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Citycon Oyj
Annual Report • Feb 29, 2008
3215_10-k_2008-02-29_b3570206-5177-42b4-927b-1e6d3fe49742.pdf
Annual Report
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Citycon's shopping centres in Finland
Helsinki Metropolitan Area
Columbus
Helsinki, Vuosaari Citycon's gross leasable area 20,900 sq.m. Built in 1997. Extended and/or renovated in 2007.
Heikintori
Espoo, Tapiola Citycon's gross leasable area 5,800 sq.m. Built in 1968.
Iso Omena Espoo, Matinkylä Citycon's gross leasable area 60,600 sq.m. Built in 2001.
Espoontori
Espoo, Espoon keskus Citycon's gross leasable area 15,400 sq.m. Built in 1987.
Stockholm Area
Forum Jyväskylä Citycon's gross leasable area 17,500 sq.m. Built in 1953/1972/1980. Extended and/or renovated in 1991.
IsoKarhu Pori Citycon's gross leasable area 14,900 sq.m. Built in 1972/2001.
Koskikeskus Tampere Citycon's gross leasable area 26,000 sq.m.
Jyväskeskus Jyväskylä Citycon's gross leasable area 5,800 sq.m. Built in 1955.
Built in 1988.
1995/2007.
Sampokeskus Rovaniemi Citycon's gross leasable area 14,000 sq.m. Built in 1989/1990.
Extended and/or renovated in
Valtari Kouvola Citycon's gross leasable area 7,600 sq.m.
Built in 1987.
Extended and/or renovated in 1992/2007/2008.
Trio Lahti Citycon's gross leasable area 43,900 sq.m.
Built in 1994.
Extended and/or renovated in 2002.
Extended and/or renovated in 2004.
Extended and/or renovated in 1993.
Citycon's shopping centres in Sweden
Fruängen Centrum Stockholm Citycon's gross leasable area 14,600 sq.m.
Liljeholmstorget Stockholm Citycon's gross leasable area 20,200 sq.m.
Extended and/or renovated in 1986.
Åkermyntan Centrum
Built in 1973.
Built in 1965.
Hässelby Citycon's gross leasable area 8,400 sq.m. Built in 1977.
Stenungs Torg Stenungsund Citycon's gross leasable area 37,600 sq.m.
Built in 1967.
Magistral Tallinn Citycon's gross leasable area 9,500 sq.m. Built in 2000.
Mandarinas Vilnius Citycon's gross leasable area 7,900 sq.m. Built in 2005.
Extended and/or renovated in 1993.
Jakobsbergs Centrum
Extended and/or renovated in 1993.
Åkersberga Centrum
Extended and/or renovated in
Järfälla Citycon's gross leasable area 67,500 sq.m.
Built in 1959.
Österråker Citycon's gross leasable area 33,100 sq.m.
Built in 1985.
1995/1996.
Strömpilen Umeå Citycon's gross leasable area 27,000 sq.m.
Built in 1952.
Tumba Centrum Botkyrkan Citycon's gross leasable area 30,900 sq.m.
Built in 1927.
Rocca al Mare Tallinn Citycon's gross leasable area 28,600 sq.m.
Built in 1998.
Extended and/or renovated in 1997.
Extended and/or renovated in 2002.
Citycon's shopping centres in the Baltic Countries
Umeå
Gothenburg Area
Estonia
Lithuania
Isomyyri
Vantaa, Myyrmäki Citycon's gross leasable area 10,400 sq.m. Built in 1987.
Galleria Oulu Citycon's gross leasable area 3,500 sq.m. Built in 1987.
Built in 1979.
Extended and/or renovated in 2007.
Duo Tampere Citycon's gross leasable area 13,000 sq.m.
Other Areas in Finland
Koskikara Valkeakoski Citycon's gross leasable area 5,800 sq.m. Built in 1993.
IsoKristiina Lappeenranta Citycon's gross leasable area 18,300 sq.m. Built in 1987/1993.
Linjuri Salo Citycon's gross leasable area 9,300 sq.m. Built in 1971-1975.
Tullintori Tampere Citycon's gross leasable area 10,300 sq.m.
Torikeskus Seinäjoki Citycon's gross leasable area 11,400 sq.m.
Built in 1992.
Built in 1930.
Extended and/or renovated in 1990.
Extended and/or renovated in 2007.
Extended and/or renovated in 2007.
Lippulaiva Espoo, Espoonlahti Citycon's gross leasable area 22,400 sq.m. Built in 1993. Extended and/or renovated in 2007.
Myyrmanni Vantaa, Myyrmäki Citycon's gross leasable area 40,300 sq.m. Built in 1994. Extended and/or renovated in 2007.
Other Areas in Finland
Tikkuri
Isomyyri Vantaa, Myyrmäki Citycon's gross leasable area 10,400 sq.m.
Espoontori
Citycon's gross leasable area 15,400 sq.m.
Built in 1987.
Espoo, Espoon keskus
Built in 1987.
Lippulaiva Espoo, Espoonlahti Citycon's gross leasable area 22,400 sq.m.
Built in 1993.
Iso Omena Espoo, Matinkylä Citycon's gross leasable area 60,600 sq.m.
Heikintori Espoo, Tapiola Citycon's gross leasable area 5,800 sq.m. Built in 1968.
Columbus Helsinki, Vuosaari Citycon's gross leasable area 20,900 sq.m.
Helsinki Metropolitan Area
Built in 1997.
Extended and/or renovated in 2007.
Citycon's shopping centres in Finland
Built in 2001.
Myyrmanni Vantaa, Myyrmäki Citycon's gross leasable area 40,300 sq.m.
Built in 1994.
Extended and/or renovated in 2007.
Vantaa, Tikkurila Citycon's gross leasable area 10,700 sq.m. Built in 1984/1991.
Extended and/or renovated in 2007.
Galleria Oulu Citycon's gross leasable area 3,500 sq.m. Built in 1987.
Koskikara Valkeakoski Citycon's gross leasable area 5,800 sq.m. Built in 1993.
IsoKristiina Lappeenranta Citycon's gross leasable area 18,300 sq.m. Built in 1987/1993.
Tampere Citycon's gross leasable area 13,000 sq.m. Built in 1979. Extended and/or renovated in 2007.
Linjuri Salo Citycon's gross leasable area 9,300 sq.m. Built in 1971-1975. Extended and/or renovated in 2007.
Torikeskus Seinäjoki Citycon's gross leasable area 11,400 sq.m. Built in 1992. Extended and/or renovated in 2007.
Tullintori Tampere Citycon's gross leasable area 10,300 sq.m. Built in 1930. Extended and/or renovated in 1990.
Forum
Jyväskylä Citycon's gross leasable area 17,500 sq.m. Built in 1953/1972/1980. Extended and/or renovated in 1991. Stockholm Area
Citycon's shopping centres in Sweden
Fruängen Centrum Stockholm Citycon's gross leasable area 14,600 sq.m.
Liljeholmstorget Stockholm Citycon's gross leasable area 20,200 sq.m.
Extended and/or renovated in 1986.
Åkermyntan Centrum
Built in 1973.
Built in 1965.
Hässelby Citycon's gross leasable area 8,400 sq.m. Built in 1977.
Stenungs Torg Stenungsund Citycon's gross leasable area 37,600 sq.m.
Built in 1967.
Magistral Tallinn Citycon's gross leasable area 9,500 sq.m. Built in 2000.
Mandarinas Vilnius Citycon's gross leasable area 7,900 sq.m. Built in 2005.
Extended and/or renovated in 1993.
Jakobsbergs Centrum
Extended and/or renovated in 1993.
Åkersberga Centrum
Extended and/or renovated in
Järfälla Citycon's gross leasable area 67,500 sq.m.
Built in 1959.
Österråker Citycon's gross leasable area 33,100 sq.m.
Built in 1985.
1995/1996.
Strömpilen Umeå Citycon's gross leasable area 27,000 sq.m.
Built in 1952.
Tumba Centrum Botkyrkan Citycon's gross leasable area 30,900 sq.m.
Built in 1927.
Rocca al Mare Tallinn Citycon's gross leasable area 28,600 sq.m.
Built in 1998.
Extended and/or renovated in 1997.
Extended and/or renovated in 2002.
Citycon's shopping centres in the Baltic Countries
Umeå
Gothenburg Area
Estonia
Lithuania
IsoKarhu
Pori Citycon's gross leasable area 14,900 sq.m. Built in 1972/2001. Extended and/or renovated in 2004.
Jyväskeskus Jyväskylä Citycon's gross leasable area 5,800 sq.m. Built in 1955. Extended and/or renovated in 1993.
Koskikeskus
Tampere Citycon's gross leasable area 26,000 sq.m. Built in 1988. Extended and/or renovated in 1995/2007.
Sampokeskus
Rovaniemi Citycon's gross leasable area 14,000 sq.m. Built in 1989/1990.
Trio Lahti Citycon's gross leasable area 43,900 sq.m. Built in 1987. Extended and/or renovated in 1992/2007/2008.
Valtari
Kouvola Citycon's gross leasable area 7,600 sq.m. Built in 1994. Extended and/or renovated in 2002.
| Citycon in Brief1 | |
|---|---|
| Citycon as an Investment and Information for Shareholders2 | |
| CEO's Review4 | |
| Business Environment6 | |
| Business and Property Portfolio9 | |
| Finland27 | |
| Sweden30 | |
| Baltic Countries32 | |
| Human Resources34 | |
| Profit Performance and Financial Position 37 | |
| Risks and Risk Management39 | |
| Corporate Governance42 |
Forward-Looking Statements
Some statements in this annual report are not historical facts and are "forward-looking". Words such as "believes", "expects", "estimates", "may", "intends", "will", "should", or "anticipates" and similar expressions or their negatives frequently identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or industry results to be materially different from those expressed or implied by those forward-looking statements.
Citycon in Brief
Active property management and property development
Citycon is a Finnish real estate company specialised in shopping centres and other retail premises. The company manages, leases and develops its retail properties in order to transform them into even more customer-oriented centres, and to thus increase their value. In addition, the company redevelops new retail premises. Citycon is the market leader in the Finnish shopping centre business, with a strong position in Sweden and a firm foothold in the Baltic countries. The company's geographical business units are further divided into the business areas Retail Properties and Property Development.
Listed on the stock exchange in Helsinki since 1988, Citycon is a Mid Cap company under the Financials sector, sub-industry Real Estate Management & Development, on the OMX Nordic Exchange. Its year-end market capitalisation totalled EUR 806.6 million and its share closed at EUR 3.65. International investors accounted for 95.5 per cent of the company's shareholders at the end of 2007.
In 2007, Citycon continued its growth by acquiring new centres in Finland, Sweden and in the Baltic countries. The company also made substantial investments in the development projects. At the end of the year, Citycon had development and redevelopment projects underway in Finland, Sweden and Estonia to the total value of around EUR 330 million. On 31 December 2007, Citycon owned a total of 33 shopping centres – 22 in Finland, eight in Sweden, two in Estonia and one in Lithuania. In addition, Citycon owns 52 other retail properties in Finland and Sweden. At the end of 2007, the fair value of the company's property portfolio totalled EUR 2,215.7 million.
| 2007 | 2006 | |
|---|---|---|
| Turnover, EUR million | 151.4 | 119.4 |
| Operating profit, EUR million | 300.7 | 196.5 |
| % of turnover | 198.6 | 164.6 |
| Profit before taxes, EUR million | 253.5 | 165.6 |
| Profit for the period, EUR million | 203.9 | 126.4 |
| Fair market value of investment properties, EUR million | 2,215.7 | 1,447.9 |
| Earnings per share (basic), EUR | 1.00 | 0.76 |
| Earnings per share (diluted), EUR | 0.91 | 0.73 |
| Direct result per share (diluted), (Diluted EPRA EPS), EUR | 0.18 | 0.20 |
| Dividend and return from invested unrestricted equity fund per share, total, EUR | 0.14 (* | 0.14 |
| Net cash from operating activities per share, EUR | 0.20 | 0.20 |
| Equity per share, EUR | 4.44 | 3.30 |
| Net asset value (EPRA NAV) per share, EUR | 4.83 | 3.53 |
| EPRA NNNAV, EUR | 4.42 | 3.14 |
| P/E (price / earnings) ratio | 3 | 7 |
| Return on equity (ROE), % | 23.3 | 25.8 |
| Return on investment (ROI), % | 16.3 | 16.8 |
| Equity ratio, % | 43.9 | 39.1 |
| Gearing, % | 111.8 | 136.6 |
| Interest-bearing net debt, EUR million | 1,147.3 | 811.2 |
| Net rental yield, % | 5.8 | 7.1 |
| Occupancy rate, % | 95.7 | 97.1 |
| Personnel (average for the period) | 93 | 62 |
| Personnel at the end of the period | 102 | 73 |
Key Figures and ratios
*) The figure includes the proposals by the Board of Directors: a per-share dividend of EUR 0.04 and a return of equity from invested unresticted equity fund of EUR 0.10 per share.
Citycon as an Investment and Information for Shareholders
Investment in Citycon
Investing in Citycon means an investment in a Finnish real estate company focusing in retail premises – especially shopping centres and other large retail units – in Finland, Sweden and the Baltic countries. Citycon is a proactive manager and developer of its properties which together with selective acquisitions provides solid foundations for the company's continuous success and growth.
Equity related transactions, share price development and ownership
The company executed two successful equity transactions during the year, a directed share issue totalling EUR 133 million in February and a rights issue for total proceeds of approximately EUR 99 million in September–October. Both issues were successfully executed and fully subscribed for.
International investors accounted for 95.5 per cent of the company's shareholders at the end of 2007. During the financial year, the company's ownership base also extended further by over 300 new Finnish shareholders. The company's market capitalisation at the year end totalled EUR 806.6 million (EUR 844.3 million).
Citycon is included in international real estate indices. For example, the FTSE EPRA/NAREIT Global Real Estate Index serves as a benchmarking index for international investors, tracking share-price performance and total return. Since April 2007, Citycon has also been included in the GPR 250 Property Securities Index consisting of the 250 most liquid real estate companies worldwide. In 2007, the number of Citycon shares traded on the OMX Nordic Exchange Helsinki totalled 153.7 million (51.2 million) at a total value of EUR 738.1 million (EUR 197.6 million).
Citycon share price compared with indices
Financial targets
The Board of Directors has set the following financial targets for the company:
- The company will pay out a minimum of 50 per cent of its distributable annual earnings per share (after tax deduction) in dividends. Changes in the fair value of investment property (IAS 40) are not included in distributable earnings.
- The company's long-term equity ratio target is 40 per cent. On 31 December 2007, equity ratio stood at 43.9 per cent.
Annual General Meeting 2008
Citycon Oyj will hold its AGM at Finlandia Hall, Helsinki Auditorium, Mannerheimintie 13e, Helsinki, Finland, on Thursday 13 March 2008, starting at 2.00 p.m.
Company shareholders listed in the shareholders' register by the AGM record date of 3 March 2008 are entitled to attend the AGM if they have notified the company of their intention to do so by 4.00 p.m. on 10 March 2008. If you wish to attend the AGM, please visit our website, www.citycon.fi/ agm2008, or contact us by telephone +358 9 680 36 70.
A shareholder whose shares have been entered in his/ her personal book-entry securities account is listed on the shareholders' register. A shareholder holding nominee-registered shares should contact his/her account manager if (s)he wishes to attend the AGM.
Company shareholders' register available for public review
The shareholders' register is available for public review at Finnish Central Securities Depository Ltd's customerservice outlet, Urho Kekkosen katu 5 C, Helsinki.
Board of Directors' proposal on dividend dis- tribution and on distribution of assets from the invested unrestricted equity fund
The Board of Directors proposes that a per-share dividend of EUR 0.04 be paid out for the year 2007, and that EUR 0.10 per share be returned from the invested unrestricted equity fund. The dividend and equity return will be paid on 2 April 2008 to a shareholder registered in the company's shareholders' register on 18 March 2008.
Notification of changes in shareholders' register
Shareholders should notify their book-entry account manager of any changes in addresses and names, which also automatically updates information in the shareholders' register maintained by Finnish Central Securities Depository Ltd.
Financial reports in 2008
During 2008, Citycon Oyj will release financial reports in Finnish and English as follows:
- Interim Report for January–March, 24 April 2008
- Interim Report for January–June, 18 July 2008
- Interim Report for January–September, 16 October 2008
are available on the company's website at www.citycon.fi. The site also displays up-to-date information on share trading and share-price performance.
The company will publish its printed Annual Report in week 11. The printed version can be ordered via the website, by e-mail to [email protected], or by telephone on +358 9 680 36 70.
Investor relations
Citycon strives to continuously provide the market with accurate and up-to-date information on the company, with the aim of improving the recognition of the company's business, enhancing investor-information transparency and, consequently, shareholder value. The company's IR contacts are the CEO, the CFO and the Investor Relations Officer.
Adhering to the principle of objectivity in its investor communications, Citycon publishes all of its investor information in Finnish and English, primarily on its website. The company publishes its printed annual report in Finnish and English. Citycon's stock exchange and press releases can be ordered via its website by e-mail or directly by e-mail at [email protected].
Citycon proactively meets with investors both in and outside Finland. The year 2007 saw some 50 events where the company's management met with around 240 institutional investors either in one-on-one or small-group meetings. In addition, the company's representatives meet investors in seminars arranged by associations or banks, in broader public events and during asset tours to the company's shopping centres.
Citycon applies a three week silent period preceding the publication of its financial results. During this period the company's representatives do not meet investors or analysts, or comment on the company's financial position.
Contact information
CEO
Mr Petri Olkinuora Tel.: +358 9 680 36 738 [email protected]
CFO
Mr Eero Sihvonen Tel.: +358 50 557 9137 [email protected] Investor Relations Officer Ms Hanna Jaakkola Tel.: +358 40 566 6070
Brokerage and other firms analysing Citycon
Based on the information received by the company, analysts from the following banks, brokerage and other firms monitor Citycon Oyj and its performance on their own initiative. The list below does not necessarily include all banks, brokerage and other firms providing such analysis coverage and any firm listed below may stop providing the analysis coverage any time. Citycon is not responsible for analysts' comments and statements.
ABN AMRO Bank N.V.
Tel.: +31 20 628 9393 Gustav Mahlerlaan 10 NL-1082 PP Amsterdam The Netherlands
Citi Investment Research
Tel.: +44 207 986 4000 Canada Square London E14 5LB United Kingdom
eQ Bank Ltd
Tel.: +358 9 6817 8800 Mannerheiminaukio 1 A FI-00100 Helsinki Finland
Evli Bank Plc Tel.: +358 9 476 690 Aleksanterinkatu 19 A P.O. Box 1081 FI-00101 Helsinki Finland
Exane BNP Paribas Tel.: +44 20 7039 9496 20 St. James's Street London SW1A 1ES United Kingdom
Glitnir Bank Ltd Tel.: +358 9 613 4600 Pohjoisesplanadi 33 A FI-00100 Helsinki Finland
Goldman Sachs International
Tel.: +44 207 552 5986 Peterborough Court 133 Fleet Street London EC4A 2BB United Kingdom
Kaupthing Bank Oyj
Tel.: +358 9 478 4000 Pohjoisesplanadi 37 FI-00100 Helsinki Finland
Kempen & Co N.V.
Tel.: +31 20 348 8000 Beethovenstraat 300 P.O. Box 75666 NL-1070 PP Amsterdam The Netherlands
Pareto Securities ASA
Tel.: +47 22 87 87 00 P.O. Box 1411 Vika N-0115 Oslo Norway
Pohjola Bank plc
Tel.: +358 10 252 011 Teollisuuskatu 1 B P.O. Box 308 FI-00101 Helsinki Finland
Standard & Poor's
Tel.: +46 8 440 5900 Mäster Samuelsgatan 6 P.O. Box 1753 SE-111 87 Stockholm Sweden
Trend in market capitalisation Breakdown of shareholders
● International investors 95.5% ● Finnish investors 4.5%
CEO's Review
Tomorrow's Shopping Centres are Green
Strong and profitable growth describes Citycon's recent history, as well as the year 2007. Our property portfolio grew bold 53 per cent.
