Citycon’s Financial Statements Release for January 1 - December 31 2023: Compounding operational growth, coupled with significant expense reductions fueling 2024 guidance
Citycon Oyj Stock exchange release 15 February 2024 at 20:20 hrs
Compounding operational growth, rent & occupancy increases, coupled with significant expense reductions fueling 2024 guidance
OPERATIONAL PERFORMANCE
Q4/2023
- Like-for-like net rental income in Q4 increased 5.3% compared to the previous year.
- Standing net rental income (excl. four assets disposed in Norway in 2022) in Q4 with comparable FX increased 7.8%.
- Like-for-like footfall increased 1.4%.
- Like-for-like tenant sales in Q4 increased 1.9%; 9.0% higher than the same period in Q4/2019 (pre-pandemic level).
Q1-Q4/2023
- Like-for-like net rental income increased 6.5%.
- Standing net rental income (excl. four assets disposed in Norway in 2022) in 2023 with comparable FX increased 6.0%.
- Like-for-like footfall increased 1.8%.
- Like-for-like tenant sales increased 3.4% compared to previous year and 9.2% compared to Q1-Q4/2019 (pre pandemic level).
- Q1-Q4/2023, total average rent per sq.m. increased by EUR 1.6 to EUR 24.0 per sq.m (comparable FX) through the combination of indexation and positive leasing spread of 1.4 %.
STRENGTHENING THE BALANCE SHEET
- In total, Citycon repurchased EUR 191 million of notional bonds in 2023 through tender offer and from the open market by using approx. EUR 184 million of cash.
- Additionally, Citycon retired EUR 87 million of hybrid debt.
- Repurchases further stabilizes Citycon´s well-laddered maturity profile and reduces refinancing risk.
- Citycon replaced and extended of EUR 650 million credit facility in April 2023, incl. EUR 250 million term loan.
- Citycon signed a SEK 1 020 million (approx. EUR 89.5 million) fixed rate green term loan in November.
- Citycon updated its EUR 400 million Commercial Paper programme into green format, and issued its first Green Commercial Paper.
- the first ever Green Commercial Paper issued in the Finnish market.
- Citycon remains committed to its investment grade credit rating
CEO, F. SCOTT BALL:
In 2023, Citycon continued to demonstrate the strength of its strategy and portfolio as all operational metrics (sales, footfall, rents, occupancy, collections) continue to show sustained growth. Importantly, like-for-like net rental income grew 6.5 % and standing net rental income with comparable FX rate increased 6.0 % in 2023 compared to the previous year. The strong operational performance reflects the stability of our necessity-based centres focused on serving as a centre for the community as well as a last mile logistics hub for delivery of grocery, municipal, and other services. Our properties also possess excellent access to public transportation and locations in the strongest and fast-growing cities in the Nordics.
For the year, like-for-like tenant sales increased by 3.4% and footfall 1.8% compared to the previous year. Notably, tenant sales are already 9.2% above 2019 levels. At the same time, we experienced strong demand for our centres from both new and existing tenants, as evidenced by our leasing activity with over 132,000 sq.m. of signed leases in 2023, resulting in retail occupancy of 96.0%. Average rent per square meter with comparable FX increased by 1.6 EUR to 24.0 EUR/s.qm. during the year again highlighting the quality and attractiveness of Citycon´s grocery- and municipal-anchored centres and their resilience in a variable market conditions. The rent collection rate remained strong at 99 % for 2023 which reflects the high quality and creditworthiness of Citycon’s tenants.
Despite the strong operational result, currencies continued to impact our reported figures. During the year, there has been adverse volatility of the NOK and SEK, which are at twenty-year lows. FX rates had EUR 10.2 million negative impact on our direct operating result in 2023. However, these currencies began to strengthen in the latter part of the year, which, if this trend continues, would provide a tailwind to our operations.
Likewise yield expansion significantly impacted the book value of our assets creating a paper loss for 2023. However, this was at least partially offset by actual cash proceeds due to the tremendous rent growth occurring in our assets. Now that spreads have begun to tighten, we anticipate that yields should follow, which provides an additional tailwind for us in 2024. Speaking of asset values, we are in final stages to take over the remaining interest in Kista Galleria in Stockholm, Sweden by assuming the seller’s share of existing debt and a minimal cash payment (EUR 2.5 million). After the transaction, Citycon will have 100% ownership of the centre and that will have approx. EUR 70 million positive effect on our total asset value in Q1 as the transaction is expected to be executed during the first quarter of the year.
