Citycon financial statements release 2022: Strong like-for-like NRI growth and profit performance; 2023 guidance midpoints initiated above consensus estimates

Citycon Oyj   Stock exchange release 16 February 2023 at 20:25 hrs

CITYCON RESULTS SUMMARY:

Continued operational performance

Q4/2022

• Like-for-like net rental income in Q4 increased 11.9% compared to the previous year
• Like-for-like footfall increased 3.7%
• Like-for-like tenant sales in Q4 increased 0.4%; 5.7% higher than the same period in Q4/2019 (pre-pandemic level)​

Q1-Q4/2022

• Like-for-like net rental income increased 6.6%
• Like-for-like footfall increased 9.7%
• like-for-like tenant sales increased 5.2% compared to previous year and 6.2% compared to Q1-Q4/2019 (pre pandemic level)
• Q1-Q4/2022, total average rent per sq.m. increased by EUR +1.1 to EUR 23.7 per sq.m through the combination of indexation and positive leasing spread of 2.0%
  • (Indexation is calculated at the end of each year so 2023 will benefit from 2022 inflation levels)

Divestments continued

• In Q4/2022 Citycon sold two non-core centres in Norway for approximately EUR 120.8 million.
  • EUR 380 million remaining of stated 24-month disposition target of EUR 500 million of non-core assets.
• In 2022, Citycon sold in total 4 non-core assets in Norway for approx. EUR 266 million.
  • Demonstrated liquidity of necessity-based Nordic retail assets
  • Sold at approximately book value
  • Asset sale proceeds used to repay debt

Strengthening the balance sheet remains a key priority

• In December, Citycon repurchased EUR 4 million of notional bonds in the open market with approx. EUR 3.8 million of cash
• In 2022, Citycon repurchased EUR 112.3 million of notional bonds with approx. EUR 102.5 million of cash
  • average yield of 4.9%.
• In January 2023, Citycon tendered in total EUR 57.4 million of notional 2024 bond and hybrid bonds issued in 2019 and 2021 with approx. EUR 41.4 million of cash

CEO, F. SCOTT BALL:

I am very pleased to report a strong finish to 2022 as our strategy of creating necessity-based, grocery and municipal anchored urban hubs continued to produce excellent results for both the fourth quarter and the full-year that met and exceeded our guidance.

Operationally, like-for-like net rental income increased 11.9% in Q4 and 6.6% in 2022 compared to the previous year. We were pleased to see continued strong demand for our centres from both new and existing tenants, as evidenced by our excellent leasing activity with over 174,000 sq.m. of signed leases in 2022 with positive leasing spreads of 2.0%, resulting in retail occupancy up 120 bps to 95.4%. At the same time, average rent per square meter increased by 1.1 EUR to 23.7 EUR/s.qm. during the year.

We continue to see very strong growth in both footfall and tenant sales. In 2022, like-for-like tenant sales increased by 5.2% and footfall 9.7% compared to the previous year. Notably, tenant sales are already 6.2% above 2019 levels, again highlighting the quality and attractiveness of Citycon´s grocery- and municipal-anchored centres and their resilience during the pandemic

On the transaction front, for the full year, we sold four non-core assets for EUR 266 million at approximately book value, which provides further evidence of the attractiveness and desirability of necessity-based, inflation protected Nordic retail assets to institutional investors. We continued to demonstrate the inherent value and liquidity of Citycon´s portfolio. In December, we sold two additional non-core assets in Norway for EUR 120.8 million. This transaction represents the first tranche of the asset sale target that we announced in November, to sell EUR 500 million of non-core assets over the next 24 months.  With these recent divestments, our remaining disposition target now stands at approximately EUR 380 million. Further, these sales also bolster the validity of our underlying portfolio asset values, particularly given that these transactions were for non-core properties.

Despite challenging macroeconomic headwinds, the market valuation for our income producing assets remained relatively static.  Independent appraisers marked a slight decline of EUR 0.8 million for the consolidated portfolio, excluding Torvbyen (a small non-core asset in Norway) which was marked down EUR 15.9 million in Q4 as a result of a closure for structural damage.  When including maintenance capex and IFRS 16 adjustments the decline excluding Torvbyen was only approximately EUR 40 million or 1.0%.  It is clear that while there were few comps for appraisers to use in determining values, the fact that the company sold 4 assets over the year at values approximating book value underscored the fact that this portfolio remains attractive to asset level investors.

Phase 1 of Lippulaiva (our newest asset), which opened in March 2022, generated strong operational results in its first nine months with retail occupancy at 96%. Notably, grocery stores account for approximately 45% of the tenant mix with necessity goods representing over 70% of Lippulaiva’s 44,000 sq.m. of gross leasable area. Lippulaiva is a true testament to Citycon’s strategy of recycling and redeploying capital into high quality, irreplaceable assets in growing urban areas.  The centre is built on a brand-new metro station, which opened in early December 2022. It was the world’s first retail centre to be awarded smart building’s gold certificate, due to it being carbon neutral and a shining example of our commitment to sustainability.  In addition to the retail offerings, the first residential tower at Lippulaiva opened in late December 2022 and the remaining three towers in the first quarter of 2023. This will create additional demand for the property and diversified revenue streams for the company. We are very pleased with how Lippulaiva has been received by the local community and are confident that it will continue to develop into the social and commercial hub of the area. It is also important to note that, following the completion of Lippulaiva centre and the residential towers, we now have minimal capital commitments in 2023 and anticipate our annual capital expenditures to be materially lower in 2023 than prior years.