The ownership or market valuation is not the most essential factor, rather our own ability to affect the success of our properties. Our strategic focus is now stronger than before on the retail properties which we already own, and their redevelopment. At the end of the year, Citycon had development and redevelopment projects underway in Finland, Sweden and Estonia for a total value of approximately EUR 330 million, which corresponds to almost 15 per cent of our total portfolio.
We can truly say that our property development is creative. We acquire only shopping centres that have development potential, and in which, through active property development and shopping-centre management, we can increase their returns and profitability. We always begin our development projects by analysing the needs of the people living in the shopping centre's catchment area. Based on this, we then plan activities aimed at improving the centre's commercial value for both the customers and the tenants. This approach has generated us good results, for instance, in the development and redevelopments of the Duo and Trio shopping centres.
Green thinking has gained more importance in our operations. We already pay attention to environmental factors related to our properties and have started to develop the green shopping centre concept. Our starting point in terms of the quality of construction is already good, but we want to improve even further. This work will continue in 2008, the pilot projects being the development and redevelopment projects at the Trio, Rocca al Mare and Liljeholmstorget shopping centres. Sustainability will be a major competitive factor down the road and very relevant issue when evaluating Citycon as a potential partner. At best, with this sustainable approach, we can achieve a win-win-win situation between consumers, retailers and property owners that benefits us all.
Citycon's market leadership in Finland strengthened remarkably. We established firmly our market position with Iso Omena acquisition especially in the Helsinki Metropolitan Area. Also other financially smaller, but strategically important, acquisitions increased our market share. In 2007, the total sales of the Finnish shopping centres were about EUR 4.3 billion, of which over a third went through Citycon's shopping centres.
We operate in countries with growing retail sales. The outlook may turn less favourable, but a major decline in the rental market is unlikely. This positive situation is reflected in the dynamics of shopping-centre business - during the past years the growth has been strong and international competition of the best properties has been intense. We believe that the competition of the prime properties will continue in Finland and Sweden, despite the international credit crunch.
Our growth has brought us to the position where we can provide our tenants with a constantly broadening range of retail premises and expansion opportunities. This is supported by Citycon's regional organisation that was implemented at the end of 2006 and which has proven extremely functional. Our strong position and growth have also had a positive impact on our financing arrangements, as evidenced by the concluded credit facility agreements and our extremely successfully completed share issues during the year.
I should like to take this opportunity to thank our shareholders, customers and partners for a most successful year. I would like to express my special thanks to our employees who have proven their strength in the simultaneous implementation of a new organisation and several major development projects. Citycon's team is now stronger than ever.
In Helsinki on 14 February 2008
Petri Olkinuora CEO
Mission
Citycon is a growing and continuously improving expert in the retail property business. The company owns, manages, leases and redevelops and develops shopping centres, supermarkets and other large retail units. Citycon is the market leader in the Finnish shopping centre business.
For its shareholders Citycon is an investment with a solid cash-flow performance.
Vision and Goals
Citycon aims to expand its property portfolio and increase its value. The redevelopment of its retail premises, the construction of new properties, and strategy-based property acquisitions provide a solid ground for achieving this aim.
Citycon seeks to enhance its value and expertise, and forge tenant relationships based on strong partnerships. The company's objective is to serve an array of retailers by providing them with the best industry expertise and premises meeting their needs. Furthermore, the company's ability to develop solutions for retailers regarding retail premises and services opens up growth opportunities.
For its shareholders Citycon is an investment with a solid cash-flow performance.
Strategy
Citycon's strategy is to safeguard growth through the active redevelopment of properties and selected property acquisitions in large cities and growth centres located in Finland, Sweden and the Baltic countries. Citycon focuses on retail properties, its core business consisting of shopping centres, supermarkets and other large retail units. The company has divested and is ready to divest non-core properties in order to recycle capital to faster growing areas and more profitable and higher quality properties.
Citycon redevelops its properties continuously for improved commercial appeal and profitability, while seeking to identify new shoppingcentre concepts that can enhance shopping centres' retail appeal. The company aims to create increasingly customer- and service-focused operations.
Business Environment
Citycon is one of the six real estate companies listed on the OMX Nordic Exchange Helsinki and the second largest in Finland measured by market capitalisation. On 31 December 2007, Citycon's market capitalisation totalled EUR 806.6 million and it is one of the Mid Cap companies on the OMX Nordic Exchange. On the same date, the market capitalisation of the real estate companies listed in Helsinki totalled approximately EUR 2.1 billion, Citycon accounting for 38.2 per cent.
A year of growth in the property market
Finland has a total of 56 shopping centres as defined by the Finnish Counsel of Shopping Centres, while the number of shopping centres in Sweden is four times higher, depending on the definition used. In Estonia and Lithuania there are some 50 shopping centres. Properties in the Baltic countries have traditionally been owned by local and Nordic construction companies, but international interest in the region has intensified over the past year and the number of retail properties for sale has increased. The Nordic property market has retained the interest of international investors due to the region's relatively large size, sound liquidity and transparency, its established and similar legislation and operating methods, high-quality market
information, the political and economical stability of its national economies and good financing opportunities for real estate transactions.
The state of the Finnish and Swedish real estate market remained positive for most of the year, in spite of the increasing uncertainty that started in the international financial markets. Retail property prices continued to grow, particularly up to mid-year. In the Baltic countries, the property price development was restrained by the international turbulence in the financial markets, concerns about the overheating of national economies and rapidly rising local interest rates. In parallel, the price difference between the best properties and the more risky ones began to expand. The spread in yield requirements between prime and non-prime properties increased clearly not only in the Baltic countries but also in Finland and Sweden. 1)
In Finland, demand for properties continued to grow during the year. 2) According to KTI Property Information Ltd, the occupancy rate of retail properties is still nearly maximal and rental levels continue their steady growth. The increase in rental levels is expected to continue. 3)
In Sweden, the real estate business was very active as well as international. During the first half of 2007, international investors accounted for approximately 90 per cent of retail property transactions. 2) Vacancy rates in shopping centres have been low in spite of the construction of new retail premises, and rental levels have increased. Yield requirements have seen a moderate decrease compared to the previous year. 3)
In the Baltic countries, demand for retail premises was brisk during the year and, despite the higher interest rates compared to the Nordic countries, property prices have risen and yield requirements have fallen. 2) The majority of international property investors investing in Estonia are from the Nordic countries. Investors have also shown increasing
" In Finland, demand for properties continued to grow during the year.
Shopping centre Galleria is located in downtown of Oulu, a growing city in the northern Finland, by the busy Isokatu, which is to become a pedestrian street if the redevelopment of the centre that is planned with the city of Oulu and other players in the same block gets started.
interest in development projects. In Estonia, too, rental levels are expected to rise and vacancy rates to remain low. 2) The Lithuanian market has seen a considerable expansion in new retail premises, although shopping centre space per capita remains small by Nordic standards. Fierce international competition in the property market has depressed the yield requirements in Lithuania and the supply of sufficiently large investment targets remains relatively scarce. 2)
In 2007, construction costs climbed by 5.6 per cent 4) in Finland, 5.4 per cent 5) in Sweden and 12.7 per cent 6) in Estonia. Citycon monitors construction cost trends, with a particular focus on project management in its development operations. While the rise in construction costs has effected the estimated project costs, the rise has remained moderate.
Strong economies underpinning business
Finland and Sweden are among the strongest economies in Europe, with a 2 per cent surplus in Sweden and 4 per cent surplus in Finland in 2006. Economic stability has enabled tax cuts and salary increases in both countries, visible in their populations' disposable income and a rise in consumption. Inflation stood at roughly three per cent at the end of 2007, up from the record low rates experienced a few years ago. 4, 5)
Since the Baltic countries are dependent on export energy, higher oil prices have clearly affected inflation and consumer demand. In Estonia, interest rates and inflation have increased consumer prices, leading to declining purchasing power. Consequently, economic growth is expected to slow down from the two-digit percentages seen over the previous years. Meanwhile, Lithuania is expected to show stronger growth than other Baltic countries. 7) Regardless of their economic slowdown, both Estonia and Lithuania will maintain distinctively higher economic growth rates than other European countries. In December 2007, inflation in Estonia was 9.6 per cent 7) and 6.8 per cent in Lithuania.8) According to forecasts by Hansabank Swedbank, inflation will slow down in both countries during 2008.
In Citycon's operating regions, short-term interest rates kept growing during the course of the year, accentuating towards the year end in particular due to the credit problems. During 2007, the short-term 3-month rate within the euro area went up by 0.96 percentage points, reaching 4.68 per cent at the year end, while the corresponding increase in Sweden was 1.39 percentage points, reaching 4.69 per cent. In the Baltic countries, interest rates rose even more vigorously due to strong economic growth and accelerating inflation. In Estonia, the 3-month interest rate was 7.30 per cent (up by 3.45 percentage points) and, in Lithuania, 6.98 per cent (up by 3.19 percentage points). However, the rise in long-term interest rates was markedly more moderate,
Return of property investment companies
| 2007 return, % |
Rolling five year's return, % |
|
|---|---|---|
| Global | -4.8 | 112.9 |
| Europe | -5.5 | 118.8 |
| North America | -4.6 | 73.2 |
| Asia | -5.2 | 174.9 |
| Global equities | -5.5 | 73.7 |
| Global bonds | 0.0 | 18.0 |
Source: EPRA/FTSE/JP Morgan
with the fixed rate for a 5-year interest-rate swap going up by 0.43 percentage points in the euro area and by 0.59 percentage points in Sweden. 10)
As a company focusing on retail premises, and especially in shopping centres, strong growth in the retail trade is of particular importance to Citycon. Strong growth figures in the company's operating countries have supported the rise in Citycon shopping centres' sales and number of visitors. Christmas sales, for instance, showed record peaks in Finland and Sweden. According to preliminary trade data, the total value of retail sales in 2007 grew by 5.3 per cent (5.7%) in Finland 4), while in Sweden, estimated retail sales growth was 4 per cent (7.4%). 5) In Estonia, retail sales increased by 14.1 per cent (19%) in real terms 7) and by 9.3 per cent (14.1%) in Lithuania. 8)
Rental levels of shopping centres in Stockholm and Gothenburg area
Shopping centre yields in Stockholm and Gothenburg area
Deflated retail sales index
" According to preliminary trade data, the total value of retail sales in 2007 grew by 5.3 per cent (5.7%) in Finland.
In all of the above-mentioned four countries, consumer confidence was at historically high levels, although as of summer it has declined, due to the turbulence in the financial markets spread from the United States. 10) The consequences of the subprime crisis originating in the US mortgage markets for the availability of financing in the Nordic countries were moderate in 2007. Moreover, Citycon's financial position has remained at a healthy level, and will be described in more detail on pages 37-38 of the present Annual Report.
REIT legislation and the Finnish real estate markets
In its Government Programme issued in the spring of 2007, the Finnish Government expressed its intention to review the legislation on real estate investment funds and to remove tax barriers in order to maintain the competitiveness of Finnish property funds that are organised as limited companies. Several European countries have already adopted similar amendments whereby, under certain conditions, a REIT – Real Estate Investment Trust – is not liable to pay income taxes as a corporation but is, in turn, required to distribute most of its profits as dividends to its shareholders. Dividends paid by REITs and capital gains from holdings are then taxed as shareholders' income. Potential REIT-based property fund legislation would further increase investors' interest in the Finnish property markets. At this point, Citycon has made no plans in response to the potential REIT legislation.
Sources:
1) Jones Lang LaSalle, Suomen kiinteistömarkkina, 1/2008 2) Newsec Nordic Report, Real Estate Autumn 2007
3) Jones Lang LaSalle, Nordic City Report, Autumn 2007
4) Statistics Finland
5) Statistics Sweden
6) Statistics Estonia
7) Hansabank Swedbank, The Baltic Outlook
- 8) Statistics Lithuania
- 9) Bloomberg
10) Nordea
Business and Property Portfolio
Citycon, a real estate company specialised in retail premises, is the market leader in the Finnish shopping centre business, with a strong position in Sweden and a firm foothold in the Baltic countries. The company is an active owner of its retail properties. Active ownership includes creation of a retail property's commercial concept as well as leasing, marketing and continuous development of the premises.
New kind of ownership – Active development a key element
Instead of mere ownership, the core of Citycon's strategy is active management and continuous development of its retail properties, and thus Citycon differs from traditional property investors. The company's objective of creating attractive shopping facilities in terms of their commercial concept and urban environment requires knowledge of the market area, customers and retail business concepts and an insight into retailer's needs.
Maintaining its properties as attractive and dynamic retail centres in the eyes both of customers and lessees is Citycon's main task. The refurbishment of retail properties is essential to maintain their commercial attractiveness year after year, since the consumers' purchase behaviour changes and the retailers set higher and higher demands. Furthermore, the competition between shopping facilities is intensifying. Older shopping centres are competing with new centres built close by, and customer flows may turn rapidly. On the other hand, demand for retail premises continues to grow in dynamic regions and additional premises are needed to satisfy the needs of international retail chains entering the market. As a result of this development, commercial lifecycles of retail premises have become shorter, and a shopping centre may become obsolete within a few years, unless ongoing efforts are made to develop it.
Solid basis for development
Total return of the like-for-like properties
Citycon's shopping centres have good commercial locations in growth centres with good connections. Many of these retail properties offer also expansion potential, providing major development opportunities for Citycon.
All development activities are based on the nature of the shopping centre's catchment area and the centre's current or optimal role within it. When the catchment area's requirements and opportunities are known to the company,
redevelopment projects present a distinctly lower risk compared to building a brand new retail property in a brand new market area.
In practice, initiating a development project requires a comprehensive, forward-looking analysis of the catchment area as well as a technical implementation plan. Already at an early stage of a development project, attempts are made to involve the lessees, the inhabitants of the neighbouring area and any other stakeholders. Moreover, very close cooperation with city and traffic planners, environmental authorities as well as many other authorities and municipal decisionmakers is necessary to enable the implementation of development projects. Without close cooperation it
wouldn't even be possible to initiate any projects.
Many shopping and retail centres are local centres and their development contributes to the area's general attractiveness and often enables additional building. As a dynamic long-term investor, Citycon represents a strong choice as a partner for the modernisation of municipal services.
Own local personnel
One of Citycon's competitive advantages is its in-house, local shopping centre management. Indeed, most of the company's employees work in shopping centres and are involved in the centres' operative management, marketing together with the shopping centre's retailers and long-term commercial content design or conceptualisation. With the help of its skilled personnel, Citycon aims to secure its properties' competitiveness through continuous development of new services.
Key elements in the management of individual shopping centres include appropriately directed commercial development measures, efficient maintenance and optimisation of the premises' use to increase their commercial attraction on an ongoing basis.
Duo enters into new category
The original part of the shopping centre called Duo, previously known as the Hervanta retail centre and completed in 1979, was designed by the famous Finnish architect couple, Raili and Reima Pietilä. The name 'Duo' comes from the fact that the shopping centre consists of two parts: the original Hervanta retail centre and the new building developed by Citycon and completed in 2007.
Hervanta is an urban district in the southern part of Tampere, with some 25,000 inhabitants. The area is under active residential construction and it also provides approximately 10,000 workplaces, including the Tampere University of Technology and a large number of business enterprises. Moreover, the Duo shopping centre is located next to busy traffic lines.
The Hervanta area has an annual spending power of approximately over EUR 230 million (source: Statistics Finland). Furthermore, the entirely new urban district of Vuores is currently being planned in the neighbourhood, with the purpose of building housing for over 13,000 inhabitants and business premises for 3,000–5,000 workplaces by 2015. The closest shopping centre to Vuores is Duo in Hervanta.
The extension of the Duo shopping centre was opened to the public in April 2007 and the whole complex at the end of October 2007. During the first eight months, approximately 2.5 million customers visited the new Duo, with sales totalling almost EUR 30 million. In 2008, Duo intends to attract 3.5 million customers and achieve total sales of EUR 55 million.
The Duo shopping centre's increased attractiveness stems not only from its extension but also from its revised retailing concept. In this respect, the development project answered the needs of the entire Hervanta area. For example, Hervanta's prior lack of certain specialist retail services led people to take their purchasing power elsewhere.
Exceptionally, Duo has three large grocery store chains as anchor tenants under one and the same roof: K-market, S-market and Lidl. The grocery business is accompanied by a post office and banking services and several specialist shops, plus restaurant and cafeteria services complementing the service offering. Today, the refurbished Duo is a local centre with comprehensive services, which is also actively managed in line with this local centre concept. ➤
As a current challenge, the shopping centres need to identify marketing methods which involve the lessees in the upgrading of the centre's image and visibility. Another development target involves rendering specialty leasing – i.e. available advertising displays and common-area merchandising units – an integral part of the centres' service offering and, thus, contributing to the centre's cash flow.
The company aims to enhance the appeal of the Group's whole property portfolio among current and potential lessees. The development of the chain leasing and international leasing cooperation create new kind of attractiveness to Citycon's shopping centres and the services offered by the company.
Cluster approach – the various roles of shopping centres
In order to facilitate retail property management and, on a broader perspective, commercial conceptualisation and marketing communications, the company has defined five roles for shopping centres based on customers' needs and
Citycon's top five tenants 2007
| Proportion of rental income | ||
|---|---|---|
| Kesko | 28.2% | |
| S-Group | ||
| ICA Sverige AB | ||
| Stockmann | ||
| Lindex | ||
| Top 5, total | 38.4% |
spending behaviour, the location of the retail property and the nature of its catchment area.
Now introduced in Finland, the cluster approach will be extended to the company's other market areas in the near future. Clustering enables the transformation of retail properties into service products which better correspond to customers' expectations and needs.
The offering and marketing at a centre, as well as any property development and refurbishment, will be determined according to the related cluster. Conducting operations in cooperation between a cluster's shopping centres generates added value. Clustering is also a key element of development projects: Clustering helps to enhance the entire process and that will have an effect on the company's net rental income.
More information on Citycon's cluster approach to its shopping centres is provided under the description of Finnish business operations, on pages 27-28.
Citycon and sustainable construction
Citycon is currently engaged in sustainable construction with three pilot projects: the extension of shopping centre Rocca al Mare in Tallinn, Estonia; the refurbishment of shopping centre Trio in Lahti, Finland; and the construction of a shopping centre in Liljeholmen in Stockholm, Sweden. Aiming at the comprehensive analysis of the planning and implementation of property development projects, from the point of view of responsible operations, and in order to systematise environmentally friendly practices, Citycon is also striving to obtain an international environmental rating for its projects.
" Exceptionally, Duo has three large grocery store chains as anchor tenants: K-market, S-market and Lidl.
In its development projects, the company already pays attention to environmental factors, such as the recycling and construction materials used. The purpose of pilot projects is to establish sustainable construction practices for Citycon's properties. The pilot projects include an evaluation of more than 60 items ranging from the property's energy-efficiency and indoor air quality to material choices, the utilisation of public transport and the minimisation of the construction's environmental impact. Practical development measures are planned on the basis of these evaluations.
Development and redevelopment projects
The company's goal is to acquire and construct properties whose value can be increased through development and redevelopment. While development projects enable increasing cash flow and return from retail properties, in the short term, however, development projects may weaken cash flow as part of the retail premises have to be temporarily vacated for refurbishment. Citycon always strives to minimise any commercial harm from construction, to allow the centres to remain open and to schedule the projects optimally according to the season.
Finland
The year 2007 saw the completion of three development projects. That of the Duo shopping centre in Hervanta, Tampere, is covered in more detail on this and the previous page. Like the construction projects in Kangasala and Kaarina, Duo was completed to the agreed schedule and
At the Duo project launch stage, the total investment was estimated to amount to EUR 27.3 million and net yield, after the completion of the shopping centre, to over 8 per cent. The estimated deadline for the completion of the extension project was the spring of 2007.