Looking to our balance sheet, Citycon continued its credit actions to strengthen its investment grade balance sheet. As previously noted, we refinanced and expanded our credit facility in April from EUR 500 million to EUR 650 million, consisting of a EUR 400 million revolver and EUR 250 million term loan. In total, Citycon repurchased EUR 191 million of notional bonds in 2023 through a tender offer from the open market by using approx. EUR 184 million of cash, taking advantage of discounts and dislocation in secondary trading. Furthermore, in Q4 we signed an approx. SEK 1 020 million 7-year mortgage loan secured by one of our Swedish assets, providing evidence that the secured loan market is functioning well. Additionally, the loan provided liquidity to improve our maturity schedule and our balance sheet as the proceeds from the term loan were used to refinance the company’s near-term maturities.
In November and December, we successfully completed two hybrid/equity exchanges where in total EUR 25 million notionals of hybrid bonds were repurchased by issuing new shares. We repurchased the hybrid bonds at a discount compared to the nominal value in exchange for equity at the market value. This transaction highlights our commitment to maintain our investment grade credit rating. In total, we retired EUR 87 million of hybrid debt in 2023. We are pleased that all these credit actions, which continue to mitigate the earnings impact of higher current market interest rates, while also improving our overall balance sheet, were recognized by S&P, who reaffirmed Citycon's investment grade rating with stable outlook. As evidenced by our actions in 2023, further strengthening our balance sheet and credit metrics is for us a top priority.
Looking ahead to 2024, we are well positioned with a proven stable business model that has performed well regardless of macroeconomic pressures. This is enhanced by the fact that 93% of our leases are linked to indexation which will further compound in 2024. Notably, our mix of high credit tenants are less reliant on consumer discretionary spending, which provides significant stability, which is reflected in our results.
While we have been able to grow rents due to indexation, the fact that sales have continued to grow means our occupancy cost ratio remains very low (9.5%). This positions Citycon to have compounding rent growth with additional indexation without jeopardizing our tenants’ ability to continue to run profitable businesses. It is also important to note that, following the completion of the residential towers in Lippulaiva in Q1/2023, we have minimal committed capital expenditures in 2024.
Given the stabilization of interest rates and the sizable amount of capital looking for investment opportunities, we anticipate a significant increase in activity in the transaction market in 2024. Based on this expectation we are increasing our previously disclosed divestment target by the end of 2024 with a target of EUR 950 million over the next 24 months. Citycon owns some of the best, most urban, large fortress assets in the Nordics. The 12 largest assets (out of 33) make up approx. 80% of the value of our total assets. We will focus our efforts on these largest properties that offer a much stronger growth trajectory and divest the remaining properties.
Further, the following actions will be taken in 2024:
- Focus on core assets in core markets resulting in the sale of EUR 950 million of assets over the next 24 months.
- Expense management to offset increase in finance cost, including:
- Consolidating all corporate functions to suburban Helsinki.
- Reduce G&A overhead to annual run rate less than 10% of NRI by year-end 2024.
- Reduction of operating expenses to offset sharp increase in energy price.
- Significant reduction of capex from EUR 96 million in 2023 to approx. EUR 30 million in 2024.
- The completion of current major projects including:
- In Myyrmanni, the opening of 7,300 sq.m. Prisma which results in the centre being practically fully leased with approx. 60% of tenant mix dedicated to grocery.
- In Rocca al Mare, we are underway with the addition of the Selver grocery store as well as an 1,800 sq.m. gym. These will open by August 2024.
- In Iso Omena, we will open the first Nike Rise concept store in Finland.
- In Albertslund centrum in Copenhagen, we will open a Lidl grocery store in summer 2024.
