Citycon Oyj's Interim Report Q1/2023: Indexation driving strong like-for-like NRI growth and positive fair value change alongside increased liquidity with refinancing and expansion of credit facility

Citycon Oyj   Interim Report   4 May 2023 at 21:45 hrs

Strong operational performance

• Like-for-like rental income increased by 9.4% compared to the previous year, led by the indexation.
  • In comparable FX rates, standing net rental income increased by 8.7%
• The weakening NOK and SEK FX-rates impacted on our results; the impact on total net rental income was EUR -2.4 million.
• Average rent per sq.m. increased by EUR 1.6 with comparable FX to EUR 24.4 per sq.m.
  • With actual FX the average rent per sq.m. increased by EUR 0.7.
• Retail occupancy 95.4% vs 95.1% in Q1/2022.
• Like-for-like footfall increased 7.6%.
• Like-for-like tenant sales increased 6.2%; 7.9% higher than in Q1/2019 (pre-pandemic level)​.
• Leasing spreads increased 0.5%.
• Fair value change of investment properties in Q1/2023 EUR 44.7 million, excluding Kista.

Continued balance sheet strengthening

• In Q1, Citycon repurchased EUR 22.5 million of notional bonds in the open market with approx. EUR 21.7 million of cash.
  • Additionally, in January 2023, Citycon tendered in EUR 57.4 million of notional 2024 bond and hybrid bonds issued in 2019 and 2021 with approx. EUR 41.4 million of cash.
• S&P affirmed Citycon’s investment grade credit rating (BBB-/with stable outlook) highlighting Citycon’s strong operating performance and stable credit metrics.

Refinancing and expansion of revolving credit facility

• New EUR 650 million credit facility signed to replace and expand existing EUR 500 million credit facility maturing in June 2024.
  • Consists of EUR 400 million revolving credit facility and EUR 250 million term loan.
• Matures in 2026 with a 1-year extension to 2027.
• Bank group expanded to six; existing five Nordic lenders plus additional international lender.
• Term loan proceeds will be used to repay near-term maturities.

KEY FIGURES

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

1) The numbers include the sale of four investments properties during the last 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) Highly liquid cash investments has been taken into account in net debt.
7) The effect of currency rates to EPRA NRV/share was EUR -0.61.

CEO, F. SCOTT BALL:

The first quarter of 2023 provided strong operational results, which were impacted by the translation of both SEK and NOK FX -rates to euro. The strong operating results included like-for-like net rental income, which increased 9.4% in Q1/2023 over the same time last year.  This was a result of indexation (6.8% on average) and bolstered by strong tenant sales and footfall as like-for-like metrics improved 6.2% and 7.6%, respectively.  Our retail occupancy climbed to 95.4% (Q1/2022: 95.1%), while leasing spreads kept pace with indexation. The combination of these factors resulted in an increase in average rent per sqm, with comparable FX, of EUR 1.6 to EUR 24.4.  Our tenants, the majority of whom are grocery, necessity-based and municipal tenants, benefitted from the growth in sales and footfall, while providing our portfolio with consistency and stability due to their high credit worthiness.

In comparable FX, standing NRI was up 8.7% in Q1/2023 compared to Q1/2022, while Direct Operating Profit improved 7.5% and adjusted EPRA EPS 9.0% in the first quarter. The decline in NOK and SEK versus the EUR are near historical lows and negatively impacted our net rental income by 2.4 million. However, the underlying business of our assets remain strong as evidenced by our operational results and increased asset values during the quarter, resulting in a EUR 44.7 million fair value gain in our investment properties over Q4/2022. 

As it relates to the balance sheet, we are very pleased to announce the refinancing and expansion of our credit facility, which was due in June 2024.  This new, sustainability-linked facility matures in 2026 with the potential for an extension to 2027 and has expanded from EUR 500 million to EUR 650 million, consisting of a EUR 400 million revolver and EUR 250 million term loan, the proceeds of which will be used to continue to address our near-term maturities.  The facility is secured by Iso Omena and four Norwegian assets at current market valuations and carries attractive terms that provide for continued financial flexibility.  All five current Nordic lenders increased their commitments, while a sixth international bank was added to further strengthen the banking group.  This credit facility expansion is an important milestone for our financing plan and commitment to remaining investment grade as it confirms lender understanding of the stability of our business model, provides a transaction record to support current valuations, and provides ample liquidity to continue to improve our maturity schedule and our balance sheet. 

To that end, we continued to remain active in repurchasing debt in the first quarter.  As noted in our year-end 2022 update, we executed a tender to repurchase a combination of senior and hybrid bonds. In that transaction, we deployed EUR 41.4 million of cash to repurchase EUR 57.4 million of notional bonds. In addition, we continued repurchasing bonds in the open market in the first quarter and repurchased EUR 22.5 million of notional 2024 bond for approx. EUR 21.7 million of cash and a yield of approx. 4%. Through these actions, we continue to mitigate the earnings impact of higher current market interest rates, while also improving our overall balance sheet.  We were encouraged that the rating agencies took note of our balance sheet activities as S&P reaffirmed our investment grade credit rating and outlook of BBB-/stable in April.

In addition, we continue our efforts on our remaining, non-core asset sale target of approx. EUR 380 million – reflecting the EUR 120 million of assets we sold in December 2022 – and have confidence that we will meet that target by the end of 2024, particularly as the debt markets improve for potential buyers and as evidenced by the success of the placement of the term loan we have just announced.

We opened the remaining three residential towers in Lippulaiva in the first quarter of 2023 and are pleased with their leasing progress. These residential units will create additional demand for the property and diversify Citycon’s revenue streams. In addition, and subsequent to quarter end, we have decided to temporarily close Torvbyen, a small non-core asset in Norway, as a precautionary measure due to an investigation into movement in the building. While we do not have the full scope of the remediation plan or timeline for the asset to remain closed, our team is working diligently on the ground to address the issue.

In summary, the first quarter was one of the strongest operationally in the company’s history and the underlying business continues to perform exceptionally well, despite negative impacts from both the NOK and SEK currencies in the first quarter. While macroeconomic uncertainties remain, our strategy of owning necessity-based, mixed-use assets with excellent access to transportation in the largest and fastest Nordic cities will continue to produce solid results for the rest of 2023 and in the years to come.  As a result of this outlook and our Q1/2023 performance, we are reaffirming our 2023 guidance.

OUTLOOK (unchanged)

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 year-end 2022 estimates of inflation, EUR–SEK and EUR–NOK exchange rates, and interest rates.

AUDIOCAST

Citycon's investor, analyst and press conference call and live audiocasting will be held on Friday, 5 May 2023 at 10 am EEST. The audiocast can be participated by calling in and following live at this  website: https://citycon.videosync.fi/q1-2023/

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=10010527

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
Telephone +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 4.2 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