The total investment amounts to EUR 25.5 million. According to an external appraiser, Duo's market value at the end of 2007 stood at EUR 35.2 million and the yield requirement at 6 per cent. Today, Duo's gross area is around 31,400 square metres. Of this area, Citycon owns some 23,800 square metres, providing a sales area of roughly 13,200 square metres. Before the modernisation, the gross leasable area of the Hervanta retail centre was approximately 7,200 square metres, of which Citycon owned approximately 5,000 square metres. The project was completed on schedule.
budget. The Lillinkulma retail centre in Kaarina was opened in May, while the retail centre in Lentola opened just before Christmas. Title to both properties transferred to Citycon upon the centres' completion.
Citycon's largest development project in Finland is the refurbishment and extension project of the Trio shopping centre, located in the heart of Lahti. The premises involved in the first stage were opened in November 2007 and the entire project will be completed in November 2009. Citycon will invest around EUR 60 million in this project. After the completion of the first stage, the construction plans have been revised and, as a result, the project's total investment is estimated to increase to EUR 60 million from the original estimate of EUR 50.5 million. Following its complete refurbishment, Trio's service offering will meet the customers'
needs better than before, and numerous new retailers have already opened their stores there. Following the completion of the development project, the shopping centre's sales are expected to rise from the pre-development project levels of EUR 80 million to EUR 110 million.
During the year, several smaller redevelopment and development projects were carried out. In the centre of the town of Salo, a Citycon retail property was redeveloped into a shopping centre called Linjuri. The total investment by Citycon was approximately EUR 1.8 million. At Myyrmanni in Vantaa, a food court was opened, doubling the number of the shopping centre's existing restaurants. The project's value was approximately EUR 2 million. The refurbishment project for the Torikeskus shopping centre in Seinäjoki, with an investment value of around EUR 4 million, was continued and its completion is expected in 2009.
Key indicators of property portfolio 2007
| Finland S | Baltic weden Countries T |
otal | ||
|---|---|---|---|---|
| Citycon's GLA, sq.m. | 594,180 | 283,700 | 46,100 923,980 | |
| Gross rental income, EUR million | 100.7 | 35.4 | 7.7 | 143.7 |
| Net rental income, EUR million | 75.7 | 21.6 | 6.0 | 103.4 |
| Net rental income yield, % | 6.2 | 4.6 | 6.2 | 5.8 |
| Net rental income yield, like-for-like properties, % | 7.1 | 5.3 | - | 7.0 |
Property portfolio by region, 31 Dec. 2007, EUR million
| Total | |
|---|---|
| Finland | |
| Helsinki Metropolitan Area | 878.3 |
| Other areas in Finland | 708.6 |
| Sweden | |
| Stockholm area and Umeå | 425.6 |
| Gothenburg area | 91.9 |
| Baltic Countries | |
| Estonia and Lithuania | 111,2 |
| Total | 2,215.7 |
Based on market value of property portfolio on 31 Dec. 2007
Trend in lease portfolio by business units
| Finland S | Baltic weden Countries T |
otal | ||
|---|---|---|---|---|
| Number of leases started during the financial year | 442 | 49 | 21 | 512 |
| Total area of leases started, sq.m. | 74,400 | 25,800 | 3,208 | 103,408 |
| Occupancy rate at end of financial year, % | 95.6 | 95.1 | 100 | 95.7 |
| Average length of lease portfolio at the end of financial year, year |
3.1 | 2.4 | 2.8 | 3.0 |
Launched in 2005, the extension and refurbishment project for the Lippulaiva shopping centre in Espoo is progressing, since in September 2007, a zoning appeal regarding the development project was dismissed in the Supreme Administrative Court. Thus, Citycon will continue the centre's extension according to plan, in the spring of 2008. After the acquisition of the Iso Omena shopping centre, Citycon readjusted Lippulaiva's commercial concept to support the company's property portfolio in Espoo more effectively.
Sweden
Citycon has a major new construction project underway in Liljeholmen, Stockholm. Other current development projects in Sweden involve
the redevelopment and extension of existing properties. The construction of a new shopping centre Liljeholmstorget represents Citycon's largest ever development project, with a total investment of approximately EUR 170 million, including the original acquisition cost of EUR 60.6 million and around EUR 110 million in building costs. Citycon acquired the project in August 2006, which initially included a 20,000-square-metre office and commercial building with substantial volume of building rights. In May 2007, Citycon began construction works and the development project has advanced according to plan, with quarrying work and the refurbishment of the existing building underway. The new shopping centre will open its doors in or around October– November 2009. Throughout the project's planning and construction process, special attention will be paid to sustainable development.
Baltic Countries
Expansion work began at shopping centre Rocca al Mare in Tallinn in summer 2007. The centre will undergo a thorough modernisation, doubling its leasable floor area. The first " The construction of a new shopping centre Liljeholmstorget represents Citycon's largest ever development project.
stage of the redevelopment project is scheduled for completion during the spring of 2008, and the next stage is currently being planned. The project will be completed ahead of schedule, in the autumn of 2009. Thereafter, Rocca al Mare, located in an affluent western district of Tallinn, will be the city's largest shopping centre. Citycon can also expand its other Tallinn-based shopping centre, Magistral, but the related redevelopment project has yet to be launched.
Redevelopment and development projects in summary All of Citycon's redevelopment and development projects are listed by the project stage in the following four tables.
- The first table contains development projects that have been completed during the period.
- The second table contains development projects in progress, as decided by the Board of Directors.
- The third table shows development projects under planning. For these projects, an alteration of the city plan is pending or Citycon and/or its partner have a site reservation but the related investment proposal has yet to be submitted to Citycon's Board of Directors for approval.
In its development projects, Citycon pays attention to environmental factors, such as the recycling and construction materials used. The pilot projects of sustainable construction are the extension of shopping centre Rocca al Mare in Tallinn, Estonia; the refurbishment of shopping centre Trio in Lahti, Finland; and the construction of a shopping centre in Liljeholmen in Stockholm, Sweden. Citycon is striving to obtain an international rating for these projects.
Portfolio by market value and number of properties on 31 Dec. 2007
| Market value, EUR million | Share of total N portfolio, % |
umber of properties |
|---|---|---|
| over 100 | 39 | 5 |
| 80-100 | 4 | 1 |
| 60-80 | 13 | 4 |
| 40-60 | 12 | 5 |
| 20-40 | 13 | 10 |
| 10-20 | 12 | 18 |
| 5-10 | 5 | 15 |
| 0-5 | 3 | 28 |
• The fourth table lists the projects whose realisation is currently being analysed, but neither an alteration of the city plan has been applied for nor any other official decisions made.
In addition to the projects presented in the tables, Citycon constantly monitors the development and redevelopment needs of its properties.
]Y\Y_^ Acquisitions, 2005-2007 1)
1) Includes acquisitions exceeding EUR 10 million. 2) The purchase price totals EUR 11 million and the rest of it is payable upon approval of the change in city plan.
During the period, Citycon invested a total of EUR 39.5 million in development projects in Finland, EUR 16.8 million in Sweden and EUR 15.5 million in the Baltic Countries.
Acquisitions
In addition to property development, the company actively seeks growth through the acquisition of new properties. In the identification and selection of suitable properties in Finland, Sweden and the Baltic countries, Citycon considers location and development potential as decisive criteria. All centres acquired in 2007 offer development potential, whose utilisation is either underway or beginning in the near future.
New acquisitions carried out during the financial year were worth a total of EUR 389.6 million (EUR 124.3 million) in Finland, EUR 125.6 million (EUR 260.7 million) in Sweden and EUR 16.2 million (EUR 15.9 million) in the Baltic countries.
Finland
5EB
The shopping centre Iso Omena was Citycon's most significant acquisition during the year. The transaction for this shopping centre, Finland's fifth-largest in area, was closed in September 2007 with an acquisition cost of EUR 329 million and an initial net yield of 4.5 per cent.
Citycon signed an agreement on 12 February 2008 for the sale of part of shopping centre Iso Omena to an affiliate of GIC Real Estate, the property investment arm of the Government of Singapore Investment Corporation. Upon closing of the agreement, Citycon owns 60 per cent of the shopping centre and GIC Real Estate, 40 per cent. The parties have agreed that Citycon will continue to be responsible
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" In the identification and selection of suitable properties in Finland, Sweden and the Baltic countries, Citycon considers location and development potential as decisive criteria.
for the business and management of the shopping centre on customary terms. The agreed debt-free purchase price, EUR 131.6 million, is equivalent to 40 per cent of the original acquisition price of EUR 329 million paid by Citycon.
The centre's leasable floor area totals 61,300 square metres, of which retail premises account for approximately 49,000 square metres. Iso Omena offers a wide range of services, with approximately 120 shops, cafés and restaurants and its anchor tenants include the hypermarkets Citymarket and Prisma, the fashion chains Hennes & Mauritz, Kappahl, Lindex and Dressman and a Finnkino movie theatre. Typically for Citycon's shopping centres, grocery sales account for more than 60 per cent of the centre's sales including the hypermarket sales. Details on sales and the number of visitors are presented in a table in page 29.
Iso Omena enjoys an outstanding location now and in the future. It is situated in Matinkylä in southern Espoo, the high purchasing power area, some 13 km from the downtown Helsinki, close to the Länsiväylä highway and the Kehä II ringroad junction. The excellent traffic connections of the area will improve further with the extension of the underground network to Espoo, with Matinkylä underground station planned for construction right next to the shopping centre. There are nearly 150,000 inhabitants in the shopping centre's catchment area.
This acquisition has markedly strengthened Citycon's leading position in the Finnish shopping centre sector, particularly in the Helsinki Metropolitan Area where the company now has eight shopping centres. Iso Omena offers Citycon a unique opportunity to develop the area's The investment plan for Liljeholmstorget was further adjusted towards the end of the year, as agreement was reached with the City of Stockholm and its transport services on arrangements allowing both the expansion of the shopping centre's lowest floor on a larger area than originally planned and its direct connection with subway and bus stations. The new shopping centre is expected to open its doors in October–November 2009.
shopping centres as a whole, and to increase the company's market share in the growing metropolitan retail trade.
Iso Omena's development potential is considerable – it can be expanded by some 7,000 square metres and its commercial concept can be further improved. Citycon initiated the shopping centre's refurbishment immediately after the acquisition and considers the centre one of its priorities among its properties under development.
Citycon intends to develop the Espoontori shopping centre in northern Espoo and the Myllypuro retail centre in eastern Helsinki. For this purpose, during the summer the company acquired an almost 100-per cent holding in the Myllypuro retail centre, previously owned by several minority shareholders. These transactions were associated with a more extensive refurbishment and development project in and around the Myllypuro retail centre in cooperation with the City of Helsinki. The value of the share transactions totalled approximately EUR 2.7 million. In late August, the company acquired the office property adjacent to shopping centre Espoontori for around EUR 11 million. The acquisition paves the way for expansion and development of the
shopping centre, assuming that the proposed change in city plan is approved. It was agreed that the purchase price would be lowered by a maximum of EUR 2 million if the proposed change in the city plan was rejected.
Sweden
In December 2006, Citycon announced that it had signed an agreement for the acquisition of the Tumba Centrum shopping centre, and the transaction was closed in January 2007. The shopping centre is located in the municipality of Botkyrka, south of Stockholm, and its debt-free purchase price amounted to SEK 548 million (EUR 59.4 million), which corresponds to an initial net yield of 5.4 per cent. The centre's gross leasable area is around 31,000 square metres, some 18,600 square meters of which are retail premises. Its anchor tenants include grocery and fashion retailers and Systembolaget. The property includes not only retail premises but also flats and offices, which is typical of shopping centres in Sweden. Built adjacent to commuter railway and bus stations, Tumba Centrum is a commuter hub for those working in the region. In the future, Tumba Centrum can be expanded and its refurbishment has already begun.
Citycon extended its operations outside the Stockholm and Gothenburg economic areas, to Umeå, by acquiring 75 per cent of shopping centre Strömpilen and retail property Länken. The purchase price totalled approximately SEK 490 million (around EUR 52.9 million), which corresponds to an initial net yield of 5.5 per cent.
Strömpilen is the leading shopping centre in Umeå, with an excellent commercial location near the city centre and university campus. The centre's gross leasable area is around 25,000 square metres, with retail premises accounting for approximately 22,300 square meters. A two-stage expansion project is planned for the shopping centre. The first stage involves the redevelopment of the property and the extension of the leasable area by some 5,000 square metres, the project's value totalling approximately EUR 14.5 million. The planned second phase will expand the shopping centre area further by around 20,000 square metres. Strömpilen's anchor tenant is the hypermarket ICA Maxi, other tenants including strong, well-known chains operating in various retail sectors.
Länken is a modern retail property located in the Ersboda Retail Park area close to central Umeå. Consisting of two buildings, the property has a gross leasable area of approximately 7,200 square metres. Länken, too, offers the option of future expansion, through the construction of a new 5,000-square-metre building.
Baltic Countries
In July, the company reinforced its Baltic property portfolio by acquiring shopping centre Magistral in Tallinn, Estonia, for EUR 16.2 million. The initial net yield stood at 6.5 per cent. The shopping centre was built in 2000 and has a leasable area of 9,450 square metres with an occupancy rate of 100%. Magistral has significant redevelopment and expansion potential. The deal also included the purchase of approximately 8,500 square metres of building rights for EUR 2 million, pending the approval of the proposed change in the city plan. This change being approved in the autumn of 2007, the company paid the agreed price for the building rights facilitating the expansion in December.
The Magistral shopping centre is located in Tallinn's second-largest district of Mustamäe with 64,000 inhabitants, at a distance of five kilometres from the heart of Tallinn.
Acquisition summary
As a result of the investments during the financial year, at the end of 2007 Citycon owned a total of 22 shopping centres and 46 other retail properties in Finland, eight shopping centres and seven other retail properties in Sweden and three shopping centres in the Baltic countries.
Leasing activity
Citycon's income derives mainly from the leasing of the company's properties. During 2007, Citycon extended lease agreements or negotiated new ones for retail premises, covering a total of 103,408 square metres, with the number of extended and new agreements totalling 170 and 342, respectively. A total of 641 lease agreements were transferred to Citycon as a result of property acquisitions.
Speciality and grocery chains as well as cafés, banks and financial institutions are among the company's major
lessees, of which the most significant in Finland include the various Kesko chains, such as the K-citymarket hypermarkets, the K-market supermarkets and the Anttila department stores, accounting for 28.2 per cent (2006: 33.7%) of the company's total rental income. These leases are based on agreements concluded on a premises-by-premises basis, which is why the number of lease agreements between Citycon and Kesko totals 83 covering 48 different properties. Other major lessees include the S-Group within the HOK-Elanto, representing grocery retail, fashion and clothing chain stores such as Seppälä (Stockmann), H&M, Dressman, KappAhl and Lindex, and the bank Nordea.
In Sweden, the grocery chains ICA, COOP and Axfood represent the most significant commercial lessees. However, due to the diverse nature of Swedish shopping and retail centres, the Stockholm County Council (Stockholm's Läns Landsting) was one of the largest lessees.
Prisma, a Finnish hypermarket chain, represents the largest single lessee in the Baltic countries, while both Magistral's and Mandarinas' anchor tenant was the Norwegian RIMI.
The largest acquisition during the year, and in the company's history, was the purchase of the Iso Omena shopping centre in September for EUR 329 million. The keystone in Iso Omena's takeover and management is Citycon's own in-house organisation responsible for the management and marketing of the shopping centre as well as for the property's technical functioning. With an objective to tune up the centre's service offering to serve its customer base even better, the organisation also aims to support Citycon's shopping centre portfolio in the Espoo region, where the company already has several shopping centres. Immediately following the acquisition, Citycon began planning the shopping centre's expansion and initiated the project's implementation. Iso Omena can be expanded by a total of some 7,000 square metres, and the future underground line will also create new opportunities for the redevelopment of the shopping centre.
At the turn of the year, the average duration of Citycon's leases was three years. This relatively brief average duration enables the enhancement of shopping centres' service offering and realisation of development projects on a faster schedule. Citycon aims to have a versatile and efficiently manageable lease portfolio, in order to be able to change, if needed, the tenant mix and structure of rental agreements of its properties without risking their cash flow.
Shopping centres' anchor tenants typically have longterm leases with a duration of 5–10 years, which stabilise
Citycon's cash flow while providing tenants with the opportunity to develop their business in co-operation with Citycon on a long-term basis. Medium-term leases of 3–5 years are typical of secondary anchor tenants, such as fashion chains, and generate a steady cash flow and provide the tenant mix with stability. Short-term (1–24 months) leases or leases valid until further notice provide the required flexibility and the opportunity to alter the lease portfolio.
Most of Citycon's leases are based on agreements, whereby the rent is split between the base rent, often tied to the cost-of-living index, and the maintenance fee. The maintenance fee, charged separately from the lessee, covers operating expenses incurred by the property owner due to property maintenance, and facilitates flexible changes in maintenance services.
Since the retail properties success results from Citycon's and its tenants' joint efforts, Citycon aims to increase the portion of turnover-based lease agreements, in which the rental rates are, in practice, tied to the cost-of-living index and to the lessee's turnover. In addition, the lessee pays a maintenance fee. The agreement also includes a minimum rent, likewise tied to the index. If the minimum base rent is lower than the rent based on actual turnover, the rent payable by the lessee is based on actual turnover. The portion tied to turnover is defined according to the lessee's field of business and estimated sales. These turnover-linked lease agreements support both the lessee's and Citycon's shared goal of boosting the lessee's sales. Currently, turnoverbased lease agreements account for roughly 16.1 per cent of Citycon's lease portfolio, up by 5.1 percentage points on the year before. The calculation of percentages is based on the lease portfolio's value in euros. The company aims to tie all new agreements to the lessee's turnover.
Most of these lease agreements stipulate that lessees must report their sales to Citycon on a monthly basis. This enables the company to actively monitor the performance of its shopping centres and develop their sales in cooperation with lessees by means of retail property management and marketing. Citycon monitors the lessee's ability to pay rents and reports a figure for like-for-like properties indicating the percentage of a tenant's turnover paid as rent. At the end of the year, this figure was 8.6 per cent.
Property portfolio's valuation Property portfolio summary
On 31 December 2007, the market value of Citycon's property portfolio totalled EUR 2,215.7 million, of which the property portfolio in Finland accounted for EUR 1,587.0 million, that in Sweden EUR 517.5 million and that in the Baltic countries, EUR 111.2 million.
Property valuation
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 2007, Citycon chose to have its properties valued by an external appraiser on a " An external professional appraiser conducts a valuation of Citycon's property portfolio on a property-by-property basis.
quarterly basis, due to market activity and rapidly changing market conditions. The most recent valuation statement by Realia Management Oy can be found in the appended Financial Statements, pages 62 and 63.
The appraisal of Citycon's investment properties consists of income valuation based on cash-flow method and, for some properties, an additional valuation of building rights. More details on investment properties' appraisal methods are provided in the property valuation statement mentioned above.
Citycon can contribute to its investment properties' value by, for example, increasing rental cash flow through the means of property development, retail property product development and marketing. The factor with the most significant effect on the fair value of retail properties, however, has proven to be a reduction in the yield requirements, resulting from stronger demand for investment properties and increasing the properties' value.
On 31 December 2007, Realia Management Oy evaluated the average yield requirement for Citycon's property portfolio at 5.6 per cent. The yield requirement for properties in Finland, Sweden and the Baltic countries stood at 5.7 per cent, 5.4 per cent and 6.4 per cent, respectively.
Recognition of market value
Citycon recognises its investment property at fair value in accordance with IAS 40. Its properties' combined market value (fair value) on the balance sheet date is recorded in the balance sheet and any changes in their fair value To ensure a shopping centre's functionality it is essential that the stores in the centre have appropriate locations and premises and that they together form a complex that meets the needs of the customers. For long-term planning it is also essential what kind of lease agreements are concluded with the stores doing business in the centre.
are recognised in the income statement and shown as a separate item under operating profit or loss. As a result, the change in fair value also has an impact on the periodic earnings and results.