Taken together, these factors give us confidence that 2024 results will continue to build on our solid performance in 2023. Our guidance reflects the benefit from inflation as indexation pushes our rents higher. As a result, our estimated outlook is for 2024 direct operating profit to be in range EUR 185–203 million, EPRA EPS EUR 0.62–0.74 and adjusted EPRA EPS EUR 0.46–0.58.
STANDING PORTFOLIO KEY FIGURES 1)
| Q4/2023 | Q4/2022 | % | FX Adjusted Q4/2022 |
FX Adjusted % 4) |
||
| Net rental income | MEUR | 50.6 | 49.2 | 2.7 % | 46.9 | 7.8 % |
| Direct operating profit 2) | MEUR | 41.7 | 42.5 | -1.8 % | 40.4 | 3.4 % |
| EPRA based key figures 2) | ||||||
| EPRA Earnings | MEUR | 28.7 | 29.9 | -4.1 % | 28.0 | 2.3 % |
| Adjusted EPRA Earnings 3) | MEUR | 21.5 | 22.2 | -3.1 % | 20.3 | 5.8 % |
| EPRA Earnings per share (basic) | EUR | 0.169 | 0.178 | -4.7 % | 0.167 | 1.6 % |
| Adjusted EPRA Earnings per share (basic) 3) | EUR | 0.127 | 0.132 | -3.7 % | 0.121 | 5.1 % |
| Q1-Q4/2023 | Q1-Q4/2022 | % | FX Adjusted Q1-Q4/2022 |
FX Adjusted % 4) |
||
| Net rental income | MEUR | 195.7 | 195.1 | 0.3 % | 184.7 | 6.0 % |
| Direct operating profit 2) | MEUR | 164.9 | 166.2 | -0.8 % | 157.0 | 5.0 % |
| EPRA based key figures 2) | ||||||
| EPRA Earnings | MEUR | 109.6 | 113.6 | -3.5 % | 106.3 | 3.1 % |
| Adjusted EPRA Earnings 3) | MEUR | 80.7 | 83.1 | -2.9 % | 75.8 | 6.4 % |
| EPRA Earnings per share (basic) | EUR | 0.651 | 0.676 | -3.7 % | 0.633 | 2.9 % |
| Adjusted EPRA Earnings per share (basic) 3) | EUR | 0.479 | 0.495 | -3.1 % | 0.451 | 6.3 % |
1) Standing portfolio key figures include only income and expenses from investment properties that were on group balance sheet on 31 December 2023. The portfolio is the same in the reporting period and in the comparison period, hence the numbers are comparable. Lippulaiva (opened on the 31st of March 2022) is included in the standing portfolio.
2) Citycon presents alternative performance measures according to the European Securities and Markets Authority (ESMA) guidelines. More information is presented in Basis of Preparation and Accounting Policies in the notes to the accounts.
3) The key figure includes hybrid bond coupons and amortized fees.
4) Change from previous year (comparable exchange rates). Change-% is calculated from exact figures.
KEY FIGURES
| Citycon Group 1) | Q4/2023 | Q4/2022 | % | FX Adjusted Q4/2022 |
FX Adjusted % 2) |
|
| Net rental income | MEUR | 50.6 | 51.2 | -1.3 % | 48.7 | 3.9 % |
| Like-for-like net rental income development | % | 5.3 % | 11.9 % | - | - | - |
| Direct operating profit 3) | MEUR | 41.7 | 45.1 | -7.6 % | 42.7 | -2.4 % |
| IFRS Earnings per share (basic) 4) | EUR | -0.88 | -0.50 | -75.8 % | -0.46 | -89.6 % |
| Fair value of investment properties | MEUR | 3858.2 | 4040.1 | -4.5 % | - | - |
| Loan to Value (LTV) 3) | % | 46.3 | 41.4 | 11.8 % | - | - |
| EPRA based key figures 3) | ||||||
| EPRA Earnings | MEUR | 28.7 | 32.5 | -11.9 % | 30.5 | -6.0 % |
| Adjusted EPRA Earnings 5) | MEUR | 21.5 | 24.8 | -13.4 % | 22.8 | -5.6 % |
| EPRA Earnings per share (basic) | EUR | 0.169 | 0.194 | -12.5 % | 0.181 | -6.6 % |
| Adjusted EPRA Earnings per share (basic) 5) | EUR | 0.127 | 0.148 | -14.0 % | 0.136 | -6.2 % |
| EPRA NRV per share 6) | EUR | 9.30 | 11.01 | -15.5 % | - | - |
| Citycon Group 1) | Q1-Q4/2023 | Q1-Q4/2022 | % | FX Adjusted Q1-Q4/2022 |
FX Adjusted % 2) |
|
| Net rental income | MEUR | 195.7 | 203.6 | -3.9 % | 192.3 | 1.7 % |
| Like-for-like net rental income development | % | 6.5 % | 6.6 % | - | - | - |
