Citycon Oyj

Good morning and welcome Citicon's Q1 result webcast. My name is Valtteri Piri and I'm working as Legal and Investor Relations Manager here in Citicon. Today with me, we have our CEO, Henrika Jindström and CFO, Sakari Järvelä. They will now present the key highlights from the first quarter. And after that, we open the line for the questions. Henrika, please go ahead.

Thank you, Valtteri. I'm also on my behalf to this Q1 results webcast. I want to start by presenting the new senior management team in Citigon. I'm both excited and grateful for the opportunity to serve as the CEO of Citigon. During my 13 years in the company, I've had the privilege to be part of Citigon's journey to become the leading owner and developer of urban hubs in the Nordics and Baltics. Together with me, developing Citigon for the future, I have a strong and experienced team. Sakari started as the CFO in February and Helen and Jusse started in their respective roles in April. All internal recruitments. This is a group with varied backgrounds in the areas of financing, retail operations and investments. And I believe this is exactly the qualities we need in the company. As the new CEO, I want to start by highlighting that we continue to stay committed to our long-stated necessity-based strategy, where we focus on high-quality assets in strong, growing urban markets in the major Nordic cities. Our centres are connected to public transportation, and we focus on necessity-based retail and essential services. With this, we address the everyday needs of our communities. This type of retail promotes the daily traffic to our properties, and it creates stability throughout the cycles. During the last five years, Citigon has actively been evolving the tenant mix, where we have been increasing the share of groceries, municipal tenants and other day-to-day services. And I believe we are at the forefront of this development, de-risking our business. Today, 45% of Citigon's tenants are necessity-based, and importantly, the public tenants represent more than 7% of our GRI. In this chart, it's good to note that the groceries and service tenants pay higher rent on average than the fashion tenants, and also they have longer maturities, and the investment needs are usually significantly smaller over time as we compare to the faster changing fashion concepts. And then to the Q1 performance. Operational performance in January to March 24 was strong, with like-for-like net rental income increasing by 6.5%, supported by rent indexations and also strong performance in our core assets. Like-for-like tenant sales increased 3% as the sales development continued strong, especially in our main tenant categories. We saw a decline only in the fashion and home and sporting goods segments, but groceries, our main segment, grew by 5%. Footfall was flat over last year, but that was partially also impacted by the timing of Easter. And fair values were stable in all countries, but we did note a gain in the consolidation of the Chista acquisition of 46 million euros. Average rents increased for 0.1%, and we have been able to push through full indexations also this year. And on top of that, also, we have had a small positive leasing spread. And it's good to know that the occupancy cost ratio remains at the low level, and that demonstrates the healthiness of our tenants, but also the increasing tenant sales. Occupancy decreased slightly from year end due to normal seasonal variation as the beginning of the year is usually slower, but more importantly when you compare to last year, occupancy increased and we are expecting also occupancy to move up during the year. And then to the balance sheet side, a key focus area for us. I would like to highlight Citicom's commitment to the investment grade credit rating. We demonstrated this commitment during this quarter when we executed a 48 million euro share issue. This action was necessary to address the elevated LTV and secure our credit rating. Also, we had to act very quickly and we decided that a direct share issue was the best option for the company and for all shareholders. Following that, we did a very successful 300 million euro green bond issuance. And at the same time, we tendered back 200 million euros of the bonds maturing in 24. And this was another very important transaction where we addressed our main near-term debt maturities. And more recently, after the quarter end, we have extended our debt maturities further to reduce the refinancing risk. And Sakari will comment on this in more detail shortly. And in connection with the financial statements 24, we, 23, we outlined the targets regarding asset disposals and cost savings measures with the main goal of strengthening our balance sheet and cash flows. And we announced yesterday in the financial statements the divestment of Concentret in Norway, very close to book value. The book value was approximately 30 million euros. And this shows that the transaction market is picking up and that the sellers and buyers prices are coming closer. We are committed to our announced divestment target and following the recent divestment the remaining target for this year is approximately 350 million euros. We have several active ongoing discussions in excess of this amount and we are working with the prospective buyers. Erik and his team are fully dedicated to the process and we are confident that some of these negotiations will lead into the signed deals and we will keep you informed. During the beginning of the year, we have executed several cost savings measures. Through organizational changes and consolidation of group functions to our ISOM and our head office, we have been able to reduce our headcount costs substantially. Earlier this week, we also announced outsourcing of certain financial functions to create flexibility and efficiencies. We are committed to delivering on our overhead run rate target of less than 10% of NRI by the end of this year. And this corresponds to a run rate GNA of approximately 8 to 10 million euros less than in 2023. And these changes resulted in some reorganization and one-time costs, as you could note in our Q1 admin costs. ESG is a key cornerstone in how we are operating our business and Citigroup was recognized as European climate leader again for the fourth consecutive year. And I think this reflects our commitment and is a testament to our efforts, to the efforts of our whole team. And we are also a Nordic leader with sustainable financing. We have over one billion green issuances and all our recent bonds and loans have been in green format or sustainability linked. Our work at Lippulaiva is a great example of how sustainability can be integrated into our operations, demonstrating how environmental responsibility is an integral part of our business strategy. And with that, I will now turn over to Sakari to review the financial performance.