In addition to the property portfolio's total value, determined by the external appraiser, the fair value of the company's investment properties in the balance sheet includes capital expenditure on development projects that the external appraiser does not take into account in the valuation as well as the acquisition cost of new properties acquired during the last three months.
1st possible maturity of the leases, 31 Dec. 2007
The Rocca al Mare development project involves the construction of a high-quality shopping centre located in an affluent and growing area. The latest environmental requirements are taken into account in the development project, making Rocca al Mare the greenest shopping centre in the Baltic countries so far.
Measurement of the fair value of property under construction
A property under construction is not recognized as investment property before to its completion. Such property is accounted for as property, plant and equipment (PPE) until its completion, in accordance with IAS 16. Upon its completion, the property is recognised as investment property in the balance sheet at a value comprising the amount of investments accrued until the completion. Subsequently, it is measured at fair value as any other investment property. On 31 December 2007, Citycon had three extension projects for properties under construction: the redevelopment and extension projects of Rocca al Mare, Liljeholmstorget and Åkersberga.
Fair value increase during the financial year
During the financial year, the fair value of Citycon's property portfolio rose by a total of EUR 213.4 million as a result of growth in the company's property portfolio and changes in general market conditions and the leasing business. The year saw a total increase of EUR 220.9 million in the value of 69 properties and a total decrease of EUR 7.5 million in the value of 16 properties. The year's most significant change affecting market values included growing interest in Citycon's operating areas shown by international investors, which reduced the properties' yield requirement and contributed to value generation.
Future challenges
Citycon strives to continue the growth strategy by expanding its property holdings in the retail business and selected market areas, and by upgrading its properties in order to better serve the retail sector. The company considers releasing capital for property development by divesting noncore properties.
Increasing construction costs, fierce competition for profitable investment opportunities and the growth of retail business in Citycon's operating countries will present challenges. Retaining and strengthening its market position will require Citycon to predict and identify new trends in retailing and contribute and respond to them, for example, by professional and forward-looking product development of retail properties, intensified property-development operations and by actively seeking new lessees, especially among new retailers entering the market.
Property development, in particular, faces the challenges of consumers' changing purchase behaviour, retailers' increasing demands as well as continuously intensifying competition between shopping facilities and shortening of their commercial lifecycles.
Portfolio analysis 31 Dec. 2007
| Number of lease |
Fair market value, EUR million |
Rental income | Occupancy rate,% | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Total portfolio | City | Citycon's GLA |
Average length of lease agreements agreements |
Average rent EUR/sq.m/ year |
Gross rental income |
Net rental income |
EUR | sq.m. | |||
| 31 Dec. 07 | 31 Dec. 06 Year 2007 | Year 2007 31 Dec. 07 31 Dec. 07 | |||||||||
| Finland | |||||||||||
| Shopping centres, Helsinki Metropolitan Area | |||||||||||
| Columbus | Helsinki | 20,900 | 73 | 83.9 | 78.2 | 99.7% | 99.0% | ||||
| Espoontori | Espoo | 15,400 | 51 | 29.6 | 18.9 | 83.3% | 77.7% | ||||
| Heikintori | Espoo | 5,800 | 38 | 14.2 | 14.1 | 96.0% | 91.9% | ||||
| Isomyyri | Vantaa | 10,400 | 190 | 22.4 | 18.7 | 99.5% | 98.5% | ||||
| Iso Omena | Espoo | 60,600 | 18 | 329.3 | 96.3% | 92.3% | |||||
| Lippulaiva | Espoo | 22,400 | 86 | 58.9 | 54.0 | 96.9% | 95.1% | ||||
| Myyrmanni | Vantaa | 40,300 | 122 | 176.7 | 155.8 | 97.7% | 97.7% | ||||
| Tikkuri | Vantaa | 10,700 | 53 | 30.2 | 23.1 | 99.4% | 98.7% | ||||
| Shopping centres, Helsinki | |||||||||||
| Metropolitan Area, total | 186,500 | 631 | 2.9 | 297 | 745.3 | 362.6 | 38.0 | 28.1 | 97.7% | 95.7% | |
| Shopping centres, other areas in Finland | |||||||||||
| Duo | Tampere | 13000 | 36 | 35.2 | 25.3 | 97.7% | 93.1% | ||||
| IsoKarhu | Pori | 14,900 | 59 | 44.2 | 39.2 | 97.5% | 93.9% | ||||
| IsoKristiina | Lappeenranta | 18,300 | 54 | 39.2 | 35.6 | 91.3% | 89.9% | ||||
| Jyväskeskus | Jyväskylä | 5,800 | 76 | 16.1 | 12.2 | 98.8% | 97.5% | ||||
| Jyväskylän Forum | Jyväskylä | 17,500 | 65 | 60.7 | 48.6 | 98.7% | 98.2% | ||||
| Koskikara | Valkeakoski | 5,800 | 35 | 7.4 | 5.3 | 92.6% | 92.3% | ||||
| Koskikeskus | Tampere | 26,000 | 155 | 114.7 | 85.9 | 98.9% | 97.1% | ||||
| Linjuri | Salo | 9,300 | 8 | 17.7 | 15.2 | 96.1% | 96.7% | ||||
| Oulun Galleria | Oulu | 3,500 | 35 | 10.2 | 7.7 | 98.7% | 97.1% | ||||
| Sampokeskus | Rovaniemi | 14,000 | 86 | 26.7 | 23.6 | 87.2% | 78.6% | ||||
| Torikeskus | Seinäjoki | 11,400 | 70 | 12.9 | 12.1 | 92.5% | 90.6% | ||||
| Trio | Lahti | 43,900 | 152 | 124.5 | 72.4 | 93.3% | 91.4% | ||||
| Tullintori | Tampere | 10,300 | 43 | 9.9 | 8.7 | 79.0% | 79.1% | ||||
| Valtari | Kouvola | 7,600 | 20 | 6.0 | 5.9 | 90.7% | 87.6% | ||||
| Shopping centres, other | |||||||||||
| areas in Finland, total | 201,300 | 894 | 3.3 | 199 | 525.5 | 397.5 | 36.0 | 26.4 | 94.9% | 91.7% | |
| Other retail properties | 206,380 | 232 | 3.6 | 144 | 316.2 | 249.6 | 26.7 | 20.9 | 92.9% | 89.8% | |
| Finland, total | 594,180 | 1,757 | 3.1 | 212 | 1,587.0 | 1,009.7 | 100.7 | 75.7 | 95.6% | 92.3% | |
| Sweden | |||||||||||
| Shopping centres, | |||||||||||
| Stockholm area and Umeå | |||||||||||
| Fruängen Centrum | Stockholm | 14,600 | 95 | 15.4 | 14.6 | 93.5% | 90.5% | ||||
| Jakobsbergs Centrum | Järfälla | 67,500 | 501 | 121.8 | 110.0 | 97.6% | 96.6% | ||||
| Liljeholmstorget | Stockholm | 20,200 | 37 | 77.9 | 64.7 | 90.1% | 76.2% | ||||
| Strömpilen | Umeå | 27,000 | 25 | 54.6 | 84.9% | 84.3% | |||||
| Tumba Centrum | Stockholm | 30,900 | 295 | 63.8 | 99.8% | 99.8% | |||||
| Åkermyntan Centrum | Hässelby | 8,400 | 45 | 12.8 | 12.5 | 100.0% | 97.1% | ||||
| Åkersberga Centrum | Österåker | 33,100 | 238 | 57.6 | 55.3 | 84.4% | 79.4% | ||||
| Shopping centres, Gothenburg area | |||||||||||
| Stenungs Torg | Stenungsund | 37,600 | 330 | 56.3 | 58.4 | 97.3% | 97.4% | ||||
| Shopping centres, Sweden, total | 239,300 | 1,566 | 2.2 | 150 | 460.1 | 315.6 | 31.0 | 18.8 | 94.6% | 92.3% | |
| Other retail properties | 44,400 | 147 | 3.7 | 111 | 57.4 | 39.3 | 4.3 | 2.7 | 96.1% | 94.5% | |
| Sweden, total | 283,700 | 1,713 | 2.4 | 143 | 517.5 | 354.8 | 35.4 | 21.6 | 95.1% | 93.3% | |
| Baltic Countries | |||||||||||
| Estonia | |||||||||||
| Rocca al Mare | Tallinn | 28,600 | 111 | 74.7 | 68.2 | 100% | 100.0% | ||||
| Magistral | Tallinn | 9,500 | 61 | 18.5 | 100% | 100.0% | |||||
| Lithuania | |||||||||||
| Mandarinas | Vilnius | 8,000 | 57 | 18.0 | 15.1 | 100% | 100.0% | ||||
| Baltic Countries, total | 46,100 | 229 | 2.8 | 183 | 111.2 | 83.3 | 7.7 | 6.0 | 100% | 100% | |
| Total portfolio | 923,980 | 3,699 | 3.0 | 189 | 2,215.7 | 1,447.9 | 143.7 | 103.4 | 95.7% | 93.0% |
Like-for-like portfolio
| Fair market value, EUR million |
Rental income | Occupancy rate,% | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Citycon's GLA |
Number of lease |
Average length of lease agreements agreements |
Average rent EUR/sq.m/ year |
Gross rental income |
Net rental income |
|||||||
| 31 Dec. 07 | 31 Dec. 06 | Year 07 | Year 07 31 Dec. 07 31 Dec. 07 | |||||||||
| Finland | ||||||||||||
| Helsinki Metropolitan Area | 96,020 | 580 | 2.6 | 178 | 183.4 | 153.2 | 16.1 | 11.9 | 96.6% | 94.1% | ||
| Other areas | 206,560 | 215 | 2.6 | 197 | 458.8 | 386.5 | 37.2 | 29.1 | 94.9% | 91.2% | ||
| Finland, total | 302,580 | 795 | 2.6 | 192 | 642.3 | 539.7 | 53.3 | 40.9 | 95.2% | 91.7% | ||
| Sweden | ||||||||||||
| Stockholm area and Umeå | 18100 | 96 | 1.9 | 116 | 21.3 | 19.4 | 1.9 | 1.1 | 94.7% | 92.3% | ||
| Like-for-like portfolio, total | 320,680 | 891 | 2.6 | 188 | 663.6 | 559.1 | 55.2 | 42.0 | 95.1% | 91.7% |
Like-for-Like portfolio= Properties held by Citycon throughout the 24-month reference period. Properties under development and expansion as well as lots are eliminated from the figures.
Market value analysis, 31 Dec. 2007
| Fair market value, EUR million |
Change in market value, year 2007, EUR million |
Average | Average market operating ex |
||||||
|---|---|---|---|---|---|---|---|---|---|
| Total portfolio | Negative | Total | Average yield requirement,% |
sq.m./month | rent, EUR, penses, EUR/ sq.m./month |
||||
| 31 Dec. 07 | 31 Dec. 06 | 31 Dec. 07 | 31 Dec. 06 | 31 Dec. 07 | 31 Dec. 07 | ||||
| Finland | |||||||||
| Helsinki Metropolitan Area | 878.3 | 471.6 | 64.4 | -3.7 | 60.8 | 5.4% | 6.4% | 23.60 | 5.40 |
| Other areas in Finland | 708.6 | 538.2 | 91.3 | -3.6 | 87.7 | 6.0% | 6.8% | 17.90 | 3.90 |
| Finland, total | 1,587.0 | 1,009.7 | 155.7 | -7.3 | 148.5 | 5.7% | 6.6% | 21.10 | 4.70 |
| Sweden | |||||||||
| Stockholm area and Umeå | 425.6 | 262.0 | 50.9 | 50.9 | 5.3% | 6.4% | 13.70 | 4.10 | |
| Gothenburg area | 91.9 | 92.9 | 4.5 | 4.5 | 5.9% | 6.5% | 10.90 | 3.60 | |
| Sweden, total | 517.5 | 354.8 | 55.6 | 55.6 | 5.4% | 6.4% | 13.20 | 4.00 | |
| Baltic Countries | |||||||||
| Estonia | 93.2 | 68.2 | 6.7 | -0.2 | 6.5 | 6.3% | 7.0% | 15.40 | 3.70 |
| Lithuania | 18.0 | 15.1 | 2.9 | 2.9 | 6.7% | 7.3% | 19.30 | 6.40 | |
| Baltic Countries, total | 111.2 | 83.3 | 9.6 | -0.2 | 9.3 | 6.4% | 7.1% | 16.40 | 4.10 |
| TOTAL PORTFOLIO | 2,215.7 | 1,447.9 | 220.9 | -7.5 | 213.4 | 5.6 % | 6.6 % | 19.00 | 4.50 |
The fair value change of properties sold during the period was -0.1 million euros.
Like-for-like properties
| Finland | ||||||
|---|---|---|---|---|---|---|
| Helsinki Metropolitan Area | 183.4 | 153.2 | 30.4 | -1.7 | 28.7 | |
| Other areas in Finland | 458.8 | 386.5 | 69.3 | -3.0 | 66.3 | |
| Finland, total | 642.3 | 539.7 | 99.7 | -4.8 | 94.9 | |
| Sweden | ||||||
| Stockholm area | 21.3 | 19.4 | 2.7 | 2.7 | ||
| Like-for -like properties, total | 663.6 | 559.1 | 102.4 | -4.8 | 97.6 | |
Completed development projects in 2007
| planned and redevelopment of the existing premises was completed in Duo Tampere FIN 5,000 13 200 3) 27.3 25.5 October 2007. Lillinkulma Kaarina FIN 0 7,500 8.2 10.9 4) project was completed in May 2007 as scheduled. Lentola Kangasala FIN 0 12,000 16.6 16.2 completion of the project in November 2007. Linjuri Salo FIN 9,000 9,000 1.8 1.2 into a shopping centre was completed in December 2007. |
Property | Location | Country | Area, sq.m. 1) |
Post- development investment area, sq.m |
Estimated total EUR million2) |
Actual cumulative CAPEX by the end of the period, |
EUR million Additional information |
|---|---|---|---|---|---|---|---|---|
| New shopping centre consisting of two parts: new development and redevelop ment of the old retail centre. The new section was opened in April 2007 as |
||||||||
| New retail centre consisting of two buildings including four retail premises. All premises are leased. The title to the centre was transferred to Citycon as the |
||||||||
| New retail building. The title to the property was transferred to Citycon after the | ||||||||
| Redevelopment of a retail property (redevelopment area approx. 4,000 s.qm.) |
1) Leasable area owned by Citycon before the project start. 2) New capital tied on the project. 3) Owned by Citycon. 4) Includes stages 1 and 2. Second stage was completed earlier than anticipated.
Leasing activity
| N | umber of lease agreements |
Citycon's GLA, sq.m. |
Leased area, sq.m. |
Average rent, EUR/sq.m./month |
|---|---|---|---|---|
| Finland | ||||
| Status 1 Jan. 2007 | 1,542 | 482,320 | 450,900 | 16.3 |
| Leases started | ||||
| New or extended leases | 442 | 74,400 | 19.9 | |
| Acquisitions | 253 | 112,100 | 85,900 | 19.3 |
| Leases ended | ||||
| Expired, fixed-term leases | 101 | 27,700 | 16.3 | |
| Terminated, until-further-notice leases | 331 | 45,000 | 16.7 | |
| Leases terminated due to development projects | 48 | 12,100 | 18.3 | |
| Divestments | 240 | |||
| Status 31 Dec. 2007 | 1,757 | 594,180 | 526,400 | 17.6 |
| Sweden | ||||
| Status 1 Jan. 2007 | 1,393 | 217,700 | 205,590 | 12.3 |
| Leases started | ||||
| New or extended leases | 49 | 25,800 | 11.7 | |
| Acquisitions | 326 | 65,000 | 62,000 | 13.8 |
| Leases ended | ||||
| Expired, fixed-term leases | 12 | 14,300 | 7.7 | |
| Terminated, until-further-notice leases | 30 | 9,000 | 9.3 | |
| Leases terminated due to development projects | 13 | 4800 | 14.1 | |
| Status 31 Dec. 2007 | 1,713 | 283,700 | 270,090 | 12.5 |
| Baltic Countries | ||||
| Status 1 Jan. 2007 | 174 | 36,600 | 36,300 | 9.9 |
| Leases started | ||||
| New or extended leases | 21 | 3,208 | 23.9 | |
| Acquisitions | 62 | 9,500 | 9,500 | 10.5 |
| Leases ended | ||||
| Expired, fixed-term leases | 5 | 800 | 20.2 | |
| Terminated, until-further-notice leases | 9 | 300 | 11.2 | |
| Leases terminated due to development projects | 14 | 3,600 | ||
| Status 31 Dec. 2007 | 229 | 46,100 | 46,100 | 12.6 |
Development projects in progress on 31 December 2007
| Property | Location | Country | Market value EUR million (31 Dec. 2007) |
Area, sq.m. 1) |
Post- develop- ment area, sq.m |
Total estimated investment |
Actual cumulative CAPEX by the end of the year year of EUR million2) EUR million |
Target completion |
Additional information |
|---|---|---|---|---|---|---|---|---|---|
| Construction of a new shopping centre. The existing building will | |||||||||
| undergo a thorough refurbishment and considerable extension. | |||||||||
| Liljeholms- torget |
Stockholm | SWE | 77.9 | 20,100 | 91,000 | 120 | 17.6 | 2009 | One of Citycon's pilot projects in the sustainable development of its' properties. |
| Refurbishment and major extension of the existing shopping | |||||||||
| centre. One of Citycon's pilot projects in the sustainable development | |||||||||
| Rocca | of its' properties. The project is ahead of the schedule and is | ||||||||
| al Mare | Tallinn | EST | 74.7 | 28,600 | 53,500 | 68 | 13.2 | 2009 | expected to be completed one year earlier than initially estimated. |
| Refurbishment and extension of the existing shopping centre. The | |||||||||
| project will be carried out in two stages; the first stage was com | |||||||||
| pleted in November 2007 as planned. One of Citycon's pilot | |||||||||
| Trio | Lahti | FIN | 124.5 | 32,000 | 35,000 | 60 | 21.5 | 2008 | projects in the sustainable development of its' properties. |
| Refurbishment and extension of the existing shopping centre. The | |||||||||
| refurbishment of indoor areas will be completed in spring 2008. | |||||||||
| The extension project will continue as planned, since the appeal re | |||||||||
| garding the change of zoning required for the extension, which de | |||||||||
| layed the project, was dismissed in the Supreme Administrative | |||||||||
| Lippulaiva | Espoo | FIN | 52.1 | 18,000 | 35,000 | 60-70 3) | 8.9 | 2010/2011 | Court in September 2007. |
| Redevelopment and extension of the existing shopping centre. The | |||||||||
| project has been delayed due to a tenant complaint. The project | |||||||||
| Åkersberga | plan will be renewed during spring 2008 and the project will con | ||||||||
| Centrum | Österåker | SWE | 57.6 | 26,000 | 35,200 | 27 4) | 3.3 | 2010 | tinue as planned. Redevelopment and extension of the shopping centre. In the first |
| phase the centre will be refurbished and extended by 500 sq.m. The | |||||||||
| Tumba | second phase includes remarkable redevelopment and extension. | ||||||||
| Centrum | Stockholm | SWE | 63.8 | 30,000 | 38,000 | 35-37 5) | 1.4 | 2011 | The target year of the launch of the second phase is 2009. |
| Refurbishment of the shopping centre underway, the first stage | |||||||||
| Torikeskus | Seinäjoki | FIN | 12.9 | 11,300 | 12,000 | 4.0 | 2.1 | 2009 | was completed in 2007. |
1) Leasable area owned by Citycon. 2) New capital tied on the project. 3) Both planned stages included in the estimate. The second stage is subject to the Board of Directors' decision. 4) Citycon owns 75% of the shopping centre. The estimated total value of the redevelopment is approx. EUR 40 million. 5) Both stages included in the figure. The second stage is subject to the Board of Directors' decision. The estimated investment need of the initiated first phase is approx. EUR 8 million.