In addition to demonstrating strong private market demand for retail assets, we continued our disciplined capital allocation by using sales proceeds to repurchase our bonds and take advantage of the large discounts and dislocation in the secondary markets. Through these actions we reduced our future interest expense, while also improving our overall balance sheet and debt profile. During 2022, Citycon repurchased EUR 112.3 million of notional bonds for approx. EUR 102.5 million of cash at an average yield of 4.9%. Subsequent to year-end, we launched a public tender to repurchase a combination of our hybrid bonds and our bond maturing in October 2024. In that transaction, we deployed EUR 41.4 million of cash to repurchase EUR 57.4 million of notional bonds, resulting in a cash savings of EUR 16.0 million to par and annual cash interest savings of EUR 2.1 million.

We are committed to maintaining our investment-grade balance sheet, and have a strong and flexible financial position with no significant near-term maturities until the end of 2024, and 100% of our assets unencumbered. This position of strength provides various levers we can pull to execute our strategy and continued portfolio transformation to core, necessity-based centres with organic opportunities for growth. As evidenced by our actions in 2022 and in the early part of 2023, further strengthening our balance sheet and credit metrics remains a top priority.

Our unique assets function as last mile logistics centres for the delivery of daily goods and services for our communities in the largest cities in the Nordics combined with direct connections to public transportation. Our mix of high credit tenants are less reliant on consumer discretionary spending, which provides a level of resilience and stability reflected in our results that bode well as we look forward into 2023. We are well positioned operationally with a proven stable business model that has performed well regardless of macroeconomic pressures. This combination is enhanced by the fact that 93% of our leases are linked to indexation and stand to benefit in 2023. This provides meaningful organic growth for net rental income, which is reflected in the outlooks we are providing today. We also have the benefit of having a low occupancy cost ratio of 9.1 %, and increasing tenant sales in an inflationary environment. This positions Citycon to increase rents and service charges without jeopardizing our tenants’ ability to continue to run profitable businesses. Further, we will benefit from a full-year of Lippulaiva being open, in addition to starting to benefit from the residentials which are coming online early this year.

Taken together, these factors give us confidence that 2023 results will continue to build on our strong performance in 2022, even after factoring in the recent Norwegian asset sales late last year.  Our guidance reflects the benefit from inflation as indexation pushes our rents higher not only for 2023, but also future years, the growth of which will compound and grow exponentially. As a result, our estimated outlook is for 2023 direct operating profit to be in range EUR 174–192 million, EPRA EPS EUR 0.69–0.81 and adjusted EPRA EPS EUR 0.51–0.63.

STANDING PORTFOLIO KEY FIGURES 1)

1) Standing portfolio key figures include only income and expenses from investment properties that were on group balance sheet on 31 December 2022. 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.

KEY FIGURES

1) Change from previous year (comparable exchange rates). Change-% is calculated from exact figures.
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) Highly liquid cash investments has been taken into account in net debt.
5) Calculation updated from this and comparison periods. Divided by number of shares at balance sheet date instead of average amount of shares during the reporting period.
6) LTV Q4/2021 changed due to correction related to presentation of IFRS 16 assets. Previously reported LTV for Q4/2021 was 40.7%
7) The effect of currency rates to EPRA NRV/share was EUR -0.79.

OUTLOOK FOR 2023

The outlook assumes that there are no major changes in macroeconomic factors and that there will not be another wave of COVID-19 with restrictions resulting in significant store closures and no major disruptions from the war in Ukraine.  These estimates are based on the existing property portfolio as well as on the prevailing level of inflation, the EUR–SEK and EUR–NOK exchange rates, and current interest rates.

AUDIOCAST

Citycon's investor, analyst and press conference call and live audiocast will be organized on Friday, 17 February 2023 at 2:00 p.m. EET. The audiocast can be participated by calling in and followed live on the following website: https://citycon.videosync.fi/full-year-2022

Questions for the management can be presented by phone. To ask questions, join the teleconference by registering on the following link: http://palvelu.flik.fi/teleconference/?id=10010506

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:
Bret McLeod
Chief Financial Officer
Tel. +46 73 326 8455
bret.mcleod@citycon.com

Sakari Järvelä
VP, Corporate Finance and Investor Relations
Tel. +358 50 387 8180
sakari.jarvela@citycon.com

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 4.3 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 ratings from Moody's (Baa3) and Standard & Poor's (BBB-). Citycon’s shares are listed on Nasdaq Helsinki Ltd.

www.citycon.com