| Direct operating profit 3) | MEUR | 164.8 | 175.2 | -5.9 % | 165.0 | -0.1 % |
| IFRS Earnings per share (basic) 4) | EUR | -0.70 | -0.15 | - | -0.14 | - |
| Fair value of investment properties | MEUR | 3858.2 | 4040.1 | -4.5 % | - | - |
| Loan to Value (LTV) 3) | % | 46.3 | 41.4 | 11.8 % | - | - |
| EPRA based key figures 3) | ||||||
| EPRA Earnings | MEUR | 109.6 | 122.6 | -10.7 % | 114.5 | -4.3 % |
| Adjusted EPRA Earnings 5) | MEUR | 80.6 | 92.1 | -12.5 % | 83.9 | -3.9 % |
| EPRA Earnings per share (basic) | EUR | 0.651 | 0.730 | -10.8 % | 0.681 | -4.4 % |
| Adjusted EPRA Earnings per share (basic) 5) | EUR | 0.479 | 0.548 | -12.6 % | 0.499 | -4.1 % |
| EPRA NRV per share 6) | EUR | 9.30 | 11.01 | -15.5 % | - | - |
1) The numbers include the sale of four investments properties during the previous year
2) Change from previous year (comparable exchange rates). Change-% is calculated from exact figures.
3) Citycon presents alternative performance measures according to the European Securities and Markets Authority (ESMA) guidelines. More information is presented in Basis of Preparation and Accounting Policies in the notes to the accounts.
4) The key figure includes hybrid bond coupons, amortized fees and gains and expenses on hybrid bond repayments.
5) The key figure includes hybrid bond coupons and amortized fees.
6) The effect of currency rates to EPRA NRV/share was EUR -0.47.
OUTLOOK FOR 2024
| Direct operating profit | MEUR | 185 – 203 |
| EPRA Earnings per share (basic) | EUR | 0.62– 0.74 |
| Adjusted EPRA Earnings per share (basic) | EUR | 0.46–0.58 |
The outlook assumes that there are no major changes in macroeconomic factors and no major disruptions from the war in Ukraine. These estimates are based on the existing property portfolio, including Kista 100%, as well as on the prevailing level of inflation, the EUR–SEK and EUR–NOK exchange rates, and current interest rates.
AUDIOCAST
Citycon's investor, analyst and press conference call and live audiocast will be organized on Friday, 16 February 2024 at 10:00 a.m. EET. The audiocast can be participated by calling in and followed live on the following website: https://citycon.videosync.fi/q4-2023
Questions for the management can be presented by phone. To ask questions, join the teleconference by registering on the following link: https://palvelu.flik.fi/teleconference/?id=50048749
After the registration you will be provided with phone numbers and a conference ID to access the conference. To ask a question, press *5 on your telephone keypad to enter the queue.
The audiocast will be recorded and it will be available afterwards on Citycon’s website.
CITYCON OYJ
For further information, please contact:
Sakari Järvelä
Chief Financial Officer
Telephone +358 50 387 8180
[email protected]
Citycon is a leading owner, manager and developer of mixed-use real estate featuring modern, necessity-based retail with residential, office and municipal service spaces that enhance the communities in which they operate. Citycon is committed to sustainable property management in the Nordic region with assets that total approximately EUR 4.0 billion. Our centres are located in urban hubs in the heart of vibrant communities with direct connections to public transport and anchored by grocery, healthcare and other services that cater to the everyday needs of customers.
Citycon has investment-grade credit rating from Standard & Poor's (BBB-). Citycon’s shares are listed on Nasdaq Helsinki Ltd.
www.citycon.com