Development projects under planning
Market
Citycon's Board of Directors has not yet made a decision on the development project, but it is under planning, an alteration of the city plan is pending or Citycon (or its partner) has a site reservation.
| Property | Location | Country | value EUR million (31 Dec. 2007) |
Project area, sq.m. |
Estimated investment need EUR million 2) |
Target year of project launch |
Target year of completion |
Additional information |
|---|---|---|---|---|---|---|---|---|
| Alteration of city plan pending, facilitating the extension and refurbishment of | ||||||||
| the existing shopping centre. The investment amount does not include the prop | ||||||||
| Espoontori | Espoo | FIN | 29.6 | 24,000 | 50 | 2009 | 2011 | erty acquisition cost incurred in 2007 (Asemakuja). 3) |
| Extension of the shopping centre in two stages, the first stage will be carried out | ||||||||
| Iso Omena | Espoo | FIN | 329.3 | 5,000 4) | 15 | 2008 | 2010 | in 2008. |
| The food court was refurbished in 2007. The second floor will be refurbished | ||||||||
| into a fashion world in an indoor renovation that will be carried out in several | ||||||||
| stages. Estimated investment need includes the completed food court project of | ||||||||
| Myyrmanni | Vantaa | FIN | 176.7 | 11,000 | 15-17 | 2008 | 2011 | EUR 2.1 million. |
| Redevelopment of the Galleria block into a shopping centre in co-operation with | ||||||||
| the block's other property owners. Includes the acquisition and refurbishment of | ||||||||
| the adjoining property (appr. 11,000 sq.m.) and its connection to the existing | ||||||||
| Galleria | Oulu | FIN | 10.2 | 17,000 | 50-55 | 2010 | 2012 | centre as well as an underground parking facility. |
| The improvement of the shopping centre's service palet through inner refurbis | ||||||||
| ment and extension works. Alteration of the city plan gained legal force in 2007 | ||||||||
| Koskikeskus | Tampere | FIN | 114.7 | 2,000 5) | 8-12 | 2009 | 2008-2009 | increasing building right for retail use by 6,200 sq.m. |
| Building a new retail centre replacing the existing one. During 2007 Citycon | ||||||||
| Myllypuro 6) | Helsinki | FIN | 4.2 | 7,400 | 20 | 2009 | 2012 | acquired almost the entire centre to facilitate the development project. |
| Redevelopment and extension of the existing building into a new shopping cen | ||||||||
| tre. Commercial concept of the project under review and building of parking fa | ||||||||
| Kuopion Anttila Kuopio | FIN | 21.7 | 15,000 | 35-40 | 2009 | 2011 | cilities under the market square pending. 3) | |
| Heikintori 6) | Espoo | FIN | 14.2 | 23,000 | 60 | 2009-2010 | Refurbishment and extension of the existing shopping centre. 3) | |
| Martinlaakso | Vantaa | FIN | 8.2 | 7,000-8,000 25-30 | 2009 | 2011 | Building a new shopping centre replacing the existing retail centre. 3) | |
| Laajasalo | Helsinki | FIN | 4.4 | 8,000 | 25-30 | 2009 | 2010 | Building a new retail centre replacing the existing one. 3) |
| Tampere (earlier | In stead of the unmaterialized MAXX-project, Citycon is examining an alternate | |||||||
| known as MAXX) Tampere | FIN | 50,000 | shopping centre project in Tampere. | |||||
| Refurbishment and extension of the existing shopping centre under planning. | ||||||||
| IsoKristiina | Lappeenranta FIN | 39.2 | 25,000 | 50 | 2009 | 2012 | Alteration of city plan pending and commercial concept under review. 3) | |
| Stenungs | Citycon has agreed with the shopping centre's minority shareholder on the rede | |||||||
| Torg 6) | Stenungsund SWE | 56.3 | 30,000 | 40-50 | 2008 | 2010 | velopment and extension of the shopping centre. | |
| Strömpilen 6) | Umeå | SWE | 54.6 | 40,000 | 54 | 2008 | 2011 | Refurbishment and extension of the shopping centre. |
| Länken 6) | Järfälla | SWE | 15.9 | 5,000 | 8-9 | 2009 | 2011 | Refurbishment and extension of the retail property. |
| Jakobsbergs | ||||||||
| Centrum | Järfälla | SWE | 121.8 | 8,000 | 5-6 | 2008 | 2009 | Redevelopment and extension of the shopping centre. |
| Åkermyntan | Redevelopment of the shopping centre, building of new residential units | |||||||
| Centrum | Hässelby | SWE | 12.8 | 8,500 | 2-10 | 2008 | 2009 | adjoining the centre under review. |
| Magistral | Tallinn | EST | 18.5 | 10-15,000 | 10-15 | 2009 | 2009 | Refurbishment and extension of the shopping centre. |
1) The project area refers to the combination of the area of the existing premises under refurbishment owned by Citycon and the area of the extension.
2) The amount of investment needed will change and become more precise as the planning process proceeds. The figure is the best current estimate.
3) The schedule for the project completion and/or launch involves risks associated with city planning.
4) The project area refers only to the area of the planned extension.
5) The leasable area may be larger than indicated. 6) Partly-owned property.
Potential development projects
Citycon is analysing opportunities for the development and/extension of for example the properties below. Neither an alteration of city plan has been applied for nor any other official decisions made.
| Property | Location | Market value, EUR million Country (31 Dec. 2007) |
Area, sq.m. |
Additional information | |
|---|---|---|---|---|---|
| Vacant lot of approximately 42,000 sq.m. with 20,000 s.qm. in current permitted residential | |||||
| Ultima | Vantaa | FIN | 4 | 0 | building right. Possibility to use the property as a consideration in potential transactions. |
| Myyrmanni | Vantaa | FIN | 177 | 10,000 | Potential extension of the shopping centre by 10,000 sq.m. |
| Valtari | Kouvola | FIN | 6 | 7,600 | Opportunities to redevelop the property are analysed. |
| Columbus | Helsinki | FIN | 84 | 20,400 | Opportunities to expand the shopping centre are reviewed. |
| Sampokeskus | Rovaniemi | FIN | 27 | 13,600 | Opportunities to redevelop the property are analysed. |
| Koskikeskus | Tampere | FIN | 115 | 28,800 | The commercial potential of Vuoltsu, a block next to Koskikeskus, and its merger in Koskikeskus are examined. |
| Kaarinan liiketalo | Kaarina | FIN | 8 | 9,400 | The redevelopment of the existing retail property in line with the development plan of the town centre is analyzed. |
| Hakunila | Vantaa | FIN | 4 | 3,000 | Opportunities to redevelop the property are analysed. |
| Jyväskylän Forum | Jyväskylä | FIN | 61 | 17,400 | Opportunities to redevelop the shopping centre are analysed. |
| Backa | Gothenburg | SWE | 9 | 7,800 | Opportunities to develop the property are analysed. |
| Fruängen Centrum Stockholm | SWE | 15 | 15,000 | Opportunities to refurbish and possibly extend the property are analysed. | |
| Lindome | Gothenburg | SWE | 8 | 7,800 | Possibilities to build residential units adjoining the retail centre under review. |
Finland
As the shopping centre market leader in Finland, Citycon further strengthened its position during 2007. The company made the largest shopping-centre acquisition in its history by purchasing Iso Omena in Espoo, one of the largest shopping centres in Finland and the largest in Citycon's portfolio.
Citycon owns 67 retail properties in 28 locations around Finland, 22 of these being shopping centres. Stores operating in Citycon's shopping centres reported a turnover of over EUR 1.1 billion in 2007, up over 5per cent from the previous year. During the year, Citycon acquired the Iso Omena shopping centre and completed several major development and redevelopment projects in its shopping centres. Its total investments in Finland amounted to EUR 429.1 million, of which EUR 389.6 million were used for new acquisitions and EUR 39.5 million for development projects. According to the preliminary market data Citycon's market share of the grocery sales in the Finnish shopping centres was 37.8 per cent (source: Entrecon). The estimate includes Iso Omena's sales for the whole year 2007.
Following the acquisition of Iso Omena, Citycon is able to provide both international and new, growing domestic retail chains with the most attractive location in the Finnish market. Thanks to its broad shopping centre portfolio, Citycon provides its partners with excellent expansion opportunities both in the Helsinki Metropolitan Area and elsewhere in Finland.
In 2007, Citycon carried out several major development projects in Finland, the largest of these being the extension and refurbishment of the Duo shopping centre completed in the urban district of Hervanta in Tampere. In 2008, several development and redevelopment projects are underway in a number of Citycon's shopping centres, in addition to which the company is continuously preparing new projects enabling it to enhance the commercial attractiveness of its property portfolio on a continuous basis. More detailed information on these projects can be found on pages 13-15 and 24-26 of this annual report.
In addition to shopping centres, Citycon owns 45 other retail properties in Finland. These are regionally important retail facilities that do not meet the criteria for a shopping centre but still provide an important addition to Citycon's retail property offering.
Shopping centres have different roles – from destination centres to partners in everyday life
Citycon continued to develop the cluster approach initiated in Finland in the previous year. The purpose of these clusters is to define focus areas for shopping centre management and development activities. For instance, shopping centres belonging to the same cluster apply common marketing and management methods. Furthermore, the clusters provide a basis for shopping-centre development activities. Cluster-based shopping-centre management is an entirely new approach in the Finnish market, so Citycon is also a pacesetter in this field.
Citycon has defined five shopping centre categories: destination centres, meeting points in city centres, local centres, partners in everyday life, and niche centres. Citycon's shopping centres are typically meeting points in city centres, local centres or partners in everyday life. Niche centres focus on a single field or theme, such as interior decoration, whereas destination centres are characterised by an extensive size and offering that people want to see and experience. Citycon has neither destination centres nor niche centres in its shopping centre portfolio.
Meeting points in city centres, such as Trio in Lahti and Koskikeskus in Tampere, attract people both for shopping and spending time. These venues are typically located in the centres of larger cities and must provide a versatile, high-quality service offering.
Local centres, such as Koskikara in Valkeakoski and Lippulaiva in Espoo, are designed for quick and convenient shopping. Local centres must meet clearly defined needs since customers visit these centres often and spend less time there compared to meeting points in the city centres. Citycon's partners in everyday life centres are, for example, Tullintori in Tampere and Isomyyri in Vantaa. These partner shopping centres are conveniently located on one's way home and are often relatively small in size. Customers are usually attracted to them by a good grocery store, an ATM and, for instance, the adjacent recycling facilities.
Key figures, Finnish operations
| 2007 | 2006 | |
|---|---|---|
| Gross rental income, EUR million | 100.7 | 93.1 |
| Turnover, EUR million | 104.3 | 95.8 |
| Net rental income, EUR million | 75.7 | 68.8 |
| Net fair value gains on investment property, EUR million | 148.5 | 104.8 |
| Operating profit, EUR million | 218.7 | 176.1 |
| Capital expenditure (gross), EUR million | 429.1 | 152.8 |
| Fair market value of investment properties, EUR million | 1,587.0 | 1,009.7 |
| Net rental yield, % | 6.2 | 7.6 |
| Net rental yield, like-for-like properties, % | 7.1 | 7.9 |
Outlook
The most important development areas in Citycon's Finnish operations include the sustainable development of shopping centres, the strengthening of chain leasing, and product development, particularly utilising the clustering approach. The company will also focus on property maintenance management. The aim of all development efforts is to secure strong customer flow and, thereby, cash flow in the years to come.
In the last few years, Citycon has further consolidated its leading position in the Finnish shopping-centre market, providing its tenants with location opportunities beyond compare in its shopping centres and other retail properties. In the short term, there are no such factors in sight that would fundamentally weaken the company's operational conditions or competitiveness on the Finnish market.
Top five tenants in Finland
| Proportion of rental income | |
|---|---|
| KESKO | |
| S-Group | |
| Stockmann/Seppälä | |
| H & M Hennes & Mauritz Oy | |
| Lindex | |
| Top 5, total | 49.6% |
" According to the preliminary market data, Citycon's market share of the grocery sales in the Finnish shopping centres was 37.8 per cent.
Citycon's shopping centres and other major retail properties in Finland 31 Dec. 2007
| Entire retail property | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Property | Location | Gross leasable are total, sq.m. |
Retail premises total, sq.m. |
Sales, EUR million | Number of visitors, million | Catchment area population * |
Citycon's gross leasable area, sq.m. |
||
| 2007 | 2006 | 2007 | 2006 | ||||||
| Helsinki Metropolitan Area | |||||||||
| Columbus | Helsinki | 20,900 | 19,200 | 92.8 | 76.5 | 7.5 | 7.1 | 33,000 | 20,900 |
| Iso Omena | Espoo | 60,600 | 47,900 | 212.2 | 200.1 | 8.4 | 8.4 | 193,400 | 60,600 |
| Espoontori 1) | Espoo | 21,300 | 10,300 | 31.1 | 30.5 | 3.2 | 3.2 | 52,400 | 15,400 |
| Heikintori | Espoo | 9,500 | 7,000 | 27.0* | 27.0* | 2.2 | 2.2 | 187,100 | 5,800 |
| Lippulaiva 2) | Espoo | 22,400 | 18,800 | 65.7 | 53.0 | 3.6 | 3.0 | 44,500 | 22,400 |
| Isomyyri | Vantaa | 14,800 | 8,800 | 32.9 | 33.8 | 2.5 | 2.5 | 88,900 | 10,400 |
| Myyrmanni | Vantaa | 42,000 | 32,000 | 157.2 | 153.8 | 6.9 | 6.8 | 67,400 | 40,300 |
| Tikkuri | Vantaa | 15,300 | 8,100 | 29.2 | 26.9 | 2.7 | 2.5 | 166,900 | 10,700 |
| Other areas in Finland | |||||||||
| Jyväskeskus | Jyväskylä | 12,000 | 6,700 | 21.8 | 20.8 | 4.0 | 4.1 | 134,200 | 5,800 |
| Forum | Jyväskylä | 23,000 | 18,800 | 64.5 | 62.6* | 6.5 | 7.1 | 134,200 | 17,500 |
| Trio | Lahti | 46,800 | 28,000 | 61.8 | 77.3 | 6.2 | 8.9 | 118,600 | 43,900 |
| IsoKristiina | Lappeenranta | 19,800 | 14,100 | 46.7 | 45.5* | 2.2 | 2.1 | 85,000 | 18,300 |
| Galleria | Oulu | 4,200 | 2,600 | 8.3 | 8.5 | 1.0 | 1.1 | 197,700 | 3,500 |
| IsoKarhu | Pori | 14,900 | 12,500 | 42.1 | 39.9 | 3.8 | 3.8 | 91,500 | 14,900 |
| Koskikeskus | Tampere | 28,800 | 23,900 | 119.5 | 122.2 | 5.7 | 6.0 | 274,800 | 26,000 |
| Tullintori | Tampere | 23,800 | 9,100 | 14.9* | 22.1* | 3.0 | 3.4 | 166,000 | 10,300 |
| Duo | Tampere | 13,500 | 11,900 | 29.4 | - | 2.5 | - | 21,200* | 13,000 |
| Sampokeskus | Rovaniemi | 14,000 | 7,800 | 21.7 | 23.4 | 3.3 | 3.3 | 87,500 | 14,000 |
| Torikeskus | Seinäjoki | 11,300 | 7,100 | 15.4 | 15.4 | 1.3 | 1.2 | 109,600 | 11,400 |
| Koskikara | Valkeakoski | 10,400 | 10,000 | 32.3* | 31.7 | 2.2 | 2.2 | 20,500 | 5,800 |
| Valtari | Kouvola | 7,600 | 6,400 | 3.8* | 3.5* | 0.5 | 0.4* | 32,000* | 7,600 |
| Linjuri | Salo | 10,600 | 8,100 | - | - | - | 25,900* | 9,300 | |
| Largest other retail properties by area |
|||||||||
| Porin Asema-Aukio Koy | Pori | 18,900 | 10,900 | ||||||
| Sinikalliontie 1 | Espoo | 15,700 | 10,600 | ||||||
| Lentola | Kangasala | 11,900 | 11,700 | ||||||
| Kauppakatu 41 | Kuopio | 11,200 | 7,300 | ||||||
| Talvikkitie 7-9 | Vantaa | 9,800 | 9,700 | ||||||
| Lillinkulma | Kaarina | 9,200 | 5,200 | ||||||
| Total | 524,200 | 374,500 | 1,130.3 | 1,074.5 | 79.2 | 79.3 | 387,800 |
1) Inc. gross leasable area of Espoon Asemakuja 2) Inc. gross leasable area of Ulappatori *) Estimate
Citycon has rapidly emerged as one of the most active and rapidly growing real estate investment companies in Sweden, particularly renowned for its activity in property development and expertise in retail business. In 2007, Citycon's operations expanded from Stockholm and Gothenburg to Umeå.
In 2007, Citycon's turnover totalled EUR 39.0 million in Sweden, up 125.1 per cent from the previous year. During the year, the company acquired the Tumba Centrum in Stockholm as well as the Strömpilen shopping centre and the Länken retail property in Umeå. At the Liljeholmen shopping centre in Stockholm, Citycon launched a EUR 120 million development and redevelopment project. Citycon's capital expenditure in Sweden totalled EUR 142.4 million, of which EUR 125.6 million was invested in new acquisitions and EUR 16.8 million in development projects.
Citycon has specialised in the modernisation and redevelopment of regional centres originally constructed by municipal powers. This market has only a handful of players with a dynamic profile like Citycon. However, Swedish regional centres provide extensive development potential, and one of Citycon's strengths lies in its ability to develop an extensive range of services for the whole community. Consequently, Citycon's activities have attracted positive comments from Swedish municipal and elected officials, among others.
Solid local expertise
Citycon owns eight shopping centres and seven other retail properties in Sweden. Development projects were underway in nearly all of these during 2007, the largest being those in Liljeholmen, Åkersberga, Stenungs Torg and the Tumba Centrum. Citycon has acquired its entire Swedish portfolio during the last three years, and almost all of these properties still have significant development potential. At the
Key figures, Swedish operations
| 2007 | 2006 | |
|---|---|---|
| Gross rental income, EUR million | 35.4 | 15.9 |
| Turnover, EUR million | 39,0 | 17,3 |
| Net rental income, EUR million | 21,6 | 9,3 |
| Net fair value gains on investment property, EUR million | 55.6 | 8.7 |
| Operating profit, EUR million | 74.3 | 16.8 |
| Capital expenditure (gross), EUR million | 142.4 | 267.2 |
| Fair market value of investment properties, EUR million | 517.5 | 354.8 |
| Net rental yield, % | 4.6 | 5.1 |
| Net rental yield, like-for-like properties, % | 5.3 | 6.8 |
end of 2007, the Swedish development projects were valued at a total of EUR 200 million. For further information on these projects, see pages 14-15 and 25-26 of this annual report.
Sweden
One of the cornerstones
of Citycon's growth strategy is its in-depth knowledge of the local market. In 2007, the company recruited 13 persons for its Swedish organisation, the number of employees totalling 24 at the year-end. The creation of the new organisation succeeded extremely well – thanks to its new kind of operating model, Citycon has become a sought-after employer in the Swedish market. Citycon's expertise in the retail business has also been recognised by its tenants, who are particularly attracted by the growth opportunities which the development projects provide.
Outlook
Citycon has excellent opportunities for continued growth, both through new acquisitions and organic growth. The Swedish shopping centre market has been extremely liquid, with the number of properties purchased and sold being considerably larger than in the other countries in which Citycon operates. This is opening up new business opportunities for Citycon on a continuous basis.
Additional proof of the functionality of the Swedish property market provides Citycon's expansion from Stock-
Top five tenants in Sweden
| Proportion of rental income | |
|---|---|
| ICA Sverige AB | |
| Stockholms Läns Landsting | |
| Systembolaget | |
| Coop Sverige AB | |
| Axfood Sverige AB | |
| Top 5 total | 21.3% |
" Citycon's operations expanded to Umeå with the acquisition of shopping centre Strömpilen.
holm and Gothenburg to Umeå, where the Strömpilen shopping centre is providing Citycon with an excellent opportunity to demonstrate its expertise and the strength of its co-operation with tenants. In Stockholm, the acquisition of the Tumba Centrum increased Citycon's visibility and attractiveness among major tenants.