Thank you, Henrika, and welcome also on my behalf. Financially, we can report another solid quarter, with net rental income growing 6.7% or 8.2% in constant currencies. It should be noted, though, that as we consolidated Shista Galleria at the end of February, the first quarter includes one month of income from Shista. This added approximately 1 million euros to the NRI that was not there in the previous year. This impact, among others, is adjusted for in the like-for-like NRI, which grew by 6.5%. As already noted by Henrika, this is a year of restructuring for Citicon, which means we will be incurring one-time restructuring costs throughout the year, mainly during the first half. We already booked a total of 4.3 million euros of restructuring and other one-time costs in the first quarter, negatively impacting our direct operating profit and EPRA earnings, which declined 1.1% compared to last year. To present a better view of the underlying earnings performance, we have for this year changed the calculation method for adjusted EPRA earnings, which is now reported excluding the one-time costs. Importantly, we have not restated the historical adjusted upper earnings numbers accordingly, so it is not directly comparable to last year's level, and hence the reported 27.4% growth rate in Q1 does not reflect a like-for-like comparison. Just as a rough guidance, if we had restated 2023, the growth rate in adjusted upper earnings would have been around 10% or around 5% per share. On this slide, we show a more detailed breakdown of changes in net rental income from last year to this year. As you can see, our like-for-like properties and redevelopment project added a total of 3.6 million euros compared to Q1 last year. And as mentioned on previous slide, the one month of Sista added another 1 million. This positive 4.6 million growth was partly offset by some negative items, mainly still coming from the closed Torbjörn Center in Norway. Also, the Swedish and Norwegian kronors again weakened in the first quarter, which continued to impact our NRI negatively. Similarly, on this slide, we show the development of EPRA earnings. Apart from the 3.9 million positive NRI change shown in the previous slide, there are two notable items affecting earnings. First, the G&A costs were 1.7 million euros higher compared to last year, driven by the reorganization costs and other one-time items. Also, the net financial expense was 2.8 million euros higher compared to last year. This, in turn, follows partly from the increased interest rates on the debt we have refinanced during the last 12 months, and also partly from the consolidation of Sister Galleria, which added more debt into our balance sheet. The valuations were relatively uneventful in this first quarter as the total value of our asset portfolio remained largely stable. The positive 46.2 million increase in our total asset values resulted fully from the acquisition of 50% of Shista Galleria at the large discounted bulk value. The rest of the portfolio recorded flat fair values. We've reported an EPRA NRV of 8.96 per share down from 10.78 last year. 20 cents of this change was due to weaker currencies and all per share items were negatively affected by the increased share count by approximately 12 million shares during the first quarter. On the funding side though, the first quarter was in turn very eventful. First, we completed a directed share issue of approximately 48 million euros or 11.9 million shares to institutional investors. We have commented on this transaction extensively over the last months, but I would still like to emphasize, as Henrika did before, that the driver for the issue was concern expressed about our reported credit metrics after our Q4 report. We remain fully committed to our investment grade rating and hence we wanted to act swiftly and decisively to protect our rating. The issue in itself was very successfully executed and we received wide support from existing and new shareholders, which we were extremely pleased about. In March, following the equity issue, we issued a new 300 million five-year green euro bond with a simultaneous tender offer for the October 2024 euro bond maturity. This was another very important and very successful transaction, taking out the near-term refinancing risk and extending our average debt maturities. The weighted average maturity is another very important credit metric for us right now, and we have been putting an increased focus on improving it. Last night and this morning, we announced several important actions to this end. First, we have recently completed extensions of over 850 million of loans. We exercised the one-year extension option in our 650 million euro credit facility, pushing the tenor back to three years. Also, we completed a full renegotiation and extension of the approximately 206 million euro term loan, which we consolidated with Shista Galleria. This loan was due to mature next year, but has now been extended to five years. Finally, we are today launching a make-hold process to repay the remaining outstanding amount of the October 2024 bond maturity, which now completes the refinancing of the originally 550 million euro bond in October, which is a real milestone for us. On slide 17, you can see the impact of the loan extensions where the bulk of the maturities has now been pushed to year 2027 and beyond. Also, as we clear the remaining part of the 2024 October bond, we will not have any debt maturities before the end of 2025. Following these extensions, we increase our weighted average maturity to 3.4 years above the three-year trigger that S&P is monitoring. Our total available liquidity is strong at 535 million and share of secured loans from our total debt remains relatively low at 26%, with some further remaining capacity to access secured loan market if needed. Our core credit metrics weakened somewhat this quarter, mainly due to the consolidation of Shista and weaker currencies, which offset the positive effect coming from the equity issue. There is also a slight seasonal effect in cash flows, which typically make Q1 ratios slightly weaker. We are of course working actively to turn this trend and expect all the core ratios to improve by year end, mainly driven by the divestments. As discussed before, the average interest rate is also increasing mainly due to the refinancings we have undertaken over the last 12 months and the Shista loan added to our balance sheet. We are reaffirming the financial guidance for the full year 2024, which we gave in February, keeping the ranges unchanged. I would note at this point that the guidance is based on year-end 2023 exchange rates. But at this early point in the year, we are not yet giving any indications on what the expected FX impact would be for the full year. Also, I can confirm that the guidance for adjusted EPRA earnings is set based on the new calculation method, which excludes reorganization costs and other one-time items. With that, I can complete our presentation and open up for questions. Operator, please go ahead.