.67 Shares, total 220,998,989 100.00
| 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 Issue-adjusted number of shares on the balance sheet date |
|
| 11) | P/E ratio (price/earnings) | 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
Raimo Korpinen Claes Ottosson
Thomas W. Wernink Tuomo Lähdesmäki 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
| Built in/ | Citycon's | Occupancy | Occupancy | |||||
|---|---|---|---|---|---|---|---|---|
| Property | Address | renovated in | Holding, % | GLA, sq.m. | rate, %, sq.m 1) | 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 | Kontulan Asemakeskus Koy | Keinulaudankuja 4 | 00940 HELSINKI |
1988/2007 | 35 | 4,500 | 100.0 | 100.0 |
| 13 | Laajasalon Liikekeskus | 2,660 | 100.0 | 100.0 | ||||
| Laajasalon Liikekeskus Oy Kuvernöörintie 8 Koy |
Yliskyläntie 3 Kuvernöörintie 8 |
00840 HELSINKI 00840 HELSINKI |
1972/1995 1982 |
50 100 |
2,300 360 |
|||
| 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 | 3,500 | 89.4 | 92.4 | ||||
| Oulun Galleria Koy | Isokatu 23 | 90100 OULU |
1987 | 100 | ||||
| 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 Lappeenrannan Brahenkatu 7 Koy |
Brahenkatu 5 Brahenkatu 7 |
53100 LAPPEENRANTA 53100 LAPPEENRANTA |
1987 1993 |
80 84 |
6,600 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 | Kaarinan Liiketalo Koy | Oskarinaukio 5 | 20780 KAARINA |
1979/1982 | 100 | 9,200 | 98.4 | 99.0 |
| 41 | Karjaan Ratakatu 59 Koy | Ratakatu 59 | 10320 KARJAA |
1993 | 100 | 3,100 | 100.0 | 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 Tampereen Suvantokatu Koy |
Hatanpään Valtatie 1 Hatanpään Valtatie 1 |
33100 TAMPERE 33100 TAMPERE |
1988 1988 |
100 100 |
7,000 8,400 |
|||
| 46 | Kotkan Keskuskatu 11 Koy | Keskuskatu 11 | 48100 KOTKA |
1976 | 100 | 4,300 | 100.0 | 100.0 |
| 47 | Kuopion Kauppakatu 41 Koy | Kauppakatu 41 | 70100 KUOPIO |
1977 | 100 | 11,200 | 96.7 | 98.5 |
| 48 | Kuusankosken Kauppakatu 7 Koy | Kauppakatu 7 | 45700 KUUSANKOSKI |
1980 | 100 | 2,100 | 100.0 | 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.
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