Citycon's largest project in Sweden is the construction of Liljeholmstorget, for the most part entirely new shopping centre. Since the purchasing power of the centre's catchment area is very high, the project has already attracted the interest of several major retailers wishing to become the centre's anchor tenants, despite the fact that the project is still at the initial contract stage. The next leasing stage will begin during 2008 and the shopping centre is planned for completion in the autumn of 2009.
Sweden is actively participating in the development of various types of environmentally-friendly solutions and operating models for shopping centres. Most of the related best practices are largely identical with those of Finland, due to the similarities in the legislation and building regulations of the two countries. This similarity also provides clear benefits in the development of leasing operations and shopping-centre management. One of the key duties of Citycon's young Swedish organisation is to create local practices in, for instance, human resources and in relations to partners and authorities.
| Entire retail property | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Property | Location | Gross leasable are total, sq.m. |
Retail premises total, sq.m. |
Sales, EUR million1) | Number of visitors, million | Catchment area population * |
Citycon's gross leasable area, sq.m. |
||
| 2007 | 2006 | 2007 | 2006 | ||||||
| Stockholm area | |||||||||
| Åkersberga Centrum Österåker | 33,100 | 19,700 | 58.2 | 57.7* | 3.8 | 3.8 | 37 000* | 33,100 | |
| Åkermyntan Centrum Hässelby | 8,400 | 6,300 | 19.5* | - | 0.9* | - | 32 000* | 8,400 | |
| Jakobsbergs Centrum | Järfälla | 67,500 | 27,300 | 67.3 | 66.4 | 5.5 | 5.8 | 82,000 | 67,500 |
| Fruängen Centrum | Stockholm | 14,600 | 6,600 | 9,0* | 8.6* | - | 0 | 33 400* | 14,600 |
| Liljeholmstorget | Tukholma | 20,200 | 8,600 | - | - | - | - | 104,000 | 20,200 |
| Tumba Centrum | Tumba | 30,900 | 14,800 | 35.4 | 34.7 | 3.3 | 3.0 | 55,000 | 30,900 |
| Umeå | |||||||||
| Strömpilen | Uumaja | 27,000 | 22,300 | 88.6* | 84.0* | - | - | 109,800 | 27,000 |
| Gothenburg area | |||||||||
| Stenungs Torg | Stenungsund | 37,600 | 17,100 | 55.3 | 51.7 | 3.3 | 3.4 | 74,000 | 37,600 |
| Total | 239,300 | 122,700 | 239,300 |
Citycon's shopping centres in Sweden 31 Dec. 2007
*) Estimate 1) Excl. VAT
Baltic Countries
The Baltic countries are characterised by rapid economic development, a general improvement in living standards and increasing spending power, which are quickly increasing demand for retail services. Citycon is actively monitoring the Baltic markets and constantly seeking new investments with development potential.
Citycon's Baltic operations comprise two shopping centres in Estonia and one in Lithuania, with a total turnover of EUR 8.0 million in 2007, up 29.4 per cent from the previous year. In 2007, Citycon acquired the Magistral shopping centre in Tallinn. Citycon's total investments in the Baltic countries amounted to EUR 31.7 million, of which EUR 16.2 million was used for acquisitions and EUR 15.5 million for development investments.
With its Baltic acquisitions, Citycon continues to pursue a selective strategy aiming at controlled growth. A good example of this strategy is shopping centre Magistral which was acquired due especially to its location and redevelopment and extension possibilities. It is possible to extend Magistral by half of its present size and develop it into a local centre that provides increasingly versatile services to people living in the neighbourhood. Magistral is located in the middle of a large residential area, with over 60,000 inhabitants in its catchment area.
A major redevelopment and extension project is currently underway at the Rocca al Mare shopping centre which, once completed, will become the leading shopping centre in Tallinn. The Mandarinas shopping centre in Lithuania is already a competitive, local shopping centre with regional appeal.
Rocca al Mare – the green shopping centre
The Rocca al Mare redevelopment project involves the construction of a high-quality shopping centre located in an affluent and growing area. Although the centre's attractiveness is based mostly on grocery trade, it is located in an area that has spending power and provides even other services appealing to customers, such as a car retail complex, the Saku Arena and a zoo. Rocca al Mare's offerings will be broadened with the purpose of making it into the leading provider of fashion offerings, for instance. Rocca al Mare will be profiled as a venue for the whole family, not only for shopping but also for leisure.
The latest environmental requirements are taken into account in the Rocca al Mare redevelopment project, making it arguably the greenest shopping centre in the Baltic countries so far. Special attention is being paid, for exam-
Key figures, Baltic Countries
| 2007 | 2006 | |
|---|---|---|
| Gross rental income, EUR million | 7.7 | 6.1 |
| Turnover, EUR million | 8.0 | 6.2 |
| Net rental income, EUR million | 6.0 | 4.8 |
| Net fair value gains on investment property, EUR million | 9.3 | 6.6 |
| Operating profit, EUR million | 14.5 | 10.9 |
| Capital expenditure (gross), EUR million | 31.7 | 16.2 |
| Fair market value of investment properties, EUR million | 111.2 | 83.3 |
| Net rental yield, % | 6.2 | 6.7 |
| Proportion of rental income | ||||
|---|---|---|---|---|
| Prisma Peremarket AS | ||||
| RIMI | ||||
| Olympic Invest OÜ | ||||
| Stockmann Oyj Abp | ||||
| Olympic Casino Group AS | ||||
| Top 5 total | 35.3% |
" It is possible to extend the shopping centre Magistral by one half of its present size.
ple, to energy efficiency, which is being improved through heat recovery systems, among other things. With respect to waste management, Rocca al Mare will implement modern recycling methods, which are still rare in Estonia.
Rocca al Mare will be Tallinn's number one centre, attracting shoppers from a large area. For Citycon's tenants, Rocca al Mare is the most attractive first entry location in Estonia and Citycon aims to attract there retailers that will benefit the whole Estonian retail industry.
Outlook
The key change driver in the Baltic shopping centre property market has been extremely rapid growth in the retail business fuelled by continuously increasing spending power, changing consumer habits and a general improvement in living standards. However, this growth is also reflected in high inflation rates and the high sensitivity of interest rates to increased economic uncertainty.
The year 2007 was characterised by slackening growth in the retail business and weakening consumer confidence in economic growth. Nevertheless, slower economic growth is not expected to significantly weaken Citycon's scope for action in the Baltic countries since the three shopping centres it owns in this region are centrally located and their attractiveness is largely based on grocery trade.
Virtually the only shopping centre acquisitions completed in Estonia in the last few years have been performed by Citycon – in addition to Rocca al Mare and Magistral, no other major shopping centre transactions have taken place in Tallinn. Citycon expects the rapid growth of the relatively thin Baltic markets to slacken over the next few years, due to which more shopping centres are expected to be offered for sale in the future.
Citycon's shopping centres in the Baltic Countries 31 Dec. 2007
| Entire retail property | ||||||||
|---|---|---|---|---|---|---|---|---|
| Property Location |
Gross leasable area total, sq.m. |
Retail premises total, sq.m. |
Sales, EUR million | Number of visitors, million | Catchment area population * |
|||
| 2007 | 2006 | 2007 | 2006 | |||||
| Estonia | ||||||||
| Rocca al Mare | Tallinn | 28,600 | 28,600 | 67.6 | 60.9 | 4.3 | 4.4 | 340,000 |
| Magistral | Tallinn | 9,500 | 9,500 | 17.7 | 16.9 | 3.5 | 3.7* | 64,000 |
| Lithuania | ||||||||
| Mandarinas | Vilnius | 7,900 | 7,900 | 21.9* | 19.4* | 2.4 | 2.6 | 50,000 |
| Total | 46,000 | 46,000 | 107.2 | 97.2 | 10.2 | 10.7 | 454,000 |
*) Estimate
Human Resources
Citycon's success is based on its professional staff and the principle of acting together. The company's expansion has rapidly increased the number of employees, exceeding 100 in 2007. Due to this growth, Citycon is an increasingly international, expert and multi-skilled organisation.
Citycon's operating model clearly differs from that of traditional property investors. Thanks to its active shoppingcentre management and retail property development, Citycon's organisation consists of top skills representing various fields. Their key competence areas include shopping-centre management, property development, and administration and financing expertise.
Alongside its new, market-based organisation introduced at the end of 2006, Citycon has built business units based on solid local market knowledge in Finland, Sweden and the Baltic countries. The new organisation established itself in 2007 and has proven to be extremely functional. In particular, the Swedish organisation has been significantly extended, its operations moving into full swing in 2007.
At the end of 2007, Citycon had 102 employees, compared to 73 a year earlier. 45 of the employees are women and 57 are men. This increase stemmed directly from the implementation of the company's growth strategy. In order to strengthen the key competence areas, emphasis in new recruitments was placed on knowledge of the retail business and experience in project development tasks. Furthermore, Citycon recruited new staff for the Group support functions, including HR management, corporate communications, group accounting and financing, with the purpose of supporting the efficient functioning of its business units.
Good market knowledge is a key prerequisite
The development of regional organisation is vital to Citycon's growth. Successful operations in the shoppingcentre markets require sound basic knowledge of the markets as well as excellent knowledge of the various market players. Market expertise supports successful retail property management, the acquisition of new shopping centres and the development of the existing property portfolio, thereby enhancing the company's overall competitiveness.
A growing organisation also provides challenges. In 2007, Citycon analysed the development needs in its new regional organisation with the purpose of ensuring the development of staff competencies in the long run. Citycon promotes studying alongside work, and encourages to personal learning supporting professional development.
One of the key challenges for a growing organisation is successful recruitment. Citycon is one of the most attractive employers in its field, as evidenced in particular by the number and quality of applications received for job vacancies. Top talents are particularly interested in a company that is creating a new kind of business in the property investment market, attracting experts not only from its own field but also from the construction and retail sectors. The average age of employees is approximately 43, clearly reflecting the organisation's experience-based competencies.
Citycon employees from left: Kirsi Borg, Ahti Ylimäinen, Marko Juhokas, Eija Tahvanainen, Rebecca Haaranen, Erkki Salopuro, Sonja Agasieva, Maaret Weide, Katri Pohjanpalo and Antti Eestilä. On the next page from left: Marjo Rosendahl, Merja
Tuomi, Iris Kuhlmann and Paju Asikainen.
Bringing best practices to life
As a rapidly growing company Citycon offers its employees a lively and constantly changing working environment. Since obtaining an overall picture of a growing, international organisation is always a challenge, Citycon is currently planning joint procedures for, among others, new employee induction and improved co-operation between business units.
The aim is to create operating models based on best practices that enable the full utilisation of local competencies simultaneously in all the countries where the company
" Citycon is one of the most attractive employers in its field, as evidenced in particular by the number and quality of applications received for job vacancies.
operates. International retail chains are increasingly interested in the company as a partner for the whole operating area, not just as the lessor of individual retail premises. That is why the harmonisation of leasing activities to cover the company's entire operating area is extremely important.
According to the 2007 working-climate survey, employee well-being continues to remain at a high level at Citycon. As a growing organisation, the company is focusing on internal communications and continues to emphasise the importance of, for instance, joint staff events. As part of its corporate culture, once a year the company arranges both a national and an international Citycon day, these days gathering together either the organisation of an individual country or the entire organisation, respectively.
To enhance staff motivation, the Group applies a shortterm incentive scheme. The related incentive criteria are based on Group and unit-level financial performance, as well as personal targets agreed annually in employee performance reviews. The incentive bonus accounts for 10–30 per cent of annual pay.
In addition to its short-term incentive scheme, Citycon applies stock-option schemes aimed at motivating and rewarding its employees. The first of these expired in 2007 and the second one will expire in 2011. Furthermore, the company has a long-term share-based incentive scheme for its management and other key employees.
Organisation chart
Core areas of competence within Citycon
Profit Performance and Financial Position
Citycon Oyj has prepared its interim reports and financial statements for 2007 in accordance with IAS/IFRS (International Financial Reporting Standards). The company also complies with financial reporting recommendations for listed real estate companies published by the European Public Real Estate Association (EPRA), which complement, not replace, IAS/IFRS. These recommendations are available in their entirety on EPRA's website at www.epra.com.
Profit performance 2007
Citycon's turnover comes mainly from the rental income generated by its retail premises. Gross rental income accounted for 94.9 per cent of turnover. The company actively continued to implement its growth strategy by investing in development and redevelopment projects and by acquiring shopping centres and other investment properties. The company's turnover grew by 26.9 per cent, to EUR 151.4 million (EUR 119.4 million in 2006).
The Finnish business operations accounted for 73.2 per cent (83.1%) of net rental income, while Sweden accounted for 20.9 per cent (11.2%) and the Baltic countries for 5.8 per cent (5.7%). Net rental income totalled EUR 103.4 million (EUR 82.8 million). The property portfolio's net rental yield stood at 5.8 per cent (7.1%). The net rental yield was 6.2 per cent (7.6%) in Finland, 4.6 per cent (5.1%) in Sweden and 6.2 per cent (6.7%) in the Baltic countries.
Roughly 36.0 per cent of Citycon's net rental income came from properties in the Helsinki Metropolitan Area, 37.5 per cent from elsewhere in Finland, 16.5 per cent from the Stockholm area and Umeå, and 4.4 per cent from the Gothenburg area. A further 5.8 per cent of net rental income came from properties in the Baltic countries.
Operating profit rose by 53.0 per cent, to EUR 300.7 million (EUR 196.5 million), due mainly to change in the fair value of the property portfolio, totalling EUR 213.4 million (EUR 120.1 million), the net rental income generated by new shopping centres and progress in development projects.
Net financial expenses increased by EUR 16.4 million, to EUR 47.3 million (EUR 30.9 million). This increase came mainly from higher interest expenses due to the higher level of interest-bearing debt, higher weighted-average interest rate and non-cash mark-to-market loss from derivatives recognised in the income statement. In addition, the net financial expenses for 2007 included EUR 1.8 million (EUR 0.3 million) in calculatory non-cash expenses related to the option part of the convertible bonds.
Net profit for the financial year grew by 61.3 per cent, to EUR 203.9 million (EUR 126.4 million).
Return on investment (ROI) was 16.3 per cent (16.8%) and return on equity (ROE) stood at 23.3 per cent (25.8%). Earnings per share were EUR 1.00 (EUR 0.76). The company's per-share net asset value (NAV) was EUR 4.83 (EUR 3.53) and the per-share triple net asset value (NNNAV) was EUR 4.42 (EUR 3.14).
Balance sheet and capital expenditure
At the end of 2007, Citycon owned 86 properties: 33 shopping centres, 52 other retail properties and one lot. The property portfolio's year-end fair value totalled EUR 2,215.7 million (EUR 1,447.9 million), showing a total annual fair value increase of EUR 213.4 million. The investment properties' fair value has been described in the Business and Property Portfolio section on pages 20-22. The valuation statement by Realia Management Oy can be found on pages 62-63 of the appended Financial Statements.
Citycon's gross capital expenditure in 2007 totalled EUR 603.9 million (EUR 436.4 million), of which new acquisitions accounted for EUR 531.3 million. The company invested a total of EUR 71.8 million (EUR 35.4 million) in development and redevelopment projects. More detailed information on the company's investments can be found on pages 13-18 and 24-26 of this report.
The period-end balance sheet total was EUR 2,308.6 million (EUR 1,486.4 million), of which cash and cash equivalents accounted for EUR 24.2 million (EUR 21.3 million).
Financial position
The Group's financial position remained healthy throughout the financial year.
Year-end liabilities totalled EUR 1,297.7 million (EUR 906.1 million), short-term liabilities and long-term liabilities accounting for EUR 157.8 million (EUR 134.4 million) and EUR 1,139.9 million (EUR 771.7 million), respectively.
The interest rate for interest-bearing debt averaged 4.68 per cent (4.35%) in 2007. The average loan period, weighted according to the principals of the loans, was 4.7 years (4.6 years), and the average interest-rate fixing period was 3.1 years (3.4 years). The Group's equity ratio improved to 43.9 per cent (39.1%).
The interest coverage ratio (the previous 12 months' profit before interest expenses, taxes and depreciation relative to net financial expenses) was 2.0 (2.3). Yearend gearing was 111.8 per cent (136.6%). At the end of 2007, Citycon's interest-bearing debt included 81.6 per cent (77.5%) in floating-rate loans, of which 61.1 per cent (76.2%) had been converted to fixed-rate ones by means of interest-rate swaps. On 31 December 2007, the fair value of the interest-rate swaps was EUR 634.5 million (EUR 541.7 million), while the market value of derivative contracts was EUR 8.8 million (EUR -1.8 million).
An active capital market strategy
During the financial year, Citycon actively utilised the capital and debt market to finance its growth. In 2007, Citycon obtained financing for a total of EUR 584 million on the equity and capital markets, and used the proceeds to acquire properties and to develop and redevelope the existing ones. The conducted financing transactions and changes in the fair value of properties strengthened the company's balance sheet.
In February, Citycon arranged a directed share issue to Finnish and international institutional investors, waving the shareholders' pre-emptive rights. The issue of new shares was carried out in an accelerated book-building process between 12 February and 13 February 2007. A total of 25 million new shares were subscribed at a per-share price of EUR 5.35, resulting in net proceeds of approximately EUR 132.2 million.
In September, as part of financing the acquisition of the Iso Omena shopping centre, the Board of Directors decided on a share issue based on shareholders' pre-emptive subscription rights, worth approximately EUR 99 million. A total of 27,594,782 new shares were offered for subscription at a price of EUR 3.60 per share. The subscription period began on 19 September and ended on 3 October 2007. Citycon's shareholders had the right to subscribe for one new share per seven shares held. All offered shares were subscribed for in the share offering. A total of 27,235,387 shares were subscribed for in the primary subscription representing 98.7 per cent of the shares offered. Since the secondary subscription was oversubscribed, the share issue became fully subscribed.
The financing package of the Iso Omena was finalised in November, as Citycon signed a EUR 350 million unsecured credit facility agreement with an international bank group. The agreement consists of a seven year bullet term loan of EUR 200 million and a EUR 150 million five year revolving credit facility. The facility was substantially oversubscribed at syndication. The term loan facility was used to refinance a short-term credit facility drawn for the financing of the acquisition of the shopping centre Iso Omena. The EUR 150 million revolving credit facility will be utilised to finance the committed development pipeline and potential property acquisitions in accordance with Citycon's strategy.
As a whole, the year 2007 in the capital market proved eventful. During the first half of the year, the availability and terms of real estate financing were good and a plentiful variety of stock and debt financing arrangements took place. After the summer, however, the capital market conditions were considerably weakened due to the subprime crisis, reducing the availability of both equity and debt financing, increasing credit margins and depressing stock prices. Owing to its conservative funding policy, Citycon managed to conduct successful capital market transactions during the second half of the year as well, encountering no signs of the volatile market situation affecting the price or availability of debt financing in practice. The transactions conducted during the year will secure near-term financing for investments in line with the company's strategy. On 31 December 2007, the company had a total of EUR 150 million of credit limits available and the opportunity to issue EUR 45 million in commercial papers under its domestic commercial paper programme.
Turnover and operating profit
Equity attributable to parent company's shareholders and liabilities
Risks and Risk Management
In the late 2006, Citycon initiated an extensive project aiming at the adoption of a holistic Enterprise Risk Management (ERM) programme and completed the project's implementation during 2007. Accordingly, the company adopted ERM-compliant operating models and principles of risk management in preparing its 2008 annual plan.
Risk management aims to ensure that Citycon meets its strategic and operational goals. Successful risk management identifies key risks, reliably analyses their impacts prior to their realisation and initiates preventive measures in order to lower the probability of an identified risk being realised and in order to mitigate its impact.
Citycon's ERM process takes account of the above-mentioned risk management objectives as well as Citycon's willingness to take risks. The ERM's purpose is to generate upto-date and consistent information for the company's top management and Board of Directors on any risks threatening strategic and annual plan objectives. In Citycon, ERM includes the following three defined ERM processes:
1. Risk management in the main business processes
Within the framework of its ERM project, Citycon defined its five key business processes as shopping-centre management, property acquisitions, takeovers, property development as well as financial control and reporting. These processes were initially analysed from the risk management perspective and a target status, at which the Group's units aim, was defined for each process in accordance with risk management requirements.
2. Risk reporting
At the core of Citycon's ERM and risk reporting lies a Group wide risk register containing each unit's objectives, risks and risk management measures. As part of annual and strategic planning, units define their objectives for the planning period, identify the related risks, analyse their importance and the probability of their realisation and record the related risk management measures and responsibilities in the common register. Based on the recorded information, a risk report covering the business units and the Group is generated for the top management and the Board of Directors. The risk register is also used for monitoring the progress made with regard to risk management measures. While each business unit identifies its own risks, other Group functions conduct additional risk identification.
Enterprise Risk Management Basic Process
3. Continuous development and monitoring of risk management
Citycon aims at the continuous evaluation and development of its ERM process and general risk management. A risk management monitoring group convening four times a year is in charge of approving risk reports, assessing the sufficiency of risk management measures in relation to identified risks, monitoring the development of risk management measures and evaluating the sufficiency of Citycon's risk management.
The principles and implementation of risk management within Citycon are also discussed on pages 34-37 of the appended Financial Statements.
The following contains a presentation of Citycon's major risks identified during the preparation of the annual plan for the year 2008. In the event of their realisation, these risks could jeopardise the attainment of the objectives set in the annual plan.
Risks associated with changes in the investment properties' fair value
A number of factors contribute to the value of retail properties, such as national and local economic development, investment demand created by property investors, and interest rates. International investors have shown keen interest in the Finnish, Swedish and Baltic property mar-
kets, which has been reflected in the yield requirements and price levels of the most sought-after properties. At the moment, investment property value trends are subject to untypical instability due to the credit crisis spread from the United States. In recent months, this crisis has pushed property prices down, not only in many parts of the USA but also in some European countries. 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, gross income, the vacancy rate and operating expenses form the key variables used in an investment property's fair-value measurement, based on a ten-year cash-flow analysis. Sensitivity to change in the properties' fair value, or the risk associated with fair value, can be tested by altering the above key parameters. The sensitivity analysis below uses the investment properties' fair value of EUR 2,194.8 million defined by the external appraiser on 31 December 2007 as the starting value. Accordingly, various changes would alter the investment properties' fair value as follows:
- Yield requirement +5% ➤ Fair value EUR 2,090.3 million
- Gross income +5% ➤ Fair value EUR 2,348.2 million
- Vacancy rate +5% ➤ Fair value EUR 2,187.7 million
- Operating expenses +5% ➤ Fair value EUR 2,151.1 million While the company cannot influence yield requirement,
it seeks to have an impact on the other fair value components through active shopping-centre management, a cornerstone of Citycon's business. Citycon aims to optimise the profitability of its shopping centres by conducting the entire business process with the help of its own employees.
Risks associated with the property development projects
A key element in Citycon's growth strategy lies in the development of existing properties to meet customer needs more effectively. Currently, short-term risks relating to projects include success in leasing the premises in the properties under completion as well as the rise in construction costs.
On 31 December 2007, development investments approved by the Board of Directors totalled approximately EUR 282 million, accounting for around 13 per cent of the entire investment property portfolio's carrying amount on the same date. With major construction projects underway in Finland, Sweden and Estonia, the leasable area in Citycon's shopping centres will increase. Planned rental of the respective new retail premises is of primary importance with regard to Citycon's financial development. A key risk includes reduced demand for retail premises – whether due to a deteriorating economic outlook or other reasons – which would prevent the rental of new premises at planned rental rates, or which would result in a lower occupancy rate than anticipated.
The construction industry in the company's operating region has seen a positive economic cycle, which has caused the costs of construction and construction materials to increase at a faster rate than general price levels. A sharp rise in construction costs could prevent Citycon from implementing all of its planned development projects or cause the profitability of initiated development projects to remain lower than expected.
Leasing risks in projects are minimised by securing the allocation of sufficient resources to the leasing operations of new properties, investing in new shopping centres' marketing and concluding agreements with anchor tenants prior to a project's commencement or in its initial stage. Construction costs are optimised through careful monitoring of expenses, competitive tendering and, where possible, by concluding fixed-price construction contracts.
Risks associated with a rise in the properties' operating expenses
To cover its properties' operating expenses, Citycon's lease agreements mainly stipulate either a total rent or specified rent components. The total rent model is applied to a cer-
" Risks refer to potential events or circumstances which, if they materialise, may affect the company's ability to meet its goals.
tain part of the existing lease agreements whereby the rent amounts paid by the lessee are not affected by any increases or decreases in operating expenses. Consequently, a rise in operating expenses higher than inflation would diminish Citycon's profitability. The main operating expenses for properties include repair and maintenance fees, electricity, heating, security systems and security services.
As regards agreements stipulating specified rent components, the immediate impact of a rise in operating expenses might mainly lead to timing differences in cash flow since, according to these agreements, operating expenses are invoiced from the lessee as maintenance fee. However, any rise in operating expenses always indirectly hampers Citycon's profitability since an increased maintenance fee charged due to higher operating expenses would reduce the lessees' ability to pay rent and, in consequence, might prevent the company from raising the rent component for the actual retail floor area as desired.
Citycon tries to protect itself from the risks related to a rise in operating expenses by concluding agreements with specified rent components, hedging against electricity price risks, enhancing purchasing, improving cost monitoring and by enhancing the cost comparison between the shopping centres.
Risks associated with the availability and cost of financing and general interest rates
Essential part of Citycon's business model is seeking growth, either through new property acquisitions or the expansion of its current shopping centres. Implementation of this expansive strategy requires obtaining both equity and debt financing.
Towards the end of 2007, turbulence in the financial markets increased, narrowing the available financing alternatives. If this instability continues and the banks' own funding costs remain high, it is possible that the credit margins charged by banks will also begin to rise, and the banks are less willing to lend money to companies. Changes in market has also impacted the share value of the companies and most real estate companies in Europe are trading at a share price below per-share net asset value, thus reducing possibilities for raising equity financing.
Nevertheless, the availability of financing has remained positive for Citycon, and the long-term credit facility agreement concluded with a bank group towards the end of the year did not involve significantly higher margins compared to the previous year. Citycon also increased the amount of its loan at syndication, since the original loan was oversubscribed. Furthermore, a rights issue conducted in September–October resulted in the subscription of all shares offered.
In addition to the availability of financing, Citycon's main financial risk refers to the interest-rate risk associated with the company's loan portfolio. A total of 81.6 per cent of Citycon's interest-bearing debt are floating-rate loans, and a rise in market-rates will increase their interest expenses. In the course of 2007, the 6-month rate within the euro area increased by 0.85 percentage points while, in Sweden, the equivalent interest rate increase was 1.30 percentage points due to sharp economic growth and accelerated inflation. During the same period, Citycon's average interest rate increased by 0.32 percentage points.
Citycon attempts to safeguard its financing costs and availability by adhering to a conservative but active financing policy, with a focus on long-term financing, and by maintaining a solid balance sheet structure showing an equity ratio of at least 40 per cent. Interest-rate risk management aims to reduce or eliminate the adverse effect of increased market rates on the company's profit, balance sheet and cash flow. Under the company's financing policy, the interest position must be tied to fixed interest rates at a minimum level of 70 per cent and at a maximum level of 90 per cent.
More information on financing risks is provided on pages 35-36 of the appended Financial Statements.
Corporate Governance
Corporate governance policies
Citycon's corporate governance complies with the Finnish Limited Liability Companies Act and the Corporate Governance Recommendation for Listed Companies issued in December 2003 by the Corporate Governance working group appointed by HEX Plc, the Central Chamber of Commerce of Finland and the Confederation of Industry and Employers.
This recommendation for corporate governance is accompanied by Citycon's own guidelines for the division of duties between the company's decision-making bodies, as well as the principles governing internal control and risk management. Citycon's decision-making bodies assuming ultimate
BOARD OF DIRECTORS
Thomas W. Wernink M.A. (General Economics) Dutch citizen, born 1945 Member and Deputy Chairman of the Board of Directors since 2005, Chairman since 2006
Career history: Wernink Consultancy & Investment B.V., Managing Director since 2004 Corio N.V., Managing Director 2001-2003 VIB N.V., Managing Director 1993-2001 Vaste Waarden Nederland (VWN) N.V., General Manager 1986-1993
Chairman of the Board of Directors
Directorships:
Delta Deelnemingen Fonds N.V., Board member since 2003 Q-park N.V., Board member since 2003 Hillgate Properties N.V., Board member since 2004 Slough Estates plc, Board member since 2005 Dim Vastgoed N.V., Board member since 2006 ING Real Estate Dutch Funds, Board member since 2006 Compagnie Immobiliere de Belgique s.a., Deputy Chairman of the Board since 2007 AZL Vastgoed Winkels N.V., Board member 2005-2007 Annexum Invest B.V., Board member 2004-2006 Veer Palthe Voute N.V., Board member 2001-2006, European Public Real Estate Association (EPRA), Chairman of the Board 2002-2005
Deputy Chairman of the Board of Directors Tuomo Lähdesmäki M.Sc. (Eng.), MBA Finnish citizen, born 1957 Board member since 2004 and Deputy Chairman since 2006
Career history:
Boardman Oy, Founding and Senior Partner since 2002 Elcoteq Network Corporation, President and CEO 1997-2001 Leiras Oy, Managing Director 1991-1997
Directorships:
Turku University Foundation, Chairman of the Board since 1995 Aspocomp Group Plc, Chairman of the Board since 2002 Satel Oy, Chairman of the Board since 2002 Amer Sports Corporation, Board member since 2000 Metsä Tissue Oyj, Board member since 2004 Scanfil Oyj, Board member since 2005 Helkama Forste Oy, Board member since 2005 Meconet Oy, Board member since 2006 Viafin Oy, Board member since 2007 VTI Technologies Oy, Board member 2002-2007, Chairman 2002-2006
responsibility for the Group's management and business include the shareholders' meeting, the Board of Directors and the CEO. The Corporate Management Committee assists the CEO in managing the company's business.
Shareholders' meeting
The shareholders' meeting exercises the highest decision-making power in the company. The Annual General Meeting (AGM) convenes every year by the end of April once the financial statements have been prepared. Extraordinary General Meetings (EGM) will be summoned if required for decision-making purposes. A notice to a General Meeting will be issued, at the earliest, two months and, at the latest, 17 days prior to the meeting, on the company's website in Finnish and English and at least in one nationwide newspaper published in Helsinki.
Citycon provides its shareholders with sufficient information on the items to be discussed at the shareholders' meeting, for example, by publishing meeting material on its website and, upon request, by sending the material to a shareholder by postal mail. The shareholders' meetings shall be arranged in such a way that the shareholders can effectively exercise their rights. Under the Limited Liability Companies Act, a shareholder has the right to propose a certain matter for discussion at a General Meeting, if such matter belongs to the competence of a General Meeting and if the shareholder gives notice of this in writing to the Board of Directors in sufficient time for it to be included in the notice of the meeting.
The Chairman of the Board of Directors and the CEO attend the shareholders' meeting and members of the Board of Directors attend the meeting to the extent deemed necessary. A first-time nominee for the Board shall attend the shareholders' meeting that decides on his/her election unless there is a cogent reason for his/her absence.
The AGM adopts the financial statements, decides on the allocation of profit shown on the balance sheet and discharges the Board of Directors and the CEO from liability. In addition, it elects the Board of Directors and the auditor and decides on their respective emoluments and remuneration.
Board of Directors
The shareholders' meeting decides the number of Board members and elects them for a term of one year. Under the Articles of Association, the Board consists of a minimum of five and a maximum of eight members. An eligible Board nominee must have the qualifications required for membership and sufficient time to manage his/her Board duties. A majority of members of Citycon's Board of Directors must be independent of the company. In addition, a minimum of two members belonging to this majority must be independent of the company's major shareholders. The company has not limited the number of a Board member's terms, nor has it set a specific retirement age for Board members.
Citycon's AGM of 13 March 2007 decided to re-elect the following Board members: Amir Gal, Gideon Bolotowsky, Raimo Korpinen, Tuomo Lähdesmäki, Carl G. Nordman, Claes Ottosson, Dor J. Segal and Thomas W. Wernink.
The Board of Directors elects the Chairman and Deputy Chairman from among its members. In 2007, Thomas W. Wernink acted as Chairman and Tuomo Lähdesmäki as the Deputy Chairman of the Board of Directors.
In the view of the Board of Directors, all Board members are independent of the company. Furthermore, the Board of Directors holds the view that Gideon Bolotowsky, Raimo Korpinen, Tuomo Lähdesmäki, Carl G. Nordman and Thomas W. Wernink are independent of major shareholders.
In 2007, Citycon's Board of Directors met 18 times. The attendance rate stood at 93.1 per cent. The following four committees assist the Board: Audit Committee, Investment Committee, Nomination Committee and Compensation Committee.
Board work
The Finnish Limited Liability Companies Act, the Articles of Association and the Board of Directors' working order determine the Board of Directors' duties and responsibilities. The Board of Directors is responsible, for example, for the Citycon Group's strategic policies and the due organisation of business operations and Group administration. The company's CEO attends Board meetings and prepares and presents to the Board items to be discussed at Board meetings. The Board of Directors constitutes a quorum if more than half of its members are present.
In addition to duties provided under the applicable legislation and the company's Articles of Association, Citycon's Board of Directors shall:
- Confirm the company's long-term goals and strategy;
- Approve the company's business plan, budget and financing plan, and oversee their implementation;
- Confirm the principles of the company's internal control and risk management;
- Decide on major, individual and strategically important property acquisitions and divestments and other major investments;
- Confirm the company executives' obligations and remits, and the reporting system;
- Confirm the principles governing employee bonus and incentive schemes and decide on said schemes;
Member of the Board of Directors Gideon Bolotowsky M.Sc. (Eng.) Finnish citizen, born 1947 Board member since 2006
Career history: OsakeTieto FSMI Oy, CEO and Chairman of the Board since 2003 EPO.Com AB Finland Branch, CEO 1998-2002 Metsäliitto International Oy, CEO 1995-1998 Rauma-Repola Oy, Manager, Corporate Cash Management Systems, 1987-1991 MM Maschinen und Metalle GmbH, CEO 1984-87
Directorships:
Jewish Community of Helsinki, President 1989-2007 Central Council of Jewish Communities in Finland, President 1992-2007 European Jewish Congress, Member of the Executive 2003-2007
Member of the Board of Directors Amir Gal
Ph.D. candidate, LL.B., B.A. (Economics) Israeli citizen, born 1971 Board member since 2004
Career history: Gazit Europe, Inc., Managing Director since 2006 Gazit Europe, Inc., Executive Vice President 2004-2005 Dewey Ballantine, Associate 2002-2004 Leshem, Brandwein & Co., lawyer 1997-2001
Member of the Board of Directors Board member since 2004
Career history: Solidium Oy, Managing Director since 1998 Yrityspankki SKOP Oyj, Senior Vice President 1994-1998 USF Holdings, Inc. Vice President 1991-1993
Edita Publishing Oy, Chairman of the Board 2005-2006 The Finnish Association of Professional Board Members, member since 2004
- Determine the company's dividend policy.
Every year, Citycon's Board of Directors assesses its performance and working methods through self-evaluation.
Board committees
Four committees, responsible for preparing matters discussed on the Board, support Citycon's Board work. Board members sitting on the committees are able to examine the matters dis-
Raimo Korpinen LL.M. Finnish citizen, born 1950
Directorships: Kruunuasunnot Oy, Board member since 2004 and Chairman since 2005 Labtium Oy, Chairman of the Board since 2007 Edita Plc, Board member 2002-2006
Member of the Board of Directors Carl G. Nordman Counsellor of Industry (Hon.), B.Sc. (Eng.) Finnish citizen, born 1939 Board member since 1999
Career history: Oy Aga Ab, President and CEO and Board member 1978-1999 AGA Group, Vice President, Region North 1991-1999
Directorships: Machinery Oy, Board member since 1998 ADR-Haanpää Oy, Board member 2000-2005 PIC-Engineering Oy, Board member 1999-2005 Patria Industries Oyj, Board member 1996-2004 SKF Oy, Board member 1987-2004 The Finnish Association of Professional Board Members, member since 2001
Member of the Board of Directors Claes Ottosson Electrical Engineer Swedish citizen, born 1961 Board member since 2004
Career history:
ICA Supermarket Hovås, Managing Director since 1989 ICA Gourmet, Department Store Manager 1985-1989 Saga Sofiagatan, Department Store Manager 1980-1982
Directorships: ICA Förbundet AB, Board member since 2005
Member of the Board of Directors Dor J. Segal American citizen, born 1962 Board member since 2004
Career history: Gazit-Globe Ltd., President since 1998 and Board member
since 1993 First Capital Realty Inc., President and CEO and Board member since 2000
Directorships: Equity One, Inc., Board member since 2000
Board emoluments in 2007
| eur | Annual fee | Meeting fees | Total | |
|---|---|---|---|---|
| Gideon Bolotowsky | 35,000 | 10,400 | 45,400 | |
| Amir Gal | 35,000 | 9,200 | 44,200 | |
| Raimo Korpinen | 35,000 | 10,200 | 45,200 | |
| Tuomo Lähdesmäki | 60,000 | 13,200 | 73,200 | |
| Carl G. Nordman | 35,000 | 8,800 | 43,800 | |
| Claes Ottosson | 35,000 | 8,000 | 43,000 | |
| Dor J. Segal | 35,000 | 9,200 | 44,200 | |
| Thomas W. Wernink | 150,000 | 16,600 | 166,600 | |
| Total | 420,000 | 85,600 | 505,600 |
cussed by the committee in greater detail than the remaining Board of Directors. The rules of procedure for the company's decision-making bodies, approved by the Board of Directors, lay down the committees' main duties and working principles.
Audit Committee
It is the Audit Committee's duty to support the Board of Directors in supervising and maintaining the integrity and reliability of the company's financial reporting. The Audit Committee regularly reviews the company's internal control system, financial risk management and reporting, as well as the audit process. If necessary, its members can consult the company's auditor at the committee meetings. The Audit Committee is also responsible for preparing a resolution proposal related to the election of the company's auditor.
The Audit Committee comprises a minimum of three Board members, who must be independent of the company and its major shareholders. At least one committee member must have extensive knowledge of, and experience in, accounting and accounting principles applicable to the preparation of the company's financial statements. The committee convenes at least twice a year and its Chairman reports on issues discussed by the committee to the Board of Directors. Comprising Gideon Bolotowsky, Raimo Korpinen (Chairman) and Thomas W. Wernink, the Audit Committee met five times in 2007.
Investment Committee
The Investment Committee is responsible for supervising investment planning and approval processes, and reviews all investment proposals submitted to the Board of Directors. In addition, the committee monitors the progress of investment projects and the integration of acquired properties. The Investment Committee comprises a minimum of three Board members, all of whom must be independent of the company. The committee convenes whenever necessary, but at least twice a year. The committee's Chairman reports on issues discussed by the committee to the Board of Directors. Comprising Amir Gal, Carl G. Nordman, Dor J. Segal and Thomas W. Wernink (Chairman), the Investment Committee met six times in 2007.
Nomination Committee
The Nomination Committee is in charge of preparing proposals for the election of Board members and their emoluments to be submitted to the shareholders' meeting, as well as seeking potential successors to Board members. When seeking potential successors, the Nomination Committee must take account of the requirements set for the number of Board members, their independence, age, skills and experience, and their ability to set aside sufficient time for performing this task. In this case, it must also consult major shareholders. The committee also drafts a proposal for the composition and chairmen of the Board committees to be submitted to the Board of Directors, and arranges the self-assessment of the Board of Directors and its Chairman.
The Nomination Committee comprises a minimum of three Board members independent of the company and convenes whenever necessary, but at least once a year. The committee's Chairman reports on issues discussed by the committee to the Board of Directors. Comprising Amir Gal, Tuomo Lähdesmäki (Chairman), Claes Ottosson and Thomas W. Wernink, the Nomination Committee met four times in 2007.
Compensation Committee
In accordance with the guidelines confirmed and instructions issued by the Board of Directors, the Compensation Committee prepares matters related particularly to Citycon's organisation, management appointments, and employee remuneration and incentive schemes in greater detail for the Board's approval. The committee is also in charge of assessing the CEO's performance, preparing a plan for his/her potential successor and seeking potential successors to other company executives.
The Compensation Committee comprises a minimum of three Board members, who must be independent of the company. It convenes whenever necessary, but at least once a year. The committee's Chairman reports on issues discussed by the committee to the Board of Directors. Comprising Gideon Bolotowsky, Tuomo Lähdesmäki (Chairman) and Thomas W. Wernink, the Compensation Committee met three times in 2007.
Pay and emoluments
The AGM confirms Board emoluments every year in advance. The Board of Directors confirms the CEO's salary and other benefits and, upon the CEO's proposal, determines other senior executives' salaries and benefits.
The AGM 2007 decided that the Board Chairman, Deputy Chairman and ordinary Board members be paid an annual remuneration of EUR 150,000, EUR 60,000 and EUR 35,000, respectively. It also decided that the Board Chairman and the Chairman of each Board committee receive a meeting fee of EUR 600 and other Board and Board committee members EUR 400 for each meeting.
The enclosed table shows Citycon's Board emoluments paid in 2007. Meeting fees include those paid for both the Board's and its committees' meetings. Citycon's Board members are not involved in the company's share-based incentive schemes.
Chief Executive Officer
The CEO is responsible for the management and supervision of the company's operations, in accordance with the provisions of the Finnish Limited Liability Companies Act and the authorisations and guidelines issued by the Board of Directors. The Board of Directors appoints the CEO and decides on the terms and conditions of his/her executive contract. The CEO is responsible for ensuring that the material and documents discussed at Board meetings have been duly prepared and that the set goals, procedures and plans are presented to the Board of Directors for update or review purposes, whenever necessary. The CEO must also ensure that Board members continuously receive information required for monitoring the company's financial position and performance.
In addition to managing the company's day-to-day business, the CEO:
- Chairs the company's Corporate Management Committee;
- Appoints, upon a proposal by a Corporate Management Committee member, other managerial employees and decides on the remuneration of employees subordinate to a
Corporate management committee
Chief Executive Officer Petri Olkinuora M.Sc. (Eng.), MBA Born 1957 In the Citycon Group since 2002
Career history: Uponor Corporation, Real Estate Division, President 1996-2002 Tampereen Kiinteistö Invest Oy, Managing Director 1990-2002
Chief Financial Officer Eero Sihvonen M.Sc. (Econ.) Born 1957 In the Citycon Group since 2005
Career history: Dynea Group, Vice President, Group Treasury 1999-2005 Neste Group, various positions 1981-1999, latest Chief Financial Officer, Chemicals Division
Head of Legal Affairs Outi Raekivi LL.M., Certified Property Manager Born 1968 In the Citycon Group since 2002
Career history: Rasi-Kiinteistöt Oy (Nordea Group), Administrative Director 2000-2002 Aleksia Oyj, Administrative Director 1999-2000 Merita Kiinteistöt Oy, Assistant Vice President 1997-1998, Legal Counsel 1995-1997 Sabinvest Oy (SYP Group), Legal Counsel 1991-1995
Vice President, Finnish Operations Kaisa Vuorio M.Sc. (Eng.), Authorised Property Appraiser Born 1967 In the Citycon Group since 2000
Career history: Catella Property Consultant Ltd, various positions 1993-2000, latest Account Manager and Property Analyst
Vice President, Baltic Operations Harri Holmström M.Sc. (Surveying), Authorised Property Appraiser Born 1956 In the Citycon Group since 2004
Career history: SRV Viitoset Ltd, Director, International Marketing 2002-2004 Catella Property Consultants, Finland, Director, International Services 1999-2002 Catella Property Consultants, UK, Director, International Services 1998-1999 Chesterton International Plc (London), Consultant, Overseas Department/City Office 1997-1998
Vice President, Swedish Operations Ulf Attebrant Born 1963 In the Citycon Group since 2007
Career history: Atrium Fastigheter AB, various positions 1999-2006, latest Vice President, Head of Real Estate Operations, Deputy Managing Director Drott AB, Manager and Team Leader 1998-1999 Näckebro AB, Marketing Director 1997-1998 Fabege Cityfastigheter AB, Marketing and Real Estate Manager 1992-1998
Corporate Management Committee member, in accordance with the principles applied by the company;
- Decides on employee perks and expense approvals, in accordance with the principles and guidelines applied by the company;
- Informs the Board of Directors of any major events, decisions and future projects related to the company's business.
A written executive contract approved by the Board of Directors stipulates the terms and conditions of the CEO's employment. In 2007, the CEO received EUR 338,707 in salary and other pay-related benefits and, additionally, EUR 595,974 as income from stock options. He is entitled to retire upon turning 62, provided that he will remain in the company's employ until he reaches that age. The company has taken out pension insurance to cover his pension plan. Both the CEO and the company may terminate the CEO's executive contract at six months' notice. If the company terminates the contract for a reason not attributable to the CEO, it will pay the CEO lump-sump compensation equalling his 18-month salary in cash, in addition to the salary payable for the notice period.
Corporate Management Committee
Comprising at least three members, Citycon has a Corporate Management Committee chaired by the CEO. Upon the CEO's proposal, the Board of Directors is responsible for appointing members of the Committee. In 2007, the Corporate Management Committee had six members. The Corporate Management Committee's main duty as an expert body is to assist the CEO in the management of the company's business. It co-ordinates and develops the company's various operations in accordance with set goals, promotes the intra-organisational communication and prepares resolution proposals for the Board's discussion. The Corporate Management Committee convenes whenever deemed necessary by its Chairman.
The Corporate Management Committee assists the CEO in the following:
- Prepares changes and revisions to the company's strategy for the Board of Directors' approval, in accordance with the guidelines issued by the Board of Directors;
- Prepares a business plan and budget for the Board of Directors, and monitors their implementation;
- Plans and prepares organisational changes assigned by the Board of Directors and CEO;
- Approves replies to internal and external auditors' reports for the Board of Directors' approval;
- Ensures the implementation of measures related to annual planning, in accordance with instructions.
Insiders
Citycon applies Insider Guidelines covering insiders' obligations and disclosure obligation, specifying and supplementing provisions of the Securities Market Act, the Standard for Insiders issued by the Financial Supervision Authority, and the Insider Guidelines issued by the Helsinki stock exchange.
The company's statutory insiders include Board members, the CEO and the auditor. Statutory insiders also comprise Corporate Management Committee members, whom the Board of Directors has defined as other senior executives, as referred to in the Securities Market Act. Holdings in the company by statutory insiders and those closely as-
sociated with them are regarded as public information. The enclosed table shows changes in holdings in 2007. Up-todate information on changes in shareholdings can be found on the company's website at www.citycon.fi.
In addition to statutory insiders, Citycon also has socalled permanent insiders entered in the company's company-specific insider register, based on their position or duties, or another contract they have concluded with the company. These company-specific insiders include the secretaries and assistants of the Board members, CEO and Corporate Management Committee members, and those in charge of corporate finances and financial reporting, financing, legal affairs, investment and development activities, corporate communications, investor relations, IT functions, as well as internal and external control and audit. The company-specific insider register is not available for public review.
Citycon maintains its insider register of statutory and company-specific insiders within the Finnish Central Security Depository's SIRE extranet system. The company verifies the data on its statutory insiders by asking the insiders to check the accuracy of the information on the extracts from the insider register twice a year, and regularly supervises its insiders' trading on the basis of the transaction data registered by Finnish Securities Depository Ltd. It also supervises its insiders' trading on a case-by-case basis, if necessary.
As stipulated by Citycon's Insider Guidelines, the company's statutory and permanent insiders may not trade in Citycon shares or instruments entitling to Citycon shares, for 21 days prior to the release of the company's annual accounts, interim accounts or interim report. Insiders must also request the company's Compliance Officer for an opinion on the legality and permissibility of any securities trans-
Changes in holdings by statutory insiders and those closely associated with them, 1 Jan.–31 Dec. 2007
| Insider | Date 2007 | Shares | Stock options | Stock options | Stock options | Stock options |
|---|---|---|---|---|---|---|
| 1999 A/B/C | 2004A | 2004B | 2004C | |||
| Board of Directors | ||||||
| Gideon Bolotowsky | 1 Jan. | 4,048 | - | - | - | - |
| Board member | 31 Dec. | 4,626 | - | - | - | - |
| Amir Gal | 1 Jan. | 8,231 | - | - | - | - |
| Board member | 31 Dec. | 8,231 | - | - | - | - |
| Raimo Korpinen | 1 Jan | 12,649 | - | - | - | - |
| Board member | 31 Dec. | 14,456 | - | - | - | - |
| Tuomo Lähdesmäki | 1 Jan. | 42,628 | - | - | - | - |
| Board Deputy Chairman | 31 Dec. | 37,289 | - | - | - | - |
| Carl G. Nordman | 1 Jan. | 4,823 | - | - | - | - |
| Board member | 31 Dec. | 5,512 | - | - | - | - |
| Claes Ottosson | 1 Jan. | 9,015 | - | - | - | - |
| Board member | 31 Dec. | 10,336 | - | - | - | - |
| Dor J. Segal | 1 Jan. | 6,277 | - | - | - | - |
| Board member | 31 Dec. | 7,174 | - | - | - | - |
| Thomas W. Wernink | 1 Jan. | 15,000 | - | - | - | - |
| Board Chairman | 31 Dec. | 28,571 | - | - | - | - |
| Corporate Management Committee | ||||||
| Petri Olkinuora | 1 Jan. | 120,000 | 73,214 | 150,000 | 140,000 | 140,000 |
| CEO | 31 Dec. | 137,143 | - | 75,000 | 140,000 | 140,000 |
| Ulf Attebrant | 1 Jan. | - | - | - | - | - |
| Vice President, Swedish Operations | 31 Dec. | - | - | - | - | - |
| Harri Holmström | 1 Jan. | - | - | - | 70,000 | 70,000 |
| Vice President, Baltic Operations | 31 Dec. | - | - | - | 70,000 | 70,000 |
| Outi Raekivi | 1 Jan. | - | - | 75,000 | 70,000 | 70,000 |
| Head of Legal Affairs, Board secretary | 31 Dec. | - | - | 75,000 | 70,000 | 70,000 |
| Eero Sihvonen | 1 Jan. | - | - | - | 70,000 | 70,000 |
| CFO | 31 Dec. | - | - | - | 70,000 | 70,000 |
| Kaisa Vuorio | 1 Jan. | 1,200 | 32,000 | 75,000 | 70,000 | 70,000 |
| Vice President, Finnish Operations | 31 Dec. | 1,372 | - | 75,000 | 70,000 | 70,000 |
| Chief auditor | ||||||
| Tuija Korpelainen | 1 Jan. | - | - | - | - | - |
| 31 Dec. | - | - | - | - | - |
The company's public insider register is available on the company's website and at Finnish Central Securities Depository Ltd's customer-service outlet, Urho Kekkosen katu 5 C, Helsinki, Finland.
action in which they plan to engage. The Compliance Officer records each contact made.
Control and supervision systems
The control and supervision of Citycon's business operations are based on the use of the governance and management system described above. The company applies appropriate and reliable accounting and other information systems for monitoring business operations and supervising treasury operations. The accounting system enables the monitoring of performance and forecasts using a rolling scale in three and twelve month periods. It also enables long-term planning and serves as a budgeting tool.
Internal control and supervision
Citycon's internal control and supervision involves financial and other supervision carried out by the senior and executive management as well as all other personnel. The company seeks to foster a corporate culture in which internal control and supervision is adopted as a normal and necessary part of day-to-day business.
Internal control and supervision aims to ensure:
- The achievement of set goals and objectives;
- The cost-effective and efficient use of resources;
- The management of risks associated with business;
- The reliability and accuracy of financial and other management information;
- Compliance with external regulations and internal procedures as well as adherence to appropriate procedures in customer relationships;
- The security of the company's operations, information and assets;
- Appropriate information systems and working processes in support of operations.
The Board of Directors is responsible for organising and maintaining adequate and effective internal supervision, while the CEO is in charge of ensuring the implementation of practical internal supervision.
The CEO is responsible for ensuring adherence to the goals, procedures and strategic plans set by the Board of Directors. It is the CEO's duty to maintain an organisational structure characterised by explicitly and exhaustively defined written responsibilities, authorisations and reporting relationships.
The CEO and Corporate Management Committee members are responsible for ensuring that the Group complies with applicable laws and regulations, as well as the company's business principles and Board decisions in its daily operations.
Citycon assesses the effectiveness of its internal supervision through internal audit. For internal audit, the Audit Committee annually draws up an audit plan, which forms the basis for the performance of the audit. Auditors responsible for internal audit report to the Board's Chairman and the Audit Committee. The internal audit 2007 was outsourced to KPMG Oy Ab. The audit conducted by Citycon's auditor also involves auditing the company's corporate governance on which the auditor reports to the Board of Directors and the CEO.
Any shortcomings and areas requiring improvement detected in internal control with respect to business operations or in other respects are documented and reported to the CEO, who must initiate the required measures without delay.
Auditor
The AGM annually elects one auditor, who must be a firm of authorised public accountants certified by the Central Chamber of Commerce of Finland, responsible for auditing Citycon's corporate governance and accounts. The chief auditor appointed by the accounting firm provides Citycon's shareholders with a statutory auditor's report along with the company's annual financial statements. The main purpose of the statutory auditor's report is to verify that the financial statements give a true and fair view of the company's results and financial position for each financial year. In addition to the statutory auditor's report, the auditor reports to the CEO and the Audit Committee, whenever necessary.
Upon the Audit Committee's invitation, the auditor may attend the Committee meetings as an expert.
The AGM 2007 elected Ernst & Young Oy (a firm of authorised public accountants) the company's auditor, with Tuija Korpelainen (Authorised Public Accountant) acting as the chief auditor appointed by the firm.
In 2007, Citycon paid EUR 0.3 million in remuneration to its auditor, related to its general audit. In addition, Citycon paid a total of EUR 0.3 million for internal expert services related to IFRS (International Financial Reporting Standards), property deals and taxation.
Risk management
Citycon's Board of Directors and corporate management monitor the company's business risks on an ongoing basis. The Board of Directors has approved the company's risk management guidelines specifying risk-management principles and the risk management process. This process involves identifying, analysing, measuring, mitigating and controlling business-related risks.
Citycon's annual review of its risk management process includes updating its risk chart and annual action plan presented to the Board of Directors at a separately agreed meeting in the autumn.
More detailed information on the company's risk management can be found on pages 39-41.
Communications
The purpose of Citycon's corporate communications is to inform the company's stakeholders of company-related matters, with the aim of providing all relevant parties with correct, sufficient and relevant information regularly, equitably and simultaneously.
Citycon's shopping centres in Sweden
Stockholm Area
Forum Jyväskylä Citycon's gross leasable area 17,500 sq.m. Built in 1953/1972/1980. Extended and/or renovated in 1991.
IsoKarhu Pori Citycon's gross leasable area 14,900 sq.m. Built in 1972/2001.
Koskikeskus Tampere Citycon's gross leasable area 26,000 sq.m.
Jyväskeskus Jyväskylä Citycon's gross leasable area 5,800 sq.m. Built in 1955.
Built in 1988.
1995/2007.
Sampokeskus Rovaniemi Citycon's gross leasable area 14,000 sq.m. Built in 1989/1990.
Extended and/or renovated in
Valtari Kouvola Citycon's gross leasable area 7,600 sq.m.
Built in 1987.
Extended and/or renovated in 1992/2007/2008.
Trio Lahti Citycon's gross leasable area 43,900 sq.m.
Built in 1994.
Extended and/or renovated in 2002.
Extended and/or renovated in 2004.
Extended and/or renovated in 1993.
Galleria Oulu Citycon's gross leasable area 3,500 sq.m. Built in 1987.
Built in 1979.
Extended and/or renovated in 2007.
Duo Tampere Citycon's gross leasable area 13,000 sq.m.
Other Areas in Finland
Tikkuri
Isomyyri Vantaa, Myyrmäki Citycon's gross leasable area 10,400 sq.m.
Espoontori
Citycon's gross leasable area 15,400 sq.m.
Built in 1987.
Espoo, Espoon keskus
Built in 1987.
Lippulaiva Espoo, Espoonlahti Citycon's gross leasable area 22,400 sq.m.
Built in 1993.
Iso Omena Espoo, Matinkylä Citycon's gross leasable area 60,600 sq.m.
Heikintori Espoo, Tapiola Citycon's gross leasable area 5,800 sq.m. Built in 1968.
Columbus Helsinki, Vuosaari Citycon's gross leasable area 20,900 sq.m.
Helsinki Metropolitan Area
Built in 1997.
Extended and/or renovated in 2007.
Citycon's shopping centres in Finland
Built in 2001.
Myyrmanni Vantaa, Myyrmäki Citycon's gross leasable area 40,300 sq.m.
Built in 1994.
Extended and/or renovated in 2007.
Vantaa, Tikkurila Citycon's gross leasable area 10,700 sq.m. Built in 1984/1991.
Extended and/or renovated in 2007.
Koskikara Valkeakoski Citycon's gross leasable area 5,800 sq.m. Built in 1993.
IsoKristiina Lappeenranta Citycon's gross leasable area 18,300 sq.m. Built in 1987/1993.
Linjuri Salo Citycon's gross leasable area 9,300 sq.m. Built in 1971-1975.
Tullintori Tampere Citycon's gross leasable area 10,300 sq.m.
Torikeskus Seinäjoki Citycon's gross leasable area 11,400 sq.m.
Built in 1992.
Built in 1930.
Extended and/or renovated in 1990.
Extended and/or renovated in 2007.
Extended and/or renovated in 2007.
Gothenburg Area
Fruängen Centrum
Stockholm Citycon's gross leasable area 14,600 sq.m. Built in 1965.
Liljeholmstorget Stockholm
Stenungs Torg Stenungsund Citycon's gross leasable area 37,600 sq.m.
Built in 1967.
Extended and/or renovated in 1993.
Citycon's gross leasable area 20,200 sq.m. Built in 1973. Extended and/or renovated in 1986.
Åkermyntan Centrum
Hässelby Citycon's gross leasable area 8,400 sq.m. Built in 1977.
Umeå
Jakobsbergs Centrum
Järfälla Citycon's gross leasable area 67,500 sq.m. Built in 1959. Extended and/or renovated in 1993.
Åkersberga Centrum
Österråker Citycon's gross leasable area 33,100 sq.m. Built in 1985. Extended and/or renovated in 1995/1996.
Tumba Centrum Botkyrkan Citycon's gross leasable area 30,900 sq.m. Built in 1952. Extended and/or renovated in 2002.
Strömpilen Umeå Citycon's gross leasable area 27,000 sq.m. Built in 1927. Extended and/or renovated in 1997.
Citycon's shopping centres in the Baltic Countries
Estonia
Magistral
Tallinn Citycon's gross leasable area 9,500 sq.m. Built in 2000.
Rocca al Mare
Tallinn Citycon's gross leasable area 28,600 sq.m. Built in 1998.
Lithuania
Mandarinas
Vilnius Citycon's gross leasable area 7,900 sq.m. Built in 2005.
